INTERCEPT PHARMACEUTICALS, INC. - Quarter Report: 2022 June (Form 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, 2022

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: 001-35668

INTERCEPT PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		22-3868459
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

305 Madison Avenue,

Morristown, NJ 07960

(Address of Principal Executive Offices and Zip Code)

(646) 747-1000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ICPT	Nasdaq Global Select Market

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

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

Large accelerated filer ◻	Accelerated filer ⌧
Non-accelerated filer ◻	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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 shares of the registrant’s common stock outstanding as of June 30, 2022 was 29,798,040.

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Intercept Pharmaceuticals, Inc.

INDEX

PART I FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets at June 30, 2022 and December 31, 2021 (Unaudited)	6

	Condensed Consolidated Statements of Operations for the three and six-month periods ended June 30, 2022 and 2021 (Unaudited)	7

	Condensed Consolidated Statements of Comprehensive Loss for the three and six-month periods ended June 30, 2022 and 2021 (Unaudited)	8

	Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and six-month periods ended June 30, 2022 and 2021 (Unaudited)	9

	Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2022 and 2021 (Unaudited)	11

	Notes to Condensed Consolidated Financial Statements (Unaudited)	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 6.	Exhibits	55

Exhibit Index		56

Signatures		58

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we,” “our,” “us” and the “Company” refer, collectively, to Intercept Pharmaceuticals, Inc., a Delaware corporation, and its consolidated subsidiaries.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, including, but not limited to, statements regarding the progress, timing and results of our clinical trials, including our clinical trials for the treatment of nonalcoholic steatohepatitis (“NASH”), the safety and efficacy of our approved product, Ocaliva (obeticholic acid or “OCA”) for primary biliary cholangitis (“PBC”), and our product candidates, including OCA for liver fibrosis due to NASH, the timing and acceptance of our regulatory filings and the potential approval of OCA for liver fibrosis due to NASH, the review of our New Drug Application (“NDA”) for OCA for the treatment of liver fibrosis due to NASH by the U.S. Food and Drug Administration (the “FDA”), our intent to work with the FDA to address the issues raised in a complete response letter (“CRL”), the potential commercial success of OCA, as well as our strategy, future operations, future financial position, future revenue, projected costs, financial guidance, prospects, plans and objectives.

These statements constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “possible,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates, and we undertake no obligation to update any forward-looking statement except as required by law. These forward-looking statements are based on estimates and assumptions by our management that, although believed to be reasonable, are inherently uncertain and subject to a number of risks.

The following represent some, but not necessarily all, of the factors that could cause actual results to differ materially from historical results or those anticipated or predicted by our forward-looking statements:

●	the success of our existing business and operations, including Ocaliva for PBC;

●	our ability to successfully commercialize Ocaliva for PBC and, if approved, OCA for NASH;

●	our ability to maintain our regulatory approval of Ocaliva for PBC;

●	our ability to timely and cost-effectively file for and obtain regulatory approval of our product candidates on an accelerated basis or at all, including OCA for liver fibrosis due to NASH;

●	our ability to address the issues raised in the complete response letter (“CRL”) received in June 2020 with respect to OCA for NASH;

●	any advisory committee recommendation or dispute resolution determination that our product candidates, including OCA for liver fibrosis due to NASH, should not be approved or approved only under certain conditions;

●	any future determination that the regulatory applications and subsequent information we submit for our product candidates, including OCA for liver fibrosis due to NASH, do not contain adequate clinical or other data or meet applicable regulatory requirements for approval;

●	the progress, timing, and results of our REGENERATE clinical trial, including the safety and efficacy of OCA for liver fibrosis due to NASH, and the use of a consensus panel approach to histology reads;

●	our pre-submission meeting with the FDA in July 2022 in which we reviewed with the FDA the planned content and the timing of the submission of our NDA for OCA for liver fibrosis due to NASH;

●	our planned resubmission of an NDA to the FDA for OCA for liver fibrosis due to NASH, and the potential timing, review, acceptance, and approval of the NDA;

●

conditions that may be imposed by regulatory authorities on our marketing approvals for our products and product candidates, including OCA for liver fibrosis due to NASH, such as the need for clinical outcomes data (and not just results based on achievement of a surrogate endpoint), any risk mitigation programs such as a Risk Evaluation and Mitigation Strategies (“REMS”) program, and any related restrictions, limitations and/or warnings contained in the label of any of our products or product candidates;

●

any potential side effects associated with Ocaliva for PBC, OCA for liver fibrosis due to NASH or our other product candidates that could delay or prevent approval, require that an approved product be taken off the market, require the inclusion of safety warnings or precautions, or otherwise limit the sale of such product or product candidate, including in connection with our update to the Ocaliva prescribing information in May 2021 contraindicating Ocaliva for

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patients with PBC and decompensated cirrhosis, a prior decompensation event, or compensated cirrhosis with evidence of portal hypertension;

●

the initiation, timing, cost, conduct, progress and results of our research and development activities, preclinical studies and clinical trials, including any issues, delays or failures in identifying patients, enrolling patients, treating patients, retaining patients, meeting specific endpoints, or completing and timely reporting the results of our NASH or PBC clinical trials;

●	the outcomes of interactions with regulators, including the FDA regarding our clinical trials;

●

our ability to establish and maintain relationships with, and the performance of, third-party manufacturers, contract research organizations and other vendors upon whom we are substantially dependent for, among other things, the manufacture and supply of our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our clinical trial activities;

●	our ability to identify, develop and successfully commercialize our products and product candidates, including our ability to successfully launch OCA for liver fibrosis due to NASH, if approved;

●	our ability to obtain and maintain intellectual property protection for our products and product candidates, including our ability to cost-effectively file, prosecute, defend and enforce any patent claims or other intellectual property rights;

●	the size and growth of the markets for our products and product candidates and our ability to serve those markets;

●	the degree of market acceptance of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH or our other product candidates among physicians, patients and healthcare payors;

●	the availability of adequate coverage and reimbursement from governmental and private healthcare payors for our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our ability to obtain adequate pricing for such products;

●	our ability to establish and maintain effective sales, marketing and distribution capabilities, either directly or through collaborations with third parties;

●	competition from existing drugs or new drugs that become available;

●	our ability to attract and retain key personnel to manage our business effectively;

●	our ability to prevent or defend against system failures or security or data breaches due to cyber-attacks, or cyber intrusions, including ransomware, phishing attacks and other malicious intrusions;

●	our ability to comply with data protection laws;

●	costs and outcomes relating to any disputes, governmental inquiries or investigations, regulatory proceedings, legal proceedings or litigation, including any securities, intellectual property, employment, product liability or other litigation;

●	our collaborators’ election to pursue research, development and commercialization activities;

●	our ability to establish and maintain relationships with collaborators with development, regulatory and commercialization expertise;

●	our need for and ability to generate or obtain additional financing;

●	our estimates regarding future expenses, revenues and capital requirements and the accuracy thereof;

●	our use of cash, cash equivalents and short-term investments;

●	our ability to acquire, license and invest in businesses, technologies, product candidates and products;

●	our ability to manage the growth of our operations, infrastructure, personnel, systems and controls;

●	our ability to obtain and maintain adequate insurance coverage;

●

continuing threats from COVID-19, including additional waves of infections, and their impacts including quarantines and other government actions; delays relating to our regulatory applications; disruptions relating to our ongoing clinical trials or involving our contract research organizations, study sites or other clinical partners; disruptions relating to our supply chain or involving our third-party manufacturers, distributors or other distribution partners; and facility closures or other restrictions; and the impact of the foregoing on our results of operations and financial position;

●	the impact of general economic, industry, market, regulatory or political conditions;

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●	how we use the funds received from the sale of our ex-U.S. business to Advanz Pharma;

●

disagreements or legal, operational, or other business problems arising from our ongoing relationship with Advanz Pharma, including the licensing of the ex-U.S. rights to Ocaliva for PBC and, if approved, OCA for NASH, our operational separation from our former ex-U.S. commercial operations, and our agreement to supply Advanz Pharma with OCA;

●	unexpected tax, regulatory, litigation, or other liabilities;

●	whether we receive any future earn-outs or royalties under the Advanz Pharma transaction documents; and

●

the other risks and uncertainties identified under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q and in our other periodic filings filed with the U.S. Securities and Exchange Commission (the “SEC”), including our most recent Annual Report.

NOTE REGARDING TRADEMARKS

The Intercept Pharmaceuticals® name and logo and the Ocaliva® name and logo are either registered or unregistered trademarks or trade names of the Company in the United States and/or other countries. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights to these trademarks and trade names.

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PART I

Item 1. Financial Statements.

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)


	June 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	58,019	$	84,709
Restricted cash		7,537		8,119
Investment debt securities, available-for-sale		346,757		334,980
Accounts receivable, net of allowance for credit losses of $51 and $58, respectively		27,516		28,337
Prepaid expenses and other current assets		17,307		21,735
Current assets of discontinued operations		29,879		30,138
Total current assets		487,015		508,018
Fixed assets, net		1,002		3,281
Inventory		6,891		7,883
Security deposits		627		4,284
Other assets		3,062		3,557
Total assets	$	498,597	$	527,023
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable, accrued expenses and other liabilities	$	86,364	$	103,780
Short-term interest payable		8,635		8,601
Current liabilities of discontinued operations		56,428		55,780
Total current liabilities		151,427		168,161
Long-term liabilities:
Long-term debt		713,859		539,782
Long-term other liabilities		3,144		3,042
Total liabilities	$	868,430	$	710,985
Commitments and contingencies (Note 15)
Stockholders’ deficit:
Common stock par value $0.001 per share; 90,000,000 shares authorized; 29,798,040 and 29,572,953 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		30		30
Additional paid-in capital		2,016,201		2,308,653
Accumulated other comprehensive loss, net		(2,548)		(2,873)
Accumulated deficit		(2,383,516)		(2,489,772)
Total stockholders’ deficit		(369,833)		(183,962)
Total liabilities and stockholders’ deficit	$	498,597	$	527,023

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

Revenue:
Product revenue, net	$	71,757	$	68,178	$	130,903	$	125,477
Total revenue		71,757		68,178		130,903		125,477
Operating expenses:
Cost of sales		309		254		532		547
Selling, general and administrative		39,985		43,882		77,739		88,984
Research and development		44,826		37,668		92,719		88,279
Restructuring		—		(160)		—		(284)
Total operating expenses		85,120		81,644		170,990		177,526
Operating loss		(13,363)		(13,466)		(40,087)		(52,049)
Other (expense) income:
Interest expense		(6,669)		(12,589)		(13,342)		(25,008)
Other (expense) income, net		(289)		721		(342)		2,179
Total other (expense), net		(6,958)		(11,868)		(13,684)		(22,829)
Loss from continuing operations	$	(20,321)	$	(25,334)	$	(53,771)	$	(74,878)
Income from discontinued operations	$	12,793	$	14,240	$	28,959	$	23,364
Net loss	$	(7,528)	$	(11,094)	$	(24,812)	$	(51,514)

Net income/(loss) per common and potential common share (basic and diluted):
Net loss from continuing operations	$	(0.68)	$	(0.76)	$	(1.81)	$	(2.26)
Net income from discontinued operations	$	0.43	$	0.43	$	0.97	$	0.70
Net loss	$	(0.25)	$	(0.33)	$	(0.83)	$	(1.55)
Weighted average common and potential common shares outstanding:
Basic and diluted		29,747		33,179		29,721		33,159

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

Net loss	$	(7,528)	$	(11,094)	$	(24,812)	$	(51,514)
Other comprehensive (loss) income:
Net changes related to available-for-sale investment debt securities:
Unrealized losses on investment debt securities		(506)		(23)		(1,526)		(367)
Reclassification adjustment for realized losses on investment debt securities included in other income, net		—		—		—		2
Net unrealized losses on investment debt securities	$	(506)	$	(23)	$	(1,526)	$	(365)
Foreign currency translation gains (losses)		1,445		(304)		1,851		(23)
Other comprehensive income (loss)	$	939	$	(327)	$	325	$	(388)
Comprehensive loss	$	(6,589)	$	(11,421)	$	(24,487)	$	(51,902)

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(Unaudited)

(In thousands)



						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss, Net		Deficit		Deficit
Balance - March 31, 2022	29,709	$	30	$	2,007,684	$	(3,487)	$	(2,375,988)	$	(371,761)
Stock-based compensation	—		—		8,544		—		—		8,544
Issuance of common stock under equity plan	96		—		—		—		—		—
Employee withholding taxes related to stock-based awards	(7)		—		(27)		—		—		(27)
Other comprehensive income	—		—		—		939		—		939
Net loss	—		—		—		—		(7,528)		(7,528)
Balance - June 30, 2022	29,798	$	30	$	2,016,201	$	(2,548)	$	(2,383,516)	$	(369,833)

						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss, Net		Deficit		Deficit
Balance - December 31, 2021	29,573	$	30	$	2,308,653	$	(2,873)	$	(2,489,772)	$	(183,962)
Stock-based compensation	—		—		15,264		—		—		15,264
Issuance of common stock under equity plan	251		—		—		—		—		—
Employee withholding taxes related to stock-based awards	(26)		—		(345)		—		—		(345)
Reclassification of the equity components of the Convertible Notes to liability upon adoption of ASU 2020-06	—		—		(307,371)		—		131,068		(176,303)
Other comprehensive income	—		—		—		325		—		325
Net loss	—		—		—		—		(24,812)		(24,812)
Balance - June 30, 2022	29,798	$	30	$	2,016,201	$	(2,548)	$	(2,383,516)	$	(369,833)

						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss, Net		Deficit		Deficit
Balance - March 31, 2021	33,154	$	33	$	2,241,273	$	(2,538)	$	(2,438,766)	$	(199,998)
Stock-based compensation	—		—		8,448		—		—		8,448
Net proceeds from exercise of stock options	47		—		18		—		—		18
Employee withholding taxes related to stock-based awards	—		—		(242)		—		—		(242)
Other comprehensive loss	—		—		—		(327)		—		(327)
Net loss	—		—		—		—		(11,094)		(11,094)
Balance - June 30, 2021	33,201	$	33	$	2,249,497	$	(2,865)	$	(2,449,860)	$	(203,195)

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						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss, Net		Deficit		Deficit
Balance - December 31, 2020	33,016	$	33	$	2,233,937	$	(2,477)	$	(2,398,346)	$	(166,853)
Stock-based compensation	—		—		16,867		—		—		16,867
Net proceeds from exercise of stock options	188		—		18		—		—		18
Employee withholding taxes related to stock-based awards	(3)		—		(1,325)		—		—		(1,325)
Other comprehensive loss	—		—		—		(388)		—		(388)
Net loss	—		—		—		—		(51,514)		(51,514)
Balance - June 30, 2021	33,201	$	33	$	2,249,497	$	(2,865)	$	(2,449,860)	$	(203,195)

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(24,812)	$	(51,514)
Less: Net income from discontinued operations		28,959		23,364
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		10,870		13,693
Amortization of premium on investment debt securities		964		2,296
Amortization of deferred financing costs		1,601		1,356
Write-off of fixed assets		2,399		—
Depreciation		411		1,661
Non-cash operating lease cost		1,219		2,386
Accretion of debt discount		—		13,877
Gain on extinguishment of debt		(21)		—
Gain on lease termination		(1,101)		—
Provision for allowance of credit losses, net of write-offs		(7)		4
Changes in operating assets:
Accounts receivable		828		550
Prepaid expenses and other current assets		4,845		788
Inventory		215		76
Security deposits		3,656		345
Changes in operating liabilities:
Accounts payable, accrued expenses and other current liabilities		(10,485)		(28,635)
Operating lease liabilities		(1,449)		(3,350)
Interest payable		87		—
Net cash used in operating activities - continuing operations		(39,739)		(69,831)
Net cash provided by operating activities - discontinued operations		34,353		20,028
Net cash used in operating activities		(5,386)		(49,803)
Cash flows from investing activities:
Purchases of investment debt securities		(239,422)		(87,407)
Sales and maturities of investment debt securities		225,155		227,459
Purchases of equipment, leasehold improvements, and furniture and fixtures		(531)		(397)
Net cash (used in) provided by investing activities - continuing operations		(14,798)		139,655
Net cash (used in) provided by investing activities - discontinued operations		—		—
Net cash (used in) provided by investing activities		(14,798)		139,655
Cash flows from financing activities:
Payments of employee withholding taxes related to stock-based awards		(345)		(1,325)
Proceeds from exercise of options, net		—		18
Payments for repurchases of convertible senior notes		(3,862)		—
Payments of debt issuance costs		(35)		—
Net cash used in financing activities - continuing operations		(4,242)		(1,307)
Net cash (used in) provided by financing activities - discontinued operations		—		—
Net cash used in financing activities		(4,242)		(1,307)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(2,977)		(522)
Net (decrease) increase in cash, cash equivalents and restricted cash		(27,403)		88,023
Cash, cash equivalents and restricted cash at beginning of period		94,409		65,654
Cash, cash equivalents and restricted cash at end of period		67,006		153,677
Less: Cash, cash equivalents and restricted cash of discontinued operations		1,450		1,659
Cash, cash equivalents and restricted cash of continuing operations	$	65,556	$	152,018
Supplemental disclosure of non-cash transactions:
Right-of-use asset obtained in exchange for new operating lease obligations	$	(3,173)	$	—
Non-cash investing and financing activities
Net increase in accrued fixed assets	$	13	$	—
Reconciliation of cash, cash equivalents and restricted cash included in the condensed consolidated balance sheets:
Cash and cash equivalents	$	58,019	$	145,620
Restricted cash		7,537		6,398
Total cash, cash equivalents and restricted cash	$	65,556	$	152,018

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Overview of Business

Intercept Pharmaceuticals, Inc. (the “Company”) is a biopharmaceutical company founded in 2002 and focused on the development and commercialization of novel therapeutics to treat progressive non-viral liver diseases, including primary biliary cholangitis (“PBC”) and nonalcoholic steatohepatitis (“NASH”). The Company currently has one marketed product, Ocaliva (obeticholic acid or “OCA”).

