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 x⌧ No ¨◻

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x⌧ 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”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 x⌧

AsThe number of shares of the registrant’s common stock outstanding as of September 30, ~~2017, there were 25,102,079 shares~~2019 was 32,733,447.

Table of ~~common stock, $0.001 par value per share, outstanding.~~

Contents

Intercept Pharmaceuticals, Inc.

INDEX

	PART I FINANCIAL INFORMATION

Item 1.		Financial Statements
~~Item 1.~~	~~Financial Statements~~	5

	Condensed Consolidated Balance Sheets at September 30, ~~2017~~2019 (Unaudited) and December 31, ~~2016~~2018 (Audited)	5	6

		Condensed Consolidated Statements of Operations for the three and ~~nine month~~nine-month periods ended September 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)	6	7

		Condensed Consolidated Statements of Comprehensive Loss for the three and ~~nine month~~nine-month periods ended September 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)	7	8

		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine-month periods ended September 30, 2019 and 2018 (Unaudited)		9

		Condensed Consolidated Statements of Cash Flows for the ~~nine month~~nine-month periods ended September 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)	8	11

		Notes to Condensed Consolidated Financial Statements (Unaudited)	9	12

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	19	28

Item 3.		Quantitative and Qualitative ~~Disclosure~~Disclosures About Market Risk	27	37

Item 4.		Controls and Procedures	27	37

					PART II ~~OTHER INFORMATION~~
						OTHER INFORMATION
~~Item 1.~~	~~Legal Proceedings~~	27
Item 1.		Legal Proceedings		38
~~Item 1A.~~	~~Risk Factors~~	28
Item 1A.		Risk Factors		38

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	60	86

Item 3.5.	~~Defaults Upon Senior Securities~~	60Other Information		87

Item 4.6.	~~Mine Safety Disclosures~~	60Exhibits		87

~~Item 5.~~Exhibit Index			~~Other Information~~	60 87

~~Item 6.~~Signatures			~~Exhibits~~	60

~~Signatures~~		61

~~Exhibit Index~~		62 89

Unless the context otherwise ~~indicates,~~requires, references in this Quarterly Report on Form 10-Q to “we,” “our,” “us” and ~~“the Company”~~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, ~~that involve substantial risks~~including, but not limited to, statements regarding the progress, timing and ~~uncertainties. All statements~~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 development candidates, including OCA for NASH, the timing and acceptance of our potential regulatory filings and potential approval of OCA for NASH or any other ~~than statements~~indications in addition to PBC, the timing and potential commercial success of ~~historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding~~OCA and any other product candidates we may develop and our strategy, future operations, future financial position, future revenue, projected costs, financial guidance, prospects, plans, objectives of management and expected market ~~growth, are forward-looking statements.~~ growth.

These statements ~~involve known~~constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied bySection 21E of the ~~forward-looking statements.~~

Securities Exchange Act of 1934, as amended. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” ~~“continue,~~“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 ~~include, among other things, statements about:~~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 potential benefit and commercial potential of~~our ability to successfully commercialize Ocaliva^® ~~(obeticholic acid, or OCA) in primary biliary cholangitis, or PBC, and~~ for PBC;

●

our ability to maintain our regulatory approval of Ocaliva infor PBC in the United States, Europe, Canada, Israel, Australia and other jurisdictions in which we have or may receive marketing authorization;

·●

the initiation, timing, cost, ~~timing,~~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 in the jurisdictions in which we intend to seek approval or completing and timely reporting the results of our NASH or PBC clinical trials;

·●

~~the timing of and~~ our ability to timely and cost-effectively file for and obtain regulatory approval of ~~OCA in indications other than PBC and regulatory approval of any other~~our product candidates, ~~which we may develop;~~including OCA for NASH, in the United States, Europe and our other target markets;

·●

conditions that may be imposed by regulatory authorities on our marketing approvals for our products and product candidates, such as the need for clinical outcomes data (and not just results based on achievement of a surrogate endpoint), 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 NASH or our ~~plans~~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;

●

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 NASH, and our clinical trial activities;

●

our ability to identify, develop and successfully commercialize our products and product ~~candidates;~~candidates, including our ability to timely and successfully launch OCA for NASH, if approved;

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·●

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

·●

~~our ability to successfully commercialize our products and product candidates;~~

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

·●

the ~~rate and~~ degree of market acceptance of ~~any products, which may be affected by the reimbursement received from~~Ocaliva for PBC and, if approved, OCA for NASH or our other product candidates among physicians, patients and healthcare payors;

·●

the ~~success~~availability of ~~competing drugs that are or become available;~~adequate coverage and reimbursement from governmental and private healthcare payors for our products, including Ocaliva for PBC and, if approved, OCA for NASH, and our ability to obtain adequate pricing for such products;

·●

~~regulatory developments in the United States~~our ability to establish and ~~other countries;~~maintain effective sales, marketing and distribution capabilities, either directly or through collaborations with third parties;

·●

~~the performance of our third-party suppliers and manufacturers;~~competition from existing drugs or new drugs that become available;

·●

our ability to prevent system failures, data breaches or violations of data protection laws;

●

costs and outcomes relating to any disputes, governmental inquiries or investigations, 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 ~~attract~~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 and short-term investments; ~~and~~

·●

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

●

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

●

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

●

our ability to obtain and maintain adequate insurance coverage;

●

the impact of general U.S. and foreign economic, industry, market, regulatory or ~~management personnel.~~political conditions, including the potential impact of Brexit; 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, including our Annual Report on Form 10-K for the year ended December 31, 2018.

These forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, so you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. We have included important factors in the cautionary statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2017, particularly in Item 1.A. Risk Factors, and in our subsequent periodic and current reports filed with the Securities and Exchange Commission, including those filed in this Quarterly Report on Form 10-Q. Those risk factors, together with any updates to those risk factors contained in our subsequent periodic and current reports filed with the Securities and Exchange Commission, could cause actual future results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impactTable of ~~any future acquisitions, mergers, dispositions, joint ventures or investments we may make.~~Contents

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to the Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

~~NON-GAAP FINANCIAL MEASURES~~

This Quarterly Report on Form 10-Q presents projected adjusted operating expense, which is a financial measure not calculated in accordance with U.S. generally accepted accounting principles, or GAAP, and should be considered in addition to, but not as a substitute for, operating expense that we prepare and announce in accordance with GAAP. We exclude certain items from adjusted operating expense, such as stock-based compensation and other non-cash items, that management does not believe affect our basic operations and that do not meet the GAAP definition of unusual or non-recurring items.~~For the nine months ended September 30, 2016, adjusted operating expense also excludes a one-time $45 million net expense for the settlement of a purported class action lawsuit.~~ Other than the net class action lawsuit settlement amount, which is a one-time expense, we anticipate that stock-based compensation expense will represent the most significant non-cash item that is excluded in adjusted operating expenses as compared to operating expenses under GAAP. A reconciliation of projected non-GAAP adjusted operating expense to operating expense calculated in accordance with GAAP is not available on a forward-looking basis without unreasonable effort due to an inability to make accurate projections and estimates related to certain information needed to calculate, for example, future stock-based compensation expense. Management also uses adjusted operating expense to establish budgets and operational goals and to manage our company’s business. Other companies may define this measure in different ways. We believe this presentation provides investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to projected information.

NOTE REGARDING TRADEMARKS

The Intercept ~~Pharmaceuticals®~~Pharmaceuticals^® name and logo and the ~~Ocaliva®~~Ocaliva^® name and logo are either registered or unregistered trademarks or trade names of ~~Intercept Pharmaceuticals, Inc.~~the Company in the United States and/or other countries. All other trademarks, trade names and service marks ~~or other tradenames~~ 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 ^TM 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~~Financial Statements.

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)


	September 30,		December 31,
	2019		2018
	(Unaudited)		(Audited)
Assets
Current assets:
Cash and cash equivalents	$	63,377	$	43,248
Investment debt securities, available-for-sale		648,994		392,912
Accounts receivable, net		32,822		25,694
Prepaid expenses and other current assets		23,891		20,571
Total current assets		769,084		482,425
Fixed assets, net		5,973		10,411
Inventory, net		9,348		7,108
Security deposits		8,205		9,223
Other assets		9,484		—
Total assets	$	802,094	$	509,167
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities	$	133,295	$	105,109
Short-term interest payable		5,463		7,475
Short-term portion of deferred revenue		1,216		1,621
Total current liabilities		139,974		114,205
Long-term liabilities:
Long-term debt		525,339		371,250
Long-term other liabilities		6,046		3,771
Long-term portion of deferred revenue		—		811
Total liabilities	$	671,359	$	490,037
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock par value $0.001 per share; 45,000,000 shares authorized; 32,733,447 and 29,693,876 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		33		30
Additional paid-in capital		2,157,080		1,800,144
Accumulated other comprehensive loss, net		(1,070)		(2,259)
Accumulated deficit		(2,025,308)		(1,778,785)
Total stockholders’ equity		130,735		19,130
Total liabilities and stockholders’ equity	$	802,094	$	509,167

September 30, December 31,
2017 2016
(Unaudited) (Audited)

Assets
Current assets:
Cash and cash equivalents $ 120,244 $ 43,675
Investment securities, available-for-sale 372,506 645,710
Accounts receivable, net 14,487 9,126
Prepaid expenses and other current assets 14,278 9,354
Total current assets 521,515 707,865
Fixed assets, net 18,141 11,295
Inventory, net 3,897 2,279
Security deposits 16,873 17,814
Total assets $ 560,426 $ 739,253
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities $ 82,070 $ 65,551
Short-term interest payable 3,737 7,267
Short-term portion of deferred revenue 1,782 5,694
Total current liabilities 87,589 78,512
Long-term liabilities:
Long-term debt 351,984 341,356
Long-term other liabilities 6,068 -
Long-term portion of deferred revenue 3,118 4,453
Total liabilities 448,759 424,321
Stockholders’ equity:
Preferred stock par value $0.001 per share; 5,000,000 shares authorized; none outstanding as of September 30, 2017 and December 31, 2016, respectively - -
Common stock par value $0.001 per share; 45,000,000 shares authorized; 25,102,079 and 24,819,918 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively 25 25
Additional paid-in capital 1,470,545 1,426,168
Accumulated other comprehensive loss, net (632 ) (2,801 )
Accumulated deficit (1,358,271 ) (1,108,460 )
Total stockholders’ equity 111,667 314,932
Total liabilities and stockholders’ equity $ 560,426 $ 739,253

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 amounts)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018

Revenue:
Product revenue, net	$	61,545	$	46,581	$	179,286	$	124,908
Licensing revenue		405		405		1,216		1,616
Total revenue		61,950		46,986		180,502		126,524
Operating expenses:
Cost of sales		487		519		1,738		1,512
Selling, general and administrative		76,828		56,812		223,738		184,503
Research and development		60,168		47,941		178,163		144,028
Total operating expenses		137,483		105,272		403,639		330,043
Operating loss		(75,533)		(58,286)		(223,137)		(203,519)
Other income (expense):
Interest expense		(11,795)		(7,671)		(29,518)		(22,769)
Other income, net		2,495		1,503		6,132		5,051
		(9,300)		(6,168)		(23,386)		(17,718)
Net loss	$	(84,833)	$	(64,454)	$	(246,523)	$	(221,237)
Net loss per common and potential common share:
Basic and diluted	$	(2.59)	$	(2.18)	$	(7.88)	$	(7.89)
Weighted average common and potential common shares outstanding:
Basic and diluted		32,717		29,615		31,275		28,057

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Revenue:
Product revenue, net $ 40,889 $ 4,732 $ 91,933 $ 4,807
Licensing revenue 445 445 1,336 6,336
Total revenue 41,334 5,177 93,269 11,143

Operating expenses:
Cost of sales 172 - 548 -
Selling, general and administrative 61,356 52,802 189,363 197,382
Research and development 45,977 35,411 134,001 102,292
Total operating expenses 107,505 88,213 323,912 299,674
Operating loss (66,171 ) (83,036 ) (230,643 ) (288,531 )

Other income (expense):
Interest expense (7,354 ) (7,065 ) (21,840 ) (7,065 )
Other income, net 924 1,286 3,388 2,807
(6,430 ) (5,779 ) (18,452 ) (4,258 )
Net loss $ (72,601 ) $ (88,815 ) $ (249,095 ) $ (292,789 )

Net loss per common and potential common share:
Basic and diluted $ (2.89 ) $ (3.59 ) $ (9.96 ) $ (11.90 )

Weighted average common and potential common shares outstanding:
Basic and diluted 25,104 24,738 25,021 24,614

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				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018

Net loss	$	(84,833)	$	(64,454)	$	(246,523)	$	(221,237)
Other comprehensive (loss) income:
Net changes related to available-for-sale investment debt securities:
Unrealized gains on investment debt securities		451		368		1,646		119
Reclassification adjustment for realized gains on investment debt securities included in other income, net		2		—		6		—
Net unrealized gains on investment debt securities	$	453	$	368	$	1,652	$	119
Foreign currency translation gains (losses)		(687)		63		(463)		(979)
Other comprehensive (loss) income	$	(234)	$	431	$	1,189	$	(860)
Comprehensive loss	$	(85,067)	$	(64,023)	$	(245,334)	$	(222,097)

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

Net loss $ (72,601 ) $ (88,815 ) $ (249,095 ) $ (292,789 )
Other comprehensive loss:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period 409 (1,073 ) 1,114 966
Reclassification for recognized losses on marketable investment securities during the period - - - (52 )
Net unrealized gains (losses) on marketable investment securities $ 409 $ (1,073 ) $ 1,114 $ 914
Foreign currency translation adjustments 488 (691 ) 1,055 (1,585 )
Comprehensive loss $ (71,704 ) $ (90,579 ) $ (246,926 ) $ (293,460 )

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of ~~Cash Flows~~
Changes in Stockholders’ Equity

(Unaudited)

(In thousands)

Nine Months Ended September 30,
2017 2016

Cash flows from operating activities:
Net loss $ (249,095 ) $ (292,789 )
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation 41,584 27,041
Amortization of investment premium 2,777 3,736
Amortization of deferred financing costs 1,052 326
Depreciation 3,256 2,187
Accretion of debt discount 9,576 3,001
Realized gain on investments - 52
Changes in operating assets:
Prepaid expenses and other current assets (4,924 ) (984 )
Accounts receivable (5,361 ) -
Inventory (1,618 ) -
Security deposits - (1,803 )
Changes in operating liabilities:
Accounts payable, accrued expenses and other current liabilities 16,519 1,699
Long-term other liabilities 6,068 -
Interest payable (3,530 ) 3,738
Deferred revenue (5,247 ) 817
Net cash used in operating activities (188,943 ) (252,979 )
Cash flows from investing activities:
Purchases of investment securities (127,002 ) (443,323 )
Refund of security deposits 941 -
Sales of investment securities 398,543 361,019
Purchases of equipment, leasehold improvements, and furniture and fixtures (10,102 ) (4,005 )
Net cash provided by (used in) investing activities 262,380 (86,309 )
Cash flows from financing activities:
Payments for capped call transactions and associated costs - (38,364 )
Proceeds from issuance of Convertible Notes, net of issuance costs - 447,715
Proceeds from exercise of options, net 2,077 4,429
Net cash provided by financing activities 2,077 413,780
Effect of exchange rate changes 1,055 (2,018 )
Net increase in cash and cash equivalents 76,569 72,474
Cash and cash equivalents – beginning of period 43,675 32,742
Cash and cash equivalents – end of period $ 120,244 $ 105,216


	Three months ended September 30, 2019

						Accumulated
				Additional		Other
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balance - June 30, 2019	32,696	$	33	$	2,116,481	$	(836)	$	(1,940,475)	$	175,203
Stock-based compensation	—		—		13,130		—		—		13,130
Recognition of debt discount on 2026 Convertible Notes	—		—		26,577		—		—		26,577
Net proceeds from exercise of stock options	37		—		773		—		—		773
Employee withholding taxes related to stock-based awards	—		—		119		—		—		119
Other comprehensive loss	—		—		—		(234)		—		(234)
Net loss	—		—		—		—		(84,833)		(84,833)
Balance - September 30, 2019	32,733	$	33	$	2,157,080	$	(1,070)	$	(2,025,308)	$	130,735

	Nine months ended September 30, 2019

						Accumulated
				Additional		Other
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balance - December 31, 2018	29,694	$	30	$	1,800,144	$	(2,259)	$	(1,778,785)	$	19,130
Stock-based compensation	—		—		42,809		—		—		42,809
Recognition of debt discount on 2026 Convertible Notes	—		—		85,915		—		—		85,915
Issuance of common stock from public and private placement offerings, net of underwriting fees and issuance costs	2,880		3		227,177		—		—		227,180
Net proceeds from exercise of stock options	159		—		2,511		—		—		2,511
Employee withholding taxes related to stock-based awards	—		—		(1,476)		—		—		(1,476)
Other comprehensive income	—		—		—		1,189		—		1,189
Net loss	—		—		—		—		(246,523)		(246,523)
Balance - September 30, 2019	32,733	$	33	$	2,157,080	$	(1,070)	$	(2,025,308)	$	130,735

