10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number: 0-27488

INCYTE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	94-3136539
(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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ Yes  ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  ☒ Yes  ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐ Yes  ☒ No

The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 188,002,918 as of August 2, 2016.

INCYTE CORPORATION

INDEX

PART I: FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	54
Item 4.	Controls and Procedures	54
PART II: OTHER INFORMATION		54
Item 1A.	Risk Factors	54
Item 6.	Exhibits	73
	Signatures	74
	Exhibit Index	75

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PART I:    FINANCIAL INFORMATION

Item 1.    Financial Statements

INCYTE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares and par value)

	June 30,		December 31,
	2016		2015*
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	487,654	$	521,439
Marketable securities—available-for-sale		141,537		186,344
Restricted cash and investments		16		516
Accounts receivable		129,486		114,450
Inventory		6,124		1,783
Prepaid expenses and other current assets		27,313		17,843
Total current assets		792,130		842,375
Restricted cash and investments		922		13,977
Long term investment		31,444		35,248
Inventory		15,540		17,555
Property and equipment, net		138,513		86,006
Other intangible assets, net		269,205		—
In-process research and development		12,000		—
Goodwill		155,725		—
Other assets, net		2,496		12,279
Total assets	$	1,417,975	$	1,007,440
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	40,724	$	30,085
Accrued compensation		31,545		38,117
Interest payable		762		762
Accrued and other current liabilities		102,184		86,531
Deferred revenue—collaborative agreements		6,083		12,512
Acquisition-related contingent consideration		17,688		—
Total current liabilities		198,986		168,007
Convertible senior notes		635,491		619,893
Acquisition-related contingent consideration		276,312		—
Other liabilities		10,123		48,385
Total liabilities		1,120,912		836,285
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding as of June 30, 2016 and December 31, 2015		—		—
Common stock, $0.001 par value; 400,000,000 shares authorized; 187,865,985 and 186,650,249 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively		188		187
Additional paid-in capital		2,016,728		1,950,764
Accumulated other comprehensive income (loss)		662		(809)
Accumulated deficit		(1,720,515)		(1,778,987)
Total stockholders’ equity		297,063		171,155
Total liabilities and stockholders’ equity	$	1,417,975	$	1,007,440

*   The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date.

See accompanying notes.

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INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Revenues:
Product revenues, net	$	212,116	$	142,406	$	395,383	$	257,736
Product royalty revenues		25,958		17,364		47,860		33,037
Contract revenues		8,214		3,214		66,429		31,429
Other revenues		—		—		80		58
Total revenues		246,288		162,984		509,752		322,260
Costs and expenses:
Cost of product revenues (including definite-lived intangible amortization)		12,367		6,254		18,372		9,229
Research and development		120,269		112,445		277,092		230,809
Selling, general and administrative		66,792		51,679		131,390		96,548
Change in fair value of acquisition-related contingent consideration		2,271		—		2,271		—
Total costs and expenses		201,699		170,378		429,125		336,586
Income (loss) from operations		44,589		(7,394)		80,627		(14,326)
Interest and other income, net		1,137		1,144		2,630		2,773
Interest expense		(9,662)		(11,494)		(19,796)		(24,181)
Unrealized gain (loss) on long term investment		(854)		27,174		(3,804)		27,174
Income (loss) before provision for income taxes		35,210		9,430		59,657		(8,560)
Provision for income taxes		785		136		1,185		503
Net income (loss)	$	34,425	$	9,294	$	58,472	$	(9,063)
Net income (loss) per share:
Basic	$	0.18	$	0.05	$	0.31	$	(0.05)
Diluted	$	0.18	$	0.05	$	0.30	$	(0.05)
Shares used in computing  net income (loss) per share:
Basic		187,682		178,676		187,433		175,373
Diluted		193,015		186,493		192,820		175,373

See accompanying notes.

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INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Net income (loss)	$	34,425	$	9,294	$	58,472	$	(9,063)
Other comprehensive income (loss):
Foreign currency translation		105		—		94		—
Unrealized gain (loss) on restricted investments and marketable securities, net of tax		(49)		(309)		990		134
Reclassification adjustment for realized loss on marketable securities		—		—		178		—
Defined benefit pension obligation, net of tax		209		—		209		—
Other comprehensive income (loss)		265		(309)		1,471		134
Comprehensive income (loss)	$	34,690	$	8,985	$	59,943	$	(8,929)

See accompanying notes.

5

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended
	June 30,
	2016		2015
Cash flows from operating activities:
Net income (loss)	$	58,472	$	(9,063)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		23,908		23,101
Stock-based compensation		42,071		35,150
Other, net		251		—
Unrealized loss (gain) on long term investment		3,804		(27,174)
Excess tax benefit from stock-based compensation		—		(2,073)
Change in fair value of acquisition-related contingent consideration		2,271		—
Changes in operating assets and liabilities:
Accounts receivable		(2,818)		(17,189)
Prepaid expenses and other assets		(7,460)		946
Inventory		1,682		(1,009)
Accounts payable		8,883		4,700
Accrued and other liabilities		(9,528)		7,866
Deferred revenue—collaborative agreements		(6,429)		(6,451)
Net cash provided by operating activities		115,107		8,804
Cash flows from investing activities:
Acquisition of business, net of cash acquired		(144,845)		—
Long term investment		—		(39,829)
Capital expenditures		(87,776)		(5,749)
Purchases of marketable securities		(17,795)		(80,212)
Sale and maturities of marketable securities		63,892		40,524
Net cash (used in) investing activities		(186,524)		(85,266)
Cash flows from financing activities:
Restricted investments, net		13,987		(273)
Proceeds from issuance of common stock under stock plans		24,105		62,958
Direct financing arrangements repayments		(445)		(912)
Excess tax benefit from stock-based compensation		—		2,073
Net cash provided by financing activities		37,647		63,846
Effect of exchange rates on cash and cash equivalents		(15)		—
Net decrease in cash and cash equivalents		(33,785)		(12,616)
Cash and cash equivalents at beginning of period		521,439		452,297
Cash and cash equivalents at end of period	$	487,654	$	439,681
Supplemental Schedule of Cash Flow Information
Interest paid	$	3,892	$	1,670
Income taxes paid	$	229	$	83
Reclassification to additional paid in capital in connection with conversions or exchange of 4.75% convertible senior notes due 2015	$	—	$	45,327
Reclassification to common stock and additional paid in capital in connection with conversions of 1.25% convertible senior notes due 2020	$	4	$	—

See accompanying notes.

6

INCYTE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

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) and ICLUSIG® (ponatinib). Our operations are treated as one operating segment.

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 June 30, 2016 and the condensed consolidated statements of operations, comprehensive income (loss) and cash flows for the three and six months ended June 30, 2016 and 2015, 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, 2015 has been derived from audited financial statements.

On June 1, 2016, we acquired (the “Acquisition”), pursuant to a Share Purchase Agreement dated as of May 9, 2016 (the “Share Purchase Agreement”), all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l., since renamed Incyte Biosciences Luxembourg S.a.r.l., the parent company of certain European subsidiaries of ARIAD Pharmaceuticals, Inc. (“ARIAD”).  Refer to Note 3 for further information regarding the Acquisition.

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, 2015.

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.

Acquisitions.  Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions.  Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.  Transaction costs are expensed as incurred.  The operating results of the acquired business are reflected in our consolidated financial statements after the date of acquisition. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use.

Foreign Currency Translation. Operations in non-U.S. entities are recorded in the functional currency of each entity. For financial reporting purposes, the functional currency of an entity is determined by a review of the source of an entity's most predominant cash flows. The results of operations for any non-U.S. dollar functional currency entities are translated from functional currencies into U.S. dollars using the average currency rate during each month. Assets and liabilities are translated using currency rates at the end of the period. Adjustments resulting from translating the financial statements of our foreign entities that use their local currency as the functional currency into U.S. dollars are reflected as a component of other comprehensive income (loss). Transaction gains and losses are recorded in interest and other income, net in the condensed consolidated statements of operations.  To date, both the translation gains or losses in other comprehensive income (loss) and the transaction gains or losses in foreign exchange gain (loss) have been immaterial.

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Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Concentrations of Credit Risk.  Cash, cash equivalents, marketable securities, trade receivables and restricted investments are financial instruments which potentially subject us to concentrations of credit risk. The estimated fair value of financial instruments approximates the carrying value based on available market information. We primarily invest our excess available funds in corporate debt securities and, by policy, limit the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued or guaranteed by the U.S. government and money market funds that meet certain guidelines. Our receivables mainly relate to our product sales of JAKAFI, ICLUSIG and collaborative agreements with pharmaceutical companies. We have not experienced any significant credit losses on cash, cash equivalents, marketable securities, trade receivables or restricted investments to date and do not require collateral on receivables.

Cash and Cash Equivalents.  Cash and cash equivalents are held in banks or in custodial accounts with banks. Cash equivalents are defined as all liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash.

Marketable Securities—Available-for-Sale.  All marketable securities are classified as available-for-sale. Available-for-sale securities are carried at fair value, based on quoted market prices and observable inputs, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. We classify marketable securities that are available for use in current operations as current assets on the condensed consolidated balance sheets. Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in “Interest and other income, net.” The cost of securities sold is based on the specific identification method.

Accounts Receivable.  As of June 30, 2016 and December 31, 2015, we had no allowance for doubtful accounts. We provide an allowance for doubtful accounts based on experience and specifically identified risks. Accounts receivable are carried at fair value and charged off against the allowance for doubtful accounts when we determine that recovery is unlikely and we cease collection efforts.

Inventory.  Inventories are determined at the lower of cost or market value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods. We began capitalizing inventory in mid-November 2011 once the U.S. Food and Drug Administration (“FDA”) approved JAKAFI as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to approval of JAKAFI have been recorded as research and development expense in our statements of operations. As a result, cost of JAKAFI revenues for the next 3 to 6 months will reflect a lower average per unit cost of materials. The ICLUSIG inventories acquired on June 1, 2016 in connection with the Acquisition were recorded at fair value less costs to sell, which will result in a higher cost of ICLUSIG revenues for the next twelve months. 

JAKAFI raw materials and work-in-process inventory is not subject to expiration and the shelf life of finished goods inventory is 36 months from the start of manufacturing of the finished goods. ICLUSIG finished goods inventory has a shelf life of 24 months from the start of manufacturing of the finished goods.  We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. We classify inventory as current on the condensed consolidated balance sheets when we expect inventory to be consumed for commercial use within the next twelve months.

Variable Interest Entities. We perform an initial and on-going evaluation of the entities with which we have variable interests, such as equity ownership, in order toidentify entities (i) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support or (ii) in which the equity investors lack an essential characteristic of a controlling financial interest as variable interest entities (“VIE” or “VIEs”). If an entity is identified as a VIE, we perform an assessment to determine whether we have both (i) the power to direct activities that most significantly impact the VIE’s economic performance and (ii) have the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE. If both of these criteria are satisfied, we are identified as the primary beneficiary of the VIE.  As of June 30, 2016, there were no entities in which we held a variable interest which we determined to be VIEs.

Equity Method Investments.  In circumstances where we have the ability to exercise significant influence over the operating and financial policies of a company in which we have an investment, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option under U.S. GAAP.   In assessing whether we exercise significant influence, we consider the nature and magnitude of our investment, any voting and protective rights we hold, any participation in the governance of the other company, and other relevant factors such as the presence of a collaboration or other business relationship. Under the equity method of accounting, we record

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within our results of operations our share of income or loss of the investee company.  Under the fair value option, our investment is carried at fair value on our condensed consolidated balance sheets as a long term investment and all changes in fair value are reported in our condensed consolidated statements of operations as an unrealized gain (loss) on long term investment.

Property and Equipment.  Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of the estimated useful life of the assets or lease term.

Management continually reviews the estimated useful lives of technologically sensitive equipment and believes that those estimates appropriately reflect the current useful life of our assets. In the event that a currently unknown significantly advanced technology became commercially available, we would re-evaluate the value and estimated useful lives of our existing equipment, possibly having a material impact on the financial statements.

Lease Accounting.  We account for operating leases by recording rent expense on a straight-line basis over the expected life of the lease, commencing on the date we gain possession of leased property. We include tenant improvement allowances and rent holidays received from landlords and the effect of any rent escalation clauses as adjustments to straight-line rent expense over the expected life of the lease.

Capital leases are reflected as a liability at the inception of the lease based on the present value of the minimum lease payments or, if lower, the fair value of the property. Assets under capital leases are recorded in property and equipment, net on the condensed consolidated balance sheets and depreciated in a manner similar to other property and equipment.

Certain construction projects may be accounted for as direct financing arrangements, whereby we record, over the construction period, the full cost of the asset in property and equipment, net on the condensed consolidated balance sheets. A corresponding liability is also recorded, net of leasehold improvements paid for by us, and is amortized over the expected lease term through monthly rental payments using the effective interest method.

In April 2016, we completed our purchase of the previously leased land and building of approximately 190,000 square feet of laboratory and office space in Wilmington, Delaware.  Refer to Note 7 for further information regarding the purchase.

Other Intangible Assets, net. Other intangible assets, net consist of licensed intellectual property rights acquired in business combinations, which are reported at fair value, less accumulated amortization. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method.

In-Process Research and Development. The fair value of in-process research and development (“IPR&D”) acquired through business combinations is capitalized as an indefinite-lived intangible asset until the completion or abandonment of the related research and development activities.  When the related research and development is completed, the asset will be assigned a useful life and amortized. 

Impairment of Long-Lived Assets.  Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset.  If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.

Indefinite-lived intangible assets, including IPR&D, are tested for impairment annually in the fourth quarter or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired.  Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of the asset to its carrying value.

Goodwill.  Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed.  Goodwill is not amortized but is tested for impairment at least annually in the fourth quarter at the reporting unit level.  A reporting unit is the same as, or one level below, an operating segment. Our operating segment is currently comprised of a single, entity wide reporting unit.

Income Taxes.  We account for income taxes using the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts reportable for income tax purposes. In addition, we follow the guidance related to accounting for uncertainty in income taxes. This guidance

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creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before it is recognized in the financial statements.

Financing Costs Related to Long-term Debt.  Costs associated with obtaining long-term debt are deferred and amortized over the term of the related debt using the effective interest method. Such costs are presented as a direct deduction from the carrying amount of the long-term debt liability, consistent with debt discounts, on the consolidated balance sheets.

Grant Accounting.  Grant amounts received from government agencies for operations are deferred and are amortized into income over the service period of the grant. Grant amounts received for purchases of capital assets are deferred and amortized into interest and other income, net over the useful life of the related capital assets. Such amounts are recorded in other liabilities on the condensed consolidated balance sheets.

Net Income (Loss) Per Share.  Our basic and diluted net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during all periods presented. Options to purchase stock and shares issuable upon the conversion of convertible debt are included in diluted earnings per share calculations, unless the effects are anti-dilutive.

Accumulated Other Comprehensive Income (Loss).  Accumulated other comprehensive income (loss) consists of realized and unrealized gains or losses on marketable securities and restricted cash and investments, net of tax, foreign currency translation gains or losses, and changes in defined benefit pension obligation, net of tax.

Revenue Recognition.  Revenues are recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until no further obligations exist. We exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenues

Our product revenues consist of U.S. sales of JAKAFI and European sales of ICLUSIG.  Product revenues are recognized once we meet all four revenue recognition criteria described above. In November 2011, we began shipping JAKAFI to our customers in the U.S., which include specialty pharmacies and wholesalers. In June 2016, we acquired the right to and began shipping ICLUSIG to our customers in the European Union and certain other jurisdictions (Note 3), which include retail pharmacies, hospital pharmacies and distributors.

We recognize revenues for product received by our customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S. Product shipping and handling costs are included in cost of product revenues.

Customer Credits:  Our customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts. We expect our customers will earn prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted from total product sales as they are earned.

Rebates and Discounts:  Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program in the U.S. and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers for healthcare. Rebate amounts are based upon contractual agreements or legal requirements with public sector benefit providers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launches. Our estimates for expected utilization of rebates are based on data received from our customers. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Chargebacks:  Chargebacks are discounts that occur when certain contracted customers, which currently consist primarily of group purchasing organizations, Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers. Contracted

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customers generally purchase the product at a discounted price. The wholesalers, in turn, charges back to us the difference between the price initially paid by the wholesalers and the discounted price paid by the contracted customers. In addition to actual chargebacks received, we maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our distribution channel.  If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Medicare Part D Coverage Gap:  Medicare Part D prescription drug benefit mandates manufacturers to fund 50% 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.

Co-payment Assistance:  Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. We accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Royalty Revenues

Royalty revenues on commercial sales for ruxolitinib (marketed as JAKAVI® outside the United States) by Novartis Pharmaceutical International Ltd. (“Novartis”) are based on net sales of licensed products in licensed territories as provided by Novartis. We recognize royalty revenues in the period the sales occur.

Cost of Product Revenues

Cost of product revenues includes all JAKAFI related product costs as well as ICLUSIG related product costs. The acquired ICLUSIG inventories were recorded at fair value less costs to sell in connection with the Acquisition, and will result in a higher cost of ICLUSIG product revenues over the next twelve months.  In addition, cost of product revenues include low single digit royalties under our collaboration and license agreement to Novartis on all future sales of JAKAFI in the United States. Subsequent to the Acquisition on June 1, 2016, cost of product revenues also includes the amortization of our licensed intellectual property for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.    

Contract and License Revenues

Under agreements involving multiple deliverables, services and/or rights to use assets that we entered into prior to January 1, 2011, the multiple elements are divided into separate units of accounting when certain criteria are met, including whether the delivered items have stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. When separate units of accounting exist, consideration is allocated among the separate elements based on their respective fair values. The determination of fair value of each element is based on objective evidence from historical sales of the individual elements by us to other customers. If such evidence of fair value for each undelivered element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value for each undelivered element does exist or until all elements of the arrangement are delivered. When elements are specifically tied to a separate earnings process, revenue is recognized when the specific performance obligation tied to the element is completed. When revenues for an element are not specifically tied to a separate earnings process, they are recognized ratably over the term of the agreement. We assess whether a substantive milestone exists at the inception of our agreements. For all milestones within our arrangements that are considered substantive, we recognize revenue upon the achievement of the associated milestone. If a milestone is not considered substantive, we would recognize the applicable milestone payment over the remaining period of performance under the arrangement. As of June 30, 2016, all remaining potential milestones under our collaborative arrangements are considered substantive.

On January 1, 2011, updated guidance on the recognition of revenues for agreements with multiple deliverables became effective and applies to any agreements we may enter into on or after January 1, 2011. This updated guidance (i) relates to whether multiple deliverables exist, how the deliverables in a revenue arrangement should be separated and how the consideration should be allocated; (ii) requires companies to allocate revenues in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price; and (iii) eliminates the use of the residual method and requires companies to allocate revenues using the relative selling price method. During the six months ended June 30, 2016 and 2015, we did not enter into any agreements that are subject to this updated guidance. If we enter into an agreement with multiple deliverables after January 1, 2011 or amend existing agreements, this updated guidance could have a material effect on our financial statements.

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Our collaborations often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and commercialization events. These three categories of milestone events reflect the three stages of the life-cycle of our drugs, which we describe in more detail in the following paragraphs.

The regulatory review and approval process, which includes preclinical testing and clinical trials of each drug candidate, is lengthy, expensive and uncertain. Securing approval by the FDA requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish a drug candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies. Before commencing clinical investigations of a drug candidate in humans, we must submit an Investigational New Drug application (“IND”), which must be reviewed by the FDA.

The steps generally required before a drug may be marketed in the United States include preclinical laboratory tests, animal studies and formulation studies, submission to the FDA of an IND for human clinical testing, performance of adequate and well-controlled clinical trials in three phases, as described below, to establish the safety and efficacy of the drug for each indication, submission of a new drug application (“NDA”) or biologics license application (“BLA”) to the FDA for review and FDA approval of the NDA or BLA.

Similar requirements exist within foreign regulatory agencies as well. The time required satisfying the FDA requirements or similar requirements of foreign regulatory agencies may vary substantially based on the type, complexity and novelty of the product or the targeted disease.

Preclinical testing includes laboratory evaluation of product pharmacology, drug metabolism, and toxicity, which includes animal studies, to assess potential safety and efficacy as well as product chemistry, stability, formulation, development, and testing. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. The FDA may raise safety concerns or questions about the conduct of the clinical trials included in the IND, and any of these concerns or questions must be resolved before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to commence. Clinical trials involve the administration of the investigational drug or the marketed drug to human subjects under the supervision of qualified investigators and in accordance with good clinical practices regulations covering the protection of human subjects. Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Phase I usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its safety, dosage tolerance, absorption, metabolism, distribution and excretion. Phase II usually involves clinical trials in a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse effects and safety risks, and evaluate and gain preliminary evidence of the efficacy of the drug for specific indications. Phase III clinical trials usually further evaluate clinical efficacy and safety by testing the drug in its final form in an expanded patient population, providing statistical evidence of efficacy and safety, and providing an adequate basis for labeling. We cannot guarantee that Phase I, Phase II or Phase III testing will be completed successfully within any specified period of time, if at all. Furthermore, we, the institutional review board for a trial, or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

Generally, the milestone events contained in our collaboration agreements coincide with the progression of our drugs from development, to regulatory approval and then to commercialization. The process of successfully discovering a new development candidate, having it approved and successfully commercialized is highly uncertain. As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve. Therefore, as a drug candidate progresses through the stages of its life-cycle, the value of the drug candidate generally increases.

Research and Development Costs.  Our policy is to expense research and development costs as incurred. We often contract with clinical research organizations (“CROs”) to facilitate, coordinate and perform agreed upon research and development of a new drug. To ensure that research and development costs are expensed as incurred, we record monthly accruals for clinical trials and preclinical testing costs based on the work performed under the contract.

These CRO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical trial milestones. In the event that we prepay CRO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most professional fees, including project and clinical management, data management, monitoring, and medical writing fees are incurred throughout the contract period. These professional fees are expensed based on their percentage of completion at a particular date. Our CRO contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs, including shipping and printing fees. We expense the costs of pass through fees under our CRO contracts as they are incurred, based on the best information available to us at the time. The estimates of the pass through fees incurred are based on the amount of work completed for the clinical trial and are monitored through

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correspondence with the CROs, internal reviews and a review of contractual terms. The factors utilized to derive the estimates include the number of patients enrolled, duration of the clinical trial, estimated patient attrition, screening rate and length of the dosing regimen. CRO fees incurred to set up the clinical trial are expensed during the setup period.

Under our clinical trial collaboration agreements we may be reimbursed for certain development costs incurred. Such costs are recorded as a reduction of research and development expense in the period in which the related expense is incurred.

Stock Compensation.  Share-based payment transactions with employees, which include stock options, restricted stock units (“RSUs”) and performance shares (“PSUs”), are recognized as compensation expense over the requisite service period based on their estimated fair values as well as expected forfeiture rates.  The stock compensation process requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility over the option term and expected option lives, as well as expected forfeiture rates and the probability of PSUs vesting.  The fair value of stock options, which are subject to graded vesting, are recognized as compensation expense over the requisite service period using the accelerated attribution method.  The fair value of RSUs, which are generally subject to cliff vesting, are recognized as compensation expense over the requisite service period using the straight line 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, over the remaining requisite service period. We recorded $21.3 million and $42.1 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2016. We recorded $17.6 million and $35.2 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2015.

Acquisition-Related Contingent Consideration. Acquisition-related contingent consideration, which consists of our future royalty and certain potential milestone obligations to ARIAD, is recorded on the acquisition date at the estimated fair value of the obligation, in accordance with the acquisition method of accounting.  The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations. 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which provides a five step approach to be applied to all contracts with customers. ASU No. 2014-09 also requires expanded disclosures about revenue recognition. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods therein.  Early adoption is permitted for reporting periods beginning after December 15, 2016.  We are currently analyzing the impact of ASU No. 2014-09 on our results of operations and, at this time, we are unable to determine the impact of the new standard, if any, on our condensed consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern,” to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year from the date the financial statements are issued. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We do not believe the pending adoption of ASU No. 2014-15 will have a material impact on our condensed consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis,” which affects reporting entities that are required to evaluate whether they should consolidate certain legal entities.  The amendments place more emphasis in the consolidation evaluation on variable interests other than fee arrangements such as principal investment risk (including debt or equity interests), guarantees of the value of the assets or liabilities of the variable interest entity (“VIE”), written put options on the assets of the VIE, or similar obligations. Additionally, the amendments reduce the extent to which related party arrangements cause an entity to be considered a primary beneficiary. This guidance is to be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The amendments are effective for fiscal years beginning after December 15, 2015, and interim periods therein. We have concluded ASU No. 2015-02 has no impact on our condensed consolidated financial statements. 

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” that requires lessees to recognize assets and liabilities on the balance sheet for most leases including operating leases. Lessees now classify leases as either finance or operating leases and lessors classify all leases as sales-type, direct financing or operating leases.  The statement of

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operations presentation and expense recognition for lessees for finance leases is similar to that of capital leases under Accounting Standards Codification (“ASC”) 840 with separate interest and amortization expense with higher periodic expense in the earlier periods of a lease.  For operating leases, the statement of operations presentation and expense recognition is similar to that of operating leases under ASC 840 with single lease cost recognized on a straight-line basis. This guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements and is effective for annual periods beginning after December 15, 2018 and interim periods therein.  Early adoption is permitted.  We are currently analyzing the impact of ASU No. 2016-02 and, at this time, are unable to determine the impact of the new standard, if any, on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which changes the accounting for certain aspects of share-based payments to employees.  The new guidance requires excess tax benefits and tax deficiencies to be recorded in the statement of operations when the awards vest or are settled.  In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows.  The standard also clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the statement of cash flows, and provides an accounting policy election to account for forfeitures as they occur.  The new standard is effective for our calendar year beginning January 1, 2017.  Early adoption is permitted however all of the guidance must be adopted in the same period. 

We elected to early adopt ASU No. 2016-09 as of the first quarter of 2016 which required us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption.  The primary impact of adoption was the recognition of $325.6 million of accumulated excess tax benefits as deferred tax assets that under the previous guidance could not be recognized until the benefits were realized through a reduction in cash taxes paid.  This part of the guidance was applied using a modified retrospective method with a cumulative-effect adjustment to the accumulated deficit for the excess tax benefits not previously recognized. However, given the full valuation allowance placed on the additional $325.6 million of deferred tax assets, the recognition upon adoption had no impact to our accumulated deficit as of January 1, 2016.

Adoption of the standard also resulted in the recognition of excess tax benefits in our income tax provision rather than as paid-in capital. This guidance is to be applied prospectively and resulted in the recognition of $0.5 million of excess tax benefits in our income tax provision rather than paid-in capital for the six months ended June 30, 2016.  Amendments to the minimum statutory withholding tax requirements had no impact to the accumulated deficit as of January 1, 2016. In addition, we have elected to continue to estimate forfeitures expected to occur when determining the amount of compensation cost to be recognized in each period.

We elected to apply the presentation requirements for cash flows related to excess tax benefits prospectively which resulted in classification within operating cash flows of the excess tax benefits recognized during the three months ended March 31, 2016.  This classification is now consistent with all other cash flow impacts from income taxes. In addition, the amendments to the cash flow statement presentation to classify cash payments made on behalf of employees for shares withheld as a financing activity had no impact on our previously reported cash flows, as this requirement is consistent with our previous presentation of these cash flows.

3.Business combination

Description of the Transaction

On June 1, 2016, pursuant to the Share Purchase Agreement, we completed the Acquisition, and acquired all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l., since renamed Incyte Biosciences Luxembourg S.a.rl., the parent company of ARIAD’s European subsidiaries responsible for the development and commercialization of ICLUSIG (ponatinib) in the European Union (“EU”) and other countries including Switzerland, Norway, Turkey, Israel and Russia (the “Territory”) in exchange for an upfront payment of $147.5 million, including customary working capital adjustments (the “Upfront Payment”). ICLUSIG is approved in Europe for the treatment of patients with chronic myeloid leukemia and Philadelphia-positive acute lymphoblastic leukemia who are resistant to or intolerant of certain second generation BCR-ABL inhibitors and all patients who have the T3151 mutation.  The acquisition of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l. includes a fully integrated and established pan-European team including medical, sales and marketing personnel.  The existing platform and infrastructure acquired is expected to further our strategic plan and accelerate the establishment of our operations in Europe.   

Under the Share Purchase Agreement, and subject to certain limitations and exceptions, each party has also agreed to indemnify the other for breaches of representations and warranties and certain other matters to a maximum amount of $14.0 million. The Share Purchase Agreement also includes a standstill provision restricting our ability for a

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specified period of time to acquire shares of ARIAD’s common stock above a certain percentage or take certain other actions without ARIAD board approval, subject to certain customary exceptions.

In connection with the closing of the Acquisition, we entered into an Amended and Restated Buy-in License Agreement with ARIAD (the “License Agreement”).  Under the terms of the License Agreement, we were granted an exclusive license to develop and commercialize ICLUSIG in the Territory.  ARIAD is eligible to receive from us tiered royalties ranging between 32% and 50% on net sales of ICLUSIG in the Territory. The royalties are subject to reduction for certain events related to exclusivity and, if necessary, any third-party patent rights.  In addition, ARIAD is eligible to receive up to $135.0 million in potential future development and regulatory approval milestone payments for ICLUSIG in new oncology indications in the Territory (the “Milestones”), together with additional milestone payments for non-oncology indications, if approved, in the Territory.  Incyte will also be co-funding a portion of the ongoing ICLUSIG clinical studies OPTIC and OPTIC 2L, which are being conducted by ARIAD, by paying up to $7.0 million in both 2016 and 2017 (the “Development Costs”). 

The terms of the License Agreement also include a limited option for a potential future acquirer of ARIAD to purchase the European development and commercialization rights to ICLUSIG from us (the “Buy-Back Provision”). Under these purchase terms, we would retain all EU infrastructure and be financially compensated.  Our financial compensation would include the repayment of the Upfront Payment and any Milestone or Development Costs payments made by us to ARIAD and an additional payment based upon the last 12 months of ICLUSIG sales booked by us. We would also be eligible to receive royalties of between 20% to 25% from an ARIAD acquirer on future sales of ICLUSIG in the Territory. The Buy-Back Provision cannot be exercised before two years nor after the sixth year from the effective date of the License Agreement. Following exercise of the Buy-Back Provision, there is a further transition period of one year before the provision can be made effective.  We concluded the Buy-Back Provision is not a derivative as it does not provide for explicit or implicit net settlement, cannot be readily settled net by a means outside of the contract, and does not provide for delivery of an asset that puts the recipient in a position that is not substantially different from net settlement. We also consider the probability of a potential future buyer exercising the Buy-Back Provision to be near zero and have concluded that any value assigned to this provision is de minimis.

Unless terminated earlier in accordance with its provisions, our obligations to pay full royalties under the License Agreement will continue to be in effect on a country-by-country basis until the latest to occur of (1) the expiration date of the composition patent in the relevant country, (2) the expiration of any regulatory marketing exclusivity period or other statutory designation that provides similar exclusivity for the commercialization of ICLUSIG in such country and (3) the seventh anniversary of the first commercial sale of ICLUSIG in such country.  We will be obligated to pay royalties at a reduced rate for a specified period of time following such full royalty term. The License Agreement may be terminated in its entirety by us for convenience on 12 months’ notice after the third anniversary of the effective date of the License Agreement.  The License Agreement may also be terminated by either party under certain other circumstances, including material breach, as set forth in the License Agreement.

Fair Value of Consideration Transferred

The preliminary fair value of consideration transferred totals $440.5 million, which consists of $147.5 million in cash pursuant to the Share Purchase Agreement, including net working capital adjustments, and $293.0 million of contingent consideration related to the License Agreement.  Contingent consideration includes the future payments that we may pay to ARIAD for our royalty obligations on future net sales of ICLUSIG, as well as for any future potential milestone payments related to new oncology or non-oncology indications for ICLUSIG.

The preliminary fair value of contingent consideration was determined using an income approach based on estimated ICLUSIG revenues in the Territory for both the approved third line treatment, as well as the second line treatment that is currently under development and is therefore contingent on future clinical results and European Medicines Agency (“EMA”) approval. The probability of technical success (“PTS”) of the second line indication was estimated at 25% based on the early stage of development and competitive market landscape, and the estimated future cash flows for the second line indication were probability weighted accordingly. The total projected cash flows of the third line and second line indications were estimated over 18 years, and discounted to present value using a discount rate of 10%. In addition, based on the believed limited effectiveness of ICLUSIG beyond the existing oncology indications, the fact that no development is currently ongoing for any new oncology or any non-oncology indications, and the lack of intention by us or ARIAD to develop ICLUSIG in additional oncology or non-oncology indications, the fair value of any cash flows for any new oncology or non-oncology indication was determined to be nil.  The present value of the contingent consideration was $293.0 million as of the Acquisition date.

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Assets Acquired and Liabilities Assumed

The Acquisition has been accounted for as a business combination under the acquisition method of accounting.  The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date.  Due to the timing of the Acquisition, certain amounts are provisional and subject to change.  The provisional amounts consist primarily of the estimates of the fair value of intangible assets acquired, inventory, contingent consideration and income taxes.  We will finalize these amounts as we obtain the information necessary to complete the measurement process.  Any changes resulting from facts and circumstances that existed as of the acquisition date may result in adjustments to the provisional amounts recognized at the acquisition date.  These changes could be significant.  We will finalize these amounts no later than one year from the acquisition date.

	Amounts
	Recognized as of
(estimated in thousands)	Acquisition Date
Current assets	$	21,413
Property and equipment		850
Restricted cash		432
Intangible assets(a)		283,000
Total identifiable assets		305,695
Current liabilities		(15,720)
Other long term liabilities		(5,226)
Total liabilities assumed		(20,946)
Goodwill(b)		155,725
Total fair value of consideration transferred	$	440,474

(a)As of the effective date of the Acquisition, identifiable intangible assets are required to be measured at fair value.  The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. We used an income statement approach to estimate the preliminary fair value of the intangibles which includes licensed intellectual property and IPR&D. The assumptions used to estimate the cash flows of the licensed intellectual property included a discount rate of 15%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as the $7.0 million of research and development cost sharing payments we will owe in 2016 and 2017.  The assumptions used to estimate the cash flows of the IPR&D (which relates to the potential approval of ICLUSIG as a second line treatment) included a PTS of 25%, discount rate of 16%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as probability weighted milestone payments estimated for 2020 related to the clinical results and potential approval of ICLUSIG as a second line treatment. The licensed intellectual property has a weighted-average useful life of approximately 12.5 years and will be amortized using the straight-line method and the IPR&D is an indefinite-lived intangible and will not be amortized until the completion or abandonment of the related research and development activities. 

(b)Goodwill is calculated as the difference between the estimated acquisition date fair value of the consideration transferred and the estimated fair values of the assets acquired and liabilities assumed. The Goodwill is related to the existing platform, infrastructure, and workforce which is expected to generate synergies and further our strategic plan in Europe.  Goodwill is not amortized and none of the goodwill is expected to be deductible for tax purposes.

Acquisition-Related Costs

We have incurred to date $1.3 million of transaction costs directly related to the Acquisition, which includes expenditures for advisory, legal, valuation, accounting and other similar services.  These costs have been expensed in selling, general and administrative costs on the condensed consolidated statements of operations during the three and six months ended June 30, 2016.

Revenue and Net Loss of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l.

The revenues of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l. for the period from the acquisition date to June 30, 2016 were $4.0 million and net loss was $7.9 million.  The net loss includes the effects of the Acquisition accounting adjustments and acquisition-related costs.

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Pro Forma Impact of Business Combination

The following unaudited pro forma information presents condensed consolidated results of operations for the three and six months ended June 30, 2016 and 2015, as if the Acquisition had occurred as of January 1, 2015 (in thousands).

	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2016		2015		2016		2015
Pro forma net product revenues	$	245,341	$	148,519	$	437,334	$	269,073
Pro forma net income (loss)	$	48,431	$	(11,414)	$	54,136	$	(47,561)

The unaudited pro forma condensed consolidated results of operations were prepared using the acquisition method of accounting and are based on the historical financial information of our company and the acquired business which has been adjusted for events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) expected to have continuing impact on the combined results.  The unaudited pro forma information reflects primarily the following adjustments:

· To record amortization expense related to fair value adjustments recorded on the acquired definite lived intangibles;

· To eliminate ARIAD Europe’s interest expense on the intercompany loan in accordance with the terms of the Acquisition;

· To remove balances attributable to the ARIAD Australia entity which are not material. This entity was previously consolidated by ARIAD Europe; however it was not included in the Acquisition; and

· To remove the recognition of revenue relating to distribution agreements in historic periods for those arrangements in which we have no continuing performance obligation and, therefore, the fair value of the assumed deferred revenue balance was zero.

The unaudited pro forma information is not necessarily indicative of the results that would have been obtained if the Acquisition had occurred as of the beginning of the period presented or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings.  The unaudited pro forma information for the three and six months ended June 30, 2016 includes $24.4 million of revenue that had been deferred in historic periods relating to the conclusion of pricing and reimbursement negotiations with the French National Health Authority.

4.Fair value of financial instruments

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.

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 corporate debt securities that are classified as available-for-sale.

At June 30, 2016 and December 31, 2015, our Level 2 corporate 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.

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The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis as of June 30, 2016 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		June 30, 2016
Cash and cash equivalents	$	487,654	$	—	$	—	$	487,654
Corporate debt securities		—		141,537		—		141,537
Long term investment (Note 9)		31,444		—		—		31,444
Total assets	$	519,098	$	141,537	$	—	$	660,635

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 of June 30, 2016 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		June 30, 2016
Contingent consideration (Note 3)	$	—	$	—	$	294,000	$	294,000
Total liabilities	$	—	$	—	$	294,000	$	294,000

The following is a rollforward of our Level 3 liabilities (in thousands):

	Level 3
Balance at January 1, 2016	$	—
Initial recognition of contingent consideration		293,000
Contingent consideration earned during the period		(1,271)
Change in fair value of contingent consideration		2,271
Balance at June 30, 2016	$	294,000

The fair value of the contingent consideration was determined using an income approach based on estimated ICLUSIG revenues in the Territory for both the approved third line treatment, as well as the second line treatment that is currently under development and is therefore contingent on future clinical results and EMA approval.  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 following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis as of December 31, 2015 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2015
Cash and cash equivalents	$	521,439	$	—	$	—	$	521,439
Corporate debt securities		—		186,344		—		186,344
Long term investment (Note 9)		35,248		—		—		35,248
Total assets	$	556,687	$	186,344	$	—	$	743,031

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The following is a summary of our marketable security portfolio as of June 30, 2016 and December 31, 2015, respectively.

			Net		Net
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(in thousands)
June 30, 2016
Corporate debt securities	$	140,879	$	658	$	—	$	141,537
December 31, 2015
Corporate debt securities	$	187,153	$	—	$	(809)	$	186,344

Our corporate debt securities generally have contractual maturity dates of between 12 to 18 months.

Non-Recurring Fair Value Measurements

Non-recurring fair value measurements during the three and six month periods ended June 30, 2016 relate to the fair value of intangible assets and inventory acquired in the Acquisition which are discussed in further detail in Note 3.

5.     Concentration of credit risk

In December 2009, we entered into a license, development and commercialization agreement with Eli Lilly and Company (“Lilly”). In November 2009, we entered into a collaboration and license agreement with Novartis. The concentration of credit risk related to our collaborative partners is as follows:

	Percentage of Total				Percentage of Total
	Contract Revenues for the				Contract Revenues for the
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Collaboration Partner A	61	%	—	%	8	%	80	%
Collaboration Partner B	39	%	100	%	92	%	20	%

Collaboration Partner A and Collaboration Partner B comprised in the aggregate 20% and 39% of the accounts receivable balance as of June 30, 2016 and December 31, 2015, respectively.

In November 2011, we began commercialization and distribution of JAKAFI to a number of customers. Our product revenues are concentrated in a number of these customers. The concentration of credit risk related to JAKAFI product revenues is as follows:

	Percentage of Total Net				Percentage of Total Net
	Product Revenues for the				Product Revenues for the
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Customer A	26	%	27	%	27	%	28	%
Customer B	16	%	19	%	17	%	20	%
Customer C	13	%	13	%	13	%	13	%
Customer D	9	%	9	%	9	%	9	%

We are exposed to risks associated with extending credit to customers related to the sale of products. Customer A, Customer B, Customer C and Customer D comprised in the aggregate 42% and 40% of the accounts receivable balance as of June 30, 2016 and December 31, 2015, respectively.

The concentration of credit risk relating to ICLUSIG product revenues or accounts receivable is not significant.

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6. Inventory

Our inventory balance consists of the following:

	June 30,		December 31,
	2016		2015
	(in thousands)
Work-in-process	$	15,540	$	17,555
Finished goods		6,124		1,783
		21,664		19,338
Inventories-current		6,124		1,783
Inventories-non-current	$	15,540	$	17,555

Inventories, stated at the lower of cost or market, consist of work in process and finished goods. The ICLUSIG inventories acquired on June 1, 2016 were recorded at fair value less costs to sell, and therefore, will result in a higher cost of product revenues for the next twelve months.  At June 30, 2016, $6.1 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 June 30, 2016, $15.5 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.

JAKAFI raw materials and work-in-process inventory is not subject to expiration and the shelf life for finished goods inventory is 36 months from the start of manufacturing of the finished goods. ICLUSIG finished goods inventory has a shelf life of 24 months from the start of manufacturing of the finished goods.  We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage.

7.    Property and equipment, net

Property and equipment, net consists of the following:

	June 30,		December 31,
	2016		2015
	(in thousands)
Office equipment	$	9,131	$	6,753
Laboratory equipment		34,797		31,296
Computer equipment		30,464		22,491
Land		3,825		—
Building and leasehold improvements		104,789		70,729
		183,006		131,269
Less accumulated depreciation and amortization		(44,493)		(45,263)
Property and equipment, net	$	138,513	$	86,006

In April 2016, we completed our purchase of the previously leased land and building comprising approximately 190,000 square feet of laboratory and office space located in Wilmington, Delaware.  We previously accounted for the lease as a direct financing arrangement.  In total, upon completion of the purchase, we paid $81.3 million, including closing costs, for the purchase of the land and building and our direct financing obligation related to the lease was relieved. We recorded the difference between the amount paid for the purchase of the land and building ($81.3 million) and the remaining direct financing obligation on the purchase date ($45.9 million) as property and equipment. A total of $3.8 million was allocated to land and the remaining $31.6 million was allocated to buildings and leasehold improvements, which we estimated using the assistance of a third party valuation specialist. The land is not being amortized and we are depreciating the building over its estimated useful life of 40 years. In addition, the restricted investments related to the direct financing lease were released upon closing of the agreement of sale. 

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8.    Intangible assets and goodwill

Intangible Assets, Net

The components of intangible assets as of June 30, 2016 were as follows (in thousands, except for useful life):

	Weighted-	Gross				Net
	Average Useful	Carrying		Accumulated		Carrying
	Lives (Years)	Amount		Amortization		Amount
Finite-lived intangible assets:
Licensed IP(1)	12.5	$	271,000	$	1,795	$	269,205
Indefinite-lived intangible assets:
Acquired IPR&D(1)	N/A		12,000		—		12,000
		$	283,000	$	1,795	$	281,205

(1) We acquired certain intangible assets as part of the Acquisition, as described further in Note 3.

Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets, excluding any possible future amortization associated with acquired IPR&D, for which development has not yet been completed, is as follows (in thousands):

		Remainder of
		2016		2017		2018		2019		2020		Thereafter
Amortization expense	$	10,770	$	21,540	$	21,540	$	21,540	$	21,540	$	172,275

Goodwill

The changes to carrying amount of goodwill for the three and six months ended June 30, 2016 of $155.7 million relates to goodwill acquired in the Acquisition.  As described in Note 3, the allocations of the goodwill balance associated with the Acquisition and certain other adjustments are provisional and subject to the completion of the valuation of the assets acquired and liabilities assumed.

9.    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 c-MET inhibitor compound capmatinib and certain back-up compounds in all indications. We retained options to co-develop and to co-promote capmatinib in the United States.

Under this agreement, we received an upfront payment and immediate milestone payment totaling $210.0 million and were initially eligible to receive up to $1.2 billion in milestone payments across multiple indications upon the achievement of pre-specified events, including up to $174.0 million for the achievement of development milestones, up to $495.0 million for the achievement of regulatory milestones and up to $500.0 million for the achievement of commercialization milestones. In April 2016, we amended this agreement to provide that Novartis has exclusive research, development and commercialization rights outside of the United States to ruxolitinib (excluding topical formulations) in the graft-versus-host-disease (“GVHD”) field. We became eligible to receive up to $75.0 million of additional potential development and regulatory milestones relating to GVHD.  Exclusive of the upfront payment of $150.0 million received in 2009 and the immediate milestone of $60.0 million earned in 2010, we have recognized and received in the aggregate $102.0 million for the achievement of development milestones and $175.0 million for the achievement of regulatory milestones and $20.0 million for the achievement of sales milestones through June 30, 2016.

During the three months ended June 30, 2016, we recognized a $5.0 million payment received in exchange for the development and commercialization rights to ruxolitinib in GVHD outside of the United States pursuant to the April 2016 amendment of this agreement.  In 2015, we recognized a $5.0 million development milestone based on the formal initiation by Novartis of a Phase II clinical trial evaluating capmatinib for a third indication and a $25.0 million regulatory milestone triggered by the Committee for Medicinal Products for Human Use of the European Medicines Agency adopting a positive opinion for JAKAVI (ruxolitinib) for the treatment of adult patients with polycythemia vera

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who are resistant to or intolerant of hydroxyurea, a $15.0 million regulatory milestone for the approval of JAKAVI in Japan for the treatment of patients with polycythemia vera, and a $20.0 million sales milestone for Novartis achieving annual net sales of a JAK licensed product of $300.0 million. In 2014, we recognized a $60.0 million regulatory milestone related to reimbursement of JAKAVI (ruxolitinib) in Europe, a $25.0 million regulatory milestone for the approval of JAKAVI in Japan for the treatment of patients with myelofibrosis and a $7.0 million development milestone based on the formal initiation by Novartis of a Phase II clinical trial evaluating capmatinib in non-small cell lung cancer.  In 2013, we recognized a $25.0 million development milestone under this agreement based on the formal initiation by Novartis of a Phase II clinical trial evaluating capmatinib. In 2012, we recognized a $40.0 million regulatory milestone payment under this agreement for the achievement of a predefined milestone for the European Union regulatory approval of JAKAVI. In 2011, we recognized a $15.0 million development milestone under this agreement for the achievement of a predefined milestone in the Phase I dose-escalation trial for capmatinib in patients with solid tumors and a $10.0 million regulatory milestone for the approval of JAKAFI in the United States. In 2010, we recognized $50.0 million in development milestones for the initiation of the global phase III trial, RESPONSE, in patients with polycythemia vera. We determined that each of these milestones were substantive as their achievement required substantive efforts by us and was at risk until the milestones were ultimately achieved.

We also are eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties on future JAKAVI net sales outside of the United States, and tiered, worldwide royalties on future capmatinib net sales that range from 12 to 14 percent. Since the achievement of the $60.0 million regulatory milestone related to reimbursement of JAKAVI in Europe in September 2014, we are obligated to pay to Novartis tiered royalties in the low single digits on future JAKAFI net sales within the United States. During the three and six months ended June 30, 2016, such royalties payable to Novartis on net sales within the United States totaled $9.0 million and $14.2 million, respectively, and are reflected in cost of product revenues on the condensed consolidated statements of operations.  During the three and six months ended June 30, 2015, such royalties payable to Novartis on net sales within the United States totaled $5.6 million and $8.1 million, respectively, and are reflected in cost of product revenues on the condensed consolidated statements of operations.  Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally. Novartis is also responsible for all costs relating to the development and commercialization of capmatinib.

The Novartis agreement will continue on a program-by-program basis until Novartis has no royalty payment obligations with respect to such program or, if earlier, the termination of the agreement or any program in accordance with the terms of the agreement. Royalties are payable by Novartis on a product-by-product and country-by-country basis until the latest to occur of (1) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (2) the expiration of regulatory exclusivity for the licensed product in such country and (3) 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.

We determined that there were two deliverables under the agreement: (i) the ex U.S. license for ruxolitinib and (ii) our obligations in connection with our participation on the joint development committee for myelofibrosis and polycythemia vera/essential thrombocythemia. We concluded that these deliverables should be accounted for as a single unit of accounting and the $150.0 million upfront payment received in December 2009 and the immediate $60.0 million milestone payment received in January 2010 should be recognized on a straight line basis through December 2013, when we estimated we would complete our obligations in connection with our participation on the joint development committee for myelofibrosis and polycythemia vera, our estimated performance period under the agreement. We completed this substantive performance obligation related to this arrangement in December 2013.

At December 31, 2009, we recorded $10.9 million of reimbursable costs incurred prior to the effective date of the agreement as deferred revenue on the consolidated balance sheet. These costs were recognized on a straight line basis through December 2013 consistent with the aforementioned upfront and milestone payments. Future reimbursable costs incurred after the effective date of the agreement with Novartis are recorded net against the related research and development expenses. At June 30, 2016 and December 31, 2015, $0.2 million and $0.3 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets. Research and development expenses for the three and six months ended June 30, 2016 were net of $0.1 million and $0.4 million, respectively, of costs reimbursed by Novartis.  Research and development expenses for the three and six months ended June 30, 2015 were net of $0.5 million and $1.0 million, respectively, of costs reimbursed by Novartis.

Contract revenue under the Novartis agreement was $5.0 million and $5.0 million for the three and six months ended June 30, 2016, respectively. Contract revenue under the Novartis agreement was $0.0 million and $25.0 million for the three and six months ended June 30, 2015, respectively. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States was $26.0 million and $47.9 million for the three and six months ended June 30, 2016, respectively. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States was

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$17.4 million and $33.0 million for the three and six months ended June 30, 2015, respectively. At June 30, 2016 and December 31, 2015, $25.8 million and $23.8 million, respectively, of product royalties were included in accounts receivable on the condensed consolidated balance sheets.

Lilly - Baricitinib

In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly. Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to our JAK inhibitor baricitinib, and certain back-up compounds for inflammatory and autoimmune diseases. We received an upfront payment of $90.0 million, and were initially eligible to receive up to $665.0 million in substantive milestone payments across multiple indications upon the achievement of pre-specified events, including up to $150.0 million for the achievement of development milestones, up to $365.0 million for the achievement of regulatory milestones and up to $150.0 million for the achievement of commercialization milestones. Exclusive of the upfront payment of $90.0 million received in 2009, we have recognized and received in the aggregate $99.0 million for the achievement of development milestones and $55.0 million for the achievement of regulatory milestones through June 30, 2016. 

In January 2016, under this agreement, we recognized a $35.0 million regulatory milestone for the submission of an NDA to the FDA for the approval of oral once-daily baricitinib for the treatment of moderately-to-severely active rheumatoid arthritis and a $20.0 million regulatory milestone for the submission of a Marketing Authorization Application to the Europe Medicines Agency for the approval of oral once-daily baricitinib for the treatment of moderately-to-severely active rheumatoid arthritis. In 2012, we recognized a $50.0 million development milestone for the achievement of a predefined milestone for the initiation of the rheumatoid arthritis Phase III program for baricitinib. In 2010, we recognized a $30.0 million development milestone based upon the initial three month data in the Phase IIa clinical trial of baricitinib for the treatment of rheumatoid arthritis and a $19.0 million development milestone for the Phase IIb clinical trial initiation of baricitinib for the treatment of rheumatoid arthritis. We determined the 2016, 2012 and 2010 milestones to be substantive as their achievement required substantive efforts by us and was at risk until the milestones were ultimately achieved. We also could receive tiered, double-digit royalty payments on future global net sales with rates ranging up to 20% if the product is successfully commercialized.

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. In July 2010, we elected to co-develop baricitinib with Lilly in rheumatoid arthritis and we are responsible for funding 30% of the associated future global development costs for this indication from the initiation of the Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority.  We previously had retained an option to co-promote products in the United States but, in March 2016, we waived our co-promotion option as part of an amendment to the agreement. 

Research and development expenses recorded under the Lilly agreement representing 30% of the global development costs for baricitinib for the treatment of rheumatoid arthritis were $5.3 million and $10.4 million for the three and six months ended June 30, 2016, respectively. Research and development expenses recorded under the Lilly agreement representing 30% of the global development costs for baricitinib for the treatment of rheumatoid arthritis were $10.3 million and $21.9 million for the three and six months ended June 30, 2015, respectively. We have retained certain mechanisms to give us cost protection as baricitinib advances in clinical development. We can defer our portion of co-development study costs by indication if they exceed a predetermined level. This deferment would be credited against future milestones or royalties and we would still be eligible for the full incremental royalties related to the co-development option. In addition, even 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. 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 (1) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (2) the expiration of regulatory exclusivity for the licensed product in such country and (3) 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.

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We determined that there were two deliverables under the agreement: (i) the worldwide license and (ii) our obligations in connection with a co-development option. We concluded that these deliverables should be accounted for as a single unit of accounting and the $90.0 million upfront payment should be recognized on a straight line basis as revenue through December 2016, our estimated performance period under the agreement.

Contract revenue under the Lilly agreement was $3.2 million and $61.4 million, for the three and six months ended June 30, 2016, respectively.  Contract revenue under the Lilly agreement was $3.2 million and $6.4 million, for the three and six months ended June 30, 2015, 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. We paid Lilly an upfront payment of $35.0 million and Lilly is eligible to receive up to $40.0 million in additional regulatory milestone payments relating to ruxolitinib in the GVHD field. During the three and six months ended June 30, 2016, the $35.0 million upfront payment was recorded in research and development expense on the 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, 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’ proprietary antibody discovery platforms. The agreement became effective on February 18, 2015, upon the expiration of the waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976.

Under the terms of this agreement, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3. In addition to the initial four program targets, we and Agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration, and in November 2015, three more targets were added. Targets may be designated profit-share programs, where all costs and profits are shared equally by us and Agenus, or royalty-bearing programs, where we will be responsible for all costs associated with discovery, preclinical activities, clinical development and commercialization activities. The programs relating to GITR and OX40 and two of the undisclosed targets are profit-share programs while the other targets currently under collaboration are royalty-bearing programs. All costs related to the collaboration are subject to a joint research plan.  For each royalty-bearing product, Agenus will be eligible to receive up to $155.0 million in future contingent development, regulatory and commercialization milestones as well as tiered royalties on global net sales ranging from 6% to 12%. For each profit share product, Agenus will be eligible to receive up to $20.0 million in future contingent development milestones. Additionally, Agenus retains co-promotion participation rights in the United States on any profit share product. For each royalty bearing product, Agenus has reserved the right to elect to co fund 30% of development costs for a commensurate increase in royalties. 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.  We agreed to certain standstill provisions that allow us to acquire up to 15% of Agenus Inc.’s outstanding voting stock, including shares acquired pursuant to the Stock Purchase Agreement described below, solely for investment purposes.

In January 2015, we also entered into a Stock Purchase Agreement with Agenus Inc. pursuant to which we agreed to purchase approximately 7.76 million shares of Agenus Inc. common stock for an aggregate purchase price of $35.0 million in cash, or approximately $4.51 per share. We completed the purchase of the shares on February 18, 2015. On February 18, 2015 the closing price of Agenus Inc. common shares on The NASDAQ Stock Market was $5.13 per share and, therefore, the value of the 7.76 million shares acquired by us was $39.8 million. We agreed not to dispose of any of the shares of common stock for a period of 12 months and Agenus Inc. has agreed to certain registration rights with respect to the shares of common stock.

Upon closing of the Agenus transaction on February 18, 2015, we paid total consideration of $60.0 million to Agenus Inc.  Of the $60.0 million, $39.8 million was allocated to our stock purchase in Agenus Inc. and was recorded as a long term investment on the condensed consolidated balance sheets and $20.2 million was allocated to research and development expense on the condensed consolidated statement of operations. 

We have concluded Agenus Inc. is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest. We own approximately 9% of the outstanding shares of Agenus Inc. common stock and conclude that we have the ability to exercise significant influence, but not control, over Agenus Inc. based primarily on our ownership interest, the level of intra-entity transactions between us and Agenus related to development expenses, as well as other qualitative

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factors. We have elected the fair value option to account for our long term investment in Agenus Inc. whereby the investment is marked to market through earnings in each reporting period.  We believe the fair value option to be the most appropriate accounting method to account for securities in publicly held collaborators for which we have significant influence. For the three and six months ended June 30, 2016, we recorded an unrealized loss of $0.9 million and $3.8 million, respectively, based on the decrease in the market price of Agenus Inc.’s common stock from the date of purchase to $4.05 per share at June 30, 2016.  For the three months ended March 31, 2016, Agenus Inc. reported total revenues of $6.0 million and a net loss of $31.8 million within their consolidated financial statements.

Research and development expenses for the three and six months ended June 30, 2016, included $4.0 million and $8.1 million, respectively, of development costs incurred pursuant to the Agenus arrangement. Research and development expenses for the three and six months ended June 30, 2015, included $3.8 million and $5.6 million, respectively, of development costs incurred pursuant to the Agenus arrangement.  At June 30, 2016, a total of $9.2 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheet.

Hengrui

In September 2015, we entered into a License and Collaboration Agreement with Jiangsu Hengrui Medicine Co., Ltd. (“Hengrui”). Under the terms of this agreement, we received exclusive development and commercialization rights worldwide, with the exception of Mainland China, Hong Kong, Macau and Taiwan, to INCSHR1210, an investigational PD-1 monoclonal antibody, and certain back-up compounds. INCSHR1210 is currently in clinical development. 

Under the terms of this agreement, we paid Hengrui an upfront payment of $25.0 million in 2015 which was recorded in research and development expense on the condensed consolidated statement of operations. Hengrui is also eligible to receive potential milestone payments of up to $770.0 million, consisting of $90.0 million for regulatory approval milestones, $530.0 million for commercial performance milestones, and $150.0 million for a clinical superiority milestone.  Also, Hengrui may be eligible to receive tiered royalties in the high-single digits to mid-double digits based on net sales in our territories. Each company will be responsible for costs relating to the development and commercialization of the PD-1 monoclonal antibody in their respective territories.  The agreement will continue on a country-by-country basis until we have no royalty payment obligations with respect to such country or, if earlier, the termination of the agreement in accordance with its terms.  The agreement may be terminated in its entirety by us for convenience, and may also be terminated under certain other circumstances, including material breach.

Research and development expenses for the three and six months ended June 30, 2016, included $0.0 million and $0.7 million, respectively, of development costs incurred pursuant to the Hengrui agreement.

10.     Stock compensation

We recorded $21.3 million and $42.1 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2016, respectively. We recorded $17.6 million and $35.2 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2015, respectively. Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $13.6 million, $26.6 million, $10.2 million and $20.4 million for the three and six months ended June 30, 2016 and 2015, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $7.7 million, $15.5 million, $7.4 million and $14.7 million for the three and six months ended June 30, 2016 and 2015, respectively.

We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions:

		Employee Stock Options								Employee Stock Purchase Plan
		For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Six Months Ended
		June 30,								June 30,
		2016		2015		2016		2015		2016		2015		2016		2015
Average risk-free interest rates		1.20	%	1.38	%	1.47	%	1.35	%	0.58	%	0.64	%	0.71	%	0.60	%
Average expected life (in years)		5.08		5.20		5.01		5.06		0.50		0.50		0.50		0.50
Volatility		51	%	49	%	50	%	50	%	45	%	27	%	54	%	36	%
Weighted-average fair value (in dollars)		36.27		45.56		40.90		33.80		16.33		9.24		18.45		9.90

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The risk-free interest rate is derived from the U.S. Federal Reserve rate in effect at the time of grant. The expected life calculation is based on the observed and expected time to the exercise of options by our employees based on historical exercise patterns for similar type options. Expected volatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the options. A dividend yield of zero is assumed based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends.

Option activity under the 2010 Stock Plan was as follows:

		Shares Subject to
		Outstanding Options
	Shares Available		Weighted Average
	for Grant	Shares	Exercise Price
Balance at December 31, 2015	3,846,717	11,052,279	$	33.55
Additional authorization	5,000,000	—		—
Options granted	(1,616,347)	1,616,347	$	92.89
Options exercised	—	(1,132,958)	$	17.22
Options cancelled	123,975	(123,975)	$	75.68
Options expired	—	(1,834)	$	3.11
Balance at June 30, 2016	7,354,345	11,409,859	$	43.12

RSU and PSU award activity under the 2010 Stock Plan was as follows:

		Shares Subject to
	Shares Available	Outstanding Awards
	for Grant	Shares	Grant Date Value
Balance at December 31, 2015	834,433	565,567		—
Additional authorization	1,000,000	—		—
RSUs granted	(325,651)	325,651	$	86.84
PSUs granted	—	—		—
RSUs cancelled	23,789	(23,789)	$	70.84
PSUs cancelled	1,948	(1,948)	$	64.55
RSUs released	—	(7,278)	$	78.49
Balance at June 30, 2016	1,534,519	858,203		—

In January 2014, we began granting RSUs and PSUs to our employees at the share price on the date of grant.   Each RSU represents the right to acquire one share of our common stock. We granted a total of 325,651 RSUs during the six months ended June 30, 2016 which will cliff vest in three years and will be recognized as stock compensation expense over this period.  Also, in January 2014, Hervé Hoppenot, our President and Chief Executive Officer, was granted a one-time grant of 400,000 RSUs outside of our 2010 Stock Incentive Plan. Vesting of the RSUs will be subject to Mr. Hoppenot’s continued employment on the applicable vesting dates, with one-sixth of the RSUs vesting at the end of each of the calendar years 2014 through 2019, subject to earlier acceleration of vesting upon the occurrence of certain events in accordance with the terms of his employment agreement.As of June 30, 2016, a total of 133,333 RSUs granted to Mr. Hoppenot vested and were released leaving 266,667 RSUs outstanding.

At June 30, 2016, we have only recognized stock compensation expense relating to performance conditions of the outstanding PSUs that are deemed probable of achievement at that date. For PSUs containing performance conditions which have not been deemed probable of achievement at June 30, 2016, no stock compensation expense has been recognized for these awards. The actual number of shares of our common stock into which each PSU may convert are subject to a multiplier of up to 125% based on the level at which the performance conditions are achieved.

Based on our historical experience of employee turnover, we have assumed an annualized forfeiture rate of 5% for our options, PSUs and RSUs.  Under the true-up provisions of the stock compensation guidance, we will record additional expense if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated.

Total compensation cost of options granted but not yet vested, as of June 30, 2016, was $61.0 million, which is expected to be recognized over the weighted average period of 3.0 years. Total compensation cost of RSUs granted but not yet vested, as of June 30, 2016, was $38.2 million, which is expected to be recognized over the weighted average period of 3.0 years. Total compensation cost of PSUs granted but not yet vested, as of June 30, 2016, was $0.4 million, which is expected to be recognized over the weighted average period of 3.0 years, should the underlying performance conditions be deemed probable of achievement.

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11.     Debt

The components of the convertible notes are as follows (in thousands):

				Carrying Amount,
	Interest Rates			June 30,		December 31,
Debt	June 30, 2016		Maturities	2016		2015
0.375% Convertible Senior Notes due 2018	0.375	%	2018	$	332,368	$	324,031
1.25% Convertible Senior Notes due 2020	1.25	%	2020		303,123		295,862
					635,491		619,893
Less current portion					—		—
				$	635,491	$	619,893

The carrying amount and fair value of our convertible notes are as follows (in thousands):

	June 30, 2016				December 31, 2015
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
0.375% Convertible Senior Notes due 2018	$	332,368	$	621,328	$	324,031	$	807,422
1.25% Convertible Senior Notes due 2020		303,123		638,087		295,862		816,123
	$	635,491	$	1,259,415	$	619,893	$	1,623,545

The fair values of the 0.375% Convertible Senior Notes due 2018 (the “2018 Notes”) and the 1.25% Convertible Senior Notes due 2020 (the “2020 Notes”) are based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments, and, therefore, these convertible senior notes are classified within Level 2 in the fair value hierarchy.

Prior to May 14, 2014, the 2018 and 2020 Notes were not convertible except in connection with a make whole fundamental change, as defined in the respective indentures. Beginning on, and including, May 15, 2014, the 2018 and 2020 Notes are convertible prior to the close of business on the business day immediately preceding May 15, 2018, in the case of the 2018 Notes, and May 15, 2020, in the case of the 2020 Notes, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2018 Notes or 2020 Notes, as applicable, on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2018 Notes or 2020 Notes, as applicable, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2018 Notes or 2020 Notes, as applicable, on each such trading day; or (3) upon the occurrence of specified corporate events. On or after May 15, 2018, in the case of the 2018 Notes, and May 15, 2020, in the case of the 2020 Notes, until the close of business on the second scheduled trading day immediately preceding the relevant maturity date, the Notes are convertible at any time, regardless of the foregoing circumstances. Upon conversion we will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election.

On July 1, 2016, the 2018 Notes and 2020 Notes became convertible through at least September 30, 2016, based on meeting the conversion criteria related to the sale price of our common stock during the calendar quarter ended June 30, 2016 as described in (1) above. Management’s intent is to settle any conversions of 2018 Notes or 2020 Notes during this period in shares of our common stock and, therefore, the 2018 Notes and 2020 Notes are reflected in long term liabilities on the condensed consolidated balance sheet at June 30, 2016.

12.     Defined benefit pension obligation

We maintain a defined benefit pension plan for Incyte Biosciences Luxembourg S.a.r.l. employees.  The plan provides benefits to employees upon retirement, death or disability.

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The net periodic benefit cost from June 1, 2016 to June 30, 2016 was as follows (in thousands):

		2016
Service cost	$	120
Interest cost		10
Expected return on plan assets		(8)
Amortization of prior service cost		18
Net periodic (benefit) cost	$	140

We plan to contribute a total of $1.4 million to the plan in 2016 inclusive of the amounts contributed to the plan during the current period.  As of June 30, 2016, $4.5 million of accrued pension obligation is recorded in other long term liabilities on the condensed consolidated balance sheets.

13.Income taxes

In January 2015, we licensed certain intellectual property rights related to our non-partnered clinical programs to our wholly-owned subsidiary in Switzerland. Although the license of intellectual property rights did not result in any gain or loss in the condensed consolidated statements of operations, the transaction generated a taxable gain in the U.S, and we are utilizing available federal and state net operating loss carryforwards to offset the majority of this gain. Any taxes incurred related to intercompany transactions are treated as prepaid tax in our condensed consolidated balance sheets and amortized to income tax expense over the life of the intellectual property.   Any cash taxes anticipated to be paid related to this intercompany transaction are immaterial.

In January 2016, the Delaware Competes Act (the “Act”) was enacted by the State of Delaware, which changes the corporate income tax apportionment formula to a single sales factor apportionment formula by 2020.  As a qualified Delaware headquarter company under the Act, we may elect to use either a three-factor apportionment or single sales factor starting in 2017.  We are currently evaluating the impact of the law change and the apportionment election available to us starting in 2017.

14.    Net income (loss) per share

Net income (loss) per share was calculated as follows for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands, except per share data)		2016	2015			2016	2015
Basic Net Income (Loss) Per Share
Basic net income (loss)	$	34,425	$	9,294	$	58,472	$	(9,063)
Weighted average common shares outstanding		187,682		178,676		187,433		175,373
Basic net income (loss) per share	$	0.18	$	0.05	$	0.31	$	(0.05)
Diluted Net Income (Loss) Per Share
Diluted net income (loss)	$	34,425	$	9,294	$	58,472	$	(9,063)
Weighted average common shares outstanding		187,682		178,676		187,433		175,373
Dilutive stock options and RSU’s		5,333		7,817		5,387		—
Weighted average shares used to compute diluted net income (loss) per share		193,015		186,493		192,820		175,373
Diluted net income (loss) per share	$	0.18	$	0.05	$	0.30	$	(0.05)

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The following potential common shares were excluded from the calculations as their effect would be anti-dilutive:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2016	2015	2016	2015
Outstanding stock options and awards	2,790,121	137,012	2,744,246	13,255,051
Common shares issuable upon conversion of the 4.75% Convertible Senior Notes due 2015	—	4,990,916	—	4,990,916
Common shares issuable upon conversion of the 2018 Notes	7,245,244	7,245,263	7,245,244	7,245,263
Common shares issuable upon conversion of the 2020 Notes	7,241,284	7,245,263	7,241,284	7,245,263
Total potential common shares excluded from diluted net loss per share computation	17,276,649	19,618,454	17,230,774	32,736,493

15.Contingencies

In February 2016, we received a Paragraph IV certification notice (the “Notice Letter”) regarding an Abbreviated New Drug Application submitted to the U.S. Food and Drug Administration requesting approval to market a generic version of Jakafi (ruxolitinib).  The Notice Letter purports to challenge patents covering ruxolitinib phosphate and its use that expire in 2028.  The Notice Letter does not challenge the ruxolitinib composition of matter patent, which expires on December 24, 2027.  We do not believe there is any kind of loss that is probable or estimable related to this matter at this time.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations as of and for the six months ended June 30, 2016 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 ended December 31, 2015 included in our Annual Report on Form 10-K for the year ended December 31, 2015 previously filed with the SEC.

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) and ICLUSIG® (ponatinib);

· the expected benefits from our acquisition of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l. and our plans to further develop our European operations;

· conducting clinical trials internally, with collaborators, or with clinical research organizations;

· our collaboration and strategic relationship strategy; anticipated benefits and disadvantages of entering into collaboration agreements;

· our licensing, investment and commercialization strategies, including our plans to commercialize JAKAFI;

· the regulatory approval process, including obtaining U.S. Food and Drug Administration and other international health authorities approval for our products in the United States and abroad;

· the safety, effectiveness and potential benefits and indications of our drug candidates and other compounds under development;

· the timing and size of our clinical trials; the compounds expected to enter clinical trials; timing of clinical trial results;

· our ability to manage expansion of our drug discovery and development operations;

· future required expertise relating to clinical trials, manufacturing, sales and marketing;

· obtaining and terminating licenses to products, drug candidates or technology, or other intellectual property rights;

· the receipt from or payments pursuant to collaboration or license agreements resulting from milestones or royalties;

· plans to develop and commercialize products on our own;

· plans to use third party manufacturers;

· expected expenses and expenditure levels; expected uses of cash; expected revenues and sources of revenues; expectations with respect to inventory;

· expectations with respect to reimbursement for our products;

· 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;

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· our expectations regarding competition;

· our investments, including anticipated expenditures, losses and expenses;

· our patent prosecution and maintenance efforts; and

· our indebtedness, and debt service obligations.

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;

· our ability to maintain at anticipated levels reimbursement for our products from government health administration authorities, private health insurers and other organizations;

· our ability to establish and maintain effective sales, marketing and distribution capabilities;

· the risk of reliance on other parties to manufacture our products, which could result in a short supply of our products, increased costs, and withdrawal of regulatory approval;

· our ability to maintain regulatory approvals to market our products;

· our ability to achieve a significant market share in order to achieve or maintain profitability;

· the risk of civil or criminal penalties if we market our products in a manner that violates health care fraud and abuse and other applicable laws, rules and regulations;

· our ability to discover, develop, formulate, manufacture and commercialize our drug candidates;

· the risk of unanticipated delays in, or discontinuations of, research and development efforts;

· the risk that previous preclinical testing or clinical trial results are not necessarily indicative of future clinical trial results;

· risks relating to the conduct of our clinical trials;

· changing regulatory requirements;

· the risk of adverse safety findings;

· the risk that results of our clinical trials do not support submission of a marketing approval application for our drug candidates;

· the risk of significant delays or costs in obtaining regulatory approvals;

· risks relating to our reliance on third party manufacturers, collaborators, and clinical research organizations;

· risks relating to the development of new products and their use by us and our current and potential collaborators;

· risks relating to our inability to control the development of out-licensed compounds or drug candidates;

· risks relating to our collaborators’ ability to develop and commercialize drug candidates;

· 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;

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· the risk that our drug candidates may not obtain or maintain regulatory approval;

· the impact of technological advances and competition, including potential generic competition;

· our ability to compete against third parties with greater resources than ours;

· risks relating to changes in pricing and reimbursement in the markets in which we may compete;

· 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;

· our ability to integrate successfully acquired businesses, development programs or technology;

· our substantial leverage;

· our ability to obtain additional capital when needed;

· fluctuations in net cash provided and used by operating, financing and investing activities;

· our history of operating losses; and

· the risks set forth under “Risk Factors.”

Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

In this report all references to “Incyte,” “we,” “us,” “our” or the “Company” mean Incyte Corporation and our subsidiaries, except where it is made clear that the term means only the parent company.

Incyte and JAKAFI are our registered trademarks. We also refer to trademarks of other corporations and organizations in this Quarterly Report on Form 10-Q.

Overview

Incyte is a biopharmaceutical company focused on the discovery, development and commercialization of proprietary therapeutics. Incyte employs more than 900 people and we have operations in both the United States and Europe.  Our global headquarters are located in Wilmington, Delaware.

Marketed Indications - JAKAFI (ruxolitinib)

JAKAFI (ruxolitinib) is our first product to be approved for sale in the United States. It was approved by the U.S. Food and Drug Administration (FDA) in November 2011 for the treatment of patients with intermediate or high‑risk myelofibrosis and in December 2014 for the treatment of patients with polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea. Myelofibrosis and polycythemia vera are both rare blood cancers. Under our collaboration agreement with Novartis International Pharmaceutical Ltd., Novartis received exclusive development and commercialization rights to ruxolitinib outside of the United States for all hematologic and oncologic indications and sells ruxolitinib outside of the United States under the name JAKAVI.

In 2003, we initiated a research and development program to explore the inhibition of enzymes called janus associated kinases (JAK). The JAK family is composed of four tyrosine kinases—JAK1, JAK2, JAK3 and Tyk2—that are involved in the signaling of a number of cytokines and growth factors. JAKs are central to a number of biologic processes, including the formation and development of blood cells and the regulation of immune functions. Dysregulation of the JAK‑STAT signaling pathway has been associated with a number of diseases, including

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myeloproliferative neoplasms, other hematological malignancies, rheumatoid arthritis and other chronic inflammatory diseases. Myeloproliferative neoplasms are a closely related group of blood diseases in which blood cells, specifically platelets, white blood cells, and red blood cells, grow or act abnormally in the bone marrow. These diseases include myelofibrosis (MF), polycythemia vera (PV) and essential thrombocythemia.

We have discovered multiple potent, selective and orally bioavailable JAK inhibitors that are selective for JAK1 or JAK1 and JAK2. JAKAFI is the most advanced compound in our JAK program. It is an oral JAK1 and JAK2 inhibitor.

JAKAFI is marketed in the United States through our own specialty sales force and commercial team. JAKAFI was the first FDA‑approved JAK inhibitor for any indication and was the first and remains the only product approved by the FDA for use in MF and also now in PV. The FDA has granted JAKAFI orphan drug status for MF, PV and essential thrombocythemia.

To help ensure that all eligible MF and PV 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 or uncontrolled PV who meets certain eligibility criteria and is prescribed JAKAFI has access to the product regardless of ability to pay and has access to ongoing support and educational resources during treatment. In addition, IncyteCARES works closely with payers to help facilitate insurance coverage of JAKAFI.

JAKAFI is distributed primarily through a network of specialty pharmacy providers and wholesalers that allow for efficient delivery of the medication by mail directly to patients or direct delivery to the patient’s pharmacy. Our distribution process uses a model that is well‑established and familiar to physicians who practice within the oncology field.

To further support appropriate use and future development of JAKAFI, our Medical Affairs department is responsible for providing appropriate scientific and medical education and information to physicians, preparing scientific presentations and publications, and overseeing the process for supporting investigator sponsored trials.

Myelofibrosis.  Myelofibrosis is a rare, life‑threatening condition. MF, considered the most serious of the myeloproliferative neoplasms, can occur either as primary MF, or as secondary MF that develops in some patients who previously had polycythemia vera or essential thrombocythemia. We estimate there are between 16,000 and 18,500 patients with MF in the United States. Based on the modern prognostic scoring systems referred to as International Prognostic Scoring System and Dynamic International Prognostic Scoring System, we believe intermediate and high‑risk patients represent 80%  to 90%  of all patients with MF in the United States and encompass patients over the age of 65, or patients who have or have ever had any of the following: anemia, constitutional symptoms, elevated white blood cell or blast counts, or platelet counts less than 100,000 per microliter of blood.

Most MF patients have enlarged spleens and many suffer from debilitating symptoms, including abdominal discomfort, pruritus (itching), night sweats and cachexia (involuntary weight loss). There were no FDA approved therapies for MF until the approval of JAKAFI.

The FDA approval was based on results from two randomized Phase III trials (COMFORT‑I and COMFORT‑II), which demonstrated that patients treated with JAKAFI experienced significant reductions in splenomegaly (enlarged spleen). COMFORT‑I also demonstrated improvements in symptoms. The most common hematologic adverse reactions in both trials were thrombocytopenia and anemia. These events rarely led to discontinuation of JAKAFI treatment. The most common non‑hematologic adverse reactions were bruising, dizziness and headache.

In August 2014, the FDA approved supplemental labeling for JAKAFI to include Kaplan‑Meier overall survival curves as well as additional safety and dosing information. The overall survival information is based on three‑year data from COMFORT‑I and II, and shows that at three years the probability of survival for patients treated with JAKAFI in COMFORT‑I was 70% and for those patients originally randomized to placebo it was 61%. In COMFORT‑II, at three years the probability of survival for patients treated with Jakafi was 79% and for patients originally randomized to best available therapy it was 59%.

Polycythemia Vera.  PV is a myeloproliferative neoplasm typically characterized by elevated hematocrit, the volume percentage of red blood cells in whole blood, which can lead to a thickening of the blood and an increased risk of blood clots, as well as an elevated white blood cell and platelet count. When phlebotomy can no longer control PV, chemotherapy such as hydroxyurea, or interferon, is utilized. Approximately 25,000 patients with PV in the United States are considered uncontrolled because they have an inadequate response to or are intolerant of hydroxyurea, the most commonly used chemotherapeutic agent for the treatment of PV.

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In December 2014, the FDA approved JAKAFI for the treatment of patients with PV who have had an inadequate response to or are intolerant of hydroxyurea. The approval of JAKAFI for PV was based on data from the pivotal Phase III RESPONSE trial. In this trial, patients treated with JAKAFI demonstrated superior hematocrit control and reductions in spleen volume compared to best available therapy. In addition, a greater proportion of patients treated with JAKAFI achieved complete hematologic remission—which was defined as achieving hematocrit control, and lowering platelet and white blood cell counts. In the RESPONSE trial, the most common hematologic adverse reactions (incidence > 20%) were thrombocytopenia and anemia. The most common non‑hematologic adverse events (incidence >10%) were headache, abdominal pain, diarrhea, dizziness, fatigue, pruritus, dyspnea and muscle spasms.

In March 2016, the FDA approved supplemental labeling for JAKAFI to include additional safety data as well as efficacy analyses from the RESPONSE trial to assess the durability of response in JAKAFI treated patients after 80 weeks. At this time, 83% patients were still on treatment, and 76% of the responders at 32 weeks maintained their response through 80 weeks.

In June 2016, we announced data from the Phase 3 RESPONSE-2 study of JAKAFI in patients with inadequately controlled PV that was resistant to or intolerant of hydroxyurea who did not have an enlarged spleen. These data showed that JAKAFI was superior to best available therapy in maintaining hematocrit control (62.2% vs. 18.7%, respectively; P<0.0001) without the need for phlebotomy.

We have retained all development and commercialization rights to JAKAFI in the United States and are eligible to receive development and commercial milestones as well as royalties from product sales outside the United States. We hold patents that cover the composition of matter and use of ruxolitinib which patents, including applicable extensions, expire in late 2027.

Marketed Indications - ICLUSIG (ponatinib)

In June 2016, we completed the previously announced acquisition of the European operations of ARIAD Pharmaceuticals, Inc (ARIAD) in exchange for an upfront payment of $147.5 million, including customary working capital adjustments, and also obtained an exclusive license to develop and commercialize ICLUSIG (ponatinib) in Europe and other select countries. ICLUSIG is a kinase inhibitor. The primary target for ICLUSIG is BCR-ABL, an abnormal tyrosine kinase that is expressed in chronic myeloid leukemia (CML) and Philadelphia-chromosome positive acute lymphoblastic leukemia (Ph+ ALL).

In the European Union (EU), ICLUSIG is approved for the treatment of adult patients with chronic phase, accelerated phase or blast phase chronic myeloid leukemia (CML) who are resistant to dasatinib or nilotinib; who are intolerant to dasatinib or nilotinib and for whom subsequent treatment with imatinib is not clinically appropriate; or who have the T315I mutation, or the treatment of adult patients with Philadelphia-chromosome positive acute lymphoblastic leukemia (Ph+ ALL) who are resistant to dasatinib; who are intolerant to dasatinib and for whom subsequent treatment with imatinib is not clinically appropriate; or who have the T315I mutation.

Clinical Programs in Oncology

We believe that the future of cancer treatment lies in the use of immune therapies, which seek to recruit the patient’s own immune system to tackle cancer, and targeted therapies, which aim to block, directly or indirectly, the effects of cancer-causing mutations. Our most advanced programs are detailed below.

We also have a number of other early programs at various stages of preclinical and clinical testing. We intend to describe these programs once we have obtained clinical proof‑of‑concept and established that a compound within a specific program warrants further development.

Targeted Therapies

Building upon positive, independently published third-party data of ruxolitinib in graft-versus-host-disease (GVHD), we are preparing to initiate a U.S. registration program for ruxolitinib in GVHD in the second half of 2016. In June 2016, we announced that the FDA granted Breakthrough Therapy Designation for ruxolitinib in patients with acute GVHD. In April 2016, we announced an agreement with Eli Lilly and Company enabling us to develop and commercialize ruxolitinib in the U.S. for the treatment of GVHD. We also announced an agreement with Novartis granting Novartis exclusive research, development and commercialization rights for ruxolitinib in GVHD outside the U.S. A proof-of-concept trial of INCB39110, a selective JAK1 inhibitor, is also underway for the treatment of patients with GVHD.

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GVHD is a condition that can occur after an allogeneic transplant (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 the body. We estimate that the long-term survival in patients with corticosteroid-refractory GVHD is approximately 5% to 30% and that the diagnosed incidence of acute and chronic GVHD is approximately 17,000 per year across the U.S. and Europe.

We have a portfolio of wholly-owned selective JAK1 inhibitors, including INCB39110 and INCB52793. The clinical program to evaluate INCB39110 in solid tumors includes a clinical trial in combination with the EGFR inhibitor osimertinib. We have another JAK1 inhibitor, INCB52793, which is in a Phase I/II trial in patients with advanced malignancies.

The PI3K‑delta pathway mediates oncogenic signaling in B cell malignancies. A Phase I/II trial of INCB50465, our second generation PI3K-delta inhibitor, is underway both as monotherapy and in combination with the JAK1 inhibitor INCB39110. In‑house preclinical studies have demonstrated that the JAK1 and PI3K‑delta signaling pathways play inter‑related functions in maintaining the growth and survival of B‑lymphoid cells, and the data suggest that concurrent inhibition of the two pathways may achieve synergistic cellular efficacy.

INCB54828 is an inhibitor of the FGFR isoforms 1, 2 and 3 that has demonstrated potency and selectivity in preclinical studies. The FGFR family of receptor tyrosine kinases can act as oncogenic drivers in a number of liquid and solid tumor types. INCB54828 is currently being studied in an open-label, dose-escalation trial in patients with advanced malignancies. A Phase II trial of INCB54828 in patients with bladder cancer harboring FGF/FGFR alterations is expected to be initiated in the second half of 2016.

INCB54329 is a BRD inhibitor. BRDs are a family of proteins which play important roles in mediating gene transcription, most notably by facilitating the expression of oncogenes such as MYC, one of the most frequently dysregulated oncogenes in all human cancer. INCB54329 is being studied in an open-label dose-escalation trial in patients with advanced malignancies.

INCB53914 is a pan-PIM kinase inhibitor that has demonstrated potency and selectivity in preclinical studies. PIM kinases integrate signals from multiple pathways important for the survival and proliferation of malignant cells. Over expression of PIM kinases has been reported in human hematological cancers with each isoform showing a distinct expression pattern among the various malignancy subtypes. A clinical trial of INCB53914 in advanced malignancies is underway.

INCB59872 is an LSD1 inhibitor. LSD1 is a key enzyme that is involved in epigenetic regulation of gene transcription. Dysregulated LSD1 activity can perturb normal gene expression, leading to cellular transformation.  In particular, the function of LSD1 has been reported to maintain stem cell-like gene expression patterns in various cancers, including acute myeloid leukemia and small cell lung cancer. A proof-of-concept clinical trial of INCB59872 is underway.

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		Indication	Status Update
Ruxolitinib (JAK1/JAK2)		Graft-versus-host-disease	Pivotal program expected to begin in the second half of 2016
INCB39110 (JAK1)		Graft-versus-host-disease	Phase I/II fully recruited, data expected by the end of 2016
INCB39110 (JAK1)		Lung cancer	Phase I/II in combination with osimertinib (EGFR) expected to initiate in the second half of 2016
INCB52793 (JAK1)		Advanced malignancies	Phase I/II dose-escalation
INCB50465 (PI3Kδ)		B-cell malignancies	Phase I/II as monotherapy and in combination with INCB39110 (JAK1)
INCB54828 (FGFR)		Bladder cancer	Phase II expected to initiate in the second half of 2016
INCB54329 (BRD)		Advanced malignancies	Phase I/II dose-escalation
INCB53914 (PIM)	Advanced malignancies		Phase I/II dose-escalation
INCB59872 (LSD1)	Acute myeloid leukemia, small cell lung cancer		Phase I/II dose-escalation

Immune Therapies

The enzyme indoleamine 2, 3‑dioxygenase‑1 (IDO1) is a key regulator of the mechanisms that are responsible for allowing tumors to escape from a patient’s immune surveillance. IDO1 expression by tumor cells, or by antigen presenting cells such as macrophages and dendritic cells in tumors, creates an environment in which tumor specific cytotoxic T lymphocytes are rendered functionally inactive or are no longer able to attack a patient’s cancer cells. By inhibiting IDO1, it is proposed that this “brake” on the anti‑tumor immune response is removed, allowing anti‑tumor specific cytotoxic T cells, generated in a patient spontaneously in response to the tumor, or through a therapy designed to stimulate the immune response, to have greater anti‑tumor efficacy.

Epacadostat is a novel, potent and selective inhibitor of the enzyme IDO1. We believe that the optimal development strategy for epacadostat is for the compound to be developed in combination with other immuno‑oncology agents. During 2014, we signed clinical trial collaboration agreements with Merck, Bristol-Myers Squibb, AstraZeneca / MedImmune and Roche / Genentech to evaluate epacadostat with their respective anti-PD-1 and anti-PD-L1 agents in Phase I/II trials, and all four of these trials are in progress. We have global development and commercialization rights to epacadostat for all indications.

In October 2015, we and Merck announced an expansion of the companies’ ongoing clinical trial collaboration to include ECHO-301, a Phase III study evaluating the combination of epacadostat with pembrolizumab as a first-line treatment for patients with advanced or metastatic melanoma. This trial is now underway.

INCSHR1210 is an anti-PD-1 monoclonal antibody that we have licensed under our agreement with Jiangsu Hengrui Medicine Co., Ltd. (Hengrui). Many tumor cells express PD-L1, an immunosuppressive PD-1 ligand. Inhibition of the interaction between PD-1 and PD-L1, known as immune checkpoint blockade, can enhance T-cell responses and mediate preclinical antitumor activity. A proof-of-concept clinical trial of INCSHR1210 in patients with advanced solid tumors is ongoing.

INCAGN1876 is an anti-GITR agonist antibody and is a program within our antibody discovery and development collaboration with Agenus Inc. GITR is a costimulatory receptor that is expressed on effector T cells and is important for T cell survival and enhanced cytokine production. It is also expressed on regulatory T cells and can abrogate their suppressive function. Preclinical data demonstrate that anti-GITR agonist antibodies inhibit tumor growth by enhancing the levels and function of effector T cells and by decreasing regulatory T cells. A proof-of-concept clinical trial of INCAGN1876 has been initiated.

We have also launched two platform studies to investigate the effects of PD-1, JAK1, IDO1 and PI3Kδ inhibition on the tumor microenvironment. The PD-1 platform study is investigating the effects of adding either INCB39110 (JAK1) or INCB50465 (PI3Kδ) to pembrolizumab (PD-1). The JAK1 platform study is investigating all-

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oral doublets combining either INCB50465 (PI3Kδ) or epacadostat (IDO1) with INCB39110 (JAK1).