On May 5, 2022, the Company entered into a series of agreements to sell the Company’s ex-U.S. commercial operations and sublicense the right to commercialize Ocaliva for PBC and, if approved, OCA for NASH outside of the United States to Advanz Pharma and its affiliates (collectively, “Advanz”) (the “Disposition Transaction”). Consideration under the agreements totaled $405 million up front, subject to adjustments including for cash, working capital, and assumed liabilities.

The Company will receive an additional $45 million from Advanz contingent upon receipt of extensions of orphan exclusivity for Ocaliva from the European Medicines Agency (“EMA”) and Medicines and Healthcare products Regulatory Agency (“MHRA”).

2. Basis of Presentation

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation. Certain information that is normally required by U.S. GAAP has been condensed or omitted in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2022. In the opinion of management, these unaudited condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim unaudited condensed consolidated financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.

Reclassifications

Certain amounts in prior periods have been reclassified to reflect the impact of the discontinued operations treatment in order to conform to the current period presentation.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.

3. Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in its Annual Report on 10-K for the year ended December 31, 2021. With the exception of the accounting for held for sale assets and liabilities and discontinued operations under ASC 205-20, Presentation of Financial Statements:

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Discontinued Operations (“ASC 205”), there have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Annual Report, other than the adoption of the accounting pronouncements below.

Held for Sale and Discontinued Operations

Assets and liabilities of a group of components of an entity are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the entities to be sold; (2) the entities to be sold are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such entities to be sold; (3) an active program to locate a buyer and other actions required to complete the plan to sell the entities have been initiated; (4) the sale of the entities is probable and is expected to be completed within one year; (5) the entities are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

Components of an entity that are classified as held for sale and have operations and cash flows that can be clearly distinguished from the rest of the entity are required to be reported as assets and liabilities held for sale. A disposal of a group of components that is classified as held for sale is reported as discontinued operations if the disposal represents a strategic shift that has and will have a major effect on our operations and financial results.

In the period in which the components meet held-for-sale or discontinued operations criteria, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation and amortization of assets ceases upon designation as held for sale. For components that meet the discontinued operations criteria, the results of operations for the discontinued operation are reclassified into separate line items in the condensed consolidated statements of operations, net of income taxes for all periods presented.

The Company accounts for contingent consideration received as a gain contingency, and recognizes such contingent consideration when it is realized or realizable, once the contingency is resolved.

Additional details surrounding the Company's assets and liabilities held for sale and discontinued operations are included in Note 4.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by eliminating the requirement to separately account for embedded conversion features as an equity component in certain circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments. The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method. Upon adoption at January 1, 2022, the Company made certain adjustments in its condensed consolidated balance sheets which consisted of an increase of $176.3 million in Long-term debt, a net decrease of $307.4 million in Additional paid-in capital and a net decrease of $131.1 million in Accumulated deficit resulting from the reversal of previously recognized non-cash interest expense.

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After adoption, the Company accounts for the Convertible Notes as single liabilities measured at amortized cost. The Company did not elect the fair value option. Additionally, the Company will no longer incur non-cash interest expense for the amortization of debt discount related to the previously separated equity components. The Company will apply the if-converted methodology in computing diluted earnings per share if and when profitability is achieved.

The following table summarizes the adjustments made to the Company’s condensed consolidated balance sheet as of January 1, 2022 as a result of applying the modified retrospective method in adopting ASU 2020-06:



		As Reported		ASU 2020-06		As Adjusted
		December 31, 2021		Adjustments		January 1, 2022

		(in thousands)
Convertible Notes	$	539,782	$	176,303	$	716,085
Additional paid-in capital	$	2,308,653	$	(307,371)	$	2,001,282
Accumulated deficit	$	(2,489,772)	$	131,068	$	(2,358,704)

Under the modified retrospective method, comparative prior periods are not adjusted. The adoption did not impact previously reported amounts in the Company’s condensed consolidated statements of operations, cash flows and the basic and diluted net loss per share amounts.

4. Discontinued Operations

On May 5, 2022, the Company entered into the Disposition Transaction. Consideration under the agreements totaled $405 million up front, subject to adjustments including for cash, working capital, and assumed liabilities. The Company will receive an additional cumulative $45 million from Advanz contingent upon receipt of extensions of orphan drug exclusivity from the EMA and MHRA. The Company will also receive royalties on any future net sales of OCA in NASH outside of the U.S., should Advanz pursue marketing authorization for this indication in ex-U.S. regions. The Company will continue to be responsible for the manufacturing and supply of OCA globally while Advanz will be responsible for packaging, distribution and commercialization of the therapy in all markets outside of the U.S. In addition, the Company will be responsible for any difference between the cumulative rebate estimated for France for periods prior to July 1, 2022 and the amount agreed through final negotiations with the French government. Under the Sublicense Agreement, we agreed to continue to conduct certain post-marketing work and other activities with respect to Ocaliva for PBC, including continuing to conduct certain PBC studies (the “PBC Post-Marketing Work”). The Company will be reimbursed by Advanz for a portion of the total R&D costs related to the PBC Post-Marketing Work. Refer to Note 16 for additional details regarding the closing and completion of the Disposition Transaction subsequent to the end of the reporting period.

The Company accounted for the Disposition Transaction in accordance with ASC 205 as it met the definitions of held for sale and discontinued operations as of June 30, 2022 and therefore has reclassified the results of the disposed entities into discontinued operations in its unaudited condensed consolidated statements of operations and cash flows for all periods presented. The series of agreements entered into with Advanz were accounted for as a single integrated disposal transaction. The assets and liabilities associated with the ex-U.S. commercial operations to be disposed in the Disposition Transaction were reclassified to assets and liabilities of discontinued operations in the Company's unaudited condensed consolidated balance sheets for the periods presented. All amounts included in the notes to the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted.

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The following table presents the carrying amounts of the classes of assets and liabilities related to the discontinued operations as of June 30, 2022 and December 31, 2021:



	June 30, 2022		December 31, 2021
Restricted cash	$	1,450	$	1,581
Accounts receivable, net of allowance for credit losses		20,750		19,280
Prepaid expenses and other current assets		2,831		3,551
Fixed assets, net		35		96
Inventory		635		736
Security deposits		2,155		2,332
Other assets		2,023		2,562
Total assets classified as discontinued operations in condensed consolidated balance sheets	$	29,879	$	30,138

Accounts payable, accrued expenses and other liabilities	$	55,549	$	54,436
Long-term other liabilities		879		1,344
Total liabilities classified as discontinued operations in condensed consolidated balance sheets	$	56,428	$	55,780

The following table presents the results of operations related to the discontinued operations for the three and six months ended June 30, 2022 and 2021 respectively:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

Product revenue, net	$	28,628	$	28,398	$	58,065	$	52,760
Cost of sales		490		363		1,025		881
Selling, general and administrative		15,194		13,773		27,447		27,943
Research and development		55		125		251		279
Restructuring		—		(89)		—		195
Other (expense) income, net		(96)		14		(383)		(98)
Income from discontinued operations in condensed consolidated statements of operations	$	12,793	$	14,240	$	28,959	$	23,364

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The following table presents the net cash provided by operating activities for the assets and liabilities held for sale (discontinued operations) for the six months ended June 30, 2022 and 2021 respectively:


	Six Months Ended June 30,
	2022		2021
Net income from discontinued operations	$	28,959	$	23,364

Adjustment of non-cash activities		4,937		3,837
Increase in accounts receivable		(2,973)		(4,617)
Decrease in prepaid expenses and other current assets		881		802
Decrease in inventory		38		16
Decrease in security deposits		1		—
Increase (decrease) in accounts payable, accrued expenses and other current liabilities		2,510		(3,374)

Net cash provided by operating activities	$	34,353	$	20,028

5. Cash, Cash Equivalents and Investment Debt Securities

The following table summarizes the Company’s cash, cash equivalents and investment debt securities as of June 30, 2022 and December 31, 2021:


	As of June 30, 2022
			Allowance		Gross		Gross
			for Credit		Unrealized		Unrealized
	Amortized Cost		Losses		Gains		Losses		Fair Value

	(in thousands)
Cash and cash equivalents:
Cash and money market funds	$	58,019	$	—	$	—	$	—	$	58,019
Total cash and cash equivalents		58,019		—		—		—		58,019
Investment debt securities:
Commercial paper		143,932		—		—		(320)		143,612
Corporate debt securities		180,955		—		—		(1,319)		179,636
U.S. government agency bonds		3,500		—		—		(58)		3,442
U.S Treasury securities		20,176		—		—		(109)		20,067
Total investment debt securities		348,563		—		—		(1,806)		346,757
Total cash, cash equivalents and investment debt securities	$	406,582	$	—	$	—	$	(1,806)	$	404,776

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	As of December 31, 2021
			Allowance		Gross		Gross
			for Credit		Unrealized		Unrealized
	Amortized Cost		Losses		Gains		Losses		Fair Value

	(in thousands)
Cash and cash equivalents:
Cash and money market funds	$	76,709	$	—	$	—	$	—	$	76,709
Commercial paper		8,000		—		—		—		8,000
Total cash and cash equivalents		84,709		—		—		—		84,709
Investment debt securities:
Commercial paper		84,513		—		—		(49)		84,464
Corporate debt securities		232,721		—		16		(245)		232,492
Municipal bonds		5,028		—		—		(1)		5,027
U.S Treasury securities		12,998		—		—		(1)		12,997
Total investment debt securities		335,260		—		16		(296)		334,980
Total cash, cash equivalents and investment debt securities	$	419,969	$	—	$	16	$	(296)	$	419,689

The aggregate fair value of the Company’s available-for-sale investment debt securities that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer is as follows:


	As of June 30, 2022
	Less than 12 months				12 months or longer				Total

	(in thousands)
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Commercial paper	$	143,612	$	(320)	$	—	$	—	$	143,612	$	(320)
Corporate debt securities		178,637		(1,318)		999		(1)		179,636		(1,319)
U.S. government agency bonds		3,442		(58)		—		—		3,442		(58)
U.S. Treasury securities		20,067		(109)		—		—		20,067		(109)
Total	$	345,758	$	(1,805)	$	999	$	(1)	$	346,757	$	(1,806)


	As of December 31, 2021
	Less than 12 months				12 months or longer				Total

	(in thousands)
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Commercial paper	$	81,464	$	(49)	$	—	$	—	$	81,464	$	(49)
Corporate debt securities		196,120		(245)		—		—		196,120		(245)
Municipal bonds		5,027		(1)		—		—		5,027		(1)
U.S Treasury securities		12,997		(1)		—		—		12,997		(1)
Total	$	295,608	$	(296)	$	—	$	—	$	295,608	$	(296)

At June 30, 2022 and December 31, 2021, respectively the Company had 112 and 97 available-for-sale investment debt securities in an unrealized loss position without an allowance for credit losses. Unrealized losses on corporate debt securities have not been recognized into income because the issuers’ bonds are of high credit quality (rated A3/A- or higher) and the decline in fair value is largely due to market conditions and/or changes in interest rates. Management does not intend to sell and it is likely that management will not be required to sell the securities prior to the anticipated recovery of their amortized cost basis. The issuers continue to make timely interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

Accrued interest receivable on available-for-sale investment debt securities totaled $0.9 million and $1.3 million at June 30, 2022 and December 31, 2021, respectively, is excluded from the estimate of credit losses and is included in Prepaid expenses and other current assets.

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6. Fair Value Measurements

The carrying amounts of the Company’s receivables and payables approximate their fair value due to their short maturities.

Accounting principles provide guidance for using fair value to measure assets and liabilities. The guidance includes a three-level hierarchy of valuation techniques used to measure fair value, defined as follows:

●

Unadjusted Quoted Prices — The fair value of an asset or liability is based on unadjusted quoted prices in active markets for identical assets or liabilities (Level 1).

●

Pricing Models with Significant Observable Inputs — The fair value of an asset or liability is based on information derived from either an active market quoted price, which may require further adjustment based on the attributes of the financial asset or liability being measured, or an inactive market transaction (Level 2).

●

Pricing Models with Significant Unobservable Inputs — The fair value of an asset or liability is primarily based on internally derived assumptions surrounding the timing and amount of expected cash flows for the financial instrument. Therefore, these assumptions are unobservable in either an active or inactive market (Level 3).

The Company considers an active market as one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Conversely, the Company views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, non-performance risk, or that of a counterparty, is considered in determining the fair values of liabilities and assets, respectively.

The Company’s cash deposits, money market funds and U.S. Treasury securities are classified within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted prices from active markets. Commercial paper, corporate debt securities, and U.S. government agency bonds are classified as Level 2 instruments based on market pricing and other observable inputs.

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Financial assets carried at fair value are classified in the tables below in one of the three categories described above:


			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3

	(in thousands)
June 30, 2022
Assets
Cash and cash equivalents:
Money market funds	$	11,347	$	11,347	$	—	$	—
Available-for-sale investment debt securities:
Commercial paper		143,612		—		143,612		—
Corporate debt securities		179,636		—		179,636		—
U.S. government agency bonds		3,442		—		3,442		—
U.S. Treasury securities		20,067		20,067		—		—
Total financial assets	$	358,104	$	31,414	$	326,690	$	—

December 31, 2021
Assets
Cash and cash equivalents:
Money market funds	$	39,287	$	39,287	$	—	$	—
Commercial paper		8,000		—		8,000		—
Available-for-sale investment debt securities:
Commercial paper		84,464		—		84,464		—
Corporate debt securities		232,492		—		232,492		—
Municipal bonds		5,027		—		5,027		—
U.S. Treasury securities		12,997		12,997		—		—
Total financial assets	$	382,267	$	52,284	$	329,983	$	—

See Note 10 for the carrying amounts and estimated fair values of the Company’s 3.50% Convertible Senior Secured Notes due 2026 (“2026 Convertible Secured Notes”), 2.00% Convertible Senior Notes due 2026 (“2026 Convertible Notes”) and 3.25% Convertible Senior Notes due 2023 (“2023 Convertible Notes”).

The aggregate fair value of all available-for-sale investment debt securities (commercial paper, corporate debt securities, U.S. government agency bonds and U.S. Treasury securities), by contractual maturity, are as follows:


	Fair Value as of
	June 30, 2022		December 31, 2021

	(in thousands)
Due in one year or less	$	334,932	$	305,914
Due after one year through two years		11,825		29,066
Total investment debt securities	$	346,757	$	334,980

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

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7. Fixed Assets, Net

Fixed assets are stated at cost and depreciated or amortized using the straight-line method based on useful lives as follows:


	Useful lives
	(Years)	June 30, 2022		December 31, 2021

		(in thousands)
Office equipment and software	3	$	4,100	$	4,751
Leasehold improvements	Shorter of remaining lease term or useful life		10,891		12,884
Furniture and fixtures	7		3,199		3,772
Subtotal			18,190		21,407
Less: accumulated depreciation			(17,188)		(18,126)
Fixed assets, net		$	1,002	$	3,281

8. Inventory

Inventories are stated at the lower of cost or market. Inventories consisted of the following:



	June 30, 2022		December 31, 2021

	(in thousands)
Work-in-process	$	6,702	$	7,801
Finished goods		189		82
Inventory	$	6,891	$	7,883

9. Accounts Payable, Accrued Expenses and Other Liabilities

Accounts payable, accrued expenses and other liabilities consisted of the following:



	June 30, 2022		December 31, 2021

	(in thousands)
Accounts payable	$	11,666	$	17,598
Accrued employee compensation		13,686		20,845
Accrued contracted services		48,253		51,136
Accrued rebates, returns, discounts and other incentives		12,345		11,626
Other liabilities		414		2,575
Accounts payable, accrued expenses and other liabilities	$	86,364	$	103,780

Research & Development Tax Credit

The Company has benefited from the U.K. Small and Medium-sized Enterprise R&D Tax Credit scheme, or the SME scheme, under which it can obtain a tax credit of up to 33.4% of eligible research and development expenses incurred by the Company in the U.K. Eligible expenses generally include employment costs for research staff, consumables, software and certain internal overhead costs incurred as part of research projects.

The Company has started to benefit from the U.K. Research and Development Expenditure Scheme, or the RDEC scheme, under which it can obtain a tax credit of 12% of eligible research and development expenses incurred by the Company in the U.K. The RDEC scheme is more restrictive than the SME scheme, and generally applies where qualifying R&D expenditure is not eligible for relief under the SME scheme.

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The Company has submitted claims seeking to obtain tax credits for qualifying R&D expenses incurred in the 2015, 2016, 2017, 2018 and 2019 calendar years. As described further in Note 12, the 2018 RDEC claim was finalized during the quarter ended June 30, 2022, and therefore the $4.0 million net payment received, which was previously deferred, was released into income as a reduction to research & development expenses.