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	Three months ended September 30, 2018

						Accumulated
				Additional		Other
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balance - June 30, 2018	29,565	$	29	$	1,774,955	$	(2,082)	$	(1,626,326)	$	146,576
Stock-based compensation	—		—		11,994		—		—		11,994
Net proceeds from exercise of stock options	89		1		2,715		—		—		2,716
Employee withholding taxes related to stock-based awards	—		—		(1,459)		—		—		(1,459)
Other comprehensive income	—		—		—		436		—		436
Net loss	—		—		—		—		(64,454)		(64,454)
Balance - September 30, 2018	29,654	$	30	$	1,788,205	$	(1,646)	$	(1,690,780)	$	95,809

	Nine months ended September 30, 2018

						Accumulated
				Additional		Other
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balance - December 31, 2017	25,173	$	25	$	1,486,690	$	(786)	$	(1,469,543)	$	16,386
Stock-based compensation	—		—		38,415		—		—		38,415
Issuance of common stock from public and private placement offerings, net of underwriting fees and issuance costs	4,258		5		261,357		—		—		261,362
Net proceeds from exercise of stock options	223		—		3,201		—		—		3,201
Employee withholding taxes related to stock-based awards	—		—		(1,458)		—		—		(1,458)
Other comprehensive loss	—		—		—		(860)		—		(860)
Net loss	—		—		—		—		(221,237)		(221,237)
Balance - September 30, 2018	29,654	$	30	$	1,788,205	$	(1,646)	$	(1,690,780)	$	95,809

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)

Nine Months Ended September 30,


2019

2018

Cash flows from operating activities:




Net loss

$
(246,523)

$
(221,237)
Adjustments to reconcile net loss to net cash used in operating activities:




Stock-based compensation

42,809

38,415
(Accretion) amortization of (discount) premium on investment debt securities

(595)

266
Amortization of deferred financing costs

1,529

1,144
Depreciation

2,839

3,551
Non-cash operating lease cost

3,974

—
Gain on lease termination

(1,995)

—
Loss on the disposal of fixed assets

2,682

1,331
Accretion of debt discount

15,051

10,412
Unrealized gain on investments

—

(119)
Changes in operating assets:




Prepaid expenses and other current assets

(3,320)

(856)
Accounts receivable

(7,128)

(5,579)
Inventory

(2,240)

(3,995)
Security deposits

1,018

7,138
Other assets

(19,489)

—
Changes in operating liabilities:




Accounts payable, accrued expenses and other current liabilities

33,990

(11,719)
Operating lease liabilities

(5,019)

—
Long-term other liabilities

9,516

(1,300)
Interest payable

(2,012)

(3,738)
Deferred revenue

(1,216)

(1,616)
Net cash used in operating activities

(176,129)

(187,902)
Cash flows from investing activities:




Purchases of investment debt securities

(560,733)

(378,261)
Sales and maturities of investment debt securities

306,898

293,307
Purchases of equipment, leasehold improvements, and furniture and fixtures

(1,041)

(45)
Net cash used by investing activities

(254,876)

(84,999)
Cash flows from financing activities:




Proceeds from issuance of 2026 Convertible Notes, net of issuance costs

223,424

—
Proceeds from issuance of common stock, net of issuance costs

227,180

261,362
Proceeds from exercise of options, net

2,511

3,201
Payments of employee withholding taxes related to stock-based awards

(1,476)

(1,458)
Net cash provided by financing activities

451,639

263,105
Effect of exchange rate changes

(505)

(835)
Net increase/(decrease) in cash and cash equivalents

20,129

(10,631)
Cash and cash equivalents – beginning of period

43,248

70,013
Cash and cash equivalents – end of period

$
63,377

$
59,382

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. 1.    Overview of Business
Intercept Pharmaceuticals, Inc. ~~(“Intercept” or the~~(the “Company”) is a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat progressive non-viral ~~progressive~~ liver diseases, including primary biliary cholangitis (“PBC”), and nonalcoholic steatohepatitis (“NASH”)~~, primary sclerosing cholangitis (“PSC”~~. The Company currently has one marketed product, Ocaliva (obeticholic acid or “OCA”) ~~and biliary atresia.~~. Founded in 2002 in New York, ~~Intercept now~~the Company has operations in the United States, Europe and Canada.
2. 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 ~~accounts~~balances and transactions have been ~~eliminated.~~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 Securities and Exchange Commission (“SEC”). Operating results for the three and nine months ended September 30, ~~2017~~2019 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, ~~2017.~~2019. 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~~Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, ~~2016,~~2018, included in the Company’s ~~2016~~ Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.
Certain reclassifications have been made to prior period amounts in the Company’s unaudited condensed consolidated statements of operations to conform to the current period presentation. The Company reclassified certain medical affairs costs of $8.4 million and $20.3 million from research and development expense to selling, general and administrative expense on the unaudited condensed consolidated statements of operations during the three and nine months ended September 30, 2016.
Use of Estimates
The preparation of these unaudited condensed consolidated ~~condensed~~ financial statements in ~~accordance~~conformity with U.S. GAAP requires management to make estimates and ~~assumptions~~judgments that affect the reported amounts of assets and liabilities, ~~expenses,~~the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and related disclosures. Significant estimates include: clinical trial accruals, revenues and share-based compensation expense. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable underexpenses during the ~~circumstances.~~reporting period. Actual results may differ from ~~those estimates or assumptions.~~these estimates.
3. 3.    Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 32 of Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018 filed with the SEC. Other than the adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”) as of January 1, 2019, as described below, there were no other significant changes to the Company’s significant accounting policies.
~~Revenue Recognition~~
~~Product Revenue, Net~~
Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. When the revenue recognition criteria are not met, we defer the recognition of revenue by recording deferred revenue on the balance sheet until such time that all criteria are met.

Leases
The Company ~~commenced its commercial launch~~determines if an arrangement is a lease at inception and records right-of-use (“ROU”) assets and lease liabilities on the condensed consolidated balance sheets at lease commencement based on the present value of ~~Ocaliva~~^® ~~(obeticholic acid or “OCA”) for~~remaining lease payments over the treatment of PBC in the United States in June 2016. In December 2016, the European Commission granted conditional approval for the treatment of PBC and the Company commenced launch in January of 2017. In May 2017, Health Canada granted a conditional approval for the treatment of PBC and the Company commenced launch in July of 2017.lease term. The Company ~~sells Ocaliva to a limited number of specialty pharmacies which dispense the product directly to patients. The specialty pharmacies~~only considers payments that are ~~referred to as the Company’s customers.~~
9
~~The Company provides the right of return to its customers for unopened product for a limited time before~~fixed and after its expiration date. Prior to July 2017, given the Company’s limited sales history for Ocaliva and the inherent uncertainties in estimating product returns, the Company determined that the shipments of Ocaliva made to its customers did not meet the criteria for revenue recognitiondeterminable at the time of ~~shipment. Accordingly,~~commencement. Operating leases are included in other assets, accounts payable, accrued expenses and other liabilities and long-term other liabilities on the ~~Company~~condensed consolidated balance sheets.
Operating lease liabilities are recognized revenue when the product was sold through by its customers, provided all other revenue recognition criteria were met. The Company invoiced its customers upon shipment of Ocaliva to them and recorded accounts receivable, with a corresponding liability for deferred revenue equal to the gross invoice price. The Company then recognized revenue when Ocaliva was sold through as specialty pharmacies dispensed product directly to the patients (sell-through basis).
The Company re-evaluated its revenue recognition policy in the third quarter of 2017, which included the accumulation and review of customer related transactions since the Company’s commercial launch in the second quarter of 2016. The Company now believes it has accumulated sufficient data to reasonably estimate product returns and, therefore, it will now effectively recognize revenue at the time of shipment to its customers (sell-in basis).
During the third quarter of 2017, the Company recorded an adjustment related to this change in estimate to recognize previously deferred revenue. The net effect was an increase in net sales of Ocaliva of $4.1 million for the three and nine months ended September 30, 2017. The Company also established a new reserve of $0.7 million during the third quarter of 2017 related to future returns from its customers under its various contracts.
The Company recognized net sales of Ocaliva of $40.9 million and $4.7 million for the three months ended September 30, 2017 and 2016, respectively, and $91.9 million and $4.8 million for the nine months ended September 30, 2017 and 2016, respectively.
The Company has written contracts with each of its customers and delivery occurs when the customer receives Ocaliva. The Company evaluates the creditworthiness of each of its customers to determine whether collection is reasonably assured. In order to conclude that the price is fixed and determinable, the Company must be able to (i) calculate its gross product revenues from the sales to its customers and (ii) reasonably estimate its net product revenues. The Company calculates gross product revenues based on the ~~wholesale acquisition cost~~present value of the future minimum lease payments discounted by the Company’s incremental borrowing rate. The Company measures ROU assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) tenant incentives under the lease. The Company’s lease terms may include options to extend or terminate the lease

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when it is reasonably certain that it will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

For short-term leases, the Company ~~charges~~records rent expense in its ~~customers for Ocaliva. The Company estimates its net product revenues by deducting from its gross product revenues (i) trade allowances, such~~consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as ~~invoice discounts for prompt payment~~incurred.

Additional information and customer fees, (ii) estimated government rebates and discounts related to Medicare, Medicaid and other government programs, and (iii) estimated costs of incentives offered to certain indirect customers including patients.disclosures are contained in Note 8 — Operating Leases below.

Recent Accounting Pronouncements

~~In May 2014, theFinancial~~Recently Adopted Accounting ~~Standards Board (“~~FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements of FASB ASC Topic 605, Revenue Recognition and most industry-specific guidance throughout the ASC, resulting in the creation of FASB ASC Topic 606, Revenue from Contracts with Customers. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods of adoption. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 defers the effective date of ASU 2014-09 by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date and permits early adoption of the standard, but not before the original effective date for fiscal years beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”) clarifying the implementation guidance on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The determination influences the timing and amount of revenue recognition. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments reduce the cost and complexity of identifying promised goods or services and improves the guidance for determining whether promises are separately identifiable. The amendments also provide implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effectivedate and transition requirements for ASU 2014-09. The Company is currently evaluating which transition approach it will utilize and the impact of adopting ASU 2014-09, ASU 2016-08 and ASU 2016-10 on its consolidated financial statements and related disclosures.The Company continues to execute on its implementation plan for ASC 606 and its assessment of the impact that adoption will have on the Company’s consolidated financial statements; specifically, as it relates to different revenue streams within a given contract and the impact adoption of ASC 606 could have on the Company’s financial statement disclosures. The Company will adopt Topic 606 in the first quarter of 2018 using the modified retrospective method which consists of applying and recognizing the cumulative effect of Topic 606 at the date of initial application and providing certain additional disclosures as defined per Topic 606. The Company is in the process of reviewing variable consideration, potential disclosures, and our method of adoption to complete our evaluation of the impact on our consolidated financial statements prior to the end of 2017. In addition, we continue to monitor additional changes, modifications, clarifications or interpretations undertaken by the FASB, which may impact our current conclusions.

On August 27, 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which requires an entity to evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. The guidance became effective January 1, 2017. The Company adopted ASU No. 2014-15 on January 1, 2017, and its adoption did not have a material impact on the Company’s financial statements.

In January 2016, FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2016-01 will have on its consolidated financial statements and related disclosures.

Pronouncements

In February 2016, the ~~FASB issued ASU~~Financial Accounting Standards Board (“FASB”) established ASC 842, by issuing Accounting Standards Update (“ASU”) No. 2016-02, ~~Leases (“ASU 2016-02”)~~ which ~~supersedes Topic 840, Leases. ASU 2016-02~~ requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. ASC 842 was subsequently amended by ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”; ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”; and ASU No. 2018-11, “Targeted Improvements”. The new standard establishes a ~~right-of-use~~ROU model that requires a lessee to recognize a ROU asset and a lease liability on ~~their~~the balance ~~sheets~~sheet for all ~~the~~ leases with ~~terms greater~~a term longer than ~~twelve~~12 months. ~~Based on certain criteria, leases~~Leases will be classified as ~~either financing~~finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. ~~For~~A modified retrospective transition approach is required, applying the new standard to all leases ~~with a term~~existing at the date of ~~twelve months~~initial application. An entity may choose to use either (i) its effective date or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at(ii) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on January 1, 2019 using ~~a modified retrospective approach.~~the effective date as the date of initial application. The ~~modified retrospective approach includes~~new standard provides a number of optional practical expedients ~~primarily focused on~~in transition. The Company elected the “package of practical expedients”, which permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that ~~commenced before the effective date of Topic 842, including continuing to account~~qualify. This means, for those leases that ~~commence before~~qualify, the ~~effective date~~Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in ~~accordance with previous guidance, unless the lease is modified.~~transition. The Company ~~is evaluating~~also elected the ~~impact~~practical expedient to not separate lease and non-lease components for all of the Company’s leases. Upon adoption, the Company recognized additional operating liabilities of $25.4 million, with corresponding ROU assets of $19.6 million based on the present value of the ~~standard on its consolidated financial statements and related disclosures.~~

~~In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) which is intended to improve the accounting~~remaining minimum rental payments under current leasing standards for share-based payment transactions as part of the FASB’s simplification initiative. The ASU changes certain aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those years for public business entities. The Company adopted ASU 2016-09 during the first quarter of 2017. In connection with the adoption of this ASU, the Company elected to account for forfeitures as they occur and applied this change in accounting policy on a modified retrospective basis. As a result, the Company recorded a cumulative-effect adjustment to retained earnings which resulted in an increase to accumulated deficit of $0.7 million with an offsetting increase to additional paid-in capital (zero net total equity impact) as of the date of adoption, related to additional stock compensation expense that would have been recognized on unvested outstanding options unadjusted for estimated forfeitures. As a result of this guidance, the Company also recorded $58.7 million of additional deferred tax assets, which are fully offset by a valuation allowance. Other provisions of ASU 2016-09 had no impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for the annual period ending December 31, 2018 and interim periods within that annual period. Early adoption is permitted. The Company is evaluating the impact of adoption of the standard on the consolidated financial statements and related disclosures, but does not expect it to have a significant impact.

existing operating leases.

In July 2017, the FASB issued ASU No. 2017-11, ~~Earnings~~“Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope ~~Exception, (ASU 2017-11)~~Exception” (“ASU 2017-11”). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating ASC Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company ~~is currently assessing the potential impact of adopting~~adopted ASU 2017-11 on January 1, 2019 and its adoption did not have any impact on the Company’s consolidated financial statements and related ~~disclosures,~~disclosures.

In June 2018, the FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, most of the guidance on such payments to nonemployees would be aligned with the

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requirements for share-based payments granted to employees. The changes take effect for public companies for fiscal years starting after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company adopted ASU 2018-07 on January 1, 2019 on a modified retrospective basis through a cumulative-effect adjustment to equity by remeasuring, on that date, the fair value of all outstanding unvested stock options that had been granted to nonemployees. The adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recent Accounting Pronouncements to be Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 was subsequently updated by ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, to clarify that entities should include recoveries when estimating the allowance for credit losses. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and must be adopted using a modified retrospective approach, with certain exceptions. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The Company plans to adopt ASU 2018-13 effective January 1, 2020 and does not expect itthe adoption of this guidance to have a ~~significant impact.~~material impact on the Company’s consolidated financial statements and related disclosures.