	Indication	Status Update
Epacadostat (IDO1)	1st line, advanced melanoma	Phase III (ECHO-301) in combination with Merck’s pembrolizumab (PD-1)
	Multiple tumor types	Phase II (ECHO-202) expansion cohorts in combination with Merck’s pembrolizumab (PD-1)
	Multiple tumor types	Phase II (ECHO-204) expansion cohorts in combination with Bristol-Myers Squibb’s nivolumab (PD-1)
	Multiple tumor types	Phase II (ECHO-203) expansion cohorts in combination with AstraZeneca/MedImmune’s durvalumab (PD-L1)
	Non-small cell lung cancer	Phase I/II (ECHO-110) dose-escalation in combination with Roche/Genentech’s atezolizumab (PD-L1)
INCSHR1210 (PD-1, licensed from Hengrui)	Solid tumors	Phase I/II dose-escalation
INCAGN1876 (GITR, co-developed with Agenus)	Solid tumors	Phase I/II dose-escalation
INCAGN1949 (OX40, co-developed with Agenus)	Solid tumors	Phase I/II dose-escalation expected to begin in the second half of 2016
PD-1 platform study	Solid tumors	Phase I/II, pembrolizumab (PD-1) in combination with INCB39110 (JAK1) or INCB50465 (PI3Kδ)
JAK1 platform study	Solid tumors	Phase I/II, INCB39110 (JAK1) in combination with epacadostat (IDO1) or INCB50465 (PI3Kδ)

Clinical Programs outside Oncology

In October 2015, we initiated a Phase II trial of ruxolitinib cream for the topical treatment of alopecia areata. This study builds on published data showing efficacy of oral JAK inhibitors, including ruxolitinib, in alopecia areata. Alopecia areata is an autoimmune skin disease resulting in the loss of hair on the scalp and elsewhere on the body. Alopecia areata occurs in males and females of all ages, but onset often occurs in childhood. We estimate that over 6.6 million people in the United States and 147 million people worldwide have, had or will develop alopecia areata at some point in their lives.

	Indication	Status Update
Ruxolitinib (JAK1/JAK2)	Alopecia areata	Phase II (topical formulation1)

1. The Collaboration and License Agreement with Novartis for ruxolitinib ex-U.S. does not include topical   administration.

Partnered Programs

Baricitinib

We have a second JAK1 and JAK2 inhibitor, baricitinib, which is subject to our collaboration agreement with Eli Lilly and Company, in which Lilly received exclusive worldwide development and commercialization rights to the compound for inflammatory and autoimmune diseases. 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.

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In January 2016, Lilly submitted a New Drug Application (NDA) to the FDA and a Marketing Authorization Application (MAA) to the European Medicines Agency for baricitinib as treatment for mild-to-moderately severe rheumatoid arthritis. We have exercised our co-development option in rheumatoid arthritis to fund 30% of global development costs from Phase IIb through regulatory approval, including post-launch studies required by a regulatory authority, in exchange for increased tiered royalties ranging up to the high twenties on potential future sales.

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.

Psoriasis.  Baricitinib has completed a Phase II trial as a treatment for psoriasis. Psoriasis is a skin disease that causes visible scaling and inflammation. Most psoriasis patients have patches of thick, red skin with silvery scales that can occur on the elbows, knees, other parts of the legs, scalp, lower back, face, palms, and soles of the feet. The U.S. psoriasis market consists of approximately six million patients, of which moderate‑to‑severe patients account for approximately 20% of the market.  We decided not to exercise our co-development option for psoriasis, and in July 2016, Lilly disclosed that it will no longer seek further development of baricitinib for the treatment of patients with psoriasis.

Atopic Dermatitis. Lilly has initiated a Phase IIa trial 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. A recent study of six patients with moderate to severe atopic dermatitis who had failed standard treatment showed that treatment with the JAK inhibitor tofacitinib showed promising results. Therefore, we believe that inhibiting cytokine pathways dependent on JAK1 and JAK2 may lead to positive clinical outcomes in atopic dermatitis.

Systemic Lupus Erythematosus. Lilly has initiated a Phase II trial to evaluate the safety and efficacy of baricitinib in patients with systemic lupus erythematosus (SLE). Baricitinib’s activity profile suggests that it inhibits cytokines implicated in SLE such as type I interferon (IFN), type II IFN-γ, IL-6, and IL-23 as well as other cytokines that may have a role in SLE, including granulocyte macrophage colony stimulating factor (GM-CSF) and IL-12. The potential impact of baricitinib on the IFN pathway is highly relevant to SLE, as clinical and preclinical studies have established that this pathway is involved in the pathogenesis of SLE.

Capmatinib

Capmatinib is a potent and highly selective c-MET inhibitor. The investigational compound has demonstrated inhibitory activity in cell-based biochemical and functional assays that measure c-MET signaling and c-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, glioblastoma multiforme and other solid tumors, and may have potential utility as a combination agent.

c‑MET is a clinically validated receptor kinase cancer target. Abnormal c‑MET activation in cancer correlates with poor prognosis. Dysregulation of the c‑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 c‑MET pathway is seen in many types of cancers, including lung, kidney, liver, stomach, breast and brain.

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		Indication		Status Update
Baricitinib (JAK1/JAK2) (licensed to Lilly)	Rheumatoid arthritis		NDA and MAA submitted
	Atopic dermatitis, systemic lupus erythematosus		Phase II
Capmatinib (c-MET, licensed to Novartis)	Non-small cell lung cancer, glioblastoma, liver cancer		Phase II in EGFR wild-type ALK negative NSCLC patients with c-MET amplification and mutation

License Agreements and Business Relationships

As part of our business strategy, 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

In November 2009, we entered into a Collaboration and License Agreement with Novartis. Under the terms of the agreement, Novartis received exclusive development and commercialization rights outside of the United States to ruxolitinib and certain back‑up compounds for hematologic and oncology indications, including all hematological malignancies, solid tumors and myeloproliferative diseases. We retained exclusive development and commercialization rights to JAKAFI (ruxolitinib) in the United States and in certain other indications. Novartis also received worldwide exclusive development and commercialization rights to our c‑MET inhibitor compound capmatinib and certain back‑up compounds in all indications. We retained options to co‑develop and to co‑promote capmatinib in the United States.

Under this agreement, we received an upfront payment and immediate milestone payment totaling $210 million and were initially eligible to receive additional payments of up to approximately $1.2 billion if defined development and commercialization 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 of the United States, and tiered, worldwide royalties on future capmatinib net sales that range from 12 to 14 percent. 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 within the 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.

In April 2016, we amended this agreement to provide that Novartis has exclusive research, development and commercialization rights outside of the United States to ruxolitinib (excluding topical formulations) in the graft-versus-host-disease (“GVHD”) field. Under this amendment, we received a $5 million payment in exchange for the development and commercialization rights to ruxolitinib in GVHD outside of the United States and became eligible to receive up to $75 million of additional potential development and regulatory milestones relating to GVHD. 

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 (1) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (2) the expiration of regulatory exclusivity for the licensed product in such country and (3) 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.

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Lilly

In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly. Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to baricitinib and certain back‑up compounds for inflammatory and autoimmune diseases. We received an initial payment of $90 million, and were initially eligible to receive additional payments of up to $665 million based on the achievement of defined development, regulatory and commercialization 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. We previously had retained an option to co-promote products in the United States but, in March 2016, we waived our co-promotion option as part of an amendment to the agreement. 

In July 2010, we elected to co‑develop baricitinib with Lilly in rheumatoid arthritis and we are responsible for funding 30% of the associated future global development costs for this indication from the initiation of the Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority. Baricitinib is also being developed in atopic dermatitis and systemic lupus erythematosus.

In March 2016, we entered into an amendment to the agreement with Lilly that allows us to engage in the development and commercialization of ruxolitinib in the GVHD field. We paid Lilly an upfront payment of $35 million and Lilly is eligible to receive up to $40 million in additional regulatory milestone payments relating to ruxolitinib in the GVHD field.

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 (1) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (2) the expiration of regulatory exclusivity for the licensed product in such country and (3) 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

In January 2015, we entered into a License, Development and Commercialization Agreement with Agenus Inc. and its wholly‑owned subsidiary, 4‑Antibody AG, 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’ proprietary antibody discovery platforms.

Under the terms of this agreement, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG‑3 and TIM‑3. In addition to the initial four program targets, we and Agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration, and in November 2015, three more targets were added. Targets may be designated profit‑share programs, where all costs and profits are shared equally by us and Agenus, or royalty‑bearing programs, where we will be responsible for all costs associated with discovery, preclinical activities, clinical development and commercialization activities. The programs relating to GITR and OX40 and two of the undisclosed targets are profit‑share programs while the other targets currently under collaboration are royalty‑bearing programs.  All costs related to the collaboration are subject to a joint research plan. For each royalty‑bearing product, Agenus will be eligible to receive up to $155 million in future contingent development, regulatory and commercialization milestones as well as tiered royalties on global net sales ranging from 6% to 12%. For each profit‑share product, Agenus will be eligible to receive up to $20 million in future contingent development milestones. Additionally, Agenus retains co‑promotion participation rights in the United States on any profit‑share product. For each royalty‑bearing product, Agenus has reserved the right to elect to co‑fund 30% of development costs for a commensurate increase in royalties. 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. We agreed to certain standstill provisions that allow us to acquire up to 15% of Agenus Inc.’s outstanding voting stock, including shares acquired pursuant to the Stock Purchase Agreement described below, solely for investment purposes.

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In January 2015, we also entered into a Stock Purchase Agreement with Agenus Inc., pursuant to which we purchased approximately 7.76 million shares of Agenus Inc. common stock for an aggregate purchase price of $35 million in cash, or approximately $4.51 per share. We agreed not to dispose of any of the shares of common stock for a period of 12 months and Agenus Inc. has agreed to certain registration rights with respect to the shares of common stock.

Hengrui

In September 2015, we entered into a License and Collaboration Agreement with Hengrui.  Under the terms of this agreement, we received exclusive development and commercialization rights worldwide, with the exception of Mainland China, Hong Kong, Macau and Taiwan, to INCSHR1210, an investigational PD-1 monoclonal antibody, and certain back-up compounds.  We paid to Hengrui an upfront payment of $25 million. Hengrui is also eligible to receive potential milestone payments of up to $770 million, consisting of $90 million for regulatory approval milestones, $530 million for commercial performance milestones, and $150 million for a clinical superiority milestone.  Also, Hengrui may be eligible to receive tiered royalties in the high single digits to mid-double digits based on net sales in our territories. Each company will be responsible for costs relating to the development and commercialization of the PD-1 monoclonal antibody in its respective territories.

The agreement will continue on a country-by-country basis until we have no royalty payment obligations with respect to such country or, if earlier, the termination of the agreement in accordance with its terms. The agreement may be terminated in its entirety by us for convenience, and may also be terminated under certain other circumstances, including material breach.

ARIAD Pharmaceuticals (Luxembourg) S.a.r.l. Acquisition

In June 2016, we completed the previously announced acquisition (the “Acquisition”) from ARIAD Pharmaceuticals, Inc. of all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l., the parent company of ARIAD’s European subsidiaries responsible for the development and commercialization of ICLUSIG in the European Union and other countries, including Switzerland, Norway, Turkey, Israel and Russia, in exchange for an upfront payment of $147.5 million, including customary working capital adjustments.  We obtained an exclusive license to develop and commercialize ICLUSIG in Europe and other select countries. ARIAD will be eligible to receive from us tiered royalties on net sales of ICLUSIG in our territory and up to $135 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. We will also fund a portion of the ongoing clinical development of ICLUSIG through cost-sharing payments of up to $7 million in each of 2016 and 2017.

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 on-going 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 affect the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

· Revenue recognition;

· Research and development costs;

· Stock compensation;

· Investments;

· Inventory;

· Convertible debt accounting;

· Income taxes; 

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· Business combinations; and

· Contingent consideration.

Revenue Recognition. Revenues are recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until no further obligations exist. We exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenues

Our product revenues consist of U.S. sales of JAKAFI and European sales of ICLUSIG.  Product revenues are recognized once we meet all four revenue recognition criteria described above. In November 2011, we began shipping JAKAFI to our customers in the U.S., which include specialty pharmacies and wholesalers. In June 2016, we acquired the right to and began shipping ICLUSIG to our customers in the European Union and certain other jurisdictions, which include retail pharmacies, hospital pharmacies and distributors.

We recognize revenues for product received by our customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S. Product shipping and handling costs are included in cost of product revenues.

Customer Credits:  Our customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts. We expect our customers will earn prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted from total product sales as they are earned.

Rebates and Discounts:  Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program in the U.S. and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers for healthcare. Rebate amounts are based upon contractual agreements or legal requirements with public sector benefit providers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product 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, which currently consist primarily of group purchasing organizations, Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers. Contracted customers generally purchase the product at a discounted price. The wholesalers, in turn, charges back to us the difference between the price initially paid by the wholesalers and the discounted price paid by the contracted customers. In addition to actual chargebacks received, we maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our distribution channel.  If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Medicare Part D Coverage Gap:  Medicare Part D prescription drug benefit mandates manufacturers to fund 50% 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.

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Co-payment Assistance:  Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. We accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Royalty Revenues

Royalty revenues on commercial sales for JAKAVI by Novartis are estimated based on information provided by Novartis. 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 in the period of adjustment.

Cost of Product Revenues

Cost of product revenues includes all JAKAFI related product as well as ICLUSIG related product costs. The acquired ICLUSIG inventories were recorded at fair value less costs to sell in connection with the Acquisition, and will result in higher cost of ICLUSIG product revenues over the next twelve months.  In addition, cost of product revenues include low single digit royalties under our collaboration and license agreement to Novartis on all future sales of JAKAFI in the United States. Subsequent to the Acquisition on June 1, 2016, cost of product revenues also includes the amortization of our licensed intellectual property for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.    

Contract and License Revenues

Under agreements involving multiple deliverables, services and/or rights to use assets that we entered into prior to January 1, 2011, the multiple elements are divided into separate units of accounting when certain criteria are met, including whether the delivered items have stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. When separate units of accounting exist, consideration is allocated among the separate elements based on their respective fair values. The determination of fair value of each element is based on objective evidence from historical sales of the individual elements by us to other customers. If such evidence of fair value for each undelivered element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value for each undelivered element does exist or until all elements of the arrangement are delivered. When elements are specifically tied to a separate earnings process, revenue is recognized when the specific performance obligation tied to the element is completed. When revenues for an element are not specifically tied to a separate earnings process, they are recognized ratably over the term of the agreement. We assess whether a substantive milestone exists at the inception of our agreements. For all milestones within our arrangements that are considered substantive, we recognize revenue upon the achievement of the associated milestone. If a milestone is not considered substantive, we would recognize the applicable milestone payment over the remaining period of performance under the arrangement. As of June 30, 2016, all remaining potential milestones under our collaborative arrangements are considered substantive.

On January 1, 2011, updated guidance on the recognition of revenues for agreements with multiple deliverables became effective and applies to any agreements we may enter into on or after January 1, 2011. This updated guidance (i) relates to whether multiple deliverables exist, how the deliverables in a revenue arrangement should be separated and how the consideration should be allocated; (ii) requires companies to allocate revenues in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price; and (iii) eliminates the use of the residual method and requires companies to allocate revenues using the relative selling price method. During the six months ended June 30, 2016 and 2015, we did not enter into any agreements that are subject to this updated guidance. If we enter into an agreement with multiple deliverables after January 1, 2011 or amend existing agreements, this updated guidance could have a material effect on our financial statements.

Our collaborations often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and commercialization events. These three categories of milestone events reflect the three stages of the life-cycle of our drugs, which we describe in more detail in the following paragraphs.

The regulatory review and approval process, which includes preclinical testing and clinical trials of each drug candidate, is lengthy, expensive and uncertain. Securing approval by the U.S. Food and Drug Administration (FDA) requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish a drug candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies. Before commencing clinical investigations of a drug candidate in humans, we must submit an Investigational New Drug application (IND), which must be reviewed by the FDA.

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The steps generally required before a drug may be marketed in the United States include preclinical laboratory tests, animal studies and formulation studies, submission to the FDA of an IND for human clinical testing, performance of adequate and well-controlled clinical trials in three phases, as described below, to establish the safety and efficacy of the drug for each indication, submission of a new drug application (NDA) or biologics license application (BLA) to the FDA for review and FDA approval of the NDA or BLA.

Similar requirements exist within foreign regulatory agencies as well. The time required satisfying the FDA requirements or similar requirements of foreign regulatory agencies may vary substantially based on the type, complexity and novelty of the product or the targeted disease.

Preclinical testing includes laboratory evaluation of product pharmacology, drug metabolism, and toxicity, which includes animal studies, to assess potential safety and efficacy as well as product chemistry, stability, formulation, development, and testing. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. The FDA may raise safety concerns or questions about the conduct of the clinical trials included in the IND, and any of these concerns or questions must be resolved before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to commence. Clinical trials involve the administration of the investigational drug or the marketed drug to human subjects under the supervision of qualified investigators and in accordance with good clinical practices regulations covering the protection of human subjects. Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Phase I usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its safety, dosage tolerance, absorption, metabolism, distribution and excretion. Phase II usually involves clinical trials in a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse effects and safety risks, and evaluate and gain preliminary evidence of the efficacy of the drug for specific indications. Phase III clinical trials usually further evaluate clinical efficacy and safety by testing the drug in its final form in an expanded patient population, providing statistical evidence of efficacy and safety, and providing an adequate basis for labeling. We cannot guarantee that Phase I, Phase II or Phase III testing will be completed successfully within any specified period of time, if at all. Furthermore, we, the institutional review board for a trial, or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

Generally, the milestone events contained in our collaboration agreements coincide with the progression of our drugs from development, to regulatory approval and then to commercialization. The process of successfully discovering a new development candidate, having it approved and successfully commercialized is highly uncertain. As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve. Therefore, as a drug candidate progresses through the stages of its life-cycle, the value of the drug candidate generally increases.

Research and Development Costs.  Our policy is to expense research and development costs as incurred. We often contract with clinical research organizations (CROs) to facilitate, coordinate and perform agreed upon research and development of a new drug. To ensure that research and development costs are expensed as incurred, we record monthly accruals for clinical trials and preclinical testing costs based on the work performed under the contract.

These CRO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical trial milestones. In the event that we prepay CRO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most professional fees, including project and clinical management, data management, monitoring, and medical writing fees are incurred throughout the contract period. These professional fees are expensed based on their percentage of completion at a particular date. Our CRO contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs, including shipping and printing fees. We expense the costs of pass through fees under our CRO contracts as they are incurred, based on the best information available to us at the time. The estimates of the pass through fees incurred are based on the amount of work completed for the clinical trial and are monitored through correspondence with the CROs, internal reviews and a review of contractual terms. The factors utilized to derive the estimates include the number of patients enrolled, duration of the clinical trial, estimated patient attrition, screening rate and length of the dosing regimen. CRO fees incurred to set up the clinical trial are expensed during the setup period.

Under our clinical trial collaboration agreements, we may be reimbursed for certain development costs incurred.  Such costs are recorded as a reduction of research and development expense in the period in which the related expense is incurred.

Stock Compensation.  Share-based payment transactions with employees, which include stock options, restricted stock units (RSUs) and performance shares (PSUs), are recognized as compensation expense over the requisite service period based on their estimated fair values on the dates of grant.  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

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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, which are generally subject to cliff vesting, are recognized as compensation expense over the requisite service period using the straight line 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, over the remaining requisite service period. We recorded $21.3 million and $42.1 million of stock compensation expense for the three and six months ended June 30, 2016, respectively. We recorded $17.6 million and $35.2 million of stock compensation expense for the three and six months ended June 30, 2015, respectively.

Investments.  We carry our investments at their respective fair values. We periodically evaluate the fair values of our investments to determine whether any declines in the fair value of investments represent an other-than-temporary impairment. This evaluation consists of a review of several factors, including the length of time and extent that a security has been in an unrealized loss position, the existence of an event that would impair the issuer’s future repayment potential, the near term prospects for recovery of the market value of a security and if we intend to sell or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If management determines that such an impairment exists, we would recognize an impairment charge. Because we may determine that market or business conditions may lead us to sell our marketable securities prior to maturity, we classify our marketable securities as “available-for-sale.” Investments in securities that are classified as available-for-sale and have readily determinable fair values are measured at fair market value in the balance sheets, and unrealized holding gains and losses for these investments are reported as a separate component of stockholders’ equity until realized. We classify marketable securities that are available for use in current operations as current assets on the condensed consolidated balance sheets.

We carry our long term investment in Agenus at fair value on the condensed consolidated balance sheets.  Fair value of the long term investment is based on the quoted market price of Agenus as of the balance sheet date.   All changes in fair value are reported in our condensed consolidated statements of operations as an unrealized gain (loss) on long term investment.

Inventory.  Inventories are determined at the lower of cost or market value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods. We began capitalizing inventory in mid-November 2011 once the U.S. Food and Drug Administration (“FDA”) approved JAKAFI as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to approval of JAKAFI have been recorded as research and development expense in our statements of operations. As a result, cost of JAKAFI revenues for the next 3 to 6 months will reflect a lower average per unit cost of materials. The ICLUSIG inventories acquired on June 1, 2016 in connection with the Acquisition were recorded at fair value less costs to sell, which will result in a higher cost of ICLUSIG revenues for the next twelve months. 

JAKAFI raw materials and work-in-process inventory is not subject to expiration and the shelf life of finished goods inventory is 36 months from the start of manufacturing of the finished goods. ICLUSIG finished goods inventory has a shelf life of 24 months from the start of manufacturing of the finished goods.  We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. We classify inventory as current on the condensed consolidated balance sheets when we expect inventory to be consumed for commercial use within the next twelve months.

Convertible Debt Accounting.  We perform an assessment of all embedded features of a debt instrument to determine if (1) such features should be bifurcated and separately accounted for, and (2) if bifurcation requirements are met, whether such features should be classified and accounted for as equity or liability instruments. If the embedded feature meets the requirements to be bifurcated and accounted for as a liability, the fair value of the embedded feature is measured initially, included as a liability on the condensed consolidated balance sheets, and re-measured to fair value at each reporting period. Any changes in fair value are recorded in the condensed consolidated statement of operations. We monitor, on an ongoing basis, whether events or circumstances could give rise to a change in our classification of embedded features.

We determined the embedded conversion options in the 0.375% convertible senior notes due 2018 (the 2018 Notes) and the 1.25% convertible senior notes due 2020 (the 2020 Notes) are not required to be separately accounted for as derivatives. However, since the 2018 Notes and the 2020 Notes can be settled in cash or common shares or a combination of cash and common shares at our option, we are required to separate the 2018 Notes and 2020 Notes into a liability and equity component. The carrying amount of the liability component is calculated by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity component representing the embedded conversion option is determined by deducting the fair value of the liability component from the initial proceeds. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the expected life of the 2018 Notes and 2020 Notes using the effective interest method. The

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equity component is not re-measured as long as it continues to meet the conditions for equity classification for contracts in an entity’s own equity.

The fair value of the liability component of the 2018 Notes was estimated at $299.4 million at issuance. Therefore, the difference between the $375.0 million face value of the 2018 Notes and the $299.4 million estimated fair value of the liability component will be amortized to interest expense over the term of the 2018 Notes through November 15, 2018 using the effective interest method.

The fair value of the liability component of the 2020 Notes was estimated at $274.8 million at issuance. Therefore, the difference between the $375.0 million face value of the 2020 Notes and the $274.8 million estimated fair value of the liability component will be amortized to interest expense over the term of the 2020 Notes through November 15, 2020 using the effective interest method.

The estimated fair value of the liability components at the date of issuance for the 2018 Notes and 2020 Notes were determined using valuation models and are complex and subject to judgment. Significant assumptions within the valuation models included an implied credit spread, the expected volatility and dividend yield of our common stock and the risk free interest rate for notes with a similar term.

Prior to May 14, 2014, the 2018 Notes and 2020 Notes were not convertible except in connection with a make-whole fundamental change, as defined in the respective indentures. Beginning on, and including, May 15, 2014, the 2018 Notes and 2020 Notes are convertible prior to the close of business on the business day immediately preceding May 15, 2018, in the case of the 2018 Notes, and May 15, 2020, in the case of the 2020 Notes, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2018 Notes or 2020 Notes, as applicable, on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of 2018 Notes or 2020 Notes, as applicable, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2018 Notes or 2020 Notes, as applicable, on each such trading day; or (3) upon the occurrence of specified corporate events. On or after May 15, 2018, in the case of the 2018 Notes, and May 15, 2020, in the case of the 2020 Notes, until the close of business on the second scheduled trading day immediately preceding the relevant maturity date, the Notes are convertible at any time, regardless of the foregoing circumstances. Upon conversion we will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election.

On a quarterly basis, we perform an assessment in order to determine whether the 2018 Notes or 2020 Notes have become convertible at the option of the holder, based on meeting any of the conversion criteria described above. Should either the 2018 Notes or the 2020 Notes become convertible, we then assess our intent and ability to settle the 2018 Notes or the 2020 Notes in cash, shares of common stock, or a combination of cash and shares of common stock, in order to determine the appropriate classification of the 2018 Notes and the 2020 Notes at the balance sheet date. On July 1, 2016, the 2018 Notes and 2020 Notes became convertible through at least September 30, 2016, based on meeting the conversion criteria related to the sale price of our common stock during the calendar quarter ended June 30, 2016 as described above. Management’s intent is to settle any conversions of 2018 Notes or 2020 Notes in common shares and, therefore, the 2018 and 2020 Notes are reflected in long term liabilities on the condensed consolidated balance sheet as of June 30, 2016.

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 realizable.  Our assessment considers recent cumulative earnings experience, estimated future taxable income and ongoing prudent and feasible tax planning strategies.  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 do not recognize a tax benefit for an uncertain tax position unless it is more-likely-than-not that the position will be sustained upon examination 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.

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All tax effects associated with intercompany transfers of assets within our consolidated group are recorded as a prepaid tax or deferred charge and recognized through the consolidated statement of operations when the asset is sold to a third party or otherwise recovered through amortization of the asset's remaining economic life. 

Business combinations.Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions.  Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.  Transaction costs are expensed as incurred.  The operating results of the acquired business are reflected in our consolidated financial statements after the date of acquisition. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use.  When the related research and development is completed, the asset will be assigned a useful life and amortized.  Acquired intellectual property rights are recognized at fair value and amortized over the estimated useful life.

The fair value of an IPR&D intangible asset acquired in the Acquisition was determined using an income approach.  The assumptions used to estimate the cash flows of the IPR&D (which relates to the potential approval of ICLUSIG as a second line treatment) included a probability of technical success (“PTS”) of 25%, discount rate of 16%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as probability weighted milestone payments estimated for 2020 related to the clinical results and potential approval of ICLUSIG in second line.

The fair value of licensed intellectual property rights acquired in the Acquisition was determined using an income approach. The assumptions used to estimate the cash flows of the licensed intellectual property from the Acquisition included a discount rate of 15%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as the $7.0 million of research and development cost sharing payments we will owe in 2016 and 2017. 

Indefinite-lived intangible assets, including IPR&D, are tested for impairment annually or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired.  Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of the asset to its carrying value.

Long-lived assets, including licensed intellectual property rights, with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset.  If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed.  Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level.  A reporting unit is the same as, or one level below, an operating segment. Our operations are currently comprised of a single, entity wide reporting unit.

Acquisition-related contingent consideration.  Acquisition-related contingent consideration, which consists of our future royalty and certain potential milestone obligations to ARIAD, is recorded on the acquisition date at the estimated fair value of the obligation, in accordance with the acquisition method of accounting.  The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations. 

The preliminary fair value of contingent consideration was determined using an income approach based on estimated ICLUSIG revenues in the Territory for both the approved third line treatment, as well as the second line treatment which is currently under development and is therefore contingent on future clinical results and European Medicines Agency approval. The PTS of the second line indication was estimated at 25% based on the early stage of development and competitive market landscape, and the estimated future cash flows for the second line indication were probability weighted accordingly. The total projected cash flows of the third line and second line indications were estimated over 18 years, and discounted to present value using a discount rate of 10%. In addition, based on the believed limited effectiveness of ICLUSIG beyond the existing oncology indications, the fact that no development is currently ongoing for any new oncology or any non-oncology indications, and the lack of intention by us and ARIAD to develop

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ICLUSIG in additional oncology or non-oncology indications, the fair value of any cash flows for any new oncology or non-oncology was determined to be nil. 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which provides a five step approach to be applied to all contracts with customers. ASU No. 2014-09 also requires expanded disclosures about revenue recognition. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods therein.  Early adoption is permitted for reporting periods beginning after December 15, 2016.  We are currently analyzing the impact of ASU No. 2014-09 on our results of operations and, at this time, we are unable to determine the impact of the new standard, if any, on our condensed consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern,” to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year from the date the financial statements are issued. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We do not believe the pending adoption of ASU No. 2014-15 will have a material impact on our condensed consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis,” which affects reporting entities that are required to evaluate whether they should consolidate certain legal entities.  The amendments place more emphasis in the consolidation evaluation on variable interests other than fee arrangements such as principal investment risk (including debt or equity interests), guarantees of the value of the assets or liabilities of the VIE, written put options on the assets of the VIE, or similar obligations. Additionally, the amendments reduce the extent to which related party arrangements cause an entity to be considered a primary beneficiary. This guidance is to be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The amendments are effective for fiscal years beginning after December 15, 2015, and interim periods therein. We have concluded ASU No. 2015-03 has no impact on our condensed consolidated financial statements. 

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” that requires lessees to recognize assets and liabilities on the balance sheet for most leases including operating leases. Lessees now classify leases as either finance or operating leases and lessors classify all leases as sales-type, direct financing or operating leases.  The statement of operations presentation and expense recognition for lessees for finance leases is similar to that of capital leases under Accounting Standards Codification (“ASC”) 840 with separate interest and amortization expense with higher periodic expense in the earlier periods of a lease.  For operating leases, the statement of operations presentation and expense recognition is similar to that of operating leases under ASC 840 with single lease cost recognized on a straight-line basis. This guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements and is effective for annual periods beginning after December 15, 2018 and interim periods therein.  Early adoption is permitted.  We are currently analyzing the impact of ASU No. 2016-02 and, at this time, are unable to determine the impact of the new standard, if any, on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which changes the accounting for certain aspects of share-based payments to employees.  The new guidance requires excess tax benefits and tax deficiencies to be recorded in the statement of operations when the awards vest or are settled.  In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows.  The standard also clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the statement of cash flows, and provides an accounting policy election to account for forfeitures as they occur.  The new standard is effective for our calendar year beginning January 1, 2017.  Early adoption is permitted however all of the guidance must be adopted in the same period. 

We elected to early adopt ASU No. 2016-09 as of the first quarter of 2016 which required us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption.  The primary impact of adoption was the recognition of $325.6 million of accumulated excess tax benefits as deferred tax assets that under the previous guidance could not be recognized until the benefits were realized through a reduction in cash taxes paid.  This part of the guidance was applied using a modified retrospective method with a cumulative-effect adjustment to the accumulated deficit for the excess tax benefits not previously recognized. However, given the full

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valuation allowance placed on the additional $325.6 million of deferred tax assets, the recognition upon adoption had no impact to our accumulated deficit as of January 1, 2016.

Adoption of the standard also resulted in the recognition of excess tax benefits in our income tax provision rather than as paid-in capital. This guidance is to be applied prospectively and resulted in the recognition of $0.5 million of excess tax benefits in our income tax provision rather than paid-in capital for the six months ended June 30, 2016.  Amendments to the minimum statutory withholding tax requirements had no impact to the accumulated deficit as of January 1, 2016. In addition, we have elected to continue to estimate forfeitures expected to occur when determining the amount of compensation cost to be recognized in each period.

We elected to apply the presentation requirements for cash flows related to excess tax benefits prospectively which resulted in classification within operating cash flows of the excess tax benefits recognized during the three months ended March 31, 2016.  This classification is now consistent with all other cash flow impacts from income taxes. In addition, the amendments to the cash flow statement presentation to classify cash payments made on behalf of employees for shares withheld as a financing activity had no impact on our previously reported cash flows, as this requirement is consistent with our previous presentation of these cash flows.

Results of Operations

We recorded net income of $34.4 million and basic and diluted net income per share of $0.18 for the three months ended June 30, 2016, as compared to net income of $9.3 million and basic and diluted net income per share of $0.05 in the corresponding period in 2015.  We recorded net income of $58.5 million and basic and diluted net income per share of $0.31 and $0.30, respectively, for the six months ended June 30, 2016, as compared to a net loss of $9.1 million and basic and diluted net loss per share of $0.05 in the corresponding period in 2015.

Revenues.

	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2016		2015		2016		2015
	(in millions)				(in millions)
JAKAFI revenues, net	$	208.1	$	142.4	$	391.4	$	257.7
ICLUSIG revenues, net		4.0		—		4.0		—
Total product revenues, net	$	212.1	$	142.4	$	395.4	$	257.7
Product royalty revenues		26.0		17.4		47.9		33.0
Contract revenues		8.2		3.2		66.4		31.4
Other revenues		—		—		0.1		0.2
Total revenues	$	246.3	$	163.0	$	509.8	$	322.3

Our product revenues, net for the three and six months ended June 30, 2016 were $212.1 million and $395.4 million, respectively. Our product revenues, net for the three and six months ended June 30, 2015 were $142.4 million and $257.7 million, respectively. The increase in JAKAFI product revenues for the three months ended June 30, 2016 as compared to the corresponding period in 2015 was comprised of a volume increase of $48.6 million and a price increase of $17.1 million.  The increase in JAKAFI product revenues for the six months ended June 30, 2016 as compared to the corresponding period in 2015 was comprised of a volume increase of $106.1 million and a price increase of $27.6 million.  Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance. Our revenue recognition policies require estimates of the aforementioned sales allowances each period.

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The following table provides a summary of activity with respect to our sales allowances and accruals for the six months ended June 30, 2016:

					Co-Pay
	Discounts and		Government		Assistance
	Distribution		Rebates and		and Other		Product
Six Months Ended June 30, 2016	Fees		Chargebacks		Discounts		Returns		Total
Balance at January 1, 2016	$	3,069	$	10,766	$	247	$	1,815	$	15,897
ARIAD balances acquired on June 1, 2016		32		4,683		—		65		4,780
Allowances for current period sales		11,135		41,997		1,971		1,347		56,450
Allowances for prior period sales		244		(351)		(5)		—		(112)
Credits/payments for current period sales		(9,901)		(28,992)		(1,721)		(21)		(40,635)
Credits/payments for prior period sales		(1,658)		(7,489)		(129)		(359)		(9,635)
Balance at June 30, 2016	$	2,921	$	20,614	$	363	$	2,847	$	26,745

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 JAKAFI 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 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 by Novartis are based on net sales of licensed products in licensed territories as provided by Novartis. Our net product royalty revenues for the three and six months ended June 30, 2016 were $26.0 million and $47.9 million, respectively. Our net product royalty revenues for the three and six months ended June 30, 2015 were $17.4 million and $33.0 million, respectively.

Our contract revenues were $8.2 million and $66.4 million for the three and six months ended June 30, 2016, respectively. Our contract revenues were $3.2 million and $31.4 million for the three and six months ended June 30, 2015, respectively. For the three and six months ended June 30, 2016 and 2015, contract revenues were derived from the straight line recognition of revenue associated with the Lilly upfront fees over the estimated performance period as well as milestone payments from Lilly and Novartis earned during the periods. During the six months ended June 30, 2016, under the Novartis agreement, we recognized a $5.0 million payment for the development and commercialization of ruxolitinib in GVHD outside of the United States and under the Lilly agreement we recognized a $35.0 million regulatory milestone payment for the submission of an NDA to the FDA for the approval of oral once-daily baricitinib for the treatment of moderately-to-severely active rheumatoid arthritis and a $20.0 million regulatory milestone for the submission of a Marketing Authorization Application to the European Medicines Agency for the approval of oral once-daily baricitinib for the treatment of moderately-to-severely active rheumatoid arthritis. During the six months ended June 30, 2015, under the Novartis agreement, we recognized a $25.0 million regulatory milestone triggered by the Committee for Medicinal Products for Human Use of the European Medicines Agency adopting a positive opinion for JAKAVI (ruxolitinib) for the treatment of adult patients with polycythemia vera who are resistant to or intolerant of hydroxyurea.

Cost of Product Revenues.

Cost of product revenues includes all JAKAFI related product costs as well as ICLUSIG related product costs. We began capitalizing inventory in mid-November 2011 once the FDA approved JAKAFI as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to FDA approval of $9.6 million were recorded as research and development expenses in our statements of operations prior to commercialization of JAKAFI. At June 30, 2016, inventory with $1.1 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 3 to 6 months; however, the time period over which this inventory is consumed will depend on a number of factors, including the amount of future JAKAFI sales, and the ability to utilize inventory prior to its expiration date. As a result, cost of JAKAFI product revenues for the next 3 to 6 months will reflect a lower average per unit cost of materials. The

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ICLUSIG inventories acquired on June 1, 2016 were recorded at fair value less costs to sell, which will reflect a higher cost of ICLUSIG product revenues for the next twelve months. In addition, cost of product revenues includes low single digit royalties to Novartis on all sales of JAKAFI in the United States.  Subsequent to the acquisition on June 1, 2016 of ARIAD’s European operations, cost of product revenues also includes the amortization of our licensed intellectual property for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.

Cost of product revenues was $12.4 million and $18.4 million for the three and six months ended June 30, 2016, respectively. Cost of product revenues was $6.3 million and $9.2 million for the three and six months ended June 30, 2015, respectively. The increase in cost of product revenues for the three and six months ended June 30, 2016 as compared to the same periods in 2015 is due primarily to increased royalties to Novartis on all JAKAFI sales in the United States and amortization of our licensed intellectual property acquired on June 1, 2016.

Operating Expenses.

Research and development expenses.

	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2016		2015		2016		2015
	(in millions)				(in millions)
Salary and benefits related	$	32.6	$	25.4	$	64.8	$	51.6
Stock compensation		13.6		10.2		26.6		20.4
Clinical research and outside services		59.6		66.5		159.6		138.3
Occupancy and all other costs		14.5		10.3		26.1		20.5
Total research and development expenses	$	120.3	$	112.4	$	277.1	$	230.8

We currently account for research and development costs by natural expense line and not costs by project. Salary and benefits related expense increased from the three and six months ended June 30, 2015 to the three and six months ended June 30, 2016 due primarily to increased development headcount to sustain our development pipeline. Stock compensation expense may fluctuate from period to period based on the number of awards granted, stock price volatility and expected award lives, as well as expected award forfeiture rates which are used to value equity-based compensation. The increase in clinical research and outside services expense from the six months ended June 30, 2015 to the six months ended June 30, 2016 was primarily the result of increased development costs to advance our clinical pipeline, and the $35.0 million payment to acquire the rights from Lilly to develop ruxolitinib for the treatment of patients with graft-versus-host-disease, as well as an additional $8.1 million of research and development costs incurred under the Agenus  arrangement through June 30, 2016.  Research and development expenses for the three and six months ended June 30, 2016 and 2015 were net of $4.4 million, $7.3 million, $1.2 million and $2.4 million, respectively, of costs reimbursed by our collaborative partners. 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.

In July 2010, we elected to co-develop baricitinib with Lilly in rheumatoid arthritis and we are responsible for funding 30% of the associated future global development costs for this indication from the initiation of the Phase IIb trial through regulatory approval. Research and development expenses recorded under the Lilly agreement representing 30% of the global development costs for baricitinib for the treatment of rheumatoid arthritis were $5.3 million and $10.4 million for the three and six months ended June 30, 2016, respectively. Research and development expenses recorded under the Lilly agreement representing 30% of the global development costs for baricitinib for the treatment of rheumatoid arthritis were $10.3 million and $21.9 million for the three and six months ended June 30, 2015, respectively. We expect our share of the global development costs for baricitinib for the treatment of rheumatoid arthritis to decline following submission of the NDA filing by Lilly in January 2016. We have retained certain mechanisms to give us cost protection as baricitinib advances in clinical development. We can defer our portion of co-development study costs by indication if they exceed a predetermined level. This deferment would be credited against future milestones or royalties and we would still be eligible for the full incremental royalties related to the co-development option. In addition, even if we have started co-development funding for any indication, we can at any time opt out, which will 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-

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rated royalty commensurate with our contribution to the total co-development cost for those indications for which we contributed funding.

Selling, general and administrative expenses.

	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2016		2015		2016		2015
	(in millions)				(in millions)
Salary and benefits related	$	19.1	$	16.1	$	35.5	$	30.3
Stock compensation		7.7		7.4		15.5		14.7
Other contract services and outside costs		40.0		28.2		80.4		51.5
Total selling, general and administrative expenses	$	66.8	$	51.7	$	131.4	$	96.5

Salary and benefits related expense increased from the three and six months ended June 30, 2015 to the three and six months ended June 30, 2016 due to increased headcount. This increased headcount was due primarily to the ongoing commercialization efforts related to JAKAFI for intermediate or high-risk myelofibrosis and for the commercial launch in uncontrolled polycythemia vera which occurred in December 2014. Stock compensation expense may fluctuate from period to period based on the number of awards granted, stock price volatility and expected award lives, as well as expected award forfeiture rates which are used to value equity-based compensation. The increase in other contract services and outside costs was primarily the result of marketing activities for JAKAFI for intermediate or high-risk myelofibrosis and uncontrolled polycythemia vera in addition to an increase in donations to independent non-profit patient assistance organizations in the United States.

Change in fair value of acquisition-related contingent consideration

Acquisition-related contingent consideration, which consists of our future royalty and certain potential milestone obligations to ARIAD, 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 was remeasured as of June 30, 2016, resulting in a change in fair value of $2.3 million which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

Other income (expense).

Interest and other income, net. Interest and other income, net, for the three and six months ended June 30, 2016 was $1.1 million and $2.6 million, respectively. Interest and other income, net, for the three and six months ended June 30, 2015 was $1.1 million and $2.8 million, respectively.

Interest Expense.  Interest expense for the three and six months ended June 30, 2016 was $9.7 million and $19.8 million, respectively as compared to $11.5 million and $24.2 million for the same periods in 2015. Included in interest expense for the three and six months ended June 30, 2016 was $7.8 million and $15.6 million, respectively, of non-cash charges to amortize the discounts on the 2018 Notes and the 2020 Notes. Included in interest expense for the three and six months ended June 30, 2015 was $8.5 million and $17.8 million, respectively, of non-cash charges to amortize the discounts on the 4.75% convertible senior notes due 2015, the 2018 Notes and the 2020 Notes.

Unrealized loss on long term investment. The unrealized loss on our long term investment in Agenus for the three and six months ended June 30, 2016 was $0.9 million and $3.8 million, respectively, based on the change in fair value of Agenus’ common stock during the period.  The unrealized gain on our long term investment in Agenus for the three and six months ended June 30, 2015 was $27.2 million.

Liquidity and Capital Resources

We had net losses from inception in 1991 through 1996 and in 1999 through December 31, 2014. Because of those losses, we had an accumulated deficit of $1.7 billion as of June 30, 2016. 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. At June 30, 2016, we had available cash, cash equivalents and marketable securities of $629.2 million. Our cash and marketable securities balances are held in a variety of interest-bearing instruments, including money market accounts and corporate debt securities. Available cash is invested in accordance with our investment policy’s primary objectives of liquidity, safety of principal and diversity of investments.

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Net cash provided by operating activities was $115.1 million for the six months ended June 30, 2016, compared to $8.8 million provided by operating activities for the six months ended June 30, 2015.  The $106.3 million increase in cash provided by operating activities was due primarily to an increase in net income and changes in working capital during the 2016 period.

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 $186.5 million for the six months ended June 30, 2016, which represented purchases of marketable securities of $17.8 million, capital expenditures of $87.8 million, and acquisition of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l. for net cash of $144.8 million, offset in part by the sale and maturity of marketable securities of $63.9 million.  Net cash used in investing activities was $85.3 million for the six months ended June 30, 2015, which represented purchases of marketable securities of $80.2 million, capital expenditures of $5.7 million, and our long term investment in Agenus of $39.8 million, offset in part by the sale and maturity of marketable securities of $40.5 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 $37.6 million and $63.8 million for the six months ended June 30, 2016 and 2015, respectively, primarily representing proceeds from the issuance of common stock under our stock plans and employee stock purchase plan.

The following summarizes our significant contractual obligations as of June 30, 2016 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		1 - 3		4 - 5		5 Years
Contractual Obligations:
Principal on convertible senior debt	$	749.8	$	—	$	375.0	$	374.8	$	—
Interest on convertible senior debt		24.1		6.1		11.4		6.6		—
Non-cancelable lease obligations		21.6		8.2		9.5		1.7		2.2
Total contractual obligations	$	795.5	$	14.3	$	395.9	$	383.1	$	2.2

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.

We believe that our cash, cash equivalents and marketable securities will be adequate to satisfy our capital needs for at least the next twelve months. 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; competing technological and market developments; the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; 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 and Lilly; the extent to which commercialization of JAKAFI is successful; expenditures in connection with potential exchanges of our outstanding convertible senior notes; and expenditures in connection with strategic relationships and license agreements, including our agreements with Agenus, Hengrui, and ARIAD, strategic equity investments or potential acquisitions. Changes in our research and development or commercialization plans or other changes affecting our operating expenses may result in changes in the timing and amount of expenditures of our capital resources.

Until we can generate a sufficient amount of product revenues to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings, borrowings or strategic collaborations. 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. We do not know whether additional funding will be available on acceptable terms, if at all. If we are not able to secure additional funding when needed, we may have to scale back our operations, delay or eliminate one or more of our research or development programs, or attempt to obtain funds by entering into an agreement with a collaborator or licensee that would result in terms that are not favorable to us or relinquishing our rights in certain of our proprietary technologies or drug candidates.

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Off Balance Sheet Arrangements

We have no off-balance sheet arrangements other than those that are discussed above.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our investments in marketable securities, which are composed primarily of corporate debt securities, are subject to default, changes in credit rating and changes in market value. These investments are also subject to interest rate risk and will decrease in value if market rate interest rates increase. As of June 30, 2016, marketable securities were $141.5 million. Due to the nature of these investments, if market interest rates were to increase immediately and uniformly by 10% from levels as of June 30, 2016, the decline in fair value would not be material.

Item 4.  Controls and Procedures

Evaluation of disclosure controls and procedures.  We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal control over financial reporting. On June 1, 2016, we acquired all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l.  We are in the process of integrating the acquired ARIAD entities and our management is in the process of evaluating any related changes to our internal control over financial reporting as a result of this integration.  Except for any changes relating to this integration, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the six months ended June 30, 2016, that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II:OTHER INFORMATION

Item 1A.Risk Factors

RISKS RELATING TO COMMERCIALIZATION OF OUR PRODUCTS

We depend heavily on our lead product, JAKAFI (ruxolitinib), which is marketed as JAKAVI outside the United States. If we are unable to successfully commercialize JAKAFI in its approved indications or to successfully obtain regulatory approval for and commercialize ruxolitinib for the treatment of additional indications, or if we are significantly delayed or limited in doing so, our business may be materially harmed.

JAKAFI is our first and, currently, only product approved for sale in the United States. It was approved by the U.S. Food and Drug Administration, or FDA, in November 2011 for the treatment of patients with intermediate or high‑risk myelofibrosis and in December 2014 for the treatment of patients with polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea, which we refer to as uncontrolled polycythemia vera. Although we have received regulatory approval for these indications, such approval does not guarantee future revenues. While we recently acquired exclusive rights to develop and commercialize ICLUSIG in the European Union, or EU, and other

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countries, we anticipate that JAKAFI product sales will continue to contribute a significant percentage of our total revenues over the next several years.

The commercial success of JAKAFI and our ability to generate and maintain revenues from the sale of JAKAFI will depend on a number of factors, including:

· the number of patients with intermediate or high‑risk myelofibrosis or uncontrolled polycythemia vera who are diagnosed with the disease and the number of such patients that may be treated with JAKAFI;

· the acceptance of JAKAFI by patients and the healthcare community;

· whether physicians, patients and healthcare payors view JAKAFI as therapeutically effective and safe relative to cost and any alternative therapies;

· the ability to obtain and maintain sufficient coverage or reimbursement by third‑party payors;

· the ability of our third‑party manufacturers to manufacture JAKAFI in sufficient quantities with acceptable quality;

· the ability of our company and our third‑party providers to provide marketing and distribution support for JAKAFI;

· the label and promotional claims allowed by the FDA;

· the maintenance of regulatory approval for the approved indications in the United States; and

· our ability to develop, obtain regulatory approval for and commercialize ruxolitinib in the United States for additional indications.

If we are not successful in commercializing JAKAFI in the United States, or are significantly [delayed or] limited in doing so, our business may be materially harmed and we may need to delay other drug discovery and development initiatives or even significantly curtail operations.

In addition, our receipt of royalties under our collaboration agreement with Novartis for sales of JAKAVI outside the United States will depend on factors similar to those listed above for jurisdictions outside the United States.

If we are unable to obtain, or maintain at anticipated levels, reimbursement for our products from government health administration authorities, private health insurers and other organizations, our pricing may be affected or our product sales, results of operations or financial condition could be harmed.

We may not be able to sell our products on a profitable basis or our profitability may be reduced if we are required to sell our products at lower than anticipated prices or reimbursement is unavailable or limited in scope or amount. JAKAFI and ICLUSIG are expensive and almost all patients will require some form of third party coverage to afford their cost. Our future revenues and profitability will be adversely affected if we cannot depend on government and other third‑party payors to defray the cost of our products to the patient. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. Reimbursement in the EU must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. The timing to complete the negotiation process in each country is highly uncertain, and in some countries, we expect that it may exceed 12 months.  Risks related to pricing and reimbursement are described below under “—Other Risks Relating to our Business— Health care reform measures could impact the pricing and profitability of pharmaceuticals, and adversely affect the commercial viability of our drug candidates. Our ability to generate revenues will be diminished if we are unable to obtain an adequate level of reimbursement from private insurers, government insurance programs or other third party payors of health care costs, which could be affected by recent healthcare reform legislation.” If government and other third‑party payors refuse to provide coverage and reimbursement with respect to our products, determine to provide a lower level of coverage and reimbursement than anticipated, or reduce previously approved levels of coverage and reimbursement, then our pricing or reimbursement for our products may be affected and our product sales, results of operations or financial condition could be harmed.

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We depend upon a limited number of specialty pharmacies and wholesalers for a significant portion of any revenues from JAKAFI, and the loss of, or significant reduction in sales to, any one of these specialty pharmacies or wholesalers could adversely affect our operations and financial condition.

We sell JAKAFI primarily to specialty pharmacies and wholesalers. Specialty pharmacies dispense JAKAFI to patients in fulfillment of prescriptions and wholesalers sell JAKAFI to hospitals and physician offices. We do not promote JAKAFI to specialty pharmacies or wholesalers, and they do not set or determine demand for JAKAFI. Our ability to successfully commercialize JAKAFI will depend, in part, on the extent to which we are able to provide adequate distribution of JAKAFI to patients. Although we have contracted with a number of specialty pharmacies and wholesalers, they are expected generally to carry a very limited inventory and may be reluctant to be part of our distribution network in the future if demand for the product does not increase. Further, it is possible that these specialty pharmacies and wholesalers could decide to change their policies or fees, or both, at some time in the future. This could result in their refusal to carry smaller volume products such as JAKAFI, or lower margins or the need to find alternative methods of distributing our product. Although we believe we can find alternative channels to distribute JAKAFI on relatively short notice, our revenue during that period of time may suffer and we may incur additional costs to replace any such specialty pharmacy or wholesaler. The loss of any large specialty pharmacy or wholesaler as part of our distribution network, a significant reduction in sales we make to specialty pharmacies or wholesalers, or any failure to pay for the products we have shipped to them could materially and adversely affect our results of operations and financial condition.

If we are unable to establish and maintain effective sales, marketing and distribution capabilities, or to enter into agreements with third parties to do so, we will not be able to successfully commercialize our products.

Prior to our commercialization of JAKAFI, we had no experience selling and marketing drug products and with pricing and obtaining adequate third‑party reimbursement for drug products. Under our collaboration and license agreement with Novartis, we have retained commercialization rights to JAKAFI in the United States. We have established commercial capabilities in the United States, but cannot guarantee that we will be able to enter into and maintain any marketing, distribution or third‑party logistics agreements with third‑party providers on acceptable terms, if at all. In connection with our recent acquisition from ARIAD Pharmaceuticals, Inc. we licensed rights to develop and commercialize ICLUSIG in certain countries and we acquired the European sales, marketing and distribution operations of ARIAD.  We may not be able to maintain those operations or retain their personnel or distribution arrangements. We may not be able to correctly judge the size and experience of the sales and marketing force and the scale of distribution capabilities necessary to successfully market and sell our products. Establishing and maintaining sales, marketing and distribution capabilities are expensive and time‑consuming. Competition for personnel with experience in sales and marketing can be high. Our expenses associated with building and maintaining the sales force and distribution capabilities may be disproportional compared to the revenues we may be able to generate on sales of our products.

If we fail to comply with applicable laws and regulations, we could lose our approval to market our products or be subject to other governmental enforcement activity.

We cannot guarantee that we will be able to maintain regulatory approval to market our products in the jurisdictions in which they are currently marketed. If we do not maintain our regulatory approval to market our products, in particular JAKAFI, our results of operations will be materially harmed. We and our collaborators, third‑party manufacturers and suppliers are subject to rigorous and extensive regulation by the FDA and other federal and state agencies as well as foreign governmental agencies. These regulations continue to apply after product marketing approval, and cover, among other things, testing, manufacturing, quality control, labeling, advertising, promotion, risk mitigation, and adverse event reporting requirements.

The commercialization of our products is subject to post‑regulatory approval product surveillance, and our products may have to be withdrawn from the market or subject to restrictions if previously unknown problems occur. Regulatory agencies may also require additional clinical trials or testing for our products, and our products may be recalled or may be subject to reformulation, additional studies, changes in labeling, warnings to the public and negative publicity.  For example, from late 2013 through 2014, ICLUSIG was subject to review by the European Medicines Agency, or EMA, of the benefits and risks of ICLUSIG to better understand the nature, frequency and severity of events obstructing the arteries or veins, the potential mechanism that leads to these side effects and whether there needed to be a revision in the dosing recommendation, patient monitoring and a risk management plan for ICLUSIG. This review was completed in January 2015, with additional warnings in the product information but without any change in the approved indications.  The EMA could take additional actions in the future that reduce the commercial potential of ICLUSIG.

Failure to comply with the laws and regulations administered by the FDA or other agencies could result in:

· administrative and judicial sanctions, including warning letters;

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· fines and other civil penalties;

· withdrawal of regulatory approval to market our products;

· interruption of production;

· operating restrictions;

· product recall or seizure;

· injunctions; and

· criminal prosecution.

The occurrence of any such event may have a material adverse effect on our business.

If the use of our products harms patients, or is perceived to harm patients even when such harm is unrelated to our products, our regulatory approvals could be revoked or otherwise negatively impacted or we could be subject to costly and damaging product liability claims.

The testing of JAKAFI and ICLUSIG, the manufacturing, marketing and sale of JAKAFI and the marketing and sale of ICLUSIG expose us to product liability and other risks. Side effects and other problems experienced by patients from the use of our productscould:

· lessen the frequency with which physicians decide to prescribe our products;

· encourage physicians to stop prescribing our products to their patients who previously had been prescribed our products;

· cause serious harm to patients that may give rise to product liability claims against us; and

· result in our need to withdraw or recall our products from the marketplace.

If our products are used by a wide patient population, new risks and side effects may be discovered, the rate of known risks or side effects may increase, and risks previously viewed as less significant could be determined to be significant.

Previously unknown risks and adverse effects of our products may also be discovered in connection with unapproved, or off‑label, uses of our products. We are prohibited by law from promoting or in any way supporting or encouraging the promotion of our products for off‑label uses, but physicians are permitted to use products for off‑label purposes. In addition, we are studying and expect to continue to study JAKAFI in diseases for potential additional indications in controlled clinical settings, and independent investigators are doing so as well. In the event of any new risks or adverse effects discovered as new patients are treated for intermediate or high‑risk myelofibrosis or uncontrolled polycythemia vera and as JAKAFI is studied in or used by patients for off‑label indications, regulatory authorities may delay or revoke their approvals, we may be required to conduct additional clinical trials, make changes in labeling of JAKAFI, reformulate JAKAFI or make changes and obtain new approvals. We may also experience a significant drop in the sales of JAKAFI, experience harm to our reputation and the reputation of JAKAFI in the marketplace or become subject to lawsuits, including class actions. Any of these results could decrease or prevent sales of JAKAFI or substantially increase the costs and expenses of commercializing JAKAFI. Similar results could occur with respect to our commercialization of ICLUSIG.

Patients who have been enrolled in our clinical trials or who may use our products in the future often have severe and advanced stages of disease and known as well as unknown significant pre‑existing and potentially life‑threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may or may not be related to our products. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time consuming or inconclusive. These investigations may interrupt our sales efforts, impact and limit the type of regulatory approvals our products receive or maintain, or delay the regulatory approval process in other countries.

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Factors similar to those listed above also apply to our collaboration partner Novartis and to ICLUSIG for jurisdictions outside the United States.

If we market our products in a manner that violates various federal and state health care related laws and regulations, we may be subject to civil or criminal penalties.

In addition to FDA and related regulatory requirements, we are subject to health care “fraud and abuse” laws, such as the federal False Claims Act, the anti‑kickback provisions of the federal Social Security Act, and other state and federal laws and regulations. Federal and state anti‑kickback laws prohibit, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid, or other federally‑ or state‑financed health care programs. Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities.

Although physicians are permitted, based on their medical judgment, to prescribe products for indications other than those approved by the FDA, manufacturers are prohibited from promoting their products for such off‑label uses. We market JAKAFI for intermediate or high‑risk myelofibrosis and uncontrolled polycythemia vera and provide promotional materials to physicians regarding the use of JAKAFI for these indications. Although we believe that our promotional materials for physicians do not constitute off‑label promotion of JAKAFI, the FDA or other agencies may disagree. If the FDA or another agency determines that our promotional materials or other activities constitute off‑label promotion of JAKAFI, it could request that we modify our promotional materials or other activities or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they believe that the alleged improper promotion led to the submission and payment of claims for an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. Even if it is later determined we are not in violation of these laws, we may be faced with negative publicity, incur significant expenses defending our position and have to divert significant management resources from other matters.

The European Union and member countries impose similar strict restrictions on the promotion and marketing of drug products.  The off-label promotion of medicinal products is prohibited in the EU and in other territories. The promotion of medicinal products that are not subject to a marketing authorization is also prohibited in the EU. Violations of the rules governing the promotion of medicinal products in the EU and in other territories could be penalized by administrative measures, fines and imprisonment.

The majority of states also have statutes or regulations similar to the federal anti‑kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. In recent years, several states and localities, including California, Connecticut, the District of Columbia, Massachusetts, Minnesota, Nevada, New Mexico, Texas, Vermont, and West Virginia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities. Similar legislation is being considered in other states. Additionally, as part of the Patient Protection and Affordable Care Act, the federal government has enacted the Physician Payment Sunshine provisions. The Sunshine provisions require manufacturers to publicly report certain payments or other transfers of value made to physicians and teaching hospitals. Many of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are unclear. Nonetheless, if we are found not to be in full compliance with these laws, we could face enforcement action and fines and other penalties, and could receive adverse publicity. See also “—Other Risks Relating to our Business—If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business” below.

Competition for our products could harm our business and result in a decrease in our revenue.

Present and potential competitors for JAKAFI could include major pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms.  For example, Gilead Sciences, Inc. has a drug candidate in Phase III clinical trials for the treatment of myelofibrosis. See “—Other Risks Relating to our Business— We face significant competition for our drug discovery and development efforts, and if we do not compete effectively, our commercial opportunities will be reduced or eliminated” for a description of risks relating to this type of competition.  In addition, JAKAFI could face competition from generic products.  As a result of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, in the United States, generic manufacturers may seek approval of a generic version of an innovative pharmaceutical by filing with the FDA an Abbreviated New Drug Application, or ANDA.  The Hatch-Waxman Act provides significant incentives to generic manufacturers to challenge

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U.S. patents on successful innovative pharmaceutical products.  In February 2016, we received a notice letter regarding an ANDA that requested approval to market a generic version of JAKAFI and purported to challenge patents covering ruxolitinib phosphate and its use that expire in 2028. There can be no assurance that our patents will be upheld or that any litigation in which we might engage with any such generic manufacturer would be successful in protecting JAKAFI’s exclusivity.  The entry of a generic version of JAKAFI could result in a decrease in JAKAFI sales and materially harm our business, operating results and financial condition.

ICLUSIG currently competes with existing therapies that are approved for the treatment of patients with chronic myeloid leukemia, or CML, who are resistant or intolerant to prior tyrosine kinase inhibitor, or TKI, therapies, on the basis of, among other things, efficacy, cost, breadth of approved use and the safety and side-effect profile. In addition, a generic version of imatinib was launched in the United States in February 2016, and generic versions are expected to be launched in other markets. Although we currently believe that generic versions of imatinib will not materially impact our commercialization of ICLUSIG, given ICLUSIG’s various indication statements globally that are currently focused on resistant or intolerant CML, we cannot be certain how physicians, payors, patients, regulatory authorities and other market participants will respond to the availability of generic versions of imatinib. 

OTHER RISKS RELATING TO OUR BUSINESS

We may be unsuccessful in our efforts to discover and develop drug candidates and commercialize drug products.

None of our drug candidates, other than JAKAFI/JAKAVI, has received regulatory approval. Our ability to discover and develop drug candidates and to commercialize additional drug products will depend on our ability to:

· hire and retain key employees;

· identify high quality therapeutic targets;

· identify potential drug candidates;

· develop products internally or license drug candidates from others;

· identify and enroll suitable human subjects, either in the United States or abroad, for our clinical trials;

· complete laboratory testing;

· commence, conduct and complete safe and effective clinical trials on humans;

· obtain and maintain necessary intellectual property rights to our products;

· obtain and maintain necessary regulatory approvals for our products, both in the United States and abroad;

· enter into arrangements with third parties to provide services or to manufacture our products on our behalf;

· deploy sales and marketing resources effectively or enter into arrangements with third parties to provide these functions in compliance with all applicable laws;

· obtain appropriate coverage and reimbursement levels for the cost of our products from governmental authorities, private health insurers and other third‑party payors;

· lease facilities at reasonable rates to support our growth; and

· enter into arrangements with third parties to license and commercialize our products.

We have limited experience with many of the activities listed above and may not be successful in discovering, developing, or commercializing additional drug products. Discovery and development of drug candidates are expensive, uncertain and time‑consuming, and we do not know if our efforts will lead to discovery of any drug candidates that can be successfully developed and marketed. Of the compounds or biologics that we identify as potential drug products or that we may in‑license from other companies, including potential products for which we are conducting clinical trials, only a few, if any, are likely to lead to successful drug development programs and commercialized drug products.

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We depend heavily on the success of our most advanced drug candidates. We might not be able to commercialize any of our drug candidates successfully, and we may spend significant time and money attempting to do so.

We have invested significant resources in the development of our most advanced drug candidates. Ruxolitinib had been in Phase III clinical trials for the treatment of advanced or metastatic pancreatic cancer, as well as in other clinical trials. Epacadostat is expected to commence Phase III clinical trials later in 2016.  Further, we have a number of drug candidates in Phase I and Phase II clinical trials. Our ability to generate product revenues will depend on the successful development and eventual commercialization of our most advanced drug candidates. We, or our collaborators or licensees, may decide to discontinue development of any or all of our drug candidates at any time for commercial, scientific or other reasons.  For example, we have recently decided to discontinue the studies of ruxolitinib in pancreatic cancer and solid tumors and INCB 39110 in pancreatic cancer.  If a product is developed but not approved or marketed, we may have spent significant amounts of time and money on it, which could adversely affect our operating results and financial condition as well as our business plans.

If we are unable to obtain regulatory approval for our drug candidates in the United States and foreign jurisdictions, we will not be permitted to commercialize products resulting from our research.

In order to commercialize drug products in the United States, our drug candidates will have to obtain regulatory approval from the FDA. Satisfaction of regulatory requirements typically takes many years. To obtain regulatory approval, we must first show that our drug candidates are safe and effective for target indications through preclinical testing (animal testing) and clinical trials (human testing). Preclinical testing and clinical development are long, expensive and uncertain processes, and we do not know whether the FDA will allow us to undertake clinical trials of any drug candidates in addition to our compounds currently in clinical trials. If regulatory approval of a product is granted, this approval will be limited to those disease states and conditions for which the product is demonstrated through clinical trials to be safe and effective.

Completion of clinical trials may take several years and failure may occur at any stage of testing. The length of time required varies substantially according to the type, complexity, novelty and intended use of the drug candidate. Interim results of a preclinical test or clinical trial do not necessarily predict final results, and acceptable results in early clinical trials may not be repeated in later clinical trials. For example, a drug candidate that is successful at the preclinical level may cause harmful or dangerous side effects when tested at the clinical level. Our rate of commencement and completion of clinical trials may be delayed, and our existing clinical trials may be stopped, due to many potential factors, including:

· the high degree of risk and uncertainty associated with drug development;

· our inability to formulate or manufacture sufficient quantities of materials for use in clinical trials;

· variability in the number and types of patients available for each study;

· difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

· unforeseen safety issues or side effects;

· poor or unanticipated effectiveness of drug candidates during the clinical trials; or

· government or regulatory delays.

Data obtained from clinical trials are susceptible to varying interpretation, which may delay, limit or prevent regulatory approval. Many companies in the pharmaceutical and biopharmaceutical industry, including our company, have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier clinical trials. In addition, regulatory authorities may refuse or delay approval as a result of other factors, such as changes in regulatory policy during the period of product development and regulatory agency review. For example, the FDA has in the past required and could in the future require that we conduct additional trials of any of our drug candidates, which would result in delays.

Compounds or biologics developed by us or with or by our collaborators and licensees may not prove to be safe and effective in clinical trials and may not meet all of the applicable regulatory requirements needed to receive marketing approval. For example, in January 2016, a Phase II trial that was evaluating ruxolitinib in combination with regorafenib in patients with relapsed or refractory metastatic colorectal cancer and high C-reactive protein was stopped early after a planned analysis of interim efficacy data determined that the likelihood of the trial meeting its efficacy endpoint was insufficient.  In addition, in February 2016, we made a decision to discontinue our JANUS 1 study, our JANUS 2 study, our other studies of ruxolitinib in colorectal, breast and lung cancer, and our study of INCB39110 in pancreatic cancer

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after a planned analysis of interim efficacy data of JANUS 1 demonstrated that ruxolitinib plus capecitabine did not show a sufficient level of efficacy to warrant continuation. If clinical trials of any of our compounds or biologics are stopped for safety, efficacy or other reasons or fail to meet their respective endpoints, our overall development plans, business, prospects, expected operating results and financial condition could be materially harmed and the value of our company could be negatively affected. 

Outside the United States, our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. This foreign regulatory approval process typically includes all of the risks associated with the FDA approval process described above and may also include additional risks. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country and may require us to perform additional testing and expend additional resources. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA.

We depend on our collaborators and licensees for the future development and commercialization of some of our drug candidates. Conflicts may arise between our collaborators and licensees and us, or our collaborators and licensees may choose to terminate their agreements with us, which may adversely affect our business.

We have licensed to Novartis rights to ruxolitinib outside of the United States and worldwide rights to our c‑MET inhibitor compounds and licensed to Lilly worldwide rights to baricitinib. We have also licensed to Pfizer our portfolio of CCR2 antagonist compounds. Under the terms of our agreements with these collaborators, we have no or limited control over the further clinical development of these drug candidates and any revenues we may receive if these drug candidates receive regulatory approval and are commercialized will depend primarily on the development and commercialization efforts of others.

Conflicts may arise with our collaborators and licensees if they pursue alternative technologies or develop alternative products either on their own or in collaboration with others as a means for developing treatments for the diseases that we have targeted. Competing products and product opportunities may lead our collaborators and licensees to withdraw their support for our drug candidates. Any failure of our collaborators and licensees to perform their obligations under our agreements with them or otherwise to support our drug candidates could negatively impact the development of our drug candidates, lead to our loss of potential revenues from product sales and milestones and delay our achievement, if any, of profitability. Additionally, conflicts may arise if, among other things, there is a dispute about the achievement and payment of a milestone amount or the ownership of intellectual property that is developed during the course of a collaborative relationship.

Our existing collaborative and license agreements can be terminated by our collaborators and licensees for convenience, among other circumstances. If any of our collaborators or licensees terminates its agreement with us, or terminates its rights with respect to certain indications or drug candidates, we may not be able to find a new collaborator for them, and our business could be adversely affected. Should an agreement be terminated before we have realized the benefits of the collaboration or license, our reputation could be harmed, we may not obtain revenues that we anticipated receiving, and our business could be adversely affected.

The success of our drug discovery and development efforts may depend on our ability to find suitable collaborators to fully exploit our capabilities. If we are unable to establish collaborations or if these future collaborations are unsuccessful in the development and commercialization of our drug candidates, our research, development and commercialization efforts may be unsuccessful, which could adversely affect our results of operations and financial condition.

An important element of our business strategy is to enter into collaborative or license arrangements with other parties, under which we license our drug candidates to those parties for development and commercialization or under which we study our drug candidates in combination with other parties’ compounds or biologics. For example, in addition to our Novartis, Lilly and Pfizer collaborations, we have entered into clinical study relationships with respect to epacadostat and are evaluating strategic relationships with respect to several of our other programs. However, because collaboration and license arrangements are complex to negotiate, we may not be successful in our attempts to establish these arrangements. Also, we may not have drug candidates that are desirable to other parties, or we may be unwilling to license a drug candidate to a particular party because such party interested in it is a competitor or for other reasons. The terms of any such arrangements that we establish may not be favorable to us. Alternatively, potential collaborators may decide against entering into an agreement with us because of our financial, regulatory or intellectual property position or for scientific, commercial or other reasons. If we are not able to establish collaboration or license arrangements, we may not be able to develop and commercialize a drug product, which could adversely affect our business and our revenues.

We will likely not be able to control the amount and timing of resources that our collaborators or licensees devote to our programs or drug candidates. If our collaborators or licensees prove difficult to work with, are less skilled

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than we originally expected, do not devote adequate resources to the program, pursue alternative technologies or develop alternative products, or do not agree with our approach to development or manufacturing of the drug candidate, the relationship could be unsuccessful. If a business combination involving a collaborator or licensee and a third party were to occur, the effect could be to terminate or cause delays in development of a drug candidate.

If we fail to enter into additional licensing agreements or if these arrangements are unsuccessful, our business and operations might be adversely affected.

In addition to establishing collaborative or license arrangements under which other parties license our drug candidates for development and commercialization or under which we study our drug candidates in combination with such parties’ compounds or biologics, we may explore opportunities to develop our clinical pipeline by in-licensing drug candidates that fit within our focus on oncology, such as our collaborations with Agenus and Jiangsu Hengrui Medicine Co., Ltd., or explore additional opportunities to further develop and commercialize existing drug candidates in specific jurisdictions, such as our recent acquisition of the development and commercialization rights to ICLUSIG in certain countries. We may be unable to enter into any additional in-licensing agreements because suitable drug candidates that are within our expertise may not be available to us on terms that are acceptable to us or because competitors with greater resources seek to in-license the same drug candidates. Drug candidates that we would like to develop or commercialize may not be available to us because they are controlled by competitors who are unwilling to license the rights to the drug candidate to us. In addition, we may enter into license agreements that are unsuccessful and our business and operations might be adversely affected if we are unable to realize the expected economic benefits of a collaboration or other licensing arrangement, by the termination of a drug candidate and termination and winding down of the related license agreement, or due to other business or regulatory issues that may adversely affect a licensor’s ability to continue to perform its obligations under an in-license agreement. We may also need to license drug delivery or other technology in order to continue to develop our drug candidates. If we are unable to enter into additional agreements to license drug candidates, drug delivery technology or other technology or if these arrangements are unsuccessful, our research and development efforts could be adversely affected.

Even if a drug candidate that we develop receives regulatory approval, we may decide not to commercialize it if we determine that commercialization of that product would require more money and time than we are willing to invest.

Even if any of our drug candidates receives regulatory approval, it could be subject to post‑regulatory surveillance, and may have to be withdrawn from the market or subject to restrictions if previously unknown problems occur. Regulatory agencies may also require additional clinical trials or testing, and the drug product may be recalled or may be subject to reformulation, additional studies, changes in labeling, warnings to the public and negative publicity. As a result, we may not continue to commercialize a product even though it has obtained regulatory approval. Further, we may decide not to continue to commercialize a product if the market does not accept the product because it is too expensive or because third parties such as insurance companies or Medicare have not approved it for substantial reimbursement. In addition, we may decide not to continue to commercialize a product if competitors develop and commercialize similar or superior products or have proprietary rights that preclude us from ultimately marketing our products.

Any approved drug product that we bring to the market may not gain market acceptance by physicians, patients, healthcare payors and others in the medical community.

Even if we are successful in gaining regulatory approval of any of our drug candidates in addition to JAKAFI or acquire rights to approved drug products in addition to ICLUSIG, we may not generate significant product revenues and we may not become profitable if these drug products do not achieve an adequate level of acceptance. Physicians may not recommend our drug products until longer‑term clinical data or other factors demonstrate the safety and efficacy of our drug products as compared to other alternative treatments. Even if the clinical safety and efficacy of our drug products is established, physicians may elect not to prescribe these drug products for a variety of reasons, including the reimbursement policies of government and other third‑party payors and the effectiveness of our competitors in marketing their products.

Market acceptance of our drug products, if approved for commercial sale, will depend on a number of factors, including:

· the willingness and ability of patients and the healthcare community to use our drug products;

· the ability to manufacture our drug products in sufficient quantities with acceptable quality and to offer our drug products for sale at competitive prices;

· the perception of patients and the healthcare community, including third‑party payors, regarding the safety, efficacy and benefits of our drug products compared to those of competing products or therapies;

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· the label and promotional claims allowed by the FDA;

· the pricing and reimbursement of our drug products relative to existing treatments; and

· marketing and distribution support for our drug products.

We have limited capacity to conduct preclinical testing and clinical trials, and our resulting dependence on other parties could result in delays in and additional costs for our drug development efforts.

We have limited internal resources and capacity to perform preclinical testing and clinical trials. As part of our development strategy, we often hire clinical research organizations, or CROs, to perform preclinical testing and clinical trials for drug candidates. If the CROs that we hire to perform our preclinical testing and clinical trials do not meet deadlines, do not follow proper procedures, or a conflict arises between us and our CROs, our preclinical testing and clinical trials may take longer than expected, may cost more, may be delayed or may be terminated. If we were forced to find a replacement entity to perform any of our preclinical testing or clinical trials, we may not be able to find a suitable entity on favorable terms, or at all. Even if we were able to find another company to perform a preclinical test or clinical trial, the delay in the test or trial may result in significant additional expenditures. Events such as these may result in delays in our obtaining regulatory approval for our drug candidates or our ability to commercialize our products and could result in increased expenditures that would adversely affect our operating results.

We face significant competition for our drug discovery and development efforts, and if we do not compete effectively, our commercial opportunities will be reduced or eliminated.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Our drug discovery and development efforts may target diseases and conditions that are already subject to existing therapies or that are being developed by our competitors, many of which have substantially greater resources, larger research and development staffs and facilities, more experience in completing preclinical testing and clinical trials, and formulation, marketing and manufacturing capabilities. As a result of these resources, our competitors may develop drug products that render our products obsolete or noncompetitive by developing more effective drugs, developing their products more efficiently or pricing their products more competitively. Our ability to develop competitive products would be limited if our competitors succeeded in obtaining regulatory approvals for drug candidates more rapidly than we were able to or in obtaining patent protection or other intellectual property rights that limited our drug development efforts. Any drug products resulting from our research and development efforts, or from our joint efforts with collaborators or licensees, might not be able to compete successfully with our competitors’ existing and future products, or obtain regulatory approval in the United States or elsewhere. The development of productsor processes by our competitors with significant advantages over those that we are developing could harm our future revenues and profitability.

Our reliance on other parties to manufacture our drug products and drug candidates could result in a short supply of the drugs, delays in clinical trials or drug development, increased costs, and withdrawal or denial of a regulatory authority’s approval.

We do not currently operate manufacturing facilities for clinical or commercial production of JAKAFI and our other drug candidates or for ICLUSIG. We currently hire third parties to manufacture the raw materials, active pharmaceutical ingredient, or API, and finished drug product of JAKAFI and our other drug candidates for clinical trials. Under our license agreement with ARIAD, we receive our supply of ICLUSIG from ARIAD.  In addition, we expect to continue to rely on third parties for the manufacture of commercial supplies of raw materials, API and finished drug product for any drugs that we successfully develop. We also hire third parties to package and label the finished product. The FDA requires that the raw materials, API and finished product for JAKAFI and our other drug candidates be manufactured according to its current Good Manufacturing Practices regulations and regulatory authorities in other countries have similar requirements. There are only a limited number of manufacturers that comply with these requirements. Failure to comply with current Good Manufacturing Practices and the applicable regulatory requirements of other countries in the manufacture of our drug candidates and products could result in the FDA or a foreign regulatory authority halting our clinical trials, withdrawing or denying regulatory approval of our drug product, enforcing product recalls or other enforcement actions, which could have a material adverse effect on our business.

We may not be able to obtain sufficient quantities of our drug candidates or any drug products we may develop if our designated manufacturers do not have the capacity or capability to manufacture them according to our schedule and specifications. Manufacturers of pharmaceutical products often encounter difficulties in production, especially in scaling up initial production. These problems include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel.  In addition, we may not be able to arrange for our drug candidates or any drug products that we may develop to be manufactured by one of these parties on reasonable terms, if at all.  We

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generally have a single source or a limited number of suppliers that are qualified to supply each of the API and finished product of JAKAFI and our other drug candidates and, in the case of JAKAFI, we only have a single source for its raw materials. If any of these suppliers were to become unable or unwilling to supply us with raw materials, API or finished product that complies with applicable regulatory requirements, we could incur significant delays in our clinical trials or interruption of commercial supply that could have a material adverse effect on our business. If we have promised delivery of a drug candidate or drug product and are unable to meet the delivery requirement due to manufacturing difficulties, our development programs could be delayed, we may have to expend additional sums in order to ensure that manufacturing capacity is available when we need it even if we do not use all of the manufacturing capacity, and our business and operating results could be harmed.

We may not be able to adequately manage and oversee the manufacturers we choose, they may not perform as agreed or they may terminate their agreements with us. Foreign manufacturing approval processes typically include all of the risks associated with the FDA approval process for manufacturing and may also include additional risks.

Two of our collaborations involve the manufacture of antibodies. Under our collaboration with Agenus, Agenus has primary responsibility for manufacturing activities, including selecting and monitoring third‑party manufacturers. Under our collaboration with Hengrui, Hengrui currently has primary responsibility for manufacturing activities, and we are in the process of transferring manufacturing activities to a third party contract manufacturing organization. Manufacturing antibodies and products containing antibodies is a more complex process than manufacturing small molecule drugs and subject to additional risks. The process of manufacturing antibodies and products containing antibodies is highly susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics, and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.

If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business.

Our activities, and the activities of our collaborators, partners and third‑party providers, are subject to extensive government regulation and oversight both in the United States and in foreign jurisdictions. The FDA and comparable agencies in other jurisdictions directly regulate many of our most critical business activities, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting and product risk management. States increasingly have been placing greater restrictions on the marketing practices of healthcare companies. In addition, pharmaceutical and biotechnology companies have been the target of lawsuits and investigations alleging violations of government regulations, including claims asserting submission of incorrect pricing information, impermissible off‑label promotion of pharmaceutical products, payments intended to influence the referral of federal or state healthcare business, submission of false claims for government reimbursement, antitrust violations, violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti‑bribery or anti‑corruption laws, or violations related to environmental matters. Violations of governmental regulation may be punishable by criminal and civil sanctions, including fines and civil monetary penalties and exclusion from participation in government programs, including Medicare and Medicaid. In addition to penalties for violation of laws and regulations, we could be required to repay amounts we received from government payors, or pay additional rebates and interest if we are found to have miscalculated the pricing information we have submitted to the government. We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from acts committed by our employees, collaborators, partners or third‑party providers that would violate the laws or regulations of the jurisdictions in which we operate. Whether or not we have complied with the law, an investigation into alleged unlawful conduct could increase our expenses, damage our reputation, divert management time and attention and adversely affect our business.

Health care reform measures could impact the pricing and profitability of pharmaceuticals, and adversely affect the commercial viability of our drug candidates. Our ability to generate revenues will be diminished if we are unable to obtain an adequate level of reimbursement from private insurers, government insurance programs or other third‑party payors of health care costs, which could be affected by recent healthcare reform legislation.

Our ability to commercialize our drug candidates successfully will depend in part on the extent to which adequate reimbursement levels for the cost of our products and related treatment are obtained from third‑party payors, such as private insurers, government insurance programs, including Medicare and Medicaid, health maintenance organizations (HMOs) and other health care related organizations.

In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various payment systems under the Medicare and other federal health care programs. Comprehensive reforms to the

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U.S. healthcare system were recently enacted, including changes to the methods for, and amounts of, Medicare reimbursement. These reforms could significantly reduce payments from Medicare and Medicaid. Reforms or other changes to these payment systems, may change the availability, methods and rates of reimbursements from Medicare, private insurers and other third‑party payors for our drug candidates. Some of these changes and proposed changes could result in reduced reimbursement rates, which could reduce the price that we or any of our collaborators or licensees receive for any products, if commercialized, in the future, and which would adversely affect our business strategy, operations and financial results. Further federal and state proposals to regulate prices of pharmaceutical products and other health care reforms are possible, which could limit the prices that can be charged for any of our drug candidates and may further limit the commercial viability of our drug candidates. In certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. If reimbursement for our products, if commercialized, is unavailable, limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed. There may be future changes that result in reductions in current coverage and reimbursement levels for our drug candidates, and we cannot predict the scope of any future changes or the impact that those changes would have on our operations.

Third‑party payors are increasingly challenging the prices charged for medical products and services. Also, the trend toward managed health care in the United States, the organizations for which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for or rejection of our products. Adoption of our drug candidates by the medical community may be limited without adequate reimbursement for our products. Cost control initiatives may decrease coverage and payment levels for our drug candidates and, in turn, the price that we will be able to charge for any product, if commercialized. Our drug candidates may not be considered cost‑effective, and coverage and reimbursement may not be available or sufficient to allow us to sell our products on a profitable basis. We are unable to predict all changes to the coverage or reimbursement methodologies that will be applied by private or government payors to our drug candidates.

The continuing efforts of third‑party payors to contain or reduce the costs of health care, any denial of private or government payor coverage or inadequate reimbursement for our drug candidates could materially and adversely affect our business strategy, operations, future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers, collaborators and licensees and the availability of capital.

As our drug discovery and development operations are conducted at our headquarters in Wilmington, Delaware, the loss of access to this facility would negatively impact our business.

Our facility in Wilmington, Delaware is our headquarters and is also where we conduct all of our drug discovery, research, development and marketing activities. In addition, natural disasters or actions of activists opposed to aspects of pharmaceutical research may disrupt our experiments or our ability to access or use our facility. The loss of access to or use of our Wilmington, Delaware, facility, either on a temporary or permanent basis would result in an interruption of our business and, consequently, would adversely affect our overall business.

We depend on key employees in a competitive market for skilled personnel, and the loss of the services of any of our key employees or our inability to attract and retain additional personnel would affect our ability to expand our drug discovery and development programs and achieve our objectives.

We are highly dependent on the members of our executive management team and principal members of our commercial, development, medical, operations and scientific staff. We experience intense competition for qualified personnel. Our future success also depends in part on the continued service of our executive management team and key personnel and our ability to recruit, train and retain essential personnel for our drug discovery and development programs, and for our medical affairs and commercialization activities. If we lose the services of any of these people or if we are unable to recruit sufficient qualified personnel, our research and product development goals, and our commercialization efforts could be delayed or curtailed. We do not maintain “key person” insurance on any of our employees.

If we fail to manage our growth effectively, our ability to develop and commercialize products could suffer.

We expect that if our drug discovery efforts continue to generate drug candidates, our clinical drug candidates continue to progress in development, and we continue to build our development, medical and commercial organizations, we will require significant additional investment in personnel, management and resources. Our ability to achieve our research, development and commercialization objectives depends on our ability to respond effectively to these demands and expand our internal organization, systems, controls and facilities to accommodate additional anticipated growth. If we are unable to manage our growth effectively, our business could be harmed and our ability to execute our business strategy could suffer.

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We may acquire businesses or assets, form joint ventures or make investments in other companies that may be unsuccessful, divert our management’s attention and harm our operating results and prospects.

As part of our business strategy, we may pursue additional acquisitions of what we believe to be complementary businesses or assets or seek to enter into joint ventures. We also may pursue strategic alliances in an effort to leverage our existing infrastructure and industry experience to expand our product offerings or distribution, or make investments in other companies. For example, in June 2016, we completed the acquisition of the European operations of ARIAD and obtained the exclusive license to develop and commercialize ICLUSIG in Europe and other countries. The success of our acquisitions, joint ventures, strategic alliances and investments will depend on our ability to identify, negotiate, complete and, in the case of acquisitions, integrate those transactions and, if necessary, obtain satisfactory debt or equity financing to fund those transactions.  We may not realize the anticipated benefits of any acquisition, joint venture, strategic alliance or investment. We may not be able to integrate acquisitions successfully into our existing business, maintain the key business relationships of businesses we acquire, or retain key personnel of an acquired business, and we could assume unknown or contingent liabilities or incur unanticipated expenses. Integration of acquired companies or businesses also may require management resources that otherwise would be available for ongoing development of our existing business.  Any acquisitions or investments made by us also could result in significant write-offs or the incurrence of debt and contingent liabilities, any of which could harm our operating results. For example, we have in the year ended December 31, 2015 and the six months ended June 30, 2016 recorded unrealized losses related to our investment in Agenus Inc., and we may in the future experience additional losses related to our investments.  In addition, if we choose to issue shares of our stock as consideration for any acquisition, dilution to our stockholders could result.

Risks associated with the expansion of our operations in Europe could adversely affect our business.

Our acquisition of ARIAD’s European operations significantly expanded our operations in Europe, and we plan to continue to expand our operations and conduct certain development activities in Europe. We have limited experience with conducting activities outside of the United States. International operations and business expansion plans are subject to numerous additional risks, including:

· multiple, conflicting and changing laws and regulations such as tax laws, privacy regulations, tariffs, export and import restrictions, employment, immigration and labor laws, regulatory requirements, and other governmental approvals, permits and licenses;

· difficulties in staffing and managing foreign operations and difficulties in connection with assimilating and integrating the ARIAD operations and personnel into our company;

· risks associated with obtaining and maintaining, or the failure to obtain or maintain, regulatory approvals for the sale or use of our products in various countries;

· complexities associated with managing government payor systems, multiple payor‑reimbursement regimes or patient self‑pay systems;

· financial risks, such as longer payment cycles, difficulty obtaining financing in foreign markets, difficulty enforcing contracts and intellectual property rights, difficulty collecting accounts receivable and exposure to foreign currency exchange rate fluctuations;

· general political and economic conditions in the countries in operate, including terrorism and political unrest, curtailment of trade and other business restrictions, and uncertainties associated with the future relationship between the United Kingdom and the European Union; and

· regulatory and compliance risks that relate to maintaining accurate information and control over activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, its books and records provisions or its anti‑bribery provisions, or similar anti‑bribery or anti‑corruption laws and regulations.

Although we conducted due diligence of ARIAD’s European operations prior to the acquisition, we may discover or identify deficiencies or non-compliance with such laws and regulations as we complete the integration of the ARIAD business and conduct our European operations. Any of the risks described above, if encountered, could significantly increase our costs of operating internationally, prevent us from operating in certain jurisdictions, or otherwise significantly harm our future international expansion and operations, which could have a material adverse effect on our business, financial condition and results of operations.

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If product liability lawsuits are brought against us, we could face substantial liabilities and may be required to limit commercialization of our products and our results of operations could be harmed.

In addition to the risks described above under “—Risks Relating to Commercialization of Our Products—If the use of our products harms patients, or is perceived to harm patients even when such harm is unrelated to our products, our regulatory approvals could be revoked or otherwise negatively impacted or we could be subject to costly and damaging product liability claims,” the conduct of clinical trials of medical products that are intended for human use entails an inherent risk of product liability. If any product that we or any of our collaborators or licensees develops causes or is alleged to cause injury during clinical trials or commercialization, we may be held liable. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities, including substantial damages to be paid to the plaintiffs and legal costs, or we may be required to limit further development and commercialization of our products. Additionally, any product liability lawsuit could cause injury to our reputation, participants and investigators to withdraw from clinical trials, and potential collaborators or licensees to seek other partners, any of which could impact our results of operations.