With respect to the 2019 RDEC claim, in February 2022, the Company received a payment of $3.8 million from HMRC. Given the claim review has not been finalized for the 2019 year, the $3.8 million credit received is recorded as a deferred liability within Accounts payable, accrued expenses, and other liabilities. The Company will be entitled to this benefit based on the terms of the Disposition Transaction.

10. Long-Term Debt

Debt, net of debt issuance costs and discounts, consisted of the following:



	June 30, 2022						December 31, 2021
	2026 Convertible Secured Notes		2026 Convertible Notes		2023 Convertible Notes		2026 Convertible Secured Notes		2026 Convertible Notes		2023 Convertible Notes

	(in thousands)
Liability component
Principal	$	500,000	$	115,349	$	109,808	$	500,000	$	115,349	$	113,655
Unamortized debt issuance costs		(8,930)		(1,895)		(473)		(7,132)		(2,313)		(816)
Unamortized debt discount		—		—		—		(141,303)		(30,228)		(7,430)
Net carrying amount	$	491,070	$	113,454	$	109,335	$	351,565	$	82,808		105,409
Equity component, net of issuance costs		—		—		—	$	147,458	$	62,841	$	97,072

*Recorded as a reduction of Additional paid-in capital upon the adoption of ASU 2020-06.

The Company has three series of convertible notes outstanding (together, the “Convertible Notes”). All three series are convertible under certain circumstances into cash, shares of the Company’s common stock, or a combination thereof, at the Company’s election.

The 2023 Convertible Notes were issued on July 6, 2016, in the amount of $460.0 million principal, at an interest rate of 3.25%. The Company received net proceeds from their sale of $447.6 million, net of $12.4 million in underwriting discounts, commissions, and estimated offering expenses.

The 2026 Convertible Notes were issued on May 14, 2019, in the amount of $230.0 million principal, at an interest rate of 2.00%. The Company received net proceeds from their sale of $223.4 million, net of $6.6 million in underwriting discounts, commissions, and estimated offering expenses.

On August 10, 2021, the Company entered into privately negotiated exchange and subscription agreements with a limited number of existing “accredited investors” and “qualified institutional buyers” (as defined under Securities Act rules) holding 2023 Convertible Notes and 2026 Convertible Notes to (1) exchange $306.5 million principal of 2023 Convertible Notes for $292.4 million principal of new notes, (2) exchange $114.7 million principal of 2026 Convertible Notes for $90.0 million principal of new notes, and (3) sell $117.6 million principal of new notes for cash. On August 17, 2021, these new notes were issued as 2026 Convertible Secured Notes in the amount of $500.0 million principal, at an interest rate of 3.50%. The Company received cash proceeds from the sale of notes of approximately $117.6 million. The Company also paid its financial advisor $10.0 million in stock for services rendered, in the amount of 769,823 shares, based on the closing price of $12.99 per share on August 20, 2021.

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On September 9, 2021, the Company entered into privately negotiated agreements with certain holders of 2023 Convertible Notes to repurchase $39.9 million principal for $38.1 million in cash, which purchase closed on September 14, 2021.

On June 1, 2022, the Company entered into an agreement with a certain holder of 2023 Convertible Notes to repurchase $3.8 million principal for $3.8 million in cash, which purchase closed on June 3, 2022.

The approximate fair value of the Convertible Notes was determined as follows using Level 2 inputs based on quoted market values:


	June 30, 2022		December 31, 2021

	(in thousands)
2026 Convertible Secured Notes	$	470,940	$	543,370
2026 Convertible Notes	$	74,030	$	69,492
2023 Convertible Notes	$	107,333	$	107,727

Previously, in accordance with ASC 470-20, the Company used effective interest rates to determine the liability components of the Convertible Notes, with the residual as the debt discount, with a corresponding increase to additional paid-in capital for the equity component of the Convertible Notes. Underwriting discounts, commissions, and estimated offering expenses (both cash and non-cash) (“debt issuance costs”) were allocated as debt or equity issuance costs in proportion to the allocation of the liability and equity components of the Convertible Notes, with debt issuance costs recorded as a deduction from the carrying value of the debt, and equity issuance costs recorded as an offset to additional paid-in capital.

The Note Indentures

The 2023 Convertible Notes, and the 2026 Convertible Notes, were each issued pursuant to a Base Indenture, dated as of July 6, 2016, between the Company and U.S. Bank National Association (“U.S. Bank”), as trustee, and a First Supplemental Indenture (with respect to the 2023 Convertible Notes) and Second Supplemental Indenture (with respect to the 2026 Convertible Notes), dated July 6, 2016, and May 14, 2019, respectively, each between the Company and U.S. Bank as trustee. The 2026 Convertible Secured Notes were issued pursuant to a Base Indenture and a First Supplemental Indenture, each dated as of August 17, 2021, between the Company and U.S. Bank as trustee and collateral agent. In connection with the issuance of the 2026 Convertible Secured Notes, the Company also entered into a Security Agreement, dated as of August 17, 2021, with U.S. Bank as collateral agent.

Pursuant to these indentures, the 2023 Convertible Notes and 2026 Convertible Notes are senior unsecured obligations, and the 2026 Convertible Secured Notes are senior secured obligations, of the Company. Each indenture provides for customary events of default.

Each series of notes bears a fixed rate of interest as identified above, payable semi-annually in arrears:


	Semi-annual payment dates
	First payment date	First	Second	Maturity date*
2026 Convertible Secured Notes	February 15, 2022	February 15	August 15	February 15, 2026
2026 Convertible Notes	November 15, 2019	May 15	November 15	May 15, 2026
2023 Convertible Notes	January 1, 2017	January 1	July 1	July 1, 2023

* Unless earlier repurchased, redeemed, or converted.

Each of the three series of notes is convertible under certain circumstances. Prior to January 1, 2023 (for the 2023 Convertible Notes), February 15, 2026 (for the 2026 Convertible Notes), and November 15, 2025 (for the 2026 Convertible Secured Notes), holders may convert their notes only under any of the following circumstances:

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(i)

During any calendar quarter commencing after the calendar quarter ended on September 30, 2016 (for the 2023 Convertible Notes), June 30, 2019 (for the 2026 Convertible Notes), or December 31, 2021 (for the 2026 Convertible Secured Notes), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is at least 130% of the applicable conversion price (as defined in the applicable indenture) on each applicable trading day (the “Stock Price Conversion Condition”).

(ii)

During the five business day period after any five consecutive trading day period in which the trading price (as defined in the applicable indenture) per $1,000 principal amount for each trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate (as defined in the applicable indenture) on each such trading day.

(iii)

If the Company calls any or all of the applicable series of notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date.

(iv)

Upon the occurrence of specified corporate events.

After those dates, holders may convert their notes, regardless of the foregoing circumstances, at any time until immediately preceding the applicable maturity date.

Upon conversion of notes, the Company will pay or deliver cash, shares of common stock (or cash in lieu of fractional shares), or a combination of cash and common stock, at the Company’s election.

The initial conversion rates of the Convertible Notes per $1,000 principal amount, and the approximate conversion price, are as follows:


	Initial conversion rate	Approximate conversion price
2026 Convertible Secured Notes	47.7612	$20.94
2026 Convertible Notes	9.2123	$108.55
2023 Convertible Notes	5.0358	$198.58

These conversion rates are subject to adjustment upon occurrence of certain events but will not be adjusted for accrued and unpaid interest. Also, if certain specified events occur, the conversion rate will be increased for notes converted in connection with such events.

The Convertible Notes are redeemable by the Company in certain circumstances starting July 6, 2021 (for the 2023 Convertible Notes), May 20, 2023 (for the 2026 Convertible Notes), and February 20, 2024 (for the 2026 Convertible Secured Notes). After such dates, the Company may redeem for cash all or any part of the applicable Convertible Notes, at its option, if the last reported sale price of the common stock has been at least 130% of the applicable conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on and including the trading day immediately preceding the date of the applicable notice of redemption. The redemption price is equal to 100% of the principal amount redeemed, plus accrued and unpaid interest to (but excluding) the redemption date.

No sinking fund is provided for any of the Convertible Notes.

If the Company undergoes a fundamental change (as defined in the applicable indenture), noteholders may require the Company to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to (but excluding) the fundamental change repurchase date.

Upon the occurrence of certain corporate events (i.e., a “make-whole fundamental change”, as defined in the applicable indenture), the Company will, under certain circumstances, increase the conversion rate for holders of the

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Convertible Notes who elect to convert in connection with such corporate events. In addition, with respect to the 2026 Convertible Secured Notes, (1) if the Company elects to redeem all or part of such notes and provides notice of redemption to the holders or (2) if the Stock Price Conversion Condition is satisfied with respect to any calendar quarter commencing after the quarter ended September 30, 2022, the Company will, under certain circumstances, increase the conversion rate for holders who elect to convert (1) during the related redemption period, or (2) in connection with such Stock Price Conversion Condition. Upon a Company redemption of the 2026 Convertible Secured Notes, holders of notes called for redemption may be eligible to receive a make-whole premium. The Company, at its option, will satisfy the conversion obligation through cash, shares of common stock, or a combination of cash and common stock. The right to redeem the 2026 Convertible Secured Notes requires the Company to specify a date of redemption no earlier than 60 days and no later than 90 days after the notice of redemption is sent. If a holder elects to convert its 2026 Convertible Secured Notes prior to the effective date of a make-whole fundamental change or the date of the redemption notice, then it is not entitled to the increased conversion rate in connection with such make-whole fundamental change or redemption.

Upon certain events of default occurring and continuing, either the indenture trustee or holders of at least 25% in aggregate principal amount of a series of notes then outstanding may declare the entire principal amount of that series of notes, and accrued interest, if any, to be immediately due and payable. Upon events of default involving specified bankruptcy events involving the Company, the Convertible Notes are due and payable immediately.

The 2026 Convertible Secured Notes indenture and security agreement include (1) customary covenants, (2) guarantor provisions, and (3) collateral provisions. The 2026 Convertible Secured Notes may become guaranteed in the future by subsidiaries of the Company that meet certain threshold requirements, with the 2026 Convertible Secured Notes becoming senior obligations of such guarantor. The 2026 Convertible Secured Notes are secured by a first priority security interest in substantially all assets of the Company, and of any guarantors, subject to certain exceptions.

The Capped Call Transactions

On June 30, 2016, in connection with the pricing of the 2023 Convertible Notes, the Company entered into privately-negotiated capped call agreements (the “Base Capped Calls”) with each of Royal Bank of Canada, UBS AG, London Branch, and Credit Suisse Capital LLC. On July 1, 2016, in connection with the underwriters’ exercise of their over-allotment option in full, the Company entered into additional capped call agreements (the “Additional Capped Calls” and, together with the Base Capped Calls, the “Capped Calls”) with same counterparties.

The Capped Calls are considered to be instruments indexed to the Company’s own shares and met the criteria to be classified within equity. Therefore, they are not remeasured.

In August 2021, in connection with the exchange of 2023 Convertible Notes, of the 460,000 Capped Call options outstanding (400,000 Base Capped Call options and 60,000 Additional Capped Call Options), 306,486 options were terminated (246,486 Base Capped Call options and 60,000 Additional Capped Call options), equivalent to approximately 1.5 million shares.

In September 2021, in connection with the additional repurchase of $39.9 million of 2023 Convertible Notes, 39,859 more Capped Call options were terminated, equivalent to approximately 0.2 million shares, with 113,655 Base Capped Call options remaining, equivalent to approximately 0.6 million shares.

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Interest Expense on Convertible Notes

The table summarizes the total interest expense recognized in the periods presented:


	Three Months Ended June 30, 2022								Six Months Ended June 30, 2022
	2026 Convertible Secured Notes		2026 Convertible Notes		2023 Convertible Notes		Total		2026 Convertible Secured Notes		2026 Convertible Notes		2023 Convertible Notes		Total

	(in thousands)
Contractual interest expense	$	4,375	$	577	$	913	$	5,865	$	8,750	$	1,154	$	1,837	$	11,741
Amortization of debt issuance costs		569		116		119		804		1,132		232		237		1,601
Accretion of debt discount		—		—		—		—		—		—		—		—
Total interest expense	$	4,944	$	693	$	1,032	$	6,669	$	9,882	$	1,386	$	2,074	$	13,342

	Three Months Ended June 30, 2021								Six Months Ended June 30, 2021
	2026 Convertible Secured Notes		2026 Convertible Notes		2023 Convertible Notes		Total		2026 Convertible Secured Notes		2026 Convertible Notes		2023 Convertible Notes		Total

	(in thousands)
Contractual interest expense	$	—	$	1,150	$	3,737	$	4,887	$	—	$	2,300	$	7,475	$	9,775
Amortization of debt issuance costs		—		196		490		686		—		386		970		1,356
Accretion of debt discount		—		2,553		4,463		7,016		—		5,043		8,834		13,877
Total interest expense	$	—	$	3,899	$	8,690	$	12,589	$	—	$	7,729	$	17,279	$	25,008

The effective interest rates during the three and six months ended June 30, 2022 for the 2026 Convertible Secured Notes, 2026 Convertible Notes and 2023 Convertible Notes are 4.03%, 2.44% and 3.69%, respectively. The effective interest rates during the three and six months ended June 30, 2021 for the 2026 Convertible Notes and 2023 Convertible Notes were 9.90% and 8.42%, respectively. Accrued interest on the Convertible Notes was approximately $8.6 million and $8.6 million as of June 30, 2022 and December 31, 2021, respectively.

The Company’s total recorded debt issuance costs are $17.1 million, which are being amortized using the effective interest method through the date of maturity. As of June 30, 2022, and December 31, 2021, $11.3 million and $10.3 million, respectively, of debt issuance costs are unamortized on the condensed consolidated balance sheets in Long-term debt. Cash payments for interest were $11.7 million and $9.8 million for the six months ended June 30, 2022 and 2021, respectively.

11. Product Revenue, Net

The Company recognized U.S. Ocaliva net sales of $71.8 million and $68.2 million for the three months ended June 30, 2022 and 2021, respectively and $130.9 million and $125.5 million for the six months ended June 30, 2022 and 2021, respectively.

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Credit Losses

The following table summarizes the allowance for credit losses activity on the Company’s trade receivables for the six-month period ended June 30, 2022 (in thousands):


Balance at December 31, 2021	$	58
Provision for credit losses		(7)
Write-offs		—
Balance at June 30, 2022	$	51

12. Research and Development Tax Credit

and certain internal overhead costs incurred as part of research projects.

The Company submitted a claim seeking to obtain tax credits for qualifying R&D expenses incurred in the years ended December 31, 2018 and 2019. In June 2021, the Company received a payment of $4.2 million from HMRC and made a cash repayment of $0.2 million to the HMRC due to submission of an amended claim.

Given the finalization and approval of the claims for 2018, the Company recorded the net U.K. research and development tax credit payments received of $4.0 million (less $0.5 million due to foreign currency translation) as a reduction of research and development expense in the condensed consolidated statements of operations for the three and six months ended June 30, 2022. In the three and six months ended June 30, 2021, the Company recorded U.K. research and development tax credits of $10.7 million as a reduction of research and development expense.

13. Stock Compensation

In April 2022, the Company’s Compensation Committee and Board of Directors approved the Amended and Restated Equity Incentive Plan (“2022 Plan”), which became effective upon stockholder approval at the annual meeting of stockholders on May 25, 2022, and which replaced the Company’s 2012 Stock Incentive Plan (“2012 Plan”). Under the 2022 Plan, the Company may grant stock options, which include incentive stock options (“ISOs”) and non-qualified stock options (“NSOs”), stock grants, which include unrestricted shares, restricted shares (“RSAs”) and performance restricted shares (“PSAs”) along with stock-based awards, which include restricted stock unit awards (“RSUs”) and performance restricted stock unit awards (“PRSUs”). The pool of available shares under the 2022 Plan consists of those shares which remained unallocated under the 2012 Plan, plus any shares subject to previously issued awards which are forfeited. The 2022 Plan does not contain an evergreen share replenishment clause and prohibits the repricing of stock options. The 2022 Plan will remain effective for a ten-year term, expiring in 2032.

The estimated fair value of the stock options granted in the six months ended June 30, 2022 was determined utilizing a Black-Scholes option-pricing model at the date of grant. The fair value of the RSUs granted in the six months ended June 30, 2022 was determined utilizing the closing price of the Company’s common stock on the date of grant. The fair value of the PRSUs granted in the six months ended June 30, 2022 was determined utilizing the Monte Carlo simulation method. The Company accounts for all forfeitures when they occur. Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest and are not forfeited.

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The following table summarizes stock option activity during the six months ended June 30, 2022 (under both the 2012 Plan and the 2022 Plan):


				Weighted
				Average
	Number	Weighted		Remaining	Aggregate
	of Options	Average		Contractual	Intrinsic Value
	(in thousands)	Exercise Price		Term (years)	(in thousands)
Outstanding at December 31, 2021	2,252	$	50.28	7.2	$	408
Granted	467	$	15.20	—	$	—
Exercised	—	$	—	—	$	—
Cancelled/forfeited	(117)	$	28.14	—	$	—
Expired	(96)	$	104.36	—	$	—
Outstanding at June 30, 2022	2,506	$	42.70	7.3	$	—
Expected to vest	1,389	$	21.95	8.4	$	—
Exercisable	1,117	$	68.52	5.9	$	—

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. As of June 30, 2022, the total compensation cost related to non-vested option awards not yet recognized is approximately $16.0 million with a weighted average remaining vesting period of 1.25 years.

