At Incyte, we have the drive to discover and the experience to deliver. We know our strengths, and our strategy is to focus on what we know and do well at every stage from discovery to development to commercialization.

We are focused on disease areas we know well-oncology and inflammation-where we can apply our expertise and resources most effectively. Our integrated teams of experienced biologists and chemists select drug targets with strong genetic, preclinical and clinical validation in areas where we have the potential to generate either first-in-class molecules or compounds that are highly differentiated from existing treatments. This approach has allowed us to build a pipeline that includes multiple proprietary orally available compounds. Our most advanced program involves a new class of drugs, known as Janus kinase inhibitors.

Our goal is to develop and commercialize our compounds independently in selected markets where a company of our size can compete successfully, such as myelofibrosis, other myeloproliferative neoplasms, other oncology indications and certain inflammatory conditions.

For rights to our products outside the United States and for pipeline compounds outside our core expertise, we have established or are seeking collaborations or strategic relationships to support development and commercialization. We believe the key benefits of strategic relationships include the potential to receive upfront and future milestone payments and royalties in exchange for certain rights to our compounds, as well as the potential to expedite development and commercialization.

Collaborative Research and 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 ruxolitinib (INCB18424) 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 ruxolitinib in the United States for hematologic and oncology indications, including all hematological malignancies, solid tumors and myeloproliferative diseases and in certain other indications. Novartis also received worldwide exclusive development and commercialization rights to our c-MET inhibitor compound INCB28060 and certain back-up compounds in all indications. We retained options to co-develop and to co-promote INCB28060 in the United States.

We received an upfront payment of $150 million in December 2009 plus an immediate $60 million milestone payment in January 2010 earned for the start of the Phase III study of ruxolitinib in myelofibrosis in Europe. In November of 2010, our initiation of the joint, global Phase III trial evaluating ruxolitinib in a second indication, polycythemia vera, triggered the achievement of $50 million in milestone payments. We may be eligible to receive future additional payments if defined development and commercialization milestones are achieved and could receive tiered, double digit royalties on future ruxolitinib sales outside of the United States. Each company is responsible for costs relating to the development and commercialization of the JAK inhibitor compound in its respective territories, with costs of collaborative studies shared equally. Novartis is responsible for all costs relating to the development and commercialization of the c-MET inhibitor compound after the initial Phase I clinical trial.

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. The agreement may be terminated in its entirety or on a program-by-program basis by Novartis for convenience. The agreement may also be terminated by either party under certain other circumstances, including material breach.

Lilly

In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly. Under the terms of the Lilly agreement, Lilly received exclusive worldwide development and commercialization rights to INCB28050 and certain back-up compounds for inflammatory and autoimmune diseases. We received an initial payment of $90 million, and in 2010 we received $49 million in milestone payments with the successful completion of a Phase IIa trial and initiation, by Lilly, of a Phase IIb trial in rheumatoid arthritis (RA).  We may be eligible to receive future additional payments based on the achievement of defined development, regulatory and commercialization milestones. We could also receive tiered, double-digit royalty payments on future global sales with rates ranging up to 20% if the product is successfully commercialized.

We retained options to co-develop our JAK1 and JAK2 inhibitors with Lilly on a compound-by-compound and indication-by-indication basis. Lilly will be 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. We would receive an incremental royalty rate increase across all tiers resulting in effective royalty rates ranging from 20% up to the high twenties on potential future global sales for compounds and/or indications that we elect to co-develop. We also retained an option to co-promote products in the United States. In July 2010, we elected to co-develop LY3009104 (INCB28050) with Lilly in RA. 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. The agreement may be terminated by Lilly for convenience, and may also be terminated under certain other circumstances, including material breach.

Pfizer

In November 2005, we entered a collaborative research and license agreement with Pfizer Inc. (“Pfizer”) for the pursuit of our CCR2 antagonist program. Pfizer gained worldwide development and commercialization rights to our portfolio of CCR2 antagonist compounds. Pfizer’s rights extend to the full scope of potential indications, with the exception of multiple sclerosis and autoimmune nephritides, where we retained worldwide rights, along with certain compounds. We do not have obligations to Pfizer on the development candidates we select for pursuit in these indications.