Our product liability insurance policy may not fully cover our potential liabilities. In addition, we may determine that we should increase our coverage, and this insurance may be prohibitively expensive to us or our collaborators or licensees and may not fully cover our potential liabilities. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the development or commercialization of our drug candidates and products.

Because our activities involve the use of hazardous materials, we may be subject to claims relating to improper handling, storage or disposal of these materials that could be time consuming and costly.

We are subject to various environmental, health and safety laws and regulations governing, among other things, the use, handling, storage and disposal of regulated substances and the health and safety of our employees. Our research and development processes involve the controlled use of hazardous and radioactive materials and biological waste resulting in the production of hazardous waste products. We cannot completely eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. If any injury or contamination results from our use or the use by our collaborators or licensees of these materials, we may be sued and our liability may exceed our insurance coverage and our total assets. Further, we may be required to indemnify our collaborators or licensees against all damages and other liabilities arising out of our development activities or products produced in connection with these collaborations or licenses. Compliance with the applicable environmental and workplace laws and regulations is expensive. Future changes to environmental, health, workplace and safety laws could cause us to incur additional expense or may restrict our operations or impair our research, development and production efforts.

RISKS RELATING TO OUR FINANCIAL RESULTS

We expect to incur losses in the future and we may not achieve or maintain profitability in the future.

We had net losses from inception in 1991 through 1996 and in 1999 through December 31, 2014. Because of those losses, we had an accumulated deficit of $1.7 billion as of June 30, 2016. We intend to continue to spend significant amounts on our efforts to discover and develop drugs. As a result, we could continue to incur losses in 2016 and in future periods as well.

We anticipate that our drug discovery and development efforts and related expenditures will increase as we focus on the studies, including preclinical tests and clinical trials prior to seeking regulatory approval, that are required before we can sell a drug product.

The development of drug products will require us to spend significant funds on research, development, testing, obtaining regulatory approvals, manufacturing and marketing. To date, we do not have any drug products that have generated significant revenues other than from sales of JAKAFI and we cannot assure you that we will generate significant revenues from the drug candidates that we license or develop, including ICLUSIG, for several years, if ever.

We cannot be certain whether or when we will achieve profitability because of the significant uncertainties relating to our ability to generate commercially successful drug products. Even if we are successful in obtaining regulatory approvals for manufacturing and commercializing drug products in addition to JAKAFI and ICLUSIG, we expect that we will continue to incur losses if our drug products do not generate significant revenues. If we achieve profitability, we may not be able to sustain or increase profitability.

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We may need additional capital in the future. If we are unable to generate sufficient funds from operations, the capital markets may not permit us to raise additional capital at the time that we require it, which could result in limitations on our research and development or commercialization efforts or the loss of certain of our rights in our technologies or drug candidates.

Our future funding requirements will depend on many factors and we anticipate that we may need to raise additional capital to fund our business plan and research and development efforts going‑forward and to repay our indebtedness.

Additional factors that may affect our future funding requirements include:

· the amount of revenues generated from our business activities;

· any changes in the breadth of our research and development programs;

· the results of research and development, preclinical testing and clinical trials conducted by us or our current or future collaborators or licensees, if any;

· our exercise of any co‑development options with collaborators that may require us to fund future development;

· the acquisition of businesses, technologies, or drug candidates, or the licensing of technologies or drug candidates, if any;

· costs for future facility requirements;

· our ability to maintain and establish new corporate relationships and research collaborations;

· competing technological and market developments;

· the time and costs involved in filing, prosecuting, defending and enforcing patent and intellectual property claims;

· the receipt of contingent licensing or milestone fees or royalties on product sales from our current or future collaborative and license arrangements, if established; and

· the timing of regulatory approvals, if any.

If we require additional capital at a time when investment in companies such as ours, or in the marketplace generally, is limited due to the then prevailing market or other conditions, we may have to scale back our operations, eliminate one or more of our research or development programs, or attempt to obtain funds by entering into an agreement with a collaborator or licensee that would result in terms that are not favorable to us or relinquishing our rights in certain of our proprietary technologies or drug candidates. If we are unable to raise funds at the time that we desire or at any time thereafter on acceptable terms, we may not be able to continue to develop our drug candidates. The sale of equity or additional convertible debt securities in the future may be dilutive to our stockholders, and 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.

We have a large amount of debt and our debt service obligations may prevent us from taking actions that we would otherwise consider to be in our best interests.

As of June 30, 2016, the aggregate principal amount of our total consolidated debt was $749.8 million and our stockholders’ equity was $297.1 million. Our substantial leverage could have significant negative consequences for our future operations, including:

· increasing our vulnerability to general adverse economic and industry conditions;

· limiting our ability to obtain additional financing for working capital, capital and research and development expenditures, and general corporate purposes;

· requiring the dedication of a substantial portion of our expected cash flow or our existing cash to service our indebtedness, thereby reducing the amount of our cash available for other purposes, including working capital, capital expenditures and research and development expenditures;

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· limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; or

· placing us at a possible competitive disadvantage compared to less leveraged competitors and competitors that have better access to capital resources.

We may not generate sufficient cash flow from our operations in the future to enable us to meet our anticipated fixed charges, including our obligations with respect to our outstanding convertible senior notes. As of June 30, 2016, $375.0 million aggregate principal amount of our 0.375% convertible senior notes due 2018 was outstanding and due in November 2018. Annual interest payments for our 0.375% convertible senior notes through 2018, assuming that none of these notes are converted, repurchased or exchanged, are $1.4 million. As of June 30, 2016, $374.8 million aggregate principal amount of our 1.25% convertible senior notes due 2020 was outstanding and due in November 2020. Annual interest payments for our 1.25% convertible senior notes through 2020, assuming that none of these notes are converted, repurchased or exchanged, are $4.7 million. If we are unable to generate cash from our operations or raise additional cash through financings sufficient to meet the remaining obligations under our convertible senior notes, we will need to use existing cash or liquidate marketable securities in order to fund these obligations, which may delay or curtail our research, development and commercialization programs.

Our marketable securities and long term investments are subject to risks that could adversely affect our overall financial position.

We invest our cash in accordance with an established internal policy and customarily in instruments, corporate bonds and money market funds which historically have been highly liquid and carried relatively low risk. In recent periods, similar types of investments and money market funds have experienced losses in value or liquidity issues that differ from their historical pattern.

Should a portion of our cash or marketable securities lose value or have their liquidity impaired, it could adversely affect our overall financial position by imperiling our ability to fund our operations and forcing us to seek additional financing sooner than we would otherwise. Such financing, if available, may not be available on commercially attractive terms.

Any loss in value of our long term investments could adversely affect our financial position on the consolidated balance sheets and consolidated statements of operations.

Our current revenues are derived from JAKAFI product sales, JAKAVI product royalties, collaborations and from licensing our intellectual property. If we are unable to achieve milestones, develop products or renew or enter into new collaborations, our revenues may decrease, and future milestone and royalty payments may not contribute significantly to revenues for several years, and may never result in revenues.

We derived substantially all of our revenues for the six months ended June 30, 2016 from JAKAFI product revenues, JAKAVI product royalties and our collaborations and licensing our intellectual property to others. Future revenues from research and development collaborations depend upon continuation of the collaborations, the achievement of milestones and royalties we earn from any future products developed from our research. If we are unable to successfully achieve milestones or our collaborators fail to develop successful products, we will not earn the future revenues contemplated under our collaborative agreements.

RISKS RELATING TO INTELLECTUAL PROPERTY AND LEGAL MATTERS

If we are subject to arbitration, litigation and infringement claims, they could be costly and disrupt our drug discovery and development efforts.

The technology that we use to make and develop our drug products, the technology that we incorporate in our products, and the products we are developing may be subject to claims that they infringe the patents or proprietary rights of others. The success of our drug discovery and development efforts will also depend on our ability to develop new compounds, drugs and technologies without infringing or misappropriating the proprietary rights of others. We are aware of patents and patent applications filed in certain countries claiming intellectual property relating to some of our drug discovery targets and drug candidates. While the validity of issued patents, patentability of pending patent applications and applicability of any of them to our programs are uncertain, if any of these patents are asserted against us or if we choose to license any of these patents, our ability to commercialize our products could be harmed or the potential return to us from any product that may be successfully commercialized could be diminished.

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From time to time we have received, and we may in the future receive, notices from third parties offering licenses to technology or alleging patent, trademark, or copyright infringement, claims regarding trade secrets or other contract claims. Receipt of these notices could result in significant costs as a result of the diversion of the attention of management from our drug discovery and development efforts. Parties sending these notices may have brought and in the future may bring litigation against us or seek arbitration relating to contract claims.

We may be involved in future lawsuits or other legal proceedings alleging patent infringement or other intellectual property rights or contract violations. In addition, litigation or other legal proceedings may be necessary to:

· assert claims of infringement;

· enforce our patents or trademarks;

· protect our trade secrets or know‑how; or

· determine the enforceability, scope and validity of the proprietary rights of others.

We may be unsuccessful in defending or pursuing these lawsuits, claims or other legal proceedings. Regardless of the outcome, litigation or other legal proceedings can be very costly and can divert management’s efforts. An adverse determination may subject us to significant liabilities or require us or our collaborators or licensees to seek licenses to other parties’ patents or proprietary rights. We or our collaborators or licensees may also be restricted or prevented from manufacturing or selling a drug or other product that we or they develop. Further, we or our future collaborators or licensees may not be able to obtain any necessary licenses on acceptable terms, if at all. If we are unable to develop non‑infringing technology or license technology on a timely basis or on reasonable terms, our business could be harmed.

We may be unable to adequately protect or enforce our proprietary information, which may result in its unauthorized use, a loss of revenue under a collaboration agreement or loss of sales to generic versions of our products or otherwise reduce our ability to compete in developing and commercializing products.

Our business and competitive position depends in significant part upon our ability to protect our proprietary technology, including any drug products that we create. Despite our efforts to protect this information, unauthorized parties may attempt to obtain and use information that we regard as proprietary. For example, one of our collaborators may disclose proprietary information pertaining to our drug discovery efforts. In addition, while we have filed numerous patent applications with respect to ruxolitinib and our drug candidates in the United States and in foreign countries, our patent applications may fail to result in issued patents. In addition, because patent applications can take several years to issue as patents, there may be pending patent applications of others that may later issue as patents that cover some aspect of ruxolitinib and our drug candidates. Our existing patents and any future patents we may obtain may not be broad enough to protect our products or all of the potential uses of our products, or otherwise prevent others from developing competing products or technologies. In addition, our patents may be challenged and invalidated or may fail to provide us with any competitive advantages if, for example, others were first to invent or first to file a patent application for the technologies and products covered by our patents.  As noted above under “—Risks Relating to Commercialization of Our Products—Competition for our products could potentially harm our business and result in a decrease in our revenue,” a potential generic drug company competitor has challenged certain patents relating to JAKAFI.

Additionally, when we do not control the prosecution, maintenance and enforcement of certain important intellectual property, such as a drug candidate in‑licensed to us or subject to a collaboration with a third party, the protection of the intellectual property rights may not be in our hands. If we do not control the intellectual property rights in‑licensed to us with respect to a drug candidate and the entity that controls the intellectual property rights does not adequately protect those rights, our rights may be impaired, which may impact our ability to develop, market and commercialize the in‑licensed drug candidate.

Our means of protecting our proprietary rights may not be adequate, and our competitors may:

· independently develop substantially equivalent proprietary information, products and techniques;

· otherwise gain access to our proprietary information; or

· design around patents issued to us or our other intellectual property.

We pursue a policy of having our employees, consultants and advisors execute proprietary information and invention agreements when they begin working for us. However, these agreements may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure. If we fail to maintain trade secret and patent protection, our potential, future revenues may be decreased.

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If the effective term of our patents is decreased due to changes in the United States patent laws or if we need to refile some of our patent applications, the value of our patent portfolio and the revenues we derive from it may be decreased.

The value of our patents depends in part on their duration. A shorter period of patent protection could lessen the value of our rights under any patents that we obtain and may decrease the revenues we derive from our patents. The United States patent laws were amended in 1995 to change the term of patent protection from 17 years from patent issuance to 20 years from the earliest effective filing date of the application. Because the time from filing to issuance of biotechnology applications may be more than three years depending on the subject matter, a 20‑year patent term from the filing date may result in substantially shorter patent protection.

Additionally, United States patent laws were amended in 2011 with the enactment of the America Invents Act and third parties are now able to challenge the validity of issued U.S. patents through various review proceedings; thus rendering the validity of U.S. patents more uncertain. We may be obligated to participate in review proceedings to determine the validity of our U.S. patents. We cannot predict the ultimate outcome of these proceedings, the conduct of which could result in substantial costs and diversion of our efforts and resources. If we are unsuccessful in these proceedings some or all of our claims in the patents may be narrowed or invalidated and the patent protection for our products and drug candidates in the United States could be substantially shortened. Further, if all of the patents covering one of our products are invalidated, the FDA could approve requests to manufacture a generic version of that product prior to the expiration date of those patents.

Other changes in the United States patent laws or changes in the interpretation of patent laws could diminish the value of our patents or narrow the scope of our patent protection. For example, the Supreme Court of the United States recently ruled that isolated DNA sequences cannot be patented. Although we no longer receive significant revenues generated from our former information products business, the majority of our gene patent portfolio from that business consists of patents on isolated DNA sequences, and this ruling limits our ability to derive additional revenues from our gene patent portfolio. Additionally, the Supreme Court recently resolved a split among the circuit courts of appeals regarding antitrust challenges to settlements of patent infringement lawsuits under the Hatch‑Waxman Act between brand‑name drug companies and generic drug companies. The Court rejected the “scope of the patent” test and ruled that settlements involving “reverse payments” from brand‑name drug companies to generic drug companies should be analyzed under the rule of reason. This ruling may create uncertainty and make it more difficult to settle patent litigation if a company seeking to manufacture a generic version of one of our products challenges the patents covering that product prior to the expiration date of those patents.

International patent protection is particularly uncertain and costly, and our involvement in opposition proceedings in foreign countries may result in the expenditure of substantial sums and management resources.

Biotechnology and pharmaceutical patent law outside the United States is even more uncertain and costly than in the United States and is currently undergoing review and revision in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as United States laws. For example, certain countries do not grant patent claims that are directed to the treatment of humans. We have participated, and may in the future participate, in opposition proceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result in substantial costs and diversion of our efforts. For example, there is a patent opposition proceeding in India against our Indian patent that covers the composition of matter and use of certain Janus Kinase inhibitors, including ruxolitinib phosphate, for the treatment of myeloid proliferative disorders, cancer, immune‑related diseases, skin disorders, and other diseases. Successful challenges to our patent or other intellectual property rights through these proceedings could result in a loss of rights in the relevant jurisdiction and allow third parties to use our proprietary technologies without a license from us or our collaborators, which may also result in loss of future royalty payments. In addition, successful challenges may jeopardize or delay our ability to enter into new collaborations or commercialize potential products, which could harm our business and results of operations.

RISKS RELATING TO INFORMATION TECHNOLOGY

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

Our business is increasingly dependent on critical, complex, and interdependent information technology (IT) systems, including Internet-based systems, to support business processes as well as internal and external communications. The size and complexity of our IT systems make us potentially vulnerable to IT system breakdowns, malicious intrusion, and computer viruses, which may result in the impairment of our ability to operate our business effectively.

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In addition, our systems are potentially vulnerable to data security breaches–whether by employees or others–which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of our employees, clinical trial patients, customers, business partners and others.

Any such disruption or security breach could result in legal proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruptions to our operations and collaborations, and damage to our reputation, which could harm our business and results of operations.

Increasing use of social media could give rise to liability, breaches of data security, or reputational damage.

We and our employees are increasingly utilizing social media tools as a means of communication both internally and externally. Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the use of social media by us or our employees to communicate about our products or business may cause us to be found in violation of applicable requirements. In addition, our employees may knowingly or inadvertently make use of social media in ways that may not comply with our social media policy or other legal or contractual requirements, which may give rise to liability, lead to the loss of trade secrets or other intellectual property, or result in public exposure of personal information of our employees, clinical trial patients, customers, and others. Furthermore, negative posts or comments about us or our products in social media could seriously damage our reputation, brand image, and goodwill.

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Item 6.Exhibits

Exhibit Number	Description of Document
10.1†	Amendment, dated as of April 5, 2016, to Collaboration and License Agreement entered into as of November 24, 2009, by and between the Company and Novartis International Pharmaceutical Ltd.
10.2†	Share Purchase Agreement, dated as of May 9, 2016, by and among Incyte Europe S.à r.l., ARIAD Pharmaceuticals (Cayman) L.P., ARIAD Pharmaceuticals, Inc., as guarantor, and the Company, as guarantor.
10.3†	Amended and Restated Buy-In License Agreement, dated as of June 1, 2016, between ARIAD Pharmaceuticals, Inc., ARIAD Pharmaceuticals (Europe) Sarl and the Company, as guarantor.
10.4#	Incyte Corporation Amended and Restated 2010 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 27, 2016).
10.5#	1997 Employee Stock Purchase Plan of Incyte Corporation, as amended (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 27, 2016).
10.6#	Form of Employment Agreement between the Company and Steven H. Stein (effective as of March 2, 2015), and Vijay K. Iyengar (effective as of May 9, 2016) (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012).
10.7#	Form of Stock Option Agreement for Executive Officers under the Incyte Corporation Amended and Restated 2010 Stock Incentive Plan, as amended.
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1*	Statement of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
32.2*	Statement of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document

*In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

†Confidential treatment has been requested with respect to certain portions of these agreements.

#Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	INCYTE CORPORATION
Dated: August 9, 2016	By:	/s/ HERVÉ HOPPENOT
		Hervé Hoppenot
		Chairman, President, and Chief Executive Officer
		(Principal Executive Officer)
Dated: August 9, 2016	By:	/s/ DAVID W. GRYSKA
		David W. Gryska
		Chief Financial Officer
		(Principal Financial Officer)

74

INCYTE CORPORATION

EXHIBIT INDEX

Exhibit Number	Description of Document
10.1†	Amendment, dated as of April 5, 2016, to Collaboration and License Agreement entered into as of November 24, 2009, by and between the Company and Novartis International Pharmaceutical Ltd.
10.2†	Share Purchase Agreement, dated as of May 9, 2016, by and among Incyte Europe S.à r.l., ARIAD Pharmaceuticals (Cayman) L.P., ARIAD Pharmaceuticals, Inc., as guarantor, and the Company, as guarantor.
10.3†	Amended and Restated Buy-In License Agreement, dated as of June 1, 2016, between ARIAD Pharmaceuticals, Inc., ARIAD Pharmaceuticals (Europe) Sarl and the Company, as guarantor.
10.4#	Incyte Corporation Amended and Restated 2010 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 27, 2016).
10.5#	1997 Employee Stock Purchase Plan of Incyte Corporation, as amended (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 27, 2016).
10.6#	Form of Employment Agreement between the Company and Steven H. Stein (effective as of March 2, 2015), and Vijay K. Iyengar (effective as of May 9, 2016) (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012).
10.7#	Form of Stock Option Agreement for Executive Officers under the Incyte Corporation Amended and Restated 2010 Stock Incentive Plan, as amended.
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1*	Statement of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
32.2*	Statement of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document

*In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

†Confidential treatment has been requested with respect to certain portions of these agreements.

#Indicates management contract or compensatory plan or arrangement.

75

EX-10.1

Exhibit 10.1

CONFIDENTIAL TREATMENT MATERIAL

CONFIDENTIAL TREATMENT REQUESTED:  Information for which confidential treatment has been requested is omitted and is noted with asterisks.  An unredacted version of this document has been filed separately with the Securities and Exchange Commission (the “Commission”).

AMENDMENT NO. 4

TO

COLLABORATION AND LICENSE AGREEMENT

THIS AMENDMENT NO. 4 TO COLLABORATION AND LICENSE AGREEMENT (this “Amendment No. 4”) is entered into as of the 5th day of April, 2016 (the “Effective Date”), by and between Incyte Corporation, a Delaware corporation having an office at 1801 Augustine Cut-Off, Wilmington, Delaware (“Incyte”), and Novartis International Pharmaceutical Ltd., a limited company organized under the laws of Bermuda having an office at 131 Front Street, Hamilton, Bermuda HM 12 (“Novartis”). 

WHEREAS, Incyte and Novartis entered into that certain Collaboration and License Agreement dated as of November 24, 2009 (as amended to date, the “Original Agreement”); and

WHEREAS, Incyte and Novartis wish to amend the Original Agreement pursuant to and in accordance with the terms and conditions of this Amendment No. 4.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I


Definitions

1.1 Definitions.  Capitalized terms used in this Amendment No. 4 but not defined herein shall have the meaning ascribed to them in the Original Agreement.

ARTICLE II


AMENDMENTS

2.1 New Definitions.

(a) The Original Agreement is hereby amended to insert the following new definition into ARTICLE I  immediately after Section 1.42:

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

“1.42a   “Graft-Versus-Host Disease Field” means the treatment, control, mitigation, prevention or cure of all graft-versus-host disease Indications as defined in subsections 279.50 through 279.53 of the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) as set forth in Exhibit J to this Agreement.  [**]”

Schedule I attached to this Amendment No. 4 sets forth the terms of the Exhibit J referred to in the preceding amendment.

(b) The Original Agreement is hereby amended such that Section 1.59 thereof is hereby deleted and replaced in its entirety with the following new definition:

“1.50“JAK Field” means the Hematology Field, the Oncology Field and the Graft-Versus-Host Disease Field, and includes all forms of administration except topical.”

(c) The Original Agreement is hereby amended to insert the following new definitions into ARTICLE 1 immediately after Section 1.68:

“1.68a   “Lilly” means Eli Lilly and Company, an Indiana corporation having an office at Lilly Corporate Center, Indianapolis, Indiana 46285. 

1.68b  “Lilly Agreement” means the License, Development and Commercialization Agreement dated as of December 18, 2009, by and between Incyte and Lilly, as amended effective June 22, 2010, as further amended effective August 1, 2011 and as further amended effective March 31, 2016.”

(d) The Original Agreement is hereby amended to insert the following new definition into ARTICLE I immediately after Section 1.105:

“1.105a    “Ruxolitinib Backup Compound” means any JAK Licensed Compound other than ruxolitinib.”

2.2 Rights Granted by Incyte to Novartis.  The Original Agreement is hereby amended to delete Section 2.1(b) and replace it in its entirety with the following:

“(b)JAK License Grant; Option for Ruxolitinib Backup Compounds in GVHD.

(i) Subject to the terms of this Agreement, Incyte hereby grants Novartis, during the Term, an exclusive (even as to Incyte and its Affiliates), royalty-bearing, non‑transferable (except in accordance with Section 14.3)

2

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

license, with the right to sublicense (subject to Section 2.3), under Incyte IP and Incyte’s and its Affiliates’ interests in Joint IP, to (i) research, Develop, Commercialize, make, have made, use, offer for sale, sell and import JAK Licensed Compounds and JAK Licensed Products in the Novartis JAK Territory in the Hematology Field and the Oncology Field (including all forms of administration except topical) and (ii) research, Develop, make and have made JAK Licensed Compounds and JAK Licensed Products in the Incyte Territory for the sole purpose of using, offering for sale and selling JAK Licensed Products in, and importing JAK Licensed Compounds and JAK Licensed Products into, the Novartis JAK Territory in the Hematology Field and the Oncology Field (including all forms of administration except topical); providedhowever, that Novartis may not, directly or indirectly, conduct Clinical Trials or other clinical studies, including any investigator initiated studies, utilizing JAK Licensed Compounds or JAK Licensed Products in the Hematology Field or the Oncology Field in the Incyte Territory without the prior approval of the JSC.

(ii) Subject to the terms of this Agreement, Incyte hereby grants Novartis, during the Term, an exclusive (even as to Incyte and its Affiliates), royalty-bearing, non‑transferable (except in accordance with Section 14.3) license, with the right to sublicense (subject to Section 2.3), under Incyte IP and Incyte’s and its Affiliates’ interests in Joint IP, to (i) research, Develop, Commercialize, make, have made, use, offer for sale, sell and import ruxolitinib,  any Ruxolitinib Backup Compounds with respect to which Novartis has exercised a Rux Backup Compound Option (as defined below) and JAK Licensed Products in the Novartis JAK Territory in the Graft-Versus-Host Disease Field (including all forms of administration except topical) and (ii) research, Develop, make and have made ruxolitinib,  such Ruxolitinib Backup Compounds and JAK Licensed Products in the Incyte Territory for the sole purpose of using, offering for sale and selling ruxolitinib,  such Ruxolitinib Backup Compounds and JAK Licensed Products in, and importing ruxolitinib,  such Ruxolitinib Backup Compounds and JAK Licensed Products into, the Novartis JAK Territory in the Graft-Versus-Host Disease Field (including all forms of administration except topical); providedhowever, that Novartis may not, directly or indirectly, conduct Clinical Trials or other clinical studies, including any investigator initiated studies, utilizing ruxolitinib, any such Ruxolitinib Backup Compounds or JAK Licensed Products in the Graft-Versus-Host Disease Field in the Incyte Territory without the prior approval of the JSC.  For purposes of this Section 2.1(b)(ii), the license grant to JAK Licensed Products in the case of a JAK Licensed Product containing a Ruxolitinib Backup Compound shall be effective from and after the exercise by Novartis of the Rux Backup Compound Option with respect to such Ruxolitinib Backup Compound.

3

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

(iii) If at any time during the Term, Incyte or its Affiliates acquires (in any form of agreement or other arrangement, including a waiver under or amendment, termination or expiration of any agreement or other arrangement) Control of a Ruxolitinib Backup Compound or any rights therein in any Indication within the Graft-Versus-Host Disease Field anywhere in the world, it shall provide Novartis with prompt written notice thereof (which notice shall include a description in reasonable detail of such Ruxolitinib Backup Compound or any rights therein, as the case may be, and the circumstances under which Incyte gained Control thereof) (the “Incyte Rux Backup Compound Notice”), together with a Rux Backup Compound Information Package (as defined below).  Novartis shall have the right to request and, within [**]of receipt of such request Incyte shall provide, any other information or data reasonably relevant to the Novartis’ determination as to whether or not to exercise the Rux Backup Compound Option with respect to such Ruxolitinib Backup Compound or rights therein.  Novartis shall have the exclusive option (a “Rux Backup Compound Option”) to acquire rights with respect to any or all of such Ruxolitinib Backup Compound or rights therein, as the case may be, in the Graft-Versus-Host Disease Field on the terms set forth in this Section 2.1(b)(iii) without any additional consideration to Incyte therefor (including any payment, grant of rights or assumption of obligations).  If Novartis desires to exercise the Rux Backup Compound Option, it shall provide written notice thereof to Incyte within [**]of Novartis’ receipt of all of the following:  (x) the Incyte Rux Backup Compound Notice, (y) the Rux Backup Compound Information Package and (z) all information and data requested by Novartis in accordance with this section. Such notice shall include a description of the Rux Backup Compound or rights therein with respect to which Novartis is exercising the Rux Backup Compound Option.  Whether or not to exercise a Rux Backup Compound Option and whether to exercise the Rux Backup Compound Option with respect to all or some of the Ruxolitinib Backup Compound or any rights therein shall be in Novartis’ sole discretion.  If Novartis exercises a Rux Backup Compound Option, then the license granted to Novartis pursuant to Section 2.1(b)(ii) shall, from and after such exercise, include such Ruxolitinib Backup Compound or rights therein, as the case may be, with respect to which Novartis has exercised the Rux Backup Compound Option.  For clarity, Novartis’ rights under this Section 2.1(b)(iii) with respect to any Ruxolitinib Backup Compound or rights therein, as the case may be, shall be unaffected by any previous exercise or failure to exercise of a Rux Backup Compound Option by Novartis.  For purposes hereof, “Rux Backup Compound Information Package” means, with respect to a Ruxolitinib Backup Compound or rights therein, all material pre-clinical and clinical data, information relevant to the Intellectual Property Rights Controlled by Incyte or its Affiliates with respect to such Ruxolitinib Backup Compound or rights therein and any other information or data Controlled by Incyte or its Affiliates and reasonably relevant to the Development, Manufacture or Commercialization of such Ruxolitinib Backup Compound or rights therein in the Graft-Versus-Host Disease Field.” 

2.3 Non-Compete – JAK 2 Inhibitor Compounds and JAK Licensed Compounds.

(a) The Original Agreement is hereby amended to delete Section 2.6(b)(i) and replace it in its entirety with the following:

“(i)During the JAK Program Term, Incyte agrees not to, and shall cause its Affiliates not to, directly or indirectly, including through any ownership interest in any other entity (other than through an ownership interest of [**]of a public company), Develop or Commercialize any JAK2 Inhibitor Compounds in the JAK Field anywhere in the world, other than as expressly permitted under this Agreement (including Section 4.5).  Notwithstanding the foregoing, nothing in this Agreement shall prohibit Incyte or its Affiliates from Developing or Commercializing (x) any JAK Excluded Compound in any field anywhere in the world or (y) baricitinib and its back-up compounds [**]in the Graft-Versus-Host Disease Field anywhere in the world.”

(b) The Original Agreement is hereby amended to delete Section 2.6(b)(iii) and replace it in its entirety with the following:

“(iii)For the avoidance of doubt, neither Novartis nor its Affiliates will Develop or Commercialize any JAK Licensed Compounds anywhere in the world for the treatment of any Inflammatory Disease other than ruxolitinib and other than any Ruxolitinib Backup Compounds with respect to which Novartis has exercised a Rux Backup Compound Option in the Graft-Versus-Host Disease Field in the Novartis Territory.” 

2.4 Milestone Payments.

(a) Sections 8.2(c) and (d) of the Original Agreement are each hereby amended to add the following note at the end of such Sections: 

“For clarity, achievement of any milestone in an Indication in the Graft-Versus-Host Disease Field will not constitute achievement of any milestone under this Section.  [**]”

(b) Section 8.2 of the Original Agreement is hereby amended to insert the following immediately after Section 8.2(d):

“(d1)Graft-Versus-Host Disease Milestones.  

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CONFIDENTIAL TREATMENT MATERIAL

(i) [**]

(ii) [**]

(iii) [**]

The payment terms set forth in Section 8.2(i) shall apply with respect to any milestone payment under this Section 8.2(d1). For clarity, in no event will milestones paid under this Section 8.2(d1) exceed US$75,000,000 in the aggregate.”

(c) The Original Agreement is hereby amended to delete Section 8.2(f) and replace it in its entirety with the following:

“(f)Except as expressly otherwise specified herein, none of the payments listed in this Section 8.2, including any Graft-Versus-Host Disease Milestone Payments,shall be payable more than once, and, subject to the foregoing, each shall be payable at the first achievement of a milestone event for a Licensed Product and shall not be payable again if subsequently another Licensed Product achieves the same milestone event.  [**]”

(d) The Original Agreement is hereby amended to add Exhibit J at the end of the Original Agreement.  For purposes of clarity, a JAK Licensed Product containing ruxolitinib or any Ruxolitinib Backup Compounds with respect to which Novartis has exercised a Rux Backup Compound Option in an Indication in the Graft-Versus-Host Disease Field shall be deemed to be a JAK Licensed Product for all purposes, including, without limitation, Section 8.2(e)(ii) (JAK Licensed Product Sales Milestones) and Section 8.3(a)(ii) (Royalties – JAK Licensed Products).

ARTICLE III


Payments

3.1 Upfront Payment.  Novartis shall pay to Incyte a one-time, non-creditable, non-refundable payment of US$5,000,000 within [**]after receipt of an invoice therefor, which invoice may not be submitted prior to the Effective Date.

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CONFIDENTIAL TREATMENT MATERIAL

ARTICLE IV


Representations and Warranties

4.1 Representation of Authority; Consents.  Incyte and Novartis each represents and warrants to the other Party that:

(a) as of the Effective Date, it has full right, power and authority to enter into this Amendment No. 4;

(b) as of the Effective Date, this Amendment No. 4 has been duly executed by such Party and constitutes a legal, valid and binding obligation of such Party, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other Laws relating to or affecting creditors’ rights generally and by general equitable principles and public policy constraints (including those pertaining to limitations and/or exclusions of liability, competition Laws, penalties and jurisdictional issues including conflicts of Laws); and

(c) as of the Effective Date, all necessary consents, approvals and authorizations of all government authorities and other persons (including, in the case of Incyte, Lilly) required to be obtained by such Party in connection with the execution, delivery and performance of this Amendment No. 4 have been obtained.

4.2 No Conflict. Each Party represents and warrants to the other Party that the execution and delivery of this Amendment No. 4 and the performance of such Party’s obligations hereunder (a) do not conflict with or violate such Party’s corporate charter and bylaws or any requirement of applicable Laws and (b) do not and shall not conflict with, violate or breach or constitute a default or require any consent under, any oral or written contractual obligation of such Party (including in the case of Incyte, the Lilly Agreement).  Each Party agrees that it shall not during the term of the Original Agreement grant any right, license, consent or privilege to any Third Party (including, in the case of Incyte, to Lilly) or otherwise undertake any action, either directly or indirectly, that would conflict with the rights granted to the other Party or interfere with any obligations of such Party set forth in this Amendment No. 4. 

4.3 No Ruxolitinib Backup Compounds.  Incyte represents and warrants to Novartis that, as of the Effective Date, it does not Control any Ruxolitinib Backup Compounds for use in any Indication within the Graft-Versus-Host Disease Field.

ARTICLE V


Indemnification

5.1 By Novartis. 

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CONFIDENTIAL TREATMENT MATERIAL

(a) Novartis agrees, at Novartis’s cost and expense, to defend, indemnify and hold harmless the Incyte Indemnified Parties from and against any losses, costs, damages, fees or expenses arising out of any Third Party claim relating to or alleging any facts that would constitute a breach by Novartis of any of its representations, warranties or obligations pursuant to this Amendment No. 4.

(b) Sections 10.1(b) and (c) of the Original Agreement shall apply mutatis mutandis to this Amendment No. 4 as if set forth herein in full.

5.2 By Incyte.  

(a) Incyte agrees, at Incyte’s cost and expense, to defend, indemnify and hold harmless the Novartis Indemnified Parties from and against any losses, costs, damages, fees or expenses arising out of any Third Party claim relating to or alleging any facts that would constitute a breach by Incyte of any of its representations, warranties or obligations pursuant to this Amendment No. 4.

(b) Sections 10.2(b) and (c) of the Original Agreement shall apply mutatis mutandis to this Amendment No. 4 as if set forth herein in full.

ARTICLE VI


miscellaneous

6.1 Effect on Original Agreement.  Except to the extent amended pursuant to this Amendment No. 4, the Original Agreement shall continue in full force and effect in accordance with its terms.

6.2 Publicity.  Except as required by judicial order or applicable Law, neither Party shall make any public announcement concerning this Amendment No. 4 without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed.  Except in the case of the initial press release announcing the execution of this Amendment 4, the Party preparing any such public announcement shall provide the other Party with a draft thereof at least [**]prior to the date on which such Party would like to make the public announcement.  Notwithstanding the foregoing, Incyte may issue a press release in the form attached as Schedule II within one (1) Business day after the Effective Date.  Either Party shall be permitted to disclose publicly any information which was previously approved for public disclosure pursuant to this Section 6.2.

6.3 Miscellaneous Provisions.  The following provisions of the Original Agreement shall apply to this Amendment No. 4 as if set forth herein in full:  Section 14.1 (Governing Law); Section 14.2 (Consent to Jurisdiction); Section 14.6 (Notices); Section 14.11 (Headings); Section

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[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

14.12 (No Implied Waivers; Rights Cumulative); Section 14.13 (Severability); Section 14.14 (Execution in Counterparts); Section 14.16 (Exhibits).

[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Parties have caused their duly authorized officers to execute and acknowledge this Amendment No. 4 as of the date first written above.

NOVARTIS INTERNATIONAL PHARMACEUTICAL LTD.	INCYTE CORPORATION
By: /s/ Michael Jones_________________ Name:  Michael Jones Title:  Director	By:  /s/ Hervé Hoppenot _______________ Name:  Hervé Hoppenot Title:  President and CEO

NOVARTIS INTERNATIONAL PHARMACEUTICAL LTD.

By:  /s/ M. Tonesan Amissah___________

Name:  M. Tonesan Amissah

Title:  Alternate Director

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

Schedule I

Exhibit J

Graft-Versus-Host Disease Field (ICD-9-CM)

279.50 Graft-versus-host disease, unspecified (including prophylaxis of Graft-versus-host disease)

279.51 Acute graft-versus-host disease

279.52 Chronic graft-versus-host disease

279.53 Acute on chronic graft-versus-host disease

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

Schedule II

Press Release

See Attached.

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

EX-10.2

Exhibit 10.2

CONFIDENTIAL TREATMENT MATERIAL

CONFIDENTIAL TREATMENT REQUESTED:  Information for which confidential treatment has been requested is omitted and is noted with asterisks. An unredacted version of this document has been filed separately with the Securities and Exchange Commission (the “Commission”).

SHARE PURCHASE AGREEMENT

by and among

INCYTE EUROPE S.à r.l.,

ARIAD PHARMACEUTICALS (CAYMAN) L.P.,

ARIAD PHARMACEUTICALS, INC. (AS GUARANTOR),

and

INCYTE CORPORATION (AS GUARANTOR)

May 9, 2016

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

TABLE OF CONTENTS

		Page
ARTICLE 1 DEFINITIONS AND CONSTRUCTION		1
Section 1.1	Definitions.	1
Section 1.2	Additional Defined Terms.	8
Section 1.3	Construction.	9
ARTICLE 2 THE TRANSACTION		10
Section 2.1	Sale and Purchase of Shares.	10
Section 2.2	Purchase Price.	10
Section 2.3	Closing Date Adjustment.	10
Section 2.4	Post-Closing Adjustment.	10
Section 2.5	Closing.	13
Section 2.6	Closing Deliveries.	13
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLER		14
Section 3.1	Organization and Good Standing.	14
Section 3.2	Authority and Enforceability.	14
Section 3.3	No Conflict.	15
Section 3.4	Capitalization and Ownership.	15
Section 3.5	Brokers Fees.	16
Section 3.6	Financial Statements.	16
Section 3.7	No Undisclosed Liabilities.	17
Section 3.8	Absence of Certain Changes and Events.	17
Section 3.9	Tangible Personal Property	18
Section 3.10	Leased Real Property.	18
Section 3.11	Intellectual Property.	18
Section 3.12	Contracts.	19
Section 3.13	Tax Matters.	20
Section 3.14	Employee Benefit Matters.	21
Section 3.15	Employment and Labor Matters.	21
Section 3.16	Environmental, Health and Safety Matters.	22
Section 3.17	Governmental Authorizations.	22
Section 3.18	Compliance with Laws.	22
Section 3.19	Product Liability.	23

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CONFIDENTIAL TREATMENT MATERIAL

TABLE OF CONTENTS

(continued)

		Page
Section 3.20	Legal Proceedings.	23
Section 3.21	Insurance.	23
Section 3.22	Customers.	23
Section 3.23	Interested Party Transactions.	24
Section 3.24	Bank Accounts.	24
Section 3.25	No Other Representations or Warranties.	24
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER		24
Section 4.1	Organization and Good Standing.	24
Section 4.2	Authority and Enforceability.	24
Section 4.3	No Conflict.	25
Section 4.4	Legal Proceedings.	25
Section 4.5	Investment Intent.	25
Section 4.6	Brokers Fees.	25
Section 4.7	Financial Capacity.	25
Section 4.8	Independent Investigation.	25
ARTICLE 5 PRE-CLOSING COVENANTS		25
Section 5.1	Access and Investigation; Notice.	25
Section 5.2	Operation of the Businesses of the Acquired Companies.	25
Section 5.3	Consents and Filings; Commercially Reasonable Efforts.	27
Section 5.4	Financing.	27
Section 5.5	Public Announcements.	27
Section 5.6	Intragroup Agreements.	28
Section 5.7	Carve Out Restructuring.	28
Section 5.8	Financial Statements.	28
Section 5.9	CSC Guarantee.	28
ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE		28
Section 6.1	Joint Condition.	28
Section 6.2	Conditions to the Obligation of the Purchaser.	28
Section 6.3	Conditions to the Obligation of the Seller.	29
ARTICLE 7 TERMINATION		29
Section 7.1	Termination Events.	29
Section 7.2	Effect of Termination.	30

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CONFIDENTIAL TREATMENT MATERIAL

TABLE OF CONTENTS

(continued)

		Page
Section 7.3	Certain Effects of Termination.	30
ARTICLE 8 INDEMNIFICATION		30
Section 8.1	Indemnification by the Seller.	30
Section 8.2	Indemnification by the Purchaser.	30
Section 8.3	Claim Procedure.	30
Section 8.4	Survival.	31
Section 8.5	Limitations on Liability.	32
Section 8.6	Tax Refunds, Insurance Proceeds and Other Payments.	32
Section 8.7	Subrogation.	33
Section 8.8	Exclusive Remedy	33
ARTICLE 9 TAX MATTERS		33
Section 9.1	Swiss Tax Rulings.	33
Section 9.2	Liability and Indemnification for Taxes.	34
Section 9.3	Tax Return Filing; Audit Responsibilities.	34
Section 9.4	Cooperation.	35
Section 9.5	No Code Section 338 Election.	35
Section 9.6	Tax Treatment of Indemnity Payments.	35
ARTICLE 10 EMPLOYEE MATTERS		35
Section 10.1	Employees.	35
Section 10.2	Indemnity.	36
ARTICLE 11 POST-CLOSING COVENANTS		36
Section 11.1	Confidentiality.	36
Section 11.2	Indemnification.	37
Section 11.3	Seller’s Group Marks.	37
Section 11.4	Standstill.	37
Section 11.5	Further Actions.	38
Section 11.6	Books and Records and Cooperation with Litigation.	38
ARTICLE 12 GENERAL PROVISIONS		39
Section 12.1	Notices.	39
Section 12.2	Amendment.	39
Section 12.3	Waiver and Remedies.	39
Section 12.4	Entire Agreement.	39

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CONFIDENTIAL TREATMENT MATERIAL

TABLE OF CONTENTS

(continued)

		Page
Section 12.5	Assignment, Successors and No Third Party Rights.	40
Section 12.6	Severability.	40
Section 12.7	Exhibits and Schedules.	40
Section 12.8	Interpretation.	40
Section 12.9	Expenses.	40
Section 12.10	Governing Law.	40
Section 12.11	Limitation on Liability.	40
Section 12.12	Specific Performance.	41
Section 12.13	Jurisdiction and Service of Process.	41
Section 12.14	Waiver of Jury Trial.	41
Section 12.15	No Joint Venture.	41
Section 12.16	Non Recourse.	41
Section 12.17	Guaranty.	41
Section 12.18	Counterparts.	42

Exhibits

Exhibit AAmended and Restated Buy-In License Agreement Territory

Exhibit BTerritory

Exhibit CJoint Press Release

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[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

SHARE PURCHASE AGREEMENT

This Share Purchase Agreement (the “Agreement”) is made as of May 9, 2016, by and among Incyte Europe S.à r.l., an entity formed under the laws of Switzerland (the “Purchaser”), ARIAD Pharmaceuticals (Cayman) L.P., an Exempted Limited Partnership registered in the Cayman Islands, acting by its general partner, ARIAD Pharmaceuticals (Cayman) Inc., an Exempted Company incorporated in the Cayman Islands with limited liability (the “Seller”), ARIAD Pharmaceuticals, Inc., a Delaware corporation (“ARIAD US”), solely in its capacity as guarantor under Section 12.17(a) hereof, and Incyte Corporation, a Delaware corporation (“Incyte US”), for the purposes of Section 11.4 and in its capacity as guarantor under Section 12.17(b).

W I T N E S S E T H:

WHEREAS, the Seller owns all of the shares in the share capital of ARIAD Pharmaceuticals (Luxembourg) S.à r.l., a private limited liability company (société à responsabilité limitée) organized and existing under the laws of the Grand Duchy of Luxembourg, with a share capital of USD 20,000, having its registered office at 6, rue Eugène Ruppert, L-2453 Luxembourg and registered with the Luxembourg Trade and Companies Register under number B 169.951 (the “Company”);

WHEREAS, this Agreement contemplates the sale by the Seller to the Purchaser of all of the share capital of the Company; and

WHEREAS, this Agreement is being executed in the presence of the Company.

NOW, THEREFORE, intending to be legally bound and in consideration of the mutual provisions set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

Article  1
DEFINITIONS AND CONSTRUCTION

Section 1.1Definitions. For the purposes of this Agreement and the Ancillary Agreements:

“Acquired Companies” means, collectively, the Company and its Subsidiaries.

“Affiliate” means, with respect to a specified Person, any other Person that controls, is controlled by or is under common control with that Person. For the purposes of this definition, the terms “controls”, “controlled by” and “under common control with” as used with respect to any Person, means (i) to possess (directly or indirectly) the power to direct the management or affairs of such Person, whether through ownership of voting securities or other equity rights or by contract relating to voting rights or corporate governance or otherwise, or (ii) to own, directly or indirectly, more than fifty percent (50%) of the outstanding voting securities or other ownership interest of such Person.

“Affiliated Group” means a group of corporations with which any Acquired Company has filed consolidated, combined, unitary or similar Tax Returns.

“Amended and Restated Buy-In License Agreement” means the Amended and Restated Buy-In License Agreement in the form attached as Exhibit A.  

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[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

“Ancillary Agreements” means, collectively, the Amended and Restated Buy-In License, the Interim Quality Agreement, the Marketing Authorization Services Agreement, the Transition Services Agreement and the Reverse Transition Services Agreement.

“Antitrust Approvals” means all authorizations, orders, grants, consents, clearances, permissions and approvals and all expirations, lapses and terminations of any required waiting periods (including extensions thereof), in each case under any Antitrust Law, required to consummate the transactions contemplated by this Agreement.

“ARIAD SWISSCO” means ARIAD Pharmaceuticals (Europe) S.a.r.l.

“ARIAD SWISSCO Intragroup Indebtedness” means any Indebtedness outstanding under (i) the credit facility entered into between the Seller and ARIAD SWISSCO on October 12, 2012; and (ii) the loan agreement entered into between ARIAD US and ARIAD SWISSCO on August 7, 2012, in the case of each of (i) and (ii) as from time to time supplemented, modified or amended.

“Australian Business” means the business carried on by ARIAD Pharmaceuticals (Australia) Pty Ltd.

“Books and Records” means minutes books, stock books, stock ledgers, books of account, manuals, general, financial, warranty and shipping records, invoices, customer and supplier lists, correspondence, engineering, maintenance and operating records and other documents, records and files, in each case exclusively related to the business of the Acquired Companies.

“Business Day” means any day other than Saturday, Sunday or any day on which banking institutions in the US or Switzerland are closed either under applicable Law or action of any Governmental Authority. For the avoidance of doubt, any other reference to days shall mean calendar days.

“Cash” means, with respect to a Person, the amount of cash, cash equivalents and liquid investments on hand or credited to any account open in the name of such Person with a financial institution (plus all uncollected bank deposits and less all outstanding checks).

“Change” means a change, circumstance, condition, event, effect, development or state of facts.

“Claims” means any charges, mortgages, pledges, security interests, escrows, options, rights of first refusal, indentures, security agreements or other encumbrances, claims, agreements, arrangements or commitments of any kind or character and whether or not relating in any way to credit or the borrowing of money.

“Closing Cash” means the Cash of the Acquired Companies on a consolidated basis calculated as of 11:59 p.m., New York City time, on the date immediately preceding the Closing Date in accordance with GAAP in a manner consistent with the methods and practices used to prepare the Company Interim Balance Sheet (with any amounts denominated in Foreign Currency converted to US Dollars using the Exchange Rate).

“Closing Indebtedness” means the sum of (a) Indebtedness of the Acquired Companies on a consolidated basis calculated as of 11:59 p.m., New York City time, on the date immediately preceding the Closing Date, after giving effect to the settlement of the ARIAD SWISSCO Intragroup Indebtedness, in accordance with GAAP in a manner consistent with the methods and practices used to prepare the Company Interim Balance Sheet plus (b) an amount equal to the aggregate Retention Payments (with any amounts denominated in Foreign Currency converted to US Dollars using the Exchange Rate).

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[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

“Closing Net Cash” means the difference between (a) the Closing Cash and (b) the Closing Indebtedness. For purposes of this definition, if the Closing Indebtedness exceeds the Closing Cash, then the Closing Net Cash amount will be represented by a negative number.

“Closing Net Working Capital” means (a) all current assets of the Acquired Companies (excluding Closing Cash and any assets relating to Taxes, including assets that relate to the right to use Tax Attributes and any assets that relate to a right to a tax refund or that otherwise results from the overpayment of Taxes in any period) on a consolidated basis minus (b) all current liabilities of the Acquired Companies (excluding the Deferred Revenue, Deferred Refund Obligations and anyClosing Indebtedness, to the extent made up of current liabilities, and Liabilities relating to Taxes and as adjusted pursuant to Section 5.8), in each case calculated as of 11:59 p.m., New York City time, on the date immediately preceding the Closing Date in accordance with GAAP in a manner consistent with the methods and practices used to prepare the Company Interim Balance Sheet (with any amounts denominated in Foreign Currency converted to US Dollars using the Exchange Rate). For purposes of this definition, if the current Liabilities of the Acquired Companies on a consolidated basis exceed the current assets of the Acquired Companies on a consolidated basis, then the Closing Net Working Capital amount will be represented by a negative number.

“Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

“Commercialize” means all activities directed to importing (into, or within, the Territory), exporting (within the Territory), storing, marketing, promoting, selling, offering for sale and distributing the Product in the Territory. “Commercializes,” “Commercialized,” “Commercialization” and other forms of the word “Commercialize” shall have the correlative meaning. For clarity, “Commercialize” excludes manufacture.

“Company Plan” means any “employee benefit plan” (as defined in Section 3(3) of ERISA), any Pension Arrangement and any other material plan, Contract or arrangement involving direct or indirect compensation, including insurance coverage, severance benefits, ill health, disability, deferred compensation, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement compensation sponsored or maintained by any Acquired Company or the Seller for the benefit of any current or former director, officer or Transferred Employee of any Acquired Company.

“Compound” has the meaning given to that term in the Amended and Restated Buy-In License Agreement.

“Contract” means any written contract, agreement, lease, license, commitment, understanding, franchise, warranty, guaranty, mortgage, note, bond or other instrument or consensual obligation that is legally binding.

“Controlled Person” means Incyte US, its direct and indirect Subsidiaries [**].

“CSC Guarantee” means that certain guarantee provided by ARIAD US for the benefit of CSC Pharmaceuticals Handels GmbH (“CSC”) to guarantee the performance of the obligations of ARIAD SWISSCO under the Market Access Services and Distribution and Supply Agreement between ARIAD SWISSCO and CSC.

“Deferred Revenue” means the amounts recorded in other current liabilities in the Financial Statements attributable to the matter described in Section 3.7 of the Seller Disclosure Schedule.

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[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

“Deferred Refund Obligations” means the aggregate amount of the refunds payable to the applicable Governmental Authority relating to the Deferred Revenue and described in Section 3.7 of the Seller Disclosure Schedule.

“Encumbrance” means any charge, mortgage, encumbrance, pledge, security interest, or other lien other than (a) carrier’s, warehousemen’s, mechanic’s, materialmen’s and other similar liens with respect to amounts that are not yet due and payable or that are being contested in good faith, (b) liens for Taxes that are not yet due and payable or that are being contested in good faith, (c) liens securing rental payments under capital lease arrangements, (d) restrictions arising under applicable zoning and other land use Laws that do not, individually or in the aggregate, have a material adverse effect on the present use or occupancy of the property subject thereto.

“Environmental Law” means any Law concerning (a) the treatment, disposal, emission, discharge, Release or threatened Release of Hazardous Material or (b) the protection of the environment (including natural resources, air and surface or subsurface land or waters).

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Rate” means the exchange rate between the applicable Foreign Currency and US Dollars observed by Bloomberg at 9:00 a.m., New York City time, three Business Days prior to the Closing Date.  

“Foreign Currency” means any currency other than US Dollars.

“GAAP”, unless otherwise stated, means United States generally accepted accounting principles.

“Governmental Authority” means any (a) nation, region, state, county, city, town, village, district or other jurisdiction, (b) federal, state, local, municipal, foreign or other government, (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department or other entity and any court or other tribunal), (d) multinational organization exercising judicial, legislative or regulatory power or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature of any federal, state, local, municipal, foreign or other government.

“Governmental Authorization” means any approval, consent, ratification, waiver, license, permit, registration or other authorization issued or granted by any Governmental Authority.

“Hazardous Material” means any waste or other substance that is listed, defined, designated or classified as hazardous, radioactive or toxic or a pollutant or a contaminant under any Environmental Law, including any admixture or solution thereof, and including petroleum and all derivatives thereof or synthetic substitutes therefor, asbestos or asbestos-containing materials in any form or condition and polychlorinated biphenyls.

“Indebtedness” means, with respect to any Person (a) all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments or debt securities and warrants or other rights to acquire any such instruments or securities and (c) all indebtedness of others referred to in clauses (a) and (b) hereof guaranteed, directly or indirectly, in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services,

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primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against Loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered), (iv) to grant an Encumbrance on property owned or acquired by such Person, whether or not the obligation secured thereby has been assumed or (v) otherwise to assure a creditor against Loss, except in the case of any of items (a), (b) or (c) to the extent solely between or among the Acquired Companies.

“Intellectual Property” means all (a) patents (including utility and design patents), patent applications, Patent Cooperation Treaty filings, patent disclosures and all related extensions, continuations, continuations-in-part, divisions, reissues, and reexaminations, utility models, certificates of invention and design patents, and all extensions thereto, (b) trademarks, service marks, trade dress, brand names, certification marks, logos, slogans, rights in designs, industrial designs, corporate names, trade names, business names, together with the goodwill associated with any of the foregoing, in each case whether registered or unregistered, and all applications and registrations therefor (“Trademarks”), (c) domain names, URLs and any other addresses for use on the Internet, (d) copyrights and registrations and applications therefor, together with all renewals, extensions, translations, adaptations, derivations and combinations therefor, works of authorship, publications, documentation, website content, rights in fonts and typefaces, and database rights, (e) rights of publicity, rights of privacy, royal warrants and moral rights, (f) know-how, trade secrets, confidential and proprietary information, rights in research and development, financial, marketing and business data, pricing and cost information, plans (including business and marketing plans), formulae, inventions, processes, techniques, technical data, designs, drawings (including engineering and auto-cad drawings), specifications, databases, blue prints, and customer and supplier lists and information, in each case whether patentable or not and whether or not reduced to practice, (g) other intellectual property or similar corresponding or equivalent right to any of the foregoing or other proprietary or Contract right relating to any of the foregoing (including remedies against infringements thereof and rights of protection of interest therein under the laws of all jurisdictions) and (h) copies and tangible embodiments thereof, in each case whether or not the same are in existence as of the date of this Agreement or developed after such date and in any jurisdiction throughout the world.

“Interim Quality Agreement” means a quality agreement in the form reasonably acceptable to the parties to this Agreement.

“Intragroup Agreement” means a Contract between or among any member of the Seller’s Group, on the one hand, and any Acquired Company, on the other hand, but excluding any Ancillary Agreement.

“Judgment” means any order, injunction, judgment, decree, ruling, assessment or arbitration award of any Governmental Authority or arbitrator or other court or tribunal.

“Knowledge” means the actual knowledge of any of each Person listed in Section 1.1(a) of the Seller Disclosure Schedule, after such inquiry as such Persons normally would conduct in the ordinary course of their duties to Seller and its Affiliates.

“Law” means any federal, state, local, municipal, foreign, international, multinational, or other constitution, law, statute, treaty, rule, regulation, ordinance or code.

“Liability” means any liability or obligation, whether known or unknown, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, due or to become due.

“Loss” means any direct and actual Liabilities, losses, damages, penalties, fines, costs or expenses (including reasonable attorney’s or other professional fees and expenses), but excluding any special, incidental indirect, exemplary, punitive or consequential damages, lost profits, loss of revenue, lost sales, or amounts calculated as a multiple of earnings, profits, revenue, sales or other measures; provided,  that the foregoing

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exclusions shall not limit the rights any party to indemnity for such damages to the extent actually paid to Persons other than the parties hereto, any Indemnified Party or their respective Affiliates.

“Marketing Authorization Services Agreement” means a marketing authorization services agreement in the form reasonably acceptable to the parties to this Agreement.

“Material Adverse Effect” means any Change that has a material adverse effect on (a) the business, assets (whether tangible or intangible), liabilities, financial condition, operations or results of operations of the Acquired Companies, taken as a whole, or (b) the ability of the Seller to consummate timely the transactions contemplated by this Agreement; provided that none of the following shall be deemed, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) any Change generally affecting economic, regulatory or political conditions, (ii) any Change generally affecting the financial, credit, securities or other capital markets in the United States or any foreign jurisdiction, (iii) any Change generally affecting the industry in which the Acquired Companies operate, (iv) any hurricane, tornado, flood, earthquake, tsunami, volcanic eruption or other natural disaster, (v) any Change occurring in national or international political conditions, including acts of war, sabotage or terrorism, or any escalation or worsening of any such acts of war, sabotage or terrorism, (vi) any Change occurring after the date of this Agreement in applicable Law or generally accepted accounting principles, (vii) the public announcement of the execution of this Agreement and (viii) any failure to meet any internal or published projections, forecasts or revenue or earnings predictions for any period ending on or after the date of this Agreement (but not the facts or circumstances underlying or giving rise to such failure), except, with respect to the foregoing clauses (i) through (vi), to the extent that the effects of any such matter are, or would reasonably be expected to be, disproportionately adverse to the business, financial condition, operations or results of operations of the Acquired Companies, taken as a whole, as compared to other companies operating in the industries and markets in which the Acquired Companies operate.

“Marketing Authorization” means a marketing authorization (or equivalent product approval in any country within the Territory) issued by a Governmental Authority with respect to the Product to enable the Product to be placed on the market in a country in the Territory.

“Organizational Documents” means, with respect to any entity, the certificate of incorporation or formation, the articles of incorporation, by-laws, articles of organization, partnership agreement, limited liability company agreement, formation agreement, joint venture agreement or other similar organizational documents of such entity (in each case, as amended).

“Pension Arrangement” means any pension plan disclosed at Section 3.14(a) of the Seller Disclosure Schedule.

“Person” means an individual or an entity, including a (for profit or not for profit) corporation, limited liability company, general or limited partnership, trust, association or other business or investment entity, academic institution, research institution, or any Governmental Authority.

“Post-Closing Period” means any taxable period or portion of a period that begins after the Closing Date.

“Pre-Closing Period” means any taxable period or portion of a period that begins on or before the Closing Date and ends on or before the Closing Date.

“Pre-Sale Restructuring” means: (i) the financial restructuring of ARIAD SWISSCO for the purposes of settling the ARIAD SWISSCO Intragroup Indebtedness; (ii) ARIAD SWISSCO entering into the Amended and Restated Buy-In License Agreement; and (iii) any transaction or arrangement required for the implementation of the transactions in (i) and (ii).

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“Proceeding” means any action, arbitration, audit, examination, investigation, hearing, litigation or suit (whether civil, criminal, administrative, judicial or investigative, whether formal or informal, and whether public or private) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority or arbitrator.

“Product” means any pharmaceutical product containing Compound as an active chemical entity, alone or in combination with one or more other active ingredients, in any and all forms, presentations, dosages, and formulations.

“Registrations” means (a) Marketing Authorizations, (b)receipt of any license issued by a Governmental Authority required to import Product(s) into each country in the Territory, and (c) any other license issued by a Governmental Authority or approval which is legally required to Commercialize the Product in each country of the Territory (e.g., wholesale licenses).

“Regulatory Authority” means the European Medicines Agency or any other Governmental Authority that is a competent authority for the issuance of any of the Registrations, or any part of them, in any country of the Territory.

“Release” means the release, spill, emission, leaking, pumping, pouring, emptying, escaping, dumping, injection, deposit, disposal, discharge, dispersal, leaching or migrating of any Hazardous Material into the environment.

“Representatives” means, with respect to a Person, the directors, managers, officers, employees, agents or advisors (including attorneys, accountants, consultants, bankers and financial advisors) of such Person.

“Required Contracts” means the Contracts listed at Section 1.1(b) of the Seller Disclosure Schedule.

“Retention Payments” means the payments listed at Section 1.1(c) of the Seller Disclosure Schedule.

“Reverse Transition Services Agreement” means a reverse transition services agreement in the form reasonably acceptable to the parties to this Agreement.

“Schedule” means the Seller Disclosure Schedule or the Purchaser Disclosure Schedule, as the context requires.

“SEC” means the U.S. Securities and Exchange Commission.

“Seller Fundamental Representations” means those representations and warranties of the Seller set out in Section 3.1(a), Section 3.1(b), Section 3.2, Section 3.4(a), Section 3.4(b) and Section 3.5

 “Seller’s Group” means the Seller and its Affiliates, but excluding the Acquired Companies.

“Seller’s Group Marks” means any marks or logos that contain Seller’s name “ARIAD,” including but not limited to, ARIAD, ARIAD PASS, and ARIAD PHARMACEUTICALS and ARIAD with Spiral Design.

“Shares” means all of the issued and outstanding share capital of the Company.

“Straddle Period” means any taxable period that begins before and ends after the Closing Date.

“Subsidiary” means, with respect to a specified Person, any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation’s or other Person’s board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening

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of a contingency that has not occurred) are held by the specified Person or one or more of its Subsidiaries. When used in this Agreement without reference to a particular Person, “Subsidiary” means a Subsidiary of the Company.

“Swiss Tax Authorities” means any taxing or other authority competent to impose any liability in respect of Tax or responsible for the administration and/or collection of Tax or enforcement of any law in relation to Tax in Switzerland.

“Tax” means (a) any federal, state, local, foreign or other tax, charge, fee, duty (including customs duty), levy or assessment, including any income, gross receipts, net proceeds, alternative or add-on minimum, corporation, ad valorem, turnover, real property, personal property (tangible or intangible), sales, use, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, excess profits, profits, occupational, premium, interest equalization, windfall profits, severance, license, registration, payroll, environmental, capital stock, capital duty, disability, estimated, gains, wealth, welfare, employee’s income withholding, other withholding, unemployment or social security or other tax of whatever kind (including any fee, assessment or other charges in the nature of or in lieu of any tax) that is imposed by any Governmental Authority, (b) any interest, fines, penalties or additions resulting from, attributable to, or incurred in connection with any items described in this paragraph or any related contest or dispute and (c) any Liability for the Taxes of another Person.

“Tax Attributes” means any net operating loss, net capital loss, investment tax credit, foreign credit, charitable deduction or any other credit or tax attribute that could be carried forward or back to reduce Taxes (including deductions and credits relating to alternative minimum Taxes), and any additional items described in Section 381 of the Code without reference to the conditions and limitations described therein.

“Tax Contest” means an audit, claim, dispute or controversy relating to Taxes.

“Tax Return” means any report, return, declaration, claim for refund, notice, or information return or statement related to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Territory” means the area within the geographic boundaries as set forth in Exhibit B.

“Third Party” means any Person other than Seller and Purchaser and their respective Affiliates.

“Transition Services Agreement” means a transition services agreement in the form reasonably acceptable to the parties to this Agreement.

“US Dollars” means the lawful currency of the United States as at the date of this Agreement.

Section 1.2Additional Defined Terms. For purposes of this Agreement, the following terms have the meanings specified in the indicated Section of this Agreement:

Defined Term	Section
Adjustment Calculation	Section 2.4(a)
Adjustment Notice	Section 2.4(a)
Affiliate Indemnified Party	Section 11.2
Agreement	Preamble
Antitrust Laws	Section 5.3(b)
ARIAD SWISSCO Balance Sheet	Section 3.6(a)(i)
ARIAD US	Preamble
Audited Consolidated Balance Sheets	Section 5.8
Audited Consolidated Financial Statements	Section 5.8
Carve Out Restructuring	Section 5.7

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Claim Notice	Section 8.3(a)
Closing	Section 2.5
Closing Balance Sheet	Section 2.4(a)
Closing Date	Section 2.5
Closing Date Payment	Section 2.2
Closing Net Cash Statement	Section 2.4(a)
Closing Net Working Capital Statement	Section 2.4(a)
Company	Preamble
Company Balance Sheet	Section 3.6(a)(ii)
Company Information	Section 11.1(b)
Company Intellectual Property	Section 3.11(a)
Company Interim Balance Sheet	Section 3.6(a)(iii)
Confidentiality Agreement	Section 11.1(a)
Continuation Period	Section 10.1(a)
Controlling Party	Section 8.3(d)
Dispute Notice	Section 2.4(c)(ii)
Estimated Closing Net Cash	Section 2.3(a)
Estimated Closing Net Working Capital	Section 2.3(b)
FCPA	Section 3.18
Final Closing Net Cash	Section 2.4(f)
Final Closing Net Working Capital	Section 2.4(f)
Financial Statements	Section 3.6(a)
Indemnified Party	Section 8.3(a)
Indemnifying Party	Section 8.3(a)
Independent Accounting Firm	Section 2.4(e)
Initial Purchase Price	Section 2.2
Leased Real Property	Section 3.10(a)
Material Contracts	Section 3.12(a)
Material Customers	Section 3.22(a)
Non-controlling Party	Section 8.3(d)
Other Consolidated Financial Statements	Section 5.8
Purchase Price	Section 2.2
Purchaser	Preamble
Purchaser Indemnified Parties	Section 8.1
Real Property Leases	Section 3.10(a)
Resolution Period	Section 2.4(e)
Seller	Preamble
Seller Disclosure Schedule	Article 3
Seller Indemnified Parties	Section 8.2
Subsidiary Shares	Section 3.4(b)
Swiss Tax Rulings	Section 9.1(a)
Third Party Claim	Section 8.3(b)
Transferred Employees	Section 10.1(a)
Transferred Former Employees	Section 10.1(a)
Warranted Leased Real Property	Section 3.10(b)

Section 1.3Construction.The language in all parts of this Agreement will be construed, in all cases, according to its fair meaning. Any reference in this Agreement to an “Article,” “Section,” “Exhibit” or “Schedule” refers to the corresponding Article, Section, Exhibit or Schedule of or to this Agreement, unless the context indicates otherwise. The table of contents and the headings of Articles and Sections are provided for

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convenience only and are not intended to affect the construction or interpretation of this Agreement. All words used in this Agreement are to be construed to be of such gender or number as the circumstances require. The words “including,” “includes,” or “include” are to be read as listing non-exclusive examples of the matters referred to, whether or not words such as “without limitation” or “but not limited to” are used in each instance. The word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and such phrase will not mean simply “if”. Where this Agreement states that a party “shall”, “will” or “must” perform in some manner or otherwise act or omit to act, it means that the party is legally obligated to do so in accordance with this Agreement. Any reference to a statute is deemed also to refer to any amendments or successor legislation as in effect at the relevant time. Unless otherwise stated, all references to any agreements will be deemed to include the Exhibits, schedules and annexes to such agreement. Any reference to a Contract or other document as of a given date means the Contract or other document as amended, supplemented and modified from time to time through such date.

Article  2
THE TRANSACTION

Section 2.1Sale and Purchase of Shares. In accordance with the provisions of this Agreement, at the Closing, the Seller will sell and transfer to the Purchaser, and the Purchaser will purchase and acquire from the Seller, all of the Shares, free and clear of all Claims (other than any restrictions on transferability imposed by applicable securities Laws).

Section 2.2Purchase Price. Subject to the terms and conditions of this Agreement, at the Closing, in consideration for the sale of the Shares, the Purchaser will pay to the Seller an aggregate amount in cash equal to US Dollars 140,000,000 (the “Initial Purchase Price”), as adjusted pursuant to Section 2.3 (the “Closing Date Payment”). The Closing Date Payment is subject to adjustment following the Closing pursuant to Section 2.4. The Initial Purchase Price as adjusted pursuant to Section 2.3 and Section 2.4(f) will be the “Purchase Price”.

Section 2.3Closing Date Adjustment.

(a)Estimated Closing Net Cash. No later than two Business Days prior to the Closing Date, the Seller will provide to the Purchaser an estimate of the Closing Net Cash (such estimate, the “Estimated Closing Net Cash”). To the extent the Estimated Closing Net Cash is positive (i.e., the Closing Cash exceeds the Closing Indebtedness), the Purchaser will add the absolute value of such amount to the Initial Purchase Price paid at the Closing. To the extent the Estimated Closing Net Cash is negative (i.e., the Closing Indebtedness exceeds the Closing Cash), the Purchaser will deduct the absolute value of such amount from the Initial Purchase Price paid at the Closing.

(b)Estimated Closing Net Working Capital. No later than two Business Days prior to the Closing Date, the Seller will provide to the Purchaser an estimate of the Closing Net Working Capital (the “Estimated Closing Net Working Capital”). If the Estimated Closing Net Working Capital is greater than zero, the Purchaser will add the absolute value of the excess to the Initial Purchase Price paid at the Closing. If the Estimated Closing Net Working Capital is less than zero, the Purchaser will deduct the absolute value of the shortfall from the Initial Purchase Price paid at the Closing.

Section 2.4Post-Closing Adjustment.

(a)Within 45 days after the Closing Date, the Purchaser will prepare and deliver to the Seller a written notice (the “Adjustment Notice”) containing (i) an unaudited consolidated balance sheet of the Acquired Companies as at immediately prior to the Closing (the “Closing Balance Sheet”), (ii) the Purchaser’s calculation of the Closing Net Working Capital based on the Closing Balance Sheet (the “Closing Net Working Capital

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Statement”), (iii) the Purchaser’s calculation of Closing Net Cash based on the Closing Balance Sheet (the “Closing Net Cash Statement”) and (iv) the Purchaser’s calculation of the amount of any payments required pursuant to Section 2.4(g) (the “Adjustment Calculation”). The Closing Balance Sheet, the Closing Net Working Capital Statement and the Closing Net Cash Statement will be prepared in accordance with GAAP applied in a manner consistent with the methods and practices used to prepare the Company Interim Balance Sheet.

(b)During the preparation of the Adjustment Notice, at the Purchaser’s request, the Seller will, and will cause each of the Acquired Companies to, (i) provide the Purchaser and the Purchaser’s Representatives with reasonable access to the books, records, facilities and Employees of the Acquired Companies to the extent not otherwise already acquired as of the Closing Date, (ii) provide the Purchaser, within ten Business Days after the Closing Date, with normal month-end closing financial information for the period ending as of the close of business on the Closing Date and (iii) reasonably cooperate with the Purchaser and the Purchaser’s Representatives, including by providing on a timely basis all information reasonably necessary or useful in preparing the Adjustment Notice and any other information reasonably requested by the Purchaser. Following delivery of the Adjustment Notice, at the Seller’s request, the Purchaser (i) shall reasonably cooperate and assist, and shall cause its Representatives to assist, the Seller and its Representatives in the review of the Adjustment Notice and (ii) shall provide the Seller and its Representatives with any information reasonably requested by them.

(c)Within 30 days after delivery of the Adjustment Notice, the Seller will either:

(i)agree in writing with the Adjustment Calculation, in which case such calculation will be final and binding on the parties for purposes ofSection 2.4(g); or

(ii)dispute the Adjustment Calculation by delivering to the Purchaser a written notice (a “Dispute Notice”) which shall specify which items are being disputed and set forth in reasonable detail the basis for each disputed item therein.

(d)If the Seller fails to take either of the foregoing actions within 30 days after delivery of the Adjustment Notice, then the Seller will be deemed to have irrevocably accepted the Adjustment Calculation, in which case, the Adjustment Calculation will be final and binding on the parties for purposes ofSection 2.4(g).

(e)If the Seller timely delivers a Dispute Notice to the Purchaser, then the Purchaser and the Seller will attempt in good faith, for a period of 30 days following the Purchaser’s receipt of such Dispute Notice (the “Resolution Period”), to agree on the Adjustment Calculation for purposes ofSection 2.4(g). Any resolution by the Purchaser and the Seller memorialized in writing and signed by both the Purchaser and the Seller during the Resolution Period as to any disputed items set forth in such Dispute Notice will be final and binding on the parties for purposes ofSection 2.4(g). If the Purchaser and the Seller do not resolve all disputed items by the end of the Resolution Period, then the Purchaser and the Seller will submit the remaining items in dispute to PricewaterhouseCoopers LLP for resolution, or if that firm is unwilling or unable to serve, the Purchaser and the Seller will engage another mutually agreeable independent accounting firm of recognized international standing, which firm is not the regular auditing firm of the Purchaser or the Acquired Companies. If the Purchaser and the Seller are unable to jointly select such independent accounting firm within 10 days after the Resolution Period, the Purchaser, on the one hand, and the Seller, on the other hand, will each select an independent accounting firm of recognized international standing and such selected accounting firms will select a third independent accounting firm of recognized international standing, which firm is not the regular auditing firm of the Purchaser or the Acquired Companies; provided,  however, that if either the Purchaser, on the one hand, or the Seller, on the other hand, fails to select such independent accounting firm during this 10-day period, then the parties agree that the independent accounting firm selected by the other party will be the independent

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accounting firm selected by the parties for purposes of this Section 2.4 (such selected independent accounting firm, whether pursuant to this sentence or the preceding sentence, the “Independent Accounting Firm”).

(i)The Independent Accounting Firm will (A) act as an expert in accounting, and not as an arbitrator, to resolve only those items specifically set forth on a timely delivered Dispute Notice that remain in dispute as of such time, and that have not been deemed pursuant toSection 2.4(c), Section 2.4(d)or Section 2.4(e) to be final and binding on the Parties, (B) render its determination in accordance with this Agreement and otherwise in accordance with GAAP applied in a manner consistent with the methods and practices used to prepare the Company Interim Balance Sheet, (C) not determine an Adjustment Calculation that would result in a Purchase Price (1) in excess of the applicable amount in the Adjustment Notice or (2) that is less than the applicable amount in the Dispute Notice and (D) render its determination with respect to the items in dispute in a written report that specifies the conclusions of the Independent Accounting Firm as to each item in dispute and the resulting Adjustment Calculation. The Independent Accounting Firm will only render its determination with respect to the specific remaining accounting differences submitted to it and may rely only upon information submitted to it by or on behalf of the Purchaser or the Seller. The Purchaser and the Seller will each use their commercially reasonable efforts to cause the Independent Accounting Firm to render its determination within 30 days after referral of the disputed items on a timely delivered Dispute Notice to such firm or as soon thereafter as reasonably practicable. The decision of the Independent Accounting Firm will be final, conclusive and binding on the Parties and will not be subject to appeal or further review. The costs and expenses of the Independent Accounting Firm will be allocated between the Parties based upon the percentage which the portion of the contested amount not awarded to each party bears to the amount actually contested by such party, as determined by the Independent Accounting Firm. The Buyer and the Representative agree to execute, if requested by the Independent Accounting Firm, a reasonable engagement letter, including customary indemnities in favor of the Independent Accounting Firm.

(ii)For purposes of complying with this Section 2.4, the Purchaser and the Seller will furnish to the Independent Accounting Firm such work papers and other documents and information relating to the disputed items on a timely delivered Dispute Notice as the Independent Accounting Firm may reasonably request and are available to that party (or its Representatives). A copy of any such work papers and other documents and information provided by a party to the Independent Accounting Firm will be provided concurrently to the other party free of charge. Each party will be afforded the opportunity to present to the Independent Accounting Firm any material related to the disputed items on a timely delivered Dispute Notice and to discuss such items with the Independent Accounting Firm, with any such presentation or discussion to be held in the presence of both the Purchaser and the Seller and/or their respective Representatives.

Notwithstanding anything herein to the contrary, the dispute resolution mechanism contained in this Section 2.4(e) will be the exclusive mechanism for resolving any disputes regarding the Adjustment Calculation.

(f)The “Final Closing Net Working Capital” will be the calculation of the Closing Net Working Capital contained in the Closing Net Working Capital Statement, as adjusted pursuant to the mutual agreement of the Seller and the Purchaser, or as adjusted by the Independent Accounting Firm, in each case, pursuant to Section 2.4(e),, together with any other modifications to the Closing Net Working Capital Statement mutually agreed upon by the Seller and the Purchaser. The “Final Closing Net Cash” will be the calculation of the Closing Net Cash contained in the Closing Net Cash Statement, as adjusted pursuant to the mutual agreement of the Seller and the Purchaser, or as adjusted by the Independent Accounting Firm, in each case, pursuant to Section 2.4(e), together with any other modifications to the Closing Net Cash Statement mutually agreed upon by the Seller and Purchaser.

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(g)If the Final Closing Net Working Capital is less than the Estimated Closing Net Working Capital, then the Seller will pay to the Purchaser the absolute value of such difference in cash in accordance with Section 2.4(h). If the Final Closing Net Working Capital is greater than the Estimated Closing Net Working Capital, then the Purchaser will pay to the Seller the absolute value of such difference in cash in accordance with Section 2.4(h). If the Final Closing Net Cash is less than the Estimated Closing Net Cash, then the Seller will pay to the Purchaser the absolute value of such difference in cash in accordance with Section 2.4(h). If the Final Closing Net Cash is greater than the Estimated Closing Net Cash, then the Purchaser will pay to the Seller the absolute value of such difference in accordance with Section 2.4(h).

(h)Any amounts due and payable by one party to the other pursuant to Section 2.4(g) will be paid to the applicable party by means of a wire transfer of immediately available funds in US Dollars within three Business Days after the determination of the Final Closing Net Working Capital and the Final Closing Net Cash, as applicable, pursuant to Section 2.4(f).

(i)Notwithstanding anything to the contrary set forth in this Agreement, in no event will the Seller be obligated to indemnify any Purchaser Indemnified Party for any Loss as a result of, based upon or arising from, any Liability to the extent such Liability is reflected in the calculation of the Final Closing Net Working Capital or the Final Closing Net Cash as determined pursuant to Section 2.4(f). Any payment made pursuant to this Section 2.4 will be treated by the Parties for all purposes as an adjustment to the Initial Purchase Price and will not be subject to offset for any reason.

Section 2.5Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) will take place at the offices of Baker & McKenzie LLP, 300 East Randolph Street, Suite 5000, Chicago, Illinois, 60601, at 10:00 a.m., local time, as soon as practicable, but in any event not later than the third Business Day immediately following the date on which the last of the conditions set forth in Article 6 has been satisfied or waived (other than those conditions that by their nature can only be satisfied at the Closing), or at such other time and place as the Seller and the Purchaser may agree in writing; provided,  however, that in no event with the Closing occur prior to June 1, 2016. The date on which the Closing actually occurs is referred to in this Agreement as the “Closing Date.”

Section 2.6Closing Deliveries.  

(a)At the Closing, the Seller will deliver or cause to be delivered to the Purchaser:

(i)written resolutions or copies of the minutes of the meeting of the Board of Directors of each of the Company and the Seller approving the transfer of the Shares;

(ii)a certificate or certificates representing the Shares, duly endorsed or accompanied by a stock power duly endorsed in blank and with all required stock transfer tax stamps affixed, together with such other documents and instruments necessary to vest in the Purchaser all of the Seller’s right, title and interest in and to the Shares;

(iii)a short form acceptance letter signed by the Company approving the transfer of its shares;

(iv)a certificate, dated as of the Closing Date, executed by the Seller confirming the satisfaction of the conditions specified in Section 6.2(a) and Section 6.2(b);

(v)the Ancillary Agreements to which the Seller or its Affiliates are a party, duly executed by the Seller or the applicable Affiliate of the Seller; and

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(vi)resignations effective as of the Closing Date of each director and officer of each Acquired Company as the Purchaser may have requested in writing within ten (10) Business Days prior to the Closing Date.

(b)At the Closing, the Purchaser will deliver or cause to be delivered to the Seller:

(i)the Closing Date Payment by wire transfer of immediately available funds in US Dollars to the account or accounts specified by the Seller;

(ii)a certificate, dated as of the Closing Date, executed by the Purchaser confirming the satisfaction of the conditions specified in Section 6.3(a) and Section 6.3(b); and

(iii)the Ancillary Agreements to which the Purchaser or its Affiliates are a party executed by the Purchaser or the applicable Affiliate of the Purchaser.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller represents and warrants to the Purchaser that all of the statements contained in this Article 3 are true and correct as of the date hereof and as of the Closing Date or, if made as of a specific date, as of such date, subject to such exceptions as are specifically set forth in the Seller disclosure schedule to this Agreement (the “Seller Disclosure Schedule”) supplied by the Seller to the Purchaser on the date hereof:

Section 3.1Organization and Good Standing.

(a)The Seller is an Exempted Limited Partnership duly registered and validly existing under the Laws of the Cayman Islands. ARIAD US is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware.

(b)Each Acquired Company is a corporation, limited liability company or other legal entity duly organized, validly existing and in good standing (to the extent such concepts are recognized under applicable Law) under the Laws of the jurisdiction of its formation and has all requisite corporate, limited liability company or similar power and authority to conduct its business as presently conducted. Each Acquired Company is duly qualified to do business and is in good standing (to the extent such concepts are recognized under applicable Law) as a foreign corporation, limited liability company or otherwise in each jurisdiction in which the nature of its activities requires such qualification, except where the failure to so qualify would not have a Material Adverse Effect.

(c)The Seller has delivered to the Purchaser a complete and accurate copy of the Organizational Documents for each Acquired Company as in effect on the date hereof and no Acquired Company is in breach or violation of or default under its Organizational Documents. The Books and Records of each Acquired Company accurately reflect in all material respects and in a manner consistent with the historical practices of the Acquired Companies the material actions taken by written consent or resolution and meetings held by their respective voting equityholders and directors (or equivalent governing bodies), as the case may be, and copies of such material actions taken by written consent or resolutions and meetings have been made available to the Purchaser.

(d)ARIAD Pharmaceuticals (Canada) ULC is a non-operating company, and it owns no assets or holds any Liabilities.

Section 3.2Authority and Enforceability. Each of the Seller and ARIAD US has all requisite corporate power and authority to execute and deliver this Agreement and each Ancillary Agreement to which

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it is a party and to perform its obligations under this Agreement and each such Ancillary Agreement. The execution, delivery and performance of this Agreement and each Ancillary Agreement to which the Seller or ARIAD US is a party and the consummation of the transactions contemplated hereby and thereby by the Seller and ARIAD US have been duly authorized by all necessary action on the part of the Seller and ARIAD US. Each of the Seller and ARIAD US has duly and validly executed and delivered this Agreement and, on or prior to the Closing, each of the Seller and ARIAD US will have duly and validly executed and delivered each Ancillary Agreement to which it is a party. Assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements by the Purchaser, Incyte US and the other parties thereto, this Agreement constitutes, and at the Closing each Ancillary Agreement to which the Seller or ARIAD US is a party will constitute, the valid and binding obligation of the Seller or ARIAD US, as applicable, enforceable against the Seller or ARIAD US, as applicable, in accordance with its terms, subject to (a) Laws of general application relating to bankruptcy, insolvency and the relief of debtors and (b) Laws governing specific performance, injunctive relief and other equitable remedies.

Section 3.3No Conflict. Except for the requirements of any Antitrust Law (if applicable), and except in any case that would not have a Material Adverse Effect, neither the execution, delivery and performance by the Seller or ARIAD US of this Agreement and any Ancillary Agreement to which it is a party, nor the consummation of the transactions contemplated by this Agreement, will (a) conflict with or violate the Organizational Documents of any of the Acquired Companies, (b) result in a breach or default under, or create in any Person the right to terminate, cancel, accelerate or modify, or require any notice, consent or waiver under, any Material Contract (with or without due notice or lapse of time or both), (c) violate any Law or Judgment applicable to any of the Acquired Companies, (d) require any of the Acquired Companies to obtain any Governmental Authorization or make any filing with any Governmental Authority, (e) result in the creation of any Claims upon the Shares or the Subsidiary Shares or (f) result in the imposition of any Lien or other Encumbrance on any of the assets of the Acquired Companies.

Section 3.4Capitalization and Ownership.

(a)The share capital (or equivalent) of the Acquired Companies, the number of shares (or equivalent equity interest) and the beneficial and record ownership thereof, is set forth in Section 3.4(a) of the Seller Disclosure Schedule. Except as set forth in Section 3.4(a) of the Seller Disclosure Schedule, the Seller is the sole record holder and beneficial owner of all of the Shares, free and clear of all Claims. Upon payment in full of the Purchase Price, good and valid title to the Shares will pass to the Purchaser, free and clear of any Claims (other than any restrictions or transferability imposed by applicable securities Laws), and with no restrictions on the voting rights or other incidents of record and beneficial ownership of such Shares. All of the Shares are duly authorized, validly issued, fully paid and nonassessable and were issued in compliance with all applicable Laws.

(b)Section 3.4(b)of the Seller Disclosure Schedule sets forth for all Acquired Companies (a) its name and jurisdiction of incorporation, (b) its authorized share capital (or equivalent) and (c) the number of issued and outstanding shares of share capital (or equivalent) and the record holders and beneficial owners thereof. No Acquired Company owns or has any rights to acquire, directly or indirectly, any capital stock or other equity interests of any Person, except for the Subsidiaries set forth in Section 3.4 of the Seller Disclosure Schedule. All of the issued and outstanding equity securities of each Subsidiary of the Company (the “Subsidiary Shares”) are duly authorized, validly issued, fully paid and nonassessable, and are owned of record and beneficially by one or more of the Acquired Companies in the respective amounts set forth in Section 3.4(b) of the Seller Disclosure Schedule.

(c)There are no Contracts to which either the Seller or any other Person is a party or bound with respect to the voting (including voting trusts or proxies) of the Shares or the Subsidiary Shares. Other than the Shares and the Subsidiary Shares, there are no outstanding or authorized shares of capital stock, options,

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warrants, rights or Contracts to which any Acquired Company is a party or which are binding upon any Acquired Company obligating any Acquired Company to (i) issue, deliver, grant or sell, or cause to be issued, delivered, granted or sold, additional shares of capital stock of, or other equity or voting interests in, or options, warrants or other securities or subscription, preemptive or other rights convertible into, or exchangeable or exercisable for, shares of capital stock of, or other equity or voting interests in, any Acquired Company, or any “phantom stock” right, stock appreciation right or other similar right with respect to any Acquired Company, (ii) repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity or voting interests in any Acquired Company or (iii) to enter into any Contract with respect to (i) or (ii).

(d)Upon consummation of the transactions contemplated by this Agreement, the Purchaser will own all of the issued and outstanding capital stock of the Company, free and clear of all Claims.

Section 3.5Brokers Fees. Neither the Seller nor any Acquired Company has any Liability to pay any fees or commissions to any broker, finder or agent in connection with any of the transactions contemplated by this Agreement or any Ancillary Agreement to which the Purchaser would become liable or obligated or for which any Acquired Company, after the Closing Date, will have any continuing obligation.

Section 3.6Financial Statements. 

(a)Attached as Section 3.6 of the Seller Disclosure Schedule are the following:

(i)an audited balance sheet of ARIAD SWISSCO as of December 31, 2015 (the “ARIAD SWISSCO Balance Sheet”) and the related audited statement of income for the years then ended, including any notes thereto, together with the report thereon of Deloitte, independent certified public accountants;

(ii)an unaudited consolidated balance sheet of the Company as of December 31, 2015 and the related unaudited consolidated statement of income for the years then ended (the “Company Balance Sheet”);

(iii)an unaudited consolidated balance sheet of the Company as of March 31, 2016 (the “Company Interim Balance Sheet”) and the related unaudited consolidated statement of income for the year-to-date period then ended; and

(collectively (i), (ii) and (iii) the “Financial Statements”)

(iv)a reconciliation between the ARIAD SWISSCO Balance Sheet and the related statement of income under Swiss generally accepted accounting principles to GAAP.

(b)The Financial Statements fairly present in all material respects the financial condition and results of operations of the Acquired Companies as of the respective dates thereof and for the periods indicated therein, in accordance with Swiss generally accepted accounting principles with respect to the ARIAD SWISSCO Balance Sheet and in accordance with GAAP with respect to the Company Balance Sheet and the Company Interim Balance Sheet (except that the Company Interim Balance Sheet is subject to normal year-end adjustments and does not contain all footnotes or other presentation items as required by GAAP).

(c)The Seller maintains a system of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) sufficient to provide reasonable assurance (i) that transactions of the Acquired Companies are made in accordance with management’s authorization, (ii) that transactions of the Acquired Companies are recorded as necessary to permit the preparation of Seller’s consolidated financial statements in conformity with GAAP and (iii) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of the properties or assets of the Acquired Companies.

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Section 3.7No Undisclosed Liabilities. No Acquired Company has any Liabilities as of the date of this Agreement that would be required to be reflected on a consolidated balance sheet prepared in accordance with GAAP except for (a) Liabilities reflected, reserved against or otherwise disclosed in the Financial Statements, (b) Liabilities arising in the ordinary course of business consistent with past practice after the date of the Company Interim Balance Sheet, (c) Liabilities disclosed herein or in the Seller Disclosure Schedule, including Section 3.7 of the Seller Disclosure Schedule or (d) Liabilities in an amount that do not exceed US Dollars 500,000 in the aggregate.