4.	4. Significant Agreements

Sumitomo Dainippon Pharma ~~Co,~~Co., Ltd. ~~(Sumitomo Dainippon)~~

In March 2011, the Company entered into an exclusive license agreement (the “Original Sumitomo Agreement”) with Sumitomo Dainippon Pharma Co., Ltd. (“Sumitomo Dainippon”), pursuant to which the Company granted to Sumitomo Dainippon an exclusive license to research, develop and commercialize OCA ~~as a therapeutic~~ for the treatment of PBC and NASH in Japan and China (excluding Taiwan) and an option to research, develop and commercialize OCA in certain countries outside of such territories (the “Country Option”). ~~Under the terms of the license agreement, the~~The Company received an ~~up-front~~upfront payment from Sumitomo Dainippon of $15.0 million ~~and may be eligible to receive additional milestone payments of up to an aggregate of approximately $30.0 million in development milestones based on~~under the initiation or completion of clinical trials, $70.0 million in regulatory approval milestones and $200.0 million in sales milestones. The regulatory approval milestones include $15.0 million for receiving marketing approval of OCA for NASH in Japan, $10.0 million for receiving marketing approval of OCA for NASH in China, and $5.0 million for receiving marketing approval of OCA for PBC in the United States, which was achieved upon the FDA approval of Ocaliva for the treatment of PBC in May 2016. As of September 30, 2017, the Company had achieved $6.0 millionterms of the ~~development milestones under its collaboration agreement with~~Original Sumitomo Dainippon. The sales milestones are based on aggregate sales amounts of OCA in the Sumitomo Dainippon territory and include $5.0 million for achieving net sales of $50.0 million, $10.0 million for achieving net sales of $100.0 million, $20.0 million for achieving net sales of $200.0 million, $40.0 million for achieving net sales of $400.0 million and $120.0 million for achieving net sales of $1.2 billion. The Company has determined that each potential future development, regulatory and sales milestone is substantive.Agreement. In May 2014, Sumitomo Dainippon exercised ~~its option under~~ the ~~license agreement~~Country Option in part to add Korea as part of its licensed territories and paid the Company a $1.0 million ~~up-front fee.~~upfront fee in connection therewith. In February 2018, the Company and Sumitomo Dainippon ~~has~~entered into Amendment No. 3 (the “Sumitomo Amendment”) to the ~~option~~Original Sumitomo Agreement (as amended, the “Sumitomo Agreement”). Pursuant to ~~add several other Asian countries to its territory to pursue OCA for additional indications.~~the Sumitomo Amendment, (i) Sumitomo Dainippon ~~will~~agreed to return the rights to develop and commercialize OCA in Japan and Korea and waived its rights to the Country Option, (ii) the Company agreed to forego any further milestone or royalty payments relating to the development and commercialization of OCA in Japan and Korea and (iii) certain milestone payment obligations with respect to the development and commercialization of OCA were adjusted. In addition, the Company and Sumitomo Dainippon agreed that if certain clinical development milestones in China are not met by December 31, 2020, Sumitomo Dainippon may choose either to make a milestone payment to the Company or terminate the Sumitomo Agreement. Sumitomo Dainippon may also terminate the Sumitomo Agreement in its entirety or on an indication-by-indication basis at any time upon 90 days’ written notice. As of September 30, 2019, the Company had achieved $6.0

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million of development milestones under the Sumitomo Agreement. The Company may be eligible to receive additional milestone payments under the Sumitomo Agreement in an aggregate amount of up to approximately $23.0 million based on the occurrence of certain clinical trial and regulatory-related events and tiered royalty payments up to the mid-twenties in percentage terms based on net sales of OCA products in China (excluding Taiwan). Sumitomo Dainippon is responsible for the costs of developing and commercializing OCA in its ~~territories. Sumitomo Dainippon is also required to make royalty payments ranging from the tens to the twenties in percent based on net sales of OCA products in the Sumitomo Dainippon~~ territory.

The Company ~~evaluated the license agreement with~~has concluded that Sumitomo Dainippon does not represent a customer of the Company, and ~~determined that it~~therefore the Sumitomo Agreement is ~~a revenue arrangement with multiple deliverables, or performance obligations.~~outside of the scope of ASC 606. The Company has accounted, and continues to account, for the Sumitomo Agreement under the legacy accounting guidance. The Company’s substantive performance obligations under this ~~license~~agreement include an exclusive license to its technology, technical and scientific support to the development plan and participation on a joint steering committee. The Company determined that these performance obligations represent a single unit of accounting, since, initially, the license does not have stand-alone value to Sumitomo Dainippon without the Company’s technical expertise and steering committee participation during the development of OCA. ~~This~~The development period is currently estimated as continuing through June 2020 and, as such, the ~~up-front~~$15.0 million upfront payment ~~and payments made in respect of the Korea option are~~is being recognized ratably over this period.~~During~~ The Company recognized licensing revenue of $0.4 million and $0.4 million for the three months ended September 30, ~~2017~~2019 and ~~2016, the Company recorded licensing revenue of approximately $0~~.42018, respectively, and $1.2 millionand ~~$0.4~~$1.6 million ~~respectively. During~~for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively, under the Sumitomo Agreement. Included in licensing revenue for the nine months ended September 30, 2018 is $0.4 million related to the accelerated recognition, as a result of the Sumitomo Amendment, of the remaining portion of deferred revenue associated with the $1.0 million upfront payment that the Company received under the Original Sumitomo Agreement in connection with Sumitomo Dainippon’s exercise of the Country Option with respect to Korea.

The Company recognizes milestone payments when the associated milestones are achieved. As of September 30, 2019, and December 31, 2018, the Company had recorded ~~licensing revenue~~deferred revenues of~~approximately $1.3~~ $1.2 millionand ~~$6.3~~$2.4 million, ~~respectively.~~respectively, under this agreement.

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5. ~~Cash, Cash Equivalents and Investments~~
5.    Cash, Cash Equivalents and Investment Debt Securities
The following table summarizes the Company’s cash, cash equivalents and ~~investments~~investment debt securities as of September 30, ~~2017~~2019 and December 31, ~~2016:~~2018:

As of September 30, 2019

Gross

Gross

Unrealized

Unrealized


Amortized Cost

Gains

Losses

Fair Value

(in thousands)
Cash and cash equivalents:








Cash and money market funds

$
63,377

$
—

$
—

$
63,377
Total cash and cash equivalents

63,377

—

—

63,377
Investment debt securities:








Commercial paper

70,009

62

(8)

70,063
Corporate debt securities

574,046

984

(95)

574,935
U.S. government and agency securities

3,992

4

—

3,996
Total investment debt securities

648,047

1,050

(103)

648,994
Total cash, cash equivalents and investment debt securities

$
711,424

$
1,050

$
(103)

$
712,371

As of September 30, 2017
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
(In thousands)
Cash and cash equivalents:
Cash and money market funds $ 120,244 $ - $ - $ 120,244
Investment securities:
Commercial paper 11,468 - (4 ) 11,464
Corporate debt securities 342,252 1 (433 ) 341,820
U.S. government and agency securities 19,248 - (26 ) 19,222
Total investments 372,968 1 (463 ) 372,506
Total cash, cash equivalents and investments $ 493,212 $ 1 $ (463 ) $ 492,750

As of December 31, 2016
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
(In thousands)
Cash and cash equivalents:
Cash and money market funds $ 43,675 $ - $ - $ 43,675
Investment securities:
Commercial paper 66,185 - (71 ) 66,114
Corporate debt securities 554,847 14 (1,443 ) 553,418
U.S. government and agency securities 26,254 - (76 ) 26,178
Total investments 647,286 14 (1,590 ) 645,710
Total cash, cash equivalents and investments $ 690,961 $ 14 $ (1,590 ) $ 689,385

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As of December 31, 2018

Gross

Gross

Unrealized

Unrealized


Amortized Cost

Gains

Losses

Fair Value

(in thousands)
Cash and cash equivalents:








Cash and money market funds

$
43,248

$
—

$
—

$
43,248
Investment debt securities:








Commercial paper

34,353

—

(26)

34,327
Corporate debt securities

349,854

27

(704)

349,177
U.S. government and agency securities

9,410

5

(7)

9,408
Total investment debt securities

393,617

32

(737)

392,912
Total cash, cash equivalents and investment debt securities

$
436,865

$
32

$
(737)

$
436,160

As of September 30, ~~2017,~~2019, the Company held a total of ~~forty eight~~5 positions that were in a continuous unrealized loss position for ~~more than~~ twelve ~~months.~~months or longer. The Company has determined that the unrealized losses are deemed to be temporary impairments as of September 30, ~~2017.~~2019. The Company believes that the unrealized losses generally are caused by increases in the risk premiums required by market participants rather than an adverse change in cash flows or a fundamental weakness in the credit quality of the issuer or underlying assets. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, it does not consider the investments to be other-than-temporarily impaired at September 30, ~~2017.~~2019.
6. 6.    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)

September 30, 2019

December 31, 2018

(in thousands)
Office equipment and software

3

$
4,343

$
3,986
Leasehold improvements

Over life of lease

10,444

14,464
Furniture and fixtures

7

3,974

3,907
Subtotal

18,761

22,357
Less: accumulated depreciation

(12,788)

(11,946)
Fixed assets, net

$
5,973

$
10,411

Useful lives
(Years) September 30, 2017 December 31, 2016
(In thousands)
Office equipment and software 3 $ 5,044 $ 4,942
Leasehold improvements Over life of lease 15,280 6,668
Furniture and fixtures 7 5,250 4,202
Subtotal 25,574 15,812
Less: accumulated depreciation (7,433 ) (4,517 )
Fixed assets, net $ 18,141 $ 11,295

13
7. 7.    Inventory, Net
Inventories are stated at the lower of cost or market. Inventories ~~consist~~consisted of the following:

September 30, 2019

December 31, 2018

(in thousands)
Work-in-process

$
9,289

$
7,019
Finished goods

59

89
Inventory, net

$
9,348

$
7,108

September 30, 2017 December 31, 2016
(In thousands)
Work-in-process $ 3,717 $ 2,207
Finished goods 180 72
Inventory, net $ 3,897 $ 2,279

8.
8. Operating Leases
The Company leases various office spaces under non-cancelable operating leases with original lease periods expiring between the fourth quarter of 2019 and 2024. The Company subleases one of its office spaces to a third party. The Company also enters into leases for equipment. A number of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term. The exercise of lease renewal options is typically at the sole discretion of the Company; therefore, all renewals to extend the lease terms are not included in the ROU assets and lease liabilities
16
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as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, includes the renewal period in the lease term. These operating leases do not contain material variable rent payments, residual value guarantees, covenants, or other restrictions.
The Company has elected the practical expedient to exclude short-term leases from its ROU assets and lease liabilities; therefore leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company elected the practical expedient not to separate non-lease components from all leases. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company’s incremental borrowing rate is the estimated rate that would be required to pay for a collateralized borrowing equal to the total lease payment over the lease term. The Company estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own.
Operating lease assets and liabilities are classified on the condensed consolidated balance sheet as follows:

Leases

Classification

September 30, 2019
Assets

(in thousands)
Operating lease assets

Other assets

$
9,484
Total leased assets

$
9,484

Liabilities

Current

Operating lease liabilities

Accounts payable, accrued expenses and other liabilities

$
6,215
Noncurrent

Operating lease liabilities

Long-term other liabilities

6,028
Total lease liabilities

$
12,243

Operating lease costs for the three and nine-month periods ended September 30, 2019 are as follows:

Three Months Ended

Nine Months Ended
Lease Cost

Classification

September 30, 2019

September 30, 2019

(in thousands)

(in thousands)
Operating lease cost

Selling, general and administrative expenses

$
1,456

$
4,603
Short-term lease cost

Selling, general and administrative expenses

392

1,746
Variable lease cost

Selling, general and administrative expenses

230

626
Sublease income

Other income, net

(182)

(546)
Net lease cost

$
1,896

$
6,429

The weighted-average remaining term of the Company’s operating leases was 2.5 years and the weighted-average discount rate used to measure the present value of the Company’s operating lease liabilities was 5.0% as of September 30, 2019.
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Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of September 30, 2019 are as follows:

Maturity of Lease Liabilities

Operating leases

(in thousands)
2019

$
1,889
2020

6,142
2021

2,828
2022

896
2023

896
Thereafter

374
Total lease payments

13,025
Less: Present value discount

(782)
Total operating lease liabilities

$
12,243

Cash payments included in the measurement of the Company’s lease liabilities were $5.5 million for the nine months ended September 30, 2019.

9.    Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable, accrued expenses and other liabilities consisted of the following:

September 30, 2019

December 31, 2018

(in thousands)
Accounts payable

$
19,485

$
11,765
Accrued employee compensation

19,343

20,335
Accrued contracted services

66,231

54,681
Other liabilities

22,021

18,328
Operating lease liabilities

6,215

—
Accounts payable, accrued expenses and other liabilities

$
133,295

$
105,109

September 30, 2017 December 31, 2016
(In thousands)
Accounts payable $ 10,053 $ 6,722
Accrued contracted services 44,244 35,429
Accrued employee compensation 18,720 19,287
Other liabilities 9,053 4,113
Accounts payable, accrued expenses and other liabilities $ 82,070 $ 65,551

9.

Research & Development Tax Credit
The Company benefits from the U.K. Small and Medium-sized Enterprise R&D Tax Credit scheme, or the SME scheme, under which it can obtain a refundable 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 submitted a claim seeking to obtain tax credits for qualifying R&D expenses incurred in the years ended December 31, 2015 and 2016. In September 2019, the Company received a partial payment of $10.5 million from Her Majesty’s Revenue and Customs, the U.K.’s government tax authority. Given the claim review has not been finalized, the credit received is recorded as a deferred liability within Accounts payable, accrued expenses, and other liabilities.

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

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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 and~~ money market funds are classified within Level 1 of the fair value hierarchy because they are valued using ~~bank balances or~~ quoted market prices. ~~Investments~~Investment debt securities are classified as Level 2 instruments based on market pricing and other observable inputs.
14
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)
September 30, 2019








Assets








Cash and cash equivalents:

Money market funds (included in cash and cash equivalents)

$
31,691

$
31,691

$
—

$
—
Available-for-sale debt securities:








Commercial paper

70,063

—

70,063

—
Corporate debt securities

574,935

—

574,935

—
U.S. government and agency securities

3,996

—

3,996

—
Total financial assets

$
680,685

$
31,691

$
648,994

$
—

December 31, 2018








Assets








Money market funds (included in cash and cash equivalents)

$
11,647

$
11,647

$
—

$
—
Available-for-sale debt securities:








Commercial paper

34,327

—

34,327

—
Corporate debt securities

349,177

—

349,177

—
U.S. government and agency securities

9,408

—

9,408

—
Total financial assets

$
404,559

$
11,647

$
392,912

$
—

Fair Value Measurements Using
Total Level 1 Level 2 Level 3
(In thousands)
September 30, 2017
Assets:
Money market funds (included in cash and cash equivalents) $ 37,426 $ 37,426 $ - $ -
Available for sale securities:
Commercial paper 11,464 - 11,464 -
Corporate debt securities 341,820 - 341,820 -
U.S. government and agency securities 19,222 - 19,222 -
Total financial assets: $ 409,932 $ 37,426 $ 372,506 $ -

December 31, 2016
Assets:
Money market funds (included in cash and cash equivalents) $ 11,755 $ 11,755 $ - $ -
Available for sale securities:
Commercial paper 66,114 - 66,114 -
Corporate debt securities 553,418 - 553,418 -
U.S. government and agency securities 26,178 - 26,178 -
Total financial assets $ 657,465 $ 11,755 $ 645,710 $ -

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The estimated fair value of ~~marketable~~the available-for-sale debt securities (commercial paper, corporate debt securities and U.S. government and agency securities), by contractual maturity, are as follows:

Fair Value as of


September 30, 2019

December 31, 2018

(in thousands)
Due in one year or less

$
486,971

$
319,717
Due after one year through two years

162,023

73,195
Total investments in debt securities

$
648,994

$
392,912
Fair Value as of
September 30, 2017 December 31, 2016
(In thousands)
Due in one year or less $ 344,852 $ 456,184
Due after 1 year through 5 years 27,654 189,526
Total investments in debt securities $ 372,506 $ 645,710

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.
~~10.~~ 11.  Long-Term Debt
Debt, net of discounts and deferred financing costs, ~~consists~~consisted of the following:

September 30, 2019

December 31, 2018

(in thousands)
2023 Convertible Notes

$
460,000

$
460,000
2026 Convertible Notes

230,000

—
Long-term debt, gross

690,000

460,000
Less: Unamortized debt discounts and fees

164,661

88,750
Long-term debt, net

525,339

371,250

September 30, 2017 December 31, 2016
(In thousands)
Long-term debt $ 351,984 $ 341,356
Less current portion - -
Long-term debt outstanding $ 351,984 $ 341,356
2019 Offering

On May 14, 2019, the Company issued and sold $230.0 million aggregate principal amount of 2.00% Convertible Senior Notes due 2026 (the “2026 Convertible Notes”). The Company received net proceeds from the sale of the 2026 Convertible Notes of $223.4 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $6.6 million.
The 2026 Convertible Notes were issued pursuant to a Second Supplemental Indenture, dated as of May 14, 2019 (the “Second Supplemental Indenture”), which supplements the Indenture (the “Base Indenture”), as supplemented by a First Supplemental Indenture (the “First Supplemental Indenture” and collectively with the Base Indenture and the Second Supplemental Indenture, the “Indenture”), each dated as of July 6, 2016, by and between the Company and U.S. Bank National Association, as trustee. The 2026 Convertible Notes are senior unsecured obligations of the Company, bear interest at a fixed rate of 2.00% per annum (payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2019) and will mature on May 15, 2026, unless earlier repurchased, redeemed or converted. Holders may convert their 2026 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 15, 2026 only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ended on September 30, 2019, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the 5 business day period after any 5 consecutive trading day period in which the trading price (as defined in the Indenture) per $1,000 principal amount of 2026 Convertible Notes for each trading day of such 5 consecutive trading day period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the 2026 Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after February 15, 2026 until the close of business on the business day immediately preceding the maturity date, holders may convert their 2026 Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion of the 2026 Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock (and cash in lieu of any fractional shares) or a combination of cash and shares of the Company’s

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common stock, at the Company’s election. The initial conversion rate of the 2026 Convertible Notes is 9.2123 shares of the Company’s common stock per $1,000 principal amount of 2026 Convertible Notes, which is equivalent to an initial conversion price of approximately $108.55 per share of the Company’s common stock. The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2026 Convertible Notes in connection with such a corporate event in certain circumstances. The Company may not redeem the 2026 Convertible Notes prior to May 20, 2023. The Company may redeem for cash all or any portion of the 2026 Convertible Notes, at the Company’s option, on or after May 20, 2023, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2026 Convertible Notes. If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their 2026 Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Indenture provides for customary events of default.