The Company estimated the fair value of stock options granted in the periods presented utilizing a Black-Scholes option-pricing model utilizing the following assumptions:


	Six Months Ended June 30,
	2022		2021
Volatility	66.4 - 67.7	%	65.2 - 67.7	%
Expected term (in years)	5.5 - 6.0		5.5 - 6.0
Risk-free rate	1.3 - 2.8	%	0.4 - 0.9	%
Expected dividend yield	—	%	—	%

The following table summarizes the aggregate RSU, RSA and PRSU activity during the six months ended June 30, 2022:


		Weighted
	Number of	Average Grant Date
	Awards	Fair Value
	(in thousands)
Non-vested awards at December 31, 2021	968	$	39.58
Granted	779	$	15.76
Vested	(157)	$	28.72
Forfeited	(143)	$	43.44
Non-vested awards at June 30, 2022	1,447	$	27.55

As of June 30, 2022, there is approximately $24.7 million of total unrecognized compensation expense related to unvested RSUs, RSAs and PRSUs, which is expected to be recognized over a weighted average vesting period of 1.68 years.

During the six months ended June 30, 2022, the Company granted a total of 168,600 PRSUs to certain of the Company’s executive officers. The performance criterion for such PRSUs is based on the Total Shareholder Return (“TSR”) of the Company’s common stock relative to the TSR of the companies comprising the S&P Biotechnology Select Industry Index (the “TSR Peer Group”) over a 3-year performance period and is accounted for as a market condition under ASC Topic 718, Compensation – Stock Compensation. The TSR for the Company or a member of the TSR Peer Group is calculated by dividing (a) the difference of the ending average stock price minus the beginning average stock price by

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(b) the beginning average stock price. The beginning average stock price equals the average closing stock price over the one calendar month period prior to the beginning of the performance period, after adjusting for dividends, as applicable. The ending average stock price equals the average closing price over the one calendar month period ending on the last day of the performance period, after adjusting for dividends, as applicable. The Company’s relative TSR is then used to calculate the payout percentage, which may range from zero percent (0%) to one hundred and fifty percent (150%) of the target award. The Company utilized a Monte Carlo simulation to determine the grant date fair value of such PRSUs.

The Company recorded approximately $0.2 million and $0.5 million of stock-based compensation related to such PRSUs granted during the three and six months ended June 30, 2022.

The Company modified certain stock option, stock grant and stock-based awards to accelerate vesting in anticipation of the sale of the ex-U.S. commercial operations to Advanz. The Company accelerated the vesting of all awards held by employees of those operations being sold because those employees would have otherwise forfeited the awards. Given the sale of the ex-U.S. commercial operations was probable at the time the awards were modified and the entities met the held for sale criteria, the modification to accelerate vesting was recognized at the date of the modification. As a result, incremental compensation expense of $3.4 million was recognized based on the fair value of the modified awards for the three months ended June 30, 2022.

Stock-based compensation expense has been reported in the Company’s condensed consolidated statements of operations as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

					(in thousands)
Selling, general and administrative	$	3,980	$	5,678	$	8,074	$	10,518
Research and development		1,401		1,148		2,796		3,175
Restructuring		—		—		—		—
Total stock-based compensation	$	5,381	$	6,826	$	10,870	$	13,693

Stock-based compensation expense recognized under discontinued operations, included in net income from discontinued operations, was $3.2 million and $1.6 million for the three months ended June 30, 2022 and 2021, respectively and $4.4 million and $3.2 million for the six months ended June 30, 2022 and 2021, respectively.

14. Net Loss Per Share

Basic loss per share is computed by dividing net loss attributable to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. For the three and six-month periods ended June 30, 2022 and 2021, as the Company was in a net loss position, the diluted loss per share computations for such periods did not assume the conversion of the Convertible Notes, exercise of stock options or vesting of RSUs or PRSUs as they would have had an anti-dilutive effect on loss per share.

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding for the three and six-month periods ended June 30, 2022 and 2021, as the inclusion thereof would have been anti-dilutive:


	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021

	(in thousands)		(in thousands)
Shares issuable upon conversion of Convertible Notes	25,507	4,435	25,510	4,435
Options	2,509	2,729	2,471	2,727
Unvested restricted stock units	1,534	1,211	1,451	1,220
Total	29,550	8,375	29,432	8,382

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15. Commitments and Contingencies

Legal Proceedings

The Company is involved in various disputes, legal proceedings and litigation in the course of its business, including the matters described below and, from time to time, governmental inquiries and investigations and employment and other litigation. These matters, which could result in damages, fines or other administrative, civil or criminal remedies, liabilities or penalties, are often complex and the outcome of such matters is often uncertain. The Company may from time to time enter into settlements to resolve such matters.

Shareholder Litigation

The Company currently is involved in a purported shareholder class action lawsuit, as well as a related derivative suit. While the Company believes that it has a number of valid defenses to the claims of the litigants, and intends to vigorously defend itself, matters are in early stages of litigation, and no assessment can be made as to likely outcomes or whether these matters will be material to the Company. Accordingly, an estimate of the potential loss, or range of loss, if any, to the Company relating to these matters is not possible at this time.

The 2017 Litigation

On September 27, 2017, a purported shareholder class action, initially styled DeSmet v. Intercept Pharmaceuticals, Inc., et al., was filed in the United States District Court for the Southern District of New York, naming the Company and certain of its officers as defendants. On June 1, 2018, the Court appointed lead plaintiffs in the lawsuit, and on July 31, 2018, the lead plaintiffs filed an amended complaint, captioned Hou Liu and Amy Fu v. Intercept Pharmaceuticals, Inc., et al., naming the Company and certain of its current and former officers as defendants. The lead plaintiffs claim to be suing on behalf of anyone who purchased or otherwise acquired the Company’s common stock between June 9, 2016 and September 20, 2017. This lawsuit alleges that material misrepresentations and/or omissions of material fact were made in the Company’s public disclosures during that period, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. The alleged improper disclosures relate to statements regarding Ocaliva dosing and use, and pharmacovigilance-related matters, as well as the Company’s operations, financial performance, and prospects. The plaintiffs seek unspecified monetary damages on behalf of the putative class, an award of costs and expenses, including attorney’s fees, and rescissory damages. On September 14, 2018, the Company filed a motion to dismiss the amended complaint. On March 26, 2020, the Court granted the Company’s motion to dismiss the amended complaint in its entirety, and on March 27, 2020 the Court entered judgment in favor of the Company. On May 8, 2020, the plaintiffs filed a motion to set aside the judgment and grant leave to file a second amended complaint. On September 9, 2020, the Court denied the plaintiffs’ motion, finding that the proposed second amended complaint did not cure the deficiencies identified in the amended complaint. On October 9, 2020, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Second Circuit and on January 25, 2021, the plaintiffs filed an appellate brief challenging the March 27, 2020 judgment, the September 9, 2020 judgment, and other court orders. On April 23, 2021, the Company filed a response brief in the Second Circuit appellate proceeding. On May 14, 2021, the plaintiffs filed a reply brief. On December 9, 2021, oral argument was held in the Second Circuit. On June 16, 2022, the Second Circuit entered a summary order affirming the order of the District Court dated September 9, 2020.

Separately, on December 1, 2017, a purported shareholder demand was made on the Company based on substantially the same allegations as those set forth in the securities case above. Also, on January 5, 2018, a follow-on derivative suit, styled Davis v. Pruzanski, et al., was filed in New York state court by shareholder Gregg Davis based on substantially the same allegations as those set forth in the securities case above. The derivative litigation is presently stayed pending the exhaustion of all appeals relating to the dismissal of the securities case.

Patent Litigation

The Company has received paragraph IV certification notice letters from six generic drug manufacturers indicating that each such manufacturer submitted to the FDA an Abbreviated New Drug Application (“ANDA”) seeking approval to manufacture and sell a generic version of the Company’s 5 mg and 10 mg dosage strengths of Ocaliva® (obeticholic acid)

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for PBC prior to the expiration of certain patents listed for Ocaliva in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”).

The six generic drug manufacturers and when we received their initial paragraph IV certification notices are as follows: (1) Apotex Inc. (July 2020), (2) Lupin Limited (July 2020), (3) Amneal Pharmaceuticals of New York, LLC, as U.S. agent for Amneal EU Limited (July 2020), (4) Optimus Pharma Pvt Ltd (July 2020), (5) MSN Pharmaceuticals Inc. and MSN Laboratories Private Limited (July 2020), and (6) Dr. Reddy’s Laboratories, Inc., and Dr. Reddy’s Laboratories, Ltd. (December 2020).

Each paragraph IV certification notice alleged that the challenged Orange Book patents were invalid, unenforceable, and/or would not be infringed by the commercial manufacture, use, or sale of the generic products described in the generic manufacturer’s respective ANDA. In each case, within 45 days of receipt of the paragraph IV certification notice, the Company initiated a patent infringement suit against the generic manufacturer in the United States District Court for the District of Delaware. As a result, under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), the FDA cannot grant final approval of each generic manufacturer’s ANDA before the earlier of November 27, 2023, or a court decision in their favor. The Company has since received additional paragraph IV certification notices from certain of the six generic manufacturers challenging additional Ocaliva Orange Book patents, and the Company has been amending its complaints against the generic challengers accordingly to add infringement allegations in relation thereto.

The challenged Ocaliva Orange Book patents that are the subject of the ongoing patent litigation are U.S. Patents Nos. RE 48,286 (the “‘286 Patent”), 9,238,673 (the “‘673 Patent”), 10,047,117 (the “‘117 Patent”), 10,052,337 (the “‘337 Patent”), 10,174,073 (the “‘073 Patent”), 10,751,349 (the “‘349 Patent”), and 10,758,549 (the “‘549 Patent”).

Trial against all of the generic challengers is scheduled for February 27, 2023.

These patent proceedings are costly and time-consuming, and successful challenges to the Company’s patent or other intellectual property rights could result in the Company losing those rights in the relevant jurisdiction, and could allow third parties to use the Company’s proprietary technologies without a license from the Company or its collaborators. While the Company intends to vigorously defend and enforce its intellectual property rights protecting Ocaliva, the Company can offer no assurances regarding when these lawsuits will be decided, which side will prevail, or whether a generic equivalent of Ocaliva could be approved and enter the market before the expiration of the Company’s patents.

16. Subsequent Events

On July 1, 2022, the Company completed the previously announced Disposition Transaction. Consideration totaled $405.0 million up front. Total cash consideration received upon closing was $366.5 million. Additional consideration of $38.5 million under the Share Purchase Agreement (the “SPA”) will be settled in connection with the completion statements, which will also include adjustments including for cash, working capital, and assumed liabilities. As a result of this transaction, the Company’s international business has been divested and its international commercial and medical infrastructure have transitioned to Advanz.

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

You should read the following discussion and analysis together with our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”). This discussion and analysis contains forward-looking statements, which involve risks and uncertainties. As a result of many factors, such as those described under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat progressive non-viral liver diseases with high unmet medical need utilizing our proprietary bile acid chemistry. Our first marketed product, Ocaliva® (obeticholic acid or “OCA”), is a farnesoid X receptor (“FXR”) agonist approved in the United States and several other jurisdictions for the treatment of primary biliary cholangitis (“PBC”) in combination with ursodeoxycholic acid (“UDCA”) in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA.

In addition to commercializing OCA for PBC under the Ocaliva brand name, we are also currently developing OCA for additional indications, including nonalcoholic steatohepatitis (“NASH”). We are also developing product candidates in various stages of clinical and preclinical development. We believe that OCA and our other product candidates have the potential to treat orphan and other more prevalent liver diseases such as NASH for which there are currently limited therapeutic options.

Ocaliva was approved for PBC by the U.S. Food and Drug Administration (“FDA”) in May 2016 under the accelerated approval pathway. We commenced sales and marketing of Ocaliva in the United States shortly after receiving approval, and Ocaliva is now available to U.S. patients primarily through a network of specialty pharmacy distributors. In addition, we continue to work to execute on our post-marketing regulatory commitments with respect to Ocaliva. In June 2022, we announced topline results from our COBALT trial. The primary endpoint, as agreed with the FDA, was time to first occurrence of any of the following clinical endpoints: all-cause death, liver transplant, hospitalization for other serious liver-related events, signs of progression to hepatic decompensation, or signs of development of portal hypertension. The study did not demonstrate a statistically significant difference between Ocaliva and placebo on the primary endpoint: 71 subjects in the Ocaliva arm progressed to clinical events compared to 80 in the placebo arm (p=0.30; HR 0.84). The safety and tolerability of Ocaliva were consistent with its known profile and adverse events were in line with expectations for patients with advanced PBC based on the natural history of the disease. In June 2022, we also announced topline results for our HEROES-US study, a retrospective real-world study that evaluated data from a U.S. claims database, to compare clinical outcomes in a pre-defined group of patients with PBC who were treated with Ocaliva and a comparable group of PBC patients who were eligible, but who were not treated with Ocaliva. The results from the HEROES-US study showed a statistically significant and clinically meaningful reduction in all-cause death, liver transplant, or hospitalization for hepatic decompensation among Ocaliva-treated patients compared to the control group. In the Ocaliva arm (n=429), 8 events were observed compared to 226 in the control group (n=4,585) with a weighted hazard ratio of 0.38 (p= 0.027). HEROES-US is one of two HEROES studies we are conducting that utilizes real-world data to assess the impact of Ocaliva on clinical outcomes in PBC patients.

We intend to submit the data from the COBALT and HEROS-US studies as well additional data, including data from other real world evidence studies, as part of a broader evidence package in support of full approval of Ocaliva for the treatment of PBC, which we anticipate submitting to the FDA in the second half of 2022. If this data package does not support fulfillment of our post-marketing obligations, we may not be able to maintain our previously granted marketing approval of Ocaliva for PBC.

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REGENERATE trial is ongoing and is expected to continue through clinical outcomes for verification and description of the clinical benefit of OCA. In June 2020, we received a complete response letter (“CRL”) from the FDA stating that our NDA for OCA for the treatment of liver fibrosis due to NASH could not be approved in its present form. We had our end of review meeting with the FDA in October 2020 to discuss the FDA’s risk-benefit assessment in the CRL based on its review of the available data, as well as our proposed resubmission of our NDA for the treatment of liver fibrosis due to NASH. The meeting was constructive and the FDA provided us with helpful guidance regarding supplemental data we can provide to further characterize OCA’s efficacy and safety profile that could support resubmission based on our Phase 3 REGENERATE 18-month biopsy data, together with a safety assessment from our ongoing studies.

In July 2022, we announced topline results from the New Interim Analysis. In this new interim analysis of the ITT population from REGENERATE, 22.4% of subjects randomized to once-daily oral OCA 25 mg met the primary endpoint of achieving at least one stage of fibrosis improvement with no worsening of NASH at month 18 on liver biopsy compared with 9.6% of subjects on placebo (p<0.0001). The results were consistent with the Original Analysis, which also showed that OCA 25 mg had a statistically significant effect on fibrosis improvement (p=0.0002). The New Interim Analysis used a consensus panel approach to histology reads, in line with recent FDA guidance, while the Original Analysis used individual central readers. A numerically greater proportion of individuals in the OCA 25 mg treatment group compared to placebo achieved the endpoint of resolution of NASH with no worsening of liver fibrosis but, consistent with the Original Analysis, the results for the endpoint of resolution of NASH were not statistically significant. As part of the New Interim Analysis, a safety evaluation was conducted in 2477 subjects from the REGENERATE trial who took at least one dose of study drug (placebo, OCA 10 mg, or OCA 25 mg). Topline results from this ongoing safety evaluation showed that treatment-emergent adverse events (TEAEs), treatment-emergent serious adverse events (TESAEs), and deaths were generally balanced across the OCA and placebo treatment groups in this new safety population. The most common TEAE was pruritus (24% in placebo, 33% in OCA 10 mg and 55% in OCA 25 mg) and pruritus was the most common cause for treatment discontinuation. As part of the safety review of the New Interim Analysis, independent groups of experts reviewed certain categories of safety events to provide a blinded adjudication as specifically requested by the FDA. These included events pertaining to hepatic safety (excluding clinical outcomes), cardiovascular and renal. Topline analysis through four years of treatment showed a numerically higher number of adjudicated hepatic safety events for OCA 25 mg, the majority of which were mild in severity. For adjudicated core major adverse cardiovascular events and adjudicated acute kidney injury events, frequency of events was low and balanced across treatment groups. Consistent with its mechanism of action as an FXR agonist, OCA treatment was associated with an increase in LDL at Month 1 which returned to near baseline values by Month 12.

Based on the results of the New Interim Analysis, we intend to re-submit the NDA for OCA in liver fibrosis due to NASH. In July 2022, we had a pre-submission meeting with the FDA in which we reviewed with the FDA the planned content and the timing of the submission of our NDA.

As part of our product development activities, we expect to continue to invest in evaluating the potential of OCA in progressive non-viral liver diseases. We are currently conducting a Phase 3 clinical trial in NASH patients with compensated cirrhosis, known as the REVERSE trial. The liver biopsy samples from REVERSE are being evaluated utilizing a similar, new consensus methodology to what we are using for REGENERATE. We expect top line data from our Phase 3 REVERSE trial in the third quarter of 2022.

We are evaluating the efficacy, safety and tolerability of OCA in combination with bezafibrate in patients with PBC in a Phase 2 study outside of the United States. In the United States, we have an ongoing Phase 1 study to better characterize the exposure response of the fixed-dose combination, which has completed enrollment, and we have an open Investigational New Drug (“IND”) application with the FDA. We are also conducting a second Phase 2 study in the United States evaluating a fixed-dose combination of OCA and bezafibrate for the treatment of patients with PBC who have not

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achieved an adequate biochemical response to UDCA. Our longer-term goal is developing and seeking regulatory approval for a fixed dose combination regimen in PBC and potentially in other diseases.