Section 3.8Absence of Certain Changes and Events. From the date of the ARIAD SWISSCO Balance Sheet to the date of this Agreement, the Acquired Companies have operated their business in the ordinary course of business and there has not been with respect to any Acquired Company any:

(a)amendment to its Organizational Documents;

(b)change in its authorized or issued share capital (or equivalent), declaration, setting aside or payment of a dividend or other distribution (whether in cash, stock or property) in respect of any share capital (or equivalent), or issuance, sale, grant, repurchase or redemption of any shares of its share capital (or equivalent) or any securities convertible, exchangeable or redeemable for, or any options, warrants or other rights to acquire, any such securities;

(c)incurrence of any Indebtedness in amounts in excess of US Dollars 50,000 individually or US Dollars 500,000 in the aggregate, that would be outstanding immediately following the Closing;

(d)sale, lease, license or transfer of, or Encumbrance on, any material portion of its assets other than in the ordinary course of business;

(e)damage to, or destruction or loss of, any of material asset of the Acquired Company not covered by insurance;

(f)except as required by Law, adoption of, material amendment to or material increase in the payments to or benefits under, any Company Plan;

(g)waiver or release of any material right or claim other than in the ordinary course of business;

(h)change in the accounting methods used by the Acquired Companies;

(i)making or rescission of any Tax election, settlement or compromise of any Tax Liability or amendment of any Tax Return;

(j)payment, discharge or satisfaction of any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise of the Acquired Company), other than payments, discharges or satisfactions in the ordinary course of business of Liabilities or arising in the ordinary course of business since the date of the ARIAD SWISSCO Balance Sheet;

(k)revaluation by the Acquired Company of any of its assets (whether tangible or intangible), including writing down the value of inventory or writing off notes or accounts receivable;

(l)loan by the Acquired Company to any Person, or purchase by the Acquired Company of any debt securities of any Person, except for advances to Employees for travel and business expenses in the ordinary course of business; or

(m)agreement in writing by any Acquired Company to do any of the foregoing.

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Section 3.9Tangible Personal Property.

(a)The Acquired Companies, as applicable, have good and marketable title to, or in the case of leased assets, valid leasehold interests in, all of their tangible personal property, free and clear of all Encumbrances except as set forth in Section 3.9 (a) of the Seller Disclosure Schedule.

(b)Section 3.9(b) of the Seller Disclosure Letter sets forth an accurate and complete list of leases of personal property or equipment having a value in excess of US Dollars 50,000.

Section 3.10Leased Real Property.

(a)Section 3.10 of the Seller Disclosure Schedule sets forth an accurate and complete description (by street address of the subject leased real property, the date and term of the lease, the name of the parties thereto and the aggregate annual rent payable thereunder) of all real property that is leased by any Acquired Company (the “Leased Real Property”). The Seller has made available to the Purchaser complete copies of the leases in effect as of the date hereof relating to the Leased Real Property (the “Real Property Leases”) and there has not been any sublease or assignment entered into by any Acquired Company in respect of the leases relating to such Leased Real Property. No Acquired Company is in default of any material provision of any lease of any of the Leased Real Property.

(b)Each applicable Acquired Company has peaceful, undisturbed and exclusive possession of the Leased Real Property at Section 3.10(b) of the Seller Disclosure Schedule (the “Warranted Leased Real Property”), and no Acquired Company has assigned (collaterally or otherwise) or granted any other security interest in the Warranted Real Property Leases or any interest therein, and there are no Liens on the estate or interest created by the Warranted Real Property Leases. The full amount of security deposit required under each lease of Warranted Leased Real Property, if any, is on deposit thereunder.

(c)The use of the Warranted Leased Real Property, or any portion thereof, and the improvements erected thereon, do not violate or conflict in any material respect with (i) any Law, Permit, covenants, conditions or restrictions applicable thereto; or (ii) the terms and provisions of any Contract relating thereto.

(d)Except in any case that would not reasonably be expected to be material to the business of the Acquired Companies, take as a whole, (i) there is no pending, or to the Knowledge of the Seller, threatened, appropriation, condemnation or like Proceeding affecting the Warranted Leased Real Property or any part thereof; and (ii) no Acquired Company has received written notice that is in violation of any applicable zoning law, regulation or other applicable Law, related to or affecting the Warranted Leased Real Property.

(e)The Warranted Leased Real Property is in good operating condition and repair and is suitable for the conduct of the Acquired Companies’ business as presently conducted therein, except where the failure of the property to be in good operating condition would not have a Material Adverse Effect. 

(f)No Person other than an Acquired Company is in possession of the Warranted Leased Real Property or any portion thereof, and there are no leases, licenses, subleases, concessions or other Contracts, written or oral, granting to any other Person the right to use or occupy the Warranted Leased Real Property or any portion thereof.

Section 3.11Intellectual Property.

(a)The Acquired Companies own all rights, title and interest in, or otherwise have the right to use, make, have made, sell, have sold, develop, commercialize and import the Compound and Product under all Intellectual Property used in the operation of their business as presently conducted (the “Company Intellectual

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Property”), except where the failure to own or have the right to use such Company Intellectual Property would not have a Material Adverse Effect.

(b)To the Seller’s Knowledge, the claims of the issued patents listed in Section 3.11(b) of the Seller Disclosure Schedule are not invalid and the issued patents included in Section 3.11(b) of the Seller Disclosure Schedule are not unenforceable in the Territory. No Third Party has challenged in writing, or, to the Company’s Knowledge, has threatened to challenge,the enforceability or validity of any issued patents included in Section 3.11 (b) of the Seller Disclosure Schedule or any claims therein, respectively in the Territory through the institution of legal proceedings in a court or through revocation, opposition, interference, reexamination, nullity or similar invalidity proceedings before a patent office or any equivalent entity in the Territory. To the Seller’s Knowledge, no Third Party is infringing the patents listed in Section 3.11(b) of the Seller Disclosure Schedule.

(c)No Third Party has challenged in writing, or, to the Seller’s Knowledge, has threatened to challenge, the Company’s right to use and license the trademarks listed in Section 3.11(c) of the Seller Disclosure Schedule in the Territory.

(d)There are no claims asserted in writing, Judgments, or settlements in effect against, or amounts with respect thereto owed by, the Acquired Companies relating to the patents listed in Section 3.11(b) of the Seller Disclosure Schedule in the Territory. No claim or litigation is pending or, to the Seller’s Knowledge, threatened alleging that the manufacture, development, use or sale of the Product in the Territory as of the date of this Agreement infringes or would infringe any issued patent in the Territory existing as of the date of this Agreement.

(e)The patents listed in Section 3.11(b) of the Seller Disclosure Schedule have been filed and maintained, and are being diligently prosecuted, in the respective patent offices where filed in the Territory in accordance with applicable Laws. All applicable and material fees that are finally due prior to the date of this Agreement in connection with the prosecution and maintenance of the patents listed in Section 3.11(b) of the Seller Disclosure Schedule in the Territory have been paid.

(f)Section 3.11(f) of the Seller Disclosure Schedule lists each written Contract under which any of Seller, ARIAD US or Acquired Company has granted a license to a Third Party to, make, have made, sell, have sold, develop, commercialize and import the Compound and Product in the Territory under the Intellectual Property of the Seller, ARIAD US or any Acquired Company.

This Section 3.11 constitutes the sole and exclusive representations and warranties of the Seller with respect to any matters relating to Intellectual Property.

Section 3.12Contracts.  

(a)Section 3.12(a) of the Seller Disclosure Schedule sets forth an accurate and complete list as of the date hereof of each Contract to which any Acquired Company is a party, which:

(i)is an executory Contract for the purchase or sale of materials, supplies, goods, equipment or services that involves the payment by or to any Acquired Company of more than US Dollars 250,000 in any twelve (12) month period;

(ii)is for capital expenditures in excess of US Dollars 250,000;

(iii)is a mortgage, indenture, guarantee, loan or credit agreement, security agreement or other Contract relating to indebtedness for borrowed money, other than accounts receivables and payables in the ordinary course of business;

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(iv)is a written Contract under which any Acquired Company has granted to or received from a Third Party a license to use, make, have made, sell, have sold, develop, commercialize and import the Compound and Product under the Intellectual Property of such Acquired Company or Third Party (except for any license implied by the sale of a product, licenses for use of Trademarks in marketing or promotional materials and licenses for commonly available software programs with a value of less than US Dollars 250,000);

(v)is a Contract that limits or purports to limit the ability of the Acquired Companies to compete in any line of business or with any Person or in any geographic area;

(vi)is a written Contract with a Transferred Employee that provides for payments in excess of US Dollars 250,000 per annum (excluding any Contract that does not provide severance or termination payments);

(vii)is a lease of personal property or equipment having a value in excess of US Dollars 100,000; or

(viii)is an agreement of indemnification or guaranty, but excluding agreements of indemnification or guaranty that are contained in the Company’s written Contracts with its customers, suppliers and service providers that have been entered into in the ordinary course of business.

The Contracts listed in Section 3.12(a) of the Seller Disclosure Schedule are referred to in this Agreement as the “Material Contracts.”

(b)The Seller has made available to the Purchaser an accurate and complete copy of each Material Contract. With respect to each such Material Contract, neither any Acquired Company party to the Material Contract, nor, to the Seller’s Knowledge, any other party to the Material Contract is in breach or default under the Material Contract, except for such breaches or defaults as to which requisite waivers or consents have been obtained or which would not have a Material Adverse Effect. Each Material Contract is enforceable as to the applicable Acquired Company party thereto in accordance with its terms except to the extent it has previously expired in accordance with its terms and subject to (i) Laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of Law governing specific performance, injunctive relief and other equitable remedies.  To the Seller’s Knowledge, no party to a Material Contract intends to terminate such Material Contract with the applicable Acquired Company party thereto.

Section 3.13Tax Matters.

(a)(i) All material Tax Returns required to be filed by the Acquired Companies have been timely filed, (ii) all Taxes shown on such Tax Returns have been paid, (iii) no Governmental Authority has proposed formally in writing to make or has made any material adjustment with respect to such Tax Returns, (iv) no Acquired Company has any Liability for any Tax obligation of any other taxpayer (including any Affiliated Group), including any obligation under any Tax sharing agreement or under Section 1.1502-6 of the Treasury Regulations or any similar provision of any Law, (v) no Section 280G (or similar foreign tax provision) will be triggered by the transactions contemplated by this Agreement, (vi) any unpaid Taxes do not exceed the reserves for Taxes as set forth in the Company Interim Balance Sheet, and (vii) the Acquired Companies have no Tax liens. The Seller has made available to the Purchaser accurate and complete copies of all Tax Returns filed by the Acquired Companies for the years ended December 31, 2014, and December 31, 2013.

(b)All Taxes that each Acquired Company is required by Law to withhold or collect have been properly withheld or collected, and, to the extent required by applicable Law, have been paid over to the proper Governmental Authority.

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(c)To the Seller’s Knowledge, no federal, state, local or foreign Tax Contests or other Proceedings are pending or being conducted, nor has any Acquired Company received any written notice from any Governmental Authority that any such Tax Contest or other Proceeding is pending, threatened or contemplated. No Acquired Company has waived any statute of limitations with respect to Taxes or agreed to an extension of time with respect to a Tax assessment or deficiency affecting the Acquired Company, which waiver or extension of time is currently outstanding.

This Section 3.13 constitutes the sole and exclusive representations and warranties of the Seller with respect to any matters relating to Taxes.

Section 3.14Employee Benefit Matters.

(a)Section 3.14(a) of the Seller Disclosure Schedule sets forth an accurate and complete list of all Company Plans.

(b)The Seller has made available to the Purchaser an accurate, up-to-date and complete copy of each Company Plan that has been reduced to writing.

(c)The Acquired Companies have performed all of their obligations under each Company Plan in all material respects in accordance with the terms of such Company Plan. The Acquired Companies have complied with all obligations under applicable Law to inform and consult the Transferred Employees or their representatives about the transaction contemplated in this Agreement.

(d)Section 3.14(d) of the Seller Disclosure Schedule sets forth an accurate and complete list of: (i) any employment, severance and change of control agreement with any Transferred Employee the benefits of which are contingent upon the occurrence of a transaction involving the Company of the nature of the transactions contemplated by this Agreement (either alone or upon termination of employment following such transactions); and (ii) any agreement or plan binding upon any Acquired Company, including, any Company Plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the consummation of the transactions contemplated by this Agreement (either alone or upon the termination of employment following such transactions).

This Section 3.14 constitutes the sole and exclusive representations and warranties of the Seller with respect to any matters relating to Employee Benefit Matters.

Section 3.15Employment and Labor Matters.

(a)Except as set forth in Section 3.15 of the Seller Disclosure Schedule, no Acquired Company is a party to or bound by any collective bargaining agreement, works council agreement or any other agreement with a body representing any or all of the Transferred Employees and, to the Seller’s Knowledge, no petition has been filed or Proceedings instituted by any Transferred Employee or group of Transferred Employees of any Acquired Company seeking recognition of a bargaining representative or other works council agreement or any other agreement with a body representing any or all of the Transferred Employees. There is no labor strike, picketing, slowdown, lockout, or other work stoppage or labor dispute pending or, to the Seller’s Knowledge, threatened between any Acquired Company, on the one hand, and any of its Transferred Employees, on the other hand, except for such disputes with individual Transferred Employees arising in the ordinary course of business.

(b)The Acquired Companies are in compliance in all material respects with all applicable Laws pertaining to the employment of their Transferred Employees, including all such Laws relating to equal employment opportunities, prohibited discrimination and other similar employment activities. Section 3.15 of the Seller Disclosure Schedule sets forth an accurate and complete list (as at the date of this Agreement) of all

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Transferred Employees of any Acquired Company, together with their salary, job title, notice period, benefits, start date of employment and role and place of work. There has been no material change to such compensation or benefits during the 120 days preceding the date of this Agreement.  The Seller has provided to the Purchaser an accurate and complete list (as at the date of this Agreement) of all equity awards granted to Transferred Employees.

(c)Section 3.15(c) of the Seller Disclosure Schedule sets forth an accurate and complete list as of the date hereof of each Contract providing for the grant of any severance or termination pay or benefits (in cash or otherwise) to any Transferred Employee (in excess of a payment in respect of their notice period or any severance payment required by Law).

This Section 3.15 constitutes the sole and exclusive representations and warranties of the Seller with respect to any matters relating to Employment and Labor Matters.

Section 3.16Environmental, Health and Safety Matters. The Acquired Companies are in compliance in all material respects with (a) all Environmental Laws applicable to the conduct of their business as presently conducted and the occupancy of the Warranted Leased Real Property as presently occupied and (b) all Governmental Authorizations required of the Acquired Companies under Environmental Laws to conduct their business as presently conducted or to occupy the Warranted Leased Real Property as presently occupied. No Acquired Company has received any written notice stating that the conduct of its business or the condition of any of its Warranted Leased Real Property is currently in violation of any Environmental Law (including, to the Seller’s Knowledge, any claim or complaint from any Employee alleging exposure to Hazardous Material). To the Seller’s Knowledge, no Acquired Company has (i) disposed of, emitted, discharged, handled, stored, transported, used or released any Hazardous Material, arranged for the disposal, discharge, storage or release of any Hazardous Material, or (ii) entered into any written Contract that may require it to guarantee, reimburse, pledge, defend, hold harmless or indemnify any other party with respect to Liabilities arising out of Environmental Laws or the Hazardous Material related activities. No Proceeding is pending or, to the Seller’s Knowledge, threatened against any Acquired Company that alleges a material violation by any Acquired Company of any applicable Environmental Laws.

This Section 3.16 constitutes the sole and exclusive representations and warranties of the Seller with respect to any matters relating to Environmental, Health and Safety Matters.

Section 3.17Governmental Authorizations. Except as set forth in Section 3.17 of the Seller Disclosure Schedule or as would not reasonably be expected to have a Material Adverse Effect, the Acquired Companies have all Governmental Authorizations that are necessary for them to conduct their business in the manner in which it is presently conducted, the Acquired Companies are in compliance with all such Governmental Authorizations and all such Governmental Authorizations are in full force and effect. Neither the Seller nor the Acquired Companies have received any written notice that any Governmental Authority with jurisdiction in the Territory over the Products has commenced or will commence any action: (i) to suspend, revoke, not renew or materially amend any Governmental Authorizations in the Territory; or (ii) prohibit production, marketing or sale of any Product in the Territory.

Section 3.18Compliance with Laws.  The Acquired Companies are in compliance in all material respects with all Laws applicable to them or the conduct of their business or the ownership or use of their properties and assets in the Territory.  To the Seller’s Knowledge, neither the Acquired Companies nor, any of their respective directors, officers, employees or agents have in the last three (3) years and in any material respect related to the business of the Acquired Companies, directly or indirectly, made, offered, promised or authorized any payment or gift of any money or anything of value to or for the benefit of any “foreign official” (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”)), foreign political party or official thereof or candidate for foreign political office for the purpose of (i) influencing any

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CONFIDENTIAL TREATMENT MATERIAL

official act or decision of such official, party or candidate, (ii) inducing such official, party or candidate to use his, her or its influence to affect any act or decision of a foreign Governmental Authority, or (iii) securing any improper advantage, in the case of (i), (ii) and (iii) above in order to assist the Company or any of its Affiliates obtain or retain business and in violation of the FCPA. Neither the Acquired Companies nor, to the Seller’s Knowledge, any of their respective directors, officers, employees or agents have made or authorized any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of funds or received or retained any funds in violation of any applicable Law. Neither the Acquired Companies nor, to the Seller’s Knowledge, any of their respective officers, directors or employees, have received any written notice from any Governmental Authority stating that they are the subject of any allegation, voluntary disclosure, investigation, prosecution or other enforcement action related to the FCPA or any other anti-corruption law.

Section 3.19Product Liability. Except as would not have a Material Adverse Effect, the Products sold by the Acquired Companies have complied in all material respects with all applicable product specifications contained in the relevant Marketing Authorizations. Except as would not have a Material Adverse Effect, none of the Products after being sold have been the subject of any product recall ordered by any Government Authority and, to the Seller’s Knowledge, no circumstances currently exist which are reasonably likely to cause any such product recall to be initiated.

Section 3.20Legal Proceedings. There is no material Proceeding pending or, to the Seller’s Knowledge, threatened against any Acquired Company, any of its officers or directors or any of its properties or assets. No Acquired Company is subject to any outstanding Judgment.

Section 3.21Insurance. The Company maintains, and through the Closing will continue to maintain, in full force and effect, policies of insurance against fire, theft and other casualties, and covering such other Liabilities and business risks and properties of the Acquired Companies which are customarily insured against by companies of similar size and in the industry in which the Acquired Companies operate. There is no claim by the Company pending under any of such policies as to which coverage has been denied by the underwriters of such policies. All premiums due and payable under all such policies have been paid (or if installment payments are due, will be paid if incurred prior to the Closing Date) and the Company is otherwise in material compliance with the terms of such policies. Such policies are in full force and effect.

Section 3.22Customers.

(a)Section 3.22(a) of the Seller Disclosure Schedule sets forth a complete and accurate list of the 10 largest customers of the Acquired Companies based on net sales during each of the calendar years ended 2015 and 2014 and the calendar-year-to-date period ended March 31, 2016 (the “Material Customers”). Such net sale amounts are also set forth on Section 3.22(a) of the Seller Disclosure Schedule. No Material Customer has canceled, terminated or otherwise materially and adversely modified, or, to the Seller’s Knowledge, threatened to cancel, terminate, or otherwise materially and adversely modify, its relationship with any Acquired Company and no Acquired Company has received written notice that any Material Customer may take such action or limit its purchases from any Acquired Company, either as a result of the consummation of the transactions contemplated by this Agreement or otherwise.

(b)Since the date of the ARIAD SWISSCO Balance Sheet, no Acquired Company has taken, or permitted any Representative to take, any action that was designed to have the effect of accelerating the timing of sales or the provision of products or services by any Acquired Company or of invoicing therefore. Without limitation of the foregoing, since the date of the ARIAD SWISSCO Balance Sheet, no Acquired Company has sold or provided any amount of products or services (a) with payment terms longer than terms customarily offered by such Acquired Company for such product, (b) at a discount from the listed price materially differing from any discounts customarily offered by such Acquired Company, or (c) with shipment or similar terms materially differing from the shipment or similar terms customarily offered by such Acquired Company.

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(c)Section 3.22(c) of the Seller Disclosure Schedule sets forth a description of all incentives (including coupon, discount, allowance, rebate, bill-back, price concession or advertising fund payment activities or programs and the like) and pricing allowances (including slotting allowances, retailer or distributor ads, store display allowances and similar items) offered by the Acquired Companies to its customers that are in effect as of the date hereof.

Section 3.23Interested Party Transactions. To the Seller’s Knowledge, no officer or director of any Acquired Company (or any Affiliate or member of the immediate family (as such term is defined in Rule 16a-1 of the Exchange Act) of such officer or director) has or has had: (a) an interest in any entity which furnished or sold or licensed, or furnishes or sells or licenses, Products or right to Company Intellectual Property that any Acquired Company furnishes or sells or (ii) any interest in any entity that purchases from or sells or furnishes to the any Acquired Company, any goods or services; provided, however, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed to be an “interest in any entity” for purposes of this Section 3.23.

Section 3.24Bank Accounts. Section 3.24 of the Seller Disclosure Schedule lists (a) all bank accounts, lock boxes and safe deposit boxes relating to the business and operations of the Acquired Companies (including the name of the bank or other institution where such account or box is located and the name of each authorized signatory thereto) and (b) the name and address of each Person who has a power of attorney to act on behalf of any Acquired Company.

Section 3.25No Other Representations or Warranties. Except for the representations and warranties set forth in this Article 3, neither the Seller, nor any other Person, makes any other express or implied representation or warranty on behalf of the Seller or any of its Affiliates with respect to the Shares, the Seller, the Acquired Companies or any other matter relating to the transactions contemplated by this Agreement. The Seller makes no representations or warranties to the Purchaser regarding the probable success or profitability of the Acquired Companies. The disclosure of any matter or item in any schedule hereto shall not be deemed to constitute an acknowledgement that any such matter is required to be disclosed.

Article  4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

The Purchaser represents and warrants to the Seller as of the date of this Agreement and as of the Closing Date:

Section 4.1Organization and Good Standing. The Purchaser is an entity duly organized, validly existing and in good standing under the Laws of Switzerland. Incyte US is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware.

Section 4.2Authority and Enforceability. Each of the Purchaser and Incyte US has all requisite corporate power and authority to execute and deliver this Agreement and each Ancillary Agreement to which it is a party and to perform its obligations under this Agreement and each such Ancillary Agreement. The execution, delivery and performance of this Agreement and each Ancillary Agreement to which the Purchaser or Incyte US is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Purchaser and Incyte US. Each of the Purchaser and Incyte US has duly and validly executed and delivered this Agreement and, on or prior to the Closing, each of the Purchaser and Incyte US will have duly and validly executed and delivered each Ancillary Agreement to which it is a party. Assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements by the Seller, ARIAD US and the other parties thereto, this Agreement constitutes, and at the Closing each Ancillary Agreement to which the Purchaser or Incyte US is a party will constitute, the valid and binding obligation of the Purchaser or Incyte US, as applicable , enforceable against the Purchaser or Incyte US, as applicable, in accordance with its terms, subject to (a) Laws of general application relating to bankruptcy,

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insolvency and the relief of debtors and (b) Laws governing specific performance, injunctive relief and other equitable remedies.

Section 4.3No Conflict. Except for the requirements of any Antitrust Law (if applicable), and except in any case that would not have a material adverse effect on the ability of the Purchaser or Incyte US to perform its obligations under this Agreement or on the ability of the Purchaser or Incyte US to consummate the transactions contemplated by this Agreement, neither the Purchaser’s or Incyte US’s execution, delivery and performance of this Agreement and any Ancillary Agreement to which the Purchaser or Incyte US is a party, nor the consummation of the transactions contemplated by this Agreement, will (a) conflict with or violate the Purchaser’s or Incyte US’s Organizational Documents, (b) result in a breach or default under or create in any Person the right to terminate, cancel, accelerate or modify, or require any notice, consent or waiver under, any Contract to which the Purchaser or Incyte US is a party or by which the Purchaser or Incyte US is bound, in any case with or without due notice or lapse of time or both, (c) result in the imposition of any lien or other encumbrance on any of the assets of the Purchaser or Incyte US, (d) violate any Law or Judgment applicable to the Purchaser or Incyte US or (e) require the Purchaser or Incyte US to obtain any Governmental Authorization or make any filing with any Governmental Authority.

Section 4.4Legal Proceedings. There is no Proceeding pending, or, to the Purchaser’s knowledge, threatened against the Purchaser that questions or challenges the validity of this Agreement or that may prevent, delay, make illegal or otherwise interfere in any material respect with the ability of the Purchaser to consummate any of the transactions contemplated in this Agreement.

Section 4.5Investment Intent. The Purchaser is acquiring the Shares for the Purchaser’s own account and investment purposes and is not acquiring the Shares with a view to, or for sale in connection with, any distribution thereof within the meaning of any federal or state securities Laws. The Purchaser is an “accredited investor” within the meaning of Rule 501(a) of Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended, and has sufficient business and financial knowledge and experience to protect its own interests and to evaluate the merits and risks in connection with the purchase of the Shares.

Section 4.6Brokers Fees. Neither the Purchaser nor any Person acting on its behalf has incurred any Liability to pay any fees or commissions to any broker, finder or agent in connection with any of the transactions contemplated by this Agreement.

Section 4.7Financial Capacity. The Purchaser has, or will have on the Closing Date, immediately available cash in an amount sufficient to pay the Purchase Price.

Section 4.8Independent Investigation. The Purchaser has conducted its own independent investigation, review and analysis of the business, operations, assets, liabilities, results of operations, financial condition and prospects of the business of the Acquired Companies as it has deemed appropriate, which investigation, review and analysis was done by the Purchaser and its Affiliates and Representatives. The Purchaser acknowledges that it and its Affiliates and Representatives have been provided adequate access to the personnel, properties, premises and records of the Acquired Companies for such purpose. In entering into this Agreement, the Purchaser acknowledges that it has relied solely upon the aforementioned investigation, review and analysis and not on any factual representations or opinions of the Seller, the Acquired Companies or their Representatives (except the representations and warranties set forth in Article 3). The Purchaser hereby acknowledges and agrees that other than the representations and warranties set forth in Article 3, none of the Seller, the Acquired Companies, or any other Person makes or has made any other express or implied representation or warranty on behalf of the Seller or any of its Affiliates with respect to the Shares, the Seller, the Acquired Companies or any other matter relating to the transactions contemplated by this Agreement.

Article  5
PRE-CLOSING COVENANTS

Section 5.1Access and Investigation; Notice. Until the Closing and upon reasonable advance notice from the Purchaser, the Seller will and will cause the Acquired Companies to allow the Purchaser and its Representatives reasonable access during normal business hours and without unreasonable interference with the operation of the business of the Acquired Companies to (a) such materials and information about the Acquired Companies as the Purchaser may reasonably request and (b) specified members of management of the Acquired Companies as the Parties may reasonably agree. Notwithstanding the foregoing, the Seller will not be required to disclose (or cause the Acquired Companies to disclose) any information to the Purchaser or its Representatives if such disclosure would be reasonably likely to: (x) cause significant competitive harm to the business of the Acquired Companies if the transactions contemplated hereby are not consummated, (y) jeopardize any attorney-client or other legal privilege or (z) contravene any applicable Laws (including Antitrust Laws), fiduciary duty or binding agreement entered into prior to the date hereof. The Purchaser will, and will cause its Representatives to, hold confidentially all information so obtained in accordance with the terms of the Confidentiality Agreement. Seller will provide prompt written notice to the Purchaser of any event, circumstance, development, material or other information that the Seller reasonably determines would have a Material Adverse Effect.

Section 5.2Operation of the Businesses of the Acquired Companies. 

(a)Until the Closing, except as otherwise set forth in this Agreement or Section 5.2(a) of the Seller Disclosure Schedule, required by Law or as otherwise consented to by the Purchaser (which consent will not be unreasonably withheld, conditioned or delayed), the Seller will cause the Acquired Companies to conduct their business in the ordinary course of business in substantially the same manner as heretofore conducted, and, to the extent consistent therewith, use commercially reasonable efforts to preserve the relationships of the Acquired Companies with their customers, suppliers, distributors, licensors, licensees, and others doing business with them and to preserve the goodwill and ongoing operations of the Acquired Companies.

(b)Until the Closing, except as otherwise set forth in this Agreement or Section 5.2(b) of the Seller Disclosure Schedule or as otherwise consented to by the Purchaser (which consent will not be unreasonably withheld, conditioned or delayed), the Seller will not cause or permit any Acquired Company to:

(i)amend its Organizational Documents;

(ii)issue, sell or pledge additional shares of its capital stock or securities convertible into any such shares, or any options, warrants or rights to acquire any such shares or other convertible securities;

(iii)purchase, redeem or otherwise acquire any outstanding shares of its capital stock;

(iv)declare, set aside or pay any dividend or other distribution in respect of its capital stock, other than in cash in the ordinary course of business in connection with the Company’s cash management practices;

(v)pay, discharge, waive or satisfy, any Indebtedness other than in the ordinary course of business;

(vi)adopt or change accounting methods or practices (including any change in depreciation or amortization policies), except as required by GAAP or applicable Law;

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(vii)make or change any Tax election, adopt or change any Tax accounting method, enter into any closing agreement with respect to Taxes, settle or compromise any material Tax claim or assessment, consent to any extension or waiver of the limitation period applicable to any material Tax claim or assessment or file any material Tax Return or any amended Tax Return unless a copy of such Tax Return has been delivered to the Purchaser for review a reasonable time prior to filing;

(viii)make any loan to any Person or purchase debt securities of any Person or amend the terms of any outstanding loan agreement;

(ix)incur any Indebtedness, guarantee any Indebtedness of any Person, issue or sell any debt securities, or guarantee any debt securities of any Person;

(x)commence or settle any lawsuit, threat of any lawsuit or proceeding or other investigation against the Company involving an amount in dispute greater than US Dollars 50,000;

(xi)enter into any agreement to purchase or sell any interest in real property, grant any security interest in any real property, enter into any lease, sublease, license or other occupancy agreement with respect to any real property or alter, amend, modify or terminate any of the terms of any Real Property Leases;

(xii)terminate or materially and adversely amend any Material Contract;

(xiii)waive or release any right or claim of a material value to the Acquired Companies other than in the ordinary course of business;

(xiv)sell, lease or license, or permit any Encumbrance on, any material portion of its assets other than in the ordinary course of business;

(xv)acquire, by merger or consolidation with, or by purchase of all or a substantial portion of the assets or stock of, or by any other manner, any business or entity, or enter into any joint venture, partnership or other similar arrangement for the conduct of its business;

(xvi)change in any material respect the remuneration or terms of employment of any of its Employees or make offers to employ or engage any other personnel (other than to replace any Employees who have resigned or served or been served with notice to end their employment) other than (A) in the ordinary course of business, (B) as required by Law or (C) for retention, incentive and similar payments relating to the consummation of the transactions contemplated by this Agreement;

(xvii)except in cooperation with the Purchaser, make any representations regarding offers of employment from the Purchaser or the terms thereof;

(xviii)alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership or business entity in which any Acquired Company directly or indirectly holds any interest;

(xix)cancel, amend or renew any insurance policy; or

(xx)agree in writing to take any of the foregoing actions.

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Section 5.3Consents and Filings; Commercially Reasonable Efforts.

(a)Subject to the terms and conditions of this Agreement and unless otherwise specified in this Agreement, each of the parties will use their respective commercially reasonable efforts (i) to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things reasonably necessary to consummate and make effective the transactions contemplated by this Agreement and (ii) as promptly as practicable after the date of this Agreement, to obtain all Governmental Authorizations from, and make all filings with, all Governmental Authorities (including Antitrust Approvals), and to obtain all other consents, waivers, approvals and other authorizations from, all other third parties, that are reasonably necessary in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement.

(b)The Purchaser will be solely responsible for all filing fees due under antitrust or other competition Laws (“Antitrust Laws”) in connection with any Antitrust Approvals and neither the Seller nor any Acquired Company will have any Liability with respect to the payment of such filing fees.

(c)The Seller and the Purchaser will promptly notify the other of any communication it or any of its Affiliates receives from any Governmental Authority relating to the transactions contemplated by this Agreement, and will permit the other party to review in advance any proposed communication by such party to any Governmental Authority. Neither party will agree to participate in any meeting with any Governmental Authority in respect of any filings, investigation or other inquiry unless it consults with the other party in advance and, to the extent permitted by such Governmental Authority, gives the other party the opportunity to attend and participate at such meeting. The Seller and the Purchaser will coordinate and cooperate fully with each other in exchanging such information and providing such assistance as the other party may reasonably request in connection with the foregoing and in seeking early termination of any applicable waiting periods under any Antitrust Laws. The Seller and the Purchaser will provide each other with copies of all correspondence, filings or communications between them or any of their Representatives, on the one hand, and any Governmental Authority or members of its staff, on the other hand, with respect to this Agreement and the transactions contemplated by this Agreement.

(d)The Purchaser and the Seller will use commercially reasonable efforts to respond to any request for additional information received from any Governmental Entity under the Antitrust Laws and to resolve the objections, if any, that could be asserted by any Governmental Entity under Antitrust Laws with respect to the transactions contemplated by this Agreement.

Section 5.4Financing. Notwithstanding anything contained in this Agreement to the contrary, the Purchaser expressly acknowledges and agrees that the Purchaser’s obligations under this Agreement are not conditioned in any manner whatsoever upon the Purchaser obtaining any financing and any failure to fulfill any obligation under this Agreement arising from the failure of the Purchaser to obtain financing or the unavailability of such financing will be deemed to be intentional for purposes of this Agreement.

Section 5.5Public Announcements. Each party agrees not to issue any press release or make any other public announcement relating to this Agreement without the prior written approval of the other party, except that each of the Seller and the Purchaser reserves the right, without the other party’s prior consent, to make any public disclosure it believes in good faith is required by applicable securities Laws or securities listing standards (in which case the disclosing party agrees to consult with the other party prior to making the disclosure and allow the other party reasonable time to comment thereon prior to issuance or release; provided, that, the disclosing party will consider the other party’s comments in good faith, but it is not required to accept all comments). Following execution and delivery of this Agreement, ARIAD US and the Purchaser shall issue a joint press release substantially in the form set forth in Exhibit C.

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Section 5.6Intragroup Agreements. The Seller shall terminate prior to or effective as of the Closing all Intragroup Agreements (including the ARIAD Intragroup Indebtedness), settle all outstanding financial obligations arising thereunder and cause each Person party thereto to be unconditionally released and irrevocably discharged from any and all further covenants, undertakings, warranties and other obligations contained in such Intragroup Agreements.

Section 5.7Carve Out Restructuring. Prior to the Closing, the Seller shall transfer to a member of the Seller’s Group the Australian Business in substantially the manner described in Section 5.7 of the Seller Disclosure Schedule (the “Carve Out Restructuring”).

Section 5.8Financial Statements. Prior to the Closing, the Seller shall provide to the Purchaser an audited consolidated balance sheet for the Company for each of the fiscal years ending December 31, 2015 and 2014 (collectively, the “Audited Consolidated Balance Sheets”) and the related statements of income, changes in equity and cash flow, for each such fiscal year (collectively, with the Audited Consolidated Balance Sheets, the “Audited Consolidated Financial Statements”) and unaudited consolidated interim financial statements for the Company for the period ending March 31, 2016 (the “Other Consolidated Financial Statements”), in each case prepared in accordance with the requirements of Regulation S-X of the SEC and in form and substance sufficient to permit the Purchaser to comply with its obligations under Item 9.01 of Form 8-K under the Exchange Act.  The Seller shall use commercially reasonable efforts to obtain all necessary auditor reports and consents from the Seller’s independent auditors required by the SEC to file such Audited Consolidated Financial Statements and Other Consolidated Financial Statements with the SEC.  The fees, costs and expenses incurred by the Seller or its Affiliates in connection with the delivery of the Audited Consolidated Financial Statements and any auditor reports or consents required pursuant to this Section 5.8 shall reduce dollar-for-dollar the amount of the current liabilities of the Acquired Companies for the purposes of calculating Closing Net Working Capital.

Section 5.9CSC Guarantee. The Purchaser and the Seller will use commercially reasonable efforts to provide financial assurances reasonably acceptable to CSC in substitution of the CSC Guarantee or to otherwise obtain the full release of the CSC Guarantee, in each case at or prior to the Closing.  In the event that the CSC Guarantee is not substituted or released at or prior to the Closing, (a) the Purchaser and the Seller will continue to use commercially reasonable efforts to provide financial assurances reasonably acceptable to CSC in substitution of the CSC Guarantee or to otherwise obtain the full release of the CSC Guarantee as promptly as practicable and (b) until such time as the CSC Guarantee is substituted or released, the Purchaser will indemnify and hold harmless the Seller and its Affiliates (including ARIAD US) against and from any and all Liabilities arising out of or relating to CSC Guarantee.

Article  6
CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE

Section 6.1Joint Condition. The obligation of the Purchaser and the Seller to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date, of the following condition (any of which may be waived by the mutual agreement between the parties, in whole or in part): there must not be in effect any Law or Judgment that would prohibit or make illegal the consummation of the transactions contemplated by this Agreement or cause the transactions contemplated by this Agreement to be rescinded following consummation.

Section 6.2Conditions to the Obligation of the Purchaser. The obligation of the Purchaser to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by the Purchaser, in whole or in part):

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(a)The representations and warranties of the Seller in Article 3 must be true and correct in all respects as at Closing (except to the extent any such representation or warranty speaks as of the date of this Agreement or any other specific date, in which case such representation or warranty must have been true and correct in allrespects as of such date), except where the failure of such representations and warranties to be so true and correct (without regard for any “material,” “Material Adverse Effect” or similar qualification) would not, individually or in the aggregate, constitute a Material Adverse Effect;

(b)All of the covenants and obligations that the Seller is required to perform or comply with under this Agreement on or before the Closing Date must have been duly performed and complied with in all material respects;

(c)The Seller must have delivered or caused to be delivered each document that Section 2.6(a) requires it to deliver;  

(d)The Required Contracts shall not have been amended, modified or rescinded and shall be in full force and effect; and

(e)There shall not have occurred any event or condition of any character that has had, or is reasonably likely to have, a Material Adverse Effect since the date of this Agreement.

Section 6.3Conditions to the Obligation of the Seller. The obligation of the Seller to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by the Seller, in whole or in part):

(a)The representations and warranties of the Purchaser in Article 4 must be true and correct in all material respects as of the Closing (except to the extent any such representation or warranty speaks as of the date of this Agreement or any other specific date, in which case such representation or warranty must have been true and correct in all materialrespects as of such date);

(b)All of the covenants and obligations that the Purchaser is required to perform or comply with under this Agreement on or before the Closing Date must have been duly performed and complied with in all material respects; and

(c)The Purchaser must have delivered or caused to be delivered to the Seller each document that Section 2.6(b) requires it to deliver.

Article 7
TERMINATION

Section 7.1Termination Events. This Agreement may, by written notice given before or at the Closing, be terminated:

(a)by mutual consent of the Purchaser and the Seller;

(b)by either the Purchaser or the Seller if any Governmental Authority has issued a nonappealable final Judgment or taken any other nonappealable final action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement; provided,  however, that the right to terminate this Agreement under this Section 7.1(b) will not be available to any party whose failure to fulfill any material covenant under this Agreement, including the obligations of the Purchaser under 0, has been the cause of or resulted in the action or event described in this Section 7.1(b) occurring;

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(c)by the Purchaser if the Closing has not occurred (other than through the failure of the Purchaser to comply fully with its obligations under this Agreement) on or before June 30, 2016; or

(d)by the Seller if the Closing has not occurred (other than through the failure of the Seller or the Company to comply fully with its obligations under this Agreement) on or before June 30, 2016.

Section 7.2Effect of Termination. If this Agreement is terminated pursuant to Section 7.1, this Agreement and all rights and obligations of the parties under this Agreement automatically end without Liability against any party or its Affiliates, except that (a) Section 11.1 (Confidentiality), Section 5.5 (Public Announcements), Section 7.3 (Certain Effects of Termination), Article 12 (General Provisions) (except for Section 12.12 (Specific Performance)) and this Section 7.2 will remain in full force and survive any termination of this Agreement and (b) if this Agreement is terminated by a party because of the knowing and intentional breach of this Agreement by the other party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the other party’s knowing and intentional failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

Section 7.3Certain Effects of Termination. If the Purchaser or the Seller terminates this Agreement pursuant to Section 7.1, the Purchaser will comply with the Confidentiality Agreement regarding the return and/or destruction of any information furnished to the Purchaser in connection with this Agreement.

Article 8
INDEMNIFICATION

Section 8.1Indemnification by the Seller. If the Closing occurs, and subject to the limitations expressly set forth in Section 8.4 and Section 8.5, the Seller will indemnify and hold harmless the Purchaser and its directors, officers, employees, agents, representatives, stockholders and Affiliates (collectively, the “Purchaser Indemnified Parties”) from and against any and all Losses (other than Losses with respect to Taxes, for which the provisions of Section 9.2 will govern) incurred by the Purchaser Indemnified Parties arising or resulting from (a) any breach of any representation or warranty set forth in Article 3, (b) any breach of any covenant of the Purchaser set forth in this Agreement, (c) any Indebtedness to the extent not taken into account in the determination of the Final Closing Net Cash and (d) the Deferred Refund Obligations. The amount of indemnified Losses will be determined without regard to any “materiality” or “Material Adverse Effect” qualification contained in the applicable provisions hereof.

Section 8.2Indemnification by the Purchaser. If the Closing occurs, and subject to the limitations expressly set forth in Section 8.4 and Section 8.5, the Purchaser will indemnify and hold harmless the Seller and its directors, officers, employees, agents, representatives, stockholders and Affiliates (collectively, the “Seller Indemnified Parties”) from and against any and all Losses (other than Losses with respect to Taxes, for which the provisions of Section 9.2(b) will govern) incurred by the Seller Indemnified Parties arising or resulting from (a) any breach of any representation or warranty set forth in Article 4 and (b) any breach of any covenant of the Purchaser set forth in this Agreement. The amount of indemnified Losses will be determined without regard to any “materiality” or “Material Adverse Effect” qualification contained in the applicable provisions hereof.

Section 8.3Claim Procedure. 

(a)A party that seeks indemnity under this Article 8 (an “Indemnified Party”) will give written notice (a “Claim Notice”) to the party from whom indemnification is sought (an “Indemnifying Party”) whether the Losses sought arise from matters solely between the parties or from Third Party Claims described in Section 8.3(b). The Claim Notice must contain (i) a description and, if known, the estimated amount of any Losses incurred or reasonably expected to be incurred by the Indemnified Party, (ii) a reasonable explanation,

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accompanied by reasonable supporting documentation, of the basis for the Claim Notice to the extent of the facts then known by the Indemnified Party and (iii) a demand for payment of those Losses.

(b)If the Indemnified Party seeks indemnity under this Article 8 in response to a claim or Proceeding by another Person not a party to this Agreement (a “Third Party Claim”), then the Indemnified Party will give a Claim Notice to the Indemnifying Party within ten days after the Indemnified Party has received notice or otherwise learns of the assertion of such Third Party Claim and will include in the Claim Notice (i) the facts constituting the basis for such Third Party Claim and the amount of the damages claimed by the other Person, in each case to the extent known to the Indemnified Party, accompanied by reasonable supporting documentation submitted by such third party (to the extent then in the possession of the Indemnified Party) and (ii) the assertion of the claim or the notice of the commencement of any Proceeding relating to such Third Party Claim; provided,  however, that no delay or deficiency on the part of the Indemnified Party in so notifying the Indemnifying Party will relieve the Indemnifying Party of any Liability under this Agreement except to the extent such delay or deficiency prejudices or otherwise adversely affects the rights of the Indemnifying Party with respect thereto.

(c)The Indemnifying Party will have 30 days after receipt of notice of such Third Party Claim to elect to assume control of the defense of such Third Party Claim with counsel reasonably satisfactory to the Indemnified Party by giving to the Indemnified Party written notice of the intention to assume control of such defense. If the Indemnifying Party elects not to assume control of such defense, the Indemnified Party will control such defense.

(d)The party not controlling the defense of the Third Party Claim (the “Non-controlling Party”) may participate in the defense thereof at its own expense. However, if the Indemnifying Party assumes control of such defense as permitted above and, based upon the reasonable opinion of counsel to the Indemnified Party reasonably acceptable to the Indemnifying Party, a conflict or potential conflict of interest exists between the Indemnified Party and the Indemnifying Party which makes the representation of both parties inappropriate under applicable standards of professional conduct, then the reasonable fees and expenses of counsel to the Indemnified Party will be considered and included as “Losses” for purposes of this Agreement. The Non-controlling Party will furnish the party controlling the defense of the Third Party Claim (the “Controlling Party”) with such information as it may have with respect to the Third Party Claim (including copies of any summons, complaint or other pleading which may have been served on such party and any written claim, demand, invoice, billing or other document evidencing or asserting the same) and will otherwise cooperate with and assist the Controlling Party and its counsel in the defense of such Third Party Claim. The Controlling Party will keep the Non-controlling Party reasonably advised of the status of such Third Party Claim and will consider in good faith recommendations made by the Non-controlling Party with respect thereto.

(e)The Indemnifying Party will not agree to any settlement of, or consent to the entry of any Judgment (other than a Judgment of dismissal on the merits without costs) arising from, any such Third Party Claim without the prior written consent of the Indemnified Party; provided,  however, that the consent of the Indemnified Party will not be required if the Indemnifying Party agrees in writing to pay any amounts payable pursuant to such settlement or any Judgment and such settlement or Judgment includes a full, complete and unconditional release of the Indemnified Party from further Liability. The Indemnified Party will not agree to any settlement of, or the entry of any Judgment (other than a Judgment of dismissal on the merits without costs) arising from, any such Third Party Claim without the prior written consent of the Indemnifying Party.

Section 8.4Survival. Other than the Seller Fundamental Representations and the representations and warranties set forth in Section 3.13 (Tax Matters), all representations and warranties contained in this Agreement will survive the Closing until the twelve-month anniversary of the Closing Date.  The Seller Fundamental Representations and the representations and warranties set forth in Section 3.13 (Tax Matters) will survive the Closing until sixty days after the expiration of the applicable statute of limitations. None of the

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covenants or other agreements contained in this Agreement shall survive the Closing Date other than those which by their terms contemplate performance after the Closing Date, and each such surviving covenant and agreement shall survive the Closing for the period contemplated by its terms or in accordance with the applicable statute of limitations with respect thereto, whichever is shorter. All claims for indemnification under this Agreement must be asserted pursuant to a Claim Notice given prior to the expiration of the applicable survival period set forth in this Section 8.4; provided, however, that any representation, warranty or covenant that is the subject of a claim for indemnification which is asserted pursuant to a Claim Notice given after the Closing Date within the survival period specified in this Section 8.4 will survive until, but only for purposes of, the resolution of such claim.

Section 8.5Limitations on Liability.

(a)Notwithstanding anything to the contrary contained in this Agreement:

(i)no indemnification payments will be made by or on behalf of an Indemnifying Party in respect of any breaches of representations and warranties made by such party, as applicable, under this Agreement (other than with respect to Seller Fundamental Representations) until the aggregate amount of Losses for which such Indemnifying Party would (but for this clause) be liable thereunder exceeds 1% of the Initial Purchase Price, in which event the Indemnifying Party will be liable for all Losses from the first dollar;

(ii)the aggregate total amount for which an Indemnifying Party will be liable to indemnify and hold harmless the Indemnified Parties with respect to any breaches of representations and warranties made by the Indemnifying Party under this Agreement (other than with respect to Seller Fundamental Representations) will not exceed 10% of the Initial Purchase Price;

(iii)the aggregate total amount for which an Indemnifying Party will be liable to indemnify and hold harmless the Indemnified Parties under this Agreement will not exceed the Initial Purchase Price; and

(iv)any indemnity provided hereunder shall be so applied as to avoid any double counting and no Indemnified Party shall be entitled to obtain indemnification more than once for the same matter or Losses.

(b)An Indemnified Party’s right to indemnification or other remedies based upon the representations, warranties, covenants and agreement of the Indemnifying Party contained in this Agreement will not be affected or deemed waived by reason of the fact that the Indemnified Party, based solely upon its own investigation and without regard to any information provided by the Indemnifying Party, knew or should have known that any representation or warranty might be inaccurate or that the Indemnifying Party filed to comply with any agreement or covenant.

The limitations on liability set forth in this Section 8.5 shall not apply to Losses resulting from fraud with respect to any breach of any representation or warranty or willful breach with respect to any covenant, in each case as contained in this Agreement.

Section 8.6Tax Refunds, Insurance Proceeds and Other Payments. The amount of any and all Losses for which indemnification is provided pursuant to this Article 8 or Article 9 will be net of any Tax benefit to which an Indemnified Party is entitled by reason of payment of such Liability and any amounts of any insurance proceeds, indemnification payments, contribution payments or reimbursements receivable by, or payable in kind to, the Indemnified Party with respect to such Losses or any of the circumstances giving rise thereto. In connection therewith, if, at any time following payment in full by the Indemnifying Party of any amounts of Losses due under this Agreement, the Indemnified Party receives any insurance proceeds,

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indemnification payments, contribution payments or reimbursements relating to the circumstances giving rise to such Losses, the Indemnified Party will promptly remit to the Indemnifying Party such proceeds, payments or reimbursements in an amount not to exceed the amount of the corresponding indemnification payment made by the Indemnifying Party. The Purchaser will use (and will cause its Affiliates to use) commercially reasonable efforts to collect the proceeds of any available insurance which would have the effect of reducing any Losses (in which case the net proceeds thereof will reduce the Losses).

Section 8.7Subrogation. If the Purchaser or any Purchaser Indemnified Party is indemnified for any Losses pursuant to this Agreement with respect to any claim by a Person not party to this Agreement, then the Seller will be subrogated to all rights and remedies of the Purchaser or the Purchaser Indemnified Party against such third party, and the Purchaser will, and will cause each of the Purchaser Indemnified Parties to, cooperate with and assist the Seller in asserting all such rights and remedies against such third party.

Section 8.8Exclusive Remedy From and after the Closing, except for the availability of injunctive or other equitable relief and claims relating to fraud, the sole and exclusive remedy of the Purchaser for any matter arising out of the transactions contemplated by this Agreement will be pursuant to the indemnification obligations set forth in Article 8 and Article 9 and, except to the extent the Purchaser has asserted a claim for indemnification by giving a Claim Notice in accordance with Section 8.3 prior to the expiration of the applicable survival period set forth in Section 8.4, the Purchaser will have no remedy against the Seller for any breach of any provision of this Agreement. In no event will the Seller have any Liability for Losses arising from the conduct of the business of the Acquired Companies after the Closing.

Article 9
TAX MATTERS

Section 9.1Swiss Tax Rulings.

(a)As soon as reasonably practicable and in any event within thirty days following the execution and delivery of this Agreement, the Seller shall prepare and file with the Swiss Tax Authorities the requests for tax rulings listed in Section 9.1(a) of the Seller Disclosure Schedule with respect to the applicable federal stamp tax and or income or withholding tax that may arise as a result of the Pre-Sale Restructuring (the “Swiss Tax Rulings”).

(b)The Seller and the Purchaser will each use their respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to obtain the Swiss Tax Rulings. Subject to this Section 9.1(b), the Seller will control and be responsible for the filing of the Swiss Tax Rulings and the submission of any information, documentation, responses or communication with the Swiss Tax Authority relating thereto. The parties will provide to each other such assistance, information and cooperation as is reasonably required to obtain the Swiss Tax Rulings (including providing necessary information, assisting in responding to any inquiries and attending meetings with the applicable Swiss Tax Authority) and, in connection therewith, each party will (i) promptly notify the other party of any material communication between such party and any Swiss Tax Authority relating to the Swiss Tax Rulings; (ii) consult with the other party in advance of participating in any meeting or discussion with any Swiss Tax Authority relating to the Swiss Tax Rulings and, to the extent permitted by such Swiss Tax Authority, give the other party (and its counsel and tax advisors) the opportunity to attend and participate thereat; and (iii) subject to applicable Law, discuss with and permit the other party (and its counsel and tax advisors) to review in advance, and consider in good faith the other party’s reasonable comments in connection with, any proposed filing, submission or communication to any Swiss Tax Authority relating to the Swiss Tax Rulings. For the avoidance of doubt, the provisions of this Section 9.1(b) shall govern with respect to the interactions of the parties with the Swiss Tax Authority in connection with the Swiss Tax Ruling and Section 5.3(c) will not apply to the matters addressed in this Section 9.1(b).

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Section 9.2Liability and Indemnification for Taxes.

(a)If the Closing occurs, and subject to Section 8.5(a)(iii) and the limitations expressly set forth in Section 9.2(d), and except to the extent any Taxes are reserved or accrued on the Closing Balance Sheet, the Seller will indemnify the Purchaser Indemnified Parties against: (i) all Losses for all Taxes of the Acquired Companies that are attributable to the Pre-Closing Period or as a result of the Pre-Sale Restructuring or Carve-out Restructuring, and (ii) all Losses for all Taxes attributable to any breach of the Company’s representations and warranties set forth in Section 3.13.

(b)If the Closing occurs, the Purchaser will indemnify the Seller Indemnified Parties against all Losses (i) for all Taxes of the Acquired Companies that are attributable to any Post-Closing Period, except to the extent that such Losses for Taxes are attributable to any breach of the Company’s representations and warranties set forth in Section 3.13 and (ii) for all Taxes arising solely out of or due to any breach of any covenant of the Purchaser set forth in this Agreement.

(c)With respect to any Straddle Period, any Losses for Taxes will be allocated between the Pre-Closing Period and the Post-Closing Period by closing the books of the Acquired Companies at the end of the Closing Date, except that (i) Tax items of a periodic nature, such as property taxes or depreciation allowances calculated on an annual basis, will be allocated by apportioning a pro-rata portion of such Taxes to each day in the relevant Straddle Period, and (ii) Liabilities relating to Tax associated with the Pre-Sale Restructuring will fall into the Pre-Closing Period.

(d)The Seller will not be required to indemnify the Purchaser Indemnified Parties for reductions in any Tax Attributes. The Seller will not be required to indemnify the Purchaser Indemnified Parties against Losses for Taxes attributable to the Pre-Closing Period or the Pre-Sale Restructuring or Carve-out Restructuring to the extent such Losses for Taxes could be reduced under applicable Law by reason of net operating loss carryovers, Tax credits and similar Tax attributes arising in the Pre-Closing Period (assuming for the purposes of this sentence that such attributes are not used to reduce Taxes in the Post-Closing Period).

Section 9.3Tax Return Filing; Audit Responsibilities.  

(a)Except as set forth in Section 9.3(b), the Purchaser will control and be responsible for the filing of all Tax Returns required to be filed with respect to the Company after the Closing Date. All such Tax Returns will be completed in accordance with past practice to the extent permitted by applicable Law. The Purchaser will make all payments required with respect to any such Tax Return.

(b)The Seller will control and be responsible for the preparation and filing of all Tax Returns due after the Closing Date that relate to the Company or any Affiliate of the Company and are Affiliated Group Tax Returns which include Pre-Closing Period operations. All such Tax Returns will be completed in accordance with past practice to the extent permitted by applicable Law. The Seller will make all payments required with respect to any such Tax Return.

(c)In the event that the Seller or the Purchaser is liable under this Agreement for any Taxes paid by the other party with respect to any Tax Return, prompt reimbursement will be made.

(d)If the Purchaser receives notice of a Tax Contest with respect to any Acquired Company which could reasonably be expected to cause the Seller to have an indemnification obligation under this Article 9 then the Purchaser will notify the Seller in writing of such Tax Contest within five Business Days of receiving such notice. The Seller will have the right to control the conduct and resolution of such Tax Contest; provided,  however, that the Seller may decline to participate in such Tax Contest. If the Seller controls the conduct of such Tax Contest, the Seller will not resolve such Tax Contest, to the extent such Tax Contest relates to Post-Closing Period Taxes, without the Purchaser’s written consent, which consent will not be unreasonably

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withheld, conditioned or delayed. If the Seller declines to control such Tax Contest, then the Purchaser will have the right to control the conduct of such Tax Contest; provided,  however, that the Purchaser will not resolve such Tax Contest without the Seller’s written consent, which consent will not be unreasonably withheld, conditioned or delayed. Each party will bear its own costs for participating in such Tax Contest.

(e)Any net refunds and credits attributable to the payment of Taxes for a Pre-Closing Period will be for the account of the Seller, and the Purchaser will promptly pay to the Seller any such refund or credit.

(f)To the extent not inconsistent with the provisions of thisSection 9.3, the procedures of Article 8 will apply in the case of any claim for Losses related to Taxes.

Section 9.4Cooperation. Each of the Seller and the Purchaser agree that it will:

(a)provide assistance to the other party as reasonably requested in preparing and filing Tax Returns and responding to Tax Contests;

(b)make available to the other party as reasonably requested all information, records, and documents relating to Taxes concerning the Acquired Companies; and

(c)retain any books and records that could reasonably be expected to be necessary or useful in connection with any preparation by any other party of any Tax Return or for any Tax Contest or other examination or Proceeding relating to Taxes. Such books and records will be retained until the expiration of the applicable statute of limitations (including extensions thereof). Thereafter, the Purchaser will not dispose of any such Tax Returns, books and records unless it first offers in writing such Tax Returns, books and records to the Seller and the Seller fails to accept such offer within 60 days of it being made.

Section 9.5No Code Section 338 Election. Neither the Purchaser, the Company, nor any of their Affiliates will make any election under Section 338 of the Code with respect to the transactions contemplated by this Agreement.

Section 9.6Tax Treatment of Indemnity Payments. Any indemnity payment under this Agreement shall be treated as an adjustment to the Purchase Price for Tax purposes unless otherwise required by applicable Tax Law. Each party shall notify the other party if it receives notice that any Governmental Authority proposes to treat any indemnification payment as other than an adjustment to the Purchase Price for Tax purposes, or if it otherwise determines that an indemnification payment is required by applicable Tax Law to be treated as other than an adjustment to the Purchase Price for Tax purposes.

Article 10
EMPLOYEE MATTERS

Section 10.1Employees. 

(a)For the one-year period commencing on the Closing Date (or such longer period as may be required by applicable Law) (the “Continuation Period”), the Purchaser will provide, or cause the Acquired Companies to provide, those employees employed by any Acquired Company at Closing, including those employees on vacation, leave of absence, disability (including long-term disability), military, parental or sick leave or layoff (whether or not such employees return to active employment with the Acquired Company) (the “Transferred Employees”), with employee benefits that in the aggregate are substantially equivalent to, and no less favorable than, those provided to such Transferred Employees immediately prior to the Closing, subject to any variations agreed with such Transferred Employees. During the Continuation Period or such longer period as may be required under the terms of any applicable employee benefit plan or arrangement, the Purchaser will continue to provide, or cause the Acquired Companies to provide, those former employees of any Acquired

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Company who left employment prior to the Closing and who retain a benefit in any applicable Company Plan (the “Transferred Former Employees”) and their dependents, beneficiaries and join annuitants, with employee/retiree benefits that in the aggregate are substantially equivalent to, and no less favorable than, the benefits to which such Transferred Former Employees were entitled under the Company Plans in effect immediately prior to the Closing, subject to any variations agreed with such Employees. These obligations are not intended to limit any provisions of applicable Law or Contracts which are more favorable to Transferred Employees or Transferred Former Employees.

(b)To the extent that service is relevant for purposes of eligibility, vesting or benefit accrual under any employee benefit plan, program or arrangement established or maintained by the Purchaser for the benefit of Transferred Employees or Transferred Former Employees, such plan, program or arrangement will credit such employees or former employees for service on or prior to the Closing with the Acquired Companies and their Affiliates.

(c)Upon the Closing Date, the Purchaser will honor or cause the Acquired Companies to honor in accordance with their terms all individual employment, severance, retention and other compensation agreements then existing between the Acquired Companies and any employee, director or officer thereof, except as otherwise agreed in writing by the Purchaser and such Person.

(d)Promptly after the execution and delivery of this Agreement, the Purchaser and the Seller will cooperate in good faith to prepare a written communication to the Transferred Employees and written guidance for any verbal communications by or on behalf of either party to the Transferred Employees regarding the employee benefits (including equity compensation arrangements) to be provided to the Transferred Employees by the Acquired Companies following the Closing.

(e)The Purchaser shall cause the applicable Retention Payment to paid to each individual identified on Schedule 1.1(c) to the Seller Disclosure Schedules on the first regularly scheduled payroll date for such individual following the Closing Date.

Section 10.2Indemnity. From and after the Closing and subject to Sections 8.3 and 8.5(a)(iii), the Purchaser will indemnify and hold harmless the Seller Indemnified Parties against all Losses that are incurred from and after the Closing arising or resulting from (a) any Company Plan maintained or sponsored directly by any Acquired Company that transfers with the Acquired Companies by operation of Law, (b) any claim with respect to any Company Plan which transfers in whole, or in part, by operation of this Article 10 and (c) any failure of the Purchaser to discharge its obligations under this Article 10.

Article 11
POST-CLOSING COVENANTS

Section 11.1Confidentiality.

(a)The parties agree to continue to abide by that certain Confidentiality Agreement between ARIAD US and Purchaser dated January 19, 2016 (the “Confidentiality Agreement”), which will survive until the Closing, at which time the Confidentiality Agreement will terminate; provided,  however, that if this Agreement is, for any reason, terminated prior to the Closing, the Confidentiality Agreement will continue in full force and effect in accordance with its terms.

(b)For a period of [**] years after the Closing, the Seller will, and will instruct its Representatives to, hold in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of Law, all non-public documents and information to the extent relating to the Acquired Companies (the “Company Information”), except to the extent that such the Company Information (i) must be disclosed in connection with the obligations of the Seller pursuant to this Agreement or any Ancillary Agreement, (ii) can be shown to have been in the public domain through no fault of the Seller or (iii) was later lawfully acquired by the Seller from sources other than those related to its prior ownership of the Acquired

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Companies. Notwithstanding the foregoing, in no event will this Section 11.1(b) limit or otherwise restrict the right of the Seller to disclose such the Company Information (w) to its and its Affiliates’ respective Representatives to the extent reasonably required to facilitate the negotiation, execution, delivery or performance of this Agreement and the Ancillary Agreements, (x) to any Governmental Authority or arbitrator to the extent reasonably required in connection with any Proceeding relating to the enforcement of this Agreement or any Ancillary Agreement, (y) in connection with its indemnification obligations under this Agreement, including the defense of any Third Party Claim, and (z) as permitted in accordance with Section 5.5..

Section 11.2Indemnification. The Purchaser will not, for a period of six years after the Closing, take or permit any action to alter or impair any exculpatory or indemnification provisions now existing in the Organizational Documents of any Acquired Company for the benefit of any individual who served as a director or officer of any Acquired Company at any time prior to the Closing (each an “Affiliate Indemnified Party”), except for any changes which may be required to conform with changes in applicable Law and any changes which do not affect the application of such provisions to acts or omissions of such individuals prior to the Closing. Without limiting the generality of this Section 11.2, the provisions of this Section 11.2 are intended for the benefit of, and may be enforced by, each of the Affiliate Indemnified Parties and their respective heirs.

Section 11.3Seller’s Group Marks.

(a)As soon as practicable after Closing, and in any event by no later than the date falling six months following the Closing Date, remove all Seller’s Group Marks from, or otherwise destroy, all sales or promotional materials, stationery, buildings, signage, vehicles or internet websites in its possession or control bearing any Seller’s Group Marks.

(b)As soon as practicable after Closing, and in any event by no later than the date falling six months following the Closing Date, change the name of all Acquired Companies so that it no longer includes any Seller’s Group Marks.

Section 11.4Standstill.

(a)Except as permitted by Section 11.4(b), for a period of [**] following the execution and delivery of this Agreement, without the prior written consent of the Board of Directors of ARIAD US, no Controlled Person shall (or assist or encourage others to) directly or indirectly in any manner: (i) acquire, announce an intention to acquire, or agree to acquire, directly or indirectly, alone or in concert with others, by purchase, gift or otherwise, any direct or indirect beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) or interest in any securities or direct or indirect rights, warrants or options to acquire, or securities convertible into or exchangeable for, any securities of ARIAD US; (ii) make, or in any way participate in, directly or indirectly, alone or in concert with others, any “solicitation” of “proxies” to vote (as such terms are used in the proxy rules of the SEC promulgated pursuant to Section 14 of the Exchange Act) any securities of ARIAD US with respect to any business combination, restructuring, recapitalization or similar transaction; (iii) form, join or in any way participate in a “group” within the meaning of Section 13(d)(3) of the Exchange Act with respect to any voting securities of ARIAD US; (iv) acquire, announce an intention to acquire, or agree to acquire, directly or indirectly, alone or in concert with others, by purchase, exchange or otherwise, (x) any of the assets, tangible or intangible, of ARIAD US or (y) direct or indirect rights, warrants or options to acquire any assets of ARIAD US, other than in the ordinary course of business; (v) enter into any arrangement or understanding with others to do any of the actions restricted or prohibited under clauses (i), (ii), (iii) or (iv) of this Section 11.4(a); (vi) otherwise act in concert with others, to seek to offer to ARIAD US or any of its stockholders any business combination, restructuring, recapitalization or similar transaction to or with ARIAD US, or (vii) take any action to control or influence the management, Board of Directors or policies of ARIAD US.

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(b)The provisions of Section 11.4(a) shall not apply (i) in the event that ARIAD US announces publicly that it is seeking purchasers for ARIAD US, (ii) upon the commencement by a third party of a tender or exchange offer for more than 50% of the voting power of the outstanding voting securities of ARIAD US, provided that if such third party withdraws its tender or exchange offer, Section 11.4(a) shall again apply as of the date of such withdrawal, (iii) if a third party acquires beneficial ownership of more than 20% of the outstanding common stock of ARIAD US, (iv) if ARIAD US publicly announces a transaction, or an intention to effect any transaction, which would result in (A) the sale by ARIAD US or one or more of its subsidiaries to a third party of assets representing more than 50% of the consolidated earning power or assets of ARIAD US and its subsidiaries, (B) the common shareholders of ARIAD US immediately prior to such transaction owning less than 50% of the outstanding common stock of the acquiring entity or, in the case of a merger transaction, the surviving corporation (or, if the surviving corporation is a subsidiary of a parent company, the parent company) or (C) a third party acquiring beneficial ownership of more than 20% of the outstanding common stock of ARIAD US. For clarity, the foregoing provisions shall prohibit the Controlled Persons from acquiring shares of common stock of ARIAD US pursuant to a public tender offer for all outstanding common stock of ARIAD US in consideration for cash unless one of the exceptions in the preceding sentence applies.  Notwithstanding the above, cumulative acquisitions by the Controlled Persons of less than [**] of ARIAD US’s outstanding common shares shall not be deemed a breach of this provision.

(c)Nothing in this Section 11.4 shall prevent a Controlled Person from privately approaching ARIAD US to make an offer for the acquisition solely by the Controlled Persons of ARIAD US or any assets of ARIAD US, including ARIAD US’s rights to Products; provided that, (i) in the event ARIAD US does not accept any such offer, no Controlled Person shall take any action in contravention of Section 11.4(a), which shall continue to apply in all respects in accordance with the provision thereof and (ii) no Controlled Person shall make any public announcement regarding any such private approach by a Controlled Personor otherwise take any action that would reasonably require ARIAD US to make a public announcement regarding such offer or any of the types of matters set Section 11.4(a).

Section 11.5Further Actions. Subject to the other express provisions of this Agreement, upon the request of any party to this Agreement, the other parties will execute and deliver such other documents, instruments and agreements as the requesting party may reasonably require for the purpose of carrying out the intent of this Agreement and the transactions contemplated by this Agreement.

Section 11.6Books and Records and Cooperation with Litigation.

(a)As soon as reasonably practical after the Closing, and in no event later than 30 days after the Closing Date, the Seller shall, or shall cause its Affiliates to, deliver to the Purchaser or an Affiliate of the Purchaser as directed in writing by the Purchaser all Books and Records not kept at the Leased Real Properties.

(b)For a period of six years after the Closing Date or such longer time as may be required by Law (i) the Purchaser shall not, and shall cause its Affiliates not to, intentionally dispose of or destroy any of the Books and Records without first offering to turn over possession thereof to the Seller by written notice to the Seller at least 60 days prior to the proposed date of such disposition or destruction and (ii) upon reasonable advance notice, the Purchaser shall, and shall cause its Affiliates to, give the Seller and its Representatives reasonable access, during normal business hours and without unreasonable interruption of the Purchaser’s business, to, at the Seller’s sole cost and expense, make copies of any Books and Records at reasonable times at the Purchaser’s principal place of business or at any location where any Books and Records are stored. The provisions of Section 11.6(b)(i) shall not prohibit or restrict, and shall not require the Purchaser to provide any notice to the Seller in connection with, the deletion of electronic mail messages or other information stored in an electronic format in the ordinary course of business in a manner consistent with the Purchaser’s electronic records retention policies and applicable Law. The Seller’s access to the Books and Records after the Closing Date pursuant to Section 11.6(b)(ii) shall be limited to access that is reasonably required to permit the Seller to

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CONFIDENTIAL TREATMENT MATERIAL

comply with its financial and Tax reporting obligations, to defend against any Proceeding or claim by a Third Party in which the Seller or its Affiliates are involved relating to or in connection with the Acquired Companies, or otherwise to comply with any requirement of applicable Law, in each case, subject to the Purchaser’s reasonable policies restricting access by Third Parties to the Purchaser’s and its Affiliates’ (including, following the Closing, the Acquired Companies’) information technology systems or assets.

(c)For a period of six years after the Closing Date, each of the Purchaser and the Seller shall, and shall cause its Affiliates to, make available upon reasonable advance notice and at reasonable times upon written request any personnel whose assistance or participation is reasonably required in anticipation of, or preparation for, existing or future Proceedings or claims by a Third Party in which such party or any of its Affiliates are involved relating to or in connection with the Acquired Companies.  

(d)The requesting party shall reimburse the other party for its reasonable out-of-pocket expenses incurred in performing the covenants contained in this Section 11.6.

Article 12
GENERAL PROVISIONS

Section 12.1Notices. All notices and other communications under this Agreement must be in writing and are deemed duly delivered when (a) delivered if delivered personally or by nationally recognized overnight courier service (costs prepaid), (b) sent by facsimile with confirmation of transmission by the transmitting equipment (or, the first Business Day following such transmission if the date of transmission is not a Business Day) or (c) received or rejected by the addressee, if sent by United States of America certified or registered mail, return receipt requested; in each case to the following addresses or facsimile numbers and marked to the attention of the individual (by name or title) designated below (or to such other address, facsimile number or individual as a party may designate by notice to the other parties):

If to the Seller or ARIAD US:

ARIAD Pharmaceuticals, Inc.

26 Landsdowne Street

Cambridge, MA 02139

Facsimile:[**]

Attention:Chief Executive Officer

Chief Legal Officer

with a copy (which will not constitute notice) to:

Baker & McKenzie LLP

100 New Bridge Street

London, EC4V 6JA

United Kingdom

Facsimile: [**]

Attention: Jane Hobson

and

Baker & McKenzie LLP
300 East Randolph Street, Suite 5000
Chicago, Illinois  60601
United States of America

Facsimile:[**]

Attention:Andrew J. Warmus

If to the Purchaser or Incyte US:

Incyte Corporation

1801 Augustine Cut-Off

Wilmington, DE 19803

United States of America

Facsimile:[**]

Attention: General Counsel

with a copy (which will not constitute notice) to:

Morgan, Lewis & Bockius LLP

502 Carnegie Center

Princeton , NJ 08540

United States of America

Facsimile: [**]

Attention: Randall Sunberg

Emilio Ragosa

Section 12.2Amendment. this Agreement may not be amended, supplemented or otherwise modified except in a written document signed by each party to be bound by the amendment and that identifies itself as an amendment to this Agreement.

Section 12.3Waiver and Remedies. The parties may (a) extend the time for performance of any of the obligations or other acts of any other party to this Agreement, (b) waive any inaccuracies in the representations and warranties of any other party to this Agreement contained in this Agreement or (c) waive compliance with any of the covenants or conditions for the benefit of such party contained in this Agreement. (i) any such extension or waiver by any party to this Agreement will be valid only if set forth in a written document signed on behalf of the party or parties against whom the extension or waiver is to be effective; (ii) no extension or waiver will apply to any time for performance, inaccuracy in any representation or warranty, or noncompliance with any covenant or condition, as the case may be, other than that which is specified in the written extension or waiver; and (iii) no failure or delay by any party in exercising any right or remedy under this Agreement or any of the documents delivered pursuant to this Agreement, and no course of dealing between the parties, operates as a waiver of such right or remedy, and no single or partial exercise of any such right or remedy precludes any other or further exercise of such right or remedy or the exercise of any other right or remedy. Except as provided in Section 8.8, any enumeration of a party’s rights and remedies in this Agreement is not intended to be exclusive, and a party’s rights and remedies are intended to be cumulative to the extent permitted by law and include any rights and remedies authorized in law or in equity.

Section 12.4Entire Agreement. This Agreement (including the Schedules and Exhibits hereto and the documents and instruments referred to in this Agreement that are to be delivered at the Closing) constitutes the entire agreement among the parties and supersedes any prior understandings, agreements or representations by or among the parties, or any of them, written or oral, with respect to the subject matter of this Agreement. Notwithstanding the foregoing, the Confidentiality Agreement will remain in effect in accordance with its terms as modified pursuant to Section 11.1.

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CONFIDENTIAL TREATMENT MATERIAL

Section 12.5Assignment, Successors and No Third Party Rights. This Agreement binds and benefits the parties and their respective successors and assigns, except that the Purchaser may not assign any rights under this Agreement, whether by operation of law or otherwise, without the prior written consent of the Seller. No party may delegate any performance of its obligations under this Agreement, except that the Purchaser may at any time delegate the performance of its obligations (other than the obligation to pay the Purchase Price) to any Affiliate of the Purchaser so long as the Purchaser remains fully responsible for the performance of the delegated obligation. Nothing expressed or referred to in this Agreement will be construed to give any Person, other than the parties to this Agreement, any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement except such rights as may inure to a successor or permitted assignee under this Section 12.5.

Section 12.6Severability. If any provision of this Agreement is held invalid, illegal or unenforceable, the remaining provisions of this Agreement remain in full force and effect, if the essential terms and conditions of this Agreement for each party remain valid, binding and enforceable.

Section 12.7Exhibits and Schedules. The Exhibits and Schedules to this Agreement are incorporated herein by reference and made a part of this Agreement. The Seller Disclosure Schedule and the Purchaser Disclosure Schedule are arranged in sections and paragraphs corresponding to the numbered and lettered sections and paragraphs of Article 3 and Article 4, respectively. The disclosure in any section or paragraph of the Seller Disclosure Schedule, and those in any amendment or supplement thereto, qualifies other sections and paragraphs in this Agreement to the extent it is reasonably apparent that a given disclosure is applicable to such other sections and paragraph.

Section 12.8Interpretation. In the negotiation of this Agreement, each party has received advice from its own attorney. The language used in this Agreement is the language chosen by the parties to express their mutual intent, and no provision of this Agreement will be interpreted for or against any party because that party or its attorney drafted the provision.

Section 12.9Expenses. Except as set forth in this Agreement, whether or not the transactions contemplated by this Agreement are consummated, each party will pay its own direct and indirect expenses incurred by it in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated by this Agreement, including all fees and expenses of its Representatives.

Section 12.10Governing Law. Unless any Exhibit or Schedule specifies a different choice of law, the internal laws of the State of New York (without giving effect to any choice or conflict of law provision or rule that would cause the application of laws of any other jurisdiction) govern all matters arising out of or relating to this Agreement and its Exhibits and Schedules and the transactions contemplated by this Agreement, including its validity, interpretation, construction, performance and enforcement and any disputes or controversies arising therefrom or related thereto.

Section 12.11Limitation on Liability.  NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT OR ANY ANCILLARY AGREEMENT TO THE CONTRARY, IN NO EVENT WILL ANY PARTY OR ANY OF ITS AFFILIATES BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS, LOSS OF REVENUE OR LOST SALES) IN CONNECTION WITH ANY CLAIMS, LOSSES, DAMAGES OR INJURIES ARISING OUT OF THE CONDUCT OF SUCH PARTY PURSUANT TO THIS AGREEMENT REGARDLESS OF WHETHER THE NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR NOT

Section 12.12Specific Performance. The parties agree that irreparable damage would occur and the parties would have no adequate remedy at Law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. The parties accordingly

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CONFIDENTIAL TREATMENT MATERIAL

agree that, prior to the termination of this Agreement pursuant to Section 7.1, in addition to any other remedy to which a party is entitled at law or in equity, such party is entitled to injunctive relief to prevent breaches of this Agreement by the other party and otherwise to enforce specifically the provisions of this Agreement against the other party. Each party (a) expressly waives any requirement that the other party obtain any bond or provide any indemnity in connection with any action seeking injunctive relief or specific enforcement of the provisions of this Agreement (b) agrees it will not oppose the granting of such remedy.

Section 12.13Jurisdiction and Service of Process. Any action or proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement must be brought in the New York State Court located in the City of New York, Borough of Manhattan, or, if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York located in the City of New York, New York. Each of the parties knowingly, voluntarily and irrevocably submits to the exclusive jurisdiction of each such court in any such action or proceeding and waives any objection it may now or hereafter have to venue or to convenience of forum. Any party to this Agreement may make service on another party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 12.1. Nothing in this Section 12.13, however, affects the right of any party to serve legal process in any other manner permitted by law.

Section 12.14Waiver of Jury Trial.  EACH OF THE PARTIES KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE ACTIONS OF ANY PARTY TO THIS AGREEMENT IN NEGOTIATION, EXECUTION AND DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT.

Section 12.15No Joint Venture. Nothing in this Agreement creates a joint venture or partnership between the parties. This Agreement does not authorize any party (a) to bind or commit, or to act as an agent, employee or legal representative of, another party, except as may be specifically set forth in other provisions of this Agreement, or (b) to have the power to control the activities and operations of another party. The parties are independent contractors with respect to each other under this Agreement. Each party agrees not to hold itself out as having any authority or relationship contrary to this Section 12.15.

Section 12.16Non Recourse. No past, present or future Representative, incorporator, member, partner, equity holder or Affiliate of the Seller, any Acquired Company or any of their respective Affiliates shall have any liability for any Liabilities of the Seller, as applicable, under this Agreement or for any claim based on, in respect of, or by reason of, the transactions contemplated hereby.

Section 12.17Guaranty.

(a)ARIAD US irrevocably guarantees all representation, warranty, covenant and obligations of the Seller and the performance of its obligations under the provisions of this Agreement. This is a guarantee of payment and performance, and not of collection, and ARIAD US acknowledges and agrees that this guarantee is full and unconditional, and no release or extinguishments of the Seller’s Liabilities (other than in accordance with the terms of this Agreement), whether by decree in any bankruptcy proceeding or otherwise, will affect the continuing validity and enforceability of this guarantee. ARIAD US hereby waives, for the benefit of the Purchaser any right to require the Purchaser as a condition of payment or performance of ARIAD US to proceed against the Seller.

(b)Incyte US irrevocably guarantees all representation, warranty, covenant and obligations of the Purchaser and the performance of its obligations under the provisions of this Agreement. This is a guarantee of payment and performance, and not of collection, and Incyte US acknowledges and agrees that this guarantee is

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full and unconditional, and no release or extinguishments of the Purchaser’s Liabilities (other than in accordance with the terms of this Agreement), whether by decree in any bankruptcy proceeding or otherwise, will affect the continuing validity and enforceability of this guarantee. Incyte US hereby waives, for the benefit of the Seller any right to require the Seller as a condition of payment or performance of Incyte US to proceed against the Purchaser.

Section 12.18Counterparts. The parties may execute this Agreement in multiple counterparts, each of which constitutes an original as against the party that signed it, and all of which together constitute one agreement. This Agreement is effective upon delivery of one executed counterpart from each party to the other parties. The signatures of all parties need not appear on the same counterpart. The delivery of signed counterparts by facsimile or email transmission that includes a copy of the sending party’s signature(s) is as effective as signing and delivering the counterpart in person.

[Signature page follows.]

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date indicated in the first sentence of this Agreement.

ARIAD PHARMACEUTICALS (CAYMAN) L.P.
BY:	ARIAD PHARMACEUTICALS (CAYMAN) INC., its General Partner
	By:	/s/ Manmeet S. Soni
		Manmeet S. Soni
		Director
ARIAD PHARMACEUTICALS, INC., solely as guarantor
By:	/s/ Manmeet S. Soni
	Manmeet S. Soni
	Executive Vice President, Chief Financial Officer and Treasurer

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

[Signature Page to Stock Purchase Agreement]

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date indicated in the first sentence of this Agreement.

INCYTE EUROPE S.À R.L.
BY:	/s/ Laurent Chardonnet
	Laurent Chardonnet
	Head of Finance
INCYTE CORPORATION, for the purposes of Section 11.4 and 12.7(b)
By:	/s/ Hervé Hoppenot
	Hervé Hoppenot
	CEO

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

[Signature Page to Stock Purchase Agreement]

For acknowledgment and consent of the transfers of the Shares in accordance with the provisions of this Agreement and for the purpose of article 1690 of the Luxembourg Civil code and 190 of the Luxembourg law dated 10 August 1915 on commercial companies, as amended:

ARIAD PHARMACEUTICALS (LUXEMBOURG) S.À R.L.
BY:	/s/ Jonathan Dickinson
	Jonathan Dickinson
	Class A Manager

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

[Signature Page to Stock Purchase Agreement]

EXHIBIT A

Amended and Restated Buy-In License Agreement

Attached.

EXHIBIT B

Territory

European Union Countries	[**]
1.Austria 2.Belgium 3.Bulgaria 4.Croatia 5.Cyprus 6.Czech Republic 7.Denmark 8.Estonia 9.Finland 10.France 11.Germany 12.Greece 13.Hungary 14.Ireland 15.Italy 16.Latvia 17.Lithuania 18.Luxembourg 19.Malta 20.Netherlands 21.Poland 22.Portugal 23.Romania 24.Slovakia 25.Slovenia 26.Spain 27.Sweden 28.United Kingdom	29.**] 30.[**] 31.[**] 32.[**] 33.[**] 34.[**] 35.[**] 36.[**] 37.Israel 38.[**] 39.[**] 40.[**] 41.[**] 42.[**] 43.Norway 44.Russia 45.[**] 46.[**] 47.Switzerland 48.Turkey 49.[**] 50.[**]

EXHIBIT C

Joint Press Release

EX-10.3

Exhibit 10.3

CONFIDENTIAL TREATMENT MATERIAL

CONFIDENTIAL TREATMENT REQUESTED:  Information for which confidential treatment has been requested is omitted and is noted with asterisks.  An unredacted version of this document has been filed separately with the Securities and Exchange Commission (the “Commission”).

AMENDED AND RESTATED BUY-IN LICENSE AGREEMENT

between

ARIAD Pharmaceuticals, Inc.

and

ARIAD Pharmaceuticals (Europe) Sarl

and

Incyte Corporation (as guarantor)

CONFIDENTIAL TREATMENT MATERIAL

TABLE OF CONTENTS

ARTICLE 1 – DEFINITIONS	2
ARTICLE 2 – GRANT OF LICENSES	18
ARTICLE 3 – RESERVED TERRITORIES AND NON-COMPETITION	19
ARTICLE 4 – DEVELOPMENT AND COMMERCIALIZATION COMMITTEES	23
ARTICLE 5 – DEVELOPMENT	25
ARTICLE 6 - EXCHANGE OF OTHER KNOW-HOW	31
ARTICLE 7 – PRICING AND REIMBURSEMENT	32
ARTICLE 8 – REGULATORY MATTERS	32
ARTICLE 9 – PHARMACOVIGILANCE	35
ARTICLE 10 – SUPPLY, FORECASTS AND ORDERING	37
ARTICLE 11 – SHIPMENT AND DELIVERY	39
ARTICLE 12 – MANUFACTURING OF THE PRODUCT	41
ARTICLE 13 – QUALITY ASSURANCE	43
ARTICLE 14 - RECALLS AND PRODUCT WITHDRAWAL	44
ARTICLE 15 – COMMERCIALIZATION OF THE PRODUCT	45
ARTICLE 16 – BUY-BACK OPTION	47
ARTICLE 17 – MEDICAL AFFAIRS ACTIVITIES	48
ARTICLE 18 – TRADEMARKS	49
ARTICLE 19 – CONSIDERATION AND PAYMENTS	51
ARTICLE 20 – REPRESENTATIONS AND WARRANTIES	56
ARTICLE 21 – COMPLIANCE WITH LAW; DATA PRIVACY; ANTI-BRIBERY AND ANTI-CORRUPTION	59
ARTICLE 22 – INDEMNIFICATION, LIMITATIONS OF LIABILITY AND INSURANCE	60
ARTICLE 23 – THE PATENTS	63
ARTICLE 24 – CONFIDENTIALITY	68
ARTICLE 25 – TERM	70
ARTICLE 26 – TERMINATION	70
ARTICLE 27 – FORCE MAJEURE	73
ARTICLE 28 – LAW TO GOVERN	74
ARTICLE 29 – DISPUTE RESOLUTION	74
ARTICLE 30 – MISCELLANEOUS	75
APPENDICES
APPENDIX 1.18 – ARIAD US TRADEMARKS
APPENDIX 1.21 – BCR-ABL INHIBITOR COMPOUND ASSAY
APPENDIX 1.35 – COMMERCIALIZATION PLAN
APPENDIX 1.40 – PONATINIB STRUCTURE
APPENDIX 1.62 – DISTRIBUTION AGREEMENTS
APPENDIX 1.128 – PATENTS
APPENDIX 1.134 – PRIMARY EFFICACY ENDPOINT
APPENDIX 1.138 – PROPOSED STUDIES
APPENDIX 1.161 – SUPERIORITY
APPENDIX 1.167 – TERRITORY
APPENDIX 1.175 – TRANSITION BACK ARRANGEMENTS
APPENDIX 17.3 – ISTs
APPENDIX 19.8.2 – OFFSET
APPENDIX 20 - DISCLOSURE SCHEDULES
APPENDIX 20.1.17 – POST-MARKETING REQUIREMENTS

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request.  An unredacted version of this exhibit has been filed separately with the Commission.

CONFIDENTIAL TREATMENT MATERIAL

THIS AMENDED AND RESTATED BUY-IN LICENSE AGREEMENT (“Agreement”) dated as of June 1, 2016 (the “Effective Date”), between ARIAD Pharmaceuticals, Inc., (“ARIAD US”), a Delaware corporation and ARIAD Pharmaceuticals (Europe) Sarl, (“ARIAD SWISSCO”), a Swiss limited liability company registered in Lausanne (together, the “Parties” and, individually, each a “Party”) and Incyte Corporation, a Delaware corporation (“Incyte Corporation”) solely in its capacity as guarantor under Section 30.19.  This Agreement only comes into effect on the Effective Date (as defined below) and shall be of no force or effect if there is no Closing (as defined below).

RECITALS

a.The Parties are engaged in the business of discovering, developing, manufacturing and selling the Product (as defined below);

b.The Parties entered into a Buy-In License Agreement on August 7, 2012 (“Buy-In License Agreement”), whereby ARIAD US granted to ARIAD SWISSCO a perpetual and exclusive license to the Ponatinib Intangibles (as therein defined) for the purposes of development and commercialization of the Product in certain territories.  The Parties also entered into a Development Cost Sharing Agreement on August 7, 2012 (the “CSA Agreement”) pursuant to which they agreed to share the costs and risks of further developing the Product. 

c.ARIAD SWISSCO is an Affiliate of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l. (“ARIAD LUXCO”), a Luxembourg limited liability company registered in Luxembourg. Pursuant to a Share Purchase Agreement (“Share Purchase Agreement”) entered into on May 9, 2016 among ARIAD Pharmaceuticals (Cayman) L.P., a Cayman Limited Partnership, ARIAD US (with respect to selected provisions only), Incyte Europe S.a.r.l, an entity formed under the laws of Switzerland (“Incyte Europe”) and Incyte Corporation (with respect to selected provisions only), Incyte Europe will acquire the entire issued share capital in ARIAD LUXCO and, in connection therewith, the parties thereto agreed that the Buy-in License Agreement would be amended and restated on the terms of this Amended and Restated Buy-In License Agreement.  The CSA Agreement will terminate effective on the Effective Date and the costs of development will now be on the terms set out in this Agreement.

d.The Parties entered into a Loan Agreement on August 7, 2012 (the “Loan Agreement”) pursuant to which ARIAD US loaned the monies to ARIAD SWISSCO to enable it to pay the consideration under the Buy-In License Agreement.  In consideration of ARIAD SWISSCO entering into this Agreement, ARIAD US has hereby agreed to reduce all of the amount outstanding under the Loan Agreement and, effective as of the Effective Date, the loan is no longer outstanding.

e.ARIAD SWISSCO wishes to continue to purchase the Product from ARIAD US for the Territory, as further set forth herein.

f.The Parties agree that this preamble constitutes an integral part of this Agreement and that all capitalized terms used in this preamble shall have the respective meanings given above or in ARTICLE 1 or elsewhere in this Agreement.