In accordance with ASC Subtopic 470-20, “Debt with Conversion and Other Options” (“ASC 470-20”), the Company used an effective interest rate of 9.9% to determine the liability component of the 2026 Convertible Notes. This resulted in the recognition of $137.5 million as the liability component of the 2026 Convertible Notes and the recognition of the residual $85.9 million as the debt discount with a corresponding increase to additional paid-in capital for the equity component of the 2026 Convertible Notes. The underwriting discount and estimated offering expenses totaling $6.6 million were allocated between the debt and equity issuance costs in proportion to the allocation of the liability and equity components of the 2026 Convertible Notes. Accordingly, equity issuance costs of $2.5 million were recorded as an offset to additional paid-in capital and total debt issuance costs of $4.1 million were recorded on the issuance date and are reflected in the unaudited condensed consolidated balance sheet as a direct deduction from the carrying value of the associated debt liability. The debt discount and debt issuance costs will be amortized as non-cash interest expense through May 15, 2026.

The fair value of the 2026 Convertible Notes was approximately $213.9 million at September 30, 2019 and was determined using Level 2 inputs based on quoted market values.

2016 Offerings

On July 6, 2016, the Company issued and sold $460.0 million aggregate principal amount of ~~the~~ 3.25% ~~convertible senior notes~~Convertible Senior Notes due 2023 (“(the “2023 Convertible Notes”, and together with the 2026 Convertible Notes, the “Convertible Notes”). The Company received net proceeds from the sale of the 2023 Convertible Notes of $447.6 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $12.4 million. The Company used approximately $38.4 million of ~~the~~such net proceeds ~~from the offering~~ to fund ~~the payment of~~ the cost of the ~~capped call transactions~~Capped Call Transactions (as defined below) that were entered into in connection with the issuance of the 2023 Convertible Notes.

The 2023 Convertible Notes were issued pursuant to the Base Indenture, as supplemented by the First Supplemental Indenture. The 2023 Convertible Notes are senior unsecured obligations of the ~~Company. Interest is payable~~Company, bear interest at a fixed rate of 3.25% per year (payable semi-annually on January 1 and July 1 of each year, beginning on January 1, ~~2017. The Convertible Notes~~2017) and will mature on July 1, 2023, unless earlier repurchased, redeemed or converted. ~~The~~Holders may convert their 2023 Convertible Notes ~~are convertible~~ at their option at any time prior to the ~~option~~close of business on the business day immediately preceding January 1, 2023 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ended on September 30, 2016, 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 greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the 5 business day period after any 5 consecutive trading day period in which the trading price (as defined in the Indenture) per $1,000 principal amount of 2023 Convertible Notes for each trading day of such 5 consecutive trading day period was less than 98% of the product of the last reported sale price of the Company’s common

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stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the 2023 Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after January 1, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders ~~under certain circumstances and during certain periods, into~~may convert their 2023 Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion of the 2023 Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock (and cash in lieu of any fractional shares) or a combination of cash and shares of the Company’s common stock, at the Company’s election. The initial conversion rate of the 2023 Convertible Notes is 5.0358 shares of the Company’s common stock per $1,000 principal amount of 2023 Convertible Notes, which is equivalent to an initial conversion price of approximately $198.58 per share of the Company’s common stock. The conversion rate is subject to adjustment upon the occurrence of certain ~~events.~~events but will not be adjusted for any accrued and unpaid interest. If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their 2023 Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2023 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if certain make-whole fundamental changes occur, the Company will, in certain circumstances, increase the conversion rate for any 2023 Convertible Notes converted in connection with such make-whole fundamental change. The Company may not redeem the 2023 Convertible Notes prior to July 6, 2021. The Company may redeem for cash all or part of the 2023 Convertible Notes, at its option, on or after July 6, 2021, ~~under certain circumstances~~if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2023 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The Indenture provides for customary events of default.

~~The~~On June 30, 2016, in connection with the pricing of the 2023 Convertible Notes, the Company entered into privately-negotiated capped call transactions (the “Base Capped Call Transactions”) with each of Royal Bank of Canada, UBS AG, London Branch, and Credit Suisse Capital LLC (the “Option Counterparties”). On July 1, 2016, in connection with the underwriters’ exercise of their over-allotment option in full, the Company entered into additional capped call transactions (the “Additional Capped Call Transactions” and, together with the Base Capped Call Transactions, the “Capped Call Transactions”) with the Option Counterparties. The Capped Call Transactions are expected generally to reduce the potential dilution with respect to the Company’s common stock and/or offset the cash payments the Company would be required to make in excess of the principal amount of converted 2023 Convertible Notes, as the case may be, upon conversion of the 2023 Convertible Notes in the event that the market price per share of the Company’s common stock, as measured under the terms of the ~~capped call transactions,~~Capped Call Transactions, is greater than the strike price of the ~~capped call transactions,~~Capped Call Transactions, which initially corresponds to the conversion price of the 2023 Convertible Notes and is subject to anti-dilution adjustments ~~generally~~substantially similar to those applicable to the conversion rate of the 2023 Convertible Notes. The cap price of the ~~capped call transactions~~Capped Call Transactions is initially $262.2725 per share, and is subject to certain adjustments under the terms of the ~~capped call transactions.~~Capped Call Transactions. If, however, the market price per share of the Company’s common stock, as measured under the terms of the ~~capped call transactions,~~Capped Call Transactions, exceeds the cap price of the ~~capped call transactions,~~Capped Call Transactions, there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, upon conversion of the Convertible Notes to the extent that such market price exceeds the cap price of the ~~capped call transactions.~~

Capped Call Transactions.

In accordance with ASC ~~Subtopic~~ 470-20, the Company used an effective interest rate of 8.4% to determine the liability component of the 2023 Convertible Notes. This resulted in the recognition of $334.4 million as the liability component of the 2023 Convertible Notes and the recognition of the residual ~~$113.2~~$113.1 million as the debt discount with a corresponding increase to additional paid-in capital for the equity component of the 2023 Convertible Notes.

The fair value of the 2023 Convertible Notes was approximately $400.7 million and $410.9 million at September 30, 2019 and December 31, 2018, respectively, and was determined using Level 2 inputs based on quoted market values.

Interest Expense on Convertible Notes

Interest expense was ~~$7.4~~$11.8 million and ~~$7.1~~$7.7 million for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively, and ~~$21.8~~$29.5 million and ~~$7.1~~$22.8 million for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively,

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related to the Convertible Notes. Accrued interest on the Convertible Notes was approximately ~~$3.7~~$5.5 million and ~~$7.3~~$7.5 million as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. The Company recorded debt issuance costs of ~~$12.4~~$19.0 million, which are being amortized using the effective interest method. As of September 30, ~~2017, $10.7~~2019, $13.8 million of debt issuance costs are recorded on the unaudited condensed consolidated balance sheet in ~~Long-Term Debt,~~Long-term debt, in accordance with ASU ~~2015-03.~~No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” As of September 30, ~~2017,~~2019, $230.0 million aggregate principal amount of the ~~Company had outstanding borrowings of~~2026 Convertible Notes and $460.0 million ~~related to~~aggregate principal amount of the 2023 Convertible ~~Notes.~~Notes was outstanding, for a total of $690.0 million aggregate principal amount outstanding.

12.  Product Revenue, Net
~~11.~~ ~~Product Revenue, Net~~
The Company recognized net sales of Ocaliva of ~~$40.9~~$61.5 million and ~~$4.7~~$46.6 million for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively, and ~~$91.9~~$179.3 million and $~~4.8~~$124.9 millionfor the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.
The table below summarizes consolidated product revenue, net by region:

Three Months Ended September 30,

Nine Months Ended September 30,


2019

2018

2019

2018

(in thousands)

(in thousands)
Product revenue, net:








U.S.

$
45,232

$
36,684

$
133,914

$
99,697
ex-U.S.

16,313

9,897

45,372

25,211
Total product revenue, net

$
61,545

$
46,581

$
179,286

$
124,908

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)
Product revenue, net:
U.S. $ 36,176 $ 4,732 $ 83,829 $ 4,807
ex-U.S. 4,713 - 8,104 -
Total product revenue, net $ 40,889 $ 4,732 $ 91,933 $ 4,807

~~12.~~ ~~Stock Compensation~~
13. Stockholders’ Equity
2019 Public Offering and Concurrent Private Placement
On May 14, 2019, the Company issued and sold (i) 2,760,000 shares of common stock in a registered public offering (including 360,000 shares issued and sold upon the exercise in full of the underwriters’ option to purchase additional shares), at a price to the public of $83.50 per share (the “2019 Public Offering”) and (ii) 119,760 shares of common stock (the “2019 Private Placement Shares”) in a concurrent private placement of common stock (the “2019 Concurrent Private Placement”) exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), at a purchase price per share equivalent to the price to the public set in the 2019 Public Offering and pursuant to a securities purchase agreement (the “2019 Securities Purchase Agreement”) that the Company entered into with Samsara BioCapital, L.P. (“Samsara”), one of the Company’s existing stockholders. Pursuant to the 2019 Securities Purchase Agreement, the Company granted to Samsara certain registration rights requiring the Company, upon request of Samsara on or after July 9, 2019 and subject to certain terms and conditions, to register the resale by Samsara of its 2019 Private Placement Shares. Such registration rights expire upon the earlier of (i) May 8, 2020 and (ii) the date that all of the 2019 Private Placement Shares have been sold or can be sold publicly under Rule 144 of the Securities Act on a single day. As of the date of this Quarterly Report on Form 10-Q, Samsara has not exercised any such registration rights.
The net proceeds to the Company from the 2019 Public Offering and the 2019 Concurrent Private Placement were approximately $227.2 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $13.9 million.
2018 Public Offering and Concurrent Private Placement
On April 9, 2018, the Company issued and sold (i) 2,695,313 shares of common stock in a registered public offering (including 351,563 shares issued and sold upon the exercise in full of the underwriters’ option to purchase additional shares), at a price to the public of $64.00 per share (the “2018 Public Offering”) and (ii) 1,562,500 shares of common stock (the “2018 Private Placement Shares”) in a concurrent private placement (the “2018 Concurrent Private Placement”) exempt from the registration requirements of the Securities Act, at a purchase price per share equivalent to the price to the

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public set in the 2018 Public Offering and pursuant to a securities purchase agreement (the “2018 Securities Purchase Agreement”) that the Company entered into with the purchasers in the 2018 Concurrent Private Placement (the “Private Placement Purchasers”). Pursuant to the 2018 Securities Purchase Agreement, the Company granted to the Private Placement Purchasers certain registration rights which expired on April 4, 2019.

14.  Stock Compensation
The Company’s 2012 Equity Incentive Plan (“2012 Plan”) became effective upon the pricing of ~~the~~its initial public offering in October 2012. At the same time, the Company’s 2003 Stock Incentive Plan (“2003 Plan”) was terminated and 555,843 shares available under the 2003 Plan were added to the 2012 Plan.
On January 1, ~~2017,~~2019, the number of shares ~~reserved~~available for issuance under the 2012 Plan ~~was~~ increased by ~~993,558~~1,187,599 shares, as a result of the automatic increase ~~in shares reserved pursuant to the terms~~provisions thereof.
The estimated fair value of the stock options ~~that have been~~ granted ~~under~~in the ~~2003 and 2012 Plans is~~nine months ended September 30, 2019 was determined utilizing ~~the~~a Black-Scholes option-pricing model at the date of grant. The fair value of the restricted stock units (“RSUs”) ~~and restricted stock awards (“RSAs”) that have been~~ granted ~~under~~in the ~~2012 Plan is~~nine months ended September 30, 2019 was determined utilizing the closing price of the Company’s common stock ~~price~~ on the date of grant.
16
The fair value of the performance restricted stock units (“PRSUs”) granted in the nine months ended September 30, 2019 was determined utilizing the Monte Carlo simulation method.
The following table summarizes stock option activity during the nine months ended September 30, ~~2017:~~2019:

Weighted

Average

Number

Weighted

Remaining

Aggregate

of Options

Average

Contractual

Intrinsic Value


(in thousands)

Exercise Price

Term (years)

(in thousands)
Outstanding at December 31, 2018

1,873

$
97.63

7.5

$
45,381
Granted

484

$
105.55

—

$
—
Exercised

(69)

$
36.59

—

$
—
Cancelled/forfeited

(148)

$
92.40

—

$
—
Expired

(54)

$
165.26

—

$
—
Outstanding at September 30, 2019

2,086

$
97.93

7.4

$
11,747
Expected to vest

985

$
91.42

8.7

$
2,533
Exercisable

1,101

$
103.75

6.3

$
9,214

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the deemed fair value of the Company’s common stock for those options that had exercise prices lower than the deemed fair value of the Company’s common stock. As of September 30, 2019, the total compensation cost related to non-vested option awards not yet recognized is approximately $54.9 million with a weighted average remaining vesting period of 1.2 years.
Weighted
Average
Number Weighted Remaining Aggregate
of Shares Average Contractual Intrinsic Value
(In thousands) Exercise Price Term (years) (In thousands)
Outstanding at December 31, 2016 1,553 $ 117.80 7.4 $ 48,308
Granted 499 $ 113.27 - $ -
Exercised (85 ) $ 24.36 - $ -
Cancelled/forfeited (103 ) $ 141.78 - $ -
Expired (53 ) $ 214.69 - $ -
Outstanding at September 30, 2017 1,811 $ 116.76 7.3 $ 15,118
Expected to vest 1,811 $ 116.76 7.3 $ 15,118
Exercisable 914 $ 102.08 6.0 $ 15,115
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:

Nine Months Ended September 30,


2019

2018

Volatility

87.0 - 89.9
%
58.9 - 75.8
%
Expected term (in years)

5.5 - 6.0

6.0

Risk-free rate

1.4 - 2.9
%
1.8 - 2.9
%
Expected dividend yield

—
%
—
%

Effective January 1, 2019, the Company changed its expected volatility assumption to be estimated based on the historical stock price volatility of the Company over the expected term given the availability of sufficient historical trading

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data. In prior years, the expected volatility was estimated based on historical volatility information of publicly-traded peer companies.
The following table summarizes the aggregate RSU, restricted stock award (“RSA”), PRSU and performance restricted share award (“PRSA”) activity during the nine months ended September 30, 2019:

Weighted

Number of

Average Grant Date


Awards

Fair Value

(in thousands)

Non-vested awards at December 31, 2018

773

$
76.10
Granted

354

$
110.05
Vested

(261)

$
78.71
Forfeited

(83)

$
85.67
Non-vested awards at September 30, 2019

783

$
89.57

As of September 30, ~~2017,~~2019, there ~~was~~is approximately ~~$54.2~~$53.4 million of total unrecognized compensation expense related to ~~the~~ unvested ~~stock options shown in the table above,~~RSUs, RSAs, PRSUs and PRSAs, which is expected to be recognized over a weighted average vesting period of ~~2.5~~1.4 years.
During the nine months ended September 30, 2019, the Company granted a total of 57,800 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 (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 ~~the Company's option awards were estimated using the assumptions below:~~
Nine Months Ended September 30,
2017 2016
Volatility 60.9 - 65.4% 59.6 - 65.6%
Expected term (in years) 6.0 - 9.9 6.0 - 10.0
Risk-free rate 1.8 - 2.4% 1.1 - 1.8%
Expected dividend yield —% —%
such PRSUs. The ~~following table summarizes the aggregate RSU and RSA activity~~Company recorded approximately $2.0 million of stock-based compensation related to such PRSUs during the nine months ended September 30, ~~2017:~~
Weighted
Number of Average Fair
Awards Value
(In thousands)
Non-vested shares outstanding, December 31, 2016 381 $ 136.89
Granted 262 $ 113.41
Vested (133 ) $ 135.92
Forfeited (46 ) $ 134.77
Non-vested shares outstanding, September 30, 2017 464 $ 124.11
As of September 30, 2017, there was approximately $46.9 million of total unrecognized compensation expense related to unvested RSUs and RSAs, which is expected to be recognized over a weighted average period of 2.6 years.
2019.
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. When performance~~vest and are not forfeited. The Company has in the past, and may in the future, grant performance-based awards with vesting terms based ~~grants are issued,~~on the achievement of specified goals. To the extent such awards do not contain a market condition, the Company recognizes no expense until achievement of the performance requirement is deemed probable.
Stock-based compensation expense has been reported in ~~our~~the Company’s condensed consolidated statements of operations as follows:

Three Months Ended September 30,

Nine Months Ended September 30,


2019

2018

2019

2018

(in thousands)
(in thousands)
Selling, general and administrative

$
10,104

$
9,436

$
33,029

$
28,875
Research and development

3,026

2,558

9,780

9,540
Total stock-based compensation

$
13,130

$
11,994

$
42,809

$
38,415

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)
Selling, general and administrative $ 9,449 $ 7,207 $ 28,338 $ 14,191
Research and development 3,788 5,337 13,246 12,850
Total stock-based compensation $ 13,237 $ 12,544 $ 41,584 $ 27,041

17
25

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~~13.~~

~~Net Loss Per Share~~

15. Commitments and Contingencies

Legal Proceedings

The ~~following table presents~~Company is involved in various disputes, governmental inquiries and investigations, legal proceedings and litigation in the ~~historical computation~~course of its business, including the matters described below and, from time to time, intellectual property, 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.