In addition, we have other compounds in early stages of research and development in our pipeline, including our INT-787 compound, an FXR agonist. We are currently evaluating INT-787 in a Phase 1 clinical trial. We submitted an IND for INT-787 in the first half of 2022.

Sale of our ex-U.S. commercial operations to Advanz Pharma

On July 1, 2022, we completed the sale of our ex-U.S. commercial operations Advanz Pharma (“Advanz”), and sublicensed the right to commercialize Ocaliva outside of the United States. The transaction included a total upfront consideration of $405 million, subject to customary working capital and other adjustments, plus a $45 million earnout, payable upon Advanz’s receipt of extensions of orphan drug exclusivity in Europe. We will also receive royalties on any future net sales of OCA in NASH outside of the U.S., should Advanz pursue marketing authorization for this indication in ex-U.S. regions. We will continue to be responsible for the manufacturing and supply of OCA globally while Advanz will be responsible for packaging, distribution and commercialization of the therapy in all markets outside of the U.S. The majority of employees outside of the U.S. were transferred to Advanz, while remaining international employees continue to manage our global supply chain, support our quality organization, and support global clinical trials.

Under the Transition Services Agreement (the “TSA”), we agreed to provide certain transition services for periods of up to six months to Advanz for continuity purposes. Services include human resources, finance, and information technology.

Under the Supply and Manufacture Agreement, OCA will be supplied in bulk tablet form and we will charge Advanz for certain incurred costs related to manufacturing OCA.

Under the Sublicense Agreement, we agreed to continue to conduct certain post-marketing work and other activities with respect to Ocaliva for PBC, including continuing to conduct certain PBC studies (the “PBC Post-Marketing Work”). The Company will be reimbursed by Advanz for a portion of the total R&D costs related to the PBC Post-Marketing Work.

The transaction allowed us to capitalize on an opportunity that supports multiple pathways for the future and further strengthens our balance sheet for the current year and beyond. The terms of this transaction will allow us to focus our resources on the U.S., our largest market, while retaining upside from the potential NASH opportunity ex-U.S., via royalties on any future net sales of OCA, should Advanz pursue marketing authorizations for this indication in ex-U.S. regions.

The ex-U.S. commercial business operations met the criteria within Accounting Standards Codification 205-20 to be reported as discontinued operations because the transaction was held for sale and represents a strategic shift in business that will have a major effect on our operations and financial results. Therefore, we have reported the historical results of the ex-U.S. commercial business including the results of operations and cash flows as discontinued operations, and related assets and liabilities were retrospectively reclassified as assets and liabilities of discontinued operations for all periods presented herein. Unless otherwise noted, applicable amounts in the prior year have been recast to conform to this discontinued operations presentation. Refer to Note 4 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

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Recent Developments

On May 5, 2022, the Company entered into a series of agreements to sell its ex-U.S. commercial operations, and sublicense the right to commercialize Ocaliva outside of the United States, to Advanz. On July 1, 2022, the Company closed its previously announced transaction with Advanz.

On May 25, 2022, the Company’s stockholders approved the Amended and Restated Equity Incentive Plan.

On June 3, 2022, the Company announced results from two studies designed to evaluate clinical outcomes in patients with PBC on Ocaliva: COBALT, a Phase 3b/4 confirmatory clinical outcomes study, and HEROES-US, one of two HEROES real-world studies. Findings from these studies are intended to be part of a broader evidence package that the Company anticipates submitting to the FDA in the second half of 2022.

On July 7, 2022, the Company announced topline results from a new interim analysis of its ongoing pivotal Phase 3 REGENERATE trial of OCA in patients with liver fibrosis due to NASH. Following these results, the Company intends to re-submit its NDA for OCA in liver fibrosis due to NASH.

Financial Overview

Revenue

We commenced our commercial launch of Ocaliva for the treatment of PBC in the United States in June 2016. We sell Ocaliva to a limited number of specialty pharmacies which dispense the product directly to patients. The specialty pharmacies are referred to as our customers.

Product Revenue, Net

We recognize revenue upon delivery of Ocaliva to our customers, net of discounts, rebates and incentives associated with the product. We provide the right of return to our customers for unopened product for a limited time before and after its expiration date.

Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), we have written contracts with each of our customers that have a single performance obligation — to deliver products upon receipt of a customer order — and these obligations are satisfied when delivery occurs and the customer receives Ocaliva. We evaluate the creditworthiness of each of our customers to determine whether collection is reasonably assured. We estimate variable revenue by calculating gross product revenues based on the wholesale acquisition cost that we charge our customers for Ocaliva, and then estimating our net product revenues by deducting (i) estimated government rebates and discounts related to Medicare, Medicaid and other government programs, (ii) estimated costs of incentives offered to certain indirect customers including patients and (iii) trade allowances, such as invoice discounts for prompt payment and customer fees.

We recognized net sales of Ocaliva of $71.8 million and $68.2 million for the three months ended June 30, 2022 and 2021, respectively, and $130.9 million and $125.5 million for the six months ended June 30, 2022 and 2021, respectively.

Selling, General and Administrative Expenses

We have incurred and expect to continue to incur significant selling, general and administrative (“SG&A”) expenses as a result of, among other initiatives, the commercialization of Ocaliva for PBC in the United States. In addition, we have incurred significant selling, general and administrative expenses and may in the future incur similar expenses in connection with the preparation for the potential commercialization of OCA for liver fibrosis due to NASH, if approved, and our other future approved products, if any, and any maintenance of our general and administrative infrastructure in the United States.

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Research and Development Expenses

Since our inception, we have focused significant resources on our research and development activities, including conducting preclinical studies and clinical trials, pursuing regulatory approvals and engaging in other product development activities. We recognize research and development expenses as they are incurred.

We have incurred and expect to continue to incur significant research and development expenses as a result of, among other initiatives, our clinical development programs for OCA for PBC and NASH, our other earlier stage research programs and our regulatory approval efforts.

Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021:


	Three Months Ended June 30,
	2022		2021

	(in thousands)
Revenue:
Product revenue, net	$	71,757	$	68,178
Total revenue		71,757		68,178

Operating expenses:
Cost of sales		309		254
Selling, general and administrative		39,985		43,882
Research and development		44,826		37,668
Restructuring		—		(160)
Total operating expenses		85,120		81,644

Other (expense) income:
Interest expense		(6,669)		(12,589)
Other (expense) income, net		(289)		721
Total other (expense), net		(6,958)		(11,868)

Loss from continuing operations	$	(20,321)	$	(25,334)
Income from discontinued operations	$	12,793	$	14,240
Net loss	$	(7,528)	$	(11,094)

Revenues

Product revenue, net was $71.8 million and $68.2 million for the three months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022 and 2021, product revenue, net was solely comprised of U.S. Ocaliva net sales. The increase in product revenues was driven by operational growth, primarily due to higher pricing and increased unit sales volumes, partially offset by higher gross to net deductions.

Cost of sales

Cost of sales was $0.3 million and $0.3 million for the three months ended June 30, 2022 and 2021, respectively. Our cost of sales for the three months ended June 30, 2022 and 2021 consisted primarily of packaging, labeling, materials and related expenses.

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Selling, general and administrative expenses

Selling, general and administrative expenses were $40.0 million and $43.9 million for the three months ended June 30, 2022 and 2021, respectively. The $3.9 million net decrease between periods was primarily driven by our ongoing efforts to manage our operational costs.

Research and development expenses

Research and development expenses were $44.8 million and $37.7 million for the three months ended June 30, 2022 and 2021, respectively. The $7.1 million net increase between periods was primarily driven by a $7.2 million reduction in recognition of UK R&D tax credits under the SME and RDEC schemes.

Interest expense

Interest expense was $6.7 million and $12.6 million for the three months ended June 30, 2022 and 2021, respectively. For the quarter ended June 30, 2022, interest expense related to the principal amounts outstanding for the 2023 Convertible Notes, 2026 Convertible Notes and 2026 Convertible Secured Notes and no longer included any accretion of debt discounts, which was $7.0 million for the three months ended June 30, 2021, after the adoption of ASU 2020-06. For the quarter ended June 30, 2021, interest expense related to the principal amounts outstanding for the 2023 Convertible Notes and 2026 Convertible Notes.

Other (expense) income, net

Other (expense) income, net was $(0.3) million and $0.7 million for the three months ended June 30, 2022 and 2021, respectively. Such (expense) income is primarily attributable to realized losses on foreign currency transactions and interest income earned on cash, cash equivalents and investment debt securities, respectively.

Income taxes

For the three months ended June 30, 2022 and 2021, no income tax expense or benefit was recognized. Our deferred tax assets are comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our inception.

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Comparison of the Six Months Ended June 30, 2022 and 2021


	Six Months Ended June 30,
	2022		2021

	(in thousands)
Revenue:
Product revenue, net	$	130,903	$	125,477
Total revenue		130,903		125,477

Operating expenses:
Cost of sales		532		547
Selling, general and administrative		77,739		88,984
Research and development		92,719		88,279
Restructuring		—		(284)
Total operating expenses		170,990		177,526

Other (expense) income:
Interest expense		(13,342)		(25,008)
Other (expense) income, net		(342)		2,179
Total other (expense), net		(13,684)		(22,829)

Loss from continuing operations	$	(53,771)	$	(74,878)
Income from discontinued operations	$	28,959	$	23,364
Net loss	$	(24,812)	$	(51,514)

Revenues

Product revenue, net was $130.9 million and $125.5 million for the six months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, product revenue, net was solely comprised of U.S. Ocaliva net sales. The increase in product revenues was driven by operational growth, primarily due to higher pricing and increased unit sales volumes, partially offset by higher gross to net deductions.

Cost of sales

Cost of sales was $0.5 million and $0.5 million for the six months ended June 30, 2022 and 2021, respectively. Our cost of sales for the six months ended June 30, 2022 and 2021 consisted primarily of packaging, labeling, materials and related expenses.

Selling, general and administrative expenses

Selling, general and administrative expenses were $77.7 million and $89.0 million for the six months ended June 30, 2022 and 2021, respectively. The $11.3 million net decrease between periods was primarily driven by our ongoing efforts to manage our operational costs.

Research and development expenses

Research and development expenses were $92.7 million and $88.3 million for the six months ended June 30, 2022 and 2021, respectively. The $4.4 million net increase between periods was primarily driven by a reduction in recognition of UK R&D tax credits under the SME and RDEC schemes offset by lower development costs.

Interest expense

Interest expense was $13.3 million and $25.0 million for the six months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022, interest expense related to the principal amounts outstanding for the 2023

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Convertible Notes, 2026 Convertible Notes and 2026 Convertible Secured Notes and no longer included any accretion of debt discounts, which was $13.9 million for the six months ended June 30, 2021, after the adoption of ASU 2020-06. For the six months ended June 30, 2021, interest expense related to the principal amounts outstanding for the 2023 Convertible Notes and 2026 Convertible Notes.

Other (expense) income, net

Other (expense) income, net was $(0.3) million and $2.2 million for the six months ended June 30, 2022 and 2021, respectively. Such (expense) income is primarily attributable to realized losses on foreign currency transactions and interest income earned on cash, cash equivalents and investment debt securities, respectively.

Income taxes

For the six months ended June 30, 2022 and 2021, no income tax expense or benefit was recognized. Our deferred tax assets are comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our inception.

Liquidity and Capital Resources

Sources of liquidity

Since inception, we have incurred significant operating losses. We have never been profitable and do not expect to be profitable in the foreseeable future. To date, we have financed our operations primarily through public and private securities offerings, sales of product and payments received under our licensing and collaboration agreements and the sale of our ex-U.S. commercial operations.

Continued cash generation is highly dependent on the success of our commercial product, Ocaliva, as well as the success of our product candidates if approved.

We have devoted substantially all of our resources to the development of our product candidates, including the conduct of our clinical trials, the launch and commercialization of Ocaliva for PBC, preparation for a potential launch of OCA for liver fibrosis due to NASH and general and administrative operations, including the protection of our intellectual property. We intend to continue to develop OCA and our other existing product candidates, alone or in combination, for non-viral liver diseases. If OCA or any of our other product candidates fails in clinical trials or does not gain or maintain regulatory approval, or if OCA or any of our other product candidates does not achieve market acceptance, we may never become profitable. Our net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ deficit and working capital.

Our executive officers and our Board of Directors periodically review our sources and potential uses of cash in connection with our annual budgeting process. Generally speaking, our principal funding source is cash from operating activities, and our principal cash requirements include operating expenses and interest payments.

We expect to continue to incur losses for the foreseeable future, and we expect these losses to be significant as we, among other things, develop and seek regulatory approval for our product candidates, including OCA for liver fibrosis due to NASH, maintain our regulatory approval and commercialize our approved products. We believe our prospects and ability to significantly grow revenues will be dependent on our ability to successfully develop and commercialize OCA for indications other than PBC, such as NASH, and to identify strategic business development opportunities to leverage our capabilities in rare diseases. As a result, we expect a significant amount of resources to continue to be devoted to our development programs for OCA and to developing our pipeline.

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Cash Flows

The following table sets forth the significant sources and uses of cash for the periods indicated:


	Six Months Ended June 30,
	2022		2021

	(in thousands)
Net cash (used in) provided by:
Operating activities	$	(39,739)	$	(69,831)
Investing activities		(14,798)		139,655
Financing activities		(4,242)		(1,307)
Effect of exchange rate changes		(2,977)		(522)
Net increase in cash, cash equivalents and restricted cash classified as discontinued operations		34,353		20,028
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(27,403)	$	88,023

Operating Activities. Net cash used in operating activities for continuing operations of approximately $39.7 million during the six months ended June 30, 2022 was primarily a result of our $53.8 million net loss from continuing operations, a net decrease in operating assets and liabilities of $2.3 million, partially offset by $10.9 million in stock-based compensation, $2.4 million of write-offs of fixed assets and $1.2 million for non-cash operating lease costs. Cash flows for the six months ended June 30, 2022 include net cash receipts of $3.8 million reflecting payments from the HMRC for the U.K. R&D tax credit claims.

Net cash used in operating activities for continuing operations of approximately $69.8 million during the six months ended June 30, 2021 was primarily a result of our $74.9 million net loss from continuing operations and a net decrease in operating assets and liabilities of $30.2 million, partially offset by $13.7 million in stock-based compensation, $8.8 million for accretion of the discount on the 2023 Convertible Notes, $5.1 million for accretion of the discount on the 2026 Convertible Notes, $2.4 million for non-cash operating lease costs and $1.7 million of depreciation. Cash flows for the six months ended June 30, 2021 include cash receipts of $4.2 million reflecting payments from the HMRC for the U.K. R&D tax credit claims.

Investing Activities. For the six months ended June 30, 2022, net cash used in investing activities primarily reflects the purchase of investment debt securities of $239.4 million, partially offset by the sales and maturities of investment debt securities of $225.2 million.

For the six months ended June 30, 2021, net cash provided by investing activities primarily reflects the sales and maturities of investment debt securities of $227.5 million, partially offset by the purchase of investment debt securities of $87.4 million.

Financing Activities. Net cash used in financing activities in the six months ended June 30, 2022, consisted of $3.9 million from payments for the repurchase of 2023 Convertible Notes.

Net cash used in financing activities in the six months ended June 30, 2021 consisted of $1.3 million from payments of employee withholding taxes related to stock-based awards.

Future Funding Requirements

We are currently developing OCA for additional indications, including NASH, and other product candidates through various stages of clinical and preclinical development. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. In addition, we have incurred and anticipate that we will continue to incur significant research and development, product sales, marketing, manufacturing and distribution expenses relating to the commercialization of Ocaliva for PBC. As part of our longer-term strategy, we anticipate that we will incur significant expenses in connection with our research and development efforts, the commercialization of our other products such as OCA for liver fibrosis due to NASH, if approved, and the maintenance of our general and administrative infrastructure.

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We may also engage in business development activities that involve potential in- or out-licensing of products or technologies or acquisitions of other products, technologies or businesses.

As of June 30, 2022, we had $412.3 million in cash, cash equivalents, restricted cash and investment debt securities. We currently expect to continue to incur significant operating expenses in the fiscal year ending December 31, 2022. These expenses are planned to support, among other initiatives, the continued commercialization of Ocaliva for PBC, our continued clinical development of OCA for PBC and NASH and our other earlier stage research and development programs. Although we believe that our existing capital resources, together with our net sales of Ocaliva for PBC, will be sufficient to fund our anticipated operating requirements for the next twelve months following the filing of this report, we may need to raise additional capital to fund our operating requirements beyond that period. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. As of June 30, 2022, our funds are primarily held in U.S. treasuries, U.S. government agency bonds, corporate bonds, commercial paper and money market accounts.

The proceeds received from the closing of the sale to Advanz will help strengthen our balance sheet and provide optionality in terms of where it takes the business for the future and beyond. The proceeds received will allow us to continue meeting our commitment to invest in our strategic objectives, which include the growth of the PBC business in the U.S. and potential future activities in NASH, including a U.S. launch if successful, along with continuing to advance and expand the pipeline.