1

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CONFIDENTIAL TREATMENT MATERIAL

NOW, THEREFORE, in consideration of the above premises and the mutual promises set forth below, the Parties hereby agree as follows:

ARTICLE 1 – DEFINITIONS

Capitalized terms used in this Agreement shall have the meanings specified below or elsewhere herein. 

1.1   “Acquired Party” has the meaning set forth in Section 3.3.2.

1.2   “Acquiring Party” has the meaning set forth in Section 3.3.2.

1.3   “Adverse Ruling” has the meaning set forth in Section 26.1.

1.4   “Affiliate” means any corporation or business entity that, whether now or in the future, controls, is controlled by or is under common control with a Party.  For the purposes of this definition, the terms “controls”, “controlled by” and “under common control with” as used with respect to any Party, means (i) to possess (directly or indirectly) the power to direct the management or affairs of a corporation or other business entity, whether through ownership of voting securities or other equity rights or by contract relating to voting rights or corporate governance or otherwise, or (ii) to own, directly or indirectly, more than [**] of the outstanding voting securities or other ownership interest of such corporation or other business entity.  For purposes of this Agreement, as of the Effective Date, ARIAD SWISSCO and ARIAD US are no longer Affiliates of one another.

1.5   “Agreement” has the meaning set forth in the Preamble.

1.6   “Alliance Manager” has the meaning set forth in Section4.6.

1.7   “Ancillary Research” means research other than Basic Research, in the case of ARIAD SWISSCO conducted under the licenses granted to ARIAD SWISSCO pursuant to this Agreement and in the case of ARIAD US, comparable research conducted by ARIAD US, other than in connection with a clinical trial under this Agreement.

1.8   “Anti-Corruption Laws” means all Applicable Laws for the prevention of fraud, kickbacks, bribery, corruption, racketeering, money laundering or terrorism, including the FCPA, each, as amended from time to time.

1.9   “API” means the Compound in the active pharmaceutical ingredient form set forth in the Specifications.

1.10  “Applicable Laws” means the applicable provisions of any and all national, regional, state and local laws, treaties, statutes, rules, regulations, administrative codes, and ordinances, and any and all directives, and orders or administrative decisions of any governmental agency or authority (including Regulatory Authorities) having jurisdiction over or related to the subject matter in question, including Regulatory

2

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CONFIDENTIAL TREATMENT MATERIAL

Requirements, Regulatory Laws, Export Control Laws, and the FCPA and other Anti-Corruption Laws, which are applicable to the subject matter of this Agreement.

1.11  “ARIAD LUXCO” has the meaning set forth in the Recitals.

1.12  “ARIAD SWISSCO” has the meaning set forth in the Preamble.

1.13  “ARIAD SWISSCO Improvements” means Know-how (for purposes of this definition Know-how shall be the Know-how definition without clause (b) thereof and references to ARIAD US therein shall be references to ARIAD SWISSCO) and any associated Intellectual Property Rights arising after the Effective Date and resulting from Development or Manufacturing activity conducted by ARIAD SWISSCO, its Affiliates or Subcontractors but excluding Development Data.

1.14  “ARIAD SWISSCO Trademarks” means any word, name, symbol, color, designation or device or any combination thereof that functions as a source identifier, including any trademark, trade dress, brand mark, service mark, trade name, brand name, logo, business symbol or domain names, whether or not registered, to be used by ARIAD SWISSCO or its Affiliates or its or their respective Sublicensees (as an alternative to the ARIAD US Trademark) and any registrations thereof or any pending applications relating thereto (excluding, in any event, any trademarks, service marks, names or logos that include any corporate name or logo of the Parties or their Affiliates).  The ARIAD SWISSCO Trademarks exclude the ARIAD US Trademarks.

1.15  “ARIAD US” has the meaning set forth in the Preamble.

1.16  “ARIAD US Improvements” means (i) Know How and any associated Intellectual Property Rights arising after the Effective Date and resulting from Development or Manufacturing activity conducted by ARIAD US, its Affiliates or Subcontractors, but excluding Development Data ; and (ii) Know How and any associated Intellectual Property Rights arising after the Effective Date and resulting from the conduct of Basic Research by ARIAD US, its Affiliates or Subcontractors; and (iii) any new technologies Controlled by ARIAD US or its Affiliates and used by them in relation to Product during the Term.

1.17  “ARIAD US Successor” has the meaning set forth in Section 16.1.

1.18  “ARIAD US Trademarks” means any word, name, symbol, color, designation or device or any combination thereof that functions as a source identifier, including any trademark, trade dress, brand mark, service mark, trade name, brand name, logo, business symbol or domain names, whether or not registered, for the Product in the Territory used by ARIAD US for the Product in USA including (a) the trademarks applications and registrations set forth in Appendix 1.18 and (b) all registered and unregistered rights in such trademarks set forth in Appendix 1.18, including all current and future registrations and applications for registration of the same in the Territory and all renewals and extensions thereto, in each case that are Controlled by ARIAD US or its Affiliates.

1.19  “Basic Research” means research on the Compound’s [**] and all other research the objective of which is a product [**] from the Product.

3

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CONFIDENTIAL TREATMENT MATERIAL

1.20  “BCR-ABL” means the chromosomal translocation designated as t(9;22)(q34;q11) in the International System for Human Cytogenetic Nomenclature (or a mutated or modified form thereof). 

1.21  “BCR-ABL Inhibitor Compound” means any compound that inhibits BCR-ABL with an [**] (measured as average [**] at an ATP concentration equal to the Km for [**] in an enzyme assay when assayed [**] using the assay method set forth in [**].  

1.22  “Breaching Party” has the meaning set forth in Section 26.1.

1.23  “Business Day” means a day other than a Saturday or Sunday or any public holiday in the United States or Switzerland or any other day on which banks are required or authorized by Applicable Law to be closed in the United States or Switzerland.

1.24    “Business Entity” means any corporation, general or limited partnership, trust, joint venture, unincorporated organization, limited liability entity or other entity.

1.25  “Buy-Back Option” has the meaning set forth in Section 16.1.

1.26  “Buy-In License Agreement” has the meaning set forth in the Recitals.

1.27  “CDA” means the Confidential Disclosure Agreement by and between ARIAD US and Incyte Corporation dated January 19, 2016.

1.28  “cGMP” means all Applicable Laws, guidance, directives, standards, practices and procedures relating to the Manufacture of Compound or Product, including (i) the U.S. Code of Federal Regulations and FDA’s guidance documents, and all successor applicable regulations and guidance documents thereto, (ii) the EUDRALEX Vol. 4 “Medicinals for Human and Veterinary Use: Good Manufacturing Practice”, in particular Part II “Basic Requirements for Active Substances used as Starting Materials” (03 October 2005), and applicable Annexes to Vol.4, and (iii) the ICH (International Conference on Harmonisation of Technical Requirements for the Registration of Pharmaceuticals for Human Use) guidelines, including without limitation, ICH Q7A "ICH Good Manufacturing Practice Guide for Active Pharmaceutical Ingredients.

1.29  “Change of Control” means in respect of a Party the occurrence after the Effective Date of any of the following: (i) the sale, conveyance or disposition, in one or a series of related transactions, of all or substantially all of the assets of such Party to a Third Party that is not an Affiliate of such Party prior to such transaction or the first of such related transactions; (ii) the consolidation, merger or other business combination of ARIAD US with or into any other Business Entity, immediately following which the then-current stockholders of the Party, as such, fail to own in the aggregate at least Majority Voting Power of the surviving Party in such consolidation, merger or business combination or of its ultimate publicly-traded parent Business Entity; or (iii) a transaction or series of transactions in which any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) acquires Majority Voting Power of such Party (other than (a) a reincorporation or similar corporate transaction in which each of such Party’s stockholders owns, immediately thereafter, interests in the new parent company in substantially the same percentage as such stockholder

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owned in such Party immediately prior to such transaction, or (b) in connection with a transaction described in (ii), which shall be governed by such (ii)), For the Purposes of this definition “Majority Voting Power” means a majority of the ordinary voting power in the election of directors or a majority of all the outstanding voting securities of the resulting Business Entity or of the Party, respectively.

1.30  “Claim Notice” has the meaning set forth in Section22.3.1.

1.31  “Closing” has the meaning set forth in the Share Purchase Agreement.

1.32  “CML” means chronic myeloid leukemia.

1.33  “Combination Product” means a Product that is comprised of or contains Compound as an active ingredient together with one (1) or more other active ingredients and is sold either as a fixed dose or as separate doses in one (1) product.

1.34  “Commercialize” means all activities directed to importing (into, or within, the Territory), exporting (to or within the Territory), storing, marketing, promoting, selling, offering for sale and distributing the Product in the Territory. “Commercializes,” “Commercialized,” “Commercialization” and other forms of the word “Commercialize” shall have the correlative meaning.  For clarity, “Commercialize” excludes Manufacture.

1.35  “Commercialization Plan” means (i) a [**] plan prepared by ARIAD SWISSCO for the Product in the Field in the Territory setting out the Commercialization [**] and activities, in each case for the following calendar year; and (ii) a [**] plan prepared by ARIAD US for the Product in the Field in the Reserved Territory setting out the Commercialization [**] and activities, in each case for the following calendar year. The Commercialization Plan for 2016 is attached at [**], it being understood that the contents of future Commercialization Plans shall be in accordance with this Section 1.35 without regard to [**].  

1.36  “Commercially Reasonable Efforts” means, in respect of ARIAD SWISSCO, [**] and in respect of ARIAD US, [**], in each case, to [**] and [**] a  [**] such party or [**], which [**] is [**] or [**] and is [**] taking into account [**] and other relevant factors.

1.37  “Competitive Product” means any pharmaceutical product (other than a Product, but including a generic version of the Product) that is a [**] other than an Excluded Compound.

1.38  “Compliance Event” has the meaning set forth in Section 21.5.

1.39  “Composition Patent” means any Patent Controlled by ARIAD US or its Affiliates in the Territory that contains a Valid Claim that covers the Product and/or Compound. 

1.40  “Compound” means the active pharmaceutical ingredient known as ponatinib having the structure set forth on Appendix 1.40, and any metabolite, salt, ester, hydrate, solvate, isomer, enantiomer, free acid form, free base form, crystalline form, co-crystalline form, amorphous form, pro-drug (including ester pro-drug) form,

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racemate, polymorph, chelate, stereoisomer, tautomer, or optically active form of any of the foregoing, including crystalline ponatinib monohydrochloride. 

1.41  “Confidential Information” has the meaning set forth in Section 24.1.

1.42  “Control” (including any variations such as “Controlled” and “Controlling”) means, with respect to any item of Know-how, Regulatory Documentation, material, Patent, or other Intellectual Property Right, the possession of the right, whether directly or indirectly, and whether by ownership, license or otherwise (other than by operation of the license granted under this Agreement), to grant a license, sublicense or other right (including the right to reference Regulatory Documentation) to or under such Know-how, Regulatory Documentation, material, Patent, or other Intellectual Property Right as provided for herein without violating the terms of any then-existing agreement with any Third Party; provided, that Intellectual Property Rights of an acquirer of a Party or its Affiliates in existence prior to the acquisition date, or developed after the acquisition date solely by such acquirer without use of or reference to such Party’s preexisting Know-how, Regulatory Documentation, material, Patent, or other Intellectual Property Right and without contribution from employees of a Party or its Affiliates other than the acquirer, shall not be deemed to be “Controlled” by such Party or Affiliate.

1.43  “Cost of Manufacture” means in relation to any aspect of the Manufacture either (i) Direct Cost and Indirect Cost where the Party is undertaking the manufacture; or (ii) Third Party Manufacturing Costs where a Party has appointed a contract manufacturing organization or toll manufacturer.

1.44  “CRO” means a contract research organization to which certain Development services are contracted.

1.45  “CSA Agreement” has the meaning set forth in the Recitals.

1.46  “CSR” means a written clinical study report containing the results of an Ongoing Study or other clinical study, as applicable.

1.47  “CSR Payment” has the meaning set forth in Section 5.3.1.

1.48  “Current Manufacturing Process” has the meaning set forth in Section 6.2.

1.49  “Customer” means any entity or person that is authorized to purchase and dispense or sell the Product in the Territory under Applicable Law.

1.50  “Data Protection Laws” has the meaning set forth in Section 21.4.

1.51  “Default Notice” has the meaning set forth in Section 26.1.

1.52  “Defending Party” has the meaning set forth in Section 23.5.1.

1.53  “Delivery” has the meaning set forth in Section 11.1.3.

1.54  “Delivery Documents” means those documents specified and listed as such in the Interim Quality Agreement

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1.55  “Development” and “Develop” means the conduct of Pre-clinical Research, test method development and stability testing, process development, manufacturing scale-up, qualification and validation, quality assurance/quality control, any clinical studies carried out in relation to the Product leading to a Marketing Authorization or an extension of such Marketing Authorization, including Manufacturing in support thereof, statistical analysis and report writing, the preparation and submission of Registrations, regulatory affairs with respect to the foregoing and all other activities necessary or reasonably useful or otherwise requested or required by a Regulatory Authority as a condition to or in support of obtaining or maintaining a Registration.  For clarity, Development does not include Basic Research.

1.56    “Development Costs” means the costs and expenses associated with Development activities and shall include, unless stated otherwise, [**] [**] and [**].

1.57  “Development Data” means data resulting from Development activity being Pre-clinical Research or clinical studies.

1.58  “Development Register” has the meaning set forth in Section 5.1.

1.59  “Development Territory” means the Reserved Territory less [**]

1.60  “Developing Party” means the Party conducting  or proposing to conduct the applicable clinical study itself or through its Affiliates, Sublicensees or Third Parties.

1.61  “Direct Costs” include direct labor costs, based on actual hours consumed by personnel charged at an average hourly wage rate which is designed to approximate actual cost for each employee’s position and direct labor fringe benefit costs, including compensation expense (other than direct labor costs already included), payroll taxes and benefits allocated based on a proportionate percentage of direct labor costs charged to Development or Manufacture (including Manufacturing Technology Transfer) of the Product (as the case may be) in comparison to all development or manufacturing activity undertaken during the period.

1.62  “Distribution Agreements” means the existing Distribution Agreements entered into as of the Effective Date in respect of the Commercialization of the Product in the Territory, a list of which is set out in Appendix 1.62 to this Agreement and any additional distribution agreements entered into by ARIAD SWISSCO or its Affiliates in respect of the Commercialization of the Product during the Term.

1.63  “Distribution Agreement Milestone Payments” means any and all outstanding milestone payments [**] under Article 13.2 of the [**] between [**]

1.64  “Drug Product” means Product in bulk finished (not labeled or packaged) form.

1.65  “Effective Date” has the meaning set forth in the Preamble.

1.66  “Escalation Notice” has the meaning set forth in Section 5.6.

1.67  “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

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1.68  “Excluded Compound” means a (i) [**] that is [**] or more potent on the enzyme for that compound’s primary (biologically relevant) target compared to BCR-ABL where the selectivity is assessed by the relative IC50s in enzyme assays conducted at [**] ATP for each of the two kinases (i.e. BCR-ABL and the primary target kinase of interest) or (ii) a BCR-ABL Inhibitor Compound that is more potent with respect to a target other than BCR-ABL and is not being developed as an inhibitor of BCR-ABL or for an indication for which there is an active Development program ongoing with the Product or for which the Product is then being Commercialized. 

1.69  “Export Control Laws” means all applicable U.S. laws and regulations relating to (a) economic and trade sanctions and embargoes imposed by the Office of Foreign Assets Control of the U.S. Department of Treasury or (b) the export or re-export of commodities, technologies, or services, including the Export Administration Act of 1979, 24 U.S.C. §§ 2401-2420, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-1706, the International Traffic in Arms Regulations, 22 C.F.R. parts 120-130, the Trading with the Enemy Act, 50 U.S.C. §§ 1 et. seq., the Arms Export Control Act, 22 U.S.C. §§ 2778 and 2779, and the International Boycott Provisions of Section 999 of the U.S. Internal Revenue Code of 1986 (as amended) or such equivalent laws of any other country.

1.70  “FCPA” means the U.S. Foreign Corrupt Practices Act (15 U.S.C. Section78dd-1, et. seq.) as amended.

1.71  “FDA” means the U.S. Food and Drug Administration.

1.72  “Field” means the diagnosis, treatment and prevention of all diseases in humans. 

1.73  “Final Manufacturing” means all activities occurring anywhere in the world required to prepare the Product for commercial sale in the Territory, including secondary packaging and labeling with the approved packaging and label for the country in the Territory in which it is to be sold; stability or other testing; quality control; and release of the Product for sale in the Territory. 

1.74  “First Commercial Sale” means the first sale to a Third Party of Product for use or consumption by an end-user in the Field in a given country in the Territory after all aspects of Registration have been obtained in such country.  A First Commercial Sale shall not include a sale of Product for use in clinical trials, for research or for other non-commercial uses, or supply of Product as part of a Named Patient Program or similar program.

1.75  “Forecast” has the meaning set forth in Section 10.3.

1.76  “Full Royalty Term” means, on a country-by-country basis within the Territory, the period from the Effective Date expiring on the later of (i) the expiry date (including the expiry of any patent term extensions, supplementary protection certificates or pediatric extensions) of the Composition Patent in such country or (ii) the expiration of any regulatory marketing exclusivity period or other statutory designation that provides similar exclusivity for the Commercialization of the Product in such country, or (iii) seven (7) years after the date of First Commercial Sale in such country.

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1.77  “Generic Product” means in any particular country any Third Party product that contains Compound and either (i) for which equivalence with Product has been demonstrated to the satisfaction of the Regulatory Authority in that country or which can be substituted for Product by a dispenser or (ii) which is approved in reliance, in whole or in part, on the prior approval (or on safety or efficacy data submitted in support of the prior approval) of such Product as determined by the applicable Regulatory Authority.

1.78  “Global Product Positioning” has the meaning set forth in Section 15.3.

1.79  “Global Study(ies)” means a multi-centre clinical trial carried out at clinical research sites located both in the Territory and in the Development Territory.

1.80  “Global Third Party License” has the meaning set forth in Section 23.6.2(a).

1.81  “Government Official” means (a) any officer or employee of a government or any department, agency or instrumentality of a government; (b) any person acting in an official capacity for or on behalf of a government or any department, agency, or instrumentality of a government; (c) any officer or employee of a company or business owned or controlled by a government; (d) any officer or employee or person acting in an official capacity for or on behalf of a public international organization or any department, agency, or instrumentality of such public international organization such as the World Bank or United Nations; (e) any political party or official thereof; and/or (f) any candidate for political office.

1.82  “Healthcare Professional” means any member of the medical, pharmacy or nursing professions or any other person who in the course of his or her professional activities may prescribe, administer or dispense to an end-user a medicinal product.

1.83  “IC50” means the half maximal inhibitory concentration. 

1.84  “Incyte Corporation” has the meaning set forth in the Preamble.

1.85  “Incyte Europe” has the meaning set forth in the Recitals.

1.86  “IND” means an investigational new drug application filed with, and accepted by, the FDA prior to beginning clinical trials in humans in the US, or any comparable application to and acceptance by the Regulatory Authority of a country or group of countries other than the US including a request for authorization of clinical trial to be conducted in the Territory made to EMA.

1.87  “Indemnified Party” has the meaning set forth in Section 22.3.1.

1.88  “Indemnifying Party” has the meaning set forth in Section22.3.1.

1.89  “Indirect Costs” include (i) within Development or Manufacture or Manufacturing Technology Transfer (as the case may be), facility and occupancy costs for development personnel, such cost to be allocated pro-rata to the percent occupancy represented by development personnel on the overall facility and (ii) the cost of allocable overhead, being an amount added to an item of cost to reflect central or other overhead costs incurred by a Party being such costs normally allocated by such

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Party to its departments or project groups based on space occupied or headcount or other activity based method, consistently applied in accordance with US GAAP.

1.90  “Industry Guidelines” means voluntary industry codes or guidelines to which a Party has publically stated it adheres as of the Effective Date, or subsequently during the Term (as such codes or guidelines are revised from time to time by their promulgating organization).

1.91  “Inferiority” means the circumstance in relation to the results of the [**] where [**] has been demonstrated to be [**] to either ponatinib dosing arm of the study (according to the [**]).

1.92  “Intellectual Property Rights” means all rights in, to and under patents, trademarks, copyrights, databases, data, domain names, inventions, trade secrets and confidential information, and all other intellectual or industrial property and other analogous proprietary rights throughout the world.

1.93  “Interim Quality Agreement” has the meaning set out in Section 13.1.

1.94  “IST” means an investigator sponsored clinical trial.

1.95  “JCC” has the meaning set forth in Section 4.4.

1.96  “JSC” has the meaning set forth in Section 4.1.

1.97  “Know-how” means all information regarding the Compound or Product, including documentation, processes, data and other information, and further including (a) all information on file with any competent Regulatory Authority in support of a Marketing Authorization; and (b) ARIAD US Improvements, which information and ARIAD US Improvements are Controlled by ARIAD US or its Affiliates as of the Effective Date or at any time during the Term.  Know-how includes all unpatented Intellectual Property Rights licensed to ARIAD US pursuant to a Global Third Party License.

1.98  “Knowledge” shall mean, with respect to a fact or matter, that the applicable Party’s [**] employee directly responsible for such fact or matter is [**] of such fact or matter [**] with respect to such fact or matter of the persons directly reporting to him or her.  “Known” has a correlative meaning.

1.99  “Labeled Bottles” means Drug Product in labeled bottle form as set forth in the Specifications.

1.100 “Label Payment” has the meaning set forth in Section 5.3.1.

1.101 “Latent Defect” means a Non-Conformance that is not discoverable or actually discovered upon reasonable visual inspection performed pursuant to Section 11.2.1, but that is discovered at a later time (e.g., a failure to comply with the shelf-life set forth in the Specification that is identified as a result of long-term stability studies conducted by ARIAD US or its Affiliates or a Third Party authorized by ARIAD US or its Affiliates).

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1.102 “Liability” means any liability or obligation, whether known or unknown, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, due or to become due.

1.103 “Loan Agreement” has the meaning set forth in the Recitals.

1.104 “Local Currencies” means the currency used in each of the respective countries in the Territory.

1.105 “Losses” has the meaning set forth in Section 22.1.

1.106 “MAH” means the Marketing Authorization holder for the Product in each country in the Territory. 

1.107   “Manufacture” means, as applicable, Final Manufacturing and the manufacturing of the Product up to and including Drug Product in Unlabeled Bottles or blister packages, and all activities related to such manufacturing of Product, or any ingredient thereof, either directly or through a contract manufacturer, including in-process and semi-finished Product testing, ongoing stability tests and regulatory activities related to any of the foregoing. “Manufactured” or “Manufacturing” and other forms of the word “Manufacture” shall have correlative meaning. 

1.108 “Manufacturing Process” has the meaning set forth in Section 12.3.

1.109 “Manufacturing Technology Transfer” has the meaning set forth in Section 6.2.

1.110 “Marketing Authorization” means a marketing authorization for the Product granted by the European Medicines Agency or by any other Regulatory Authority.

1.111   “Named Patient Program” means a compassionate use, named patient use, or similar program for the supply of the Product in the Field in the Territory prior to obtainment of Registrations, to the extent permitted by and in accordance with Applicable Laws.

1.112 “Net Sales” means, with respect to a Product, the [**] by ARIAD SWISSCO, its Affiliates or its Sublicensees for such Product in the Field in the Territory to [**] (such [**], including, for the purposes of this definition, the [**] under (x) the [**] and (y) any [**] where [**] is [**] of such Product to [**],  in each case of (x) or (y) which [**] less the following deductions relating to sales of the Product:

(a)[**] and/or other [**] and [**] with respect to such sales;

(b)[**] [**] [**] or other [**] and paid with respect to the [**] of such Product [**]

(c)the amount of [**] and amounts [**] by reason of [**];  

(d)charges for [**] directly related to the [**], to the extent not already deducted or excluded from the gross amount invoiced; and

(e)[**] payable to any [**]

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(f)any other similar and customary deductions that are consistent with US GAAP (not including bad debt).

Notwithstanding the foregoing, no [**], or any similar amount, however designated, that is given or associated with the purchase by [**] of any product or service in addition to the Products shall be [**] allocated to the Product.

Such amounts invoiced and such deductions shall be determined from the books and records of ARIAD SWISSCO and its Sublicensees maintained in accordance with US GAAP, consistently applied throughout such party’s organization.

In the case of any sale of such Product for consideration other than (or in addition to) cash, such as barter or countertrade, Net Sales shall be calculated on the [**] of the [**] received.

In the case of a sale under [**] by [**] to a [**] that is a [**] for purposes of this definition of Net Sales, Net Sales will be based on the [**] of Product; provided, however, that if the royalty payable based on such [**] to ARIAD US is less than [**] of the royalty that would be applicable under this Agreement if the Net Sales had been by [**] or [**], then any other consideration received by [**] or [**] under such [**], such as upfront or milestone payments (and not legitimate compensation for other services or products) will be included in Net Sales on an equitable pro-rata basis. 

If such Product is sold to any [**] together with other products or services, the price of such Product, solely for purposes of the calculation of Net Sales, shall be deemed to be no less than the price at which such Product would be [**] to a [**] not also [**].

The Net Sales of any Combination Product:

(x)for which the [**] and other [**] of such Combination Product are sold separately by ARIAD SWISSCO, or any of its Affiliates or their Sublicensees, or the relevant Third Party, in such country, then Net Sales for such Combination Product in such country shall be calculated by multiplying [**] of such Combination Product in such country by the fraction A/(A+B), where A is [**];

(y)for which the other [**] in the Combination Product is/are not sold separately by ARIAD SWISSCO or any of its Affiliates or their Sublicensees or the relevant Third Party, in such country, then Net Sales for such Combination Product in such country shall be calculated by multiplying [**] of such Combination Product in such country by the fraction A/D, where A is the [**], and D is the [**]; and

(z)for which neither clause (x) nor clause (y) above is applicable, the Parties shall determine Net Sales for such Combination Product in such country by [**] based on the [**] and the [**] in the Combination Product.

1.113 “New Indication” means any indication in the Field, being any disease, condition or syndrome other than CML or Philadelphia chromosome positive ALL.  For clarity, new lines of therapy within an already approved indication or for another subset of patients within an already approved indication (e.g., pediatric Ph+ ALL) would not qualify as a New Indication.

1.114 “Non-Breaching Party” has the meaning set forth in Section 26.1.

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1.115 “Non-Conformance” means a failure of the Product supplied hereunder to comply with any of the Product warranties set forth in Section 20.1.5.  For clarity, a Latent Defect is an instance of Non-Conformance. The adjective “Non-Conforming” shall have the correlative meaning. “Non-Conformance” does not include damage caused to Products caused by actions of or on behalf of ARIAD SWISSCO following Delivery by ARIAD US to ARIAD SWISSCO, including Manufacture, where applicable.

1.116 “Non-Developing Party” means the Party that is not the Developing Party.

1.117 “Non-Inferiority” means the circumstance in relation to the results of the [**] where neither [**] nor [**] has been demonstrated.

1.118 “Notified Party” has the meaning set forth in Section 21.5.

1.119 “Notifying Party” has the meaning set forth in Section 21.5.

1.120 “Objection Notice” has the meaning set forth in Section11.2.2.

1.121 “OMNI Study” means the postmarketing observational study to evaluate the incidence and risk factors for vascular occlusive events associated with Iclusig®

1.122 “Ongoing Studies” means the OPTIC Clinical Trial, OPTIC-2L Clinical Trial and OMNI Study each of which were started prior to the Effective Date and are scheduled to be completed after the Effective Date.

1.123 “Ongoing Studies Budget” has the meaning set forth in Section 5.3.1

1.124 “OPTIC Clinical Trial” means the Phase 2 dose-ranging OPTIC (Optimizing Ponatinib Treatment in CML) trial being conducted by ARIAD US in respect of the Product as at the Effective Date.

1.125 “OPTIC 2L Clinical Trial” means the randomized Phase 3 OPTIC 2L (Optimizing Ponatinib Treatment in CML, Second Line) trial versus nilotinib being conducted by ARIAD US in respect of the Product as at the Effective Date.

1.126 “Party” has the meaning set forth in the Preamble.

1.127 “Payment” has the meaning set forth in Section 19.7.

1.128 “Patents” means (a) all patents and patent applications that are Controlled by ARIAD US or its Affiliates as of the Effective Date and at any time during the Term that are necessary or useful (or, with respect to patent applications, would be necessary or useful if such patent applications were to issue as patents), a list of which as at the Effective Date is included in Appendix 1.128 hereto, or are licensed to ARIAD US pursuant to a Global Third Party License; (b) all patents issuing from the applications in subsection (a); (c) any additions, divisions, continuations, continuations-in-part, counterparts, amendments, amalgamations, reissues and re-examinations of such applications or patents; (d) any confirmation, importation and registration patents thereof; and (e) any extensions and renewals of all such patents and patent applications in whatever legal form and by whatever legal title they are granted. 

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1.129 “PDL Agreements” mean the (i) Revenue Interest Assignment Agreement between ARIAD US and PDL BioPharma, Inc., dated July 28, 2015, and (ii) the Security Agreement among ARIAD US, ARIAD Pharma Ltd. and PDL BioPharma, Inc., dated July 28, 2015, in each case as amended in connection with this Agreement. 

1.130 “Pharmacovigilance Agreement” has the meaning set forth in Section9.4.

1.131 “Pre-clinical Research” means (i) research preparatory to the filing of an IND to conduct clinical studies including studies on the toxicological, pharmacological, metabolic or clinical aspects of the Product and testing in-vivo in animal models in relation to a New Indication, a line extension of an existing approved indication, or a Global Study or a Territory-specific study; and (ii) research conducted in relation to a clinical study under this Agreement.  Pre-clinical Research excludes Basic Research.

1.132 “Presentation” means each stock-keeping unit of Product differentiated by dosage strength, bottle count, packaging presentation, and/or country-specific labeling for the Product for which Marketing Authorization has been received in a country in the Territory (e.g., a 60 count bottle of 15mg tablets labeled for a specific country in the Territory).

1.133 “Pricing and Reimbursement Approval” means any official, final, binding and non-appealable determination of the reimbursable price of the Product in accordance with Applicable Laws and approval by relevant Regulatory Authorities pertaining to the reimbursement of the Product, as applicable in each country in the Territory in which a Regulatory Authority approves or determines the price and/or reimbursement of pharmaceutical products.

1.134 “Primary Efficacy Endpoint” has the meaning set forth on Appendix 1.134. 

1.135 “Proceeding” means any (i) Third Party private action, claim or lawsuit (including in arbitration) or (ii) governmental, judicial, administrative or adversarial proceeding, hearing, probe or inquiry brought by any Third Party public entity, including whistleblower complaints.  Proceedings shall not include any action, claim or lawsuit brought by one Party or its Affiliates against the other Party or its Affiliates. 

1.136 “Product” means any pharmaceutical product containing Compound as an active chemical entity in any and all forms, presentations, and dosages

1.137   “Product Withdrawal” means removal of Product from the market in any country  on grounds of public health or safety resulting in discontinuation of all or substantially all distribution of Product in such country.  Product Withdrawal does not include a Recall.

1.138 “Proposed Studies” means the list of clinical studies proposed to be undertaken by ARIAD US in the Territory and the Reserved Territory, the name, protocol synopses for which are as set forth in Appendix 1.138.

1.139 “Protected Personal Information” has the meaning set forth in Section 21.4.

1.140 “Quality Agreement” has the meaning set out in Section 13.1.

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1.141 “Raw Materials” means any raw materials, components, or other ingredients required for the Manufacture of the Drug Product.

1.142 “Recall” means a recall or retrieval of Product on grounds of Non-Conformance, public health or safety which is limited as to lot(s) or batch(es) of Product.

1.143 “Reduced Royalty Term” has the meaning set forth in Section 19.2.2. 

1.144 “Registrations” means (a) Marketing Authorizations, (b) Pricing and Reimbursement Approval, (c) receipt of any license required to import or export Product(s), and (d) any other official license or approval which is legally required to (i) Develop or Manufacture Compound or Product anywhere in the world for purposes of Commercialization in the Field in the Territory or (ii) Commercialize Product in the Field  in the Territory  (e.g., wholesale licenses).

1.145 “Regulatory Authority” means the European Medicines Agency, FDA or any other government agency that is a competent authority for the issuance of any of the Registrations, or any part of them, throughout the Term.

1.146 “Regulatory Documentation” means all letters, correspondence, applications and other documents and information submitted to Regulatory Authorities or received from Regulatory Authorities in writing, including in electronic format, as well as any supporting documentation.

1.147 “Regulatory Laws” means all laws, and all orders, determinations, regulations, licenses and directions made or issued under such laws, in respect of the Registrations, Manufacturing and Commercialization of the Product.

1.148 “Regulatory Requirements” means all licenses, registrations, mandatory standards, conditions, manufacturing principles, directions, orders and determinations in force from time to time set out in the Regulatory Laws and all other Applicable Laws that apply to the manufacture (including Manufacture), supply, packaging, labeling and/or Commercialization of medicinal products.

1.149 “Reserved Territory” shall have the meaning set forth in Section 3.1.

1.150 “Royalty Term” means, with respect to a country in the Territory, the Full Royalty Term and the Reduced Royalty Term, collectively.

1.151 “Safety Improvement” means the circumstance in relation to the results of the [**] where (i) [**]; but (ii) there is at least a [**] reduction in the [**] in either ponatinib arm of the study compared to the rate set forth in [**] for the Product as of the Effective Date (ie [**]).

1.152 “Safety Information” has the meaning set forth in Section 9.5.

1.153 “SEC” means the U.S. Securities and Exchange Commission or any successor agency.

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1.154 “Second Line CML” means the treatment of second line CML (post-imatinib) based on demonstration of the Product’s [**] in the ongoing OPTIC 2L Clinical Trial or any other study sponsored by either ARIAD US or ARIAD SWISSCO.

1.155 “Segregate” means, with respect to a Competitive Product to use Commercially Reasonable Efforts to segregate the Development, Manufacture, and Commercialization activities relating to such Competitive Product from Development, Manufacture, and Commercialization activities for Compounds or Products under this Agreement, including using Commercially Reasonable Efforts to ensure that: (i) no personnel involved in performing the Development, Manufacture, or Commercialization of such Competitive Product have access to non-public plans or non-public information relating to the Development, Manufacture, or Commercialization of Compounds or Products or any other Confidential Information of the applicable Party; and (ii) no personnel involved in performing the Development, Manufacture, or Commercialization of Compounds or Products have access to non-public plans or information relating to the Development, Manufacture, or Commercialization of such Competitive Product; provided, that, in either case of (i) or (ii), senior management personnel may review and evaluate plans and information regarding the Development, Manufacture, and Commercialization of such Competitive Product, solely in connection with portfolio decision-making among product opportunities.

1.156 “Senior Officer” means, (i) with respect to ARIAD US, its Chief Executive Officer, and (ii) with respect to ARIAD SWISSCO, the Chief Executive Officer of Incyte Corporation.

1.157 “Specifications” means the specifications for the Product in Unlabeled Bottle or API form, as applicable, as defined by the Parties and incorporated into the Interim Quality Agreement and future Quality Agreements, together with changes to such specifications made in accordance with Section 12.3.

1.158 “Share Purchase Agreement” has the meaning set forth in the Recitals.

1.159 “Sublicensee” means any Affiliate of ARIAD SWISSCO or Third Party appointed by ARIAD SWISSCO as a sublicensee under this Agreement in accordance with the terms of this Agreement.

1.160 “Subcontractor” means a Third Party appointed by ARIAD SWISSCO, subject to Section 2.3, to perform activities under this Agreement on behalf of ARIAD SWISSCO.  For clarity, a Subcontractor does not include a Sublicensee.

1.161 “Superiority” has the meaning set forth on Appendix 1.161.

1.162 “Supply Agreement” has the meaning set forth in Section10.1.

1.163 “Target Enrollment” has the meaning set forth in Section 5.3.2.

1.164 “Taxes” has the meaning set forth in Section19.7.  The terms “Taxable” and “Tax” have correlative meanings.

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1.165 “Term” means the period beginning on the Effective Date and continuing unless and until terminated in accordance with its terms.

1.166   “Termination Notice” has the meaning set forth in Section 16.1.

1.167 “Territory” means the area within the geographic boundaries as set forth in Appendix 1.167.  Appendix 1.167 sets forth the status of Product in the Territory as of the Effective Date.

1.168   “Territory-Only Third Party License” has the meaning set forth in Section 23.6.1.

1.169 “Third Party” means any Person other than ARIAD US, ARIAD SWISSCO and their respective Affiliates. For purposes of this definition, “Person” means any (i) natural person, (ii) partnership, company, corporation or other form of business organization or legal entity, and (iii) any governmental or administrative entity. 

1.170 “Third Party Development Costs” mean within Development, the actual invoiced amounts paid by a Party to a CRO, excluding recoverable taxes such as VAT.

1.171 “Third Party Infringement Claim” has the meaning set forth in Section 23.5.1.

1.172 “Third Party License” has the meaning set forth in Section 23.5.6.

1.173 “Third Party Manufacturing Costs” mean within or relating to Manufacture or Manufacturing Technology Transfer, the actual invoiced amounts paid by a Party to a contract manufacturing organization, excluding recoverable taxes such as VAT.

1.174 “Transaction” has the meaning set forth in Section 3.3.2.

1.175 “Transition Back Arrangements” means the arrangements set out in Appendix 1.175.

1.176   “Transitional Supply Arrangements” has the meaning set forth in Section 10.1.

1.177 “Unlabeled Bottles” means Drug Product in unlabeled bottle form as set forth in the Specifications.

1.178 “US GAAP” means generally accepted accounting provisions in force in USA from time to time.

1.179 “Valid Claim” means a claim of an issued and unexpired Patent to the extent such claim has not been revoked, held invalid or unenforceable by a patent office, court or other governmental agency of competent jurisdiction in a final order, from which no further appeal can be taken, and which claim has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue, re-examination or disclaimer or otherwise.

1.180 “Year-End Compensating Payment” has the meaning set forth in Appendix 19.8.2.

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ARTICLE 2 – GRANT OF LICENSES

2.1    Grant of licenses.  

2.1.1           Subject to the terms and conditions of this Agreement, including any reservation of ARIAD US’s rights expressly set forth herein, ARIAD US hereby grants to ARIAD SWISSCO, and ARIAD SWISSCO hereby accepts, an exclusive (even as to ARIAD US and its Affiliates, except in the case of clause (i) below), perpetual, license under the Patents, the Know-how, the ARIAD US Trademarks and any other Intellectual Property Rights of ARIAD US and its Affiliates in and to the Compound or Product to (i) conduct Ancillary Research anywhere in the world, (ii) Develop Product in the Territory (subject to ARIAD US’s rights to Develop under Sections 5.3, 5.4 and 5.7) and, in connection with a Global Study, in the Development Territory, (ii) Manufacture Product anywhere in the world for purposes of Commercialization in the Field in the Territory, and (iv) Commercialize Product in the Field in the Territory, in each case in accordance with the terms of this Agreement. 

2.1.2           Subject to the terms and conditions of this Agreement, including any reservation of ARIAD US’s rights expressly set forth herein (including payment for use of Development Data as required under Sections 5.5, 5.7.3 and 5.9), ARIAD US hereby grants to ARIAD SWISSCO, and ARIAD SWISSCO hereby accepts, an exclusive (even as to ARIAD US and its Affiliates, except in the case of clause (i) below) license and right of reference under the Registrations and all other Regulatory Documentation that ARIAD US or its Affiliates may Control with respect to the Compound orProduct as necessary for ARIAD SWISSCO to (i) [**] anywhere in the world, (ii) Develop Product in the Territory (subject to ARIAD US’s rights to Develop under Sections 5.3, 5.4 and 5.7) and, in connection with a Global Study, in the Development Territory, (iii) Manufacture Product anywhere in the world for purposes of Commercialization in the Field in the Territory, and (iv) Commercialize Product in the Field  in the Territory.  ARIAD US shall sign, and shall cause its Affiliates to sign, any documents or instruments requested by ARIAD SWISSCO in order to effectuate the foregoing grant and enable ARIAD SWISSCO to exercise its rights under this Agreement.

2.1.3           The licenses set forth in Section 2.1.1 and 2.1.2 shall be sublicensable through multiple tiers by ARIAD SWISSCO without ARIAD US’s consent except where the applicable Sublicense is to be granted in respect of the Commercialization of the Product in all or substantially all of the countries within the Territory, such consent not to be unreasonably withheld, conditioned or delayed [**]). Prior to the grant of any such sublicense ARIAD SWISSCO shall give ARIAD US not less than [**] of the intent to enter into such a sublicense, of the identity of the proposed sublicensee and seeking consent and ARIAD US shall have the right to grant or not grant such consent in its sole discretion; provided, however, that if ARIAD US does not provide written notice that it does not consent within [**] of receipt of notice from ARIAD SWISSCO, such consent shall be deemed

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given. ARIAD SWISSCO shall be liable for all acts or omissions of its Sublicensees in connection with this Agreement.  Any act or omission by any Sublicensee that would constitute a breach of this Agreement if done, or omitted to be done, by ARIAD SWISSCO, shall be deemed to be a breach of this Agreement by ARIAD SWISSCO.  Any Sublicense shall contain a provision that it shall be assignable to ARIAD US in the event of termination of this Agreement.

2.2    ARIAD US and its Affiliates agree that they shall not, and they shall not appoint any Third Party (i) to [**] in the Territory other than pursuant to Sections 5.3, 5.4 and 5.7) or in connection with a [**]; or (ii) [**] (other than for purposes of supplying to ARIAD SWISSCO pursuant to this Agreement or the Supply Agreement) anywhere in the world if it is intended for Commercialization in the Territory or (iii) to [**] the [**] or Product in the Territory or (iv) otherwise in contravention of the licenses set forth in Section 2.1.1. Other than the Distribution Agreements, as at the Effective Date no rights to develop, [**] or [**] the Product has been granted to Third Parties for the Territory. 

2.3    ARIAD SWISSCO shall be entitled to engage Subcontractors with respect to the performance of its rights under Section 2.1 without ARIAD US’ consent provided that such sub-contract shall be assignable to ARIAD US in the event of termination of this Agreement.

ARTICLE 3 – RESERVED TERRITORIES AND NON-COMPETITION

3.1    Development of the Compound and/or Product for and Commercialization of the Product in all countries other than those in the Territory (the “Reserved Territory”) are reserved exclusively to ARIAD US or its Affiliates, or to Third Parties appointed by ARIAD US or its Affiliates, as the case may be.  In consideration of the licenses granted to ARIAD SWISSCO by ARIAD US under Section2.1, ARIAD SWISSCO shall refrain from [**] in the Reserved Territory and/or (ii) [**] to Customers located in any country within the Reserved Territory or to Third Parties with the knowledge that such Third Party may be intending to sell the Product into the Reserved Territory. Without limiting the foregoing, ARIAD SWISSCO shall use Commercially Reasonable Efforts to refrain from the following activities solely with respect to the Product, except for permitted activities under this Agreement:

(a)sales or marketing visits or details in the Reserved Territory;

(b)direct mail, including the sending of unsolicited e-mails, to persons or entities located in the Reserved Territory;

(c)advertising in media, on the internet or other promotions, where such advertising or promotion is specifically targeted at potential purchasers in the Reserved Territory;

(d)online advertisements addressed to potential purchasers in the Reserved Territory and other efforts specifically designed to be found by potential purchasers in the Reserved Territory, including the use of in the Reserved Territory based banners on Third Party websites and paying a search engine or

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online advertisement provider to have advertisements or higher search rankings displayed specifically to potential purchasers outside in the Reserved Territory; and

(e)advertising or promotion in any form, or translation of ARIAD SWISSCO’s website into a language other than an official language of any country forming part of the Territory, that in each case ARIAD SWISSCO would not reasonably carry out but for the likelihood that it will reach potential Customers in countries in the Reserved Territory.

Notwithstanding the foregoing, if an activity is occurring as of the Effective Date, it shall not be a breach of this Section 3.1 if it continues after the Effective Date.

3.2    For purposes of clarity, Development of the Compound and/or Product for and Commercialization of the Product in the Territory are reserved exclusively to ARIAD SWISSCO or its Affiliates, or to Third Parties appointed by ARIAD SWISSCO or its Affiliates, as the case may be.  ARIAD US shall refrain from (i) [**] and/or (ii) [**]to Customers located in any country within the Territory or to Third Parties [**]. Without limiting the foregoing, ARIAD US shall use Commercially Reasonable Efforts to refrain from the following activities solely with respect to the Compound and Product, except for permitted activities under this Agreement:

(a)sales or marketing visits or details in the Territory;

(b)direct mail, including the sending of unsolicited e-mails, to persons or entities located in the Territory;

(c)advertising in media, on the internet or other promotions, where such advertising or promotion is specifically targeted at potential purchasers in the Territory;

(d)online advertisements addressed to potential purchasers in the Territory and other efforts specifically designed to be found by potential purchasers in the Territory, including the use of in the Territory based banners on Third Party websites and paying a search engine or online advertisement provider to have advertisements or higher search rankings displayed specifically to potential purchasers outside in the Territory; and

(e)advertising or promotion in any form, or translation of ARIAD US’ website into a language other than an official language of any country forming part of the Reserved Territory, that in each case ARIAD US would not reasonably carry out but for the likelihood that it will reach potential Customers in countries in the Territory.

3.3    Competitive Product.

3.3.1           As of the Effective Date and for [**] thereafter, neither Party nor its Affiliates shall research (other than [**], which may be conducted worldwide), develop, register, file for registration, manufacture, purchase, sell, promote, distribute, commercialize or otherwise exploit any Competitive Product in the Field anywhere in the Territory nor enable or

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authorize any Third Party to do so.  The foregoing shall not preclude either Party from conducting research related to [**] that are not [**]; provided that any such research shall not continue should such [**] become [**].

3.3.2           Notwithstanding Section 3.3.1, if a Party or any of its Affiliates, either as a result of a merger, acquisition, change of control or similar transaction (including an acquisition of assets) (the “Transaction”) acquires (such Party being referred to as the “Acquiring Party”) or is acquired (such Party being referred to as the “Acquired Party”) by or otherwise merges with an entity that owns, has a license to, or a right to distribute, a Competitive Product that would otherwise result in a violation of Section 3.3.1, then the following shall apply:

(a)The Acquiring Party shall (i) promptly, and in any event no later than [**] following the date of the Transaction, notify the other Party in writing of the Transaction and the Competitive Product, (ii) promptly [**] the Competitive Product, and (iii) divest, or cause its relevant Affiliate to divest, all rights (including distribution rights) to the Competitive Product in accordance with this Section 3.3.2.  The Acquiring Party shall promptly, and in any event no later than [**] following the date of the Transaction, notify the other Party that it or its Affiliate, as the case may be, intends to undertake good faith efforts to divest the Competitive Product, such divestiture shall be completed within [**] after the date of the Transaction and shall occur by (1) a termination of or an outright sale or assignment to a Third Party of all of the Acquiring Party’s or its Affiliate’s rights and interest in and to the Competitive Product (including all rights under any contract, such as a license or distribution agreement) or (2) an out license arrangement under which the Acquiring Party and its Affiliates have no ongoing involvement in the development or commercialization of the Competitive Product and derive no material ongoing financial return following the effective date of divestiture and no financial benefit tied to sales or success of the divested Competitive Product.  Should such divestiture not have occurred with respect to any country in the Territory within such [**] period, and provided that the Acquiring Party has been using good faith efforts to divest the owned Competitive Product in such country during such [**] period, then the Acquiring Party shall discontinue (and cause its Affiliates to discontinue) developing or commercializing the Competitive Product (i.e., withdraw the Competitive Product and/or the relevant marketing authorization and, to the extent applicable, cease all promotion, marketing and other commercialization activities with respect to the Competitive Product) in such country. 

(b)If the Acquired Party is ARIAD US, it shall (i) promptly, and in any event no later than [**] following the date of the Transaction, notify ARIAD SWISSCO in writing of the Transaction and the Competitive Product, (ii) promptly [**] the Competitive Product, and (iii) either (A) continue such [**] for the remainder of the Term or (B) divest, or cause its relevant Affiliate to divest, all rights (including distribution

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rights) to the Competitive Product in the Territory.  ARIAD US shall promptly, and in any event no later than [**] following the date of the Transaction, notify ARIAD SWISSCO that it or its Affiliate, as the case may be, intends to (x) continue such [**] for the remainder of the Term or (y) undertake good faith efforts to divest the Competitive Product, such divestiture to be completed within [**] after the date of the Transaction and to occur by (1) an outright sale or assignment to a Third Party of all of ARIAD US’s or its Affiliate’s rights and interest in the Territory in and to the Competitive Product (including all rights under any contract, such as a license or distribution agreement), or (2) an out license arrangement.

(c)If the Acquired Party is ARIAD SWISSCO, it shall (i) promptly, and in any event no later than [**] following the date of the Transaction, notify ARIAD US in writing of the Transaction and the Competitive Product, (ii) promptly [**] the Competitive Product, and (iii) divest, or cause its relevant Affiliate to divest, all rights (including distribution rights) to either the Product or the Competitive Product in the Territory.  ARIAD SWISSCO shall promptly, and in any event no later than [**] following the date of the Transaction, notify ARIAD US that it or its Affiliate, as the case may be, intends to undertake good faith efforts to divest either the Product or the Competitive Product, such divestiture to be completed within [**] after the date of the Transaction and to occur by (1) an outright sale or assignment to a Third Party of all of ARIAD SWISSCO’s or its Affiliate’s rights and interest in the Territory in and to the Product or the Competitive Product, as the case may be (including all rights under any contract, such as a license or distribution agreement), or (2) an out license arrangement.

3.4    Nothing in this Agreement shall be construed as prohibiting either Party or any of their respective Affiliates either themselves or through a Third Party from developing or commercializing any Excluded Compound in any field anywhere in the world.

3.5    Nothing in this Agreement shall be construed as giving ARIAD SWISSCO any right to use or otherwise exploit the Know-how, the Patents, the ARIAD US Trademarks, ARIAD US’s other Intellectual Property Rights in the Compound or Product and/or any other information received hereunder for purposes other than to perform ARIAD SWISSCO’s obligations and exercise its rights under this Agreement, including for purposes of meeting its responsibilities as the MAH in the Territory, solely in accordance with the terms and conditions of this Agreement. Except as expressly set forth in this Agreement, neither Party grants to the other Party any right or license to any of its Intellectual Property Rights.

3.6    The Parties acknowledge and agree that the restrictions imposed on and accepted by the Parties in this ARTICLE 3 are restrictions that each Party has independently and unilaterally determined are necessary in order to protect such Party’s Intellectual Property Rights and ensure such Party is able to effectively commit and apply its skills, resources, networks and qualified personnel so that the other Party may comply with and perform its obligations under this Agreement.

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ARTICLE 4 – DEVELOPMENT AND COMMERCIALIZATION COMMITTEES

4.1    Joint Steering Committee.  The Parties shall, within [**] of the Effective Date, establish a Joint Steering Committee (the “JSC”), comprised of three (3) representatives of ARIAD US and three (3) representatives of ARIAD SWISSCO.  The JSC shall be co-chaired by a representative of each of ARIAD US and ARIAD SWISSCO.

4.2    General Responsibilities.  The JSC shall coordinate and monitor progress of the activities taking place under this Agreement. 

4.3    Development-Related Responsibilities.  The JSC shall coordinate, liaise, review and discuss matters related to the Development of the Product in the Territory, the Reserved Territory and the Global Studies to be undertaken in accordance with this Agreement.  Without limitation to the generality of the foregoing, it shall prepare and approve annual (or, if needed, more frequent) updates and revisions to the Development Register, will discuss and attempt to resolve disagreements escalated by any subcommittees or project teams that may be set up from time to time to discuss any specific issues in relation to Development and assume such other responsibilities as are set forth in this Agreement, or as mutually agreed in writing by duly authorized representatives of the Parties from time to time. 

4.4    Commercialization-related Responsibilities. The JSC shall establish a subcommittee called Joint Commercialization Committee (“JCC”) to coordinate the activities of the Parties in connection with Commercialization of the Product in the Territory and the Reserved Territory in accordance with the terms of this Agreement.  Without limitation to the generality of the foregoing, the JSC will discuss and attempt to resolve disagreements escalated by JCC and assume such other responsibilities as are set forth in this Agreement with regard to Commercialization, or as mutually agreed in writing by duly authorized representatives of the Parties from time to time. For clarity, [**] shall be [**], to [**] in the Territory, including the [**] Third Parties with respect to the sale of the Product in the Territory and neither [**] shall have any right to [**]. 

4.5    Committee Administration.

4.5.1           Subcommittees.  The JSC may form subcommittees or project teams as it deems appropriate to fulfill its responsibilities. The Parties intend to establish joint pharmacovigilance (PV) and supply chain subcommittees or project teams as soon as practicable after the Effective Date in order to facilitate discussions and coordination of the Parties’ efforts and activities relating to Product PV and manufacture, supply and quality assurance (including Manufacture) under this Agreement. If a subcommittee or project team cannot reach agreement on any matter within its remit, such matter shall be submitted to the JSC for discussion and resolution prior to any further dispute resolution action being taken.

4.5.2           Changes to Representatives.  A Party may change any one or more of its representatives to the JSC or to a subcommittee or project team at any time upon written notice to the other Party.  The number of representatives

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appointed by each Party to the JSC or to a subcommittee or project team may be modified by mutual agreement of the Parties; provided, that at all times the number of representatives from each Party shall be equal.

4.5.3           Schedule and Minutes.  The representatives of the JSC shall mutually agree on the schedule for meetings, provided that there shall be at least one (1) meeting per calendar quarter.  Either Party may schedule an emergency meeting of the JSC upon reasonable advance written notice to the other Party. A representative of the Party hosting a meeting of the JSC shall serve as secretary of that meeting.  The secretary of the meeting shall prepare and distribute to all members of the JSC: (a) agenda items at least [**] in advance of the applicable meeting and (b) draft minutes of the meeting within [**] following the meeting to allow adequate review and comment.  Such minutes shall provide a description in reasonable detail of the discussions held at the meeting and a list of any actions, decisions or determinations approved by the JSC.  Minutes of the JSC meeting shall be approved or disapproved, and revised as necessary, within [**] after their initial circulation in draft form.  Minutes for any subcommittees shall be prepared in the same manner and in accordance with the same timelines.  The final minutes of any subcommittee shall be provided to the JSC. 

4.5.4           Location and Attendance.  The location of JSC meetings shall alternate between ARIAD US’s principal place of business and ARIAD SWISSCO’s principal place of business, or as otherwise agreed by the Parties.  The JSC may also meet by means of telephone conference call or videoconference, provided that at least one (1) meeting per calendar year shall be held in person.  Each Party shall use reasonable efforts to cause its representatives to attend JSC meetings.  If a Party’s representative to the JSC or any subcommittee is unable to attend a meeting, such Party may designate an alternate to attend such meeting in place of the absent representative.  In addition, each Party may, at its discretion, invite non-voting employees, and, with the consent of the other Party, consultants or scientific advisors, to attend JSC meetings.

4.6    Alliance Managers.  Each Party shall appoint a business representative who possesses a general understanding of the relevant technical, business and legal issues to act as its Alliance Manager (each, an “Alliance Manager”).  The Alliance Managers shall be responsible for creating and maintaining collaborative, efficient and responsive communication within and between the Parties, and for day-to-day management of operational matters other than matters within the remit of the JSC. The Alliance Managers shall have no authority to modify this Agreement or waive any non-compliance with its terms.  Alliance Managers may attend JSC and subcommittee meetings as observers.

4.7    Decision Making Process. 

4.7.1           Development.  For clarity, the veto rights set out in Sections 5.6 and 5.7.2 are to be exercised by the Parties but [**] pursuant to the first sentence of Section 29.2 and are not subject to [**].

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4.7.2           Commercialization.  In the event of any dispute relating to Commercialization of the Product in a Party’s respective territory, the first sentence of Section 29.2 shall apply.  If [**] are not able to agree upon such dispute, [**] shall have the final decision in relation to the Reserved Territory and [**] shall have the final decision in relation to the Territory.

ARTICLE 5 – DEVELOPMENT

5.1Development Liaison. ARIAD US and ARIAD SWISSCO shall use good faith efforts to coordinate and liaise, through the JSC, concerning continued Development of the Product with respect to (i) Development being Global Studies, Ongoing Studies and Proposed Studies and (ii) each Party’s separate plans for Development in its respective territory. Each Party will disclose its Development activities, Ancillary Research activities and Basic Research activities, giving updates at each JSC meeting.  The Proposed Studies and, if a Party does not veto a clinical study under Sections 5.6 or 5.7.2, the clinical studies the subject of (ii), in each case once initiated, shall be listed in a Development register (“Development Register”) maintained by the JSC.  The Development Register shall be updated by the JSC as required to reflect changes and additions to include all new clinical studies performed under this Agreement. As of the Effective Date, the Development Register lists only the Ongoing Studies.

5.2    Registration of the Product in Territory. ARIAD SWISSCO shall, or shall procure that its Sublicensees shall, [**], use Commercially Reasonable Efforts to seek Registration of the Product in the Territory taking into account the countries in which it has not obtained Registration as of the Effective Date. If ARIAD US applies for a Marketing Authorization (or equivalent) of the Product in the U.S. for a New Indication, ARIAD US will disclose full details at the JSC and may request that ARIAD SWISSCO seek Registration of the Product for the New Indication in the Territory using the Development Data provided by ARIAD US (if not already available to ARIAD SWISSCO under the terms of this Agreement. ARIAD SWISSCO will consider such request in good faith, including analyzing the commercial viability of Commercializing the Product with the New Indication in the Territory. ARIAD SWISSCO will share the results of this analysis with JSC. ARIAD US will provide reasonable assistance as appropriate to and requested by ARIAD SWISSCO as it conducts such analysis. The final decision regarding whether to seek registration for such New Indication in the Territory, or at least some countries of the Territory, shall be in [**] sole discretion.

5.3    Ongoing Studies.

5.3.1           ARIAD US shall be responsible for the conduct of the Ongoing Studies.  For clarity, if the Ongoing Studies are Global Studies they are not subject to Section 5.7. ARIAD SWISSCO shall reimburse ARIAD US for ongoing Third Party Development Costs incurred by ARIAD US in the Ongoing Studies, subject to a maximum aggregate amount of US$7,000,000 for the period from the Effective Date until December 31, 2016 and US$7,000,000 for the calendar year 2017 (together, the “Ongoing Studies Budget”).  ARIAD SWISSCO shall reimburse the actual, undisputed Third Party Development Costs quarterly within [**] of receipt of ARIAD US’s

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quarterly invoice and supporting evidence of the Third Party Development Costs having been incurred.  Payment shall be made into such bank account as ARIAD US shall specify from time to time.  For the period ending [**], no invoice shall be in excess of [**] (provided that for [**] in which the Effective Date occurs the invoice shall be for a pro-rated amount) and no invoice shall be delivered before [**].  For clarity if a [**] invoice during the calendar year ending [**] does not include the maximum of [**] any excess may be included in a subsequent invoice for calendar year [**], provided however that no excess at the end of the calendar year [**] may be rolled over to the calendar year [**]. If either the OPTIC Clinical Trial or the OPTIC 2L Clinical Trial is terminated prior to [**], then the maximum aggregate amount owed by ARIAD SWISSCO with effect from the date of termination of the relevant Ongoing Study, shall be [**] of the remaining Ongoing Studies Budget.  If both the OPTIC Clinical Trial and the OPTIC 2L Clinical Trial are terminated prior to [**], then no further amounts will be payable by ARIAD SWISSCO after the date of termination of the last of the OPTIC Clinical Trial and the OPTIC 2L Clinical Trial.  In addition to the Ongoing Studies Budget, ARIAD SWISSCO shall pay ARIAD US (i) [**] and (ii) [**]upon either (a) [**]; or (b) [**]  For clarity, [**] will not be [**] in the event of [**]  For clarity, [**] will not be [**]  For clarity, ARIAD US shall continue to control the conduct of the Ongoing Studies and shall continue to be listed as the sponsor until completion.  ARIAD US will be responsible for collection and reporting of all serious adverse events from these trials to the regulatory agencies in which the trials are being conducted. No amounts will be due under this Section 5.3.1 and payable by ARIAD SWISSCO if the Buy-Back Option has been exercised.

5.3.2           In relation to the OPTIC Clinical Trial, ARIAD US shall pay to ARIAD SWISSCO on calendar [**] basis an amount equal to (i) the number of patients greater than [**] enrolled (the “Target Enrollment”) in the OPTIC Clinical Trial in countries in the Territory in which the Product has a Marketing Authorization multiplied by (ii) [**], multiplied by (iii) [**].  ARIAD US may deduct [**] from the amount of such payment and pay the net amount to ARIAD SWISSCO.  Such payments shall be made within [**] after the end of each [**] for amounts accrued in such [**].   If the OPTIC Clinical Study projected enrollment of [**] subjects is changed, the Target Enrollment shall be adjusted proportionally. 

5.3.3           ARIAD US shall provide to ARIAD SWISSCO within [**] of the end of each calendar month, [**] for the Ongoing Studies (other than the Optic 2L Clinical Trial, for which reports shall be provided quarterly) including the following for such calendar month: [**].  In addition, ARIAD US shall within [**] of receipt, provide ARIAD SWISSCO with copies of all (i) material communications and safety reports to or from Regulatory Authorities and minutes from meetings with Regulatory Authorities related to the Ongoing Studies and (ii) any related material post-marketing requirements communications to or from Regulatory Authorities.Subject to ARIAD SWISSCO making the applicable payments due to ARIAD US under Section 5.3.1 ARIAD SWISSCO shall have the right to use all

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Development Data (including any needed right of reference) from the Ongoing Studies as necessary or useful for Registration in the Territory.

5.3.4           ARIAD US shall report the results of each of the Ongoing Studies to ARIAD SWISSCO by sending a substantially complete draft of the CSR as soon as practicable and a copy of the draft of the final CSR to ARIAD SWISSCO within [**] of database lock for the applicable study. ARIAD SWISSCO will provide ARIAD US with any comments within [**] of its receipt of the draft of the final CSR.  ARIAD US shall consider in good faith such comments, but it shall be in the sole discretion of ARIAD US whether to make changes to CSR Report to accommodate ARIAD SWISSCO comments.  If the final CSR for the OPTIC 2L Clinical Trial demonstrates Superiority on the Primary Efficacy Endpoint, ARIAD SWISSCO shall submit a variation application to the Regulatory Authority to support the approval of the Second Line CML indication within [**] of ARIAD SWISSCO’S receipt of the final CSR.

5.3.5           Should ARIAD US elect to discontinue one or more of the Ongoing Studies, ARIAD US shall promptly, but in all cases prior to such discontinuance, notify ARIAD SWISSCO of such decision. 

5.4    Proposed Studies.  ARIAD US may in its sole discretion commence and conduct the Proposed Studies and the provisions of Sections 5.6 or 5.7.2 shall not apply to the Proposed Studies but otherwise all provisions of this ARTICLE 5 shall apply as appropriate to a Proposed Study.  ARIAD US shall submit for discussion by the JSC the draft and final detailed budget, draft and final protocol and overview of the clinical trial design prior to study initiation.  ARIAD US shall report the results of each of the Proposed Studies to ARIAD SWISSCO by sending a substantially complete draft of the CSR as soon as practicable and a copy of the draft of the final CSR to ARIAD SWISSCO within six (6) months of database lock for the applicable study.  ARIAD SWISSCO will provide ARIAD US with any comments within fifteen (15) days of its receipt of the draft of the final CSR.  ARIAD US shall consider in good faith such comments but it shall be in the sole discretion of ARIAD US whether to make changes to CSR Report to accommodate ARIAD SWISSCO comments.  

5.5    Territory and Reserved Territory Specific Development. If ARIAD SWISSCO or Sublicensee wishes to carry out Development activity comprising a clinical study that is proposed to be conducted solely at clinical research sites in the Territory, then ARIAD SWISSCO shall submit for consideration by the JSC the proposed detailed budget, protocol and clinical trial design. If ARIAD US, either itself or through an Affiliate wishes to carry out Development activity comprising a clinical study that is proposed to be conducted solely at clinical research sites in the Reserved Territory, then ARIAD US shall provide the JSC with the proposed detailed budget, protocol and clinical trial design.  Subject to Section 5.6, both Parties shall be entitled to carry out such Development activity and the provisions of Section 5.7.3 and 5.9 shall apply mutatis mutandis to this Section 5.5. 

5.6    Territory and Reserved Territory Veto Right.  In connection with any clinical study proposed to be conducted by the Developing Party pursuant to Section 5.5, the Non-Developing Party shall have the right, by providing written notice to the

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Developing Party of the grounds for such objections,  to object to the study taking place on the grounds that, in its reasonable opinion, the protocol design is reasonably likely to create a safety risk or otherwise have a material adverse impact on the Commercialization of the Product in the Non-Developing Party’s territory. In the event of dispute on this subject, either Party shall have the right to escalate the matter by written notice to the other Party (“Escalation Notice”).  The Senior Officers of both Parties shall use good faith efforts to resolve any matter referred to them as soon as practicable.  Any final decision that the Senior Officers mutually agree to in writing shall be conclusive and binding on the Parties. If the Senior Officers fail to resolve the dispute, the decision of the Non-Developing Party shall be final on all issues.

5.7    Global Studies.

5.7.1           If, after the Effective Date, either Party proposes to undertake a Global Study, then it shall provide the JSC with the (i) proposed detailed budget, protocol and clinical trial design, details of the sites and the key investigators, (ii) a detailed breakdown and budget of the proposed Development Costs and (iii) any other relevant information and plans relating to such study, including template patient consent forms that are reasonably requested by the other Party.

5.7.2           Veto of Global Studies. In connection with any Global Study proposed to be conducted by the Developing Party, the Non-Developing Party shall have the right, by providing written notice to the Developing Party of the grounds for such objection, to object to the study taking place on the grounds that, in its reasonable opinion, the protocol design or conduct of the Global Study is reasonably likely to create a safety risk or otherwise have a material adverse impact on the Commercialization of the Product in the territory of the Non-Developing Party.  In the event of dispute on this subject, either Party may refer the matter for escalation to the Senior Officers under the procedures in Section 5.6.  If the Senior Officers fail to resolve the dispute, the decision of the Non-Developing Party shall be final on all issues.

5.7.3           Subject to the veto right set out in Section 5.7.2, the Non-Developing Party shall determine if it wishes to co-fund the Global Study by electing to [**] and shall confirm such determination by notice in writing to the other Party.  The Developing Party shall be sponsor of any such co-funded Global Study.  Subject to the Pharmacovigilance Agreement, the Developing Party will be responsible for ensuring the collection and reporting of all serious adverse events from these trials to the regulatory agencies in countries and territories in which the co-funded global trials are being conducted. In relation to such Global Study, the Development Costs will be [**] ARIAD US and ARIAD SWISSCO.  Each Party shall have the right to the Development Data from such Global Study as more particularly set out in Sections 5.11 and ARTICLE 6.  No amounts under this Section 5.7.3 will be due and payable by ARIAD SWISSCO if the Buy-Back Option has been exercised.

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5.7.4           Subject to the veto right set out in Section 5.7.2, if the Non-Developing Party does not wish to co-fund pursuant to Section 5.7.3, the Developing Party shall have the right to conduct the Global Study [**].  To the extent that the study is being conducted in an on-label indication, the Developing Party shall pay to the Non-Developing Party on calendar quarter basis an amount equal to (i) [**], multiplied by (ii) [**], multiplied by (iii) [**].  If ARIAD US is the Developing Party, it may deduct [**] from the amount of such payment and pay the net amount to ARIAD SWISSCO.  Such payments shall be made within [**] after the end of each [**] for amounts accrued in such [**].  For purposes of clarity, the payments under this Section 5.7.4 shall apply to any of the Proposed Studies that are Global Studies.

5.8    If either Party proceeds with a Global Study under Section 5.7.4, the Developing Party shall, at least quarterly, provide to the Non-Developing Party a detailed written report (which obligation may be satisfied by means of reports prepared by or for the Developing Party for internal use) that includes the then-current development status, the results achieved, the problems being encountered, summary of material clinical data generated, Development Costs incurred and other pertinent information relating to the Global Study.  For each Global Study, the Developing Party shall provide to the Non-Developing Party a substantially complete draft of the CSR as soon as practicable and a draft of the final CSR within [**] of database lock for the study.  The Non-Developing Party will provide the Developing Party with comments within [**] of its receipt of the draft final CSR.  The Developing Party shall consider in good faith such comments but it shall be in the sole discretion of the Developing Party whether to make changes to CSR Report to accommodate the Non-Developing Party comments. The Developing Party shall send a copy of the final CSR of the Global Study to the Non-Developing Party in the form of a written notice. 

5.9    The Non-Developing Party shall, at any time prior to [**] after the final CSR of a Global Study is issued, have the right, by giving written notice to the Developing Party exercising this right, to use the Development Data from such Global Study in relation to Registration in its territory, provided that the Non-Developing Party reimburses the Developing Party [**] of the Developing Party’s Third Party Development Costs incurred in the conduct of such Global Study to date and continues to pay directly, or reimburse to the Developing Party on a [**] basis, [**] of the Third Party Development Costs paid for the conduct of such Global Study.  The Non-Developing Party shall have the right, at reasonable times during business hours and upon reasonable notice to the Developing Party to access the Developing Party’s books, records and accounts for inspection and audit by the Non-Developing Party or its Affiliates or their respective duly authorized representatives or by an independent auditor to be nominated by the Non-Developing Party and reasonably acceptable to the Developing Party, to ensure the accuracy of all reports and payments made hereunder and in respect of all Development Costs.  Such audit shall be covered by confidentiality obligations of the auditor.  No amounts under this Section 5.9 will be due and payable by ARIAD SWISSCO if the Buy-Back Option has been exercised.

5.10   Each Party hereby acknowledges and agrees that neither Party makes any warranty, and nothing in this Agreement may or shall be construed as a warranty by either

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Party, that the Product will obtain Registrations in any or all of the countries in or outside the Territory and neither Party shall have claims against the other Party arising out of any delay or refusal by Regulatory Authorities to issue Registrations or to issue Registrations that are acceptable to the Parties in or outside the Territory.

5.11   Each Party shall own all title right and interest in and to all Development Data generated by them from Development activity in their respective territory and in relation to Global Studies in relation to which they have been the Developing Party. Access and the right to use Development Data for the other Party is governed by this ARTICLE 5.  

5.12  ARIAD US shall own all ARIAD US Improvements and ARIAD SWISSCO shall own all ARIAD SWISSCO Improvements. ARIAD SWISSCO is licensed to use ARIAD US Improvements on the terms of the license set out in Section 2.1. Throughout the Term, ARIAD US shall supply ARIAD SWISSCO with all ARIAD US Improvements that are necessary or useful for ARIAD SWISSCO to Develop, use, Commercialize, Manufacture Product in the Territory in accordance with this Agreement. Notwithstanding the foregoing, nothing in this Agreement shall require ARIAD US to develop additional Know-how or to obtain additional Know-how from Third Parties. Subject to the terms and conditions of this Agreement, including payment under Sections 5.7.3 and 5.9, ARIAD SWISSCO shall have the right to use, cross-reference, file or incorporate by reference any Development Data disclosed to ARIAD SWISSCO by or on behalf of ARIAD US or its Affiliates relating to the Product  for purposes of performing under this Agreement, including in order to support any regulatory filings relating to the Product and in interactions with any Regulatory Authority in connection with the development and Registration of the Product in the Territory

5.13  ARIAD SWISSCO shall promptly disclose to ARIAD US all ARIAD SWISSCO Improvements resulting from Development or Manufacturing activities conducted by ARIAD SWISSCO or its Sublicensees or Subcontractors pursuant to this Agreement.  ARIAD US shall have a perpetual, irrevocable, exclusive license under the Intellectual Property Rights covering such ARIAD SWISSCO Improvements and Ancillary Research of ARIAD SWISSCO to use the same in any way whatsoever in the Reserved Territory (subject to the other terms of this Agreement) [**] provided always that in the case of ARIAD SWISSCO Improvements directly resulting from studies conducted in the Territory by ARIAD SWISSCO or from Global Studies conducted by them where ARIAD US has first paid to use the corresponding Development Data.

5.14  Each Party shall ensure that all necessary notifications are made and/or necessary consents are obtained and/or agreements are entered into, under applicable data protection or privacy regulations in its respective territory such that all personal information obtained in the course of the conduct of development activities under this Agreement by either Party, its respective Affiliates or any Third Party subcontractor of such Party can be lawfully processed including being transmitted to, and used by, the other Party and its Affiliates for development work relating to the Compound and/or the Product as provided for in this Agreement.

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ARTICLE 6 - EXCHANGE OF OTHER KNOW-HOW

6.1    Subject to the terms and conditions of this Agreement, throughout the Term and/or upon either Party’s reasonable request, each Party shall supply the other in writing or by any other appropriate means at JSC meetings commercial and medical affairs information and data relating to the Product to the extent it is Controlled by the disclosing Party or its Affiliates, including relevant market analyses and assessments of the competitive landscape for the Product, and, subject to Applicable Laws, any patient or physician feedback relating to Product.  The receiving Party shall be free to use such information and data for the purpose of its business and to disclose the same to its Affiliates and distributors in the Territory (if ARIAD SWISSCO is the receiving Party) or in the Reserved Territory (if ARIAD US is the receiving Party), provided that no Confidential Information pertaining to the disclosing Party’s business shall be disclosed by the receiving Party to such other distributors.

6.2    Beginning immediately after the Effective Date, ARIAD US shall [**], effect a [**] to ARIAD SWISSCO or its designee (which designee may be an Affiliate or a Third Party manufacturer) of all Know-How and any other information regarding Intellectual Property Rights of ARIAD US and its Affiliates relating to the then-current process for the [**] and [**] (the “Current Manufacturing Process”) and to implement the Current Manufacturing Process at facilities designated by ARIAD SWISSCO (such transfer and implementation, as more fully described in this Section 6.2, the “Manufacturing Technology Transfer”).  ARIAD US shall provide, and shall cause its Affiliates and Third Party manufacturers to provide, [**] to enable ARIAD SWISSCO (or its Affiliate or designated Third Party manufacturer, as applicable) to implement the Current Manufacturing Process at the facilities designated by ARIAD SWISSCO.  If requested by ARIAD SWISSCO, such assistance shall include [**].  Without limitation to the foregoing, in connection with each Manufacturing Technology Transfer, ARIAD US shall, and shall cause its Affiliates and Third Party manufacturers to:

6.2.1           make available to ARIAD SWISSCO (or its Affiliate or designated Third Party manufacturer, as applicable) from time to time as ARIAD SWISSCO may request, all [**] of ARIAD US and its Affiliates relating to the Current Manufacturing Process, and all [**], that are reasonably necessary or useful to enable ARIAD SWISSCO (or its Affiliate or designated Third Party manufacturer, as applicable) to use and practice the Current Manufacturing Process;

6.2.2           cause [**] to assist with the working up and use of the Current Manufacturing Process and with the [**] to the extent reasonably necessary or useful to enable ARIAD SWISSCO (or its Affiliate or designated Third Party manufacturer, as applicable) to use and practice the Current Manufacturing Process;

6.2.3           Without limiting the generality of Section 6.2.2 above, cause appropriate [**]and make available necessary [**] to support and execute the transfer of all applicable analytical methods and the validation thereof (including, all [**] of ARIAD US and its Affiliates relating to the Current Manufacturing Process, [**];

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6.2.4           take such steps as are reasonably necessary or useful to assist in [**] with respect to the Manufacture of Product at the applicable facilities; and

6.2.5           provide such other assistance as ARIAD SWISSCO (or its Affiliate or designated Third Party manufacturer, as applicable) may reasonably request to enable ARIAD SWISSCO (or its Affiliate or designated Third Party manufacturer, as applicable) to use and practice the Current Manufacturing Process and otherwise to Manufacture Product.

6.3    Within [**] of the end of each [**] during the period of the [**] ARIAD US shall report to ARIAD SWISSCO [**] incurred in such period, and shall invoice ARIAD SWISSCO for the same. ARIAD SWISSCO shall pay each such invoice [**] of receipt of such invoice.

6.4    Without limiting the foregoing, if ARIAD US or its Affiliates makes any invention, discovery, or improvement relating to the Manufacture of Product during the Term, ARIAD US shall, [**], promptly disclose such invention, discovery, or improvement to ARIAD SWISSCO, and shall, at ARIAD SWISSCO’s request, [**] with respect to such invention, discovery, or improvement in the same manner as provided in Section 6.2. Neither Party will (nor cause its Third Party Manufacturers to) implement any process improvement that may impact the Specifications of the Product or the relevant sections of the Marketing Authorization or that would require approval of any Regulatory Authority, without the prior written approval of the other Party.

ARTICLE 7 – PRICING AND REIMBURSEMENT

7.1    With respect to: (i) all countries within [**] and (ii) each country outside [**] in the Territory if a Marketing Authorization of the Product has been obtained in each such country in the Territory, ARIAD SWISSCO shall use Commercially Reasonable Efforts to obtain Pricing and Reimbursement Approval in such countries as soon as reasonably possible.

7.2    In accordance with Applicable Law, the Parties shall discuss and exchange information and documentation (including health economic data, analyses and argumentation) to develop and support the pricing and reimbursement strategy for the Product within the Territory.  ARIAD SWISSCO shall provide ARIAD US with periodic updates and, upon reasonable request, copies of material communications with, and submissions to, pricing and reimbursement authorities with respect to Products in the Field in the Territory.  For clarity, ARIAD SWISSCO shall be solely responsible for determining the actual selling price to Customers and all other conditions of sale in the Territory.  

ARTICLE 8 – REGULATORY MATTERS

8.1    Marketing Authorizations.

8.1.1           ARIAD SWISSCO shall oversee, monitor and coordinate all regulatory actions, communications and filings with, and submissions to, Regulatory Authorities with respect to Products in the Field in the Territory.  ARIAD US shall provide ARIAD SWISSCO with reasonable assistance,

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information, and access to ARIAD US’s personnel, to support ARIAD SWISSCO’s or the relevant ARIAD SWISSCO Sublicensees’ applications for Marketing Authorizations and other interactions with Regulatory Authorities in the Territory relating to Product and ARIAD SWISSCO shall reimburse ARIAD US for [**] in connection therewith.  Each Party shall use appropriately qualified personnel for such activities, including personnel with local regulatory expertise.  In accordance with its responsibilities as the MAH in the Territory, ARIAD SWISSCO or the relevant ARIAD SWISSCO Sublicensee shall act as the authorized contact for the Regulatory Authorities in the Territory in connection with obtaining and maintaining Marketing Authorizations (subject to ARIAD US’s involvement as provided in Section 8.3), as well as in connection with the Development, Manufacturing (if applicable) or Commercialization of the Product.  [**] 

8.1.2           ARIAD US shall be responsible for maintaining the Company Core Data Sheet (“CCDS”) / Company Core Safety Information (“CCSI”) / core Risk Management Plan (“RMP”) for the Product.  In the event that a change to the CCDS/CCSI/RMP necessitates a change to the local labeling in a country within the Territory, ARIAD SWISSCO shall be responsible for developing a proposed revised draft product label or package insert for each country in the Territory.  ARIAD US shall provide ARIAD SWISSCO with information and reasonable access to ARIAD US’s personnel, to support ARIAD SWISSCO’s changes to the Marketing Authorizations to modify the revised draft labeling provided that ARIAD SWISSCO shall reimburse ARIAD US for [**]. ARIAD SWISSCO or the relevant ARIAD SWISSCO Sublicensee shall promptly submit a change to applicable Marketing Authorizations in the Territory to modify the labeling.

8.2    Subject to Section 4.7, ARIAD SWISSCO shall review and approve the prescribing information, label and final packaging of the Product for the Territory to be submitted in connection with applications for Marketing Authorizations, and shall subsequently review and approve any modifications thereto required by a Regulatory Authority or proposed by either Party.  ARIAD SWISSCO or the relevant ARIAD SWISSCO Sublicensee shall prepare and submit the relevant documentation related to Marketing Authorizations and other Registrations in compliance with Applicable Laws.

8.3    Each Party or its relevant Sublicensee or licensee (as applicable) shall prepare for and conduct meetings with the local Regulatory Authorities for which it is responsible in consultation with the other Party, and shall, to the extent such meetings are reasonably likely to be material to the other Party’s rights and obligations under this Agreement: 

(a)notify the other Party in advance of such planned scheduled interactions with Regulatory Authorities relating to the Product and invite the other Party to attend such interactions, at the other Party’s cost, if permitted by the Regulatory Authority;

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(b)notify the other Party of such spontaneous interactions with the Regulatory Authorities relating to the Product as soon as reasonably possible after the interaction;

(c)prepare meeting minutes of such interactions with Regulatory Authorities and circulate the same to the other Party, accompanied by a translation into English if the original minutes are not in English; and

(d)address such questions and requests from the Regulatory Authorities relating to the Product following consultation with the other Party.

8.4    Without limiting the foregoing, in connection with regulatory activities for which a Party has responsibility or authority under this Agreement, each Party or its relevant Sublicensee or licensee (as applicable) shall (i) provide advance copies to the other Party’s representatives on the JSC of any proposed material submission to, or material communication with, any Regulatory Authority to the extent they relate to the Marketing Authorization or otherwise to the Product, and shall consider in good faith, and accommodate when reasonably appropriate, any requests by the other Party’s JSC representatives to make any modification thereto, and (ii) keep the other Party fully and promptly informed, throughout the Term, about all material communications received from the local [**] concerning the Product and/or the Compound, including providing the other Party with a copy of all such material communications (without translation) no later than [**] after receipt by ARIAD SWISSCO and with a copy thereof translated into English as soon as practicable thereafter.  Without prejudice to full compliance by both Parties with any obligations established by Applicable Laws of each country in the Territory, any and all material communications to local Regulatory Authorities concerning the Product as described above shall be submitted by the responsible Party only after the relevant contents have been discussed with and approved by the JSC; provided, however, that the responsible Party shall not be required to delay any communication with or regulatory submission to any applicable Regulatory Authority in a manner that affects the responsible Party’s ability to comply with Regulatory Requirements or Applicable Laws.  The responsible Party shall provide English translation of all material documents relating to the Product to be submitted by the responsible Party or its Sublicensees or licensees (as applicable) to, or that are received by responsible Party or its Sublicensees or licensees (as applicable) from, Regulatory Authorities in a language other than English. On a semi-annual basis, each Party  shall provide the other Party with an itemized list of (a) all material written communications received from the local Regulatory Authorities concerning the Product during the prior [**] and (b) all material documents and written communications relating to the Product submitted by such Party or its Sublicensees or licensees (as applicable) to any Regulatory Authority during the prior [**].  Upon the request of a Party, the other Party shall provide the requesting Party with copies of any such communications or documentation itemized on such list, including where reasonably requested, English translations of all material communications or documentation.  For clarity, (1) any communications with Regulatory Authorities or documents submitted to Regulatory Authorities that relate to Product quality shall not be governed by this Section 8.4 and shall be subject to the Quality Agreements, and (2) any communications with Regulatory Authorities or documents and written communications submitted to

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Regulatory Authorities that relate to pharmacovigilance shall not be governed by this Section 8.4 and shall be subject to ARTICLE 9 until the Pharmacovigilance Agreement becomes effective and thereafter shall be subject to the Pharmacovigilance Agreement. 

8.5    If any material alterations, modifications or amendments of this Agreement or modification of the Product are required to comply with the request of any Regulatory Authority as prerequisites for the continuation of the Marketing Authorization or the grant or the continuation of the Registration of the Product, or if the Marketing Authorization or Registrations are suspended or withdrawn by any said Regulatory Authority, each Party shall notify the other Party immediately and the Parties shall use Commercially Reasonable Efforts to agree upon a reasonable and mutually acceptable resolution thereof.

8.6    ARIAD US may retain a copy of, and have ongoing access to, the Marketing Authorization for the Product granted by the European Medicines Agency existing as at the Effective Date, together with the certificates of pharmaceutical product and full dossier relating thereto (the “EMA MA”) and to all supplements, amendments and revisions occurring after the Effective Date (“EMA MA Updates”), provided  that in the case of any supplement, amendment or revision that is made as a result of Development for which ARIAD US is to pay costs pursuant to Sections 5.5, 5.7.3 or 5.9, then ARIAD US shall only receive such EMA MA Updates provided ARIAD US has made such payments under Section 5.5, 5.7.3 or 5.9 (as applicable).  Subject to the foregoing, ARIAD SWISSCO, on behalf of itself and its Affiliates, hereby grants to ARIAD US and its Affiliates a right of reference, with the right to grant further rights of reference to ARIAD US licensees of rights to register and commercialize the Product in the Reserved Territory, under suchEMA MA and any EMA MA Updates, in each case to enable ARIAD US and its Affiliates to exercise its rights and perform its obligations under this Agreement and to register and commercialize the Product in the Reserved Territory.

ARTICLE 9 – PHARMACOVIGILANCE 

9.1    ARIAD US shall own and manage the global safety database for the Product and ARIAD US or its Affiliates shall be responsible for the timely reporting of all relevant adverse drug reactions/experiences, including those associated with Product quality complaints, and aggregate safety data relating to the Product, outside the Territory.  ARIAD US shall provide ARIAD SWISSCO with extracts from the global safety database upon request of ARIAD SWISSCO.  Reconciliation between the data contained in the ARIAD SWISSCO and ARIAD US safety databases shall be conducted periodically in accordance with the separate Pharmacovigilance Agreement.  ARIAD SWISSCO will procure that the MAH in each country within the Territory shall be responsible for the timely reporting of all relevant post marketing adverse drug reactions/experiences, including those associated with Product quality complaints, and aggregate safety data relating to the Product, in accordance with local pharmacovigilance legislation within the Territory.  ARIAD SWISSCO will have the right to independently audit the global safety database to ensure that their MAH obligations can be fulfilled.

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9.2    ARIAD US shall be responsible for global medical surveillance, risk management, global medical literature review and monitoring, and responses for the Product to the appropriate Regulatory Authorities outside the Territory.  ARIAD US shall be responsible for the interpretation, in light of ARIAD US’s global pharmacovigilance data, of adverse events in the Territory of which ARIAD US becomes aware, including adverse events reported to ARIAD US by ARIAD SWISSCO or the relevant ARIAD SWISSCO Sublicensee.  ARIAD SWISSCO will procure that the MAH in each country in the Territory shall be responsible for local medical surveillance, risk management, medical literature review and monitoring within such country of the Territory, and responses to the appropriate Regulatory Authorities within the Territory. ARIAD SWISSCO will procure that the MAH in each country in the Territory shall provide an English-translated copy of the final responses to Regulatory Authorities to ARIAD US.

9.3    ARIAD SWISSCO shall, and shall procure each MAH in each country in the Territory, implement and execute local Product-specific risk management activities, in collaboration with ARIAD US’s PV department, that are aligned with ARIAD US’s global risk management strategies.

9.4    Further details of the Parties’ respective pharmacovigilance obligations and responsibilities (e.g., signal management, case processing and reporting, aggregate reporting, risk management, health authority responses, safety data exchange, etc.) shall be set forth in a pharmacovigilance agreement that will be agreed to by the Parties (and their respective Affiliate(s), as appropriate) within [**] after the Effective Date (as it may be amended from time to time, the “Pharmacovigilance Agreement”).  In the event of a conflict between the terms of the Pharmacovigilance Agreement and the terms of this Agreement, the provisions of this Agreement shall govern; provided, however, that the Pharmacovigilance Agreement shall govern in respect of pharmacovigilance, including safety and risk management, matters.