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. The Court appointed lead plaintiffs in the lawsuit on June 1, 2018, and the lead plaintiffs filed an amended complaint on July 31, 2018, 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 the period from June 9, 2016 to September 20, 2017, 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, 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. Separately, 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. 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.

While the Company believes that it has a number of valid defenses to the claims described above and intends to vigorously defend itself, the matters are in the early stages of litigation and no assessment can be made as to the likely outcome of the matters or whether they will be material to the Company. Accordingly, an estimate of the potential loss, or range of loss, if any, to the Company relating to the matters is not possible at this time.

In May 2018, the Company received a subpoena from the SEC requesting information in connection with the Company’s patient assistance program and certain of the Company’s commercial activities. The SEC’s letter enclosing the subpoena states that the investigation and the subpoena do not mean that the Company or anyone else has broken the law, or that the SEC has a negative opinion of any person, entity or security. The Company is cooperating fully with the SEC in this matter. At this time, the Company is unable to predict whether any proceeding may be instituted in connection with the subpoena, or the outcome of any such proceeding, if instituted.

16. 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 nine-month periods ended September 30, 2019 and 2018, as the Company was in a net loss position, the diluted loss per share computations

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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 basic and diluted ~~net~~ loss per ~~share:~~
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands, except per share amounts)
Historical net loss per share
Numerator:
Net loss attributable to common stockholders $ (72,601 ) $ (88,815 ) $ (249,095 ) $ (292,789 )
Denominator:
Weighted average shares used in calculating net loss per share - basic and diluted 25,104 24,738 25,021 24,614

Net loss per share:
Basic and diluted $ (2.89 ) $ (3.59 ) $ (9.96 ) $ (11.90 )
share.
The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares ~~outstanding:~~outstanding for the three and nine-month periods ended of September 30, 2019 and 2018, as the inclusion thereof would have been anti-dilutive:

Three Months Ended September 30,

Nine Months Ended September 30,


2019

2018

2019

2018

(in thousands)

(in thousands)
Convertible Notes

4,435

2,316

4,435

2,316
Options

2,086

1,997

2,086

1,997
Restricted stock units

597

447

597

447
Total

7,118

4,760

7,118

4,760

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)
Convertible Notes 2,316 - 2,316 -
Options 1,811 1,594 1,811 1,594
Restricted stock units 464 388 464 388
Total 4,591 1,982 4,591 1,982

18
17.  Subsequent Events
Sumitomo Agreement

On October 25, 2019, the Company and Sumitomo Dainippon mutually agreed to terminate with immediate effect the Sumitomo Agreement. In connection with the termination of the Sumitomo Agreement, Sumitomo Dainippon agreed to return to the Company the rights to develop and commercialize OCA in China and the Company agreed to forego any further milestone or royalty payments relating to the development and commercialization of OCA in China. No payment is due from the Company to Sumitomo Dainippon as a result of the termination of the Sumitomo Agreement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~
Operations.
~~The~~You should read the following discussion and analysis ~~of our financial condition and results of operations should be read~~ together with our ~~unaudited~~condensed consolidated financial statements and ~~the~~accompanying notes ~~to those financial statements appearing~~included elsewhere in this Quarterly Report on Form 10-Q and ~~the~~our audited consolidated financial statements ~~and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2016~~ included in our Annual Report on Form 10-K ~~filed with~~for the ~~Securities~~year ended December 31, 2018 (the “Annual Report”). This discussion and ~~Exchange Commission on March 1, 2017. This discussion~~analysis contains forward-looking statements, ~~that~~which involve ~~significant~~ risks and uncertainties. As a result of many factors, such as those ~~set forth in Item 1.A.~~described under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” ~~of our Annual Report on Form 10-K~~ and elsewhere in this Quarterly Report on Form 10-Q and ~~any updates to those risk factors contained~~ in our ~~subsequent periodic and current reports filed with the Securities and Exchange Commission,~~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 ~~progressive~~ liver diseases with a 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, the European Union 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 currently developing OCA for additional indications, including nonalcoholic steatohepatitis (“NASH”). We are also developing several other 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 ~~currently,~~ there are currently limited therapeutic ~~solutions.~~options.
Our lead product, obeticholic acid, or OCA, is a bile acid analog, a chemical substance that has a structure based on a naturally occurring human bile acid, that selectively binds to and activates the farnesoid X receptor, or FXR. We believe OCA has broad liver-protective properties and may effectively counter a variety of chronic insults to the liver that cause fibrosis, or scarring, which can eventually lead to cirrhosis, liver transplant and death.
~~OCA~~Ocaliva was approved infor PBC by the ~~United States~~U.S. Food and Drug Administration (“FDA”) in May 2016 ~~for use in patients with primary biliary cholangitis, or PBC,~~ under the ~~brand name Ocaliva®.~~accelerated approval pathway. We commenced sales and marketing of Ocaliva in the United States shortly after receiving ~~such marketing~~ approval, and Ocaliva is now available to U.S. patients primarily through a network of specialty pharmacy distributors. ~~In December 2016,~~Ocaliva received conditional approval for PBC from the European Commission ~~granted conditional approval for Ocaliva for the treatment of PBC~~in December 2016 and we commenced our European commercial launch in January 2017. ~~In May~~We have submitted dossiers and obtained, or are otherwise pursuing, reimbursement from a number of national authorities in Europe. Since January 2017, ~~Health~~Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, ~~granted a conditional approval for Ocaliva in PBC~~Israel and Australia, and we ~~commenced our commercial launch in July 2017. We also plan to file~~are pursuing marketing approval of Ocaliva for ~~marketing authorization for OCA in~~ PBC in our other international target markets.
OCA is also being developed to treat a variety of other non-viral progressive liver diseases such as nonalcoholic steatohepatitis, or NASH, primary sclerosing cholangitis, or PSC, and biliary atresia. We are currently evaluating our future development strategy for OCA in other indications, for our product candidate INT-767 and for our pre-clinical candidates.
~~OCA has~~ Ocaliva received orphan drug designation in both the United States and the European Union for the treatment of ~~PBC and PSC and breakthrough therapy designation~~PBC.
Our lead product candidate is OCA for the potential treatment of NASH. In February 2019, we announced topline results from the ~~U.S. Food and Drug Administration, or FDA, for the treatment~~planned 18-month interim analysis of ~~NASH~~our pivotal Phase 3 clinical trial of OCA in patients with liver ~~fibrosis.~~
fibrosis due to NASH, known as the REGENERATE trial. In the primary efficacy analysis, once-daily OCA 25 mg met the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH at the planned 18-month interim analysis and adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of OCA. Interim analysis results at 18 months were based on surrogate endpoints and the impact on clinical outcomes has not been confirmed. The REGENERATE trial is ongoing to confirm the clinical benefit of OCA. OCA also achieved the primary endpoint in a Phase 2b clinical trial for the treatment of NASH completed in late July 2014, known as the FLINT trial, which was sponsored by the U.S. National Institute of Diabetes and Digestive and Kidney Diseases, ~~or NIDDK,~~ a part of the National Institutes of Health. ~~The FLINT trial was completed in late July 2014. We have an ongoing Phase 3 clinical trial in non-cirrhotic~~OCA has received breakthrough therapy designation from the FDA for the treatment of NASH patients with liver ~~fibrosis, known as~~fibrosis. In September 2019, we announced the ~~REGENERATE trial. REGENERATE includes~~submission of a ~~pre-planned histology-based interim analysis after 72 weeks~~New Drug Application (“NDA”) to the FDA seeking approval of ~~treatment. In May 2017, we completed enrollment of the interim analysis cohort~~OCA for NASH. We have requested a priority review designation for the ~~REGENERATE trial.~~NDA which, if granted, would result in an anticipated six-month review period. We ~~anticipate top-line results from~~also currently intend to file a Marketing Authorization Application (“MAA”) with the ~~interim analysis~~European Medicines Agency (“EMA”) for OCA for NASH in the ~~first half~~fourth quarter of 2019. We have also completed a Phase 2 clinical trial, known as the CONTROL trial, the goal of which was to characterize the lipid metabolic effects of OCA and cholesterol management effects of concomitant statin administration in NASH patients. We announced that this trial met its primary endpoint in July 2017. WeIn addition, we continue to work towards expanding our overall NASH development program with additional trials and studies, including aour ongoing Phase 3 trial in NASH patients with compensated cirrhosis, ~~which~~known as the REVERSE trial. In August 2019, we announced the expansion of the REVERSE trial from 540 patients to approximately 900 patients and the extension of the trial from 12 to 18 months. The primary histologic endpoint of fibrosis improvement with no worsening of NASH was not modified.

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As part of our product development activities, we expect to ~~initiate by the end of 2017.~~

~~In addition to PBC and NASH, we~~ continue to invest in ~~research~~evaluating the potential of OCA ~~for additional patient populations~~in other progressive non-viral liver diseases beyond PBC and NASH. We also intend to study OCA in combination with bezafibrate, a pan-peroxisome proliferator-activated receptor (“PPAR”) agonist, in patients with PBC and potentially other liver diseases. In July 2017, we announced top-line results of our Phase 2 AESOP trial in PSC which evaluated the effects of 24 weeks of treatment with varying doses of OCA compared to placebo. This trial achieved its primary endpoint, which we believe establishes a proof-of-concept of OCA in a second cholestatic liver disease. We plan to discuss these results with regulatory authorities to formulate our future development plans for OCA in PSC. In October 2015, we initiated a Phase 2 clinical trial, known as the CARE trial, of OCA in pediatric patients with biliary atresia. This trial will evaluate the effects of 11 weeks of OCA treatment where patients with biliary atresia are randomized to varying doses of OCA or a control group receiving only their current treatment. We have completed a Phase 1 clinical trial of our second product candidate to enter clinical development, called INT-767, a dual FXR and TGR5 agonist, in healthy volunteers. In order to streamline operating expenses, we plan to deprioritize our development program in INT-767 for the foreseeable future.

Our current patents for OCA are scheduled to expire at various times through 2033. Our current plan is to commercialize OCA ourselves in the United States, Europe and certain other target markets for the treatment of PBC, NASH and other indications primarily by targeting physicians who specialize in the treatment of liver and intestinal diseases, including both hepatologists and gastroenterologists. We own worldwide rights to OCA except for Japan, China and Korea, whereaddition, we have ~~exclusively licensed OCA to Sumitomo Dainippon Pharma Co., Ltd., or Sumitomo Dainippon along with an option to exclusively license OCA~~other compounds in ~~certain other Asian countries. We own or have rights to various trademarks, copyrights and trade names used in our business, including Ocaliva.~~

~~Our net loss for the nine months ended September 30, 2017 and 2016 was approximately $249.1 million and $292.8 million, respectively. As~~early stages of ~~September 30, 2017, we had an accumulated deficit of approximately $1.4 billion. Substantially all our net losses resulted from costs incurred in connection with our~~ research and development ~~programs and from selling, general and administrative costs associated with~~in our ~~operations.~~pipeline.

~~We expect to continue to incur significant expenses and operating losses for at least the next several years as we:~~

~~continue to commercialize Ocaliva for PBC in the United States, Europe and other jurisdictions where it has received marketing approval;~~

~~seek regulatory approval for and prepare to commercially launch Ocaliva for PBC in other target markets;~~

~~develop and seek regulatory approval for OCA in NASH and other indications; and~~

~~add infrastructure and personnel in the United States and internationally to support our product development and commercialization efforts and operations as a public company.~~

We anticipate that we will need to raise additional capital to commercialize OCA on a worldwide basis and continue our research and development activities in relation to OCA and our other pipeline candidates. Until we are able to consistently generate profits from our operations and become profitable, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise additional capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.

~~Our principal executive offices are in New York, New York. We also have administrative offices in San Diego, California and London, United Kingdom.~~

Recent Developments

OCA for NASH

~~On October 23, 2017,~~In September 2019, we announced ~~additional results from~~ the ~~Phase 2 AESOP trial evaluating~~submission of an NDA to the FDA seeking approval of OCA for NASH. We have requested a priority review designation for the ~~treatment of patients with PSC.~~

~~AESOP is a 24-week, double-blind, placebo-controlled, dose-ranging trial evaluating the efficacy and safety of OCA compared to placebo~~NDA which, if granted, would result in 77 patients with PSC. Patients were randomized to one of three treatment groups: placebo, OCA 1.5-3 mg, and OCA 5-10 mg (with dose titration occurring at the 12-week midpoint). OCA achieved the primary endpoint of the AESOP trial: patients receiving 5 mg of OCA daily with the option to titrate to 10 mg achieved a statistically significant reduction in ALP as compared to placebo at week 24 (p<0.05). The results from this dose-ranging study suggest that 5 mg may be the optimal titrated dose of OCA in this patient population.