We successfully exchanged the majority of our near-term debt to address the maturity of 2023 convertible notes. While we have retired approximately 76% of our 2023 Convertible Notes, we still have $109.8 million of them scheduled to mature on July 1, 2023, and $615.3 million of convertible notes scheduled to mature in 2026, all of which will need to be paid off or refinanced, if not converted. Furthermore, in light of our receipt of the CRL from the FDA in June 2020 with respect to our NDA for OCA for liver fibrosis due to NASH and the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, any delays in, or unanticipated costs associated with, our development, regulatory or commercialization efforts could significantly increase the amount of capital required by us to fund our operating requirements. Accordingly, we may seek to access the public or private capital markets whenever conditions are favorable, to issue new securities, or to refinance or repurchase existing securities, even if we do not have an immediate need for additional capital at that time.

Our forecasts regarding the period of time that our existing capital resources will be sufficient to meet our operating requirements and the timing of our future funding requirements, both near and long-term, will depend on a variety of factors, many of which are outside of our control. Such factors include, but are not limited to, those factors listed above under “Cautionary Note Regarding Forward-Looking Statements”.

We have no committed external sources of funding and additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us, we may not be able to make scheduled debt payments on a timely basis, or at all, and may be required to delay, limit, reduce or cease our operations.

Contractual Obligations

Except as discussed above regarding Advanz Pharma, there have been no material changes to our contractual obligations outside the ordinary course of business from those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Future Funding Requirements—Future Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Off-Balance Sheet Arrangements

As of June 30, 2022, we did not have any off-balance sheet arrangements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates and there have been no material changes to our market risk from that disclosed under the caption “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

For a description of our significant legal proceedings, see Note 15 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and incorporated by reference herein.

Item 1A. Risk Factors.

As of the date of this Quarterly Report on Form 10-Q, there are no material changes to the risk factors set forth in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 2, 2022, except for the following Risk Factors. The following updates primarily relate to our recently completed transaction with Advanz Pharma and developments associated with recent clinical trial results. The following set of Risk Factors does not purport to be a full list of risks relating to the business of the Company and any of these factors or others disclosed in our Annual Report on Form 10-K could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

Background and recent developments

Ocaliva (obeticholic acid or “OCA”) was approved for PBC by the U.S. Food and Drug Administration (“FDA”) in May 2016 under the accelerated approval pathway. We commenced sales and marketing of Ocaliva in the United States shortly after receiving approval, and Ocaliva is now available to U.S. patients primarily through a network of specialty pharmacy distributors. In addition, we continue to work to execute on our post-marketing regulatory commitments with respect to Ocaliva. Based on a review by the Data Monitoring Committee (“DMC”) of an unblinded pre-specified interim efficacy analysis of the COBALT trial and unblinded safety and pharmacokinetic data from both the COBALT and 401 trials, the DMC stated that it was not feasible to continue the COBALT trial as designed and noted the challenges in enrolling and maintaining placebo-controlled post-marketing studies in this rare disease setting. We notified the FDA of the DMC’s recommendation and based on discussions with the FDA, which are ongoing, we closed our COBALT and 401 trials and compiled data available from these studies.

In June 2022, we announced topline results from our COBALT trial. The primary endpoint, as agreed with the FDA, was time to first occurrence of any of the following clinical endpoints: all-cause death, liver transplant, hospitalization for other serious liver-related events, signs of progression to hepatic decompensation, or signs of development of portal hypertension. The study did not demonstrate a statistically significant difference between Ocaliva and placebo on the primary endpoint: 71 subjects in the Ocaliva arm progressed to clinical events compared to 80 in the placebo arm (p=0.30; HR 0.84). The safety and tolerability of Ocaliva were consistent with its known profile and adverse events were in line with expectations for patients with advanced PBC based on the natural history of the disease. In June 2022, we also announced topline results for our HEROES-US study, a retrospective real-world study that evaluated data from a U.S. claims database, to compare clinical outcomes in a pre-defined group of patients with PBC who were treated with Ocaliva and a comparable group of PBC patients who were eligible, but who were not treated with Ocaliva. The results from the HEROES-US study showed a statistically significant and clinically meaningful reduction in all-cause death, liver transplant, or hospitalization for hepatic decompensation among Ocaliva-treated patients compared to the control group. In the Ocaliva arm (n=429), 8 events were observed compared to 226 in the control group (n=4,585) with a weighted hazard ratio of 0.38 (p= 0.027). HEROES-US is one of two HEROES studies we are conducting that utilizes real-world data to assess the impact of Ocaliva on clinical outcomes in PBC patients.

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Our lead development product candidate is OCA for the potential treatment of NASH. In February 2019, we announced topline results from the planned 18-month interim analysis of our pivotal Phase 3 clinical trial of OCA in patients with liver fibrosis due to NASH, known as the REGENERATE trial (the “Original Analysis”). The REGENERATE trial is ongoing and is expected to continue through clinical outcomes for verification and description of the clinical benefit of OCA. In June 2020, we received a complete response letter (“CRL”) from the FDA stating that our NDA for OCA for the treatment of liver fibrosis due to NASH could not be approved in its present form. The CRL indicated that, based on the data the FDA had reviewed, the FDA determined that the predicted benefit of OCA based on a surrogate histopathologic endpoint remained uncertain and did not sufficiently outweigh the potential risks to support accelerated approval for the treatment of patients with liver fibrosis due to NASH. We had our end of review meeting with the FDA in October 2020 to discuss the FDA’s risk-benefit assessment in the CRL based on its review of the available data, as well as our proposed resubmission of our NDA for the treatment of liver fibrosis due to NASH. The meeting was constructive, and the FDA provided us with helpful guidance regarding supplemental data we can provide to further characterize OCA’s efficacy and safety profile that could support resubmission based on our Phase 3 REGENERATE 18-month biopsy data, together with a safety assessment from our ongoing studies.

On May 5, 2022, the Company entered into a series of agreements to sell to Advanz its ex-U.S. commercial operations, including certain foreign subsidiaries, and sublicense the right to commercialize Ocaliva outside of the U.S. On July 1, 2022, the sale closed. Total cash consideration received upon closing was $366.5 million, subject to settlement in connection with completion statements, including adjustments including for cash, working capital, and assumed liabilities. The Company will receive an additional cumulative $45 million from Advanz contingent upon receipt of extensions of orphan drug exclusivity from the EMA and MHRA (the “Earnout”). The Company will also receive royalties on any future net sales of OCA in NASH outside of the U.S., should Advanz pursue marketing authorization for this indication in ex-U.S. regions. Pursuant to a Supply and Manufacture Agreement, the Company will continue to be responsible for the manufacturing and supply of OCA globally while Advanz will be responsible for packaging, distribution and commercialization of the therapy in all markets outside of the U.S. The Company will maintain an office in the UK to manage its global supply chain, support its quality organization, and support its global clinical trials. The majority of employees outside of the U.S. were transferred to Advanz, while remaining international employees continue to manage our global supply chain, support our quality organization, and support global clinical trials. As a result of this transaction,

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the Company’s international business has been divested and its international commercial and medical infrastructure have transitioned to Advanz.

Risks Related to Transaction with Advanz

We or Advanz may fail to perform under any of the agreements entered into in connection with the Advanz transaction, we may be subject to liabilities related to our ongoing relationship with Advanz, and we may fail to receive certain financial benefits from the transaction. As a result, our business may be adversely affected.

On July 1, 2022, we completed the sale of our ex-U.S. commercial operations to Advanz, and sublicensed the right to commercialize Ocaliva outside of the United States. Our transaction with Advanz is subject to risks, that we may not be able to control and therefore our business may be adversely affected.

●

Under the Supply and Manufacture Agreement (the “SMA”), OCA will be supplied in bulk tablet form. If we encounter supply chain delays and are unable to procure sufficient supplies of OCA, we may not be able to fulfill our supply obligations to Advanz under the SMA and this could impact the fulfillment of our own supply needs for OCA.

●

If Advanz breaches the contractual obligations owed to us pursuant to the SMA, the Transitional Services Agreement, the Sublicense Agreement or the other transactions documents, we could be exposed to commercial, regulatory or other liabilities.

●

We may be subject to liabilities in connection with ongoing studies with respect to Ocaliva for PBC and other development activities related thereto, including with respect the studies we will continue to support under our agreements with Advanz.

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We may not be able to adequately protect our intellectual property or become involved in intellectual property enforcement actions, which may cause us to incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, and such litigation may divert the attention of our management and scientific personnel and adversely affect our development and commercialization efforts.

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We may not be able to detect and prevent fraud, breaches of regulations, anticorruption and laws and other misconduct by Advanz or our former employees, which could expose us to liability.

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Our ability to receive certain economic benefits from the transaction, including the Earnout and royalties from the commercial sale of OCA for NASH outside of the U.S., is dependent upon certain contingencies which are beyond our control, including the extension of pediatric orphan exclusivity in Europe for Ocaliva and marketing approval of OCA for NASH in markets outside of the United States. As a result, we may not receive certain economic benefits from the Advanz transaction.

Any of these factors could cause us to incur higher costs, disrupt the supply of our product candidates or approved products, delay the approval of our product candidates or prevent or disrupt the commercialization of our approved products.

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Risks Related to Clinical Trials

We are developing product candidates for the treatment of rare diseases or diseases for which there are no or limited therapies, such as PBC and NASH, and for some of which there is little clinical experience, and our development approach involves new endpoints and methodologies. As a result, there is a heightened risk that we will not be able to gain agreement with regulatory authorities regarding an acceptable development plan, that the outcome of our clinical trials will not be favorable or that, even if favorable, regulatory authorities may not find the results of our clinical trials to be sufficient for marketing approval.

We are focused on developing therapeutics for the treatment of rare diseases and diseases for which there are no or limited treatments. As a result, the design and conduct of our clinical trials for these indications is subject to heightened risk.

In the United States, the FDA generally requires two adequate and well-controlled pivotal clinical trials to approve a NDA. Furthermore, for full approval of a NDA, the FDA requires a demonstration of efficacy based on a clinical benefit endpoint. The FDA may grant accelerated approval based on a surrogate endpoint reasonably likely to predict clinical benefit. Even though our pivotal clinical trials for a specific indication, such as our Phase 3 REGENERATE trial of OCA in patients with liver fibrosis due to NASH and our Phase 3 REVERSE trial for NASH patients with compensated cirrhosis, may achieve their primary endpoints and are reasonably believed by us to be likely to predict clinical benefit, the FDA may not accept the results of such trials or approve our product candidate on an accelerated basis, or at all. It is also possible that the FDA may refuse to accept for filing and review any regulatory application we submit for regulatory approval in the United States. Even if our regulatory application is accepted for review, there may be delays in the FDA’s review process and the FDA may determine that such regulatory application does not contain adequate clinical or other data or support the approval of the product candidate. In such a case, the FDA may issue a CRL that may require that we conduct and/or complete additional clinical trials and preclinical studies or provide additional information or data before it will reconsider our application for approval. For example, in June 2020 we received a CRL from the FDA regarding our NDA for OCA for liver fibrosis due to NASH. The CRL indicated that, based on the data the FDA had reviewed, the FDA had determined that the predicted benefit of OCA based on a surrogate histopathologic endpoint remained uncertain and did not sufficiently outweigh the potential risks to support accelerated approval for the treatment of patients with liver fibrosis due to NASH. In addition, following the results of the New Interim Analysis we intend to re-submit our NDA for OCA for liver fibrosis due to NASH with the FDA. The requirements imposed by the FDA in connection with the resubmission of our NDA may be substantial, expensive and time-consuming, and there is no guarantee that we will continue to pursue any such application or that the FDA will ultimately decide that any such application supports the approval of the product candidate on an accelerated basis, or at all. The FDA may also refer any regulatory application to an advisory committee for review and recommendation as to whether, and under what conditions, the application should be approved. While the FDA is not bound by the recommendation of an advisory committee, it considers such recommendations carefully when making decisions.

Even if we receive accelerated approval for any of our product candidates, we may be required to conduct or complete a post-approval clinical outcomes trial to confirm the clinical benefit of such product candidates by demonstrating the correlation of the surrogate endpoint therapeutic response in patients with a significant reduction in adverse clinical outcomes over time. For example, the results of the New Interim Analysis were based on surrogate endpoints and the impact on clinical outcomes has not been confirmed. There can be no assurance that the clinical outcomes portion of our REGENERATE trial will confirm that the surrogate endpoint used as the basis of the regulatory submissions we have made or expect to make seeking approval of OCA for liver fibrosis due to NASH will eventually show an adequate correlation with clinical outcomes.

In addition, as a condition of the accelerated approval of Ocaliva for PBC in the United States, we are required to conduct a clinical outcomes study with respect to Ocaliva for PBC. Based on a review by the DMC of an unblinded pre-specified interim efficacy analysis of the COBALT trial and unblinded safety and pharmacokinetic data from both the COBALT and 401 trials, the DMC stated that it was not feasible to continue the COBALT trial as designed and noted the challenges in enrolling and maintaining placebo-controlled post-marketing studies in this rare disease setting. We notified the FDA of the DMC’s recommendation and based on discussions with the FDA, which are ongoing, we closed our COBALT and 401 trials and compiled data available from these studies. In June 2022, we announced topline results from

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our COBALT trial. The primary endpoint, as agreed with the FDA, was time to first occurrence of any of the following clinical endpoints: all-cause death, liver transplant, hospitalization for other serious liver-related events, signs of progression to hepatic decompensation, or signs of development of portal hypertension. The study did not demonstrate a statistically significant difference between Ocaliva and placebo on the primary endpoint. The safety and tolerability of Ocaliva were consistent with its known profile and adverse events were in line with expectations for patients with advanced PBC based on the natural history of the disease. In June 2022, we also announced topline results for our HEROES-US study, a retrospective real-world study that evaluated data from a U.S. claims database, to compare clinical outcomes in a pre-defined group of patients with PBC who were treated with Ocaliva and a comparable group of PBC patients who were eligible, but who were not treated with Ocaliva. The results from the HEROES-US study showed a statistically significant and clinically meaningful reduction in all-cause death, liver transplant, or hospitalization for hepatic decompensation among Ocaliva-treated patients compared to the control group. We intend to submit the data from the COBALT and HEROS-US studies as well additional data, including data from other real world evidence studies, as part of a broader evidence package in support of full approval of Ocaliva for the treatment of PBC, which we anticipate submitting to the FDA in the second half of 2022. If this data package does not support fulfillment of our post-marketing obligations, we may not be able to maintain our previously granted marketing approval of Ocaliva for PBC.

Our lead development product candidate is OCA for the potential treatment of NASH. In February 2019, we announced the results of the REGENERATE Original Analysis. The REGENERATE trial is ongoing and is expected to continue through clinical outcomes for verification and description of the clinical benefit of OCA. In June 2020, we received a CRL from the FDA stating that our NDA for OCA for the treatment of liver fibrosis due to NASH could not be approved in its present form. The CRL indicated that, based on the data the FDA had reviewed, the FDA determined that the predicted benefit of OCA based on a surrogate histopathologic endpoint remained uncertain and did not sufficiently outweigh the potential risks to support accelerated approval for the treatment of patients with liver fibrosis due to NASH. We had our end of review meeting with the FDA in October 2020 to discuss the FDA’s risk-benefit assessment in the CRL based on its review of the available data, as well as our proposed resubmission of our NDA for the treatment of liver fibrosis due to NASH. The meeting with FDA provided us with helpful guidance regarding supplemental data we can provide to further characterize OCA’s efficacy and safety profile that could support resubmission based on our Phase 3 REGENERATE 18-month biopsy data, together with a safety assessment from our ongoing studies.

Following our end of review meeting, we had a dialogue with FDA regarding the REGENERATE study to clarify data, a new consensus read methodology for liver biopsies, and analyses required to re-submit our NDA. In connection with the potential resubmission of our NDA, we conducted the New Interim Analysis. In the New Interim Analysis of the ITT population from REGENERATE, 22.4% of subjects randomized to once-daily oral OCA 25 mg met the primary endpoint of achieving at least one stage of fibrosis improvement with no worsening of NASH at month 18 on liver biopsy compared with 9.6% of subjects on placebo (p<0.0001). These results are consistent with the Original Analysis, which also showed that OCA 25 mg had a statistically significant effect on fibrosis improvement (p=0.0002). The New Interim Analysis used a consensus panel approach to histology reads, in line with recent FDA guidance, while the Original Analysis used individual central readers. A numerically greater proportion of individuals in the OCA 25 mg treatment group compared to placebo achieved the endpoint of resolution of NASH with no worsening of liver fibrosis but, consistent with the Original Analysis, the results for the endpoint of resolution of NASH were not statistically significant. As part of the New Interim Analysis, a safety evaluation was conducted in 2477 subjects from the REGENERATE trial who took at least one dose of study drug (placebo, OCA 10 mg, or OCA 25 mg). Topline results from this ongoing safety evaluation showed that treatment-emergent adverse events (TEAEs), treatment-emergent serious adverse events (TESAEs), and deaths were generally balanced across the OCA and placebo treatment groups in this new safety population. The most common TEAE was pruritus (24% in placebo, 33% in OCA 10 mg and 55% in OCA 25 mg) and pruritus was the most common cause for treatment discontinuation. Serious gallbladder-related events occurred in <3% of subjects in any treatment group and, consistent with its known mechanism of action, OCA 25 mg had higher rates of biliary events including gallstones.

While OCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis and we intend to re-submit our NDA for approval of OCA for liver fibrosis due to NASH following the results from the New Interim Analysis, we do not know if this will be sufficient for marketing approval or if the FDA will approve OCA for liver fibrosis due to NASH on an accelerated or conditional basis, or at all. There may be delays in the FDA review processes and the FDA may also require that we continue our Phase 3 REGENERATE trial

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until completion to assess the potential benefits of OCA treatment on liver-related and other clinical outcomes for purposes of marketing approval. Our regulatory pathway for OCA for the treatment of NASH will depend upon our ongoing discussions with the FDA. As a result, we may face difficulty in establishing an acceptable registration strategy with respect to our Phase 3 REGENERATE and REVERSE trials, as well as other trials we may conduct in other subpopulations of NASH patients.

Delays or difficulties in the commencement, enrollment and completion of our clinical trials and studies could increase our product development costs and delay, limit or prevent us from obtaining regulatory approval for OCA and our other product candidates.

Delays or difficulties in the commencement, enrollment and completion of our clinical trials and studies could increase our product development costs and limit or prevent us from obtaining or maintaining regulatory approval for OCA and our other product candidates. The results of our clinical trials may not be available when we anticipate and we may be required to conduct additional clinical trials or studies not currently planned in order for our product candidates, including OCA for PBC and NASH, to be approved or to maintain approvals in the U.S. In addition, our clinical programs are subject to a number of risks and uncertainties, such as the results of other trials, patient enrollment, safety issues or regulatory interactions that could result in a change of trial design or timing. Any delays or difficulties in completing one of our clinical trials could increase our product development costs and limit or prevent us from obtaining or maintaining regulatory approval. Consequently, we do not know whether our current or future clinical trials or studies of OCA or our other product candidates will be completed on schedule, if at all.

For example, our Phase 3 REGENERATE trial is a large and complicated clinical trial in a disease without any approved therapies and involves serial liver biopsies over many years. While we announced the topline results from the New Interim Analysis in July 2022, there can be no assurance the FDA will approve our NDA for OCA for NASH on an accelerated or conditional basis, or at all. As we engage in other large and complicated trials and trials in advanced disease populations, we may experience a number of challenges that may negatively affect or delay our plans and development programs.

Failure can occur at any stage of clinical development. The results of earlier clinical trials are not necessarily predictive of future results and any product candidate we or our collaborators advance through clinical trials, including OCA, may not have favorable results in later clinical trials or receive or maintain regulatory approval.

Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to demonstrate the efficacy and safety of our product candidates. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in Phase 3 clinical trials and at other stages of clinical development, even after seeing promising results in earlier clinical trials.

In addition, the design of clinical trials, including trial endpoints, protocols and statistical analysis plans, can determine whether such trials will support product approvals, and flaws in the design of such trials may not become apparent until such trials are well-advanced. We may be unable to design and execute clinical trials to support regulatory approval. Further, clinical trials of product candidates often reveal that it is not practical or feasible to continue development efforts. If OCA or our other product candidates are found to be unsafe or lack sufficient efficacy for any indication, we will not be able to obtain or maintain regulatory approval for them, and our prospects and business may be materially and adversely affected.

There may be significant variability in the safety and/or efficacy results we see in different trials studying OCA or our other product candidates due to numerous factors, including differences in the underlying disease being studied, changes or differences in trial protocols or statistical analysis plans, differences in the composition of the patient populations or clinical trial sites, differences in adherence to the dosing regimen and other aspects of the trial protocols and differences

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in the rate of dropouts among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials we or any of our collaborators may conduct on our product candidates will demonstrate consistent or adequate efficacy and safety or result in the approval of our product candidates by regulatory authorities. If we are unable to bring any of our current or future product candidates to market, acquire any previously approved products or maintain approval for our approved products, our ability to create long-term stockholder value will be limited.

In December 2014, we received comprehensive datasets from the Phase 2b FLINT trial for the treatment of NASH, which met its primary endpoint with statistical significance. In October 2015, we announced that the Phase 2 dose ranging trial of OCA in 200 adult NASH patients in Japan conducted by our former collaborator, Sumitomo Dainippon, did not meet its primary endpoint with statistical significance. In the Sumitomo Dainippon trial, there was a dose dependent, although not statistically significant, increase in the percentage of OCA-treated patients compared to placebo who achieved the primary endpoint (p = 0.053). In addition, no difference was seen in fibrosis improvement in the OCA groups compared to placebo. The Sumitomo Dainippon Phase 2 trial involved different doses of OCA being administered to the trial subjects than those utilized in the Phase 2b FLINT trial. Furthermore, the baseline characteristics between the patients in the Japanese Phase 2 dose ranging trial conducted by Sumitomo Dainippon were distinct in a number of ways from those of the Western patients included in the Phase 2b FLINT trial.

In February 2019, we announced the results from the REGENERATE Original Analysis. In the primary efficacy analysis, once-daily OCA 25 mg met, with statistical significance, the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH (defined as no worsening of hepatocellular ballooning, no worsening of lobular inflammation and no worsening of steatosis) at the planned 18-month analysis. Although a numerically greater proportion of patients in both OCA treatment groups compared to placebo achieved the primary endpoint of NASH resolution with no worsening of liver fibrosis in the primary efficacy analysis, this result did not reach statistical significance. As agreed with the FDA, in order for the primary objective to be met, the study was required to achieve one of the two primary endpoints. Notwithstanding the results of the REGENERATE 18-month analysis, the CRL indicated that, based on the data the FDA had reviewed, the FDA had determined that the predicted benefit of OCA based on a surrogate histopathologic endpoint remained uncertain and did not sufficiently outweigh the potential risks to support accelerated approval for the treatment of patients with liver fibrosis due to NASH. The FDA recommended that we submit additional post-interim analysis efficacy and safety data from the ongoing REGENERATE study in support of potential accelerated approval and that the long-term outcomes phase of the study should continue.

In connection with the potential resubmission of our NDA, we conducted a new interim analysis of our ongoing pivotal Phase 3 REGENERATE trial of OCA using a biopsy consensus read methodology in the same ITT population as the Original Analysis. In July 2022, we announced topline results from our New Interim Analysis. In this new interim analysis of the ITT population from REGENERATE, once-daily OCA 25 mg met, with statistical significance, the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH at month 18. The New Interim Analysis used a consensus panel approach to histology reads, in line with recent FDA guidance, while the Original Analysis used individual central readers. A numerically greater proportion of individuals in the OCA 25 mg treatment group compared to placebo achieved the endpoint of resolution of NASH with no worsening of liver fibrosis but, consistent with the Original Analysis, the results for the endpoint of resolution of NASH were not statistically significant. As part of the New Interim Analysis, a safety evaluation was conducted in 2477 subjects from the REGENERATE trial who took at least one dose of study drug (placebo, OCA 10 mg, or OCA 25 mg). Topline results from this ongoing safety evaluation showed that treatment-emergent adverse events (TEAEs), treatment-emergent serious adverse events (TESAEs), and deaths were generally balanced across the OCA and placebo treatment groups in this new safety population. The most common TEAE was pruritus (24% in placebo, 33% in OCA 10 mg and 55% in OCA 25 mg) and pruritus was the most common cause for treatment discontinuation. Serious gallbladder-related events occurred in <3% of subjects in any treatment group and, consistent with its known mechanism of action, OCA 25 mg had higher rates of biliary events including gallstones.

While we intend to resubmit to the FDA our NDA for approval of OCA for liver fibrosis due to NASH following the results of the New Interim Analysis, we do not know if such results will be sufficient for marketing approval or if the FDA will approve OCA for liver fibrosis due to NASH on an accelerated or conditional basis, or at all.

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Our product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require that our products be taken off the market or include new or additional safety warnings. Any such events may limit our existing and future product sales and materially and adversely affect our business, financial condition and results of operations.

OCA has been shown to be a potent FXR agonist. With the exception of the endogenous human bile acid chenodeoxycholic acid and cholic acid, there are no approved FXR agonists and the adverse effects from long-term exposure to this drug class are unknown. Unforeseen side effects from any of our product candidates, including OCA, could arise either during clinical development or, if approved, after the approved product has been marketed. Serious adverse events, including deaths, in patients taking OCA have occurred in clinical trials and in the post-marketing setting, and we cannot assure you that additional serious adverse events in patients taking OCA in clinical trials or in the post-marketing setting will not occur.

The most common side effects observed in clinical trials of OCA for PBC were pruritus, fatigue, headaches, nausea, constipation and diarrhea. In our Phase 3 POISE trial, pruritus, generally mild to moderate, was the most frequently reported adverse event associated with OCA treatment for PBC and was observed in 38% of patients on placebo, 70% of patients in the OCA 10 mg group and 56% of patients in the OCA titration group (5 mg to 10 mg). Eight patients discontinued due to pruritus, of whom none were in the placebo group, seven (10%) were in the OCA 10 mg group and one (1%) was in the OCA titration group. Pruritus also has been observed in other clinical trials of OCA. Decreases in high density lipoprotein HDL cholesterol were also observed during treatment in our Phase 3 POISE trial. In our Phase 2 trials for OCA for PBC, a dose-response relationship was observed in the occurrence of liver-related adverse reactions, including jaundice, ascites and primary biliary cholangitis flare with dosages of OCA of 10 mg once daily to 50 mg once daily (up to 5-times the highest recommended dosage), as early as one month after starting treatment with OCA.

In the course of our post-marketing pharmacovigilance activities, deaths have been reported in PBC patients with moderate or severe hepatic impairment. In an analysis performed by us and in consultation with the FDA, we concluded that certain of these patients were prescribed once daily doses of Ocaliva, which is seven times higher than the recommended weekly dose in such patients. As a result, in September 2017, we issued a Dear Health Care Provider (“DHCP”) letter, and the FDA also subsequently issued its own drug safety communication to reinforce recommended label dosing. Both communications remind healthcare providers of the importance of the recommended reduced dosing of Ocaliva in PBC patients with moderate or severe hepatic impairment, while reiterating the importance of monitoring PBC patients for progression of their disease and the occurrence of liver-related adverse reactions. In addition to the DHCP letter, we took actions to enhance education about appropriate use of Ocaliva. These initiatives included: reeducating physicians on the label, with a focus on ensuring appropriate dosing for patients with moderate or severe hepatic impairment; enhancing monitoring of patients for liver-related adverse reactions; and adjudicating reported cases of serious liver injury, including in patients with no or mild hepatic impairment. In February 2018, we announced that the Ocaliva label in the United States had been updated by the FDA to include a boxed warning and a dosing table that reinforced the then-existing dosing schedule for patients with Child-Pugh Class B or C or decompensated cirrhosis. In addition, the FDA issued an updated drug safety communication to accompany the revised label. We remain focused on the safety of all of the patients using Ocaliva within and outside of our ongoing clinical studies and have engaged with relevant regulatory authorities to ensure that the Ocaliva label sufficiently reinforces the importance of appropriate dosing in patients with advanced cirrhosis.

In 2020 the FDA notified us that, in the course of its routine safety surveillance, in May of that year it began to evaluate a newly identified safety signal, or NISS, regarding liver disorder for Ocaliva which the FDA classified as a potential risk, focused on a subset of the cirrhotic, or more advanced, PBC patients who had taken Ocaliva. In May 2021, the NISS process was concluded and we aligned with the FDA on updated Ocaliva prescribing information in the United States, and Ocaliva is now contraindicated for patients with PBC and decompensated cirrhosis, a prior decompensation event, or compensated cirrhosis with evidence of portal hypertension, in addition to the existing contraindication for complete biliary obstruction. This issue, and any other safety concerns associated with Ocaliva, perceived or real, may adversely affect the successful development and commercialization of our product candidates and approved products, including Ocaliva, and materially and adversely affect our business including future revenue generated by Ocaliva.

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In June 2022, we announced the results of our COBALT study. The safety and tolerability of Ocaliva were consistent with its known profile and adverse events were in line with expectations for patients with advanced PBC based on the natural history of the disease.

In July 2022, we announced topline safety results from the New Interim Analysis of our REGENERATE study. Compared to the Original Analysis, the safety population in the New Interim Analysis had significantly longer exposure to study drug (median 42 months vs. 15 months), yielding more than 8,000 total patient-years and 3.4 times more exposure. As part of the New Interim Analysis, a safety evaluation was conducted in 2477 subjects from the REGENERATE trial who took at least one dose of study drug (placebo, OCA 10 mg, or OCA 25 mg). Topline results from this ongoing safety evaluation showed that treatment-emergent adverse events (TEAEs), treatment-emergent serious adverse events (TESAEs), and deaths were generally balanced across the OCA and placebo treatment groups in this new safety population. The most common TEAE was pruritus (24% in placebo, 33% in OCA 10 mg and 55% in OCA 25 mg) and pruritus was the most common cause for treatment discontinuation. Serious gallbladder-related events occurred in <3% of subjects in any treatment group and, consistent with its known mechanism of action, OCA 25 mg had higher rates of biliary events including gallstones. As part of the safety review of the New Interim Analysis, independent groups of experts reviewed certain categories of safety events to provide a blinded adjudication as specifically requested by the FDA. These included events pertaining to hepatic safety (excluding clinical outcomes), cardiovascular and renal. Topline analysis through four years of treatment showed a numerically higher number of adjudicated hepatic safety events for OCA 25 mg, the majority of which were mild in severity. For adjudicated core major adverse cardiovascular events and adjudicated acute kidney injury events, frequency of events was low and balanced across treatment groups. Consistent with its mechanism of action as an FXR agonist, OCA treatment was associated with an increase in LDL at Month 1 which returned to near baseline values by Month 12.

In the Phase 2b FLINT trial, pruritus occurred more frequently in the OCA treatment group than in the placebo treatment group (23% vs. 6%, p < 0.0001) and at a higher grade (predominately moderate pruritus). OCA treatment was also associated with changes in serum lipid levels, including increases in total cholesterol and LDL cholesterol and a decrease in HDL cholesterol, that were observed within 12 weeks of initiating treatment, peaked and then decreased in magnitude while on treatment, and reversed further during the 24-week post-treatment period. These changes in cholesterol levels, along with the achievement of pre-defined efficacy criteria, played a role in the decision of the FLINT data and safety monitoring board to terminate the treatment phase of the Phase 2b FLINT trial, and the publication of the FLINT results noted the need for further study of these changes. There were two patient deaths in the Phase 2b FLINT trial, and neither death was considered related to OCA treatment.

In December 2015, we initiated a Phase 2 clinical trial, known as the CONTROL trial, to characterize the lipid metabolic effects of OCA and cholesterol management effects of concomitant statin administration in NASH patients. CONTROL enrolled 80 NASH patients who were naïve to statin therapy or had undergone a statin washout period. The study included a 16-week double-blind phase followed by an optional long-term safety extension (“LTSE”) phase of the trial. OCA treatment in the absence of statin therapy over the first four weeks resulted in an increase in LDL across all OCA treatment groups, while the placebo group was relatively unchanged. Treatment with atorvastatin beginning at week four and continuing through week 16 reversed OCA-related increases in LDL to below baseline levels in all OCA treatment groups. Dose-dependent pruritus was the most common adverse event in patients treated with OCA, occurring in 5% of patients on placebo, 5% of patients in the OCA 5 mg group, 10% of patients in the OCA 10 mg group and 55% of patients in the OCA 25 mg group. All adverse events were mild to moderate and two patients discontinued treatment in the OCA 25 mg group due to pruritus. Over 95% of the patients completing the double-blind phase of CONTROL enrolled in the LTSE phase of the trial.

During the LTSE phase of CONTROL, there was one patient death. This patient was a 64 year-old male with a history of NASH associated liver cirrhosis, morbid obesity (BMI >40) and type 2 diabetes. At baseline, this patient had blood tests consistent with impaired liver function (e.g., low LDL and low platelets). The patient was randomized to placebo for the double-blind phase of the study. Early in the double-blind phase, the patient had serum biochemistry changes consistent with worsening hepatic impairment (e.g., albumin decline and bilirubin was increasing). Atorvastatin was started per protocol and then stopped early due to the patient’s persistently low LDL levels. The patient later enrolled in the LTSE phase and began receiving OCA 25 mg treatment. Over the following four months, the patient’s serum biochemistry remained consistent with ongoing hepatic impairment. Approximately five months after starting the LTSE phase, the

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patient developed severe protracted diarrhea, which resulted in weight loss of 30 pounds over the ensuing one-month period. Both an infectious cause and possible inflammatory bowel disease were suspected, and the patient subsequently was started on broad spectrum antibiotics and steroid therapy. Due to the diarrhea, the principal investigator stopped treatment with OCA and discontinued the patient from the study. Concurrently, the patient reported jaundice and was found to have significantly elevated serum bilirubin and ALP, while other liver enzymes remained relatively stable. Over the ensuing two-week period, various diagnostic tests and procedures were performed (e.g., magnetic resonance cholangiopancreatography to investigate possible gallstone bile duct obstruction) and the patient continued receiving a number of other medications, including the ongoing course of steroid therapy. During this time, the patient continued to deteriorate and was hospitalized with acute renal and liver failure, complicated by severe metabolic acidosis. The patient rapidly progressed to multi-organ system failure, sepsis and death. The principal investigator determined that the events leading to the patient’s death were unlikely related to OCA. Despite the numerous confounding factors in this case, given the contemporaneous administration of OCA during the patient’s ongoing deterioration, we determined that it could not be ruled out that these events were possibly related to treatment. Subsequent to our determination, the independent data safety monitoring committee separately evaluated the case and determined that the events leading to the patient’s death were unlikely related to OCA.