9.5    Prior to executing the Pharmacovigilance Agreement, the Parties agree to work together in good faith to coordinate activities regarding pharmacovigilance with respect to the Product in accordance with this ARTICLE 9, including by exchanging standard operating procedures and other information relevant to such pharmacovigilance activities as mutually agreed by the Parties.  ARIAD US shall provide ARIAD SWISSCO with access to all pharmacovigilance related standard operating procedures (local and global) required in Territory and ARIAD SWISSCO shall procure that such standard operating procedures shall remain in place and be used by ARIAD SWISSCO until ARIAD SWISSCO transitions all pharmacovigilance standard operating procedures in accordance with the Pharmacovigilance Agreement.  Without limiting the foregoing, prior to executing the Pharmacovigilance Agreement, in the event ARIAD SWISSCO or the relevant ARIAD SWISSCO Sublicensee receives reports of adverse drug reactions/experiences or safety data relating to the Product (“Safety Information”) ARIAD SWISSCO shall send the Safety Information to ARIAD US on source documents, or other mutually agreed format, via email or fax as soon as practicable, but, in any event, after it receives the Safety Information, and, in the event ARIAD SWISSCO or a Sublicensee receives any information concerning any investigation, inquiry or other action by any Regulatory Authority concerning the safety of the Product, ARIAD SWISSCO shall send such information to ARIAD US via email or

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fax as soon as possible, but in any event, after ARIAD SWISSCO receives notice of such regulatory request, inquiry or other action.  Neither Party shall respond to any Regulatory Authority request or inquiry relating to the safety of the Product without discussing the issue with the other Party to the extent reasonably feasible in context of relevant timelines applicable to such responses and to the extent reasonably likely that such responses would impact the Marketing Authorization or be materially relevant for the Regulatory Authorities in the other Party’s Territory. 

ARTICLE 10 – SUPPLY, FORECASTS AND ORDERING

10.1   As soon as practicable but no later than [**] after the Effective Date, the Parties shall, through a project team or subcommittee of the JSC, negotiate in good faith and agree on the terms of (i) a definitive agreement pursuant to which ARIAD US shall Manufacture and supply (or have Manufactured and supplied) Product as API or Unlabeled Bottles to ARIAD SWISSCO or its Affiliates for Final Manufacture as needed for Commercialization in the Territory (“Supply Agreement”) and (ii) a related Quality Agreement.  Pending finalization of the Supply Agreement, the transitional supply of Product shall be made on the terms set out in Sections 10.2 to and including ARTICLE 14 and the terms of the Interim Quality Agreement in place (“Transitional Supply Arrangements”).  The terms of the Transitional Supply Arrangements shall form the basis for the Supply Agreement and Quality Agreement.

10.2   Product shall be supplied and may be ordered and Manufactured as follows:

10.2.1         At any time during the Term until ARIAD SWISSCO commences [**], ARIAD US will supply [**] of Product ordered by ARIAD SWISSCO pursuant to the terms of this Agreement.

10.2.2         At any time during the Term until ARIAD SWISSCO has [**], ARIAD US will supply [**] ordered by ARIAD SWISSCO pursuant to the terms of this Agreement, and ARIAD SWISSCO shall have the right to conduct Final Manufacturing of such [**] for purposes of Commercialization in the Territory. 

10.2.3         Beginning on a date notified to ARIAD US by ARIAD SWISSCO once ARIAD SWISSCO or its Subcontractor are ready to [**] ARIAD US shall supply [**] ordered by ARIAD SWISSCO pursuant to the terms of this Agreement and ARIAD SWISSCO shall have the right to conduct [**] for purposes of Commercialization in the Territory. 

10.3  Within [**] after the Effective Date and in the [**] of each [**] thereafter, ARIAD SWISSCO shall provide ARIAD US with a written [**] rolling Forecast of its anticipated quarterly requirements for the Product ([**]) in the Territory (each a “Forecast”).  ARIAD US shall use Commercially Reasonable Efforts to ensure sufficient manufacturing capacity and Raw Materials to meet each Forecast.  Each Forecast is a non-binding estimate for [**] and subject to Section 10.4 is binding on both Parties for [**].  ARIAD US shall not be obliged to Manufacture or supply ARIAD SWISSCO with quantities of the Product in excess of the binding portion of the most recent Forecast.

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10.4  Within [**] of issuance of each Forecast the Parties will ensure that appropriate personnel of each of them responsible for manufacture and supply will discuss proposed batch runs and Delivery dates, which shall be within [**] in which the binding portion of the Forecast relates, and for the quantities of Product set out in the binding portion of that Forecast. ARIAD SWISSCO shall then promptly submit to ARIAD US and ARIAD US shall accept written purchase orders reflecting the binding portion of the Forecast, in such form as the Parties shall agree from time to time, specifying the quantities of Product ordered and, the agreed delivery date for the order.  ARIAD SWISSCO shall submit each purchase order to ARIAD US in advance of the desired delivery date specified in such purchase order, with [**] lead time. Any purchase orders for Product submitted by ARIAD SWISSCO to ARIAD US shall reference this Agreement and shall be governed exclusively by the terms contained herein. The Parties hereby agree that the terms and conditions of this Agreement shall supersede any term or condition in any order, confirmation or other document furnished by ARIAD SWISSCO or ARIAD US that is in any way inconsistent with, or supplementary to, the terms and conditions of this Agreement, unless expressly accepted in writing by the other Party.

10.5  When ARIAD US [**] for ARIAD SWISSCO, ARIAD US shall carry a [**] sufficient to avoid [**] in the Territory in the event of [**]. In addition, whether ARIAD US is [**] for ARIAD SWISSCO, ARIAD US shall, with effect from the Effective Date, carry a safety stock of Product API allocated to the Territory, in accordance with past practice but in any event equal to not less than [**] projected requirement of [**] for ARIAD SWISSCO based on the most recent [**] and discussions between the Parties.  Unless otherwise agreed by the Parties, such safety stock shall be [**] and identified as ARIAD SWISSCO [**].

10.6  The price for the Manufacture of the Product shall be calculated as [**].  ARIAD US shall invoice ARIAD SWISSCO upon each Delivery of Product supplied under this Agreement and ARIAD SWISSCO shall pay the undisputed amounts of such invoice within [**] of receipt of such invoice.  ARIAD US must include with each invoice a detailed calculation of the invoiced amount including details of the associated Direct Costs, Indirect Costs and any Third Party costs.   ARIAD US shall keep complete and accurate books, records and accounts in accordance with all Applicable Laws and sound accounting practice covering all its Direct Costs, Indirect Costs and any Third Party costs and as otherwise may be necessary for the purpose of calculating all payments due to ARIAD US under this Section 10.6.  ARIAD SWISSCO shall have the right, throughout any period during which payments are due under this under this Section 10.6 and for [**] thereafter, at reasonable times during business hours and upon reasonable notice to ARIAD US, to have ARIAD US’s books, records and accounts inspected and audited by one of the four major accounting firms to be appointed by ARIAD SWISSCO and reasonably acceptable to ARIAD US, to ensure the accuracy of all reports and payments made hereunder and in respect of all [**].  Such audit shall be covered by confidentiality obligations of the auditor.  ARIAD US shall cooperate with the independent auditor and make available all work papers and other information related to the payments required under this Section 10.6 as reasonably requested in connection. 

10.7  In the event of any [**] in the available supply of Product, ARIAD US shall treat ARIAD SWISSCO’s demand [**] or [**] and, allocate manufacturing capacity to the

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respective demand on a [**]; provided, that the foregoing supply on a [**] does not limit any other remedies ARIAD SWISSCO may have due to a failure to supply under this Agreement or the Supply Agreement.  ARIAD US shall promptly provide a written plan of action stating in reasonable detail the root cause of any [**] and proposed measures to remedy the [**] and the date such [**] is expected to end.  ARIAD US shall use Commercially Reasonable Efforts to minimize the duration of any [**]; provided, that the foregoing efforts of ARIAD US do not limit any remedies ARIAD SWISSCO may have due to a failure to supply under this Agreement or the Supply Agreements.

ARTICLE 11 – SHIPMENT AND DELIVERY

11.1  Delivery Terms.

11.1.1         ARIAD SWISSCO shall be the importer of record for all Product supplied under this Agreement. ARIAD SWISSCO shall be responsible for clearing the Product through customs in the Territory [**].  At all times, ARIAD SWISSCO shall maintain, [**], a valid import license for the Products, and shall be responsible, [**], for all required documentation and communications with the applicable customs office in connection therewith. ARIAD US shall provide assistance with such documentation and communications upon ARIAD SWISSCO’s reasonable request (e.g., by providing export documents or assisting with documentation as the exporter of the Product.)  In this Section 11.1, any obligation on ARIAD SWISSCO may be performed by a Sub-licensee or Subcontractor.

11.1.2         ARIAD US shall deliver the Product ordered by ARIAD SWISSCO in accordance with the quantities and delivery dates specified in the applicable purchase order.  If ARIAD US fails to deliver at least [**] of the quantity ordered in a given purchase order within [**] of the specified delivery date, ARIAD SWISSCO shall only be required to pay for the quantity of Product Delivered and the price for such Product shall be reduced by [**].

11.1.3         Deliveries shall be made Ex Works (Incoterms 2010) at the location specified in the Interim Quality Agreement or such other location as the Parties may agree in writing (“Delivery”).  Title and risk to the Product shall pass to ARIAD SWISSCO upon Delivery.

11.2  Acceptance and Rejection. 

11.2.1         Product Testing.No laterthan [**] prior to a scheduled Delivery ARIAD US shall send to ARIAD SWISSCO the Delivery Documents for review. Following such review, unless within [**] of receipt of the Delivery Documents ARIAD SWISSCO gives written notice of rejection of the Product to be delivered, stating the reasons for such rejection, the Delivery shall proceed, and both Parties shall organize the same.Upon arrival atARIAD SWISSCO nominated site it shall visually inspect the shipment of the Product to identify any damage to the external packaging. ARIAD SWISSCO may reject any shipment (or portion thereof) of the Product that is damaged by providing to ARIAD US reasonable evidence of damage

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within [**] after Delivery of such Product. If ARIAD SWISSCO does not so reject any shipment (or portion thereof) of the Product within [**] of Delivery of such Product, ARIAD SWISSCO shall be deemed to have accepted such shipment of the Product; provided, however, that in the case of the Product having any Latent Defect, ARIAD SWISSCO shall notify ARIAD US promptly once it becomes aware that a Product contains a Latent Defect and subsequently may reject such Product by giving written notice to ARIAD US of ARIAD SWISSCO’s rejection of such Product and shipping a representative sample of such Product or other evidence of Non-Conformance to ARIAD US within [**] after becoming aware of such Latent Defect, which notice shall include a description of the Latent Defect.

11.2.2         Replacement of Product and Dispute Procedure.If ARIAD SWISSCO rejects, in accordance with Section11.2.1 any proposed delivery or shipment (or portion thereof) of the Product as Non-Conforming and ARIAD US disagrees that the alleged Non-Conformance exists, ARIAD US shall so notify ARIAD SWISSCO in writing (an “Objection Notice”) within [**] of receipt of ARIAD SWISSCO’s notice of rejection and the following procedures shall apply: in the case of a Latent Defect ARIAD US shall inspect the returned representative sample of Product or other evidence of Non-Conformance and attempt to reach agreement with ARIAD SWISSCO as to whether or not the Product is Non-Conforming.  If ARIAD SWISSCO and ARIAD US fail within [**] after delivery of the Objection Notice to agree as to whether the Product is Non-Conforming, in the case of a Latent Defect representative samples of the batch of the Product in question and their reference samples shall be submitted to a mutually-acceptable, independent, qualified Third Party laboratory or consultant for analysis or review to determine whether there is a Non-Conformance.  For clarity, this may include a decision whether or not contamination is present.  The results of such evaluation shall be binding upon the Parties. The Parties initially shall [**] the cost of such evaluation, except that the Party that is determined to have been incorrect in its determination of whether the Product was or was not Non-Conforming shall assume the responsibility for, and pay, the costs of any such evaluation and reimburse the other Party for any amounts previously paid to the independent laboratory or consultant in connection with that determination.

11.2.3         Cost of Replacement of Rejected Product.If any delivery or shipment of the Product is rejected by ARIAD SWISSCO following review of the Delivery Documents or a visual inspection or any other alleged Non-Conformance, ARIAD SWISSCO’s duty to pay all amounts payable to ARIAD US in respect of the rejected Product shall be suspended. In the case of Latent Defect Non-Conformance if there is a determination by the independent laboratory or consultant in support of ARIAD US’s Objection Notice, or the Parties otherwise reach agreement that the Product was not Non-Conforming, payment shall then be made by ARIAD SWISSCO If only a portion of a shipment is rejected, ARIAD SWISSCO’s duty to pay the amount allocable to the Non-Conforming portion only shall be suspended.

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11.2.4         Return of Rejected Product.If a shipment or partial shipment is rejected by ARIAD SWISSCO pursuant to the provisions of Section11.2.1 and (i) where relevant, ARIAD US does not provide an Objection Notice within the [**] period set forth in Section 11.2.2, (ii) the Parties agree that the Product is Non-Conforming within the [**] period set forth in Section 11.2.2, or (iii) there is a determination by the independent laboratory or consultant in support of ARIAD SWISSCO’s allegation of Non-Conformance, ARIAD SWISSCO shall return to ARIAD US at ARIAD US’s request and expense (or, at the election of ARIAD US, destroy at ARIAD US’s cost and provide evidence of such destruction to ARIAD US) any such rejected Product (provided that if the Product has been packaged by or on behalf of ARIAD SWISSCO at the time of rejection, ARIAD SWISSCO shall not be obliged to remove any packaging prior to its return).  ARIAD US shall (i) credit the original invoice in respect of the rejected Product and reimburse ARIAD SWISSCO for any duties, freight, insurance, handling or other charges incurred by ARIAD SWISSCO in respect of such rejected Product, and (ii) adjust the invoice to ARIAD SWISSCO for the Product that was not rejected, payment of which is due in accordance with the terms of the original invoice. Except as set forth in ARTICLES 14 and 22, such credit or adjustment shall be ARIAD US’s sole Liability, and ARIAD SWISSCO’s sole remedy, with respect to any rejected Product. 

11.2.5         Supply of Replacement Product. During any rejection discussions, upon ARIAD SWISSCO’s request, ARIAD US shall supply ARIAD SWISSCO with additional Product, using expedited shipping at ARIAD US’s expense, which ARIAD SWISSCO shall otherwise purchase on the same terms (adjusted for credit for Non-Conforming Product) as the Product that is the subject of the rejection discussions. 

11.2.6         Detection of Latent Defect by ARIAD US.  If ARIAD US detects a Latent Defect in any Product supplied to ARIAD SWISSCO, ARIAD US shall notify ARIAD SWISSCO in writing, specifying the affected lots, and credit ARIAD SWISSCO for the Non-Conforming Product as provided in Section 11.2.4.

11.2.7         No Product Returns Policy. Except as expressly provided elsewhere in this Section 11.2 or in ARTICLE 14, no Products supplied by or on behalf of ARIAD US to ARIAD SWISSCO may be returned by ARIAD SWISSCO to ARIAD US after they have been Delivered to ARIAD SWISSCO at the location designated under Section11.1.3.

ARTICLE 12 – MANUFACTURING OF THE PRODUCT

12.1  Manufacture of the Product. ARIAD US shall Manufacture or have Manufactured the Labeled Bottles, Unlabeled Bottles and API in accordance with the Specifications, cGMP and Applicable Laws in the country of Manufacture and, to the extent applicable, in the Territory. 

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12.2  Packaging. ARIAD US shall package the Product in accordance with the Specifications and requirements notified to it with sufficient advance notice by ARIAD SWISSCO to comply with Applicable Laws. 

12.3  Changes to the Specifications or to the ManufacturingProcess. If ARIAD US proposes (a) a change to the Specifications or the Raw Materials, equipment (other than changes for maintenance, repair, and like-for-like replacement) or process used to Manufacture the Product, or (b) a change to the procedures or facilities used to Manufacture the Product (collectively, the “Manufacturing Process”) that, in the case of (a) or (b) would require approval of any applicable Regulatory Authority in the Territory or would require an amendment of any Marketing Authorization application or Registration, the prior written approval of ARIAD SWISSCO is required before implementation of such change.  If a change to the Specifications, Raw Materials, equipment or Manufacturing Process is required by one or more Regulatory Authorities or regulatory authorities outside the Territory or shall be applied globally, including for the manufacture of Products inside and outside the Territory, and if such change would require approval of any Regulatory Authority in the Territory or an amendment of any Marketing Authorization application or Registration, ARIAD US shall provide ARIAD SWISSCO with all information needed to amend the Marketing Authorization application or Registration and/or obtain the approval of the Regulatory Authority, as applicable, and the Parties shall cooperate with each other in obtaining any necessary modifications to any Registrations in the Territory to allow such change to be implemented.  If the proposed change is required by a Regulatory Authority, then such notice shall include disclosure of the Regulatory Authority request and relevant correspondence.  If any change to the Specifications, Raw Materials, equipment or Manufacturing Process is not required by any Regulatory Authority outside the Territory and shall not be applied globally and would require approval of any Regulatory Authority in the Territory or an amendment of any Marketing Authorization application or Registration, ARIAD US shall provide advanced written notice to ARIAD SWISSCO and shall consult with ARIAD SWISSCO regarding the implementation of such change.  If the change is required by a Regulatory Authority inside the Territory but not in any other part of the world, [**] of implementing such change. If the change proposed by ARIAD US is required only by one or more regulatory authorities outside the Territory, or is not required by any Regulatory Authority, [**] of implementing such change.  If the change is required by one or more Regulatory Authorities inside the Territory and by one or more regulatory authorities outside the Territory, [**].  For the avoidance of doubt, [**] of implementing a change to the Specifications, Raw Materials, equipment or Manufacturing Process if such change is mandated by a Regulatory Authority inside the Territory, and [**] of implementing such a change that is not mandated by any Regulatory Authority, including any such non-mandated change that ARIAD SWISSCO approves and that requires an amendment of a Marketing Authorization application or Registration or approval of a Regulatory Authority in the Territory. For clarity, ARIAD US shall have the right, [**], to change equipment for maintenance, repair, and like-for-like replacement, and to make other changes that ARIAD US reasonably determines shall not require approval of any Regulatory Authority or affect the Marketing Authorization application(s) or Registration(s) in the Territory, without notice to or consent of ARIAD SWISSCO.  Further for clarity, the Quality Agreements shall contain change control procedures, and any changes made to the

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Specifications, Raw Materials, equipment or Manufacturing Process shall be made in accordance with the Quality Agreements and in compliance with cGMP and Applicable Laws. 

12.4  Final Manufacturing.  Subject to Section 10.2.1, with effect from the Effective Date, ARIAD SWISSCO shall be responsible for the Final Manufacturing of all Product, including performing secondary packaging, labeling and providing product inserts and final release and stability testing in accordance with the Marketing Authorization and Regulatory Requirements in the country in the Territory that is the intended market for such lot of Product, and in accordance with all Applicable Laws.

12.5  Inspections.  At ARIAD SWISSCO’s request, ARIAD US will authorize ARIAD SWISSCO or its representatives, during normal business hours (or at other times for cause), to review documents including but not limited to: completed manufacturing batch records, analytical results for product release and stability, associated manufacturing standard operating procedures and other standard operating procedures that are associated with maintenance of the process, facility and personnel in accordance with cGMPs, and observe the Manufacture of Product to confirm ARIAD US’s compliance with the terms of this Agreement and the Quality Agreement.  ARIAD US will notify ARIAD SWISSCO within [**] of all contacts with Regulatory Authorities (written or verbal) related to each Product.  ARIAD US shall inform ARIAD SWISSCO of the result of any regulatory inspection which directly affects the Manufacture of a Product, including any notice of inspection, notice of violation or other similar notice received by ARIAD US affecting Manufacturing, facility, testing, storage or handling of a Product.  In the event of an FDA inspection which directly involves a Product, ARIAD SWISSCO shall be immediately informed of the issuance of the Notice of Inspection (FDA Form 482).  In the event that there are inspectional observations (FDA Form 483), ARIAD SWISSCO shall be informed immediately and shall have the opportunity to review and provide ARIAD US with comments to ARIAD US’s response.  ARIAD SWISSCO shall provide its comments to the response of these observations within [**].  The contents of ARIAD US’s response shall be determined by ARIAD US in its sole discretion.  ARIAD US agrees to reasonably cooperate with applicable Regulatory Authorities and shall permit reasonable Product-specific inspections by such Regulatory Authorities. 

ARTICLE 13 –  QUALITY ASSURANCE

13.1  Quality. The details of quality obligations and responsibilities of the Parties, including responsibility for submissions of reports to Regulatory Authorities, shall be set forth in one or more separate quality technical agreements (each, a “Quality Agreement”).  As of the Effective Date the Parties will enter into an interim quality agreement in relation to the Transitional Supply Arrangements (“Interim Quality Agreement”).  The Parties shall negotiate to agree a further Quality Agreement to be signed concurrently with the Supply Agreement and, once executed, that Quality Agreement shall supersede and replace the Interim Quality Agreement. 

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ARTICLE 14 - RECALLS AND PRODUCT WITHDRAWAL

14.1  Notice.Each Party shall make every reasonable effort to notify the other Party promptly following the first Party’s determination that any event, incident, or circumstance has occurred that may result in the need for a Product Withdrawal anywhere in the world or a Recall anywhere in the world. Such Party shall include in such notice the reasoning behind such determination, and any supporting facts.

14.2  Product Withdrawal.  With respect to a Product Withdrawal within the Territory, immediately after receipt of such notification, the JSC (or its co-chairpersons) shall discuss and, unless the Product Withdrawal is mandated by a Regulatory Authority, shall attempt to agree on whether to voluntarily implement the Product Withdrawal within the Territory.  If a Regulatory Authority mandates that the Product Withdrawal within the Territory be implemented then ARIAD SWISSCO, in consultation with ARIAD US, shall initiate the Product Withdrawal within the Territory as and to the extent mandated by the Regulatory Authority and in compliance with Applicable Laws. In the case of a Product Withdrawal that is not mandated by Regulatory Authority, if the JSC (or its co-chairpersons) fail(s) to agree within a reasonably appropriate time period (depending upon the circumstances) whether to voluntarily implement or undertake a Product Withdrawal within the Territory, then ARIAD SWISSCO and/or the MAH  shall have the right to make the determination whether or not to voluntarily implement such Product Withdrawal within the Territory; provided that, to the extent practicable prior to deciding to initiate a Product Withdrawal within the Territory, ARIAD SWISSCO shall or shall procure that the relevant MAH shall consider ARIAD US’s reasonable comments in good faith.  ARIAD SWISSCO or its Sublicensees shall carry out such Product Withdrawal activities in consultation with ARIAD US, in a manner which enables the Parties to meet their respective Regulatory Requirements as expeditiously as possible, and in compliance with all Applicable Laws.  In the event of a mandated or voluntary Product Withdrawal in the Territory, the Parties will consider whether such action is necessary also in the Reserved Territory.  If either Party or the relevant MAH does not choose to undertake a voluntary Product Withdrawal in its respective territory, despite the other Party’s written recommendation that such Product Withdrawal should be undertaken, then, notwithstanding anything to the contrary herein, such Party shall indemnify and hold harmless the other Party from and against any Losses that may arise or result thereafter from such Party’s failure to undertake such Product Withdrawal following such written recommendation from the other Party pursuant to the procedures set forth in Section 22.3.

14.3  Recall.  If a Regulatory Authority mandates that a Recall be implemented or undertaken by ARIAD SWISSCO in the Territory or by ARIAD US in the Reserved Territory, then ARIAD SWISSCO and/or the relevant Sublicensee, in consultation with ARIAD US (in the case of Recalls in the Territory) or ARIAD US and/or the relevant licensee, in consultation with ARIAD SWISSCO (in the case of Recalls in the Reserved Territory), shall initiate the Recall as and to the extent mandated by the Regulatory Authority and in compliance with Applicable Laws.  With respect to a Recall in the Territory that is not mandated by a Regulatory Authority, (i) the Parties’ JSC co-chairs shall discuss and attempt to agree on whether to voluntarily implement the Recall and (ii) if the Parties’ JSC co-chairs fail to agree within a reasonably appropriate time period (depending upon the circumstances), then ARIAD SWISSCO

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shall have the right to make the determination whether or not to voluntarily implement a Recall in the Territory and ARIAD US shall have the right to make the determination whether or not to voluntarily implement a Recall in the Reserved Territory. 

14.4  Expenses.  [**], unless and to the extent the Recall or Product Withdrawal is based on the fault of [**], including in relation to Manufacture in which case such [**].

ARTICLE 15 – COMMERCIALIZATION OF THE PRODUCT

15.1  Commercialization Plan. The Parties shall annually update their part of the

Commercialization Plan for the following Calendar Year before a mutually agreeable date prior to December 31 in the preceding year. The JCC shall consider and discuss the revised plans, and ARIAD SWISSCO shall consider in good faith the input of ARIAD US on the ARIAD SWISSCO part of the Commercialization Plan for the Territory.  ARIAD SWISSCO shall use Commercially Reasonable Efforts to implement its part of the then current Commercialization Plan.

15.2  Commercialization Efforts.  ARIAD SWISSCO shall either itself or through its Affiliates, Sublicensees or Subcontractors, have the sole right to Commercialize the Product [**] and in accordance with applicable cGMP and any other Applicable Laws and Industry Guidelines in each country of the Territory.  ARIAD SWISSCO will conduct, as it deems appropriate, marketing and medical affairs activities to support the Commercialization of the Product in the Territory.  ARIAD SWISSCO and its Affiliates will devote the following [**] to cover all [**] of their [**] business as a whole for the Product, [**] (it being understood that (a) such commercial costs will include a [**] of the Product [**] based on the number of products they carry, (b) such medical affairs costs will include costs only for [**] who support Product or work in CML or other approved indications of Product, and (c) both [**] will exclude Third Party costs that are not meaningfully related to the Product): [**] for calendar year [**] and for each year thereafter until the earlier of (a) the expiration of the Full Royalty Term in the last to expire country of the countries listed in Appendix 1.167 Part B or (b) the launch of a Generic Product in any of [**], the [**] will remain at [**] of Net Sales unless the Net Sales of Product by ARIAD SWISSCO in the Territory in calendar year [**] or in any calendar year thereafter is less than the Net Sales of Product by ARIAD SWISSCO in the Territory in calendar year [**], in which case the percentage of Net Sales applicable for such calendar shall be [**].  Notwithstanding the foregoing, the [**] for each calendar year from calendar year [**] through the earlier of (i) expiration of the Full Royalty Term in the last to expire country of the countries listed in Appendix 1.167 Part B or (ii) the launch of a Generic Product in any of [**] for each such calendar year.  ARIAD SWISSCO will provide ARIAD US within [**] of calendar year end, an annual report of its commercial and medical expenses in support of Product, such report to contain the total [**], and other such details that the Parties mutually agree.   

15.3  Promotion.  The Parties shall meet on a periodic basis, through the JCC, to (i) review and discuss the global Product communication strategy/brand positioning (“Global Product Positioning”) for the Product (as proposed by ARIAD US with input from ARIAD SWISSCO as well as other Product partners globally)  (ii) discuss marketing

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strategies in their respective territories, (iii) discuss planned marketing/promotional activities at international medical/scientific meetings/conferences in either Party’s territories.  ARIAD SWISSCO shall be entitled to use all existing print marketing, advertising and promotional materials, brand plan and strategy used in respect of the Product in the Territory, and all training manuals currently used for ARIAD SWISSCO’s medical science liaisons and sales representatives as at the Effective Date.  Any new materials shall be developed and prepared by ARIAD SWISSCO in its sole discretion, provided that ARIAD SWISSCO shall consider Global Product Positioning when preparing such materials and, upon written request by ARIAD US, provide a courtesy copy of such materials to ARIAD US.ARIAD US shall provide a courtesy copy of any new print marketing, advertising and promotional materials that it may develop to ARIAD SWISSCO.  Each Party shall have the right to purchase stock of the other Party's print marketing, advertising and promotional materials on mutually agreeable terms.

15.4  Independent Contractor. ARIAD SWISSCO shall make clear in all dealings with its actual and prospective Customers that it is selling the Product in its own name and for its own account as an independent contractor and not as agent of ARIAD US.

15.5  Use of Internet.  

15.5.1       All of ARIAD SWISSCO’s internet marketing, advertising and promotional materials concerning the Product, the ARIAD US Trademarks and/or ARIAD US shall be developed and prepared by ARIAD SWISSCO in its sole discretion, provided that ARIAD SWISSCO will consider Global Product Positioning when performing such development.

15.5.2        ARIAD US may grant to ARIAD SWISSCO the right to operate a website under a domain name registered in the name of ARIAD US and relevant to or which contains information about ARIAD US, the Product, and the Trademarks, subject to terms and conditions of this Agreement. 

15.5.3        In the event that any Applicable Law or regulation in the Territory requires the domain name of any website relevant to the Product, the Trademarks and/or ARIAD US to be registered in the name of ARIAD SWISSCO or an Affiliate, then any such domain name shall be registered in the name of ARIAD SWISSCO or Affiliate as legally required. All such content shall be or shall become the exclusive property of ARIAD US. Upon expiration or termination of the Agreement ARIAD SWISSCO and its Affiliates agree to execute any and all further documentation required to ensure that all such content and all copyright in such content is owned by ARIAD US. To the extent permitted by Applicable Law, ARIAD SWISSCO shall be required to assign to ARIAD US or its designee all domain name registrations containing the name of the Compound, the Product, the ARIAD US Trademarks or the name ARIAD US, or variants thereof, upon the expiration or termination of this Agreement.  Neither ARIAD SWISSCO nor its Affiliate may assign or license any such domain name to any other Third Party.

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ARTICLE 16 – BUY-BACK OPTION

16.1  If ARIAD US undergoes a Change of Control prior to six (6) years from the Effective Date, ARIAD US’s successor (“ARIAD US Successor”) shall have the right, within [**] of the effective date of the Change of Control to elect to terminate this Agreement and all ancillary arrangements relating thereto earlier than the expiry of the Term (the “Buy-Back Option”).  ARIAD US Successor shall exercise such Buy-Back Option by giving notice in writing (“Termination Notice”) to ARIAD SWISSCO, specifying (i) the proposed date of early termination, which (A) in the case of a Termination Notice prior to the second anniversary of the Effective Date, shall be the third anniversary of the Effective Date, and (B) in all other cases shall be the one-year anniversary of Termination Notice, in each case such termination not to be effectuated later than seven (7) years after Effective Date and (ii) whether payment option (A) or (B) set forth in Section 16.2 is elected.  On the sixth (6th) anniversary of the Effective Date, the right to give a Termination Notice in order to exercise the Buy-Back Option shall expire and ARIAD US Successor shall have no right to terminate this License Agreement and all ancillary arrangements relating thereto pursuant to this ARTICLE 16.

16.2  Upon exercise of the Buy-Back Option, ARIAD US Successor shall [**], pay to ARIAD SWISSCO (i) an amount equal to the Purchase Price (as defined in the Share Purchase Agreement) plus all milestone and Development Costs previously paid by ARIAD SWISSCO to ARIAD US or ARIAD US Successor pursuant to this Agreement; and (ii) at [**], either (A) an amount equal to [**]Net Sales of the Product of ARIAD SWISSCO for the twelve (12) month period ending upon termination of this Agreement and a payment of twenty-five percent (25%) of Net Sales of the Product sold by ARIAD US Successor, its affiliates and sublicensees in the Territory with effect from the date of termination of this Agreement; or (B) an amount equal to [**] the Net Sales of the Product [**] in accordance with applicable accounting standards for the twelve (12) month period ending upon termination of this Agreement plus a payment of twenty percent (20%) of Net Sales of the Product sold by ARIAD US Successor, its affiliates and sublicensees in the Territory with effect from the date of termination of this Agreement. The payments being a percent Net Sales shall be made during the Full Royalty Term, and shall reduce to [**] of Net Sales thereafter for the Reduced Royalty Term.  Sections 19.2.3, 19.3, 19.5, 19.6, 19.7, 19.9, and 19.10 shall apply mutatis mutandi to payments on Net Sales made pursuant to this Section 16.2 and to ARIAD US Successor in connection therewith.  Following exercise of the Buy-Back Option, the payment obligations under this Section 16.2 shall survive any termination of this Agreement and shall be binding upon ARIAD US and ARIAD US Successor. 

16.3  Following exercise of the Buy-Back Option the Transition Back Arrangements will apply, and both Parties shall implement the same.

16.4  If, within [**] after the exercise of the Buy-Back Option, ARIAD US Successor determines to [**], ARIAD US Successor shall (and ARIAD US shall ensure that ARIAD US Successor shall) so notify ARIAD SWISSCO in writing, and if ARIAD SWISSCO desires to enter into negotiations with ARIAD US Successor with respect to such [**], ARIAD SWISSCO shall so notify ARIAD US Successor in writing within [**] of receipt of ARIAD US Successor’s written notice, and in such case the

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Parties shall enter into exclusive good faith negotiations with respect to such [**].  If, notwithstanding such negotiations, the Parties are unable to reach a definitive agreement within [**] after ARIAD US Successor’s receipt of ARIAD SWISSCO’s written notice, then ARIAD US Successor shall be free to negotiate and [**].  Notwithstanding anything to the contrary contained herein, in no event shall the entering into [**] by ARIAD SWISSCO with ARIAD US Successor with respect to such rights [**] affect in any manner any of the payments due to ARIAD SWISSCO under this ARTICLE 16, unless mutually agreed by ARIAD SWISSCO and ARIAD US Successor.

ARTICLE 17 – MEDICAL AFFAIRS ACTIVITIES

17.1  ARIAD SWISSCOshallbe solelyresponsible, [**],formedicalaffairsactivitiesintheTerritory, including providing medical liaisons, medical information and medical education programs and medical publications in the Territory, and attending relevant medical or scientific meetings and congresses, and shall allocate sufficient, appropriately qualified personnel and resources to conduct such activities, as set forth herein.  Each Party shall have the right to purchase stock of the other Party’s medical education program materials and medical publications on mutually agreeable terms.

17.2  ARIAD SWISSCO will use Commercially Reasonable Efforts to ensure that its Medical Affairs activities and communications are consistent with the Global Product Positioning, and will consider in good faith comments and input from ARIAD US to that effect.  ARIAD SWISSCO shall appropriately disseminate medical information relating to the Compound and the Product in accordance with Applicable Laws and in a manner consistent with any medical affairs materials provided by ARIAD US to ARIAD SWISSCO in writing, if any (provided such materials provided by ARIAD US are compliant with Applicable Laws and Industry Guidelines).

17.3  ISTs - General: Subject to the exceptions below, each Party is responsible for, at its expense, ISTs in its respective territory.  The Parties shall review and discuss, through a joint medical affairs team or other mutually agreed process, each new proposal for an IST that a Party would like to support, and consider in good faith inputs or comments from the other Party.  Each Party may then proceed with the IST subject to the other Party’s veto right in Sections 5.6 and 5.7.2. 

Existing Contractual ISTs: Notwithstanding the generality of the foregoing but subject to the remaining provisions of this Section, where ARIAD US has entered into binding contractual arrangements prior to the Effective Date in respect of the ISTs in the Territory listed in Error! Reference source not found. of Appendix 17.3 (“Existing Contractual ISTs”), ARIAD US shall [**]. If ARIAD US proposes to [**], the Parties shall discuss in good faith whether they would [**] as may be agreed between the Parties or whether [**], provided that, subject to the following, ARIAD US shall [**] without the [**] of the Parties. Notwithstanding the foregoing, ARIAD US shall be entitled to [**], by providing [**] to ARIAD SWISSCO, on the grounds that, in ARIAD US's [**].

ISTs Under Discussion: In respect of ISTs in the Territory which ARIAD US has considered but has not entered into binding contractual arrangements prior to the Effective Date, a list of which is set out at Error! Reference source not found. of

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Appendix 17.3 (“Existing Non-Contractual ISTs”), the Parties shall discuss in good faith whether they [**] as may be agreed between the Parties. In the event that ARIAD SWISSCO does not wish to participate in a particular Existing Non-Contractual IST [**], ARIAD US shall, [**]. Notwithstanding the foregoing, ARIAD SWISSCO shall [**].

17.4  ARIAD SWISSCO shall ensure that requests for information by Healthcare Professionals are answered in an appropriate, accurate and lawful manner by appropriately qualified personnel.  Requests for information that are inconsistent with the Marketing Authorization for the relevant country shall be handled by the medical affairs personnel only.

17.5  ARIAD SWISSCO’s medical personnel shall conduct periodic visits to clinical trial sites and investigators participating in any Product clinical trials in the Territory (including Global Studies, Proposed Studies and Ongoing Studies) to support initiation and enrollment through the provision of appropriate information and documentation and through issue escalation and coordination with clinical research organizations involved in the conduct of such studies. 

ARTICLE 18 – TRADEMARKS

18.1  ARIAD SWISSCO shall use the ARIAD US Trademarks in relation to the Development and Commercialization of the Products in the Territory. If in any country of the Territory it is not legally possible or it is not commercially practicable to use the ARIAD US Trademarks, ARIAD SWISSCO shall be allowed to select and use ARIAD SWISSCO Trademarks. All details of the reasons for the need to use ARIAD SWISSCO Trademarks and the ARIAD SWISSCO Trademarks proposed to be used shall be disclosed to ARIAD US at JCC meetings, and ARIAD SWISSCO shall make good faith efforts to take account of ARIAD US comments.

18.2  ARIAD SWISSCO  shall continue to have the right to sell inventory of Product containing reference to ARIAD US corporate names and logos as follows. ARIAD SWISSCO shall be permitted to sell any stock or inventory existing as of the Effective Date without limitation. ARIAD SWISSCO shall: (i) as soon as practicable after the Effective Date, and in any event by no later than the date falling [**] following the Effective Date re-design the packaging and/or labelling information on the Product which includes any ARIAD US corporate names and logos, so that the design and/or labelling information for such stock or packaging no longer includes any ARIAD US corporate names and logos; and (ii) as soon as practicable following receipt of any necessary approval from the applicable Regulatory Authorities cease the production and sale of any stock or packaging bearing any ARIAD US corporate names and logos; except in each case if the use of the ARIAD US corporate names and logos is required by a Regulatory Authority or under Applicable Law. 

18.3  ARIAD SWISSCO shall use the ARIAD US Trademarks only and exclusively in connection with and for the purpose of the Commercialization of the Product in the Field in the Territory. ARIAD SWISSCO acknowledges that it shall not be entitled to

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any rights whatsoever in the ARIAD US Trademarks or ARIAD US’s corporate name or logo except as required by a Regulatory Authority or under Applicable Law or as is specifically granted pursuant to this Agreement.

18.4  The ARIAD US Trademarks shall always be used together with the sign “R” or the sign “TM” or such other customary symbol or legend that correctly identifies the status of the ARIAD US Trademark (i.e., registered or unregistered) in the Territory.

18.5  Nothing contained in this Agreement shall be construed as giving ARIAD SWISSCO the right to use any of the ARIAD US Trademarks or the name or logo of ARIAD US outside the Territory or for any other product than the Product and solely in the Field. ARIAD SWISSCO recognizes the exclusive ownership rights of ARIAD US in and to the ARIAD US Trademarks and the name and logo of ARIAD US and acknowledges that it shall not acquire any ownership or other rights in respect of the ARIAD US Trademarks or the name or logo of ARIAD US and/or of the goodwill associated therewith and that all such rights and goodwill are, and shall at all times remain, vested in ARIAD US. ARIAD SWISSCO acknowledges and agrees that all use of the ARIAD US Trademarks and the name and logo of ARIAD US inures to and is for the benefit of ARIAD US. ARIAD SWISSCO shall, if requested by ARIAD US, execute an assignment to ARIAD US of any and all rights that ARIAD SWISSCO may acquire in respect of any of the ARIAD US Trademarks or the name or logo of ARIAD US and/or of the goodwill associated therewith.

18.6  ARIAD US shall use Commercially Reasonable Efforts to maintain the validity of the ARIAD US Trademarks in the Territory throughout the Term, [**].  For ARIAD US Trademarks currently used by ARIAD SWISSCO under this Agreement, ARIAD SWISSCO agrees to provide any reasonable assistance in this effort [**], provided, however, that [**] in connection with such assistance.

18.7  ARIAD SWISSCO shall promptly notify ARIAD US with respect to any threatened, potential or presumed counterfeits, copies, imitations, simulations of, or infringements upon, the ARIAD US Trademarks or the name “ARIAD US” which comes to its attention during any period where such marks or names are actively used by ARIAD SWISSCO. ARIAD US shall decide on the steps to be taken after having discussed such threatened, potential or presumed counterfeits, copies, imitations, simulation and/or infringements with ARIAD SWISSCO.  ARIAD SWISSCO shall provide all reasonable assistance (with ARIAD SWISSCO bearing [**] solely for the purpose of engaging any Third Party to assist in the performance of any action contemplated by this Section18.7) to ARIAD US in taking legal action, if deemed necessary by ARIAD US, in its sole and absolute discretion, with respect to such matters.

18.8  ARIAD SWISSCO acknowledges that ARIAD US would have no adequate remedy under this Agreement or at law in the event that ARIAD SWISSCO were to use the ARIAD US Trademarks in a manner not authorized by this Agreement and that ARIAD US would, in such circumstances, be entitled to specific performance, injunctive or other equitable relief.

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ARTICLE 19 – CONSIDERATION AND PAYMENTS

19.1  Milestone Payments. 

19.1.1   ARIAD SWISSCO shall pay ARIAD US the following non-refundable, non-creditable milestone payments after the first achievement or occurrence of the following by ARIAD SWISSCO, its Affiliates or Sublicensees:

Milestone Event	Payment Amount
[**]	[**]
[**]	[**]
[**]	[**]
[**]	[**]
[**]	[**]
[**]	[**]
[**]	[**]

19.1.2  With the exception of the [**] milestones, each of the milestone payments set out in Section 19.1.1 shall be payable only upon the first occurrence of the applicable event, whenever it occurs.  ARIAD SWISSCO shall report the occurrence of each milestone event to ARIAD US within [**] of its occurrence.  Upon notification, ARIAD US shall invoice ARIAD SWISSCO for the amount of the milestone.  ARIAD SWISSCO shall pay the milestone invoice within [**] of receipt of the invoice.  Milestone payment to ARIAD US shall be made by wire transfer to an account designated in writing by ARIAD US. 

19.2  Royalties. 

19.2.1  Full Royalty Term. Subject to the adjustments provided in this Section 19.2, Section 19.11 and ARIAD SWISSCO’s offset rights, ARIAD SWISSCO will pay to ARIAD US during the Full Royalty Term as set forth below:

royalty = A+B+C+D+E, where:

A  equals thirty-two percent (32%) of that portion of Net Sales of Product in the Territory which, during the calendar year in question, is less than or equal to [**];

B  equals [**] of that portion of Net Sales of Product in the Territory which, during the calendar year in question, is greater than [**] and less than or equal to [**];

C  equals [**] of that portion of Net Sales of Product in the Territory which, during the calendar year in question, is greater than [**] and less than or equal to [**];

D equals [**] of that portion of Net Sales of Product in the Territory which, during the calendar year in question, is greater than [**] and less than or equal to [**];

E  equals fifty percent (50%) of that portion of Net Sales of Product in the Territory which, during the calendar year in question, is greater than [**].

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19.2.2  Reduced Royalty Term.  Subject to Section 19.11 and ARIAD SWISSCO’s offset rights, ARIAD SWISSCO shall pay to ARIAD US a royalty of [**] of Net Sales in each country in the Territory as to which the Full Royalty Term has expired.  Such royalty obligation shall begin in each country in the Territory on the day after the Full Royalty Term has expired and continue until the [**] of such expiration (the “Reduced Royalty Term”).  Further for clarity, after the expiration of the Reduced Royalty Term in each country in the Territory, no further royalties shall be due with respect to Net Sales in such country and the licenses granted to ARIAD SWISSCO hereunder shall become fully paid-up and royalty-free with respect to such country for the remainder of the Term. 

19.2.3  Net Sales Reports and Royalty Payments

(a)[**] before the end of each calendar quarter (other than during the first [**] after the Effective Date, when no such estimate shall be required), ARIAD SWISSCO shall deliver to ARIAD US a report with estimated Net Sales made in such quarter, including:

(i) Net Sales of Product in local currency, by country by Presentation, during the quarter; and

(ii) all exchange rate conversions in accordance with Section 19.5..

The Parties, through a Transition Services Agreement as defined in the Share Purchase Agreement, will agree upon an approach through which the foregoing reports can be provided by ARIAD SWISSCO, whether through successful migration to ARIAD SWISSCO or ARIAD US providing continued access to its reporting systems.

(b)Within [**] after the end of each calendar quarter, ARIAD SWISSCO shall deliver to ARIAD US a report setting out the details described in (a) and (b) above with respect to actual Net Sales made in such calendar quarter.

(c)Promptly following receipt of the royalty report ARIAD US shall issue an invoice for the royalties due and ,  ARIAD SWISSCO shall pay the invoiced royalty within [**] of receipt of the invoice.  Royalty payment to ARIAD US shall be made by wire transfer to an account designated in writing by ARIAD US. 

19.3  ARIAD SWISSCO shall provide (a) such monthly sales reports as ARIAD US may reasonably request in relation to the sales data and information reasonably necessary to understand, the level of gross sales invoiced in the Territory and (b) such quarterly sales reports as ARIAD US may reasonably request in relation to the sales data and information reasonably necessary to understand, gross sales invoiced and deductions taken in Sections 1.112(a) through 1.112(g) to arrive at Net Sales in the Territory.

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19.4  Distribution Agreement Milestone Payments.  ARIAD SWISSCO shall, promptly, upon receipt (and in any event within [**] of receipt) pay to ARIAD US [**] of the Distribution Agreement Milestone Payments in [**].  ARIAD SWISSCO hereby agrees to (i) use all Commercially Reasonable Efforts to enforce the provisions of the relevant Distribution Agreement pursuant to which the Distribution Agreement Milestone Payments are payable and collect payment thereof from the relevant counterparty; and (ii) not [**] the relevant Distribution Agreement pursuant to which the [**] or take any other steps that would [**] under this Section 19.4 without ARIAD US’ prior written consent or without providing compensation for such impact.

19.5  Payment Currency and Exchange Rate.  All amounts due under this Agreement shall be paid in US dollars.  The amount of Net Sales under Section 19.2 shall be determined in Local Currency.  The Net Sales amount shall be converted from Local Currency into US dollars using the average interbank exchange rate for conversion of one unit of Local Currency to one US dollar during the calendar quarter prior to the payment due date.  Exchange rates shall be as published by OANDA.com “The Currency Site” under the heading “FxHistory: historical currency exchange rates” at www.OANDA.com/convert/fxhistory.  All payments under this Agreement shall be made by bank wire transfer in immediately available funds to a bank account designated in writing by the payee Party or by other means as directed by the payee Party in writing.

19.6  Interest.  Payments made under this Agreement shall be considered to be made as of the day on which there were sent.  In the event that any payment due under this Agreement is not made when due, the payment shall accrue simple interest from the date due at a rate per annum equal to [**] above the [**] published in the [**], (or, if the [**], ceases to publish such rates, such other reputable financial news source as ARIAD US may select)in effect on the date of the scheduled date of payment; provided that, in no event shall such rate exceed the applicable maximum legal annual interest rate then in effect.  The payment of such interest shall not limit the payee Party from exercising any other rights it may have as a consequence of the lateness of any payment.  [**].  The payer Party shall pay the interest together with the overdue amount.

19.7  Tax Matters.  Unless otherwise agreed in writing by the Parties or required by Applicable Laws, all amounts payable by one Party to the other Party pursuant to this Agreement (each a “Payment”) excludes all withholding, sales, use, consumption, value-added, customs, excise and other taxes, duties or governmental assessments (collectively, “Taxes”). The Parties shall use commercially reasonable efforts to structure all Payments to minimize the applicability of withholding taxes to the maximum extent consistent with Applicable Laws. If any Payment is subject to a deduction or withholding of Tax pursuant to Applicable Laws, the Parties shall use commercially reasonable efforts to perform all acts (including by executing all appropriate documents) so as to enable the payee Party to take advantage of any applicable double taxation agreement or treaty or to otherwise secure any applicable exemption from or reduction in withholding Taxes.  In the event there is no applicable double taxation (or other exemption) agreement or treaty, or if an applicable double taxation (or other) agreement or treaty reduces but does not eliminate such withholding Tax, the payer Party shall pay the applicable Tax to the

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appropriate governmental authority, shall provide to the payee Party evidence of such payment, and shall deduct the amount paid from the Payment due the payee Party.  If the payer Party has to pay applicable withholding tax because of a failure by the payer Party to complete any procedural formalities necessary for it to obtain authorization to make payments pursuant to this Agreement without the obligation to make deduction or withholding, then the amount due from the payer Party to ARIAD US shall be increased to an amount which (after making any deduction for withholding in respect of taxes) leaves an amount equal to the payment which payee Party would have received if no such deduction or withholding had been required.  Any withholding tax imposed on a payment from an ARIAD SWISSCO Affiliate, Sublicensee or distributor in the Territory to ARIAD SWISSCO is the responsibility of ARIAD SWISSCO.

19.8  Payments and Adjustments. 

19.8.1  ARIAD SWISSCO shall be entitled to offset or otherwise withhold or adjust any Payment due to ARIAD US under this Agreement and any actual tax payment made to a tax authority under Section 9.7 (Tax Matters) of the Share Purchase Agreement in view of claims that ARIAD SWISSCO may have.

19.8.2  Within [**] after the end of each calendar year (except for the final payment, which shall be made within [**] of the [**] of the Effective Date), ARIAD US shall pay to ARIAD SWISSCO an amount equal to the Year-End Compensating Payment as set forth on Appendix 19.8.2.

19.8.3  Each Party shall make all payments due by it to the other Party under this Agreement in accordance with the time periods set forth in this Agreement for the applicable payment in full amount of such payment except (in the case of payments under this Agreement other than those under Sections 19.1, 19.2 and 19.4) as may be disputed in good faith by such paying Party.  Notice of the basis for, and reasonable detail of, any such dispute shall be provided in writing together with such payment, together with the identity of the designated finance representative of such paying Party.  The finance representatives of each Party shall promptly, but no later than [**] after the receipt of such notice, in order to attempt in good faith to resolve such dispute; provided, that, after [**], such dispute shall be escalated to the Senior Officers under Section 29.2.  If the Senior Officers are not able to resolve such dispute in accordance with Section 29.2, upon the request of one of the Parties, such dispute shall be submitted to an independent accounting firm in accordance with the general procedures set forth in Section 19.9, or, absent such submission, either Party may invoke the provisions of Section 29.3 with respect to such dispute.

19.9  Books, records and accounts.  Throughout the Royalty Term and for a period of at least [**] thereafter, ARIAD SWISSCO shall keep complete and accurate books, records and accounts in accordance with all Regulatory Laws and Regulatory Requirements and sound accounting practice covering all its operations hereunder and as may be necessary for the purpose of calculating all payments due to ARIAD US under this ARTICLE 19 and the required expenditures under Section 15.2. 

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ARIAD US shall have the right, throughout the Term and for a period of [**] thereafter, at reasonable times during business hours and upon reasonable notice to ARIAD SWISSCO, to have ARIAD SWISSCO’s books, records and accounts inspected and audited by a reputable independent auditor employed by one of the four major accounting firms to be appointed by ARIAD US and reasonably acceptable to ARIAD SWISSCO, to ensure the accuracy of all reports and payments made hereunder and in respect of all Development Costs and the expenditures made by ARIAD SWISSCO and its Affiliates as required in Section 15.2.  Such audit shall be covered by confidentiality obligations of the auditor.  Such inspection and audit may not be (i) conducted for any calendar year more than [**] after the end of such year, (ii) conducted more than once in any [**] period, or (iii) repeated for any [**]. ARIAD SWISSCO shall cooperate with the independent auditor and make available all work papers and other information related to this Agreement reasonably requested in connection herewith (subject to written obligations of confidentiality to ARIAD SWISSCO).  For purposes of (a) payments under this Agreement including Sections 5.3.1, 5.3.2, 5.7.3, 5.7.4, and 5.9 and calculation of any Development Costs that one Party must pay to the other under this Agreement, (b) the determination of the Cost of Manufacture, (c) calculation of the Year-End Compensating Payment pursuant to Appendix 19.8.2, and (d) calculation of manufacturing technology transfer costs, this Section 19.9 shall apply mutatis mutandi to the applicable Party’s books, records and accounts and for the applicable party to audit such books, records and accounts.

19.10 Currency embargoes.  If at any time currency embargoes or similar legal restrictions in any country in the Territory prevent the prompt remittance of any payments hereunder, ARIAD SWISSCO shall make such payments by depositing the amount thereof in local currency to the account of ARIAD US in a bank or depository in such country designated by ARIAD US.

19.11 Generic Competition.  In countries in the Territory where (i) a Generic Product enters the market, the royalty rates set out in Section 19.2 above shall be reduced by [**] during the Full Royalty Term and by [**] thereafter in such country, (ii) the Generic Product(s) comprises more than [**] of the unit sales of Product and Generic Products in such country, the royalty rates set out in Section 19.2 above shall be reduced by [**] during the Full Royalty Term and by [**] thereafter, and (iii) the Generic Product(s) comprises more than [**] of the unit sales of Product and Generic Products in such country, the royalty rates set out in Section 19.2 above shall be reduced to [**] during the Full Royalty Term and by [**] thereafter.  If such a Generic Product enters the market prior to the expiration of the Composition Patent in such country and if ARIAD US institutes an action or proceeding in accordance with Section 23.4 and prevails in such action the applicable royalty rates set out in Section 19.2 would be reinstated until such other time as the foregoing provision applies.

19.12 No amounts will be due and payable by ARIAD SWISSCO under Section 19.1 upon the Buy-Back Option having been exercised pursuant to ARTICLE 16.

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ARTICLE 20 – REPRESENTATIONS AND WARRANTIES

20.1  ARIAD US hereby represents and warrants to ARIAD SWISSCO as of the Effective Date, and with respect to Sections 20.1.4, 20.1.5, 20.1.6, 20.1.7 and 20.1.17 only, throughout the Term, as follows:

20.1.1  Organization. ARIAD US has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, USA.  ARIAD US has the corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement.

20.1.2  Authorization. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement, by ARIAD US have been duly and validly authorized by all requisite corporate actions.  This Agreement constitutes a legal, valid and binding agreement of ARIAD US, enforceable against ARIAD US in accordance with its terms.

20.1.3  Execution. The persons executing this Agreement on behalf of ARIAD US are duly authorized to do so and by so doing have bound ARIAD US to the terms and conditions of this Agreement.

20.1.4  No Inconsistent Obligations. Except as disclosed in the Disclosure Schedules, the execution, delivery and performance by ARIAD US of this Agreement, and the consummation of the transactions contemplated by this Agreement, do not and shall not (i) contravene or conflict with the charter or bylaws of ARIAD US or its Affiliates, as applicable, or (ii) conflict with, constitute a default in any material respect under or give rise to any right of termination or cancellation of, any agreement or instrument to which ARIAD US or its Affiliates is a party that would have a material adverse effect on the ability of ARIAD US or its Affiliates to perform its obligations hereunder.  As of the Effective Date, there is no action, suit, investigation or proceeding pending against, or to the Knowledge of ARIAD US, threatened against or affecting, ARIAD US or its Affiliates before any court, arbitrator or any governmental authority, including Regulatory Authorities, which, if decided against ARIAD US or its Affiliates, would have a material adverse effect on the ability of ARIAD US or its Affiliates to perform their obligations hereunder.

20.1.5  Product.Product Delivered hereunder shall: 

(a)be Manufactured in all material respects in accordance with the Marketing Authorization, the applicable Quality Agreements, all Applicable Laws and cGMPs;

(b)have the requisite shelf life on the date of Delivery as set forth in the Specifications;

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(c)conform to the Specifications at the time of Delivery until the expiry date set forth on the label for the given lot of the Product; and

(d)at the time of Delivery, be free and clear of any lien or encumbrance.

20.1.6  Right to Grant License. ARIAD US and its Affiliates are the sole and exclusive owners of the Patents listed in Appendix 1.128 and the Know How, and ARIAD US is entitled to grant the licenses to ARIAD SWISSCO specified in ARTICLE 2.

20.1.7  Patent Validity and No Patent Challenge. To the Knowledge of ARIAD US, the claims of the issued patents included in the Patents listed in Appendix 1.128 are not invalid and the issued patents included in the Patents listed in Appendix 1.128 are not unenforceable in the Territory. No Third Party has challenged in writing, or, to the Knowledge of ARIAD US, has threatened to challenge,the enforceability or validity of any issued patents included in the Patents listed in Appendix 1.128 or any claims therein, respectively in the Territory through the institution of legal proceedings in a court or through opposition, interference, reexamination, nullity or similar invalidity proceedings before a patent office or any equivalent government agency in the Territory.  Appendix 1.128 represents all Patents that cover or disclose the Compounds and Products as of the Effective Date.

20.1.8  No ARIAD US Trademark Challenge. No Third Party has challenged in writing, or, to the Knowledge of ARIAD US, has threatened to challenge, ARIAD US’s right to use and license the ARIAD US Trademarks in the Territory.

20.1.9  No Infringement by Third Parties. To the Knowledge of ARIAD US, no Third Party is infringing the Patents in the Territory.

20.1.10  No Claim that Development or Commercialization Infringes Third Party IP. There are no claims asserted in writing, judgments, or settlements in effect against, or amounts with respect thereto owed by, ARIAD US or any of its Affiliates relating to the Patents in the Territory. No claim or litigation is pending or, to the Knowledge of ARIAD US, threatened alleging that the manufacture, use or sale of the Product in the Territory infringes or would infringe any issued patent in the Territory.  To ARIAD US’s Knowledge, the Development, Manufacture, and Commercialization of Compounds or Products in the Field in the Territory will not infringe or misappropriate the intellectual property or proprietary rights of any Third Party in the Territory.

20.1.11  Regulatory Documentation.The status of Marketing Authorizations in each country or other jurisdiction in the Territory as of the Effective Date is accurately reflected on Appendix 1.167 and each of them is in full force and effect. To the Knowledge of ARIAD US, ARIAD US and its Affiliates have generated, prepared, maintained, and retained all material records that are required to be maintained or retained pursuant to and in accordance with

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good laboratory practice and cGMP and Applicable Law, and all such information is true, complete and correct. Neither ARIAD US nor its Affiliates have received any written notice that any Regulatory Authority with jurisdiction in the Territory over the Products has commenced or will commence any action: (i) to suspend, revoke, not renew or materially amend any Marketing Authorization held by ARIAD US or its Affiliates; or (ii) prohibit production, development, marketing or sale of the Product in the Territory.

20.1.12Patent Prosecution. The Patents listed in Appendix 1.128 have been filed and maintained, and are being diligently prosecuted, in the respective patent offices where filed in the Territory in accordance with Applicable Laws.  All applicable and material fees due prior to the Effective Date in connection with the prosecution and maintenance of the Patents listed in Appendix 1.128 in the Territory have been paid.

20.1.13Compliance with Law. Except as disclosed in the Disclosure Schedules, ARIAD US and its Affiliates and, to the Knowledge of ARIAD US, their respective contractors and consultants, have complied in all material respects with Applicable Laws in the Development, manufacture and Commercialization of the Compound and Product in the Territory prior to the Effective Date.

20.1.14No Encumbrances.  ARIAD US or its Affiliates Control the entire right, title and interest in the Patents and the Know-How, free of any encumbrance, lien, or claim of ownership by any Third Party, except its obligations to PDL BioPharma, Inc. under the PDL Agreements.

20.1.15Employee Assignments. All current and former officers or employees of ARIAD US or any of its Affiliates who are inventors of or have otherwise contributed in a material manner to the creation or development of any Patents or Know-How have (i) executed and delivered to ARIAD US or any such Affiliate an assignment or other agreement regarding the protection of proprietary information and the assignment to ARIAD US or any such Affiliate of any such Patents or Know How; and (ii) to ARIAD US’s Knowledge, no current officer or employee of ARIAD US or any of its Affiliates is in violation of any term of any assignment or other agreement regarding the protection of Patents or Know-How or of any employment contract or any other contractual obligation relating to the relationship of any such Person with ARIAD US or any such Affiliate.  ARIAD SWISSCO has no obligation to contribute to any remuneration of any inventor employed or previously employed by ARIAD US or any of its Affiliates in respect of any such Patents and Know-How and discoveries and intellectual property rights therein that are so assigned to ARIAD US or its Affiliate(s).

20.1.16No Debarment.  Neither ARIAD US nor any of its Affiliates has been debarred by the FDA, is not subject to any similar sanction of other Regulatory Authorities in the Territory, and neither ARIAD US nor any of its Affiliates has used, in any capacity, in connection with this Agreement or any ancillary agreements (if any), any Person who either has been

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debarred by such a Regulatory Authority, or is the subject of a conviction described in Section 306 of the US Federal Food, Drug, and Cosmetic Act or similar sanction of other Regulatory Authorities.

20.1.17Post-Marketing Requirements.  Appendix 20.1.17 contains a true and complete list of all post-marking requirements of all Regulatory Authorities related to the Products.  ARIAD US shall promptly notify ARIAD SWISSCO of any changes in post-marketing requirements, ARIAD US and its Affiliates have and during the Term, will comply with all such requirements. 

For the purposes of this ARTICLE 20, Disclosure Schedules shall mean the Disclosure Schedules set out in Appendix 20 to this Agreement.

ARTICLE 21 – COMPLIANCE WITH LAW; DATA PRIVACY; ANTI-BRIBERY AND ANTI-CORRUPTION

21.1  Each Party shall obtain and keep current all licenses, certificates, approvals and permits of whatever nature required under the Regulatory Laws and the Regulatory Requirements for the fulfilment of such Party’s obligations under this Agreement. 

21.2  In the performance of its obligations hereunder, each Party shall comply and shall cause its Affiliates, employees and contractors involved in the performance of this Agreement, and its Sublicensees and Subcontractors to comply with all Applicable Laws, including Anti-Corruption Laws, and Industry Guidelines, and, without limiting the foregoing, each Party shall comply, and shall cause its Affiliates, Sublicensees, employees and Subcontractors involved in Named Patient Program to comply with all Industry Guidelines and Applicable Laws with respect to Named Patient Programs.

21.3  Each Party shall certify to the other Party on an annual basis the following:

(a)it has in effect and implements an appropriate Anti-Corruption policy;

(b)that training and training materials on such Anti-Corruption Policy (including Anti-Corruption Laws) have been provided to all persons employed by such Party who perform work under this Agreement and interact with Government Officials or Healthcare Professionals in the normal course of their responsibilities; and

(c)It has maintained true and accurate records necessary to demonstrate compliance with the requirements of this Section 21.3.

21.4  At times, either Party may provide the other Party with personal information that falls under the protection of certain data security and privacy laws (“Protected Personal Information”).  Without limiting the generality of Section 21.1, each Party agrees to comply with all Applicable Laws relating to the use, storage, collection or other processing of such Protected Personal Information (“Data Protection Laws”).  The Parties agree to use good-faith efforts to agree upon and implement any security protocols and information handling guidelines that their respective legal advisors

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recommend in connection with the Parties’ compliance with such data security and privacy laws. 

21.5  Notice of Compliance Events.  Each Party agrees that if it learns of any violation of Anti-Corruption Laws or any material violation of any Data Protection Laws, Regulatory Laws or Export Control Laws by an employee or Subcontractor (in the case of ARIAD SWISSCO) or contractor (in the case of ARIAD US) that performs work under this Agreement (a “Compliance Event”), such Party (the “Notifying Party”) shall promptly notify the other Party (the “Notified Party”) in writing of such Compliance Event and the measures Notifying Party has taken and intends to take to remedy such Compliance Event and to prevent its recurrence.  The Notified Party reserves the right to require the Notifying Party to prohibit the employee, Subcontractor or contractor (as the case may be) from performing any work related to this Agreement after due consultation with Notifying Party.

ARTICLE 22 – INDEMNIFICATION, LIMITATIONS OF LIABILITY AND INSURANCE

22.1  Upon the terms and conditions of this ARTICLE 22, ARIAD SWISSCO shall defend, indemnify and hold ARIAD US and its Affiliates, and their respective officers, directors and employees and agents, wholly free and harmless from and against any and all liabilities, damages, losses, costs, taxes, expenses (including reasonable attorneys’ fees and other expenses of litigation and arbitration), claims, demands, suits, penalties, judgments or administrative and judicial orders (collectively, “Losses”) relating to any Proceeding or Proceeding threatened in writing to the extent arising out of or resulting from (a) any failure by ARIAD SWISSCO to comply with any Applicable Laws; (b) the performance (or failure to perform) by ARIAD SWISSCO, its Affiliates, Sublicensees, Subcontractors, or its service providers or any of their respective officers, directors, employees or agents of any of ARIAD SWISSCO’s obligations under this Agreement (including the Manufacture of Product by ARIAD SWISSCO, its Affiliates or its or their Third Party contract manufacturers); (c) any negligent act or omission or willful misconduct of ARIAD SWISSCO, its Affiliates, Sublicensees, Subcontractors, or its service providers, or any of their respective officers, directors, employees or agents; (d) any breach by ARIAD SWISSCO, its Affiliates, Sublicensees, Subcontractors, or service providers, or any of their respective officers, directors, employees or agents, of any of ARIAD SWISSCO’s representations, warranties, covenants or material obligations contained in this Agreement; (e) the storage, sampling, record-keeping or transfer of the Product by ARIAD SWISSCO, its Affiliates, Sublicensees, Subcontractors, or its service providers, or any of their respective officers, directors, employees or agents; and (f) failure of ARIAD SWISSCO to undertake a voluntary Product Withdrawal in its respective territory, despite the ARIAD US’s written recommendation that such Product Withdrawal should be undertaken, except, in each of the foregoing cases, to the extent ARIAD US has the obligation to indemnify for such Losses pursuant to Section 22.2. 

22.2  Upon the terms and conditions of this ARTICLE 22, ARIAD US shall defend, indemnify and hold ARIAD SWISSCO and its Affiliates, and their respective officers, directors and employees and agents, wholly free and harmless from and

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against any and all Losses relating to any Proceeding or Proceeding threatened in writing to the extent arising out or resulting from (a) any failure by ARIAD US to comply with any Applicable Laws; (b) the performance (or failure to perform) by ARIAD US, its Affiliates, subcontractors or its service providers, or any of their respective officers, directors, employees or agents of any of ARIAD US’s obligations under this Agreement (including the Manufacture of Product by ARIAD US, its Affiliates or its or their Third Party contract manufacturers); (c) any negligent act or omission or willful misconduct of ARIAD US, its Affiliates, subcontractors or its service providers, or any of their respective officers, directors, employees or agents; (d) any breach by ARIAD US, its Affiliates, subcontractors or its service providers, or any of their respective officers, directors, employees or agents of any of ARIAD US’s representations, warranties, covenants or obligations contained in this Agreement; (e) the storage, sampling, record-keeping or transfer of the Product by ARIAD US, its Affiliates, subcontractors, or its service providers, or any of their respective officers, directors, employees or agents; (f) the Development, commercialization, Manufacture, final manufacture or other exploitation of the Products or the Compounds anywhere in the world prior to the Effective Date or after the Effective Date for the Reserved Territory; and (g) failure of ARIAD US to undertake a voluntary Product Withdrawal in its respective territory, despite the ARIAD SWISSCO’s written recommendation that such Product Withdrawal should be undertaken, except for such activities conducted by or on behalf of ARIAD SWISSCO or its Affiliates.

22.3  Procedure.  The following shall apply to all Proceedings subject to the obligations set forth in Sections 22.1 and 22.2 above:

22.3.1   A Party or its indemnified entity seeking indemnification pursuant to Section22.1 or Section22.2 (an “Indemnified Party”) shall give to the Party from whom such indemnification is sought (the “Indemnifying Party”) prompt written notice (a “Claim Notice”) of the assertion of any claim, or the commencement of any Proceeding for which the Indemnified Party believes the Indemnifying Party may be liable under Section22.1 or Section22.2 of this Agreement, as the case may be.  The failure by any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party from Liability under Section22.1 or Section22.2 of this Agreement, as the case may be, except to the extent that the Indemnifying Party shall have been prejudiced in any material respect as a result of such failure.  A Claim Notice shall describe the nature of the claim or Proceeding and shall indicate the amount of Losses (estimated to the extent that the Losses in respect of any claim or Proceeding are reasonably capable of being estimated); provided, however, that the failure to estimate Losses (or the inaccuracy thereof) shall not affect the validity of a Claim Notice or the amount of Losses to which the Indemnified Party may be entitled.

22.3.2   The Indemnifying Party shall have the right at its discretion to control the defense of any claim or Proceeding and the right to settle or compromise any such claim or Proceeding; provided that the prior written consent of the Indemnified Party shall be required in connection with any settlement or compromise unless such settlement, compromise, discharge or consent to

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judgment (i) includes the delivery of a written release from all Liability in respect of such claim or Proceeding, (ii) does not contain any admission or statement suggesting any wrongdoing or Liability on behalf of the Indemnified Party, and (iii) does not contain any equitable order, judgment or term which in any manner affects, restrains or interferes with the business of the Indemnified Party or any of its Affiliates.  The Indemnifying Party shall exercise such right by delivering written notice of its intent to undertake the defense of such claim or Proceeding to the Indemnified Party within [**] after the receipt of a Claim Notice.  If the Indemnifying Party elects to control the defense of the claim or Proceeding, then all expenses and legal fees of such defense shall be borne by the Indemnifying Party.  If the Indemnifying Party elects to control the defense of the claim or Proceeding, then the Indemnified Party may participate therein through counsel of its choice, but the cost of such counsel shall be borne solely by the Indemnified Party.  Only in the event that the Indemnifying Party does not assume such defense within [**] after its receipt of a Claim Notice or the Indemnifying Party notifies the Indemnified Party that it will not assume such defense, the Indemnified Party may control the defense of such claim or Proceeding at the Indemnifying Party’s cost and the Indemnified Party may settle the claim or Proceeding on behalf of and for the account and risk of the Indemnifying Party, who shall be bound by the result.

22.3.3   The Indemnifying Party or the Indemnified Party, as the case may be, shall at all times use commercially reasonable efforts to keep the Indemnifying Party or the Indemnified Party, as the case may be, reasonably appraised of the status of the defense of any matter the defense of which it is maintaining and to cooperate in good faith with the Indemnifying Party or the Indemnified Party, as the case may be, with respect to the defense of any such matter.

22.4  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE SUPPLY AGREEMENT OR THE QUALITY AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND EACH PARTY SPECIFICALLY DISCLAIMS ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, NON-INFRINGEMENT, COMMERCIAL POTENTIAL, CAPACITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE KNOW-HOW, THE PATENTS AND/OR THE PRODUCT.  NEITHER PARTY NOR ANY OF ITS RESPECTIVE EMPLOYEES OR REPRESENTATIVES IS AUTHORIZED TO GIVE ANY WARRANTIES OR MAKE ANY REPRESENTATION ON BEHALF OF THE OTHER PARTY.  

22.5  SUBJECT TO SECTION 22.6 AND EXCEPT AS EXPRESSLY SET FORTH IN SECTION 10.7, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NEITHER OF THE PARTIES SHALL BE LIABLE TO THE OTHER PARTY FOR INDIRECT, SPECIAL, PUNITIVE, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOSSES ARISING OUT OF THIS

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AGREEMENT, INCLUDING LOSS OF PROFITS OR REVENUES, REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR NOT AND REGARDLESS OF ANY NOTICE OF SUCH DAMAGES OR LOSSES.

22.6  THE LIMITATIONS AND EXCLUSIONS OF LIABILITY SET FORTH IN SECTIONS 22.4 AND 22.5 SHALL NOT LIMIT OR RESTRICT: (A) THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY WITH RESPECT TO LOSSES AWARDED TO THIRD PARTY CLAIMANTS IN THIRD PARTY PROCEEDINGS THAT ARE SUBJECT TO THE OBLIGATIONS IN SECTION22.1 OR SECTION22.2; OR (B) ANY LIABILITY THAT CANNOT BE LIMITED OR EXCLUDED UNDER APPLICABLE LAW.

22.7  Each Party agrees to procure and maintain in full force and effect during the Term valid and collectible insurance policies in connection with its activities as contemplated herein in amounts that are normal and customary in the pharmaceutical industry generally for prudent companies similarly situated.  In particular, ARIAD SWISSCO’s coverage shall have limits of Liability which are commercially reasonable in the Territory but shall be [**] per loss occurrence. [**] Each Party shall provide to the other Party upon such other Party’s request a certificate evidencing the coverage required hereby and the amount thereof.  Each Party’s coverage shall be with a reputable insurance company and shall have to be maintained for not less than [**] following expiration or termination of this Agreement for any reason. 

ARTICLE 23 – THE PATENTS

23.1  Patent Marking. ARIAD SWISSCO acknowledges and agrees that any of the Product Commercialized by it shall be marked with a notice of patent rights as necessary or desirable, and legally possible, under Applicable Law to enable the Patents to be enforced to the maximum extent permissible under Applicable Laws.

23.2  Claims Relating to Patent Validity.  ARIAD SWISSCO shall reasonably cooperate with ARIAD US in connection with any claim, action, lawsuit, hearing, patent office review or other Proceeding relating to the validity of the Patents in the Territory, including by being joined as a necessary party to any such Proceeding [**].  For clarity, any Proceeding attacking the validity of a Patent in connection with an action under Section 23.4 (for example, an alleged infringer’s attack on the validity of a Patent as a defense to an allegation of infringement of such Patent) shall be dealt with pursuant to Section 23.4.

23.3  Patent Prosecution and Maintenance.

23.3.1   ARIAD US shall have the first right to prepare, file, prosecute (including any reissues, re-examinations, post-grant proceedings, requests for patent term extensions, supplementary protection certificates, interferences, and defense of invalidation or opposition proceedings or of other challenges to validity or enforceability) and maintain the Patents in the Territory, and shall keep ARIAD SWISSCO informed regarding any such matters. ARIAD US shall consider in good faith all comments, recommendations, analysis, and strategies provided by ARIAD SWISSCO for patent protection in the Territory.  ARIAD SWISSCO shall provide reasonable

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assistance in connection with any such prosecution and maintenance, including reasonably cooperating with ARIAD US, as may be reasonably requested by ARIAD US from time to time for the purpose of filing for and obtaining patent extensions and supplementary or complementary protection certificates, if available, of the Patents under the relevant Applicable Laws of the Territory.  [**] shall be responsible for any Patent prosecution and maintenance costs for the Territory and shall reimburse [**] of [**]’s costs related to such Patent prosecution and maintenance for the Territory within [**] of receipt of an invoice therefor incurred in relation to its obligations under this Section 23.3.1.

23.3.2   In the event that ARIAD US intends to cease to prosecute, or maintain a Patent in a country in the Territory, ARIAD US shall provide reasonable prior written notice to ARIAD SWISSCO of such intention (which notice shall, in any event, be given no later than [**] prior to the next deadline for any action that may be taken with respect to prosecution or maintenance of such ARIAD US Patent in such country), and ARIAD SWISSCO shall thereupon have the option, in its sole discretion, to assume the control and direction of the, prosecution and maintenance of such Patent in such country. Upon ARIAD SWISSCO’s written exercise of such option, ARIAD SWISSCO shall assume responsibility and full control for the prosecution and maintenance of such patent in such country at its own expense.

23.4  Patent Enforcement.  

23.4.1   Each Party shall, within [**], inform the other Party in writing upon its becoming aware of any potential infringement or misappropriation of any of the Patents in the Territory.  ARIAD SWISSCO shall provide reasonable assistance in connection with any Proceedings to stop such infringement and/or recover damages for such infringement in the Territory (including joining any action if necessary), as may be reasonably requested by ARIAD US.  ARIAD US shall have the first right to control any such Proceedings and ARIAD SWISSCO shall reimburse ARIAD US [**] of ARIAD US’s costs related to such Proceedings within [**] of receipt of an invoice therefor incurred in relation to its obligations under this Section.  ARIAD SWISSCO shall also have the option to be represented by counsel of its own choice to participate in the Proceedings in the Territory [**]. For clarity, the foregoing option shall not relieve ARIAD SWISSCO’s obligation to reimburse ARIAD US [**] of ARIAD US’s costs related to such Proceedings.

23.4.2   If ARIAD US does not institute an action or proceeding or take other action to prevent or terminate such possible infringement in the Territory prior to the earlier of (i) [**] following receipt of notice of such possible infringement or (ii) in the case an injunction may be required, as soon as such injunction is reasonably necessary, then ARIAD SWISSCO shall have the right to institute an action or proceeding or take other appropriate action that it believes is reasonably required to prevent or terminate such possible infringement in the Territory, including possible infringement of the Patents

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in the Territory if (and only if) such possible infringement involves the development or commercialization of a product that contains the Compound, with the reasonable assistance and cooperation of ARIAD US.  In the event that ARIAD SWISSCO institutes an action or proceeding or takes other appropriate action that it believes is reasonably required to prevent or terminate such possible infringement in the Territory, ARIAD SWISSCO reserves the right to have sole control over such proceedings, subject to Section 23.4.4.

23.4.3   In the event that ARIAD SWISSCO becomes aware of any challenge to the validity of any Patent in a country in the Territory, ARIAD SWISSCO shall provide reasonable prior written notice to ARIAD US of such challenge (which notice shall, in any event, be given within [**] of ARIAD SWISSCO becoming aware of such challenge), and ARIAD US shall thereupon have the option, in its sole discretion, to assume the control and direction of any Proceedings in relation to such Patent in such country.

23.4.4   ARIAD SWISSCO shall not settle any action or Proceedings in a manner that would have a material adverse effect on the rights or interests of ARIAD US or its Affiliates without the prior written consent of the ARIAD US.

23.4.5   Any recoveries from such Proceedings or amounts received by ARIAD US or ARIAD SWISSCO from the settlement of the same shall be allocated as follows:  First, each Party shall be reimbursed for its direct, out-of-pocket expenses for conducting, or cooperating with, such Proceeding, and second, the balance shall be [**], provided that any recovery or settlement amount that includes countries outside of the Territory shall be [**], acting reasonably and in good faith, prior to such allocation between the Parties. 

23.4.6   ARIAD SWISSCO shall have no right to sue or institute an action or proceeding or take other action to prevent infringement of any Patent other than as set out in this Section 23.4.

23.5  Infringement Claims by Third Parties.  

23.5.1   Each Party shall promptly notify the other Party in writing of any allegation by a Third Party in the Territory that any Compound and/or Product development, Commercialization (including import or export) or manufacturing activities conducted by the Parties pursuant to this Agreement infringe or misappropriate or may infringe or misappropriate the Intellectual Property Rights in the Territory of such Third Party (a “Third Party Infringement Claim”). The Parties shall discuss which Party shall defend the Third Party Infringement Claim, and absent mutual agreement otherwise, each Party shall have the right to control the defense of any such Third Party Infringement Claim brought against it, by counsel of its own choice.  If a Third Party Infringement Claim is brought against one Party (the “Defending Party”) but not the other Party, the non-Defending Party shall have the right, at its own expense, to be represented in such Third Party Infringement Claim by counsel of its own choice.

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23.5.2   Each Defending Party shall keep the other Party reasonably informed of all material developments in connection with any Third Party Infringement Claim.  Each Defending Party agrees to provide the other Party with copies of all pleadings filed in any suit or proceeding relating to such Third Party Infringement Claim.  The Defending Party may enter into a settlement or compromise of any Third Party Infringement Claim, provided that, if such settlement or compromise would admit Liability on the part of the non-Defending Party or any of its Affiliates or would otherwise have a material adverse effect on the rights or interests of the non-Defending Party or its Affiliates, the Defending Party shall not enter into such settlement or compromise without the prior written consent of the non-Defending Party. 

23.5.3   If a Third Party Infringement Claim is brought against both Parties, or initially against one Party and the other Party is subsequently joined to the Proceedings, all out-of-pocket expenses incurred by each Defending Party in defending such Third Party Infringement Claim in the Territory (including outside counsel fees), and all amounts payable by either Defending Party as a judgment based on such Third Party Infringement Claim or in settlement of such Third Party Infringement Claim (excluding payments pursuant to any Third Party License, which is governed by Section 23.6), shall be paid for by the Parties as follows: [**] by ARIAD SWISSCO and [**] by ARIAD US. 

23.5.4   If a Third Party Infringement Claim is brought against only one Defending Party and the other Party is not subsequently joined to the Proceedings, all out-of-pocket expenses incurred by such Defending Party in defending such Third Party Infringement Claim in the Territory (including outside counsel fees), and all amounts payable by such Defending Party as a judgment based on such Third Party Infringement Claim or in settlement of such Third Party Infringement Claim (excluding payments pursuant to any Third Party License, which is governed by Section 23.6), shall be [**].  

23.5.5   Any recovery by a Party of any sanctions or other amounts awarded to such Party against a Third Party asserting a Third Party Infringement Claim shall be applied in the same manner as recoveries in an action as set forth in Section 23.4.5.

23.5.6   If a Defending Party elects to enter into an agreement with a Third Party to obtain a license under such Third Party’s Intellectual Property Rights (“Third Party License”) in settlement of a Third Party Infringement Claim asserted by such Third Party, the provisions of Section 23.6 shall apply.

23.6  Third Party Licenses.  

23.6.1   Territory-Only Third Party License.  

(a)With respect to any Third Party License under which ARIAD SWISSCO is granted rights relating to its exercise of its license grant under this Agreement and which does not relate to the retained rights of ARIAD US with respect to the Reserved Territory (“Territory-

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Only Third Party License”), the Parties (through the JSC) shall discuss (1) whether such license is necessary or (2) or whether such license is useful (but not necessary) and, in the case of this clause (2), whether to obtain such Territory-Only Third Party License.  A Territory-Only Third Party License shall be considered necessary (and the JSC shall have no discretion with regarding to such determination) if the intellectual property included in such Third Party license covers the Compound or Product or the Manufacture thereof in accordance with Section 6.4. 

(b)If a Territory-Only Third Party License is necessary for ARIAD SWISSCO to exercise its license grant under this Agreement, ARIAD SWISSCO shall have the responsibility for negotiating such license and shall have the final decision-making authority regarding the terms of such license, subject to Section 23.6.3.

(c)If a Territory-Only Third Party License is useful (but not necessary) for ARIAD SWISSCO to exercise its license grant under this Agreement, the JSC shall determine (with neither Party having final decision-making authority) whether to obtain such Territory-Only Third Party License and, if such a determination is made to obtain such license, ARIAD SWISSCO shall have responsibility for negotiating such license in accordance with terms agreed upon by the Parties.  If the Parties are unable to agree upon terms for a useful Territory-Only Third Party License that the JSC has determined to obtain, ARIAD SWISSCO shall have the final decision-making authority regarding the terms of such license, subject to Section 23.6.3. 

(d)In the event ARIAD SWISSCO enters into a Territory-Only Third Party License (i) in accordance with Section 23.6.1(b) or (ii) in accordance with Section 23.6.1(c) in the event of a determination by the JSC to obtain such license, ARIAD SWISSCO shall have the right to deduct [**] of all payments paid pursuant to such Territory-Only Third Party License from the royalties payable to ARIAD US pursuant to Section 19.2; provided, that in no event shall the royalty rate otherwise payable to ARIAD US pursuant to Section 19.2.1 and Section 19.2.2 be reduced by more than [**] in the aggregate; and provided further that, if, but for the preceding proviso, the deduction under this Section 23.6.1(d) would have reduced a royalty payment made by ARIAD SWISSCO to ARIAD US by more than [**], then the amount of such deduction that exceeds [**] will be carried over to subsequent royalty payments until the full amount that ARIAD SWISSCO would have been entitled to deduct (absent the preceding proviso) is deducted.

(e)In the event ARIAD SWISSCO enters into a Territory-Only Third Party License in accordance with Section 23.6.1(c) with absence of a determination by the JSC to obtain such license, ARIAD SWISSCO

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shall have the sole responsibility for making any payments due thereunder.

23.6.2   Global Third Party License.

(a)With respect to any Third Party License to (i) Develop or Manufacture Product in the Territory and the Reserved Territory, or (ii) Commercialize Product in the Field in the Territory and the Reserved Territory (“Global Third Party License”), the Parties (through the JSC) shall determine whether to obtain such Global Third Party License and which Party will be responsible for negotiating such license (it being agreed that if such Global Third Party License relates to the US then ARIAD US shall be the Party responsible).  If the Parties (through the JSC) do not agree to obtain such Global Third Party License, cannot agree upon the negotiating Party or cannot agree on the final form of such Global Third Party License, ARIAD SWISSCO may enter into a Territory-Only Third Party License pursuant to the terms of 23.6.1.

(b)If the Parties proceed with a Global Third Party License, ARIAD SWISSCO shall be responsible for [**] of payments owed under such Global Third Party License that are attributable to the Territory (and may deduct such amounts from the royalties payable to ARIAD US pursuant to Section 19.2) and ARIAD US shall be responsible for [**] of the payments attributable to the Territory and [**] of the payments attributable to the Reserved Territory.

23.6.3  For Territory-Only Third Party Licenses other than those for which ARIAD SWISSCO has sole responsibility for payments, ARIAD SWISSCO shall keep ARIAD US reasonably informed with respect to the negotiations and deal terms relating to such license (including scope of the license and financial terms) and the ARIAD SWISSCO shall consider in good faith any comments, recommendations or analysis provided by ARIAD US. With respect to any Global Third Party License, the negotiating Party shall keep the other Party reasonably informed with respect to the negotiations and deal terms relating to such license (including scope of the license and financial terms), provide the other Party a reasonable opportunity to comment and consider in good faith all comments provided by the other Party and shall secure the written consent of the other Party prior to executing such Global Third Party License.  

ARTICLE 24 – CONFIDENTIALITY

24.1  Each Party shall treat as strictly confidential any information, data and/or document provided orally, visually, in writing or other form by or on behalf of the other Party or its Affiliates hereunder and not generally known to the trade and non-public information relating to the business of the disclosing Party or its Affiliates (all hereinafter referred to as the “Confidential Information”), and each receiving Party shall use the Confidential Information of the disclosing Party solely for the purpose of and in accordance with this Agreement. Each Party may disclose Confidential

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Information of the other Party to its employees and agents and to the employees and agents of its Affiliates, Sublicensees (in the case of ARIAD SWISSCO), Subcontractors (in the case of ARIAD SWISSCO) and other Third Party contractors solely for purposes, and only to the extent reasonably required, to facilitate the performance of such Party’s rights or obligations under this Agreement, provided that each such employee and agent and such Sublicensee, Subcontractor or other Third Party contractor, as applicable, has confidentiality obligations with such receiving Party containing provisions that protect the Confidential Information of the disclosing Party that are materially equivalent to, or more protective than, the provisions of this ARTICLE 24. In addition, ARIAD US and ARIAD SWISSCO each agrees that the other Party may disclose its Confidential Information (a) to such other Party’s legal and financial advisors, (b) as reasonably necessary in connection with an actual or potential (i) debt or equity financing of such other Party, (ii) merger, acquisition, consolidation, share exchange or other similar transaction involving such Party and any Third Party, or (iii) prosecution, defense or enforcement of any patent pursuant to ARTICLE 23 or of any litigation, (c) as reasonably required in preparing Regulatory Documentation and obtaining Registrations, (d) to comply with Applicable Law or any obligation in this Agreement, (e) in communications with existing or bona fide prospective acquirers, merger partners, lenders (including PDL BioPharma Inc. under the PDL Agreements) or investors, and consultants and advisors in connection with transactions or bona fide prospective transactions with the foregoing, in each case on a “need-to-know” basis and under appropriate confidentiality provisions substantially equivalent to those of this Agreement; provided, however, that the receiving Party shall remain responsible for any violation of such confidentiality provisions by any Third Party receiving such Confidential Information; (f) to its Affiliates, Sublicensees or prospective Sublicensees, Subcontractors or prospective Subcontractors (including Third Party manufacturers), consultants, agents and advisors on  a “need-to-know” basis in order for the receiving Party to exercise its rights or fulfill its obligations under this Agreement, each of whom prior to disclosure must be bound by obligations of confidentiality and restrictions on use of such Confidential Information that are no less restrictive than those set forth in this ARTICLE 24; provided, however, that, in each of the above situations, the receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Section 24.1(f) to treat such Confidential Information as required under this ARTICLE 24 and (g) for any other purpose with the other Party’s written consent, not to be unreasonably withheld, conditioned or delayed.  Except as set forth in the two preceding sentences, neither Party shall make Confidential Information of the other Party available to any Third Party, or any of its Affiliates, except in accordance with Section 24.3 or to applicable government agencies as required by Applicable Laws, and in this case (1) solely to the extent required by such Applicable Laws (based on advice of legal counsel) and (2) only upon exercise of its reasonable efforts to cause said agencies to maintain confidentiality thereof. 