(U/L) Placebo
(N = 25) OCA 1.5-3 mg
(N = 25) OCA 5-10 mg
(N = 26)
Mean Baseline ALP 563 423 429

Least Squares (LS) Mean Change from Baseline in ALP at Week 12 -53 -57 -135 *

LS Mean Change from Baseline in ALP at Week 24 -27 -105 -110 *†

LS Mean Percent Change from Baseline at Week 24 +1% -22 %* -22 %*
* p<0.05
~~† Primary endpoint was ALP change for OCA 5-10 mg compared to placebo at week 24.~~
Patients in the OCA 1.5-3 mg group achieved statistically significant reductions in ALP versus placebo as measured by LS mean percent change from baseline at week 24. By week 24, ALP increased 1% in the placebo group and decreased by 22% in both the OCA 1.5-3 mg and OCA 5-10 mg groups (p<0.05).
In AESOP, a significant proportion of patients used ursodiol, with 48%, 48% and 46% of patients on placebo, OCA 1.5-3 mg and OCA 5-10 mg, respectively, receiving ursodiol at baseline. In a post-hoc analysis examining the effects of OCA in the presence and absence of ursodiol, ALP reductions were observed with OCA regardless of treatment with ursodiol. Patients receiving OCA monotherapy had greater reductions in ALP at week 12 and week 24 as compared to patients who received OCA in addition to ursodiol. At week 12, patients in the OCA 5-10 mg group receiving OCA monotherapy achieved a 30% LS mean reduction in ALP as compared to a 16% reduction in patients receiving OCA in combination with ursodiol. At week 24, LS mean reductions in ALP in the OCA 5-10 mg group were 25% for patients receiving OCA monotherapy and 14% for patients receiving OCA in combination with ursodiol.
20
- UDCA + UDCA
Placebo OCA 1.5-3 mg OCA 5-10 mg Placebo OCA 1.5-3 mg OCA 5-10 mg
LS Mean Percent Change from Baseline in ALP at Week 12 -5 % -12 % -30 % -1 % -1 % -16 %

LS Mean Percent Change from Baseline in ALP at Week 24 -7 % -19 % -25 % 19 % -15 % -14 %
Pruritus is a common symptom of PSC and was the most common adverse event observed in AESOP, occurring in 46%, 60% and 67% of patients in the placebo, OCA 1.5-3 mg and OCA 5-10 mg groups, respectively.
~~A two-year open-label extension of AESOP remains ongoing. Of those patients who completed the double-blind phase of the AESOP trial, 97% chose to participate in the open-label extension phase.~~
an anticipated six-month review period.
Financial Overview
Revenue
We commenced our commercial launch of Ocaliva for ~~use in~~the treatment of PBC in the United States in June 2016. In December 2016, the European Commission granted conditional approval for Ocaliva for the treatment of PBC and we commenced our European commercial launch in January 2017. ~~In May~~Since January 2017, ~~Health~~Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, ~~granted~~Israel and Australia. We sell Ocaliva to a ~~conditional approval for Ocaliva in PBC and~~limited number of specialty pharmacies which dispense the product directly to patients. The specialty pharmacies are referred to as our customers.
Effective January 1, 2018, we ~~commenced our commercial launch in July 2017.~~
began recognizing revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of this revenue standard is ~~recognized when~~that a company should recognize revenue to depict the ~~four basic criteria~~transfer of ~~revenue recognition are met: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred~~promised goods or services ~~have been rendered; (3)~~to customers in an amount that reflects the ~~fee is fixed~~consideration to which the company expects to be entitled in exchange for those goods or ~~determinable; and (4) collectability is reasonably assured. When the revenue recognition criteria~~services. The following five steps are ~~not met, we defer the recognition of revenue by recording deferred revenue on the balance sheet until such time~~applied to achieve that ~~all criteria are met.~~core principle:
● Step 1: Identify the contract with the customer
● Step 2: Identify the performance obligations in the contract
● Step 3: Determine the transaction price
● Step 4: Allocate the transaction price to the performance obligations in the contract
● Step 5: Recognize revenue when the company satisfies a performance obligation
Product Revenue, Net
We provide the right of return to our customers for unopened product for a limited time before and after its expiration date. Prior to July 2017, given our limited sales history for Ocaliva and the inherent uncertainties in estimating product returns, we ~~had~~ determined that the shipments of Ocaliva made to our customers did not meet the criteria for revenue recognition at the time of shipment. Accordingly, we recognized revenue when the product was sold through toby our customers, provided all other revenue recognition criteria were met. We invoiced our customers upon shipment of Ocaliva to them and recorded accounts receivable, with a corresponding liability for deferred revenue equal to the gross invoice price. We then recognized revenue when Ocaliva was sold through as specialty pharmacies dispensed product directly to the patients (sell-through basis).
We re-evaluated our revenue recognition policy in the third quarter of 2017, which included the accumulation and review of ~~customer related~~customer-related transactions since our commercial launch in the second quarter of 2016. We ~~now believe~~concluded we ~~have~~had accumulated sufficient data to reasonably estimate product returns and, therefore, ~~we will now effectively~~began to recognize revenue at the time of shipment to our customers (sell-in basis).
~~During the third quarter of 2017,~~Under ASC 606, we recorded an adjustment related to this change in estimate to recognize previously deferred revenue. The net effect was an increase in net sales of Ocaliva of $4.1 million for the three and nine months ended September 30, 2017. We also established a new reserve of $0.7 million during third quarter of 2017 related to future returns from our customers under our various contracts
We recognized net sales of Ocaliva of $40.9 million and $4.7 million for the three months ended September 30, 2017 and 2016, respectively, and $91.9 million and $4.8 million for the nine months ended September 30, 2017 and 2016, respectively.
21
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 ~~when~~and the customer receives Ocaliva. We evaluate the creditworthiness of each of our customers to determine whether collection is

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reasonably assured. ~~In order to conclude that the price is fixed and determinable, we must be able to (i) calculate our gross product revenues from the sales to our customers and (ii) reasonably~~We estimate ~~our net product revenues. We calculate~~variable revenue by calculating gross product revenues based on the wholesale acquisition cost that we ~~charges~~charge our customers for ~~Ocaliva. We estimate~~Ocaliva, and then estimating our net product revenues by deducting ~~from our gross product revenues~~ (i) trade allowances, such as invoice discounts for prompt payment and customer fees, (ii) estimated government rebates and discounts related to Medicare, Medicaid and other government programs, and (iii) estimated costs of incentives offered to certain indirect customers including patients.

~~Licensing Revenue~~

We ~~recognize revenue derived from our collaborative agreements~~recognized net sales of Ocaliva of $61.5 million and $46.6 million for the ~~development~~three months ended September 30, 2019 and ~~commercialization of certain of our product candidates.~~ 2018, respectively, and $179.3 million and $124.9 million for the nine months ended September 30, 2019 and 2018, respectively.

Licensing Revenue

In March 2011, we entered into an exclusive ~~licensing~~license agreement (the “Original Sumitomo Agreement”) with Sumitomo Dainippon Pharma Co., Ltd. (“Sumitomo Dainippon”), pursuant to which we granted to Sumitomo Dainippon an exclusive license to research, develop and commercialize OCA for the treatment of PBC and NASH in Japan and China (excluding Taiwan) and an option to research, develop and commercialize OCA in certain countries outside of such territories (the “Country Option”). We received an upfront payment from Sumitomo Dainippon of $15.0 million under the terms of the Original Sumitomo Agreement. In May 2014, Sumitomo Dainippon exercised the Country Option in part to add Korea as part of its licensed territories and paid us a $1.0 million upfront fee in connection therewith. In February 2018, we and Sumitomo Dainippon entered into Amendment No. 3 (the “Sumitomo Amendment”) to the Original Sumitomo Agreement (as amended, the “Sumitomo Agreement”), pursuant to which (i) Sumitomo Dainippon agreed to return the rights to develop and commercialize OCA in Japan and Korea and waived its rights to the Country Option, (ii) we agreed to forego any further milestone or royalty payments relating to the development and commercialization of OCA in Japan and Korea and (iii) certain milestone payment obligations with respect to the development and commercialization of OCA were adjusted. In October 2019, we and Sumitomo Dainippon mutually agreed to terminate with immediate effect the Sumitomo Agreement. In connection with the termination of the Sumitomo Agreement, Sumitomo Dainippon agreed to return to us the rights to develop and commercialize OCA in China and ~~Korea. Under~~we agreed to forego any further milestone or royalty payments relating to the ~~terms~~development and commercialization of OCA in China. No payment is due from us to Sumitomo Dainippon as a result of the ~~agreement, we have received up-front payments~~termination of ~~$16.0 million, including $1.0 million upon~~ the ~~exercise by~~ Sumitomo Dainippon of its option to add Korea to its licensed territories, and may be eligible to receive up to approximately $300.0 million in additional payments for development, regulatory and commercial sales milestones for OCA in the licensed territories. Agreement.

As of September 30, ~~2017,~~2019, we ~~have~~had achieved $6.0 million of development milestones under the ~~development and regulatory milestones.~~

Sumitomo Agreement.

For accounting purposes, the ~~up-front~~upfront payments ~~are~~were recorded as deferred revenue and amortized over time and milestone payments are recognized once earned. WeThe Company recognized ~~$1.3~~licensing revenue of $0.4 million and ~~$6.3~~$0.4 million for the three months ended September 30, 2019 and 2018, respectively, ~~in license revenue resulting from milestone payments~~ and ~~the amortization of the up-front payments under the collaboration agreement~~$1.2 million and $1.6 million for the nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018, respectively, related to the amortization of the upfront payments under the Sumitomo Agreement. Included in licensing revenue for the nine months ended September 30, 2018 is $0.4 million related to the accelerated recognition, as a result of the Sumitomo Amendment, of the remaining portion of deferred revenue associated with the $1.0 million upfront payment that we received under the Original Sumitomo Agreement in connection with Sumitomo Dainippon’s exercise of the Country Option with respect to Korea. We anticipate that we will recognize additional revenue of approximately ~~$1.8~~$1.2 million ~~per year through 2020, for~~in the fourth quarter of 2019, related to the amortization of upfront payments under the ~~relevant up-front collaboration payments from~~ Sumitomo ~~Dainippon.~~Agreement.

Selling, General and Administrative Expenses

~~Our selling, general~~We have incurred and ~~administrative expenses, excluding the one-time net expense of $45.0 million attributable to the settlement of a purported securities class action lawsuit in 2016, have increased and we~~ expect to continue to incur significant selling, general and administrative expenses ~~due to~~as a result of, among other initiatives, the launch and commercialization of Ocaliva for PBC in the United States, Europe and ~~certain~~our other ~~countries,~~target markets, the preparation for the potential commercialization of OCA ~~in PBC in~~for NASH, if approved, and our other ~~international markets~~future approved products, if any, and ~~development activities for OCA in indications other than PBC~~the build-out of our general and ~~other product candidates. We further plan on expanding our operations both~~administrative infrastructure in the United States and ~~abroad, which will increase our selling, general and administration expenses. We believe that these activities will result in costs related to the hiring~~abroad.

Table of additional personnel, fees for outside consultants, lawyers and accountants, and the maintenance of facilities. We have also incurred and expect to continue to incur increased costs to comply with corporate governance, internal controls, compliance and similar requirements applicable to public companies with expanding operations and biopharmaceutical companies undertaking worldwide product launches.Contents

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, ~~manufacturing~~pursuing regulatory approvals and engaging in other product development ~~efforts and activities related to regulatory filings for our product candidates.~~activities. We recognize research and development expenses as they are incurred.

~~Our research~~We have incurred and ~~development expenses have increased and we~~ expect to continue to incur significant ~~expenses due to our preclinical studies and clinical trials and other research and development efforts. We anticipate that our~~ research and development expenses ~~will be substantial~~as a result of, among other initiatives, our clinical development programs for ~~the foreseeable future as we continue the development of~~ OCA for ~~the treatment of~~ PBC ~~NASH~~ and ~~PSC and other indications and to further advance the development of~~NASH, our other ~~product candidates, subject to the availability of additional funding.~~

earlier stage research programs and our regulatory approval efforts.

Results of Operations

Comparison of the Three Months Ended September 30, ~~2017~~2019 and ~~2016~~

2018

The following table summarizes our results of operations for ~~each of~~ the three months ended September 30, ~~2017~~2019 and ~~2016, together with the changes in those items in dollars:~~2018:

Three Months Ended September 30,


2019

2018

(in thousands)
Revenue:




Product revenue, net

$
61,545

$
46,581
Licensing revenue

405

405
Total revenue

61,950

46,986

Operating expenses:




Cost of sales

487

519
Selling, general and administrative

76,828

56,812
Research and development

60,168

47,941
Total operating expenses

137,483

105,272
Operating loss

(75,533)

(58,286)
Other income (expense):




Interest expense

(11,795)

(7,671)
Other income, net

2,495

1,503

(9,300)

(6,168)
Net loss

$
(84,833)

$
(64,454)

Three Months Ended September 30, Dollar Change
2017 2016
(In thousands)
Revenue:
Product revenue, net $ 40,889 $ 4,732 $ 36,157
Licensing revenue 445 445 -
Total revenue 41,334 5,177 36,157
Operating expenses:
Cost of sales 172 - 172
Selling, general and administrative 61,356 52,802 8,554
Research and development 45,977 35,411 10,566
Total operating expenses 107,505 88,213 19,292
Operating loss (66,171 ) (83,036 ) 16,865
Other income (expense):
Interest expense (7,354 ) (7,065 ) (289 )
Other income, net 924 1,286 (362 )
(6,430 ) (5,779 ) (651 )
Net loss $ (72,601 ) $ (88,815 ) $ 16,214
22
Revenues
Product revenue, net was ~~approximately $40.9~~$61.5 million and ~~$4.7~~$46.6 million for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. We commenced our commercial launch in the United States for Ocaliva in PBC in June 2016, and in certain European countries and Canada in 2017. We recognized product revenue, net of $36.2 million and $4.7 million in the United States and in ex-U.S. countries, respectively, during the three months ended September 30, 2017. For the three months ended September 30, 2019 and 2018, product revenue, net was comprised of U.S. Ocaliva net sales of $45.2 million and $36.7 million, respectively, and ex-U.S. Ocaliva net sales of $16.3 million and $9.9 million, respectively. We commenced our commercial launch of Ocaliva for the treatment of PBC in the United States and certain European countries in June 2016 and January 2017, respectively. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and ~~2016, licensing revenue was approximately $445,000~~Europe, including Canada, Israel and $445,000, respectively, which resulted from the recognition of development and regulatory milestones and amortization of the up-front payments under the collaboration agreement with Sumitomo Dainippon.
~~Cost of sales~~
~~Cost of sales was $172,000 and $0 for~~Australia. For the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, licensing revenue was $0.4 million and $0.4 million, respectively, ~~due~~in each case, related to the ~~commercial launch in~~amortization of upfront payments under the ~~United States for Ocaliva in PBC in June 2016 and in certain European countries in 2017.~~Sumitomo Agreement.
Cost of sales
~~Selling, general and administrative expenses~~
~~Selling, general and administrative expenses were $61.4~~Cost of sales was $0.5 million and ~~$52.8~~$0.5 million for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. ~~The $8.6 million net increase between periods is~~Our cost of sales for the quarters ended September 30, 2019 and 2018 consisted primarily ~~due to an increase in personnel-related costs~~ of ~~$4.5 million to support our commercial~~packaging, labeling, materials and ~~international initiatives~~related expenses.

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Selling, general and ~~an increase of $5.8 million in indirect~~administrative expenses ~~(rent, travel~~

Selling, general and ~~legal costs), partially offset by decreased expenses of approximately $1.7 million in Ocaliva commercialization activities and market research.~~

~~Research and development expenses~~

~~Research and development~~administrative expenses were ~~$46.0~~$76.8 million and ~~$35.4~~$56.8 million for the three months ended September 30, ~~2017~~2019 and ~~2016, respectively, representing a~~2018, respectively. The $20.0 million net increase between periods was primarily driven by increases in expenses relating to our launch preparation activities associated with the potential approval and commercialization of ~~$10.6 million. This net increase in research~~OCA for NASH.

Research and development ~~expense primarily reflects increases in OCA research~~expenses

Research and development ~~activities of approximately $13.2 million, partially offset by a decrease in indirect costs of $2.6 million.~~

~~Interest expense~~

~~Interest expense was $7.4~~expenses were $60.2 million and ~~$7.1~~$47.9 million for the three months ended September 30, ~~2017~~2019 and ~~2016, respectively due to~~2018, respectively. The $12.3 million net increase between periods was primarily driven by increases in OCA for NASH development program expenses and costs associated with the ~~issuance~~preparation of ~~our 3.25% convertible senior notes due 2023, or Convertible Notes, in July 2016.~~the NASH NDA submission.

Interest expense

~~Other income, net~~

~~Other income, net~~Interest expense was ~~$924,000~~$11.8 million and ~~$1.3~~$7.7 million infor the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. ~~The $362,000 decrease~~For the three months ended September 30, 2019, interest expense related to the 2026 Convertible Notes that we issued in May 2019 and the $460.0 million aggregate principal amount of 3.25% Convertible Senior Notes due 2023 (the “2023 Convertible Notes” and together with the 2026 Convertible Notes, the “Convertible Notes”) that we issued in July 2016. For the three months ended September 30, 2018, interest expense related only to the 2023 Convertible Notes.

Other income, net

Other income, net was $2.5 million and $1.5 million for the three months ended September 30, 2019 and 2018, respectively. Such income is primarily attributable to ~~decreased~~ interest income earned on cash, cash equivalents and investment ~~securities, which decreased compared to the prior year period primarily due to the sales of investment securities during the three months ended September 30, 2017.~~debt securities.