Additional or unforeseen side effects relating to OCA or any of our other product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. With the approval of Ocaliva for PBC in the United States, OCA is currently used in an environment that is less rigorously controlled than in clinical studies. If new side effects are found, if known side effects are shown to be more severe than previously observed or if OCA is shown to have other unexpected characteristics, we may need to abandon our development of OCA for PBC, NASH and other potential indications. Furthermore, our commercial sales of Ocaliva for PBC may be materially and adversely affected.

The range and potential severity of possible side effects from systemic therapies is significant. The results of our current or future clinical trials may show that our product candidates, including OCA, cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, result in a delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings or result in the withdrawal of previously granted marketing approvals.

In addition, our product candidates are being developed as potential treatments for severe, life-threatening diseases and, as a result, our trials will necessarily be conducted in patient populations that are more prone than the general population to exhibit certain disease states or adverse events. For example, our Phase 3 REVERSE trial in NASH patients with compensated cirrhosis has expanded our NASH development program into a more advanced NASH patient population and accordingly imposes certain eligibility requirements for titration, as well as certain monitoring requirements thereafter. Ocaliva is prescribed in patients suffering from various stages of PBC, which can be life threatening, and patients may suffer from other concomitant illnesses that may increase the likelihood of certain adverse events. It may be difficult to discern whether certain events or symptoms observed during our clinical trials or by patients using our approved products are related to our product candidates or approved products or some other factor. As a result, we and our development programs may be negatively affected even if such events or symptoms are ultimately determined to be unlikely related to our product candidates or approved products. We cannot assure you that additional or more severe adverse side effects related to OCA or our other product candidates will not be observed in our clinical trials or in the commercial setting. If observed, such adverse side effects could delay or preclude regulatory approval of OCA, limit commercial use or result in the withdrawal of previously granted marketing approvals.

We may not be able to obtain or, if approved, maintain orphan drug exclusivity for our approved products or product candidates, which could cause our revenues to suffer.

Regulatory authorities in the United States may designate drugs and biologics for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug or biologic intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States. OCA has received orphan drug designation in the United States for the treatment of PBC and PSC.

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Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same product during the exclusivity period. The applicable exclusivity period is seven years in the United States. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure a sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. Even after an orphan drug is approved, the FDA may subsequently approve another product for the same condition if the FDA concludes that the later product is clinically superior (i.e., it is shown to be safer, more effective or makes a major contribution to patient care). Any inability to secure or maintain orphan drug status or the exclusivity benefits of this status could have a material adverse impact on our ability to develop and commercialize our product candidates and approved products.

Risks Related to Our Financial Position and Need for Additional Capital

We are currently dependent on the successful commercialization of Ocaliva for PBC. To the extent Ocaliva is not commercially successful, our business, financial condition and results of operations may be materially and adversely affected and the price of our common stock may decline.

Our ability to generate profits from operations and become profitable currently depends on the commercial success of Ocaliva for PBC. However, the successful commercialization of Ocaliva for PBC is subject to many risks. We have not launched or commercialized a drug before Ocaliva, and there is no guarantee that we will be able to do so successfully. There are numerous examples of unsuccessful product launches and commercial efforts, as well as failures to meet expectations of market potential, including by pharmaceutical companies with greater experience and resources than us.

The commercial success of Ocaliva for PBC depends on the extent to which patients, physicians and payers accept and adopt Ocaliva as a treatment for PBC, and we do not know whether our or others’ estimates in this regard will be accurate. As such, there is significant uncertainty in the degree of market acceptance that Ocaliva will have for PBC. For example, if the patient population suffering from PBC is smaller than we estimate, or even if the patient population matches our estimates but Ocaliva is not widely accepted as a treatment for PBC, the commercial potential of Ocaliva for PBC will be limited. Physicians may not prescribe Ocaliva and patients may be unwilling to use Ocaliva if coverage is not provided or reimbursement is inadequate to cover a significant portion of the cost. Additionally, the use of Ocaliva in a non-trial setting may result in the occurrence of unexpected or a greater incidence of side effects, adverse reactions or misuse that may negatively affect the commercial prospects of Ocaliva for PBC.

Furthermore, any negative development in any other development program for OCA or our failure to satisfy the post-marketing regulatory commitments and requirements to which we are or may become subject including any other study to assess the clinical benefit of Ocaliva in PBC may materially and adversely impact the commercial results and potential of Ocaliva for PBC. For example, based on a review by the DMC of an unblinded pre-specified interim efficacy analysis of the COBALT trial and unblinded safety and pharmacokinetic data from both the COBALT and 401 trials, the DMC stated that it was not feasible to continue the COBALT trial as designed and noted the challenges in enrolling and maintaining placebo-controlled post-marketing studies in this rare disease setting. We notified the FDA of the DMC’s recommendation and based on discussions with the FDA, which are ongoing, we closed our COBALT and 401 trials and compiled data available from these studies. In June 2022, we announced topline results from our COBALT trial, which did not demonstrate a statistically significant difference between Ocaliva and placebo on the primary endpoint. While we intend to submit the data from the COBALT study as well additional data, including data from other real world evidence studies, as part of a broader evidence package in support of full approval of Ocaliva for the treatment of PBC, if this data package

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does not support fulfillment of our post-marketing obligations, we may not be able to maintain our previously granted marketing approval of Ocaliva for PBC.

In May 2021, we updated the Ocaliva prescribing information in the United States and Ocaliva is now contraindicated for patients with PBC and decompensated cirrhosis, a prior decompensation event, or compensated cirrhosis with evidence of portal hypertension, in addition to the existing contraindication for complete biliary obstruction. Corresponding limitations on the use of Ocaliva in our potential patient population, or similar safety concerns, could reduce our sales.

As a result, it is uncertain whether Ocaliva net sales for PBC will sustain our operations and it may take a significant amount of time before Ocaliva net sales for PBC sustain our operations. If the commercialization of Ocaliva for PBC is unsuccessful or perceived to be unsuccessful, the long-term prospects of Ocaliva for PBC, as well as the long-term prospects of our company, may be materially and adversely affected.

If OCA or any of our other product candidates fails in clinical trials or does not gain or maintain regulatory approval, or if OCA or any of our other product candidates does not achieve market acceptance, we may never become profitable. Our net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, we are unable to predict with certainty the timing or amount of our expenses, whether such expenses may increase, or when, or if, we will be able to achieve profitability. The amount of our future net losses will depend, in part, on our future expenses, whether and by how much such expenses increase and our ability to generate revenues.

Risks Related to the Development and the Regulatory Review and

Approval of Our Products and Product Candidates

We cannot be certain whether Ocaliva will receive full approval for PBC in the United States. Furthermore, OCA may not be approved on an accelerated basis, or at all, for NASH or any other indication beyond PBC and we may not receive regulatory approval for any other product candidate. Without regulatory approval, we will not be able to market and commercialize our product candidates.

The development, testing, manufacture, packaging, labeling, storage, approval, promotion, advertising, distribution, marketing and export and import, among other things, of our products and product candidates are subject to extensive regulation by the FDA in the United States. We are not permitted to market our product candidates in the United States until we receive approval of a NDA from the FDA. Currently, our ability to generate product sales depends on the successful marketing of Ocaliva for PBC. In the future, our ability to generate product sales in addition to those of Ocaliva for PBC will depend on whether we are successful in obtaining regulatory approval of our other product candidates, including OCA for liver fibrosis due to NASH.

Ocaliva is our only drug that has been approved for sale and it has only been approved for the treatment of PBC in combination with UDCA in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA. In the United States, Ocaliva was approved for PBC under the accelerated approval pathway. Accelerated approval was granted for Ocaliva for PBC based on a reduction in ALP; however, an improvement in survival or disease-related symptoms has not yet been established. Continued approval of Ocaliva for PBC in the United States is contingent upon the verification and description of clinical benefit in confirmatory trials and our satisfaction of our other post-marketing regulatory requirements. Any failure by us to confirm the clinical benefit of Ocaliva for PBC due to COVID-19 or other factors may jeopardize the continued approval of Ocaliva for PBC.

In addition, we continue to work to execute on our post-marketing regulatory commitments with respect to Ocaliva. Based on a review by the DMC of an unblinded pre-specified interim efficacy analysis of the COBALT trial and unblinded safety and pharmacokinetic data from both the COBALT and 401 trials, the DMC stated that it was not feasible to continue the COBALT trial as designed and noted the challenges in enrolling and maintaining placebo-controlled post-marketing studies in this rare disease setting. We notified the FDA of the DMC’s recommendation and based on discussions with the FDA, which are ongoing, we closed our COBALT and 401 trials and compiled data available from these studies. In June 2022, we announced topline results from our COBALT trial. The primary endpoint, as agreed with the FDA, was time to

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first occurrence of any of the following clinical endpoints: all-cause death, liver transplant, hospitalization for other serious liver-related events, signs of progression to hepatic decompensation, or signs of development of portal hypertension. The study did not demonstrate a statistically significant difference between Ocaliva and placebo on the primary endpoint: 71 subjects in the Ocaliva arm progressed to clinical events compared to 80 in the placebo arm (p=0.30; HR 0.84). The safety and tolerability of Ocaliva were consistent with its known profile and adverse events were in line with expectations for patients with advanced PBC based on the natural history of the disease. In June 2022, we also announced topline results for our HEROES-US study, a retrospective real-world study that evaluated data from a U.S. claims database, to compare clinical outcomes in a pre-defined group of patients with PBC who were treated with Ocaliva and a comparable group of PBC patients who were eligible, but who were not treated with Ocaliva. The results from the HEROES-US study showed a statistically significant and clinically meaningful reduction in all-cause death, liver transplant, or hospitalization for hepatic decompensation among Ocaliva-treated patients compared to the control group. In the Ocaliva arm (n=429), 8 events were observed compared to 226 in the control group (n=4,585) with a weighted hazard ratio of 0.38 (p= 0.027). HEROES-US is one of two HEROES studies we are conducting that utilizes real-world data to assess the impact of Ocaliva on clinical outcomes in PBC patients.

Ocaliva is not approved for any indication other than PBC. We currently have no other products approved for sale and we cannot guarantee that we will ever have additional marketable products or that OCA will be approved for use in additional indications such as NASH. NDAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. NDAs must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of a NDA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA review processes can take years to complete and approval is not guaranteed. Even after the submission of a NDA, the FDA may decide not to accept the submission for filing and review or may determine that the submission does not support approval. For example, in 2020 we received a CRL from the FDA with respect our NDA for OCA for liver fibrosis due to NASH. The CRL indicated that, based on the data the FDA had reviewed, the FDA determined that the predicted benefit of OCA based on a surrogate histopathologic endpoint remained uncertain and did not sufficiently outweigh the potential risks to support accelerated approval for the treatment of patients with liver fibrosis due to NASH. In July 2022, we announced topline results from the New Interim Analysis and intend to re-submit our NDA for liver fibrosis due to NASH. There can be no assurances that the FDA will approve such NDA on an accelerated or conditional basis, or at all.

In order to obtain and/or maintain regulatory approval for OCA for indications other than PBC, we will need to complete additional clinical trials and studies. For example, we intend to re-resubmit our NDA for OCA for patients with liver fibrosis following the results of the New Interim Analysis, but we can provide no assurances that the FDA will grant approval. Our ability to obtain and maintain the regulatory approvals necessary to commercialize OCA for indications other than PBC, including NASH, will depend on our ability to successfully design, conduct and complete these trials, the efficacy, safety and risk-benefit profile of OCA demonstrated by such trials and our ability to prepare and submit complex regulatory filings in accordance with applicable regulatory requirements.

There can be no assurance that Ocaliva will receive full approval from the FDA or that OCA will receive marketing approval on an accelerated or conditional basis, or at all for NASH, or that any of our other product candidates will receive marketing approval for any indication in any jurisdiction. We cannot predict whether our clinical trials and studies for our product candidates, including OCA for NASH or any other indication, will be successful, whether regulatory authorities will agree with our conclusions relating to the clinical trials and studies we conduct, or whether such regulatory authorities will require us to conduct additional clinical trials or studies.

For example, while OCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis and we intend to resubmit our NDA for OCA for liver fibrosis due to NASH following

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the results of the New Interim Analysis, we do not know if the FDA will approve OCA for liver fibrosis due to NASH on an accelerated or conditional basis, or at all.

If we are unable to obtain or maintain regulatory approval for OCA for PBC or for other indications, we may not be able to generate sufficient revenue to maintain profitability or to continue our operations.

Risks Related to the Commercialization of Our Products

If we fail to develop OCA for additional indications such as NASH, our commercial opportunity will be limited.

To date, we have focused the majority of our development efforts on the development of OCA. One of our strategies is to pursue clinical development of OCA for liver fibrosis due to NASH and other progressive non-viral liver diseases, to the extent that we have sufficient funding to do so.

PBC is an orphan disease and the potential market size for Ocaliva for PBC is relatively limited. Furthermore, because a significant proportion of PBC patients do not exhibit any symptoms at the time of diagnosis, PBC may be left undiagnosed for a significant period of time. Due to these factors, our ability to grow revenues will be dependent on our ability to increase market share and successfully develop and commercialize OCA for the treatment of additional indications. In particular, we believe that our future success will depend in large part on the results of our development of OCA for the treatment of NASH. Although NASH is believed to be one of the most prevalent chronic liver diseases worldwide, NASH may be left undiagnosed in patients for a long period of time and a definitive diagnosis of NASH is often based on a histological assessment of a liver biopsy, which impacts the ability to easily identify patients. Furthermore, even if we are successful in developing and obtaining marketing approval of OCA for the treatment of NASH, we may not be commercially successful.

The completion of development, securing of approval and commercialization of OCA for additional indications such as liver fibrosis due to NASH will require substantial additional funding, is subject to numerous risks and we may not be successful. We cannot provide you any assurance that we will be able to successfully advance any of these indications through the development process. Even if we receive regulatory approval to market OCA for the treatment of liver fibrosis due to NASH or any other additional indications, we cannot assure you that any such additional indications will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize OCA for liver fibrosis due to NASH or other additional indications, our commercial opportunity will be limited and our business prospects will suffer.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

Not applicable.

Issuer Purchases of Equity Securities

We did not purchase any of our registered equity securities during the three months ended June 30, 2022.

Item 6. Exhibits.

The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth in the Exhibit Index below, which is incorporated herein by reference.

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Exhibit Index


Exhibit Number		Description of Exhibit

10.1++		Share Purchase Agreement, dated May 5, 2022, between Intercept Pharmaceuticals, Inc. (“ICPT Inc.”) as seller and Mercury Pharma Group Limited (“Mercury Pharma”) as purchaser

10.2++		Sublicense Agreement, dated May 5, 2022, among Intercept Pharma Europe Ltd. (“IPEL”), Mercury Pharma, and ICPT Inc.

10.3++		Agreement for the Supply of Manufactured Products, dated May 5, 2022, between IPEL and Amdipharm Limited (“Amdipharm”)

10.4++		Business Transfer Agreement, dated May 5, 2022, between IPEL and Advanz Pharma Services (UK) Limited (“Advanz Services”)

10.5		Safety Data Exchange Agreement, dated May 5, 2022, between ICPT Inc. and Mercury Pharma

10.6++		Transitional Services Agreement, dated May 5, 2022, between ICPT Inc. and Advanz Services

10.7++		Master Trademark Assignment Agreement, dated May 5, 2022, by and among ICPT Inc., RXF Technologies, Inc. and Mercury Pharma

10.8++		Amendment to Transitional Services Agreement, dated July 26, 2022, between ICPT Inc. and Advanz Services

10.9		Amendment to Safety Data Exchange Agreement, dated July 1, 2022, between ICPT Inc. and Mercury Pharma

10.10		Amendment to Share Purchase Agreement, dated July 1, 2022, between ICPT Inc. and Mercury Pharma

10.11#		Intercept Pharmaceuticals, Inc. Amended and Restated Equity Incentive Plan

10.12#		Form of Stock Option Grant Notice and Agreement for Employees and Consultants

10.13#		Form of Stock Option Grant Notice and Agreement for Directors

10.14#		Form of Restricted Stock Unit Award Grant Notice and Agreement for Employees and Consultants

10.15#		Form of Restricted Stock Unit Award Grant Notice and Agreement for Directors

10.16#		Form of Performance Stock Unit Grant Notice and Agreement

10.17#		Employment Agreement, effective April 21, 2022, between ICPT Inc. and Rocco Venezia (previously filed, and incorporated by reference from Exhibit 10.4 to Form 10-Q filed on May 6, 2022, File No. 001-35668)

31.1		Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).

31.2		Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).

32.1(1)		Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).


101		The following materials from the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2022, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated

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Balance Sheets at June 30, 2022 and December 31, 2021 (unaudited), (ii) Condensed Consolidated Statements of Operations for the three and six-month periods ended June 30, 2022 and 2021 (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and six-month periods ended June 30, 2022 and 2021 (unaudited), (iv) Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and six-month periods ended June 30, 2022 and 2021 (unaudited), (v) Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2022 and 2021 (unaudited) and (vi) Notes to Condensed Consolidated Financial Statements (unaudited).

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

# Indicates a management contract or compensatory plan or arrangement.

++ Portions of the exhibit have been omitted pursuant to Regulation S-K, Item 601(b)(10)(iv).

(1) The certifications attached hereto as Exhibit 32.1 are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

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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.


	INTERCEPT PHARMACEUTICALS, INC.

Date: August 3, 2022	By:	/s/ Jerome Durso
		Jerome Durso
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 3, 2022	By:	/s/ Andrew Saik
		Andrew Saik
		Chief Financial Officer
		(Principal Financial Officer)