24.2  Subject to any different arrangements agreed in writing by the Parties pursuant to this Agreement, prior to the publication or presentation of any information or data arising from any Development activity performed by a Party or its Affiliates pursuant to ARTICLE 5, or other Development activities performed hereunder, the Developing Party shall submit to the other Party a summary of the proposed publication or presentation at least [**] prior to the submission thereof for publication or

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presentation. The purposes for such prior submission are: (i) to provide the non-Developing Party with the opportunity to review and comment on the contents of the proposed publication or presentation; and (ii) to identify any Confidential Information to be deleted from the proposed publication or presentation. Any Confidential Information identified by the non-Developing Party shall be deleted prior to publication or presentation.

24.3  Notwithstanding expiration or termination of this Agreement for any reason, the foregoing confidentiality and non-use obligations shall continue for a period of [**] after expiration or termination of this Agreement.  Notwithstanding the foregoing, nothing contained in this ARTICLE 24 shall in any way restrict or impair the right of either Party to use, disclose or otherwise deal with Confidential Information of the disclosing Party, which the receiving Party can demonstrate by competent written evidence:

24.3.1   is or hereafter becomes part of the public domain through no act or omission of the receiving Party, its employees, Affiliates, sublicensees and/or subcontractors; or

24.3.2   was in the lawful possession of the receiving Party prior to receipt of the Confidential Information from the disclosing Party; or

24.3.3   previously was, or at any time hereafter is, provided to the receiving Party by a Third Party having the right to do so and which did not originate directly or indirectly from the disclosing Party; or

24.3.4   at the time of disclosure, was known by the receiving Party or an Affiliate, sublicensee or subcontractor other than as a result of disclosure to such party by the disclosing Party;

24.3.5   or after disclosure was independently developed by the receiving Party, an Affiliate, sublicensee or subcontractor without use of the Confidential Information of the disclosing Party.

24.4  The content of this Agreement shall constitute Confidential Information of each Party and shall be treated by both Parties in accordance with the provisions of this ARTICLE 24 and Section 30.9 (Public Statements).

ARTICLE 25 – TERM

25.1  This Agreement comes into force at the Effective Date hereof and shall remain in effect country by country of the Territory until the expiration of the Royalty Term in such country, unless earlier terminated in accordance with the terms of this Agreement. 

ARTICLE 26 – TERMINATION

26.1  Uncured Material Breach.  If either Party (the “Non-Breaching Party”) believes that the other Party (the “Breaching Party”) is in material breach of any of its obligations under this Agreement, then the Non-Breaching Party may deliver written notice of

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such material breach to the Breaching Party specifying the nature of the breach (a “Default Notice”).  The Breaching Party shall have [**] (or [**] in the event of a payment breach) from the receipt of the Default Notice to cure such breach or to dispute the allegation of breach; providedthat, if such breach (other than a payment breach) is capable of being cured, but cannot be cured within such [**] period, and the Breaching Party initiates actions to cure such breach within such period and thereafter diligently pursues such actions, the Breaching Party shall have such additional period as is reasonable to cure such breach, but in no event will such additional period exceed [**].  If the Breaching Party fails to cure, and fails to dispute, such breach within the applicable cure period, then the Non-Breaching Party may pursue any or all available remedies at law or equity but may not terminate this Agreement; provided,  that, if such material breach materially diminishes, or materially frustrates, the value of this Agreement taken as a whole to the Non-Breaching Party, then the Non-Breaching Party shall have the right to terminate this Agreement (1) if such material breach and failure to cure is solely with respect to a particular country or countries, such right to terminate this Agreement shall be solely with respect to such country or countries, as applicable, or (2) if such material breach and failure to cure is not solely with respect to a particular country or countries, such right to terminate this Agreement shall be with respect to this Agreement in its entirety.  The Non-Breaching Party may effectuate such termination by giving the Breaching Party written notice of termination, which termination shall be effective immediately upon the Breaching Party’s receipt of such notice of termination.  If the Breaching Party disputes in good faith the existence or materiality of a breach specified in a Default Notice or disputes any allegation that the Breaching Party failed to cure or remedy such breach, and the Breaching Party provides written notice of such dispute to the Non-Breaching Party within the above applicable cure period, the matter shall be addressed under the dispute resolution procedures in ARTICLE 29 (and during the pendency of such dispute resolution, the Non-Breaching Party may not terminate this Agreement).  If, as a result of the application of such dispute resolution procedures, the Breaching Party is determined to be in material breach of any provision of this Agreement (an “Adverse Ruling”), and if the Breaching Party fails to complete the actions specified by the Adverse Ruling to cure such material breach within [**] after its receipt of such Adverse Ruling (or within [**] in the case of an Adverse Ruling resulting from a payment breach), then, if such Adverse Ruling specifies that such material breach materially diminishes, or materially frustrates, the value of this Agreement taken as a whole to the Non-Breaching Party, the Non-Breaching Party may terminate this Agreement with respect to such particular country or countries, or with respect to this Agreement in its entirety, as applicable in accordance with clauses (1) and (2) above, by giving the Breaching Party written notice of termination, which termination shall be effective immediately upon the Breaching Party’s receipt of such notice of termination.

26.2  Bankruptcy or Insolvency. 

26.2.1  Either Party shall have the right to terminate this Agreement immediately upon written notice to the other Party, if such other Party or any of its Affiliates (i) files a petition under any bankruptcy act or has any such petition filed against it that is not discharged within [**] of the filing thereof, (ii) makes an assignment for the benefit of creditors, or (iii)

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appoints or suffers appointment of a receiver or trustee over substantially all of its property that is not discharged within [**] after such filing.

26.2.2  All licenses granted under or pursuant to this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction, licenses of rights to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code.  The Parties agree that ARIAD SWISSCO, as licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction.  The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against ARIAD US under the U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction which proceeding is not terminated or withdrawn within [**] after such commencement, ARIAD SWISSCO shall be entitled (unless ARIAD US elects to continue to perform all of its obligations under this Agreement) to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property necessary to exercise its license rights granted hereunder, which, if not already in the ARIAD SWISSCO’s possession, shall be promptly delivered to it (i) after [**] following any such commencement of a bankruptcy proceeding, upon ARIAD SWISSCO’s written request therefor (unless ARIAD US elects to continue to perform all of its obligations under this Agreement), or (ii) if not delivered under subsection (i) above, following the rejection of this Agreement by or on behalf of ARIAD US, upon written request therefor by ARIAD SWISSCO.

26.3  Termination for Force Majeure.  For the avoidance of doubt, this Agreement also may be terminated as set forth in ARTICLE 27 (Force Majeure).

26.4  Termination by ARIAD SWISSCO for Convenience.  At any time after the three (3) year anniversary of the Effective Date, ARIAD SWISSCO may terminate this Agreement in its entirety, or on a country-by-country basis, for any or no reason, upon twelve (12) months’ prior written notice to ARIAD US. 

26.5  Termination by ARIAD US.  If ARIAD SWISSCO and its Affiliates fail to meet at least [**] of the minimum expenditure obligations set forth in Section 15.2 in each of [**], and if ARIAD SWISSCO fails to exceed by at least [**] the minimum expenditure obligations in each of the succeeding [**] then ARIAD US may terminate this Agreement in its entirety upon [**] prior written notice to ARIAD SWISSCO.  Notwithstanding anything to the contrary in this Agreement, the provisions of this Section 26.5 shall be the sole and exclusive remedy of ARIAD US in this event.

26.6  Effects of Termination and Expiration.

26.6.1  Termination or expiration of this Agreement for any reason shall not extinguish any existing claims either of the Parties may have for indemnification pursuant to the terms and conditions of this Agreement,

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and shall not preclude either of the Parties from pursuing any claim for indemnification such Party otherwise may have pursuant to the terms and conditions of this Agreement to the extent that the circumstances giving rise to such claim arose prior to, on or after the date of termination or expiration of this Agreement.  Furthermore, the termination or expiration this Agreement shall have no effect on a Party’s obligation to make any payment accruing prior to the date of termination or expiration.

26.6.2  Following expiration of the Royalty Term, the grants in Section 2.1 shall become exclusive, fully-paid, royalty-free, perpetual and irrevocable.

26.6.3  Upon termination of this entire Agreement by ARIAD US under Sections 26.1, 26.2, or 26.5 or by ARIAD SWISSCO under Section 26.4, or under ARTICLE 27 for Force Majeure, the Transition Back Arrangements shall apply and shall be implemented by the Parties.

26.6.4  In the event of termination of this Agreement by ARIAD US under Section 26.1 in relation to a particular country or countries all rights granted to ARIAD SWISSCO in relation to such country or countries shall terminate and ARIAD SWISSCO shall cease any use and/or exploitation of the Registration with respect to the Product in the terminated country or countries and shall promptly and unconditionally transfer such Registration to ARIAD US or to ARIAD US’s nominee or if not so assignable, permit ARIAD US or such nominee to cross-refer to such Registration when applying for a new registration in their own name. ARIAD SWISSCO shall cease Commercializing the Product in the terminated country or countries, subject to a [**] sell off period.

26.6.5  Upon the termination of this Agreement for any reason, ARIAD SWISSCO shall have the right but not the obligation to sell all or a part of ARIAD SWISSCO’s remaining stocks of the Product. 

ARTICLE 27 – FORCE MAJEURE

27.1  If the performance of this Agreement is prevented or restricted by government action, war, fire, explosion, flood, strike, lockout, embargo, epidemics, pandemics, quarantines, acts of terrorism, lockouts or other labor disturbances, act of God, failures of common carriers, or any other similar cause beyond the control of the defaulting Party, or supply failures due to the foregoing or similar causes beyond the control of the defaulting Party’s suppliers or contractors, the Party so affected shall be released for the duration of the force majeure, or such other period agreed between the Parties as being reasonable in all circumstances, from its contractual obligations directly affected by the force majeure, provided that the Party concerned shall:

(a)give prompt notice in writing to the other Party of the cause of force majeure;

(b)use Commercially Reasonable Efforts to avoid or remove such cause of non-performance; and

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(c)continue the full performance of this Agreement as soon as such cause is removed.

27.2  The Parties shall take all reasonable steps to minimize the effects of force majeure on the performance of this Agreement and shall, if necessary, agree upon appropriate measures to be taken.  Should the force majeure continue for more than [**], then the Party not affected by such force majeure shall have the right to terminate this Agreement immediately upon written notice to the affected Party.

27.3  Notwithstanding anything contained in this ARTICLE 27, obligations to pay money are never excused by force majeure.

ARTICLE 28 – LAW TO GOVERN

28.1  This Agreement shall be governed by and construed in accordance with the law of the State of New York, United States of America, excluding any conflicts or choice of law rule or principle that might otherwise make this Agreement subject to the substantive law of another jurisdiction.

ARTICLE 29 – DISPUTE RESOLUTION

29.1  Generally. The Parties recognize that disputes as to matters arising under or relating to this Agreement or either Party’s rights and/or obligations hereunder may arise from time to time.  It is the objective of the Parties to establish procedures to facilitate the resolution of such disputes in an expedient manner by mutual cooperation and without resort to litigation.  To accomplish this objective, the Parties agree to follow the procedures set forth in this ARTICLE 29 to resolve any such dispute if and when it arises.

29.2  Escalation to Senior Officers.  If an unresolved dispute as to matters arising under or relating to this Agreement or either Party’s rights and/or obligations hereunder arises (other than any dispute at the JSC which is subject to the dispute resolution procedures set forth in Section 4.7, or any other matter that is expressly subject to either Party’s final decision-making authority or final approval as set forth elsewhere herein), either Party may refer such dispute to the Senior Officers or their respective designees, who shall meet in person or by telephone within [**] after such referral to attempt in good faith to resolve such dispute and each Senior Officer may include a relevant subject matter expert relevant to the dispute.  If such matter cannot be resolved by discussion of such officers within such [**] period (as may be extended by mutual written agreement), such dispute shall be resolved in accordance with Section29.3.  The Parties acknowledge that these discussions between the Parties to resolve disputes are settlement discussions under applicable rules of evidence and without prejudice to either Party’s legal position.

29.3  Jurisdiction.  Any unresolved dispute that was the subject of Section 29.2 (and for which a Party does not have final decision making authority) shall be brought exclusively in the federal courts of the United States of America located in New York City, New York (and each party hereby consents to personal jurisdiction and venue in, and agrees to service of process issued or authorized by, such court);  provided

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that either Party may seek injunctive relief from any court of competent jurisdiction with respect to any claim for specific performance or injunctive or other equitable relief as a remedy for a breach or threatened breach of this Agreement and either Party may seek the enforcement of any award of damages, in any court of competent jurisdiction.

ARTICLE 30 – MISCELLANEOUS

30.1  EntireAgreement.  Each schedule, exhibit or appendix hereto is integral to this Agreement and is hereby incorporated herein.  This Agreement supersedes all prior agreements and understandings, including the CDA, the Buy-In License Agreement, CSA Agreement, whether oral or written, made by either Party or between the Parties and constitutes the entire Agreement of the Parties with regard to the subject matter hereof.  It shall not be considered extended, cancelled or amended in any respect unless done so in writing and signed on behalf of the Parties hereto.  Information disclosed by either Party or its Affiliates under the CDA shall be governed by the CDA until the Effective Date of this Agreement, and shall be deemed to be Confidential Information of the applicable Party disclosed hereunder and subject to the confidentiality provisions of this Agreement from and including the Effective Date for the duration set forth herein.  If there is any conflict between any provision of the main body of this Agreement and any provision set forth in a schedule, exhibit or appendix hereto (each of which is hereby incorporated herein), the provision set forth in the main body of this Agreement shall govern. 

30.2  Severability.The Parties hereby expressly state that neither Party intends to violate any rule, law or regulation.  If any provision of this Agreement is in violation of any rule, law or regulation it shall be invalid and unenforceable, without affecting the validity or enforceability of other provisions of this Agreement.  The Parties agree to renegotiate such provision in good faith and, to the extent possible, to replace it with valid and enforceable provisions in such a way as to reflect as nearly as possible the intent and purpose of the original provision.

30.3  Independent contractor status. The status of ARIAD US and ARIAD SWISSCO under the business arrangement established by this Agreement is that of independent contractors.  When ARIAD SWISSCO acquires Products from ARIAD US or ARIAD US’s nominee it shall Commercialize them to its Customers in its own name, and for its own account.  Neither Party has authority whatsoever to act as an agent or representative of the other Party except as expressly set forth in this Agreement, nor any authority or power to contract in the name of or create any Liability against or otherwise bind the other Party or its Affiliate in any way for any purpose, nor shall ARIAD US or its Affiliate have such authority or power to so bind ARIAD SWISSCO.

30.4   Notices.  Other than routine communications made through the JSC, its subcommittees or project teams, or the Alliance Managers within the remit of such committees or persons, as contemplated elsewhere herein, all reports, notices, approvals and communications required or permitted to be made pursuant to this Agreement by one Party to the other shall be validly given or made for all purposes, in the absence of acknowledgement of receipt, on the date of mailing if mailed by

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registered airmail or by international courier to the addressee Party at the following addresses, respectively:

Notices to ARIAD US:

ARIAD US Pharmaceuticals, Inc.

26 Landsdowne Street

Cambridge, Massachusetts 02139-4234

USA

Attention: General Counsel

Tel: [**]

With copies (which shall be required but shall not itself constitute notice) to:

Baker & McKenzie LLP

100 New Bridge Street

London, EC4V 6JA

United Kingdom

Attention: J. Hobson

Tel: [**]

Notices to ARIAD SWISSCO:

ARIAD Pharmaceuticals (Europe) Sárl

Route de La Corniche 1

1066 Epalinges

Switzerland

Attention: Laurent Chardonne

Tel: [**]

With copies (which shall be required but shall not itself constitute notice) to:

Incyte Corporation

1801 Augustine Cut-Off

Wilmington, DE 19803

United States of America

Attention: General Counsel

Tel: [**]

and

Morgan, Lewis & Bockius LLP

502 Carnegie Center

Princeton, NJ 08540-6241

United States

Attention: Randall B. Sunberg

Tel: [**]

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30.5  Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, the respective successors of the Parties.  For the avoidance of doubt, subject to ARTICLE 16, the continued existence of this Agreement shall not be affected in case of change of control of either Party.

30.6  Waiver.  The delay or failure of a Party to insist upon strict performance of any of the terms and conditions of this Agreement by the other Party shall not constitute a waiver of any of the provisions hereof and no waiver by a Party of any of said terms and conditions shall be deemed to have been made unless expressed in writing and signed by such waiving Party.

30.7  Interpretation.

30.7.1        The language of this Agreement is English.  No translation into any other language shall be taken into account in the interpretation of the Agreement itself.

30.7.2        The headings in this Agreement are inserted for convenience only and shall not affect its construction.

30.7.3        Where appropriate, the terms defined in this Agreement and denoting a singular number only shall include the plural and vice versa.  Unless otherwise stated, references to days means calendar days, references to quarters means calendar quarters beginning on the first of January, April, July and October and references to years means calendar years beginning on January 1.

30.7.4        The word “including” and similar words and phrases mean including without limitation, whether or not expressly stated.  The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Articles or other subdivision.  References to the singular include the plural.  References to one gender include all genders.

30.7.5        References to any law, regulation, statute or statutory provision includes a reference to the law, regulation, statute or statutory provision as from time to time amended, extended or re-enacted.

30.8  Assignment.

30.8.1        This Agreement and the rights conferred upon a Party under this Agreement cannot be transferred or assigned by a Party without the prior, written authorization of the other Party, which authorization shall not be unreasonably withheld, conditioned or delayed.  Notwithstanding the foregoing, each Party may make such transfer or assignment without the other Party’s consent to (i) its Affiliates or (ii) to a successor of all or substantially all of the business to which this Agreement relates, whether in a merger, sale of stock, sale of assets or any other transaction, provided that written notice of the transfer or assignment is provided to the other Party. With respect to an assignment to an Affiliate, the assigning Party shall

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remain responsible for the performance by such Affiliate of all of such Party’s rights and obligations hereunder. 

30.8.2        This Agreement shall be binding upon and inure to the benefit of the Parties’ respective successors and permitted assigns.

30.9Public Statements.

30.9.1        Subject to Section 30.9.2, neither Party shall make any public announcement concerning this Agreement or the subject matter hereof without the prior written consent of the other Party or as provided in the Share Purchase Agreement.  Once initial consent to a particular disclosure or public announcement has been given and the disclosure or statement has been made concerning particular subject matter, each Party may make any further public statement concerning such subject matter so long as any such public statement is accurate and not inconsistent with the prior public disclosures or public statements approved by the other Party pursuant to this Section30.9.1 and does not reveal non-public information about the other Party, the Compound or the Product. 

30.9.2        In the event that a Party is, based on the advice of the disclosing Party’s counsel, required by Applicable Laws or the rules of a stock exchange on which its securities are listed (or to which an application for listing has been submitted) to make a public disclosure regarding this Agreement or its subject matter (including the terms of this Agreement), such Party shall submit the proposed disclosure (or proposed redacted copy of the Agreement, as applicable) in writing to the other Party as far in advance as reasonably practicable (and in no event less than [**] prior to the anticipated date of disclosure) so as to provide a reasonable opportunity for the other Party to comment thereon. Neither Party shall be obligated to obtain approval from the other Party with respect to any filings made with the applicable securities exchange commission. Neither Party shall be required to seek the permission of the other Party to repeat any information regarding the terms of this Agreement or any amendment thereto that has already been publicly disclosed by such Party, or by the other Party, in accordance with the terms of this Agreement, provided such information remains accurate as of such time and provided the frequency and form of such disclosure are reasonable.

30.9.3        Except as expressly permitted in this Agreement or as required by Applicable Law (or the regulations of applicable stock exchanges), neither Party may use the other Party’s trademarks, service marks or trade names, or otherwise refer to or identify that other Party in marketing or promotional materials, press releases, statements to news media or other public announcements, without the other Party’s prior written consent, which that other Party may grant or withhold in its sole discretion.

30.10 Expenses.  Unless specifically and expressly provided for to the contrary in this Agreement, a Party who has an obligation or right to take an action under this

78

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CONFIDENTIAL TREATMENT MATERIAL

Agreement shall be solely responsible for any and all expenses associated with such action.

30.11 Survival.  The following Articles and Sections shall survive expiration or termination of this Agreement for any reason: ARTICLE 1 (to the extent necessary to give force to, or otherwise understand, surviving provisions), ARTICLE 16, Sections 19.8, 19.9, 22.1, 22.2, 22.3, 22.4, 22.5, and 22.6, ARTICLE 24, Section 26.6, ARTICLE 28, ARTICLE 29 (with respect to any matters commenced prior to expiration or termination), and Sections 30.1, 30.2, 30.4, 30.7, 30.11, 30.12, 30.13, 30.14, and 30.18.

30.12 Waiver of Contra Proferentem Rule of Construction.Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement.  Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed against the drafting Party shall not apply.

30.13 Remedies to be cumulative.  Each Party’s remedies under this Agreement and under the law are intended to be cumulative, and not mutually exclusive.

30.14 Counterparts. The Parties may execute this Agreement in multiple counterparts, each of which constitutes an original as against the Party that signed it, and all of which together constitute one agreement.  This Agreement is effective upon delivery of one executed counterpart from each Party to the other Parties.  The signatures of all Parties need not appear on the same counterpart.  The delivery of signed counterparts by facsimile or email transmission that includes a copy of the sending Party’s signature(s) is as effective as signing and delivering the counterpart in person.

30.15 Further Assurance.  Each Party shall duly execute and deliver, or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such assignments, agreements, documents, and instruments, as may be necessary or as the other Party may reasonably request in connection with this Agreement or to carry out more effectively the provisions and purposes hereof, or to better assure and confirm unto such other Party its rights and remedies under this Agreement.

30.16 No Joint Venture.  Nothing in this Agreement creates a joint venture or partnership between the Parties.  This Agreement does not authorize any Party (a) to bind or commit, or to act as an agent, employee or legal representative of, another Party, except as may be specifically set forth in other provisions of this Agreement, or (b) to have the power to control the activities and operations of another Party.  The Parties are independent contractors with respect to each other under this Agreement.  Each Party agrees not to hold itself out as having any authority or relationship contrary to this Section 30.16.

30.17 No Third Party Rights.  Nothing expressed or referred to in this Agreement will be construed to give any Third Party, other than the Parties to this Agreement, any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement except such rights as may inure to a successor or permitted assignee.

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30.18  Waiver of Jury Trial.  EACH OF THE PARTIES KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE ACTIONS OF ANY PARTY TO THIS AGREEMENT IN NEGOTIATION, EXECUTION AND DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT.

30.19 Guaranty.  Incyte Corporation hereby unconditionally and irrevocably guarantees to ARIAD US the full and timely payment and discharge of all ARIAD SWISSCO'S payment obligations under this Agreement, including pursuant to Sections 5.3.1, 5.7.3, 5.9, 19.1, 19.2 and 19.4.  This is a guarantee of payment, and not of collection, and Incyte Corporation acknowledges and agrees that this guarantee is absolute, full, unconditional and irrevocable, and no release or extinguishment of the obligations or liabilities of ARIAD SWISSCO, whether by decree in any bankruptcy proceeding or otherwise, shall affect the continuing validity and enforceability of this guarantee, as well as any provision requiring or contemplating payment by Incyte Corporation.  Incyte Corporation's guarantee under this Section 30.19 shall continue irrespective of (i) any lack of validity or enforceability of this Agreement against ARIAD SWISSCO as a result of any bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting or relating to creditors’ rights generally, (ii) any modification, amendment, consent, extension, waiver of or consent under this Agreement that may be agreed to by ARIAD SWISSCO, (unless also agreed to by ARIAD US and Incyte Corporation) or (iii) any change in the ownership of ARIAD SWISSCO or any other Person, any merger or consolidation of ARIAD SWISSCO or any other Person into or with any other Person, or any sale, lease or other transfer of the assets of ARIAD SWISSCO or any other Person to any other Person. Incyte Corporation hereby waives, for the benefit of ARIAD US and its successors, (A) any right to require ARIAD US, as a condition of payment by Incyte Corporation, to proceed against ARIAD SWISSCO or pursue any other remedy whatsoever (provided, that, in the case of payments due by ARIAD SWISSCO under this Agreement, ARIAD US shall have, where applicable, issued an invoice in accordance with the terms of this Agreement and taken such other actions as are specifically required by the terms of this Agreement to obtain payment and, where applicable, waited the applicable payment period) and (B) to the fullest extent permitted by Applicable Law, any defenses or benefits that may be derived from or afforded by Applicable Law which limit the liability of or exonerate guarantors or sureties, except to the extent that any such defense would excuse the performance by ARIAD SWISSCO under the terms of this Agreement.  Subject to the foregoing, ARIAD US hereby agrees that Incyte Corporation shall have all defenses to its obligations hereunder that would be available to ARIAD SWISSCO under this Agreement.

[Remainder of page intentionally blank; signature page follows]

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in duplicate by their duly authorized officers as of the Effective Date.

For and on behalf of		For and on behalf of
ARIAD Pharamaceuticals, Inc.		ARIAD Pharmaceuticals (Europe) Sarl
/s/ Manmeet S. Soni		/s/ Jonathan Dickinson
Name:	Manmeet S. Soni	Name:	Jonathan Dickinson
Title:	Executive Vice President, Chief Financial Officer and Treasurer	Title:	Manager
Solely in its capacity as guarantor under Section 30.19, for and on behalf of
Incyte Corporation
/s/ Hervé Hoppenot
Name:	Hervé Hoppenot
Title:	President and CEO

Signature Page to Amended and Restated Buy-In License Agreement

APPENDIX 1.18

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APPENDIX 1.21

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APPENDIX 1.35

COMMERCIALIZATION PLAN

(see attached)

APPENDIX 1.40

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APPENDIX 1.62

Distribution Agreements

1.   [**][**][**][**][**][**][**][**][**]

APPENDIX 1.128

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APPENDIX 1.134

PRIMARY EFFICACY ENDPOINT

The “Primary Efficacy Endpoint” means achieving the [**] by [**] defined according to standard criteria as ≤[**]% of [**] to [**] on the [**], measured by [**].  The primary analysis of the primary endpoint will be performed using [**]. The study will be stratified by [**] at baseline (≥[**] versus <[**]) and [**]) to compare the MMR rate by [**] between patients receiving either dose level of ponatinib (initial dose: [**] or [**]) and patients receiving nilotinib (initial dose: [**]) and will follow a testing procedure to ensure an [**]. An efficacy interim analysis is planned after the first [**][**] have at least [**] of [**].  To maintain an overall [**] of [**] (2-sided), an [**] will be used which requires a [**]  Thus, with 2 treatment comparisons significance will be declared for [**]. For each dose comparison, if this boundary is not crossed at the time of the interim analysis, then the primary analysis will be conducted [**] following the [**]. A [**] will be used to adjust for comparisons of Cohorts A and B to Cohort C, with a dose considered significant if the [**] is <[**].

APPENDIX 1.138

Proposed Studies

(see attached)

APPENDIX 1.161

SUPERIORITY

“Superiority” means ponatinib has demonstrated [**] to nilotinib where, for any ponatinib arm the [**] is [**] at the interim or if both [**]. For each dose comparison, if this boundary is not crossed at the time of the interim analysis, then the primary analysis will be conducted [**] following the [**]. A [**] will be used to adjust for comparisons of Cohorts A and B to Cohort C, with a dose considered significant if the [**]. Additionally, both dose comparisons will be considered significant if [**] are [**] for the tests of the primary endpoint.  The primary analysis will be based on the [**] A sensitivity analysis of the primary endpoint will be performed on the [**], with patients not [**] treated as [**].

APPENDIX 1.167

Territory

Part A

European Union Countries

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1.Austria[**] 2.Belgium[**] 3.Bulgaria 4.Croatia 5.Cyprus 6.Czech Republic[**] 7.Denmark[**] 8.Estonia 9.Finland[**] 10.France[**] 11.Germany[**] 12.Greece 13.Hungary[**] 14.Ireland[**] 15.Italy[**] 16.Latvia 17.Lithuania 18.Luxembourg[**] 19.Malta 20.Netherlands[**] 21.Poland[**] 22.Portugal[**] 23.Romania[**] 24.Slovakia[**] 25.Slovenia[**] 26.Spain[**] 27.Sweden[**] 28.United Kingdom (Scotland[**], Wales[**], England[**]and Northern Ireland)

29.[**] 30.[**] 31.[**] 32.[**] 33.Turkey 34.[**] 35.[**] 36.[**] 37.[**] 38.[**] 39.[**] 40.[**] 41.Israel[**] 42.[**] 43.[**] 44.[**] 45.Norway[**] 46.Russia 47.[**] 48.Switzerland 49.[**] 50.[**]

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Part B EU 16

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APPENDIX 1.175

TRANSITION BACK ARRANGEMENTS

1.        Reversion

1.1       All rights granted by ARIAD US to ARIAD SWISSCO hereunder including but not limited to the license granted in Section 2.1 shall [**].  

1.2       Subject to and in accordance with the Transition Plan referred to in para 2 below, ARIAD SWISSCO shall [**] of (A) the ARIAD US [**], (B) the [**], (C) [**], (D) the [**] (E) all [**],  (F) all [**], (ii) where applicable, [**] all [**]

1.3       ARIAD SWISSCO and its Affiliates shall, subject to the Transition Plan,  [**].  

1.4       ARIAD SWISSCO shall [**] (i) the [**]; and (ii) [**] in accordance with the Transition Plan.  [**] will notify [**] of the [**] of [**] within [**].

1.5       The [**] shall continue.

2.        Transition Plan

2.1 The Parties shall use Commercially Reasonable Efforts to agree, in good faith, a transition plan to transition (the "Transition"), from ARIAD SWISSCO to ARIAD US and/or its designee, responsibility for Development, Commercialization and Manufacturing activities (the "Transition Plan"). Such Transition Plan shall include [**], including [**].

2. 2 The Transition Plan shall be for a period not exceeding [**] from the date of termination of all or part of this Agreement, or any other shorter period as the Parties may agree in writing.

3.         Registrations and Documentation

3.1       In accordance with Applicable Laws, ARIAD US and ARIAD SWISSCO shall, as soon as is practicably possible after termination and in any event within [**] of termination, take such reasonable actions as are necessary to [**]

3.2       ARIAD US and ARIAD SWISSCO shall execute all necessary and appropriate letters and applications to Regulatory Authorities (if any) to ensure that ownership of the Registrations are transferred to ARIAD US as soon as practicable.

3.3       The date upon which Registration is registered in ARIAD US's name shall be known as the “Transfer Date” in respect of a particular Registration.

3.4       In the event that such a transfer is not possible under Applicable Laws, ARIAD SWISSCO and ARIAD US shall each use Commercially Reasonable Efforts to [**].  

3.5       From (i) [**], until (ii) [**], ARIAD SWISSCO shall [**] required to [**].

4.Employees

4.1If, in the event of the termination of this Agreement by ARIAD SWISSCO pursuant

to Section 26.4 or 26.5, the Transition Back Arrangements are implemented pursuant to this Agreement, it is [**] after the date of such implementation of the Transition Plan:

1.  the Parties shall [**] to procure that any such [**]; and

2.  if the Parties are not able to procure that the [**] the [**] may [**] including [**]; provided that the [**]  The [**] of this subparagraph (2) shall only apply in the event that [**].  

For the purposes of this Paragraph 4, "Transfer Regulations" means the Transfer of Undertakings (Protection of Employment) Regulations 2006 and any other law implementing in any jurisdiction the European Council Directive 2001/23/EC on the approximation of laws of European member states relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses as amended or replaced from time to time or any equivalent or analogous legislation or regulations in any other country within the Territory.

APPENDIX 17.3

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APPENDIX 19.8.2

YEAR-END COMPENSATING PAYMENT

o1.[**]

APPENDIX 20

DISCLOSURE SCHEDULES

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EX-10.7

Exhibit 10.7

			]
Noticeof Grant of StockOptions and OptionAgreement				Incyte Corporation ID: [] 1801 Augustine Cut-Off Wilmington, DE  19803
[Optionee Name]		OptionNumber:				[        ]
[Optionee Address]		Plan:				2010
		ID:				[        ]
Effective <Date>, you have been granted [an Incentive/ a Nonstatutory] Stock Option Agreement to buy [______] shares of Incyte Corporation (the Company) stock at $[______] per share. The total option price of the shares granted is $[_______]. Shares in each period will become fully vested on the date shown.
Shares	Vest Type				Full Vest		Expiration
You and the Company agree that these options are granted under and governed by the terms and conditions of the Company's Amended and Restated 2010 Stock Incentive Plan and the Stock Option Agreement that can be reviewed by clicking the link provided above.  By accepting this Notice, you are agreeing to all of those terms and conditions. By accepting this Notice, you further agree that Incyte may deliver by e-mail all documents related to the Plan or this award.  You also agree that Incyte may deliver these documents by posting them on a website maintained by Incyte or by a third party under contract with Incyte.  If Incyte posts these documents on a website, it will notify you by e-mail.

INCYTE CORPORATION

AMENDED AND RESTATED 2010 STOCK INCENTIVE PLAN:

[INCENTIVE/ NONSTATUTORY] STOCK OPTION AGREEMENT
FOR EXECUTIVE OFFICERS

	This option is not intended to be an incentive stock option under section 422 of the Internal Revenue Code.
[Incentive/ Nonstatutory] Stock Option	[For incentive stock options]  This option is intended to be an incentive stock option under section 422 of the Internal Revenue Code and will be interpreted accordingly. [For nonstatutory stock options]  This option is not intended to be an incentive stock option under section 422 of the Internal Revenue Code.
Vesting	[Installment vesting]  Your right to exercise this option vests in [37] installments over a [4]-year period, as shown on the Notice of Grant of Stock Options (the “grant notice”).  The first installment consists of [25]% of the total number of shares covered by this option.  It becomes exercisable on the “full vest” date shown on the grant notice.  Each of the subsequent installments consists of [2.08333]% of the total number of shares covered by this option.  The subsequent installments become exercisable at the end of each of the [36] months following the full vest date of the first installment.  The number of shares in each installment will be rounded to the nearest whole number.  No additional shares subject to this option will vest after your service with Incyte has terminated for any reason, except as provided below under “Change in Control.” [Cliff vesting]  Your right to exercise this option vests on a “cliff” basis over a [4]-year period, as shown on the Notice of Grant of Stock Options (the “grant notice”).  The option vests and becomes exercisable in full on the [4th] anniversary of the Date of Grant, which is the “full vest” date shown on the grant notice.  If your service with Incyte terminates for any reason prior to the full vest date, no portion of this option will vest or be exercisable, except as provided below under “Change in Control.”
Term	Your option will expire in any event at the close of business at Incyte headquarters on the day before the [10th] anniversary of the Date of Grant, as shown on the grant notice.  (It will expire earlier if your Incyte service terminates, as described below.)
Regular Termination or Disability	If your service as an executive officer or director of Incyte terminates for any reason other than death, your option will expire at the close of business at Incyte headquarters on whichever of the following dates applies to you: 24 months after your service terminates, if the termination occurs because of your total and permanent disability (as defined below);

36 months after your service terminates, if the termination occurs because of your retirement as an employee of Incyte after you have reached a combined age and years of service totaling 75 and have completed at least 15 years of service as an employee of Incyte (“full retirement”); or 90 days after your service terminates, if the termination occurs because of any reason other than your total and permanent disability, full retirement or death. If your service as an employee (other than as an executive officer), consultant or advisor of Incyte (or any subsidiary) terminates for any reason other than death, your option will expire at the close of business at Incyte headquarters on whichever of the following dates applies to you: 6 months after your service terminates, if the termination occurs because of your total and permanent disability (as defined below); or 90 days after your service terminates, if the termination occurs because of any reason other than your total and permanent disability or death.  Notwithstanding the foregoing, if after full retirement (as defined above) as an executive officer or director, your service continues as an employee (other than an executive officer), consultant or advisor of Incyte or any of its subsidiaries, and such service terminates for any reason other than your total and permanent disability, or death, your option will expire at the later of 90 days after your service terminates or 12 months after your full retirement. “Total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year. Incyte determines when your service terminates for any purpose under this option award and the Plan. [For incentive stock options only] If you exercise your options more than 1 year after your service terminates due to total and permanent disability or 90 days after your service terminates due to full retirement, you should consult a tax advisor before exercising these options as such options may no longer qualify as incentive stock options.

Death

If you die while serving as an executive officer or director of Incyte, then your option will expire at the close of business at Incyte headquarters on the date 24 months after the date of death.  During that 24-month period, your estate or heirs may exercise the vested portion of your option.

	If you die while serving as an employee (other than as an executive officer), consultant or advisor of Incyte (or any subsidiary), then your option will expire at the close of business at Incyte headquarters on the date 6 months after the date of death.  During that 6-month period, your estate or heirs may exercise the vested portion of your option.
Leaves of Absence	For purposes of this option, your service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by Incyte in writing and the terms of the leave or applicable law requires continued service crediting.  But your service terminates in any event when the approved leave ends, unless you immediately return to active work. Incyte determines which leaves count for this purpose and the date the approved leave ends.
Restrictions on Exercise	Incyte will not permit you to exercise this option if the committee designated by the Board of Directors to administer the Plan (the “Committee”) determines, in its sole and absolute discretion, that the issuance of shares at that time could violate any law or regulation.
Notice of Exercise	When you wish to exercise this option, you must notify Incyte by filing the proper “Notice of Exercise” form at the address given on the form.  Your notice must specify how many shares you wish to purchase.  Your notice must also specify how your shares should be registered (in your name only or in your and your spouse’s names as community property or as joint tenants with right of survivorship).  The notice will be effective when it is received by Incyte. If someone else wants to exercise this option after your death, that person must prove to Incyte’s satisfaction that he or she is entitled to do so.
Form of Payment	When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing.  Payment may be made in one (or a combination of two or more) of the following forms: Your personal check, a cashier’s check or a money order. Irrevocable directions to a securities broker approved by Incyte to sell your option shares and to deliver all or a portion of the sale proceeds to Incyte in payment of the option price and withholding taxes.  (The balance of the sale proceeds, if any, will be delivered to you.)  The directions must be given by signing a special “Notice of Exercise” form provided by Incyte. Certificates for Incyte stock that you have owned for at least 6 months, along with any forms needed to effect a transfer of the shares to Incyte.  The value of the shares, determined as of the

	effective date of the option exercise, will be applied to the option price. A form of payment will not be available if the Committee determines, in its sole and absolute discretion, that such form of payment could violate any law or regulation.
Withholding Taxes	You will not be allowed to exercise this option unless you make acceptable arrangements, satisfactory to Incyte, to pay any withholding taxes that may be due as a result of the option exercise.
[Notice of Share Disposition]	[For incentive stock options only]  If you sell or dispose of any shares acquired pursuant to this Agreement on or before the later of (i) 2 years after the Date of Grant, or (ii) 1 year after the exercise date, you shall immediately notify Incyte in writing of such disposition.
Restrictions on Resale	By accepting the grant notice, you agree not to sell any option shares at a time when applicable laws or Incyte policies prohibit a sale.  This restriction will apply as long as you are an employee, director, consultant or advisor of Incyte (or a subsidiary).
Change in Control	The following provisions will apply in the event a Change in Control (as defined in the Plan) occurs while this option is outstanding and you are still performing service as an employee, director, consultant or advisor of Incyte (or any parent or subsidiary).  For purposes of these provisions, Incyte or any parent or subsidiary for which you are performing service is referred to as the “Employer.” If this Agreement is not assumed or replaced with a new comparable award by the Employer (with the determination of comparability to be made by the Committee), then there would be full accelerated vesting of this option upon the Change in Control. If this Agreement is assumed or replaced with a new comparable award, then this option (or such comparable award) would vest in full if within one year following the Change in Control your service for the Employer is terminated without Cause or is Constructively Terminated. For purposes of this Agreement, “Cause” shall mean (i) in the case where there is no employment agreement, consulting agreement, change in control agreement or similar agreement or plan in effect between Incyte and you on the date specified in the grant notice (or where there is such an agreement or plan but it does not define “cause” (or words of like import)):  (A) your continued failure to perform your duties with the Employer (other than any such failure resulting from incapacity due to physical or mental illness or total and

permanent disability, which incapacity has been recognized as such by the Committee or its designee); (B) engagement in illegal conduct, gross misconduct or dishonesty that is injurious to the Employer or its affiliates; (C) unauthorized disclosure or misuse of any of the Employer’s secret, confidential or proprietary information, knowledge or data relating to the Employer or its affiliates; or (D) violation of any of the employee policies or procedures of the Employer; or (ii) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement or plan in effect between Incyte and you on the date specified in the grant notice that defines “cause” (or words of like import), as defined under such agreement or plan. For purposes of this Agreement, “Constructive Termination” shall mean (i) in the case where there is no employment agreement, consulting agreement, change in control agreement or similar agreement or plan in effect between Incyte and you on the date specified in the grant notice (or where there is such an agreement or plan but it does not define “constructive termination” (or words of like import)):  (A) the assignment to you of any duties fundamentally inconsistent with your position, authority, duties or responsibilities as in effect immediately prior to a Change in Control (or any other action by the Employer that results in a fundamental diminishment in such position, authority, duties or responsibilities as in effect immediately prior to a Change in Control), provided that neither a mere change in title alone nor reassignment to a position that is substantially similar to the position held prior to the Change in Control shall constitute fundamental diminishment; (B) the Employer requiring you to be based at any office or location more than 50 miles from the office or location where you are based immediately prior to the Change in Control; or (C) any reduction in your annual base salary or target bonus opportunity (if any) from that which exists immediately prior to a Change in Control; or (ii) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement or plan in effect between Incyte and you on the date specified in the grant notice that defines “constructive termination” (or words of like import), as defined under such agreement or plan.

Transfer of Option

Prior to your death, only you may exercise this option.  You cannot transfer or assign this option.  For instance, you may not sell this option or use it as security for a loan.  If you attempt to do any of these things, this option will immediately become invalid.  You may, however, designate a family member or family trust as your beneficiary to

	exercise this option after your death (your designation must be in writing and delivered to Incyte), or you may dispose of this option in your will. Regardless of any marital property settlement agreement, Incyte is not obligated to honor a notice of exercise from your former spouse, nor is Incyte obligated to recognize your former spouse’s interest in your option in any other way.
Retention Rights	Neither your option nor this Agreement gives you the right to be retained by Incyte (or any subsidiaries) in any capacity.  Incyte (and any subsidiaries) reserve the right to terminate your service at any time, with or without cause.
Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of Incyte until a certificate for your option shares has been issued.  No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued, except as described in the Plan.
Recovery and Reimbursement of Option Gain	Incyte shall have the right to recover, or receive reimbursement for, any compensation or profit realized by the exercise of this option or by the disposition of any option shares to the extent Incyte has such a right of recovery or reimbursement under applicable securities laws.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Incyte stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan.
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to its choice of law provisions).
The Plan and Other Agreements	The text of the Incyte Corporation Amended and Restated 2010 Stock Incentive Plan (the “Plan”) is incorporated in this Agreement by reference.  All capitalized terms not defined in this Agreement are subject to definition under the Plan.  If there is any discrepancy between the terms and conditions of this Agreement and the terms and conditions of the Plan, the terms and conditions of the Plan shall control. This Agreement, the grant notice and the Plan constitute the entire understanding between you and Incyte regarding this option.  Any prior agreements, commitments or negotiations concerning this option are superseded.  This Agreement may be amended by the Committee without your consent; however, if any such amendment would materially impair your rights or obligations under the Agreement, this Agreement may be amended only by another written agreement, signed by you and Incyte.

By accepting the grant notice, you agree to all

of the terms and conditions described above and in the Plan.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Hervé Hoppenot, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Incyte Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2016

/s/ HERVÉ HOPPENOT

Hervé Hoppenot

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, David W. Gryska, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Incyte Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2016

/s/ DAVID W. GRYSKA

David W. Gryska

Chief Financial Officer

EX-32.1

Exhibit 32.1

STATEMENT PURSUANT TO

18 U.S.C. SECTION 1350

With reference to the Quarterly Report of Incyte Corporation (the “Company”) on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Hervé Hoppenot, Chief Executive Officer of the Company, certify, for the purposes of 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)   the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

3
	/s/ HERVÉ HOPPENOT
	Hervé Hoppenot
	Chairman, President, and Chief Executive Officer
	August 9, 2016

EX-32.2

Exhibit 32.2

STATEMENT PURSUANT TO

18 U.S.C. SECTION 1350

With reference to the Quarterly Report of Incyte Corporation (the “Company”) on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David W. Gryska, Chief Financial Officer of the Company, certify, for the purposes of 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)   the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DAVID W. GRYSKA

David W. Gryska

Chief Financial Officer

August 9, 2016

1

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 02, 2016
Document and Entity Information
Entity Registrant Name	INCYTE CORP
Entity Central Index Key	0000879169
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		188,002,918
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	[1]
Current assets:
Cash and cash equivalents	$ 487,654	$ 521,439
Marketable securities-available-for-sale	141,537	186,344
Restricted cash and investments	16	516
Accounts receivable	129,486	114,450
Inventory	6,124	1,783
Prepaid expenses and other current assets	27,313	17,843
Total current assets	792,130	842,375
Restricted cash and investments	922	13,977
Long term investment	31,444	35,248
Inventory	15,540	17,555
Property and equipment, net	138,513	86,006
Other intangible assets, net	269,205
In-process research and development	12,000
Goodwill	155,725
Other assets, net	2,496	12,279
Total assets	1,417,975	1,007,440
Current liabilities:
Accounts payable	40,724	30,085
Accrued compensation	31,545	38,117
Interest payable	762	762
Accrued and other current liabilities	102,184	86,531
Deferred revenue-collaborative agreements	6,083	12,512
Acquisition-related contingent consideration	17,688
Total current liabilities	198,986	168,007
Convertible senior notes	635,491	619,893
Acquisition-related contingent consideration	276,312
Other liabilities	10,123	48,385
Total liabilities	1,120,912	836,285
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding as of June 30, 2016 and December 31, 2015
Common stock, $0.001 par value; 400,000,000 shares authorized; 187,865,985 and 186,650,249 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	188	187
Additional paid-in capital	2,016,728	1,950,764
Accumulated other comprehensive income (loss)	662	(809)
Accumulated deficit	(1,720,515)	(1,778,987)
Total stockholders' equity	297,063	171,155
Total liabilities and stockholders' equity	$ 1,417,975	$ 1,007,440

[1] The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	400,000,000	400,000,000
Common stock, shares issued	187,865,985	186,650,249
Common stock, shares outstanding	187,865,985	186,650,249

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenues:
Product revenues, net	$ 212,116	$ 142,406	$ 395,383	$ 257,736
Product royalty revenues	25,958	17,364	47,860	33,037
Contract revenues	8,214	3,214	66,429	31,429
Other revenues			80	58
Total revenues	246,288	162,984	509,752	322,260
Costs and expenses:
Cost of product revenues (including definite-lived intangible amortization)	12,367	6,254	18,372	9,229
Research and development	120,269	112,445	277,092	230,809
Selling, general and administrative	66,792	51,679	131,390	96,548
Change in fair value of acquisition-related contingent consideration	2,271		2,271
Total costs and expenses	201,699	170,378	429,125	336,586
Income (loss) from operations	44,589	(7,394)	80,627	(14,326)
Interest and other income, net	1,137	1,144	2,630	2,773
Interest expense	(9,662)	(11,494)	(19,796)	(24,181)
Unrealized gain (loss) on long term investment	(854)	27,174	(3,804)	27,174
Income (loss) before provision for income taxes	35,210	9,430	59,657	(8,560)
Provision for income taxes	785	136	1,185	503
Net income (loss)	$ 34,425	$ 9,294	$ 58,472	$ (9,063)
Net income (loss) per share:
Basic	$ 0.18	$ 0.05	$ 0.31	$ (0.05)
Diluted	$ 0.18	$ 0.05	$ 0.30	$ (0.05)
Shares used in computing net income (loss) per share:
Basic	187,682	178,676	187,433	175,373
Diluted	193,015	186,493	192,820	175,373

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$ 34,425	$ 9,294	$ 58,472	$ (9,063)
Other comprehensive income (loss):
Foreign currency translation	105		94
Unrealized gain (loss) on restricted investments and marketable securities, net of tax	(49)	(309)	990	134
Reclassification adjustment for realized loss on marketable securities			178
Defined benefit pension obligation, net of tax	209		209
Other comprehensive income (loss)	265	(309)	1,471	134
Comprehensive income (loss)	$ 34,690	$ 8,985	$ 59,943	$ (8,929)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016		Jun. 30, 2015
Cash flows from operating activities:
Net income (loss)	$ 58,472		$ (9,063)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	23,908		23,101
Stock-based compensation	42,071		35,150
Other, net	251
Unrealized loss (gain) on long term investment	3,804		(27,174)
Excess tax benefit from stock-based compensation			(2,073)
Change in fair value of acquisition-related contingent consideration	2,271
Changes in operating assets and liabilities:
Accounts receivable	(2,818)		(17,189)
Prepaid expenses and other assets	(7,460)		946
Inventory	1,682		(1,009)
Accounts payable	8,883		4,700
Accrued and other liabilities	(9,528)		7,866
Deferred revenue - collaborative agreements	(6,429)		(6,451)
Net cash provided by operating activities	115,107		8,804
Cash flows from investing activities:
Acquisition of business, net of cash acquired	(144,845)
Long term investment			(39,829)
Capital expenditures	(87,776)		(5,749)
Purchases of marketable securities	(17,795)		(80,212)
Sale and maturities of marketable securities	63,892		40,524
Net cash (used in) investing activities	(186,524)		(85,266)
Cash flows from financing activities:
Restricted investments, net	13,987		(273)
Proceeds from issuance of common stock under stock plans	24,105		62,958
Direct financing arrangements repayments	(445)		(912)
Excess tax benefit from stock-based compensation			2,073
Net cash provided by financing activities	37,647		63,846
Effect of exchange rates on cash and cash equivalents	(15)
Net decrease in cash and cash equivalents	(33,785)		(12,616)
Cash and cash equivalents at beginning of period	521,439	[1]	452,297
Cash and cash equivalents at end of period	487,654		439,681
Supplemental Schedule of Cash Flow Information
Interest paid	3,892		1,670
Incomes taxes paid	229		83
4.75% Convertible Senior Notes due 2015
Supplemental Schedule of Cash Flow Information
Reclassification to common stock and additional paid in capital in connection with conversions or exchange of convertible senior notes			$ 45,327
1.25% Convertible Senior Notes due 2020
Supplemental Schedule of Cash Flow Information
Reclassification to common stock and additional paid in capital in connection with conversions or exchange of convertible senior notes	$ 4

[1] The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date.

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical)	Jun. 30, 2016	Jun. 30, 2015
4.75% Convertible Senior Notes due 2015
Interest rate of debt (as a percent)		4.75%
1.25% Convertible Senior Notes due 2020
Interest rate of debt (as a percent)	1.25%

XML

Organization and business

6 Months Ended

Jun. 30, 2016

Organization and business

Organization and business

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) and ICLUSIG® (ponatinib). Our operations are treated as one operating segment.

XML

Summary of significant accounting policies

6 Months Ended

Jun. 30, 2016

Summary of significant accounting policies

Summary of significant accounting policies

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 June 30, 2016 and the condensed consolidated statements of operations, comprehensive income (loss) and cash flows for the three and six months ended June 30, 2016 and 2015, 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, 2015 has been derived from audited financial statements.

On June 1, 2016, we acquired (the “Acquisition”), pursuant to a Share Purchase Agreement dated as of May 9, 2016 (the “Share Purchase Agreement”), all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l., since renamed Incyte Biosciences Luxembourg S.a.r.l., the parent company of certain European subsidiaries of ARIAD Pharmaceuticals, Inc. (“ARIAD”).  Refer to Note 3 for further information regarding the Acquisition.

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, 2015.

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.

Acquisitions.  Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions.  Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.  Transaction costs are expensed as incurred.  The operating results of the acquired business are reflected in our consolidated financial statements after the date of acquisition. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use.

Foreign Currency Translation. Operations in non-U.S. entities are recorded in the functional currency of each entity. For financial reporting purposes, the functional currency of an entity is determined by a review of the source of an entity's most predominant cash flows. The results of operations for any non-U.S. dollar functional currency entities are translated from functional currencies into U.S. dollars using the average currency rate during each month. Assets and liabilities are translated using currency rates at the end of the period. Adjustments resulting from translating the financial statements of our foreign entities that use their local currency as the functional currency into U.S. dollars are reflected as a component of other comprehensive income (loss). Transaction gains and losses are recorded in interest and other income, net in the condensed consolidated statements of operations.  To date, both the translation gains or losses in other comprehensive income (loss) and the transaction gains or losses in foreign exchange gain (loss) have been immaterial.

Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Concentrations of Credit Risk.  Cash, cash equivalents, marketable securities, trade receivables and restricted investments are financial instruments which potentially subject us to concentrations of credit risk. The estimated fair value of financial instruments approximates the carrying value based on available market information. We primarily invest our excess available funds in corporate debt securities and, by policy, limit the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued or guaranteed by the U.S. government and money market funds that meet certain guidelines. Our receivables mainly relate to our product sales of JAKAFI, ICLUSIG and collaborative agreements with pharmaceutical companies. We have not experienced any significant credit losses on cash, cash equivalents, marketable securities, trade receivables or restricted investments to date and do not require collateral on receivables.

Cash and Cash Equivalents.  Cash and cash equivalents are held in banks or in custodial accounts with banks. Cash equivalents are defined as all liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash.

Marketable Securities—Available-for-Sale.  All marketable securities are classified as available-for-sale. Available-for-sale securities are carried at fair value, based on quoted market prices and observable inputs, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. We classify marketable securities that are available for use in current operations as current assets on the condensed consolidated balance sheets. Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in “Interest and other income, net.” The cost of securities sold is based on the specific identification method.

Accounts Receivable.  As of June 30, 2016 and December 31, 2015, we had no allowance for doubtful accounts. We provide an allowance for doubtful accounts based on experience and specifically identified risks. Accounts receivable are carried at fair value and charged off against the allowance for doubtful accounts when we determine that recovery is unlikely and we cease collection efforts.

Inventory.  Inventories are determined at the lower of cost or market value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods. We began capitalizing inventory in mid-November 2011 once the U.S. Food and Drug Administration (“FDA”) approved JAKAFI as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to approval of JAKAFI have been recorded as research and development expense in our statements of operations. As a result, cost of JAKAFI revenues for the next 3 to 6 months will reflect a lower average per unit cost of materials. The ICLUSIG inventories acquired on June 1, 2016 in connection with the Acquisition were recorded at fair value less costs to sell, which will result in a higher cost of ICLUSIG revenues for the next twelve months. 

JAKAFI raw materials and work-in-process inventory is not subject to expiration and the shelf life of finished goods inventory is 36 months from the start of manufacturing of the finished goods. ICLUSIG finished goods inventory has a shelf life of 24 months from the start of manufacturing of the finished goods.  We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. We classify inventory as current on the condensed consolidated balance sheets when we expect inventory to be consumed for commercial use within the next twelve months.

Variable Interest Entities. We perform an initial and on-going evaluation of the entities with which we have variable interests, such as equity ownership, in order toidentify entities (i) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support or (ii) in which the equity investors lack an essential characteristic of a controlling financial interest as variable interest entities (“VIE” or “VIEs”). If an entity is identified as a VIE, we perform an assessment to determine whether we have both (i) the power to direct activities that most significantly impact the VIE’s economic performance and (ii) have the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE. If both of these criteria are satisfied, we are identified as the primary beneficiary of the VIE.  As of June 30, 2016, there were no entities in which we held a variable interest which we determined to be VIEs.

Equity Method Investments.  In circumstances where we have the ability to exercise significant influence over the operating and financial policies of a company in which we have an investment, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option under U.S. GAAP.   In assessing whether we exercise significant influence, we consider the nature and magnitude of our investment, any voting and protective rights we hold, any participation in the governance of the other company, and other relevant factors such as the presence of a collaboration or other business relationship. Under the equity method of accounting, we record within our results of operations our share of income or loss of the investee company.  Under the fair value option, our investment is carried at fair value on our condensed consolidated balance sheets as a long term investment and all changes in fair value are reported in our condensed consolidated statements of operations as an unrealized gain (loss) on long term investment.

Property and Equipment.  Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of the estimated useful life of the assets or lease term.

Management continually reviews the estimated useful lives of technologically sensitive equipment and believes that those estimates appropriately reflect the current useful life of our assets. In the event that a currently unknown significantly advanced technology became commercially available, we would re-evaluate the value and estimated useful lives of our existing equipment, possibly having a material impact on the financial statements.

Lease Accounting.  We account for operating leases by recording rent expense on a straight-line basis over the expected life of the lease, commencing on the date we gain possession of leased property. We include tenant improvement allowances and rent holidays received from landlords and the effect of any rent escalation clauses as adjustments to straight-line rent expense over the expected life of the lease.

Capital leases are reflected as a liability at the inception of the lease based on the present value of the minimum lease payments or, if lower, the fair value of the property. Assets under capital leases are recorded in property and equipment, net on the condensed consolidated balance sheets and depreciated in a manner similar to other property and equipment.

Certain construction projects may be accounted for as direct financing arrangements, whereby we record, over the construction period, the full cost of the asset in property and equipment, net on the condensed consolidated balance sheets. A corresponding liability is also recorded, net of leasehold improvements paid for by us, and is amortized over the expected lease term through monthly rental payments using the effective interest method.

In April 2016, we completed our purchase of the previously leased land and building of approximately 190,000 square feet of laboratory and office space in Wilmington, Delaware.  Refer to Note 7 for further information regarding the purchase.

Other Intangible Assets, net. Other intangible assets, net consist of licensed intellectual property rights acquired in business combinations, which are reported at fair value, less accumulated amortization. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method.

In-Process Research and Development. The fair value of in-process research and development (“IPR&D”) acquired through business combinations is capitalized as an indefinite-lived intangible asset until the completion or abandonment of the related research and development activities.  When the related research and development is completed, the asset will be assigned a useful life and amortized.

Impairment of Long-Lived Assets.  Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset.  If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.

Indefinite-lived intangible assets, including IPR&D, are tested for impairment annually in the fourth quarter or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired.  Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of the asset to its carrying value.

Goodwill.  Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed.  Goodwill is not amortized but is tested for impairment at least annually in the fourth quarter at the reporting unit level.  A reporting unit is the same as, or one level below, an operating segment. Our operating segment is currently comprised of a single, entity wide reporting unit.

Income Taxes.  We account for income taxes using the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts reportable for income tax purposes. In addition, we follow the guidance related to accounting for uncertainty in income taxes. This guidance creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before it is recognized in the financial statements.

Financing Costs Related to Long-term Debt.  Costs associated with obtaining long-term debt are deferred and amortized over the term of the related debt using the effective interest method. Such costs are presented as a direct deduction from the carrying amount of the long-term debt liability, consistent with debt discounts, on the consolidated balance sheets.

Grant Accounting.  Grant amounts received from government agencies for operations are deferred and are amortized into income over the service period of the grant. Grant amounts received for purchases of capital assets are deferred and amortized into interest and other income, net over the useful life of the related capital assets. Such amounts are recorded in other liabilities on the condensed consolidated balance sheets.

Net Income (Loss) Per Share.  Our basic and diluted net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during all periods presented. Options to purchase stock and shares issuable upon the conversion of convertible debt are included in diluted earnings per share calculations, unless the effects are anti-dilutive.

Accumulated Other Comprehensive Income (Loss).  Accumulated other comprehensive income (loss) consists of realized and unrealized gains or losses on marketable securities and restricted cash and investments, net of tax, foreign currency translation gains or losses, and changes in defined benefit pension obligation, net of tax.

Revenue Recognition.  Revenues are recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until no further obligations exist. We exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenues

Our product revenues consist of U.S. sales of JAKAFI and European sales of ICLUSIG.  Product revenues are recognized once we meet all four revenue recognition criteria described above. In November 2011, we began shipping JAKAFI to our customers in the U.S., which include specialty pharmacies and wholesalers. In June 2016, we acquired the right to and began shipping ICLUSIG to our customers in the European Union and certain other jurisdictions (Note 3), which include retail pharmacies, hospital pharmacies and distributors.

We recognize revenues for product received by our customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S. Product shipping and handling costs are included in cost of product revenues.

Customer Credits:  Our customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts. We expect our customers will earn prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted from total product sales as they are earned.

Rebates and Discounts:  Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program in the U.S. and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers for healthcare. Rebate amounts are based upon contractual agreements or legal requirements with public sector benefit providers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launches. Our estimates for expected utilization of rebates are based on data received from our customers. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Chargebacks:  Chargebacks are discounts that occur when certain contracted customers, which currently consist primarily of group purchasing organizations, Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers. Contracted customers generally purchase the product at a discounted price. The wholesalers, in turn, charges back to us the difference between the price initially paid by the wholesalers and the discounted price paid by the contracted customers. In addition to actual chargebacks received, we maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our distribution channel.  If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Medicare Part D Coverage Gap:  Medicare Part D prescription drug benefit mandates manufacturers to fund 50% 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.

Co-payment Assistance:  Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. We accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Royalty Revenues

Royalty revenues on commercial sales for ruxolitinib (marketed as JAKAVI® outside the United States) by Novartis Pharmaceutical International Ltd. (“Novartis”) are based on net sales of licensed products in licensed territories as provided by Novartis. We recognize royalty revenues in the period the sales occur.

Cost of Product Revenues

Cost of product revenues includes all JAKAFI related product costs as well as ICLUSIG related product costs. The acquired ICLUSIG inventories were recorded at fair value less costs to sell in connection with the Acquisition, and will result in a higher cost of ICLUSIG product revenues over the next twelve months.  In addition, cost of product revenues include low single digit royalties under our collaboration and license agreement to Novartis on all future sales of JAKAFI in the United States. Subsequent to the Acquisition on June 1, 2016, cost of product revenues also includes the amortization of our licensed intellectual property for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.    

Contract and License Revenues

Under agreements involving multiple deliverables, services and/or rights to use assets that we entered into prior to January 1, 2011, the multiple elements are divided into separate units of accounting when certain criteria are met, including whether the delivered items have stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. When separate units of accounting exist, consideration is allocated among the separate elements based on their respective fair values. The determination of fair value of each element is based on objective evidence from historical sales of the individual elements by us to other customers. If such evidence of fair value for each undelivered element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value for each undelivered element does exist or until all elements of the arrangement are delivered. When elements are specifically tied to a separate earnings process, revenue is recognized when the specific performance obligation tied to the element is completed. When revenues for an element are not specifically tied to a separate earnings process, they are recognized ratably over the term of the agreement. We assess whether a substantive milestone exists at the inception of our agreements. For all milestones within our arrangements that are considered substantive, we recognize revenue upon the achievement of the associated milestone. If a milestone is not considered substantive, we would recognize the applicable milestone payment over the remaining period of performance under the arrangement. As of June 30, 2016, all remaining potential milestones under our collaborative arrangements are considered substantive.

On January 1, 2011, updated guidance on the recognition of revenues for agreements with multiple deliverables became effective and applies to any agreements we may enter into on or after January 1, 2011. This updated guidance (i) relates to whether multiple deliverables exist, how the deliverables in a revenue arrangement should be separated and how the consideration should be allocated; (ii) requires companies to allocate revenues in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price; and (iii) eliminates the use of the residual method and requires companies to allocate revenues using the relative selling price method. During the six months ended June 30, 2016 and 2015, we did not enter into any agreements that are subject to this updated guidance. If we enter into an agreement with multiple deliverables after January 1, 2011 or amend existing agreements, this updated guidance could have a material effect on our financial statements.

Our collaborations often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and commercialization events. These three categories of milestone events reflect the threestages of the life-cycle of our drugs, which we describe in more detail in the following paragraphs.

The regulatory review and approval process, which includes preclinical testing and clinical trials of each drug candidate, is lengthy, expensive and uncertain. Securing approval by the FDA requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish a drug candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies. Before commencing clinical investigations of a drug candidate in humans, we must submit an Investigational New Drug application (“IND”), which must be reviewed by the FDA.

The steps generally required before a drug may be marketed in the United States include preclinical laboratory tests, animal studies and formulation studies, submission to the FDA of an IND for human clinical testing, performance of adequate and well-controlled clinical trials in three phases, as described below, to establish the safety and efficacy of the drug for each indication, submission of a new drug application (“NDA”) or biologics license application (“BLA”) to the FDA for review and FDA approval of the NDA or BLA.

Similar requirements exist within foreign regulatory agencies as well. The time required satisfying the FDA requirements or similar requirements of foreign regulatory agencies may vary substantially based on the type, complexity and novelty of the product or the targeted disease.

Preclinical testing includes laboratory evaluation of product pharmacology, drug metabolism, and toxicity, which includes animal studies, to assess potential safety and efficacy as well as product chemistry, stability, formulation, development, and testing. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. The FDA may raise safety concerns or questions about the conduct of the clinical trials included in the IND, and any of these concerns or questions must be resolved before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to commence. Clinical trials involve the administration of the investigational drug or the marketed drug to human subjects under the supervision of qualified investigators and in accordance with good clinical practices regulations covering the protection of human subjects. Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Phase I usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its safety, dosage tolerance, absorption, metabolism, distribution and excretion. Phase II usually involves clinical trials in a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse effects and safety risks, and evaluate and gain preliminary evidence of the efficacy of the drug for specific indications. Phase III clinical trials usually further evaluate clinical efficacy and safety by testing the drug in its final form in an expanded patient population, providing statistical evidence of efficacy and safety, and providing an adequate basis for labeling. We cannot guarantee that Phase I, Phase II or Phase III testing will be completed successfully within any specified period of time, if at all. Furthermore, we, the institutional review board for a trial, or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

Generally, the milestone events contained in our collaboration agreements coincide with the progression of our drugs from development, to regulatory approval and then to commercialization. The process of successfully discovering a new development candidate, having it approved and successfully commercialized is highly uncertain. As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve. Therefore, as a drug candidate progresses through the stages of its life-cycle, the value of the drug candidate generally increases.

Research and Development Costs.  Our policy is to expense research and development costs as incurred. We often contract with clinical research organizations (“CROs”) to facilitate, coordinate and perform agreed upon research and development of a new drug. To ensure that research and development costs are expensed as incurred, we record monthly accruals for clinical trials and preclinical testing costs based on the work performed under the contract.

These CRO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical trial milestones. In the event that we prepay CRO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most professional fees, including project and clinical management, data management, monitoring, and medical writing fees are incurred throughout the contract period. These professional fees are expensed based on their percentage of completion at a particular date. Our CRO contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs, including shipping and printing fees. We expense the costs of pass through fees under our CRO contracts as they are incurred, based on the best information available to us at the time. The estimates of the pass through fees incurred are based on the amount of work completed for the clinical trial and are monitored through correspondence with the CROs, internal reviews and a review of contractual terms. The factors utilized to derive the estimates include the number of patients enrolled, duration of the clinical trial, estimated patient attrition, screening rate and length of the dosing regimen. CRO fees incurred to set up the clinical trial are expensed during the setup period.

Under our clinical trial collaboration agreements we may be reimbursed for certain development costs incurred. Such costs are recorded as a reduction of research and development expense in the period in which the related expense is incurred.

Stock Compensation.  Share-based payment transactions with employees, which include stock options, restricted stock units (“RSUs”) and performance shares (“PSUs”), are recognized as compensation expense over the requisite service period based on their estimated fair values as well as expected forfeiture rates.  The stock compensation process requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility over the option term and expected option lives, as well as expected forfeiture rates and the probability of PSUs vesting.  The fair value of stock options, which are subject to graded vesting, are recognized as compensation expense over the requisite service period using the accelerated attribution method.  The fair value of RSUs, which are generally subject to cliff vesting, are recognized as compensation expense over the requisite service period using the straight line 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, over the remaining requisite service period. We recorded $21.3 million and $42.1 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2016. We recorded $17.6 million and $35.2 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2015.

Acquisition-Related Contingent Consideration. Acquisition-related contingent consideration, which consists of our future royalty and certain potential milestone obligations to ARIAD, is recorded on the acquisition date at the estimated fair value of the obligation, in accordance with the acquisition method of accounting.  The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations. 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which provides a five step approach to be applied to all contracts with customers. ASU No. 2014-09 also requires expanded disclosures about revenue recognition. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods therein.  Early adoption is permitted for reporting periods beginning after December 15, 2016.  We are currently analyzing the impact of ASU No. 2014-09 on our results of operations and, at this time, we are unable to determine the impact of the new standard, if any, on our condensed consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern,” to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year from the date the financial statements are issued. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We do not believe the pending adoption of ASU No. 2014-15 will have a material impact on our condensed consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis,” which affects reporting entities that are required to evaluate whether they should consolidate certain legal entities.  The amendments place more emphasis in the consolidation evaluation on variable interests other than fee arrangements such as principal investment risk (including debt or equity interests), guarantees of the value of the assets or liabilities of the variable interest entity (“VIE”), written put options on the assets of the VIE, or similar obligations. Additionally, the amendments reduce the extent to which related party arrangements cause an entity to be considered a primary beneficiary. This guidance is to be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The amendments are effective for fiscal years beginning after December 15, 2015, and interim periods therein. We have concluded ASU No. 2015-02 has no impact on our condensed consolidated financial statements. 

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” that requires lessees to recognize assets and liabilities on the balance sheet for most leases including operating leases. Lessees now classify leases as either finance or operating leases and lessors classify all leases as sales-type, direct financing or operating leases.  The statement of operations presentation and expense recognition for lessees for finance leases is similar to that of capital leases under Accounting Standards Codification (“ASC”) 840 with separate interest and amortization expense with higher periodic expense in the earlier periods of a lease.  For operating leases, the statement of operations presentation and expense recognition is similar to that of operating leases under ASC 840 with single lease cost recognized on a straight-line basis. This guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements and is effective for annual periods beginning after December 15, 2018 and interim periods therein.  Early adoption is permitted.  We are currently analyzing the impact of ASU No. 2016-02 and, at this time, are unable to determine the impact of the new standard, if any, on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which changes the accounting for certain aspects of share-based payments to employees.  The new guidance requires excess tax benefits and tax deficiencies to be recorded in the statement of operations when the awards vest or are settled.  In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows.  The standard also clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the statement of cash flows, and provides an accounting policy election to account for forfeitures as they occur.  The new standard is effective for our calendar year beginning January 1, 2017.  Early adoption is permitted however all of the guidance must be adopted in the same period. 

We elected to early adopt ASU No. 2016-09 as of the first quarter of 2016 which required us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption.  The primary impact of adoption was the recognition of $325.6 million of accumulated excess tax benefits as deferred tax assets that under the previous guidance could not be recognized until the benefits were realized through a reduction in cash taxes paid.  This part of the guidance was applied using a modified retrospective method with a cumulative-effect adjustment to the accumulated deficit for the excess tax benefits not previously recognized. However, given the full valuation allowance placed on the additional $325.6 million of deferred tax assets, the recognition upon adoption had no impact to our accumulated deficit as of January 1, 2016.

Adoption of the standard also resulted in the recognition of excess tax benefits in our income tax provision rather than as paid-in capital. This guidance is to be applied prospectively and resulted in the recognition of $0.5 million of excess tax benefits in our income tax provision rather than paid-in capital for the six months ended June 30, 2016.  Amendments to the minimum statutory withholding tax requirements had no impact to the accumulated deficit as of January 1, 2016. In addition, we have elected to continue to estimate forfeitures expected to occur when determining the amount of compensation cost to be recognized in each period.

We elected to apply the presentation requirements for cash flows related to excess tax benefits prospectively which resulted in classification within operating cash flows of the excess tax benefits recognized during the three months ended March 31, 2016.  This classification is now consistent with all other cash flow impacts from income taxes. In addition, the amendments to the cash flow statement presentation to classify cash payments made on behalf of employees for shares withheld as a financing activity had no impact on our previously reported cash flows, as this requirement is consistent with our previous presentation of these cash flows.

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Business combination

6 Months Ended

Jun. 30, 2016

Business combinations

Business combination

3.Business combination

Description of the Transaction

On June 1, 2016, pursuant to the Share Purchase Agreement, we completed the Acquisition, and acquired all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l., since renamed Incyte Biosciences Luxembourg S.a.rl., the parent company of ARIAD’s European subsidiaries responsible for the development and commercialization of ICLUSIG (ponatinib) in the European Union (“EU”) and other countries including Switzerland, Norway, Turkey, Israel and Russia (the “Territory”) in exchange for an upfront payment of $147.5 million, including customary working capital adjustments (the “Upfront Payment”). ICLUSIG is approved in Europe for the treatment of patients with chronic myeloid leukemia and Philadelphia-positive acute lymphoblastic leukemia who are resistant to or intolerant of certain second generation BCR-ABL inhibitors and all patients who have the T3151 mutation.  The acquisition of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l. includes a fully integrated and established pan-European team including medical, sales and marketing personnel.  The existing platform and infrastructure acquired is expected to further our strategic plan and accelerate the establishment of our operations in Europe.   

Under the Share Purchase Agreement, and subject to certain limitations and exceptions, each party has also agreed to indemnify the other for breaches of representations and warranties and certain other matters to a maximum amount of $14.0 million. The Share Purchase Agreement also includes a standstill provision restricting our ability for a specified period of time to acquire shares of ARIAD’s common stock above a certain percentage or take certain other actions without ARIAD board approval, subject to certain customary exceptions.

In connection with the closing of the Acquisition, we entered into an Amended and Restated Buy-in License Agreement with ARIAD (the “License Agreement”).  Under the terms of the License Agreement, we were granted an exclusive license to develop and commercialize ICLUSIG in the Territory.  ARIAD is eligible to receive from us tiered royalties ranging between 32% and 50% on net sales of ICLUSIG in the Territory. The royalties are subject to reduction for certain events related to exclusivity and, if necessary, any third-party patent rights.  In addition, ARIAD is eligible to receive up to $135.0 million in potential future development and regulatory approval milestone payments for ICLUSIG in new oncology indications in the Territory (the “Milestones”), together with additional milestone payments for non-oncology indications, if approved, in the Territory.  Incyte will also be co-funding a portion of the ongoing ICLUSIG clinical studies OPTIC and OPTIC 2L, which are being conducted by ARIAD, by paying up to $7.0 million in both 2016 and 2017 (the “Development Costs”). 

The terms of the License Agreement also include a limited option for a potential future acquirer of ARIAD to purchase the European development and commercialization rights to ICLUSIG from us (the “Buy-Back Provision”). Under these purchase terms, we would retain all EU infrastructure and be financially compensated.  Our financial compensation would include the repayment of the Upfront Payment and any Milestone or Development Costs payments made by us to ARIAD and an additional payment based upon the last 12 months of ICLUSIG sales booked by us. We would also be eligible to receive royalties of between 20% to 25% from an ARIAD acquirer on future sales of ICLUSIG in the Territory. The Buy-Back Provision cannot be exercised before two years nor after the sixth year from the effective date of the License Agreement. Following exercise of the Buy-Back Provision, there is a further transition period of one year before the provision can be made effective.  We concluded the Buy-Back Provision is not a derivative as it does not provide for explicit or implicit net settlement, cannot be readily settled net by a means outside of the contract, and does not provide for delivery of an asset that puts the recipient in a position that is not substantially different from net settlement. We also consider the probability of a potential future buyer exercising the Buy-Back Provision to be near zero and have concluded that any value assigned to this provision is de minimis.

Unless terminated earlier in accordance with its provisions, our obligations to pay full royalties under the License Agreement will continue to be in effect on a country-by-country basis until the latest to occur of (1) the expiration date of the composition patent in the relevant country, (2) the expiration of any regulatory marketing exclusivity period or other statutory designation that provides similar exclusivity for the commercialization of ICLUSIG in such country and (3) the seventh anniversary of the first commercial sale of ICLUSIG in such country.  We will be obligated to pay royalties at a reduced rate for a specified period of time following such full royalty term. The License Agreement may be terminated in its entirety by us for convenience on 12 months’ notice after the third anniversary of the effective date of the License Agreement.  The License Agreement may also be terminated by either party under certain other circumstances, including material breach, as set forth in the License Agreement.

Fair Value of Consideration Transferred

The preliminary fair value of consideration transferred totals $440.5 million, which consists of $147.5 million in cash pursuant to the Share Purchase Agreement, including net working capital adjustments, and $293.0 million of contingent consideration related to the License Agreement.  Contingent consideration includes the future payments that we may pay to ARIAD for our royalty obligations on future net sales of ICLUSIG, as well as for any future potential milestone payments related to new oncology or non-oncology indications for ICLUSIG.

The preliminary fair value of contingent consideration was determined using an income approach based on estimated ICLUSIG revenues in the Territory for both the approved third line treatment, as well as the second line treatment that is currently under development and is therefore contingent on future clinical results and European Medicines Agency (“EMA”) approval. The probability of technical success (“PTS”) of the second line indication was estimated at 25% based on the early stage of development and competitive market landscape, and the estimated future cash flows for the second line indication were probability weighted accordingly. The total projected cash flows of the third line and second line indications were estimated over 18 years, and discounted to present value using a discount rate of 10%. In addition, based on the believed limited effectiveness of ICLUSIG beyond the existing oncology indications, the fact that no development is currently ongoing for any new oncology or any non-oncology indications, and the lack of intention by us or ARIAD to develop ICLUSIG in additional oncology or non-oncology indications, the fair value of any cash flows for any new oncology or non-oncology indication was determined to be nil.  The present value of the contingent consideration was $293.0 million as of the Acquisition date.

Assets Acquired and Liabilities Assumed

The Acquisition has been accounted for as a business combination under the acquisition method of accounting.  The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date.  Due to the timing of the Acquisition, certain amounts are provisional and subject to change.  The provisional amounts consist primarily of the estimates of the fair value of intangible assets acquired, inventory, contingent consideration and income taxes.  We will finalize these amounts as we obtain the information necessary to complete the measurement process.  Any changes resulting from facts and circumstances that existed as of the acquisition date may result in adjustments to the provisional amounts recognized at the acquisition date.  These changes could be significant.  We will finalize these amounts no later than one year from the acquisition date.

	Amounts
	Recognized as of
(estimated in thousands)	Acquisition Date
Current assets	$	21,413
Property and equipment		850
Restricted cash		432
Intangible assets(a)		283,000
Total identifiable assets		305,695
Current liabilities		(15,720)
Other long term liabilities		(5,226)
Total liabilities assumed		(20,946)
Goodwill(b)		155,725
Total fair value of consideration transferred	$	440,474

(a)As of the effective date of the Acquisition, identifiable intangible assets are required to be measured at fair value.  The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. We used an income statement approach to estimate the preliminary fair value of the intangibles which includes licensed intellectual property and IPR&D. The assumptions used to estimate the cash flows of the licensed intellectual property included a discount rate of 15%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as the $7.0 million of research and development cost sharing payments we will owe in 2016 and 2017.  The assumptions used to estimate the cash flows of the IPR&D (which relates to the potential approval of ICLUSIG as a second line treatment) included a PTS of 25%, discount rate of 16%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as probability weighted milestone payments estimated for 2020 related to the clinical results and potential approval of ICLUSIG as a second line treatment. The licensed intellectual property has a weighted-average useful life of approximately 12.5 years and will be amortized using the straight-line method and the IPR&D is an indefinite-lived intangible and will not be amortized until the completion or abandonment of the related research and development activities. 

(b)Goodwill is calculated as the difference between the estimated acquisition date fair value of the consideration transferred and the estimated fair values of the assets acquired and liabilities assumed. The Goodwill is related to the existing platform, infrastructure, and workforce which is expected to generate synergies and further our strategic plan in Europe.  Goodwill is not amortized and none of the goodwill is expected to be deductible for tax purposes.

Acquisition-Related Costs

We have incurred to date $1.3 million of transaction costs directly related to the Acquisition, which includes expenditures for advisory, legal, valuation, accounting and other similar services.  These costs have been expensed in selling, general and administrative costs on the condensed consolidated statements of operations during the three and six months ended June 30, 2016.

Revenue and Net Loss of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l.

The revenues of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l. for the period from the acquisition date to June 30, 2016 were $4.0 million and net loss was $7.9 million.  The net loss includes the effects of the Acquisition accounting adjustments and acquisition-related costs.

Pro Forma Impact of Business Combination

The following unaudited pro forma information presents condensed consolidated results of operations for the three and six months ended June 30, 2016 and 2015, as if the Acquisition had occurred as of January 1, 2015 (in thousands).

	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2016		2015		2016		2015
Pro forma net product revenues	$	245,341	$	148,519	$	437,334	$	269,073
Pro forma net income (loss)	$	48,431	$	(11,414)	$	54,136	$	(47,561)

The unaudited pro forma condensed consolidated results of operations were prepared using the acquisition method of accounting and are based on the historical financial information of our company and the acquired business which has been adjusted for events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) expected to have continuing impact on the combined results.  The unaudited pro forma information reflects primarily the following adjustments:

· To record amortization expense related to fair value adjustments recorded on the acquired definite lived intangibles;

· To eliminate ARIAD Europe’s interest expense on the intercompany loan in accordance with the terms of the Acquisition;

· To remove balances attributable to the ARIAD Australia entity which are not material. This entity was previously consolidated by ARIAD Europe; however it was not included in the Acquisition; and

· To remove the recognition of revenue relating to distribution agreements in historic periods for those arrangements in which we have no continuing performance obligation and, therefore, the fair value of the assumed deferred revenue balance was zero.

The unaudited pro forma information is not necessarily indicative of the results that would have been obtained if the Acquisition had occurred as of the beginning of the period presented or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings.  The unaudited pro forma information for the three and six months ended June 30, 2016 includes $24.4 million of revenue that had been deferred in historic periods relating to the conclusion of pricing and reimbursement negotiations with the French National Health Authority.

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Fair Value of financial instruments

6 Months Ended

Jun. 30, 2016

Fair value of financial instruments.

Fair value of financial instruments

4.Fair value of financial instruments

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.

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 corporate debt securities that are classified as available-for-sale.

At June 30, 2016 and December 31, 2015, our Level 2 corporate 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.

The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis as of June 30, 2016 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		June 30, 2016
Cash and cash equivalents	$	487,654	$	—	$	—	$	487,654
Corporate debt securities		—		141,537		—		141,537
Long term investment (Note 9)		31,444		—		—		31,444
Total assets	$	519,098	$	141,537	$	—	$	660,635

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 of June 30, 2016 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		June 30, 2016
Contingent consideration (Note 3)	$	—	$	—	$	294,000	$	294,000
Total liabilities	$	—	$	—	$	294,000	$	294,000

The following is a rollforward of our Level 3 liabilities (in thousands):

	Level 3
Balance at January 1, 2016	$	—
Initial recognition of contingent consideration		293,000
Contingent consideration earned during the period		(1,271)
Change in fair value of contingent consideration		2,271
Balance at June 30, 2016	$	294,000

The fair value of the contingent consideration was determined using an income approach based on estimated ICLUSIG revenues in the Territory for both the approved third line treatment, as well as the second line treatment that is currently under development and is therefore contingent on future clinical results and EMA approval.  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 following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis as of December 31, 2015 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2015
Cash and cash equivalents	$	521,439	$	—	$	—	$	521,439
Corporate debt securities		—		186,344		—		186,344
Long term investment (Note 9)		35,248		—		—		35,248
Total assets	$	556,687	$	186,344	$	—	$	743,031

The following is a summary of our marketable security portfolio as of June 30, 2016 and December 31, 2015, respectively.

			Net		Net
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(in thousands)
June 30, 2016
Corporate debt securities	$	140,879	$	658	$	—	$	141,537
December 31, 2015
Corporate debt securities	$	187,153	$	—	$	(809)	$	186,344

Our corporate debt securities generally have contractual maturity dates of between 12 to 18 months.

Non-Recurring Fair Value Measurements

Non-recurring fair value measurements during the three and six month periods ended June 30, 2016 relate to the fair value of intangible assets and inventory acquired in the Acquisition which are discussed in further detail in Note 3.

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Concentration of credit Risk

6 Months Ended

Jun. 30, 2016

Concentration of credit Risk

Concentrations of credit Risk

5.     Concentration of credit risk

In December 2009, we entered into a license, development and commercialization agreement with Eli Lilly and Company (“Lilly”). In November 2009, we entered into a collaboration and license agreement with Novartis. The concentration of credit risk related to our collaborative partners is as follows:

	Percentage of Total				Percentage of Total
	Contract Revenues for the				Contract Revenues for the
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Collaboration Partner A	61	%	—	%	8	%	80	%
Collaboration Partner B	39	%	100	%	92	%	20	%

Collaboration Partner A and Collaboration Partner B comprised in the aggregate 20% and 39% of the accounts receivable balance as of June 30, 2016 and December 31, 2015, respectively.

In November 2011, we began commercialization and distribution of JAKAFI to a number of customers. Our product revenues are concentrated in a number of these customers. The concentration of credit risk related to JAKAFI product revenues is as follows:

	Percentage of Total Net				Percentage of Total Net
	Product Revenues for the				Product Revenues for the
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Customer A	26	%	27	%	27	%	28	%
Customer B	16	%	19	%	17	%	20	%
Customer C	13	%	13	%	13	%	13	%
Customer D	9	%	9	%	9	%	9	%

We are exposed to risks associated with extending credit to customers related to the sale of products. Customer A, Customer B, Customer C and Customer D comprised in the aggregate 42% and 40% of the accounts receivable balance as of June 30, 2016 and December 31, 2015, respectively.

The concentration of credit risk relating to ICLUSIG product revenues or accounts receivable is not significant.

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Inventory

6 Months Ended

Jun. 30, 2016

Inventory

Inventory

6. Inventory

Our inventory balance consists of the following:

	June 30,		December 31,
	2016		2015
	(in thousands)
Work-in-process	$	15,540	$	17,555
Finished goods		6,124		1,783
		21,664		19,338
Inventories-current		6,124		1,783
Inventories-non-current	$	15,540	$	17,555

Inventories, stated at the lower of cost or market, consist of work in process and finished goods. The ICLUSIG inventories acquired on June 1, 2016 were recorded at fair value less costs to sell, and therefore, will result in a higher cost of product revenues for the next twelve months.  At June 30, 2016,  $6.1 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 June 30, 2016,  $15.5 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.

JAKAFI raw materials and work-in-process inventory is not subject to expiration and the shelf life for finished goods inventory is 36 months from the start of manufacturing of the finished goods. ICLUSIG finished goods inventory has a shelf life of 24 months from the start of manufacturing of the finished goods.  We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage.

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Property and equipment, net

6 Months Ended

Jun. 30, 2016

Property and equipment, net

Property and Equipment

7.    Property and equipment, net

Property and equipment, net consists of the following:

	June 30,		December 31,
	2016		2015
	(in thousands)
Office equipment	$	9,131	$	6,753
Laboratory equipment		34,797		31,296
Computer equipment		30,464		22,491
Land		3,825		—
Building and leasehold improvements		104,789		70,729
		183,006		131,269
Less accumulated depreciation and amortization		(44,493)		(45,263)
Property and equipment, net	$	138,513	$	86,006

In April 2016, we completed our purchase of the previously leased land and building comprising approximately 190,000 square feet of laboratory and office space located in Wilmington, Delaware.  We previously accounted for the lease as a direct financing arrangement.  In total, upon completion of the purchase, we paid $81.3 million, including closing costs, for the purchase of the land and building and our direct financing obligation related to the lease was relieved. We recorded the difference between the amount paid for the purchase of the land and building ($81.3 million) and the remaining direct financing obligation on the purchase date ($45.9 million) as property and equipment. A total of $3.8 million was allocated to land and the remaining $31.6 million was allocated to buildings and leasehold improvements, which we estimated using the assistance of a third party valuation specialist. The land is not being amortized and we are depreciating the building over its estimated useful life of 40 years. In addition, the restricted investments related to the direct financing lease were released upon closing of the agreement of sale. 

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Intangible assets and goodwill

6 Months Ended

Jun. 30, 2016

Intangible assets and goodwill

Intangible assets and goodwill

8.    Intangible assets and goodwill

Intangible Assets, Net

The components of intangible assets as of June 30, 2016 were as follows (in thousands, except for useful life):

	Weighted-	Gross				Net
	Average Useful	Carrying		Accumulated		Carrying
	Lives (Years)	Amount		Amortization		Amount
Finite-lived intangible assets:
Licensed IP(1)	12.5	$	271,000	$	1,795	$	269,205
Indefinite-lived intangible assets:
Acquired IPR&D(1)	N/A		12,000		—		12,000
		$	283,000	$	1,795	$	281,205

(1) We acquired certain intangible assets as part of the Acquisition, as described further in Note 3.

Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets, excluding any possible future amortization associated with acquired IPR&D, for which development has not yet been completed, is as follows (in thousands):

		Remainder of
		2016		2017		2018		2019		2020		Thereafter
Amortization expense	$	10,770	$	21,540	$	21,540	$	21,540	$	21,540	$	172,275

Goodwill

The changes to carrying amount of goodwill for the three and six months ended June 30, 2016 of $155.7 million relates to goodwill acquired in the Acquisition.  As described in Note 3, the allocations of the goodwill balance associated with the Acquisition and certain other adjustments are provisional and subject to the completion of the valuation of the assets acquired and liabilities assumed.