Income taxes

For the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, 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 Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~

2018

The following table summarizes our results of operations for ~~each of~~ the nine months ended September 30, ~~2017~~2019 and ~~2016, together with the changes in those items in dollars:~~2018:

Nine Months Ended September 30,


2019

2018

(in thousands)
Revenue:




Product revenue, net

$
179,286

$
124,908
Licensing revenue

1,216

1,616
Total revenue

180,502

126,524

Operating expenses:




Cost of sales

1,738

1,512
Selling, general and administrative

223,738

184,503
Research and development

178,163

144,028
Total operating expenses

403,639

330,043
Operating loss

(223,137)

(203,519)
Other income (expense):




Interest expense

(29,518)

(22,769)
Other income, net

6,132

5,051

(23,386)

(17,718)
Net loss

$
(246,523)

$
(221,237)

23
Nine Months Ended September 30, Dollar Change
2017 2016
(In thousands)
Revenue:
Product revenue, net $ 91,933 $ 4,807 $ 87,126
Licensing revenue 1,336 6,336 (5,000 )
Total revenue 93,269 11,143 82,126
Operating expenses:
Cost of sales 548 - 548
Selling, general and administrative 189,363 197,382 (8,019 )
Research and development 134,001 102,292 31,709
Total operating expenses 323,912 299,674 24,238
Operating loss (230,643 ) (288,531 ) 57,888
Other income (expense):
Interest expense (21,840 ) (7,065 ) (14,775 )
Other income, net 3,388 2,807 581
(18,452 ) (4,258 ) (14,194 )
Net loss $ (249,095 ) $ (292,789 ) $ 43,694
Revenues
Product revenue, net was ~~approximately $91.9~~$179.3 million and ~~$4.8~~$124.9 million for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. For the nine months ended September 30, 2019 and 2018, product revenue, net was comprised of U.S. Ocaliva net sales of $133.9 million and $99.7 million, respectively, and ex-U.S. Ocaliva net sales of $45.4 million and $25.2 million, respectively. We commenced our commercial launch inof Ocaliva for the ~~United States for Ocaliva in~~treatment of PBC ~~in June 2016, and in certain European countries and Canada in 2017. We recognized product revenue, net of $83.8 million and $8.1 million~~ in the United States and certain European countries in ~~ex-U.S. countries, respectively, during~~June 2016 and January 2017, respectively. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia. For the nine months ended September 30, ~~2017. For each of the nine months ended September 30, 2017~~2019 and ~~2016,~~2018, licensing revenue was ~~approximately $1.3~~$1.2 million and ~~$6.3~~$1.6 million, respectively, ~~which resulted from~~in each case, related to the ~~recognition of development and regulatory milestones and~~ amortization of ~~the up-front~~upfront payments under the ~~collaboration agreement with~~ Sumitomo ~~Dainippon.~~Agreement. The decrease in licensing revenue related to the accelerated recognition in the first quarter of 2018 of certain upfront payments under the Original Sumitomo Agreement resulting from the Sumitomo Amendment.
Cost of sales
Cost of sales was $548,000 and $0 for the nine months ended September 30, 2017 and 2016, respectively, due to the commercial launch in the United States for Ocaliva in PBC in June 2016 and in certain European countries in 2017.
~~Selling, general and administrative expenses~~
~~Selling, general and administrative expenses were $189.4~~$1.7 million and ~~$197.4~~$1.5 million for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. ~~The $8.0 million net decrease between periods is~~Our cost of sales for the nine months ended September 30, 2019 and 2018 consisted primarily ~~due to the one-time net expense~~ of ~~$45.0 million attributable to the settlement of a purported securities class action lawsuit in 2016 plus~~packaging, labeling, materials and related ~~legal~~expenses.
Selling, general and administrative expenses of $2.9 million in 2016, along with a decrease in consultant spend of $2.2 million. These decreases were partially offset by increased expenses of approximately $22.4 million in additional personnel-related costs to support our commercial
Selling, general and ~~international initiatives, $16.2 million in Ocaliva commercialization activities and market research and indirect expenses (rent, travel and product-related legal costs) of $3.5 million.~~
~~Research and development expenses~~
~~Research and development~~administrative expenses were ~~$134.0~~$223.7 million and ~~$102.3~~$184.5 million for the nine months ended September 30, ~~2017~~2019 and ~~2016, respectively, representing a~~2018, respectively. The $39.2 million net increase between periods was primarily driven by increases in expenses relating to our launch preparation activities associated with the potential approval and commercialization of ~~$31.7 million. This net increase in research~~OCA for NASH.

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Research and development ~~expense primarily reflects increases in OCA research~~expenses

Research and development ~~activities of approximately $33.3 million to support our development activities, partially offset by a decrease of $750,000 of compensation-related costs and indirect costs of $850,000.~~

~~Interest expense~~

~~Interest expense was $21.8~~expenses were $178.2 million and ~~$7.1~~$144.0 million for the nine months ended September 30, ~~2017~~2019 and ~~2016, respectively due to~~2018, respectively. The $34.2 million net increase between periods was primarily driven by increases in OCA for NASH development program expenses and costs associated with the ~~issuance~~preparation of the ~~Convertible Notes, in July 2016.~~NASH NDA submission.

Interest expense

~~Other income, net~~

~~Other income, net~~Interest expense was ~~$3.4~~$29.5 million and ~~$2.8~~$22.8 million infor the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. ~~The $0.6~~For the nine months ended September 30, 2019, interest expense related to the 2026 Convertible Notes that we issued in May 2019 and the 2023 Convertible Notes that we issued in July 2016. For the nine months ended September 30, 2018, interest expense related only to the 2023 Convertible Notes.

Other income, net

Other income, net was $6.1 million ~~increase~~and $5.1 million for the nine months ended September 30, 2019 and 2018, respectively. Such income is primarily attributable to interest income earned on cash, cash equivalents and investment ~~securities, which increased compared to the prior year period primarily due to the net proceeds from the issuance of our Convertible Notes in July 2016.~~debt securities.

Income taxes

For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, 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~~

As of September 30, 2017, we had an accumulated deficit of $1.4 billion. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and selling, general and administrative expenses will continue to be significant and, as a result, we will need additional capital to fund our operations, which we may seek to obtain through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

We have funded our operations primarily through the sale of common stock, preferred stock, convertible notes and warrants and payments received under our collaboration agreements totaling approximately $1.4 billion (net of issuance costs of $46.1 million). As of September 30, 2017, we had cash, cash equivalents and investment securities of $492.7 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our funds are held in cash and money market bank accounts and investments, all of which have maturities of less than two years.

Cash Flows

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

Nine Months Ended September 30,


2019

2018

(in thousands)
Net cash provided by (used in):




Operating activities

$
(176,129)

$
(187,902)
Investing activities

(254,876)

(84,999)
Financing activities

451,639

263,105
Effect of exchange rate changes

(505)

(835)
Net increase/(decrease) in cash and cash equivalents

$
20,129

$
(10,631)
Nine Months Ended September 30,
2017 2016
(In thousands)
Net cash provided by (used in):
Operating activities $ (188,943 ) $ (252,979 )
Investing activities 262,380 (86,309 )
Financing activities 2,077 413,780

Operating Activities.Net cash used in operating activities of approximately ~~$188.9~~$176.1 million during the nine months ended September 30, ~~2017~~2019 was primarily a result of our ~~$249.1~~$246.5 million net loss and a gain on lease termination of $2.0 million, partially offset by ~~a net increase of $41.6~~$42.8 million in stock-based compensation, ~~$9.6~~$15.1 million for accretion of the ~~discount~~discounts on ~~our~~the Convertible Notes, ~~$2.8 million for the amortization of investment premium and $3.3 million of depreciation.~~
Net cash used in operating activities of $253.0 million during the nine months ended September 30, 2016 was primarily a result of our $292.8 million net loss, offset by the add-back of non-cash expenses of $27.0 million for stock-based compensation, the amortization of investment premium of $3.7 million and a net increase in operating assets and liabilities of ~~$3.5 million.~~$4.1 million, including a U.K. research & development tax credit of $10.5 million, $2.7 million for loss on the disposal of fixed assets, $4.0 million for non-cash operating lease costs and $2.8 million of depreciation.
Net cash used in operating activities of approximately $187.9 million during the nine months ended September 30, 2018 was primarily a result of our $221.2 million net loss and a net decrease in operating assets and liabilities of $21.7 million, partially offset by $38.4 million in stock-based compensation, $10.4 million for accretion of the discount on the 2023 Convertible Notes, $1.3 million for the loss on disposal of fixed assets and $3.6 million of depreciation.

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Investing Activities. For the nine months ended September 30, ~~2017,~~2019, net cash ~~provided~~used by investing activities primarily reflects the ~~sale~~purchase of investment debt securities of ~~$398.5~~$560.7 million, partially offset by the ~~purchase~~sales of investment debt securities of ~~$127.0 million and $9.2 million of capital expenditures related to the build out of our new corporate office.~~

$306.9 million.

For the nine months ended September 30, ~~2016,~~2018, net cash used inby investing activities primarily reflects the ~~sale~~purchase of investment debt securities of ~~$361.0~~$378.3 million, partially offset by the ~~purchase~~sales of investment debt securities of ~~$443.3 million and $4.0 million of capital expenditures related to our offices.~~

$293.3 million.

Financing Activities. Net cash provided by financing activities in the nine months ended September 30, ~~2017~~2019 consisted primarily of ~~$2.1 million~~net proceeds received from the ~~exercise~~2019 Public Offering and 2019 Concurrent Private Placement of ~~options to purchase common stock.~~

$227.2 million and net proceeds from the issuance of the 2026 Convertible Notes of $223.4 million.

Net cash provided by financing activities in the nine months ended September 30, ~~2016~~2018 consisted primarily of ~~$447.7~~net proceeds of $261.4 million from ~~the proceeds~~our issuance and sale of ~~the issuance of Convertible Notes, net of issuance costs~~common stock in a public offering and ~~$4.4~~concurrent private placement in April 2018 and $1.7 million from the exercise of options to purchase common stock ~~partially offset by $38.4 million~~net of payments ~~for capped call transactions and associated costs.~~

of employee withholding taxes related to stock-based awards.

Future Funding Requirements

While we commenced our commercial launch of Ocaliva for use in PBC in the United States, Europe and other jurisdictions where it has received marketing approval, we cannot predict the period, if any, in which material net cash inflows from sales of OCA or our other product candidates can sustain our operations. We expect to continue to incur significant expenses in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates.

We have incurred and expect to incur additional costs associated with our plans to further expand our operations in the United States, Europe and in certain other countries. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. As part of our longer-term strategy, we also anticipate incurring expenses in connection with increases in our product development, scientific, commercial and administrative personnel and expansion of our infrastructure in the United States and abroad. We may also engage in activities that involve potential in- or out-licensing of products or technologies or acquisitions of other products, technologies or businesses. We anticipate that we will need substantial additional funding in connection with our continuing operations.

As of September 30, ~~2017,~~2019, we had ~~$492.7~~$712.4 million in cash, cash equivalents and investment debt securities. We currently ~~project adjusted~~expect to continue to incur significant operating expenses ~~will fall in the middle of our previously guided range of $380 million to $420 million~~ in the fiscal year ending December 31, ~~2017, which excludes stock-based compensation and other non-cash items.~~2019. These expenses are planned to support, among other initiatives, the continued commercialization of Ocaliva infor PBC in the United States and our other markets, launch preparation activities associated with the potential approval and commercialization of OCA for NASH, our continued clinical development of OCA for ~~OCA in~~ PBC ~~NASH~~ and ~~PSC~~NASH and our other earlier stage ~~pipeline~~research programs. ~~We may make additional investments over 2017 as~~Although we believe that our ~~business evolves. Our adjusted operating expense estimate~~existing capital resources, together with our net sales of Ocaliva for ~~2017 is higher than our adjusted operating expenses for 2016, reflecting continued investment in clinical development programs and commercialization activities.~~
Adjusted operating expense is a financial measure not calculated in accordance with U.S. generally accepted accounting principles, or GAAP. For the nine months ended September 30, 2016, adjusted operating expense also excludes a one-time $45 million net expense for the settlement of a purported class action lawsuit. Other than the net class action lawsuit settlement amount, which is a one-time expense, we anticipate that stock-based compensation expensePBC, will ~~represent the most significant non-cash item that is excluded in adjusted operating expenses as compared to operating expenses under GAAP. See “Non-GAAP Financial Measures” for more information.~~
Due to the many variables inherent to the development and commercialization of novel therapies and our rapid growth and expansion, we currently cannot accurately and precisely predict the duration beyond mid-2018 over which we expect our cash and cash equivalents to be sufficient to fund our anticipated operating ~~expenses~~requirements for the next twelve months and the initial phase of the anticipated U.S. launch of OCA for NASH, we may need to raise additional capital ~~expenditure~~to fund our operating requirements beyond that period. Furthermore, in light of 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. ~~However,~~Accordingly, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our forecast regarding the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results, including the costs to maintain our currently ~~believe~~planned operations, could vary materially.
Our forecasts regarding the period of time that our ~~cash and cash equivalents~~existing capital resources will be sufficient ~~for us~~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:
·● ~~continue the initial commercialization~~our ability to successfully commercialize Ocaliva for PBC;
● our ability to maintain our regulatory approval of Ocaliva for PBC in the United States, ~~the European Union~~Europe, Canada, Israel, Australia and other jurisdictions ~~where it has received~~in which we have or may receive marketing ~~approval;~~authorization;
·● ~~prepare for and initiate~~ the ~~commercial launch of Ocaliva in PBC in certain other target markets across the world, but not commercially launch Ocaliva in PBC in non-target countries across the world;~~
· continue and expand our clinical development programs for OCA in PBC and NASH, such as continuing, but not completing, our planned Phase 3 clinical program for OCA in NASH, including the REGENERATE trial, and our ongoing COBALT confirmatory clinical outcomes trial of OCA in PBC; and
· initiation, timing, cost, conduct, ~~further assessments of OCA for use in PSC and potentially initiate, but not complete, additional clinical trials for OCA in PSC.~~
Accordingly, we will continue to require substantial additional capital in connection with our continuing operations, including continuing our commercialization plans and our research and development activities and building our global infrastructure to support these activities.
~~The amount and timing of our future funding requirements will depend on many factors, including:~~
· ~~the rate of~~ progress and ~~cost of our continued commercialization activities for Ocaliva in PBC in jurisdictions where it has received marketing approval;~~
· our ability to receive marketing approval of Ocaliva for PBC in countries where it has not received marketing approval based on our regulatory submissions package and our work completed to date, including the willingness of the relevant regulatory authorities to accept the POISE trial, which is our completed Phase 3 clinical trial for PBC;
· ~~the degree of effort and time needed to prepare for and initiate the commercial launches of Ocaliva in PBC in the jurisdictions where it receives marketing approval;~~
· ~~the progress, costs,~~ results of and timing of our clinical development programs for OCA in PBC, NASH, PSC and other indications, such as the COBALT trial, the REGENERATE trial, the upcoming Phase 3 trial in NASH patients with cirrhosis or other trials we may conduct;
· ~~the outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals;~~
· ~~the expansion~~ 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 in the ~~product candidates that~~jurisdictions in which we ~~pursue, including~~intend to seek approval or completing and timely reporting the results of our ~~product candidates in preclinical development such as INT-777;~~NASH or PBC clinical trials;
·● ~~the expansion~~our ability to timely and cost-effectively file for and obtain regulatory approval of our ~~operations, personnel and~~product candidates, including OCA for NASH, in the ~~size of our company~~United States, Europe and our ~~need to continue to expand in the longer term;~~other target markets;
·● ~~the costs associated with securing and establishing manufacturing capabilities and procuring the materials necessary~~conditions that may be imposed by regulatory authorities on our marketing approvals for our products and product ~~candidates;~~candidates, such as the need for clinical outcomes data (and not just results based on achievement of

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a surrogate endpoint), 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 NASH or our other product candidates that could delay or prevent approval, require that an approved product be taken off the market, ~~acceptance~~require the inclusion of safety warnings or precautions or otherwise limit the sale of such product or product candidate;

●

our ability to identify, develop and successfully commercialize our products and product candidates, ~~which may be affected by reimbursement from payors;~~

~~the costs of acquiring, licensing or investing in businesses, products, product candidates~~including our ability to timely and ~~technologies;~~successfully launch OCA for NASH, if approved;

·●

our ability to ~~maintain, expand~~obtain and ~~defend the scope of our~~maintain intellectual property ~~portfolio,~~protection for our products and product candidates, including ~~the amount~~our ability to cost-effectively file, prosecute, defend and ~~timing of~~enforce any ~~payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents~~patent claims or other intellectual property rights;

·●

the ~~effect~~size and growth of ~~competing technological~~the markets for our products and ~~market developments;~~product candidates and our ability to serve those markets;

·●

the degree of market acceptance of Ocaliva for PBC and, if approved, OCA for NASH or our other ~~cash needs that may arise as we continue to operate our business.~~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 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 prevent system failures, data breaches or violations of data protection laws;

●

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 and short-term investments;

●

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

●

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

●

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

●

our ability to obtain and maintain adequate insurance coverage;

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●

the impact of general U.S. and foreign economic, industry, market, regulatory or political conditions, including the potential impact of Brexit; and

●

We have no committed external sources of ~~funding. Until such time, if ever, as~~funding and additional funds may not be available when we ~~can consistently generate profits from~~need them on terms that are acceptable to us, or at all. In addition, our ~~operations~~restated certificate of incorporation authorizes us to issue 45 million shares of common stock. Following the 2019 Public Offering, and ~~become profitable, we expect to finance our cash needs through a combination~~after taking into account shares of ~~equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To~~common stock reserved for issuance upon the ~~extent that we raise additional capital through~~exercise of outstanding stock options, the ~~sale~~vesting of ~~equity or convertible debt securities, the ownership interests of our common stockholders will be diluted,~~outstanding restricted stock units (including performance restricted stock units) and the ~~terms~~conversion of ~~these securities may include liquidation or other preferences that adversely affect~~ the ~~rights~~Convertible Notes, together with shares of common stock available for future grants under our ~~common stockholders. Debt financing, if~~equity incentive plan, we have a limited number of remaining unreserved and authorized shares available ~~may involve agreements that include covenants limiting or restricting~~for issuance, which could impact our ability to ~~take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we~~ raise additional funds ~~through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties,~~in the future. If adequate funds are not available to us, we ~~may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that~~ may not be ~~favorable~~able to ~~us.~~

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 ~~and Commitments~~

There have been no material changes to our contractual obligations ~~and commitments~~ outside the ordinary course of business from those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations-Contractual Obligations and Commitments”~~Operations—Contractual Obligations” in our Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~

Report.