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License Agreements

6 Months Ended

Jun. 30, 2016

License agreements

License Agreements

9.    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 c-MET inhibitor compound capmatinib and certain back-up compounds in all indications. We retained options to co-develop and to co-promote capmatinib in the United States.

Under this agreement, we received an upfront payment and immediate milestone payment totaling $210.0 million and were initially eligible to receive up to $1.2 billion in milestone payments across multiple indications upon the achievement of pre-specified events, including up to $174.0 million for the achievement of development milestones, up to $495.0 million for the achievement of regulatory milestones and up to $500.0 million for the achievement of commercialization milestones. In April 2016, we amended this agreement to provide that Novartis has exclusive research, development and commercialization rights outside of the United States to ruxolitinib (excluding topical formulations) in the graft-versus-host-disease (“GVHD”) field. We became eligible to receive up to $75.0 million of additional potential development and regulatory milestones relating to GVHD.  Exclusive of the upfront payment of $150.0 million received in 2009 and the immediate milestone of $60.0 million earned in 2010, we have recognized and received in the aggregate $102.0 million for the achievement of development milestones and $175.0 million for the achievement of regulatory milestones and $20.0 million for the achievement of sales milestones through June 30, 2016.

During the three months ended June 30, 2016, we recognized a $5.0 million payment received in exchange for the development and commercialization rights to ruxolitinib in GVHD outside of the United States pursuant to the April 2016 amendment of this agreement.  In 2015, we recognized a $5.0 million development milestone based on the formal initiation by Novartis of a Phase II clinical trial evaluating capmatinib for a third indication and a $25.0 million regulatory milestone triggered by the Committee for Medicinal Products for Human Use of the European Medicines Agency adopting a positive opinion for JAKAVI (ruxolitinib) for the treatment of adult patients with polycythemia vera who are resistant to or intolerant of hydroxyurea, a $15.0 million regulatory milestone for the approval of JAKAVI in Japan for the treatment of patients with polycythemia vera, and a $20.0 million sales milestone for Novartis achieving annual net sales of a JAK licensed product of $300.0 million. In 2014, we recognized a $60.0 million regulatory milestone related to reimbursement of JAKAVI (ruxolitinib) in Europe, a $25.0 million regulatory milestone for the approval of JAKAVI in Japan for the treatment of patients with myelofibrosis and a $7.0 million development milestone based on the formal initiation by Novartis of a Phase II clinical trial evaluating capmatinib in non-small cell lung cancer.  In 2013, we recognized a $25.0 million development milestone under this agreement based on the formal initiation by Novartis of a Phase II clinical trial evaluating capmatinib. In 2012, we recognized a $40.0 million regulatory milestone payment under this agreement for the achievement of a predefined milestone for the European Union regulatory approval of JAKAVI. In 2011, we recognized a $15.0 million development milestone under this agreement for the achievement of a predefined milestone in the Phase I dose-escalation trial for capmatinib in patients with solid tumors and a $10.0 million regulatory milestone for the approval of JAKAFI in the United States. In 2010, we recognized $50.0 million in development milestones for the initiation of the global phase III trial, RESPONSE, in patients with polycythemia vera. We determined that each of these milestones were substantive as their achievement required substantive efforts by us and was at risk until the milestones were ultimately achieved.

We also are eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties on future JAKAVI net sales outside of the United States, and tiered, worldwide royalties on future capmatinib net sales that range from 12 to 14 percent. Since the achievement of the $60.0 million regulatory milestone related to reimbursement of JAKAVI in Europe in September 2014, we are obligated to pay to Novartis tiered royalties in the low single digits on future JAKAFI net sales within the United States. During the three and six months ended June 30, 2016, such royalties payable to Novartis on net sales within the United States totaled $9.0 million and $14.2 million, respectively, and are reflected in cost of product revenues on the condensed consolidated statements of operations.  During the three and six months ended June 30, 2015, such royalties payable to Novartis on net sales within the United States totaled $5.6 million and $8.1 million, respectively, and are reflected in cost of product revenues on the condensed consolidated statements of operations.  Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally. Novartis is also responsible for all costs relating to the development and commercialization of capmatinib.

The Novartis agreement will continue on a program-by-program basis until Novartis has no royalty payment obligations with respect to such program or, if earlier, the termination of the agreement or any program in accordance with the terms of the agreement. Royalties are payable by Novartis on a product-by-product and country-by-country basis until the latest to occur of (1) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (2) the expiration of regulatory exclusivity for the licensed product in such country and (3) 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.

We determined that there were two deliverables under the agreement: (i) the ex U.S. license for ruxolitinib and (ii) our obligations in connection with our participation on the joint development committee for myelofibrosis and polycythemia vera/essential thrombocythemia. We concluded that these deliverables should be accounted for as a single unit of accounting and the $150.0 million upfront payment received in December 2009 and the immediate $60.0 million milestone payment received in January 2010 should be recognized on a straight line basis through December 2013, when we estimated we would complete our obligations in connection with our participation on the joint development committee for myelofibrosis and polycythemia vera, our estimated performance period under the agreement. We completed this substantive performance obligation related to this arrangement in December 2013.

At December 31, 2009, we recorded $10.9 million of reimbursable costs incurred prior to the effective date of the agreement as deferred revenue on the consolidated balance sheet. These costs were recognized on a straight line basis through December 2013 consistent with the aforementioned upfront and milestone payments. Future reimbursable costs incurred after the effective date of the agreement with Novartis are recorded net against the related research and development expenses. At June 30, 2016 and December 31, 2015, $0.2 million and $0.3 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets. Research and development expenses for the three and six months ended June 30, 2016 were net of $0.1 million and $0.4 million, respectively, of costs reimbursed by Novartis.  Research and development expenses for the three and six months ended June 30, 2015 were net of $0.5 million and $1.0 million, respectively, of costs reimbursed by Novartis.

Contract revenue under the Novartis agreement was $5.0 million and $5.0 million for the three and six months ended June 30, 2016, respectively. Contract revenue under the Novartis agreement was $0.0 million and $25.0 million for the three and six months ended June 30, 2015, respectively. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States was $26.0 million and $47.9 million for the three and six months ended June 30, 2016, respectively. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States was $17.4 million and $33.0 million for the three and six months ended June 30, 2015, respectively. At June 30, 2016 and December 31, 2015, $25.8 million and $23.8 million, respectively, of product royalties were included in accounts receivable on the condensed consolidated balance sheets.

Lilly - Baricitinib

In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly. Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to our JAK inhibitor baricitinib, and certain back-up compounds for inflammatory and autoimmune diseases. We received an upfront payment of $90.0 million, and were initially eligible to receive up to $665.0 million in substantive milestone payments across multiple indications upon the achievement of pre-specified events, including up to $150.0 million for the achievement of development milestones, up to $365.0 million for the achievement of regulatory milestones and up to $150.0 million for the achievement of commercialization milestones. Exclusive of the upfront payment of $90.0 million received in 2009, we have recognized and received in the aggregate $99.0 million for the achievement of development milestones and $55.0 million for the achievement of regulatory milestones through June 30, 2016. 

In January 2016, under this agreement, we recognized a $35.0 million regulatory milestone for the submission of an NDA to the FDA for the approval of oral once-daily baricitinib for the treatment of moderately-to-severely active rheumatoid arthritis and a $20.0 million regulatory milestone for the submission of a Marketing Authorization Application to the Europe Medicines Agency for the approval of oral once-daily baricitinib for the treatment of moderately-to-severely active rheumatoid arthritis. In 2012, we recognized a $50.0 million development milestone for the achievement of a predefined milestone for the initiation of the rheumatoid arthritis Phase III program for baricitinib. In 2010, we recognized a $30.0 million development milestone based upon the initial three month data in the Phase IIa clinical trial of baricitinib for the treatment of rheumatoid arthritis and a $19.0 million development milestone for the Phase IIb clinical trial initiation of baricitinib for the treatment of rheumatoid arthritis. We determined the 2016, 2012 and 2010 milestones to be substantive as their achievement required substantive efforts by us and was at risk until the milestones were ultimately achieved. We also could receive tiered, double-digit royalty payments on future global net sales with rates ranging up to 20% if the product is successfully commercialized.

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. In July 2010, we elected to co-develop baricitinib with Lilly in rheumatoid arthritis and we are responsible for funding 30% of the associated future global development costs for this indication from the initiation of the Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority.  We previously had retained an option to co-promote products in the United States but, in March 2016, we waived our co-promotion option as part of an amendment to the agreement. 

Research and development expenses recorded under the Lilly agreement representing 30% of the global development costs for baricitinib for the treatment of rheumatoid arthritis were $5.3 million and $10.4 million for the three and six months ended June 30, 2016, respectively. Research and development expenses recorded under the Lilly agreement representing 30% of the global development costs for baricitinib for the treatment of rheumatoid arthritis were $10.3 million and $21.9 million for the three and six months ended June 30, 2015, respectively. We have retained certain mechanisms to give us cost protection as baricitinib advances in clinical development. We can defer our portion of co-development study costs by indication if they exceed a predetermined level. This deferment would be credited against future milestones or royalties and we would still be eligible for the full incremental royalties related to the co-development option. In addition, even 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. 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 (1) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (2) the expiration of regulatory exclusivity for the licensed product in such country and (3) 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.

We determined that there were two deliverables under the agreement: (i) the worldwide license and (ii) our obligations in connection with a co-development option. We concluded that these deliverables should be accounted for as a single unit of accounting and the $90.0 million upfront payment should be recognized on a straight line basis as revenue through December 2016, our estimated performance period under the agreement.

Contract revenue under the Lilly agreement was $3.2 million and $61.4 million, for the three and six months ended June 30, 2016, respectively.  Contract revenue under the Lilly agreement was $3.2 million and $6.4 million, for the three and six months ended June 30, 2015, 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. We paid Lilly an upfront payment of $35.0 million and Lilly is eligible to receive up to $40.0 million in additional regulatory milestone payments relating to ruxolitinib in the GVHD field. During the three and six months ended June 30, 2016, the $35.0 million upfront payment was recorded in research and development expense on the 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, 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’ proprietary antibody discovery platforms. The agreement became effective on February 18, 2015, upon the expiration of the waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976.

Under the terms of this agreement, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3. In addition to the initial four program targets, we and Agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration, and in November 2015, three more targets were added. Targets may be designated profit-share programs, where all costs and profits are shared equally by us and Agenus, or royalty-bearing programs, where we will be responsible for all costs associated with discovery, preclinical activities, clinical development and commercialization activities. The programs relating to GITR and OX40 and two of the undisclosed targets are profit-share programs while the other targets currently under collaboration are royalty-bearing programs. All costs related to the collaboration are subject to a joint research plan.  For each royalty-bearing product, Agenus will be eligible to receive up to $155.0 million in future contingent development, regulatory and commercialization milestones as well as tiered royalties on global net sales ranging from 6% to 12%. For each profit share product, Agenus will be eligible to receive up to $20.0 million in future contingent development milestones. Additionally, Agenus retains co-promotion participation rights in the United States on any profit share product. For each royalty bearing product, Agenus has reserved the right to elect to co fund 30% of development costs for a commensurate increase in royalties. 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.  We agreed to certain standstill provisions that allow us to acquire up to 15% of Agenus Inc.’s outstanding voting stock, including shares acquired pursuant to the Stock Purchase Agreement described below, solely for investment purposes.

In January 2015, we also entered into a Stock Purchase Agreement with Agenus Inc. pursuant to which we agreed to purchase approximately 7.76 million shares of Agenus Inc. common stock for an aggregate purchase price of $35.0 million in cash, or approximately $4.51 per share. We completed the purchase of the shares on February 18, 2015. On February 18, 2015 the closing price of Agenus Inc. common shares on The NASDAQ Stock Market was $5.13 per share and, therefore, the value of the 7.76 million shares acquired by us was $39.8 million. We agreed not to dispose of any of the shares of common stock for a period of 12 months and Agenus Inc. has agreed to certain registration rights with respect to the shares of common stock.

Upon closing of the Agenus transaction on February 18, 2015, we paid total consideration of $60.0 million to Agenus Inc.  Of the $60.0million, $39.8 million was allocated to our stock purchase in Agenus Inc. and was recorded as a long term investment on the condensed consolidated balance sheets and $20.2 million was allocated to research and development expense on the condensed consolidated statement of operations. 

We have concluded Agenus Inc. is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest. We own approximately 9% of the outstanding shares of Agenus Inc. common stock and conclude that we have the ability to exercise significant influence, but not control, over Agenus Inc. based primarily on our ownership interest, the level of intra-entity transactions between us and Agenus related to development expenses, as well as other qualitative factors. We have elected the fair value option to account for our long term investment in Agenus Inc. whereby the investment is marked to market through earnings in each reporting period.  We believe the fair value option to be the most appropriate accounting method to account for securities in publicly held collaborators for which we have significant influence. For the three and six months ended June 30, 2016, we recorded an unrealized loss of $0.9 million and $3.8 million, respectively, based on the decrease in the market price of Agenus Inc.’s common stock from the date of purchase to $4.05 per share at June 30, 2016.  For the three months ended March 31, 2016, Agenus Inc. reported total revenues of $6.0 million and a net loss of $31.8 million within their consolidated financial statements.

Research and development expenses for the three and six months ended June 30, 2016, included $4.0 million and $8.1 million, respectively, of development costs incurred pursuant to the Agenus arrangement. Research and development expenses for the three and six months ended June 30, 2015, included $3.8 million and $5.6 million, respectively, of development costs incurred pursuant to the Agenus arrangement.  At June 30, 2016, a total of $9.2 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheet.

Hengrui

In September 2015, we entered into a License and Collaboration Agreement with Jiangsu Hengrui Medicine Co., Ltd. (“Hengrui”). Under the terms of this agreement, we received exclusive development and commercialization rights worldwide, with the exception of Mainland China, Hong Kong, Macau and Taiwan, to INCSHR1210, an investigational PD-1 monoclonal antibody, and certain back-up compounds. INCSHR1210 is currently in clinical development. 

Under the terms of this agreement, we paid Hengrui an upfront payment of $25.0 million in 2015 which was recorded in research and development expense on the condensed consolidated statement of operations. Hengrui is also eligible to receive potential milestone payments of up to $770.0 million, consisting of $90.0 million for regulatory approval milestones, $530.0 million for commercial performance milestones, and $150.0 million for a clinical superiority milestone.  Also, Hengrui may be eligible to receive tiered royalties in the high-single digits to mid-double digits based on net sales in our territories. Each company will be responsible for costs relating to the development and commercialization of the PD-1 monoclonal antibody in their respective territories.  The agreement will continue on a country-by-country basis until we have no royalty payment obligations with respect to such country or, if earlier, the termination of the agreement in accordance with its terms.  The agreement may be terminated in its entirety by us for convenience, and may also be terminated under certain other circumstances, including material breach.

Research and development expenses for the three and six months ended June 30, 2016, included $0.0 million and $0.7 million, respectively, of development costs incurred pursuant to the Hengrui agreement.

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Stock compensation

6 Months Ended

Jun. 30, 2016

Stock compensation

Stock Compensation

10.     Stock compensation

We recorded $21.3 million and $42.1 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2016, respectively. We recorded $17.6 million and $35.2 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2015, respectively. Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $13.6 million, $26.6 million, $10.2 million and $20.4 million for the three and six months ended June 30, 2016 and 2015, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $7.7 million, $15.5 million, $7.4 million and $14.7 million for the three and six months ended June 30, 2016 and 2015, respectively.

We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions:

		Employee Stock Options								Employee Stock Purchase Plan
		For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Six Months Ended
		June 30,								June 30,
		2016		2015		2016		2015		2016		2015		2016		2015
Average risk-free interest rates		1.20	%	1.38	%	1.47	%	1.35	%	0.58	%	0.64	%	0.71	%	0.60	%
Average expected life (in years)		5.08		5.20		5.01		5.06		0.50		0.50		0.50		0.50
Volatility		51	%	49	%	50	%	50	%	45	%	27	%	54	%	36	%
Weighted-average fair value (in dollars)		36.27		45.56		40.90		33.80		16.33		9.24		18.45		9.90

The risk-free interest rate is derived from the U.S. Federal Reserve rate in effect at the time of grant. The expected life calculation is based on the observed and expected time to the exercise of options by our employees based on historical exercise patterns for similar type options. Expected volatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the options. A dividend yield of zero is assumed based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends.

Option activity under the 2010 Stock Plan was as follows:

		Shares Subject to
		Outstanding Options
	Shares Available		Weighted Average
	for Grant	Shares	Exercise Price
Balance at December 31, 2015	3,846,717	11,052,279	$	33.55
Additional authorization	5,000,000	—		—
Options granted	(1,616,347)	1,616,347	$	92.89
Options exercised	—	(1,132,958)	$	17.22
Options cancelled	123,975	(123,975)	$	75.68
Options expired	—	(1,834)	$	3.11
Balance at June 30, 2016	7,354,345	11,409,859	$	43.12

RSU and PSU award activity under the 2010 Stock Plan was as follows:

		Shares Subject to
	Shares Available	Outstanding Awards
	for Grant	Shares	Grant Date Value
Balance at December 31, 2015	834,433	565,567		—
Additional authorization	1,000,000	—		—
RSUs granted	(325,651)	325,651	$	86.84
PSUs granted	—	—		—
RSUs cancelled	23,789	(23,789)	$	70.84
PSUs cancelled	1,948	(1,948)	$	64.55
RSUs released	—	(7,278)	$	78.49
Balance at June 30, 2016	1,534,519	858,203		—

In January 2014, we began granting RSUs and PSUs to our employees at the share price on the date of grant.   Each RSU represents the right to acquire one share of our common stock. We granted a total of 325,651 RSUs during the six months ended June 30, 2016 which will cliff vest in three years and will be recognized as stock compensation expense over this period.  Also, in January 2014, Hervé Hoppenot, our President and Chief Executive Officer, was granted a one-time grant of 400,000 RSUs outside of our 2010 Stock Incentive Plan. Vesting of the RSUs will be subject to Mr. Hoppenot’s continued employment on the applicable vesting dates, with one-sixth of the RSUs vesting at the end of each of the calendar years 2014 through 2019, subject to earlier acceleration of vesting upon the occurrence of certain events in accordance with the terms of his employment agreement.As of June 30, 2016, a total of 133,333 RSUs granted to Mr. Hoppenot vested and were released leaving 266,667 RSUs outstanding.

At June 30, 2016, we have only recognized stock compensation expense relating to performance conditions of the outstanding PSUs that are deemed probable of achievement at that date. For PSUs containing performance conditions which have not been deemed probable of achievement at June 30, 2016,  no stock compensation expense has been recognized for these awards. The actual number of shares of our common stock into which each PSU may convert are subject to a multiplier of up to 125% based on the level at which the performance conditions are achieved.

Based on our historical experience of employee turnover, we have assumed an annualized forfeiture rate of 5% for our options, PSUs and RSUs.  Under the true-up provisions of the stock compensation guidance, we will record additional expense if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated.

Total compensation cost of options granted but not yet vested, as of June 30, 2016, was $61.0 million, which is expected to be recognized over the weighted average period of 3.0 years. Total compensation cost of RSUs granted but not yet vested, as of June 30, 2016, was $38.2 million, which is expected to be recognized over the weighted average period of 3.0 years. Total compensation cost of PSUs granted but not yet vested, as of June 30, 2016, was $0.4 million, which is expected to be recognized over the weighted average period of 3.0 years, should the underlying performance conditions be deemed probable of achievement.

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Debt

6 Months Ended

Jun. 30, 2016

Debt

Debt

11.     Debt

The components of the convertible notes are as follows (in thousands):

				Carrying Amount,
	Interest Rates			June 30,		December 31,
Debt	June 30, 2016		Maturities	2016		2015
0.375% Convertible Senior Notes due 2018	0.375	%	2018	$	332,368	$	324,031
1.25% Convertible Senior Notes due 2020	1.25	%	2020		303,123		295,862
					635,491		619,893
Less current portion					—		—
				$	635,491	$	619,893

The carrying amount and fair value of our convertible notes are as follows (in thousands):

	June 30, 2016				December 31, 2015
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
0.375% Convertible Senior Notes due 2018	$	332,368	$	621,328	$	324,031	$	807,422
1.25% Convertible Senior Notes due 2020		303,123		638,087		295,862		816,123
	$	635,491	$	1,259,415	$	619,893	$	1,623,545

The fair values of the 0.375% Convertible Senior Notes due 2018 (the “2018 Notes”) and the 1.25% Convertible Senior Notes due 2020 (the “2020 Notes”) are based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments, and, therefore, these convertible senior notes are classified within Level 2 in the fair value hierarchy.

Prior to May 14, 2014, the 2018 and 2020 Notes were not convertible except in connection with a make whole fundamental change, as defined in the respective indentures. Beginning on, and including, May 15, 2014, the 2018 and 2020 Notes are convertible prior to the close of business on the business day immediately preceding May 15, 2018, in the case of the 2018 Notes, and May 15, 2020, in the case of the 2020 Notes, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2018 Notes or 2020 Notes, as applicable, on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2018 Notes or 2020 Notes, as applicable, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2018 Notes or 2020 Notes, as applicable, on each such trading day; or (3) upon the occurrence of specified corporate events. On or after May 15, 2018, in the case of the 2018 Notes, and May 15, 2020, in the case of the 2020 Notes, until the close of business on the second scheduled trading day immediately preceding the relevant maturity date, the Notes are convertible at any time, regardless of the foregoing circumstances. Upon conversion we will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election.

On July 1, 2016, the 2018 Notes and 2020 Notes became convertible through at least September 30, 2016, based on meeting the conversion criteria related to the sale price of our common stock during the calendar quarter ended June 30, 2016 as described in (1) above. Management’s intent is to settle any conversions of 2018 Notes or 2020 Notes during this period in shares of our common stock and, therefore, the 2018 Notes and 2020 Notes are reflected in long term liabilities on the condensed consolidated balance sheet at June 30, 2016.  

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Defined benefit pension obligation

6 Months Ended

Jun. 30, 2016

Defined benefit pension obligation

Defined Contribution Plan

12.     Defined benefit pension obligation

We maintain a defined benefit pension plan for Incyte Biosciences Luxembourg S.a.r.l. employees.  The plan provides benefits to employees upon retirement, death or disability.

The net periodic benefit cost from June 1, 2016 to June 30, 2016 was as follows (in thousands):

		2016
Service cost	$	120
Interest cost		10
Expected return on plan assets		(8)
Amortization of prior service cost		18
Net periodic (benefit) cost	$	140

We plan to contribute a total of $1.4 million to the plan in 2016 inclusive of the amounts contributed to the plan during the current period.  As of June 30, 2016, $4.5 million of accrued pension obligation is recorded in other long term liabilities on the condensed consolidated balance sheets.

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Income taxes

6 Months Ended

Jun. 30, 2016

Income taxes

Income taxes

13.Income taxes

In January 2015, we licensed certain intellectual property rights related to our non-partnered clinical programs to our wholly-owned subsidiary in Switzerland. Although the license of intellectual property rights did not result in any gain or loss in the condensed consolidated statements of operations, the transaction generated a taxable gain in the U.S, and we are utilizing available federal and state net operating loss carryforwards to offset the majority of this gain. Any taxes incurred related to intercompany transactions are treated as prepaid tax in our condensed consolidated balance sheets and amortized to income tax expense over the life of the intellectual property.   Any cash taxes anticipated to be paid related to this intercompany transaction are immaterial.

In January 2016, the Delaware Competes Act (the “Act”) was enacted by the State of Delaware, which changes the corporate income tax apportionment formula to a single sales factor apportionment formula by 2020.  As a qualified Delaware headquarter company under the Act, we may elect to use either a three-factor apportionment or single sales factor starting in 2017.  We are currently evaluating the impact of the law change and the apportionment election available to us starting in 2017.

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Net income (loss) per share

6 Months Ended

Jun. 30, 2016

Net income (loss) per share

Net income (loss) per share

14.    Net income (loss) per share

Net income (loss) per share was calculated as follows for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands, except per share data)		2016	2015			2016	2015
Basic Net Income (Loss) Per Share
Basic net income (loss)	$	34,425	$	9,294	$	58,472	$	(9,063)
Weighted average common shares outstanding		187,682		178,676		187,433		175,373
Basic net income (loss) per share	$	0.18	$	0.05	$	0.31	$	(0.05)
Diluted Net Income (Loss) Per Share
Diluted net income (loss)	$	34,425	$	9,294	$	58,472	$	(9,063)
Weighted average common shares outstanding		187,682		178,676		187,433		175,373
Dilutive stock options and RSU’s		5,333		7,817		5,387		—
Weighted average shares used to compute diluted net income (loss) per share		193,015		186,493		192,820		175,373
Diluted net income (loss) per share	$	0.18	$	0.05	$	0.30	$	(0.05)

The following potential common shares were excluded from the calculations as their effect would be anti-dilutive:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2016	2015	2016	2015
Outstanding stock options and awards	2,790,121	137,012	2,744,246	13,255,051
Common shares issuable upon conversion of the 4.75% Convertible Senior Notes due 2015	—	4,990,916	—	4,990,916
Common shares issuable upon conversion of the 2018 Notes	7,245,244	7,245,263	7,245,244	7,245,263
Common shares issuable upon conversion of the 2020 Notes	7,241,284	7,245,263	7,241,284	7,245,263
Total potential common shares excluded from diluted net loss per share computation	17,276,649	19,618,454	17,230,774	32,736,493

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Contingencies

6 Months Ended

Jun. 30, 2016

Contingencies

Contingencies

15.Contingencies

In February 2016, we received a Paragraph IV certification notice (the “Notice Letter”) regarding an Abbreviated New Drug Application submitted to the U.S. Food and Drug Administration requesting approval to market a generic version of Jakafi (ruxolitinib).  The Notice Letter purports to challenge patents covering ruxolitinib phosphate and its use that expire in 2028.  The Notice Letter does not challenge the ruxolitinib composition of matter patent, which expires on December 24, 2027.  We do not believe there is any kind of loss that is probable or estimable related to this matter at this time.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Summary of significant accounting policies

Basis of presentation

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 June 30, 2016 and the condensed consolidated statements of operations, comprehensive income (loss) and cash flows for the three and six months ended June 30, 2016 and 2015, 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, 2015 has been derived from audited financial statements.

On June 1, 2016, we acquired (the “Acquisition”), pursuant to a Share Purchase Agreement dated as of May 9, 2016 (the “Share Purchase Agreement”), all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.a.r.l., since renamed Incyte Biosciences Luxembourg S.a.r.l., the parent company of certain European subsidiaries of ARIAD Pharmaceuticals, Inc. (“ARIAD”).  Refer to Note 3 for further information regarding the Acquisition.

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, 2015.

Principles of Consolidation

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.

Acquisitions

Acquisitions.  Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions.  Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.  Transaction costs are expensed as incurred.  The operating results of the acquired business are reflected in our consolidated financial statements after the date of acquisition. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use.

Foreign Currency Translation

Foreign Currency Translation. Operations in non-U.S. entities are recorded in the functional currency of each entity. For financial reporting purposes, the functional currency of an entity is determined by a review of the source of an entity's most predominant cash flows. The results of operations for any non-U.S. dollar functional currency entities are translated from functional currencies into U.S. dollars using the average currency rate during each month. Assets and liabilities are translated using currency rates at the end of the period. Adjustments resulting from translating the financial statements of our foreign entities that use their local currency as the functional currency into U.S. dollars are reflected as a component of other comprehensive income (loss). Transaction gains and losses are recorded in interest and other income, net in the condensed consolidated statements of operations.  To date, both the translation gains or losses in other comprehensive income (loss) and the transaction gains or losses in foreign exchange gain (loss) have been immaterial.

Use of Estimates

Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Concentrations of Credit Risk

Concentrations of Credit Risk.  Cash, cash equivalents, marketable securities, trade receivables and restricted investments are financial instruments which potentially subject us to concentrations of credit risk. The estimated fair value of financial instruments approximates the carrying value based on available market information. We primarily invest our excess available funds in corporate debt securities and, by policy, limit the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued or guaranteed by the U.S. government and money market funds that meet certain guidelines. Our receivables mainly relate to our product sales of JAKAFI, ICLUSIG and collaborative agreements with pharmaceutical companies. We have not experienced any significant credit losses on cash, cash equivalents, marketable securities, trade receivables or restricted investments to date and do not require collateral on receivables.

Cash and Cash Equivalents

Cash and Cash Equivalents.  Cash and cash equivalents are held in banks or in custodial accounts with banks. Cash equivalents are defined as all liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash.

Marketable Securities-Available-for-Sale

Marketable Securities—Available-for-Sale.  All marketable securities are classified as available-for-sale. Available-for-sale securities are carried at fair value, based on quoted market prices and observable inputs, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. We classify marketable securities that are available for use in current operations as current assets on the condensed consolidated balance sheets. Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in “Interest and other income, net.” The cost of securities sold is based on the specific identification method.

Accounts Receivable

Accounts Receivable.  As of June 30, 2016 and December 31, 2015, we had no allowance for doubtful accounts. We provide an allowance for doubtful accounts based on experience and specifically identified risks. Accounts receivable are carried at fair value and charged off against the allowance for doubtful accounts when we determine that recovery is unlikely and we cease collection efforts.

Inventory

Inventory.  Inventories are determined at the lower of cost or market value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods. We began capitalizing inventory in mid-November 2011 once the U.S. Food and Drug Administration (“FDA”) approved JAKAFI as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to approval of JAKAFI have been recorded as research and development expense in our statements of operations. As a result, cost of JAKAFI revenues for the next 3 to 6 months will reflect a lower average per unit cost of materials. The ICLUSIG inventories acquired on June 1, 2016 in connection with the Acquisition were recorded at fair value less costs to sell, which will result in a higher cost of ICLUSIG revenues for the next twelve months. 

JAKAFI raw materials and work-in-process inventory is not subject to expiration and the shelf life of finished goods inventory is 36 months from the start of manufacturing of the finished goods. ICLUSIG finished goods inventory has a shelf life of 24 months from the start of manufacturing of the finished goods.  We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. We classify inventory as current on the condensed consolidated balance sheets when we expect inventory to be consumed for commercial use within the next twelve months.

Variable Interest Entities

Variable Interest Entities. We perform an initial and on-going evaluation of the entities with which we have variable interests, such as equity ownership, in order toidentify entities (i) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support or (ii) in which the equity investors lack an essential characteristic of a controlling financial interest as variable interest entities (“VIE” or “VIEs”). If an entity is identified as a VIE, we perform an assessment to determine whether we have both (i) the power to direct activities that most significantly impact the VIE’s economic performance and (ii) have the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE. If both of these criteria are satisfied, we are identified as the primary beneficiary of the VIE.  As of June 30, 2016, there were no entities in which we held a variable interest which we determined to be VIEs.

Equity Method Investments

Equity Method Investments.  In circumstances where we have the ability to exercise significant influence over the operating and financial policies of a company in which we have an investment, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option under U.S. GAAP.   In assessing whether we exercise significant influence, we consider the nature and magnitude of our investment, any voting and protective rights we hold, any participation in the governance of the other company, and other relevant factors such as the presence of a collaboration or other business relationship. Under the equity method of accounting, we record within our results of operations our share of income or loss of the investee company.  Under the fair value option, our investment is carried at fair value on our condensed consolidated balance sheets as a long term investment and all changes in fair value are reported in our condensed consolidated statements of operations as an unrealized gain (loss) on long term investment.

Property and Equipment

Property and Equipment.  Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of the estimated useful life of the assets or lease term.

Management continually reviews the estimated useful lives of technologically sensitive equipment and believes that those estimates appropriately reflect the current useful life of our assets. In the event that a currently unknown significantly advanced technology became commercially available, we would re-evaluate the value and estimated useful lives of our existing equipment, possibly having a material impact on the financial statements.

Lease Accounting

Lease Accounting.  We account for operating leases by recording rent expense on a straight-line basis over the expected life of the lease, commencing on the date we gain possession of leased property. We include tenant improvement allowances and rent holidays received from landlords and the effect of any rent escalation clauses as adjustments to straight-line rent expense over the expected life of the lease.

Capital leases are reflected as a liability at the inception of the lease based on the present value of the minimum lease payments or, if lower, the fair value of the property. Assets under capital leases are recorded in property and equipment, net on the condensed consolidated balance sheets and depreciated in a manner similar to other property and equipment.

Certain construction projects may be accounted for as direct financing arrangements, whereby we record, over the construction period, the full cost of the asset in property and equipment, net on the condensed consolidated balance sheets. A corresponding liability is also recorded, net of leasehold improvements paid for by us, and is amortized over the expected lease term through monthly rental payments using the effective interest method.

In April 2016, we completed our purchase of the previously leased land and building of approximately 190,000 square feet of laboratory and office space in Wilmington, Delaware.  Refer to Note 7 for further information regarding the purchase.

Other Intangible Assets, net

Other Intangible Assets, net. Other intangible assets, net consist of licensed intellectual property rights acquired in business combinations, which are reported at fair value, less accumulated amortization. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method.

In-Process Research and Development

In-Process Research and Development. The fair value of in-process research and development (“IPR&D”) acquired through business combinations is capitalized as an indefinite-lived intangible asset until the completion or abandonment of the related research and development activities.  When the related research and development is completed, the asset will be assigned a useful life and amortized.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets.  Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset.  If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.

Indefinite-lived intangible assets, including IPR&D, are tested for impairment annually in the fourth quarter or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired.  Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of the asset to its carrying value.

Goodwill

Goodwill.  Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed.  Goodwill is not amortized but is tested for impairment at least annually in the fourth quarter at the reporting unit level.  A reporting unit is the same as, or one level below, an operating segment. Our operating segment is currently comprised of a single, entity wide reporting unit.

Income Taxes

Income Taxes.  We account for income taxes using the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts reportable for income tax purposes. In addition, we follow the guidance related to accounting for uncertainty in income taxes. This guidance creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before it is recognized in the financial statements.

Financing Costs Related to Long-term Debt

Financing Costs Related to Long-term Debt.  Costs associated with obtaining long-term debt are deferred and amortized over the term of the related debt using the effective interest method. Such costs are presented as a direct deduction from the carrying amount of the long-term debt liability, consistent with debt discounts, on the consolidated balance sheets.

Grant Accounting

Grant Accounting.  Grant amounts received from government agencies for operations are deferred and are amortized into income over the service period of the grant. Grant amounts received for purchases of capital assets are deferred and amortized into interest and other income, net over the useful life of the related capital assets. Such amounts are recorded in other liabilities on the condensed consolidated balance sheets.

Net Income (Loss) Per Share

Net Income (Loss) Per Share.  Our basic and diluted net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during all periods presented. Options to purchase stock and shares issuable upon the conversion of convertible debt are included in diluted earnings per share calculations, unless the effects are anti-dilutive.

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss).  Accumulated other comprehensive income (loss) consists of realized and unrealized gains or losses on marketable securities and restricted cash and investments, net of tax, foreign currency translation gains or losses, and changes in defined benefit pension obligation, net of tax.

Revenue Recognition

Revenue Recognition.  Revenues are recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until no further obligations exist. We exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenues

Our product revenues consist of U.S. sales of JAKAFI and European sales of ICLUSIG.  Product revenues are recognized once we meet all four revenue recognition criteria described above. In November 2011, we began shipping JAKAFI to our customers in the U.S., which include specialty pharmacies and wholesalers. In June 2016, we acquired the right to and began shipping ICLUSIG to our customers in the European Union and certain other jurisdictions (Note 3), which include retail pharmacies, hospital pharmacies and distributors.

We recognize revenues for product received by our customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S. Product shipping and handling costs are included in cost of product revenues.

Customer Credits:  Our customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts. We expect our customers will earn prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted from total product sales as they are earned.

Rebates and Discounts:  Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program in the U.S. and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers for healthcare. Rebate amounts are based upon contractual agreements or legal requirements with public sector benefit providers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launches. Our estimates for expected utilization of rebates are based on data received from our customers. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Chargebacks:  Chargebacks are discounts that occur when certain contracted customers, which currently consist primarily of group purchasing organizations, Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers. Contracted customers generally purchase the product at a discounted price. The wholesalers, in turn, charges back to us the difference between the price initially paid by the wholesalers and the discounted price paid by the contracted customers. In addition to actual chargebacks received, we maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our distribution channel.  If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Medicare Part D Coverage Gap:  Medicare Part D prescription drug benefit mandates manufacturers to fund 50% 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.

Co-payment Assistance:  Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. We accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Royalty Revenues

Royalty revenues on commercial sales for ruxolitinib (marketed as JAKAVI® outside the United States) by Novartis Pharmaceutical International Ltd. (“Novartis”) are based on net sales of licensed products in licensed territories as provided by Novartis. We recognize royalty revenues in the period the sales occur.

Cost of Product Revenues

Cost of product revenues includes all JAKAFI related product costs as well as ICLUSIG related product costs. The acquired ICLUSIG inventories were recorded at fair value less costs to sell in connection with the Acquisition, and will result in a higher cost of ICLUSIG product revenues over the next twelve months.  In addition, cost of product revenues include low single digit royalties under our collaboration and license agreement to Novartis on all future sales of JAKAFI in the United States. Subsequent to the Acquisition on June 1, 2016, cost of product revenues also includes the amortization of our licensed intellectual property for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.    

Contract and License Revenues

Under agreements involving multiple deliverables, services and/or rights to use assets that we entered into prior to January 1, 2011, the multiple elements are divided into separate units of accounting when certain criteria are met, including whether the delivered items have stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. When separate units of accounting exist, consideration is allocated among the separate elements based on their respective fair values. The determination of fair value of each element is based on objective evidence from historical sales of the individual elements by us to other customers. If such evidence of fair value for each undelivered element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value for each undelivered element does exist or until all elements of the arrangement are delivered. When elements are specifically tied to a separate earnings process, revenue is recognized when the specific performance obligation tied to the element is completed. When revenues for an element are not specifically tied to a separate earnings process, they are recognized ratably over the term of the agreement. We assess whether a substantive milestone exists at the inception of our agreements. For all milestones within our arrangements that are considered substantive, we recognize revenue upon the achievement of the associated milestone. If a milestone is not considered substantive, we would recognize the applicable milestone payment over the remaining period of performance under the arrangement. As of June 30, 2016, all remaining potential milestones under our collaborative arrangements are considered substantive.

On January 1, 2011, updated guidance on the recognition of revenues for agreements with multiple deliverables became effective and applies to any agreements we may enter into on or after January 1, 2011. This updated guidance (i) relates to whether multiple deliverables exist, how the deliverables in a revenue arrangement should be separated and how the consideration should be allocated; (ii) requires companies to allocate revenues in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price; and (iii) eliminates the use of the residual method and requires companies to allocate revenues using the relative selling price method. During the six months ended June 30, 2016 and 2015, we did not enter into any agreements that are subject to this updated guidance. If we enter into an agreement with multiple deliverables after January 1, 2011 or amend existing agreements, this updated guidance could have a material effect on our financial statements.

Our collaborations often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and commercialization events. These three categories of milestone events reflect the threestages of the life-cycle of our drugs, which we describe in more detail in the following paragraphs.

The regulatory review and approval process, which includes preclinical testing and clinical trials of each drug candidate, is lengthy, expensive and uncertain. Securing approval by the FDA requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish a drug candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies. Before commencing clinical investigations of a drug candidate in humans, we must submit an Investigational New Drug application (“IND”), which must be reviewed by the FDA.

The steps generally required before a drug may be marketed in the United States include preclinical laboratory tests, animal studies and formulation studies, submission to the FDA of an IND for human clinical testing, performance of adequate and well-controlled clinical trials in three phases, as described below, to establish the safety and efficacy of the drug for each indication, submission of a new drug application (“NDA”) or biologics license application (“BLA”) to the FDA for review and FDA approval of the NDA or BLA.

Similar requirements exist within foreign regulatory agencies as well. The time required satisfying the FDA requirements or similar requirements of foreign regulatory agencies may vary substantially based on the type, complexity and novelty of the product or the targeted disease.

Preclinical testing includes laboratory evaluation of product pharmacology, drug metabolism, and toxicity, which includes animal studies, to assess potential safety and efficacy as well as product chemistry, stability, formulation, development, and testing. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. The FDA may raise safety concerns or questions about the conduct of the clinical trials included in the IND, and any of these concerns or questions must be resolved before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to commence. Clinical trials involve the administration of the investigational drug or the marketed drug to human subjects under the supervision of qualified investigators and in accordance with good clinical practices regulations covering the protection of human subjects. Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Phase I usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its safety, dosage tolerance, absorption, metabolism, distribution and excretion. Phase II usually involves clinical trials in a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse effects and safety risks, and evaluate and gain preliminary evidence of the efficacy of the drug for specific indications. Phase III clinical trials usually further evaluate clinical efficacy and safety by testing the drug in its final form in an expanded patient population, providing statistical evidence of efficacy and safety, and providing an adequate basis for labeling. We cannot guarantee that Phase I, Phase II or Phase III testing will be completed successfully within any specified period of time, if at all. Furthermore, we, the institutional review board for a trial, or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

Generally, the milestone events contained in our collaboration agreements coincide with the progression of our drugs from development, to regulatory approval and then to commercialization. The process of successfully discovering a new development candidate, having it approved and successfully commercialized is highly uncertain. As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve. Therefore, as a drug candidate progresses through the stages of its life-cycle, the value of the drug candidate generally increases.

Research and Development Costs

Research and Development Costs.  Our policy is to expense research and development costs as incurred. We often contract with clinical research organizations (“CROs”) to facilitate, coordinate and perform agreed upon research and development of a new drug. To ensure that research and development costs are expensed as incurred, we record monthly accruals for clinical trials and preclinical testing costs based on the work performed under the contract.

These CRO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical trial milestones. In the event that we prepay CRO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most professional fees, including project and clinical management, data management, monitoring, and medical writing fees are incurred throughout the contract period. These professional fees are expensed based on their percentage of completion at a particular date. Our CRO contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs, including shipping and printing fees. We expense the costs of pass through fees under our CRO contracts as they are incurred, based on the best information available to us at the time. The estimates of the pass through fees incurred are based on the amount of work completed for the clinical trial and are monitored through correspondence with the CROs, internal reviews and a review of contractual terms. The factors utilized to derive the estimates include the number of patients enrolled, duration of the clinical trial, estimated patient attrition, screening rate and length of the dosing regimen. CRO fees incurred to set up the clinical trial are expensed during the setup period.

Under our clinical trial collaboration agreements we may be reimbursed for certain development costs incurred. Such costs are recorded as a reduction of research and development expense in the period in which the related expense is incurred.

Stock Compensation

Stock Compensation.  Share-based payment transactions with employees, which include stock options, restricted stock units (“RSUs”) and performance shares (“PSUs”), are recognized as compensation expense over the requisite service period based on their estimated fair values as well as expected forfeiture rates.  The stock compensation process requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility over the option term and expected option lives, as well as expected forfeiture rates and the probability of PSUs vesting.  The fair value of stock options, which are subject to graded vesting, are recognized as compensation expense over the requisite service period using the accelerated attribution method.  The fair value of RSUs, which are generally subject to cliff vesting, are recognized as compensation expense over the requisite service period using the straight line 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, over the remaining requisite service period. We recorded $21.3 million and $42.1 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2016. We recorded $17.6 million and $35.2 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2015.

Acquisition-Related Contingent Consideration

Acquisition-Related Contingent Consideration. Acquisition-related contingent consideration, which consists of our future royalty and certain potential milestone obligations to ARIAD, is recorded on the acquisition date at the estimated fair value of the obligation, in accordance with the acquisition method of accounting.  The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations. 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which provides a five step approach to be applied to all contracts with customers. ASU No. 2014-09 also requires expanded disclosures about revenue recognition. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods therein.  Early adoption is permitted for reporting periods beginning after December 15, 2016.  We are currently analyzing the impact of ASU No. 2014-09 on our results of operations and, at this time, we are unable to determine the impact of the new standard, if any, on our condensed consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern,” to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year from the date the financial statements are issued. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We do not believe the pending adoption of ASU No. 2014-15 will have a material impact on our condensed consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis,” which affects reporting entities that are required to evaluate whether they should consolidate certain legal entities.  The amendments place more emphasis in the consolidation evaluation on variable interests other than fee arrangements such as principal investment risk (including debt or equity interests), guarantees of the value of the assets or liabilities of the variable interest entity (“VIE”), written put options on the assets of the VIE, or similar obligations. Additionally, the amendments reduce the extent to which related party arrangements cause an entity to be considered a primary beneficiary. This guidance is to be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The amendments are effective for fiscal years beginning after December 15, 2015, and interim periods therein. We have concluded ASU No. 2015-02 has no impact on our condensed consolidated financial statements. 

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” that requires lessees to recognize assets and liabilities on the balance sheet for most leases including operating leases. Lessees now classify leases as either finance or operating leases and lessors classify all leases as sales-type, direct financing or operating leases.  The statement of operations presentation and expense recognition for lessees for finance leases is similar to that of capital leases under Accounting Standards Codification (“ASC”) 840 with separate interest and amortization expense with higher periodic expense in the earlier periods of a lease.  For operating leases, the statement of operations presentation and expense recognition is similar to that of operating leases under ASC 840 with single lease cost recognized on a straight-line basis. This guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements and is effective for annual periods beginning after December 15, 2018 and interim periods therein.  Early adoption is permitted.  We are currently analyzing the impact of ASU No. 2016-02 and, at this time, are unable to determine the impact of the new standard, if any, on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which changes the accounting for certain aspects of share-based payments to employees.  The new guidance requires excess tax benefits and tax deficiencies to be recorded in the statement of operations when the awards vest or are settled.  In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows.  The standard also clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the statement of cash flows, and provides an accounting policy election to account for forfeitures as they occur.  The new standard is effective for our calendar year beginning January 1, 2017.  Early adoption is permitted however all of the guidance must be adopted in the same period. 

We elected to early adopt ASU No. 2016-09 as of the first quarter of 2016 which required us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption.  The primary impact of adoption was the recognition of $325.6 million of accumulated excess tax benefits as deferred tax assets that under the previous guidance could not be recognized until the benefits were realized through a reduction in cash taxes paid.  This part of the guidance was applied using a modified retrospective method with a cumulative-effect adjustment to the accumulated deficit for the excess tax benefits not previously recognized. However, given the full valuation allowance placed on the additional $325.6 million of deferred tax assets, the recognition upon adoption had no impact to our accumulated deficit as of January 1, 2016.

Adoption of the standard also resulted in the recognition of excess tax benefits in our income tax provision rather than as paid-in capital. This guidance is to be applied prospectively and resulted in the recognition of $0.5 million of excess tax benefits in our income tax provision rather than paid-in capital for the six months ended June 30, 2016.  Amendments to the minimum statutory withholding tax requirements had no impact to the accumulated deficit as of January 1, 2016. In addition, we have elected to continue to estimate forfeitures expected to occur when determining the amount of compensation cost to be recognized in each period.

We elected to apply the presentation requirements for cash flows related to excess tax benefits prospectively which resulted in classification within operating cash flows of the excess tax benefits recognized during the three months ended March 31, 2016.  This classification is now consistent with all other cash flow impacts from income taxes. In addition, the amendments to the cash flow statement presentation to classify cash payments made on behalf of employees for shares withheld as a financing activity had no impact on our previously reported cash flows, as this requirement is consistent with our previous presentation of these cash flows.

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Business combination (Tables)

6 Months Ended

Jun. 30, 2016

Business combinations

Schedule of assets acquired and liabilities assumed

	Amounts
	Recognized as of
(estimated in thousands)	Acquisition Date
Current assets	$	21,413
Property and equipment		850
Restricted cash		432
Intangible assets(a)		283,000
Total identifiable assets		305,695
Current liabilities		(15,720)
Other long term liabilities		(5,226)
Total liabilities assumed		(20,946)
Goodwill(b)		155,725
Total fair value of consideration transferred	$	440,474

(a)As of the effective date of the Acquisition, identifiable intangible assets are required to be measured at fair value.  The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. We used an income statement approach to estimate the preliminary fair value of the intangibles which includes licensed intellectual property and IPR&D. The assumptions used to estimate the cash flows of the licensed intellectual property included a discount rate of 15%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as the $7.0 million of research and development cost sharing payments we will owe in 2016 and 2017.  The assumptions used to estimate the cash flows of the IPR&D (which relates to the potential approval of ICLUSIG as a second line treatment) included a PTS of 25%, discount rate of 16%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as probability weighted milestone payments estimated for 2020 related to the clinical results and potential approval of ICLUSIG as a second line treatment. The licensed intellectual property has a weighted-average useful life of approximately 12.5 years and will be amortized using the straight-line method and the IPR&D is an indefinite-lived intangible and will not be amortized until the completion or abandonment of the related research and development activities. 

(b)Goodwill is calculated as the difference between the estimated acquisition date fair value of the consideration transferred and the estimated fair values of the assets acquired and liabilities assumed. The Goodwill is related to the existing platform, infrastructure, and workforce which is expected to generate synergies and further our strategic plan in Europe.  Goodwill is not amortized and none of the goodwill is expected to be deductible for tax purposes.

Schedule of unaudited pro forma information

The following unaudited pro forma information presents condensed consolidated results of operations for the three and six months ended June 30, 2016 and 2015, as if the Acquisition had occurred as of January 1, 2015 (in thousands).

	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2016		2015		2016		2015
Pro forma net product revenues	$	245,341	$	148,519	$	437,334	$	269,073
Pro forma net income (loss)	$	48,431	$	(11,414)	$	54,136	$	(47,561)

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Fair value of financial instruments (Tables)

6 Months Ended

Jun. 30, 2016

Marketable Securities

Schedule of fair value of assets and liabilities measured on recurring basis

The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis as of June 30, 2016 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		June 30, 2016
Cash and cash equivalents	$	487,654	$	—	$	—	$	487,654
Corporate debt securities		—		141,537		—		141,537
Long term investment (Note 9)		31,444		—		—		31,444
Total assets	$	519,098	$	141,537	$	—	$	660,635

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 of June 30, 2016 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		June 30, 2016
Contingent consideration (Note 3)	$	—	$	—	$	294,000	$	294,000
Total liabilities	$	—	$	—	$	294,000	$	294,000

Schedule of rollforward of Level 3 liabilities

The following is a rollforward of our Level 3 liabilities (in thousands):

	Level 3
Balance at January 1, 2016	$	—
Initial recognition of contingent consideration		293,000
Contingent consideration earned during the period		(1,271)
Change in fair value of contingent consideration		2,271
Balance at June 30, 2016	$	294,000

Schedule of fair value of assets measured on recurring basis

The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis as of December 31, 2015 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2015
Cash and cash equivalents	$	521,439	$	—	$	—	$	521,439
Corporate debt securities		—		186,344		—		186,344
Long term investment (Note 9)		35,248		—		—		35,248
Total assets	$	556,687	$	186,344	$	—	$	743,031

Summary of marketable securities portfolio

The following is a summary of our marketable security portfolio as of June 30, 2016 and December 31, 2015, respectively.

			Net		Net
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(in thousands)
June 30, 2016
Corporate debt securities	$	140,879	$	658	$	—	$	141,537
December 31, 2015
Corporate debt securities	$	187,153	$	—	$	(809)	$	186,344

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Concentration of Credit Risk (Tables)

6 Months Ended

Jun. 30, 2016

Concentration of credit Risk

Schedule of concentration of credit risk related to collaborative partners

	Percentage of Total				Percentage of Total
	Contract Revenues for the				Contract Revenues for the
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Collaboration Partner A	61	%	—	%	8	%	80	%
Collaboration Partner B	39	%	100	%	92	%	20	%

Schedule of concentration of credit risk related to specialty pharmacy customers

	Percentage of Total Net				Percentage of Total Net
	Product Revenues for the				Product Revenues for the
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Customer A	26	%	27	%	27	%	28	%
Customer B	16	%	19	%	17	%	20	%
Customer C	13	%	13	%	13	%	13	%
Customer D	9	%	9	%	9	%	9	%

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Inventory (Tables)

6 Months Ended

Jun. 30, 2016

Inventory

Schedule of inventory

Our inventory balance consists of the following:

	June 30,		December 31,
	2016		2015
	(in thousands)
Work-in-process	$	15,540	$	17,555
Finished goods		6,124		1,783
		21,664		19,338
Inventories-current		6,124		1,783
Inventories-non-current	$	15,540	$	17,555

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Property and equipment,net (Tables)

6 Months Ended

Jun. 30, 2016

Property and equipment, net

Schedule of property and equipment

Property and equipment, net consists of the following:

	June 30,		December 31,
	2016		2015
	(in thousands)
Office equipment	$	9,131	$	6,753
Laboratory equipment		34,797		31,296
Computer equipment		30,464		22,491
Land		3,825		—
Building and leasehold improvements		104,789		70,729
		183,006		131,269
Less accumulated depreciation and amortization		(44,493)		(45,263)
Property and equipment, net	$	138,513	$	86,006

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Intangible assets and goodwill (Tables)

6 Months Ended

Jun. 30, 2016

Intangible assets and goodwill

Schedule of intangible assets, net

The components of intangible assets as of June 30, 2016 were as follows (in thousands, except for useful life):

	Weighted-	Gross				Net
	Average Useful	Carrying		Accumulated		Carrying
	Lives (Years)	Amount		Amortization		Amount
Finite-lived intangible assets:
Licensed IP(1)	12.5	$	271,000	$	1,795	$	269,205
Indefinite-lived intangible assets:
Acquired IPR&D(1)	N/A		12,000		—		12,000
		$	283,000	$	1,795	$	281,205

(1) We acquired certain intangible assets as part of the Acquisition, as described further in Note 3.

Schedule of estimated aggregate amortization expense

Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets, excluding any possible future amortization associated with acquired IPR&D, for which development has not yet been completed, is as follows (in thousands):

		Remainder of
		2016		2017		2018		2019		2020		Thereafter
Amortization expense	$	10,770	$	21,540	$	21,540	$	21,540	$	21,540	$	172,275

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Stock compensation (Tables)

6 Months Ended

Jun. 30, 2016

Stock compensation

Schedule of valuation assumptions used for valuation of fair value of stock compensation granted

We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions:

		Employee Stock Options								Employee Stock Purchase Plan
		For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Six Months Ended
		June 30,								June 30,
		2016		2015		2016		2015		2016		2015		2016		2015
Average risk-free interest rates		1.20	%	1.38	%	1.47	%	1.35	%	0.58	%	0.64	%	0.71	%	0.60	%
Average expected life (in years)		5.08		5.20		5.01		5.06		0.50		0.50		0.50		0.50
Volatility		51	%	49	%	50	%	50	%	45	%	27	%	54	%	36	%
Weighted-average fair value (in dollars)		36.27		45.56		40.90		33.80		16.33		9.24		18.45		9.90

Schedule of option activity under the 2010 Stock Plan

Option activity under the 2010 Stock Plan was as follows:

		Shares Subject to
		Outstanding Options
	Shares Available		Weighted Average
	for Grant	Shares	Exercise Price
Balance at December 31, 2015	3,846,717	11,052,279	$	33.55
Additional authorization	5,000,000	—		—
Options granted	(1,616,347)	1,616,347	$	92.89
Options exercised	—	(1,132,958)	$	17.22
Options cancelled	123,975	(123,975)	$	75.68
Options expired	—	(1,834)	$	3.11
Balance at June 30, 2016	7,354,345	11,409,859	$	43.12

Schedule of RSU and PSU award activity under the 2010 Stock Plan

RSU and PSU award activity under the 2010 Stock Plan was as follows:

		Shares Subject to
	Shares Available	Outstanding Awards
	for Grant	Shares	Grant Date Value
Balance at December 31, 2015	834,433	565,567		—
Additional authorization	1,000,000	—		—
RSUs granted	(325,651)	325,651	$	86.84
PSUs granted	—	—		—
RSUs cancelled	23,789	(23,789)	$	70.84
PSUs cancelled	1,948	(1,948)	$	64.55
RSUs released	—	(7,278)	$	78.49
Balance at June 30, 2016	1,534,519	858,203		—

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Debt (Tables)

6 Months Ended

Jun. 30, 2016

Debt

Schedule of components of convertible notes

The components of the convertible notes are as follows (in thousands):

				Carrying Amount,
	Interest Rates			June 30,		December 31,
Debt	June 30, 2016		Maturities	2016		2015
0.375% Convertible Senior Notes due 2018	0.375	%	2018	$	332,368	$	324,031
1.25% Convertible Senior Notes due 2020	1.25	%	2020		303,123		295,862
					635,491		619,893
Less current portion					—		—
				$	635,491	$	619,893

Schedule of carrying amount and fair value of convertible notes

The carrying amount and fair value of our convertible notes are as follows (in thousands):

	June 30, 2016				December 31, 2015
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
0.375% Convertible Senior Notes due 2018	$	332,368	$	621,328	$	324,031	$	807,422
1.25% Convertible Senior Notes due 2020		303,123		638,087		295,862		816,123
	$	635,491	$	1,259,415	$	619,893	$	1,623,545

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Defined benefit pension obligation (Tables)

6 Months Ended

Jun. 30, 2016

Defined benefit pension obligation

Schedule of net periodic benefit cost

The net periodic benefit cost from June 1, 2016 to June 30, 2016 was as follows (in thousands):

		2016
Service cost	$	120
Interest cost		10
Expected return on plan assets		(8)
Amortization of prior service cost		18
Net periodic (benefit) cost	$	140

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Net loss per share (Tables)

6 Months Ended

Jun. 30, 2016

Net income (loss) per share

Schedule of calculation of net income (loss) per share

Net income (loss) per share was calculated as follows for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands, except per share data)		2016	2015			2016	2015
Basic Net Income (Loss) Per Share
Basic net income (loss)	$	34,425	$	9,294	$	58,472	$	(9,063)
Weighted average common shares outstanding		187,682		178,676		187,433		175,373
Basic net income (loss) per share	$	0.18	$	0.05	$	0.31	$	(0.05)
Diluted Net Income (Loss) Per Share
Diluted net income (loss)	$	34,425	$	9,294	$	58,472	$	(9,063)
Weighted average common shares outstanding		187,682		178,676		187,433		175,373
Dilutive stock options and RSU’s		5,333		7,817		5,387		—
Weighted average shares used to compute diluted net income (loss) per share		193,015		186,493		192,820		175,373
Diluted net income (loss) per share	$	0.18	$	0.05	$	0.30	$	(0.05)

Schedule of antidilutive securities excluded from the computation of earnings per share

The following potential common shares were excluded from the calculations as their effect would be anti-dilutive:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2016	2015	2016	2015
Outstanding stock options and awards	2,790,121	137,012	2,744,246	13,255,051
Common shares issuable upon conversion of the 4.75% Convertible Senior Notes due 2015	—	4,990,916	—	4,990,916
Common shares issuable upon conversion of the 2018 Notes	7,245,244	7,245,263	7,245,244	7,245,263
Common shares issuable upon conversion of the 2020 Notes	7,241,284	7,245,263	7,241,284	7,245,263
Total potential common shares excluded from diluted net loss per share computation	17,276,649	19,618,454	17,230,774	32,736,493

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Organization and business (Details)	6 Months Ended
	Jun. 30, 2016 segment
Organization and Business
Number of operating segments	1

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Summary of significant accounting policies - Narrative 1 (Details) $ in Thousands	1 Months Ended	6 Months Ended
	Apr. 30, 2016 ft²	Jun. 30, 2016 USD ($) item issuer instrument	Dec. 31, 2015 USD ($)
Concentrations of Credit Risk
Number of issuer to which company limits the amount of credit exposure other than US Government guaranteed securities | issuer		1
Number of financial investment to which company limits the amount of credit exposure other than US Government guaranteed securities | instrument		1
Accounts Receivable
Allowance for doubtful accounts | $		$ 0	$ 0
Variable Interest Entities
Number of entities in which variable interest held | item		0
Wilmington, Delaware
Lease Accounting
Square footage of laboratory and office purchased | ft²	190,000
JAKAFI
Inventory
Shelf life for finished goods inventory, maximum		36 months
JAKAFI | Minimum
Inventory
Period of lower average per unit cost of materials		3 months
JAKAFI | Maximum
Inventory
Period of lower average per unit cost of materials		6 months
ICLUSIG
Inventory
Shelf life for finished goods inventory, maximum		24 months

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Summary of significant accounting policies - Narrative 2 (Details) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2016 USD ($)	Mar. 31, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) item category	Jun. 30, 2015 USD ($)
Revenue Recognition
Percentage of Medicare Part D insurance coverage gap mandate to be funded by manufacturers				50.00%
Categories of milestone events, number | category				3
Number of stages of life-cycle drugs | item				3
Stock-Based Compensation
Stock-based compensation expense	$ 21,300		$ 17,600	$ 42,100	$ 35,200
Recent Accounting Pronouncements
Excess tax benefits	$ 785		$ 136	1,185	$ 503
Impact of Adoption of ASU No. 2016-09
Recent Accounting Pronouncements
Excess tax benefit from stock based compensation		$ 325,600
Excess tax benefits				$ 500
ICLUSIG
Revenue Recognition
Amortization period				12 years 6 months

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Business combination - Narratives (Details) - ARIAD Pharmaceuticals $ in Millions	Jun. 01, 2016 USD ($)
Business combinations
Upfront Payment	$ 147.5
Period for additional payment on sales booked	12 months
Period for further transition before provision made	1 year
Fair value of consideration transferred
Fair value of consideration transferred	$ 440.5
Cash	147.5
Contingent consideration	293.0
Acquisition-related contingent consideration	$ 293.0
Contingent Consideration
Fair value of consideration transferred
Probability of technical success (“PTS”) (as a percent)	25.00%
Projected cash flows period	18 years
Discount rate (as a percent)	10.00%
Minimum
Business combinations
Royalties paid, percentage	32.00%
Royalties received, percentage	20.00%
Period for buy back provision	2 years
Maximum
Business combinations
Agreement to indemnify the other for breaches of representations and warranties and certain other matters	$ 14.0
Royalties paid, percentage	50.00%
Potential future oncology development and regulatory approval milestone payments	$ 135.0
Development cost paid	$ 7.0
Royalties received, percentage	25.00%
Period for buy back provision	6 years

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Business combination - Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended	6 Months Ended
	Jun. 01, 2016	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2016
Business combinations
Goodwill		$ 155,725	$ 155,725	$ 155,725
Licensed IP
Business combinations
Weighted average useful life				12 years 6 months
ARIAD Pharmaceuticals
Business combinations
Current assets	$ 21,413
Property and equipment	850
Restricted cash	432
Intangible assets	283,000
Total identifiable assets	305,695
Current liabilities	(15,720)
Other long term liabilities	(5,226)
Total liabilities assumed	(20,946)
Goodwill	155,725
Total fair value of consideration transferred	440,474
Acquisition-Related Costs			$ 1,300	$ 1,300
Revenue of ARIAD		4,000
Net loss of ARIAD		$ (7,900)
ARIAD Pharmaceuticals | Maximum
Business combinations
Development cost paid	$ 7,000
ARIAD Pharmaceuticals | Licensed IP
Business combinations
Discount rate (as a percent)	15.00%
Gross margins (as a percent)	98.00%
Weighted average useful life	12 years 6 months
ARIAD Pharmaceuticals | Licensed IP | Minimum
Business combinations
Tax rates (as a percent)	7.80%
ARIAD Pharmaceuticals | Licensed IP | Maximum
Business combinations
Tax rates (as a percent)	13.80%
Development cost paid	$ 7,000
ARIAD Pharmaceuticals | IPR&D
Business combinations
Probability of technical success (“PTS”) (as a percent)	25.00%
Discount rate (as a percent)	16.00%
Gross margins (as a percent)	98.00%
ARIAD Pharmaceuticals | IPR&D | Minimum
Business combinations
Tax rates (as a percent)	7.80%
ARIAD Pharmaceuticals | IPR&D | Maximum
Business combinations
Tax rates (as a percent)	13.80%

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Business combination - Pro Forma Impact of Business Combination (Details) - ARIAD Pharmaceuticals - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Unaudited pro forma information
Pro forma net sales	$ 245,341	$ 148,519	$ 437,334	$ 269,073
Pro forma net income (loss)	48,431	$ (11,414)	54,136	$ (47,561)
Revenue that had been deferred	$ 24,400		$ 24,400

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Fair value of financial instruments - Fair value on a recurring basis (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair value of financial instruments
Long term investment	$ 31,444	$ 35,248	[1]
Level 3 | Fair Value
Fair value of financial instruments
Total liabilities	294,000
Recurring | Fair Value
Fair value of financial instruments
Cash and cash equivalents	487,654	521,439
Corporate debt securities	141,537	186,344
Long term investment	31,444	35,248
Total assets	660,635	743,031
Contingent consideration	294,000
Total liabilities	294,000
Recurring | Level 1
Fair value of financial instruments
Cash and cash equivalents	487,654	521,439
Long term investment	31,444	35,248
Total assets	519,098	556,687
Recurring | Level 2
Fair value of financial instruments
Corporate debt securities	141,537	186,344
Total assets	141,537	$ 186,344
Recurring | Level 3
Fair value of financial instruments
Contingent consideration	294,000
Total liabilities	$ 294,000

[1] The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date.

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Fair value of financial instruments - Rollforward of Level 3 liabilities (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($)
Rollforward of Level 3 liabilities
Change in fair value of contingent consideration	$ 2,271
Fair Value | Level 3
Rollforward of Level 3 liabilities
Initial recognition of contingent consideration	293,000
Contingent consideration earned during the period	(1,271)
Change in fair value of contingent consideration	2,271
Balance at end of period	$ 294,000

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Fair value of financial instruments - Marketable securities portfolio (Details) - Corporate Debt Securities - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Summary of marketable security portfolio
Amortized Cost	$ 140,879	$ 187,153
Net Unrealized Gains	658
Net Unrealized Losses		(809)
Estimated Fair Value	$ 141,537	$ 186,344
Minimum
Summary of marketable security portfolio
Contractual maturity dates	12 months
Maximum
Summary of marketable security portfolio
Contractual maturity dates	18 months

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Concentration of credit risk (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Contract Revenues | Customer Concentration Risk | Collaboration Partner A
Concentration of risk
Percentage of concentration risk	61.00%		8.00%	80.00%
Contract Revenues | Customer Concentration Risk | Collaboration Partner B
Concentration of risk
Percentage of concentration risk	39.00%	100.00%	92.00%	20.00%
Sales Revenue | Customer Concentration Risk | Customer A
Concentration of risk
Percentage of concentration risk	26.00%	27.00%	27.00%	28.00%
Sales Revenue | Customer Concentration Risk | Customer B
Concentration of risk
Percentage of concentration risk	16.00%	19.00%	17.00%	20.00%
Sales Revenue | Customer Concentration Risk | Customer C
Concentration of risk
Percentage of concentration risk	13.00%	13.00%	13.00%	13.00%
Sales Revenue | Customer Concentration Risk | Customer D
Concentration of risk
Percentage of concentration risk	9.00%	9.00%	9.00%	9.00%
Accounts Receivable | Credit Concentration Risk | Collaboration Partner A and B
Concentration of risk
Percentage of concentration risk			20.00%		39.00%
Accounts Receivable | Credit Concentration Risk | Customer A B C and D
Concentration of risk
Percentage of concentration risk			42.00%		40.00%

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Inventory (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Work-in-process	$ 15,540	$ 17,555
Finished goods	6,124	1,783
Total inventories	21,664	19,338
Inventories - current	6,124	1,783	[1]
Inventories - non -current	$ 15,540	$ 17,555	[1]
JAKAFI
Shelf life for finished goods inventory, maximum	36 months
ICLUSIG
Shelf life for finished goods inventory, maximum	24 months

[1] The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date.

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Property and equipment, net - Property and equipment, net (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Property and equipment, net
Property and Equipment, gross	$ 183,006	$ 131,269
Less accumulated depreciation and amortization	(44,493)	(45,263)
Property and Equipment, net	138,513	86,006	[1]
Office Equipment
Property and equipment, net
Property and Equipment, gross	9,131	6,753
Laboratory Equipment
Property and equipment, net
Property and Equipment, gross	34,797	31,296
Computer Equipment
Property and equipment, net
Property and Equipment, gross	30,464	22,491
Land
Property and equipment, net
Property and Equipment, gross	3,825
Building And Leasehold Improvements
Property and equipment, net
Property and Equipment, gross	$ 104,789	$ 70,729

[1] The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date.

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Property and equipment, net - Narrative (Details) $ in Millions	1 Months Ended
	Apr. 30, 2016 USD ($) ft²
Property and equipment, net
Purchase price of leased land and office building	$ 81.3
Property and Equipment
Property and equipment, net
Purchase price of leased land and office building	45.9
Land
Property and equipment, net
Purchase price of leased land and office building	3.8
Building And Leasehold Improvements
Property and equipment, net
Purchase price of leased land and office building	$ 31.6
Building
Property and equipment, net
Estimated useful life	P40Y
Agreement of Sale with Augustine Land II, L.P.
Property and equipment, net
Square footage of laboratory and office purchased | ft²	190,000

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Intangible assets and goodwill (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016 USD ($)	Jun. 30, 2016 USD ($)
Finite-lived intangible assets:
Accumulated Amortization	$ 1,795	$ 1,795
Intangible Assets, Net
Gross Carrying Amount	283,000	283,000
Net Carrying Amount	281,205	281,205
Amortization Expense
2016	10,770	10,770
2017	21,540	21,540
2018	21,540	21,540
2019	21,540	21,540
2020	21,540	21,540
Thereafter	172,275	172,275
Changes to carrying amount of goodwill
Goodwill acquired	155,700	155,700
IPR&D
Indefinite-lived intangible assets:
Net Carrying Amount	12,000	$ 12,000
Licensed IP
Intangible assets
Weighted Average Useful Lives (Years)		12 years 6 months
Finite-lived intangible assets:
Gross Carrying Amount	271,000	$ 271,000
Accumulated Amortization	1,795	1,795
Finite-Lived Intangible Assets, Net, Total	$ 269,205	$ 269,205

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License agreements (Details) $ in Thousands	1 Months Ended								3 Months Ended		6 Months Ended		12 Months Ended						79 Months Ended	80 Months Ended
	Apr. 30, 2016 USD ($)	Mar. 31, 2016 USD ($)	Jan. 31, 2016 USD ($)	Sep. 30, 2014 USD ($)	Jul. 31, 2010	Jan. 31, 2010 USD ($)	Dec. 31, 2009 USD ($) item	Nov. 30, 2009 USD ($) item	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2011 USD ($)	Dec. 31, 2010 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2016 USD ($)
License agreements
Research and Development Expense									$ 120,269	$ 112,445	$ 277,092	$ 230,809
Contract revenues									8,214	3,214	66,429	31,429
Product royalty revenues									25,958	17,364	47,860	33,037
Novartis
License agreements
Upfront and immediate milestone payment to be received under license agreement								$ 210,000
Product royalties in accounts receivable									25,800		25,800		$ 23,800						$ 25,800	$ 25,800
Number of deliverables under license agreement | item								2
Upfront payment received under license agreement								$ 150,000
Immediate milestone payment received under license agreement						$ 60,000
Reimbursable costs recorded as deferred revenue							$ 10,900
Reimbursable costs included in accounts receivable									200		200		300						200	200
Research and development expenses reimbursed									100	500	400	1,000
Contract revenues									5,000	0	5,000	25,000
Additional milestone payment received under license agreement	$ 75,000
Novartis | U.S.
License agreements
Royalties payable on net sales									9,000	5,600	14,200	8,100
Novartis | Pre-specified Events | Maximum
License agreements
Upfront and immediate milestone payment to be received under license agreement								1,200,000
Novartis | Development Milestones
License agreements
Amount recognized and received for the achievement of a predefined milestone									5,000											102,000
Novartis | Development Milestones | Maximum
License agreements
Upfront and immediate milestone payment to be received under license agreement								174,000
Novartis | Regulatory Milestones
License agreements
Amount recognized and received for the achievement of a predefined milestone																				175,000
Novartis | Regulatory Milestones | Maximum
License agreements
Upfront and immediate milestone payment to be received under license agreement								495,000
Novartis | Commercialization Milestones
License agreements
Amount recognized and received for the achievement of a predefined milestone																				$ 20,000
Novartis | Commercialization Milestones | Maximum
License agreements
Upfront and immediate milestone payment to be received under license agreement								$ 500,000
Novartis | JAKAFI | Development Milestones
License agreements
Amount recognized and received for the achievement of a predefined milestone													5,000	$ 7,000	$ 25,000		$ 15,000	$ 50,000
Novartis | JAKAFI | Regulatory Milestones
License agreements
Amount recognized and received for the achievement of a predefined milestone																	$ 10,000
Novartis | JAKAFI | Regulatory Milestones | Europe
License agreements
Amount recognized and received for the achievement of a predefined milestone													25,000	60,000		$ 40,000
Novartis | JAKAFI | Regulatory Milestones | JAPAN
License agreements
Amount recognized and received for the achievement of a predefined milestone														$ 25,000
Novartis | JAKAVI
License agreements
Net sales													300,000
Product royalty revenues									26,000	17,400	47,900	33,000
Novartis | JAKAVI | Regulatory Milestones | Europe
License agreements
Amount recognized and received for the achievement of a predefined milestone				$ 60,000
Novartis | JAKAVI | Regulatory Milestones | JAPAN
License agreements
Amount recognized and received for the achievement of a predefined milestone													15,000
Novartis | JAKAVI | Commercialization Milestones
License agreements
Amount recognized and received for the achievement of a predefined milestone													$ 20,000
Novartis | Capmatinib | Minimum
License agreements
Range of royalty payments on future global net sales (as a percent)								12.00%
Novartis | Capmatinib | Maximum
License agreements
Range of royalty payments on future global net sales (as a percent)								14.00%
Lilly
License agreements
Number of deliverables under license agreement | item							2
Upfront payment received under license agreement							$ 90,000
Research and Development Expense									5,300	10,300	10,400	21,900
Contract revenues									$ 3,200	$ 3,200	$ 61,400	$ 6,400
Associated future global development costs from the initiation of a Phase IIb trial, if elected to co-develop, percentage					30.00%		30.00%		30.00%	30.00%	30.00%	30.00%
Lilly | Europe
License agreements
Amount recognized and received for the achievement of a predefined milestone			$ 20,000
Lilly | U.S.
License agreements
Amount recognized and received for the achievement of a predefined milestone			$ 35,000
Lilly | Maximum
License agreements
Range of royalty payments on future global net sales (as a percent)											20.00%
Associated future royalty payments from the initiation of a Phase IIb trial, if elected to not co-develop, percentage											20.00%
Lilly | Pre-specified Events | Maximum
License agreements
Upfront and immediate milestone payment to be received under license agreement							$ 665,000
Lilly | Development Milestones
License agreements
Amount recognized and received for the achievement of a predefined milestone																			99,000
Lilly | Development Milestones | Maximum
License agreements
Upfront and immediate milestone payment to be received under license agreement							150,000
Lilly | Development Milestones | Phase Three
License agreements
Amount recognized and received for the achievement of a predefined milestone																$ 50,000
Lilly | Development Milestones | Phase Two A
License agreements
Amount recognized and received for the achievement of a predefined milestone																		30,000
Lilly | Development Milestones | Phase Two B
License agreements
Amount recognized and received for the achievement of a predefined milestone																		$ 19,000
Lilly | Regulatory Milestones
License agreements
Amount recognized and received for the achievement of a predefined milestone																			$ 55,000
Lilly | Regulatory Milestones | Maximum
License agreements
Upfront and immediate milestone payment to be received under license agreement							365,000
Lilly | Commercialization Milestones | Maximum
License agreements
Upfront and immediate milestone payment to be received under license agreement							$ 150,000
Lilly | GVHD
License agreements
Upfront payment received under license agreement		$ 35,000
Research and Development Expense									$ 35,000		$ 35,000
Additional milestone payment received under license agreement		$ 40,000

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License agreements - Agenus (Details) $ / shares in Units, shares in Thousands, $ in Thousands		1 Months Ended		3 Months Ended			6 Months Ended
	Feb. 18, 2015 USD ($) $ / shares	Nov. 30, 2015 item	Jan. 31, 2015 USD ($) item $ / shares shares	Jun. 30, 2016 USD ($) $ / shares	Mar. 31, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) $ / shares	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)	[1]
License agreements
Long term investment				$ 31,444			$ 31,444		$ 35,248
Total revenues				246,288		$ 162,984	509,752	$ 322,260
Unrealized gain (loss) on long term investment				(854)		27,174	(3,804)	27,174
Research and development expense				$ 120,269		112,445	$ 277,092	230,809
Agenus
License agreements
Number of program targets | item		3	4
Period of notice for termination of license agreement			12 months
Fair value of common stock | $ / shares				$ 4.05			$ 4.05
Acquisition of outstanding voting stock of Agenus (as a percent)							9.00%
Total revenues					$ 6,000
Net loss					$ (31,800)
Unrealized gain (loss) on long term investment				$ (900)			$ (3,800)
Research and development expense				4,000		$ 3,800	8,100	$ 5,600
Agenus | Accrued and other liabilities
License agreements
Accrued and other liabilities				9,200			$ 9,200
Agenus | Development, Regulatory and Commercialization Milestones
License agreements
Reserved right to elect to co-fund of development costs (as a percent)							30.00%
Agenus | Development, Regulatory and Commercialization Milestones | Minimum
License agreements
Range of royalty payments on future global net sales (as a percent)							6.00%
Agenus | Development, Regulatory and Commercialization Milestones | Maximum
License agreements
Future contingent milestone payment				155,000			$ 155,000
Range of royalty payments on future global net sales (as a percent)							12.00%
Agenus | Development Milestones | Maximum
License agreements
Future contingent milestone payment				$ 20,000			$ 20,000
Agenus | Stock purchase agreement
License agreements
Purchase of common stock under Stock Purchase Agreement (in shares ) | shares			7,760
Purchase price of common stock under Stock Purchase Agreement	$ 39,800		$ 35,000
Per share price of common stock under Stock Purchase Agreement | $ / shares	$ 5.13		$ 4.51
Minimum period for holding common stock of Agenus	12 months
Total consideration paid	$ 60,000
Long term investment	39,800
Research and development expense	$ 20,200
Agenus | Stock purchase agreement | Maximum
License agreements
Percentage of outstanding voting stock that may be acquired			15.00%

[1] The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date.

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License agreements - Hengrui (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015	Sep. 01, 2015
License agreements
Research and development expense	$ 120,269	$ 112,445	$ 277,092	$ 230,809
Hengrui
License agreements
Upfront payment made under license agreement					$ 25,000
Potential milestone payments to be made						$ 770,000
Research and development expense	$ 0		$ 700
Hengrui | Regulatory Milestones
License agreements
Potential milestone payments to be made						90,000
Hengrui | Commercialization Milestones
License agreements
Potential milestone payments to be made						530,000
Hengrui | Clinical Superiority Milestones
License agreements
Potential milestone payments to be made						$ 150,000

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Stock Compensation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Stock compensation
Stock compensation expense	$ 21,300	$ 17,600	$ 42,100	$ 35,200
Weighted-average fair value assumptions
Valuation method			Black-Scholes valuation model
Dividend yield (as a percent)			0.00%
Research and Development Expense.
Stock compensation
Stock compensation expense	13,600	10,200	$ 26,600	20,400
Selling, General and Administrative Expenses
Stock compensation
Stock compensation expense	$ 7,700	$ 7,400	$ 15,500	$ 14,700
Employee Stock Purchase Plan
Weighted-average fair value assumptions
Average risk-free interest rates (as a percent)	0.58%	0.64%	0.71%	0.60%
Average expected life (in years)	6 months	6 months	6 months	6 months
Volatility (as a percent)	45.00%	27.00%	54.00%	36.00%
Weighted-average fair value (in dollars per share)	$ 16.33	$ 9.24	$ 18.45	$ 9.90
Stock Options
Weighted-average fair value assumptions
Average risk-free interest rates (as a percent)	1.20%	1.38%	1.47%	1.35%
Average expected life (in years)	5 years 29 days	5 years 2 months 12 days	5 years 4 days	5 years 22 days
Volatility (as a percent)	51.00%	49.00%	50.00%	50.00%
Weighted-average fair value (in dollars per share)	$ 36.27	$ 45.56	$ 40.90	$ 33.80
Unrecognized compensation
Unrecognized compensation cost for nonvested option (in dollars)	$ 61,000		$ 61,000
Vesting period of recognition of the unrecognized compensation cost of nonvested awards			3 years
Restricted Stock Units (RSUs)
Unrecognized compensation
Unrecognized compensation cost for nonvested option (in dollars)	38,200		$ 38,200
Vesting period of recognition of the unrecognized compensation cost of nonvested awards			3 years
Performance Stock Units (PSUs)
Stock compensation
Stock compensation expense			$ 0
Unrecognized compensation
Unrecognized compensation cost for nonvested option (in dollars)	$ 400		$ 400
Vesting period of recognition of the unrecognized compensation cost of nonvested awards			3 years

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Stock Compensation - Option activity (Details) - Stock Options	6 Months Ended
	Jun. 30, 2016 $ / shares shares
Shares Available For Grant
Outstanding at the beginning of the period (in shares)	3,846,717
Additional authorization (in shares)	5,000,000
Options granted (in shares)	(1,616,347)
Options cancelled (in shares)	123,975
Outstanding at the end of the period (in shares)	7,354,345
Shares Subject to Outstanding Options, Shares
Outstanding at the beginning of the period (in shares)	11,052,279
Options granted (in shares)	1,616,347
Options exercised (in shares)	(1,132,958)
Options cancelled (in shares)	(123,975)
Options expired (in shares)	(1,834)
Outstanding at the end of the period (in shares)	11,409,859
Shares Subject to Outstanding Options, Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share) | $ / shares	$ 33.55
Options granted (in dollars per share) | $ / shares	92.89
Options exercised (in dollars per share) | $ / shares	17.22
Options cancelled (in dollars per share) | $ / shares	75.68
Options expired (in dollars per share) | $ / shares	3.11
Outstanding at the end of the period (in dollars per share) | $ / shares	$ 43.12

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Stock Compensation - RSU and PSU award activity (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended		6 Months Ended
	Jan. 31, 2014	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Stock Compensation Plans
Stock compensation expense		$ 21,300	$ 17,600	$ 42,100	$ 35,200
Other than options, disclosures
Assumed annualized forfeiture rate (as a percent)				5.00%
Stock compensation expense		$ 21,300	$ 17,600	$ 42,100	$ 35,200
Restricted Stock Units (RSUs)
Stock Compensation Plans
Number of shares awarded for each RSU (in shares)				1
Shares Available For Grant
Shares Available for Grant Beginning Balance (in shares)				834,433
Additional authorization (in shares)				1,000,000
Granted (in shares)				(325,651)
Cancelled (in shares)				23,789
Shares Available for Grant Ending Balance (in shares)		1,534,519		1,534,519
Shares Subject to Outstanding Options, Shares
Outstanding at the beginning of the period (in shares)				565,567
Granted (in shares)				325,651
Cancelled (in shares)				(23,789)
Released (in shares)				(7,278)
Outstanding at the end of the period (in shares)		858,203		858,203
Shares Subject to Outstanding Options, Weighted Average Exercise Price
Granted (in dollars per share)				$ 86.84
Cancelled (in dollars per share)				70.84
Released (in dollars per share)				$ 78.49
Weighted-average fair value assumptions
Cliff vesting period				3 years
Other than options, disclosures
Granted (in shares)				325,651
Outstanding (in shares)		1,534,519		834,433
Released (in shares)				7,278
Restricted Stock Units (RSUs) | President And Chief Executive Officer
Shares Available For Grant
Shares Available for Grant Ending Balance (in shares)		266,667		266,667
Shares Subject to Outstanding Options, Shares
Granted (in shares)	400,000
Percentage of units vesting at the end of each calendar year (as a percent)				16.70%
Released (in shares)				(133,333)
Other than options, disclosures
Granted (in shares)	400,000
Outstanding (in shares)		266,667		266,667
Released (in shares)				133,333
Performance Stock Units (PSUs)
Stock Compensation Plans
Stock compensation expense				$ 0
Shares Available For Grant
Cancelled (in shares)				1,948
Shares Subject to Outstanding Options, Shares
Cancelled (in shares)				(1,948)
Shares Subject to Outstanding Options, Weighted Average Exercise Price
Cancelled (in dollars per share)				$ 64.55
Other than options, disclosures
Stock compensation expense				$ 0
Performance Stock Units (PSUs) | Maximum
Other than options, disclosures
Multiplier conversion rate of units into common stock (as a percent)				125.00%

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Debt (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015		Jun. 30, 2015
Convertible Notes
Convertible senior notes noncurrent	$ 635,491	$ 619,893	[1]
Number of scheduled trading days preceding relevant maturity date at which Notes are convertible regardless of other circumstances	2 days
Carrying Amount
Convertible Notes
Convertible senior notes, total	$ 635,491	619,893
Convertible senior notes noncurrent	635,491	619,893
Fair Value
Convertible Notes
Convertible senior notes, total	$ 1,259,415	1,623,545
4.75% Convertible Senior Notes due 2015
Convertible Notes
Interest rate of debt (as a percent)				4.75%
0.375% Convertible Senior Notes due 2018 and 1.25% Convertible Senior Notes due 2020
Convertible Notes
Number of days within 30 consecutive trading days in which the price of the entity's common stock must exceed the conversion price for the notes to be converted	20 days
Number of consecutive trading days during which the closing price of the entity's common stock must exceed the conversion price for at least 20 days in order for the notes to be convertible	30 days
Percentage of the closing sales price of common stock that the conversion price must exceed in order for the notes to be convertible (as a percent)	130.00%
Number of consecutive business days immediately after any five consecutive trading day period during the note measurement period	5 days
Number of consecutive trading days before five consecutive business days during the note measurement period	5 days
Conversion ratio, principal amount of note	1,000
Percentage of the trading price to the product of the last reported sale price of the common stock and the conversion rate, maximum (as a percent)	98.00%
0.375% Convertible Senior Notes due 2018
Convertible Notes
Interest rate of debt (as a percent)	0.375%
0.375% Convertible Senior Notes due 2018 | Carrying Amount
Convertible Notes
Convertible senior notes, total	$ 332,368	324,031
0.375% Convertible Senior Notes due 2018 | Fair Value
Convertible Notes
Convertible senior notes, total	$ 621,328	807,422
1.25% Convertible Senior Notes due 2020
Convertible Notes
Interest rate of debt (as a percent)	1.25%
1.25% Convertible Senior Notes due 2020 | Carrying Amount
Convertible Notes
Convertible senior notes, total	$ 303,123	295,862
1.25% Convertible Senior Notes due 2020 | Fair Value
Convertible Notes
Convertible senior notes, total	$ 638,087	$ 816,123

[1] The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date.

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Defined benefit pension obligation (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016 USD ($)	Jun. 30, 2016 USD ($)
Defined benefit pension obligation
Service cost	$ 120
Interest cost	10
Expected return on plan assets	(8)
Amortization of prior service cost	18
Net periodic (benefit) cost	140
Expected contributions		$ 1,400
Accrued pension obligation	$ 4,500	$ 4,500

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Net income (loss) per share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Basic Net Income (Loss) Per Share
Net income (loss)	$ 34,425	$ 9,294	$ 58,472	$ (9,063)
Weighted average common shares outstanding	187,682	178,676	187,433	175,373
Basic net income (loss) per share	$ 0.18	$ 0.05	$ 0.31	$ (0.05)
Diluted Net Income (Loss) Per Share
Diluted net income (loss)	$ 34,425	$ 9,294	$ 58,472	$ (9,063)
Weighted average common shares outstanding	187,682	178,676	187,433	175,373
Dilutive stock options and RSU’s	5,333,000	7,817,000	5,387,000
Weighted average shares used to compute diluted net income (loss) per share	193,015	186,493	192,820	175,373
Diluted net income (loss) per share	$ 0.18	$ 0.05	$ 0.30	$ (0.05)
Anti-dilutive securities
Potential common shares excluded from diluted net loss per share computation	17,276,649	19,618,454	17,230,774	32,736,493
Stock Options
Anti-dilutive securities
Potential common shares excluded from diluted net loss per share computation	2,790,121	137,012	2,744,246	13,255,051
4.75% Convertible Senior Notes due 2015
Anti-dilutive securities
Potential common shares excluded from diluted net loss per share computation		4,990,916		4,990,916
Interest rate of debt (as a percent)	4.75%		4.75%
0.375% Convertible Senior Notes due 2018
Anti-dilutive securities
Potential common shares excluded from diluted net loss per share computation	7,245,244	7,245,263	7,245,244	7,245,263
1.25% Convertible Senior Notes due 2020
Anti-dilutive securities
Potential common shares excluded from diluted net loss per share computation	7,241,284	7,245,263	7,241,284	7,245,263