Off-Balance Sheet Arrangements

As of September 30, ~~2017,~~2019, we did not have any off-balance sheet ~~arrangements as defined under the rules of the Securities and Exchange Commission.~~arrangements.

Item 3. Quantitative and Qualitative ~~Disclosure~~Disclosures About Market ~~Risk~~
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 ~~since~~to our market risk from that disclosed under the caption “Quantitative and Qualitative Disclosures about Market Risk” in our Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report.
Item 4. Controls and ~~Procedures~~
Procedures.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as(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 ~~September 30, 2017,~~the Exchange Act, our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer~~Chief Financial Officer have concluded that as of ~~such date,~~the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were ~~adequate and~~ effective.
Changes in Internal Control ~~over~~Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during ~~the~~our most recent fiscal quarter ~~ended September 30, 2017 identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act~~ 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~~Proceedings.
~~On September 27, 2017,~~For a purported shareholder class action, styled Judith DeSmet v. Intercept Pharmaceuticals, Inc., Mark Pruzanski and Sandip S. Kapadia was filed in the United States District Court for the Southern District of New York, naming us and certaindescription of our officers as defendants. This lawsuit was filed by a stockholder who claims to be suing on behalf of anyone who purchased or otherwise acquired our securities between May 31, 2016 and September 20, 2017. The lawsuit alleges that we made material misrepresentations and/or omissions of material fact in our public disclosures during the period from May 31, 2016 and September 20, 2017, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The alleged improper disclosures relate to statements regarding our business, operational and compliance policies. The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees. Additional complaints may be filed against us and our directors and officers relatedsignificant legal proceedings, see Note 15 to our ~~disclosures.~~
27
~~We believe that we have valid defenses to the claims~~unaudited condensed consolidated financial statements included elsewhere in ~~the lawsuit~~this Quarterly Report on Form 10-Q and intend to defend ourselves vigorously. At this time, no assessment can be made as to the likely outcome of this lawsuit or whether the outcome will be material to us. Therefore, we have not accrued for any loss contingencies related to this lawsuit.incorporated by reference herein.
Item 1A. Risk ~~Factors~~Factors.
Investing in our securities involves a high degree of risk. The following risk factors and other information included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018 should be carefully ~~considered.~~considered before deciding whether to invest in our securities. The risks and uncertainties described below and in our other filings are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. ~~Please see the “Forward-Looking Statements” section of this Quarterly Report on Form 10-Q for a discussion of some of the forward-looking statements that are qualified by these risk factors.~~ If any of the following risks, or such unknown risks, occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In that case, the market price of our securities could decline, and you may lose all or part of your investment.
Risks Related to Our Financial Position and Need for Additional Capital
We are currently dependent on the successful commercialization of ~~Ocaliva® (obeticholic acid or OCA),~~Ocaliva for ~~primary biliary cholangitis, or~~ 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.
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 ~~ursodiol~~UDCA in adults with an inadequate response to ~~ursodiol~~UDCA or as monotherapy in adults unable to tolerate ~~ursodiol.~~UDCA.

Our ability to generate profits from operations and become profitable ~~will depend~~currently depends on the commercial success of ~~commercial sales of Ocaliva.~~Ocaliva for PBC. However, the successful commercialization of Ocaliva infor PBC is subject to many risks. We ~~are currently undertaking our first commercial launch with Ocaliva in PBC,~~have not launched or commercialized a drug before, 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 ~~more~~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. While we continue to conduct various activities, such as profiling of our customers, to better understand how physicians care for PBC patients, PBC is an orphan disease in which Ocaliva represented the first new therapy in approximately 20 years. As such, there is significant uncertainty in the degree of market acceptance that Ocaliva will have infor PBC. For example, if the patient population suffering from PBC is smaller than we estimate, or even if the patient population matches our ~~estimate~~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.~~Ocaliva for PBC. Furthermore, any negative development in any other development program offor OCA or our failure to satisfy the post-marketing regulatory commitments and requirements to which we are or may become subject, including the completion of our Phase 4 COBALT trial, may materially and adversely impact the commercial results and potential of ~~Ocaliva.~~Ocaliva for PBC. See “—Risks Related to the Commercialization of Our Products” and “—Risks Related to the Development and the Regulatory Review and Approval of Our Products and Product Candidates” below.

As a result, ~~we cannot foresee if~~it is uncertain whether Ocaliva net sales for PBC will ~~ever be accepted as a therapy in PBC that eventually results in revenues that can~~ sustain ~~operations. It~~our operations and it may take ~~the passage of~~ a significant amount of time ~~to generate sufficient revenues to~~before Ocaliva net sales for PBC sustain ~~operations even if~~our operations. Furthermore, Ocaliva ~~becomes accepted as a therapy in PBC. Furthermore, because Ocaliva is still undergoing regulatory review in a number of jurisdictions outside of the United States and the European Union, we~~ may not ~~be able to commercialize Ocaliva in~~receive regulatory approval for PBC in ~~such other~~ jurisdictions beyond those in which it is currently approved, which may also limit our prospects. If

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the commercialization of Ocaliva for PBC is unsuccessful or perceived to be ~~disappointing,~~unsuccessful, the long-term prospects of Ocaliva ~~and~~for PBC, as well as the long-term prospects of our company, may be ~~significantly harmed.~~materially and adversely affected.

We have never been profitable. We expect to incur losses for the foreseeable future, and we may never achieve or sustain profitability.

We have never been profitable and do not expect to be profitable in the foreseeable future. We ~~have~~ incurred net losses of ~~$412.8~~$309.2 million, ~~$226.4~~$360.4 million and ~~$283.2~~$412.8 million for the years ended December 31, ~~2016, 2015~~2018, 2017 and ~~2014,~~2016, respectively, and ~~$249.1~~$246.5 million and ~~$292.8~~$221.2 million for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. To date, we have financed our operations primarily through public offerings and private placements of our securities, ~~offerings~~sales of product and payments received under our licensing and collaboration agreements. At September 30, ~~2017,~~2019, we had ~~$492.7~~$712.4 million in cash, cash equivalents and investment debt securities.

We have devoted substantially all of our resources to ~~our~~the development ~~efforts relating to~~of our product candidates, including ~~conducting~~the conduct of our clinical trials, the launch and commercialization of ~~our product candidates, providing~~Ocaliva for PBC, preparation for the potential launch of OCA for NASH and general and administrative ~~support for these~~ operations, ~~protecting~~including the protection of our intellectual ~~property and engaging in activities to prepare for and commercially launch Ocaliva in PBC.~~property.

We expect to continue to incur losses for the foreseeable future, and we expect these losses to ~~increase~~be significant as we, among other things, continue to commercialize Ocaliva for PBC, ~~in jurisdictions where marketing approval has been received, seek regulatory approval for and prepare to commercially launch Ocaliva for PBC in jurisdictions without marketing approval,~~ develop and seek and maintain regulatory approvals for OCA ~~in nonalcoholic steatohepatitis, or~~for NASH and other indications, and ~~add~~build-out the infrastructure ~~and personnel~~ in the United States and internationally necessary to support our product development and commercialization ~~efforts and operations as a public company.~~efforts. 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 primary sclerosing cholangitis, or PSC.~~NASH. As a result, we expect a significant amount of resources to continue to be devoted to our development programs for OCA.

As part of our product development activities, we anticipate that we will continue our Phase 4 COBALT trial of ~~OCA in PBC,~~Ocaliva for PBC. We also expect to continue our Phase 3 clinical program of OCA infor NASH, including ~~the~~our Phase 3 REGENERATE trial in ~~non-cirrhotic NASH~~ patients with liver fibrosis due to NASH through clinical outcomes in order to confirm clinical benefit and ~~continue~~our Phase 3 REVERSE trial for NASH patients with compensated cirrhosis. We intend to evaluate the ~~development~~efficacy, safety and tolerability of bezafibrate in combination with OCA in ~~PSC. We also expect to continue the development of OCA~~patients with PBC in ~~additional diseases, such as biliary atresia, a rare pediatric disease characterized by deficient bile duct development for which we initiated~~ a Phase 2 ~~trial~~study and to continue to develop OCA and our other existing product candidates, alone or in ~~OCA called CARE.~~combination, for non-viral liver diseases in indications beyond NASH and PBC. Our overall development program for OCA infor NASH is expected to include a number of trials, ~~such as the Phase 2~~including clinical ~~trial, referred~~trials required to ~~as the CONTROL trial, to assess the lipid metabolic effects~~file for approval of OCA for NASH and ~~the effects of concomitant statin administration in NASH patients for which topline results were reported in July 2017. Furthermore, we completed a Phase 1~~to confirm clinical ~~trial for INT-767, an earlier stage product candidate.~~benefit. Our expenses could increase if we are required by the ~~U.S. Food and Drug Administration, or~~ FDA or the ~~European Medicines Agency, or~~ EMA to perform studies or trials in addition to those currently expected, if our current trials are modified for any reason, or if there are any delays in completing our clinical trials or the development of any of our product candidates.

If OCA or any of our other product candidates fails in clinical trials or does not gain or maintain regulatory approval, or if ~~they do~~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 ~~accurately~~ predict with certainty the timing or amount of ~~increased~~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 ~~the rate of~~our future ~~growth of our~~ expenses, whether and by how much such expenses increase and our ability to generate revenues.

We will require substantial additional funding, which may not be available to us on acceptable terms, orif at ~~all, and, if~~all. If adequate funds are not so available to us, we may ~~require us~~be required to delay, limit, reduce or cease our operations.

We are currently advancing OCA through clinical development for multiple 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. If, for example, the FDA, EMA or other regulatory

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authorities require that we perform additional studies beyond those that we currently expect, our expenses could increase materially beyond what we currently anticipate, and the timing of any potential product approval may be delayed.

In addition, ~~subject to obtaining regulatory approval of any of our product candidates,~~ we ~~expect~~have incurred and anticipate that we will continue to incur significant ~~commercialization expenses for~~research and development, product sales, marketing, manufacturing and ~~distribution. We have incurred~~distribution expenses relating to the commercialization of Ocaliva for PBC and ~~anticipate incurring significant expenses as we continue to commercialize Ocaliva in PBC.~~OCA for NASH, if approved. As part of our longer-term strategy, we ~~also~~ anticipate ~~incurring~~that we will incur significant expenses in connection with ~~increases in~~ our ~~product~~research and development ~~scientific, commercial~~efforts, the commercialization of our approved products other than Ocaliva for PBC and OCA for NASH, if approved, and the build-out of our general and administrative ~~personnel and expansion of our facilities and~~ infrastructure in the United States and abroad. We ~~expect to incur additional costs associated with operating as a public company and further plan on expanding our operations in the United States, Europe and in certain other countries. 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.

~~Adjusted operating expense is a financial measure not calculated in accordance with U.S. generally accepted accounting principles, or GAAP. We anticipate that stock-based compensation expense~~Ocaliva for PBC, will ~~represent the most significant non-cash item that is excluded in adjusted operating expenses as compared to operating expenses under GAAP. See “Non-GAAP Financial Measures” for more information.~~

Due to the many variables inherent to the development and commercialization of novel therapies, such as the risks described in this “Risk Factors” section of this quarterly report on Form 10-Q, and our rapid growth and expansion, we currently cannot accurately or precisely predict the duration beyond mid-2018 over which we expect our cash and cash equivalents to be sufficient to fund our anticipated operating ~~expenses~~requirements for the next twelve months and the initial phase of the anticipated U.S. launch of OCA for NASH, we may need to raise additional capital ~~expenditure~~to fund our operating requirements beyond that period. Furthermore, in light of 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. ~~However,~~Accordingly, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our forecast regarding the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results, including the costs to maintain our currently ~~believe~~planned operations, could vary materially.

Our forecasts regarding the period of time that our ~~cash and cash equivalents~~existing capital resources will be sufficient ~~for us~~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:

·●

~~continue the initial commercialization~~our ability to successfully commercialize Ocaliva for PBC;

●

our ability to maintain our regulatory approval of Ocaliva for PBC in the United States, ~~the European Union~~Europe, Canada, Israel, Australia and other jurisdictions ~~where it has received~~in which we have or may receive marketing ~~approval;~~

prepare for and initiate the commercial launch of Ocaliva in PBC in certain other target markets across the world, but not commercially launch Ocaliva in PBC in other non-target countries across the world;authorization;

·●

~~continue and expand our clinical development programs for OCA in PBC and NASH, such as continuing, but not completing, our planned Phase 3 clinical program for OCA in NASH, including~~ the ~~REGENERATE trial, and our ongoing COBALT confirmatory clinical outcomes trial of OCA in PBC; and~~

initiation, timing, cost, conduct, ~~further assessments of OCA for use in PSC and potentially initiate, but not complete, additional clinical trials for OCA in PSC.~~

Accordingly, we will continue to require substantial additional capital in connection with our continuing operations, including continuing our commercialization plans and our research and development activities and building our global infrastructure to support these activities.

~~The amount and timing of our future funding requirements will depend on many factors, including:~~

~~the rate of~~ progress and ~~cost of our continued commercialization activities for Ocaliva in PBC in jurisdictions where it has received marketing approval;~~

our ability to receive marketing approval of Ocaliva for PBC in countries where it has not received marketing approval based on our regulatory submissions package and our work completed to date, including the willingness of the relevant regulatory authorities to accept the POISE trial, which is our completed Phase 3 clinical trial for PBC;

~~the degree of effort and time needed to prepare for and initiate the commercial launches of Ocaliva in PBC in the jurisdictions where it receives marketing approval;~~

~~the progress, costs,~~ results of and timing of our clinical development programs for OCA in PBC, NASH, PSC and other indications, such as the COBALT trial, the REGENERATE trial, the upcoming Phase 3 trial in NASH patients with cirrhosis or other trials we may conduct;

~~the outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals;~~

~~the expansion~~ 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 in the ~~product candidates that~~jurisdictions in which we ~~pursue, including~~intend to seek approval or completing and timely reporting the results of our ~~product candidates in preclinical development such as INT-777;~~NASH or PBC clinical trials;

·●

~~the expansion~~our ability to timely and cost-effectively file for and obtain regulatory approval of our ~~operations, personnel and~~product candidates, including OCA for NASH, in the ~~size of our company~~United States, Europe and our ~~need to continue to expand in the longer term;~~other target markets;

·●

~~the costs associated with securing and establishing manufacturing capabilities and procuring the materials necessary~~conditions that may be imposed by regulatory authorities on our marketing approvals for our products and product candidates, such as the need for clinical outcomes data (and not just results based on achievement of a surrogate endpoint), and any related restrictions, limitations and/or warnings contained in the label of any of our products or product candidates;

·●

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our ability to identify, develop and successfully commercialize our products and product candidates, ~~which may be affected by reimbursement from payors;~~including our ability to timely and successfully launch OCA for NASH, if approved;

·●

~~the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;~~

·●

the ~~effect~~size and growth of ~~competing technological~~the markets for our products and ~~market developments;~~product candidates and our ability to serve those markets;

·●

●

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 prevent system failures, data breaches or violations of data protection laws;

●

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 and short-term investments;

●

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

●

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

●

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

●

our ability to obtain and maintain adequate insurance coverage;

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●

the impact of general U.S. and foreign economic, industry, market, regulatory or political conditions, including the potential impact of Brexit; 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 SEC, including our Annual Report on Form 10-K for the year ended December 31, 2018.

We have no committed external sources of ~~funding.~~funding and additional funds may not be available when we need them on terms that are acceptable to us, or at all. In addition, our restated certificate of incorporation authorizes us to issue 45 million shares of common stock. Following the 2019 Public Offering, and after taking into account shares of common stock reserved for issuance upon the exercise of outstanding stock options, the vesting of outstanding restricted stock units (including performance restricted stock units) and the conversion of the Convertible Notes, together with shares of common stock available for future grants under our equity incentive plan, we have a limited number of remaining unreserved and authorized shares available for issuance, which could impact our ability to raise additional funds in the future. If adequate funds are not available to us, we ~~are unable~~may not be able to ~~obtain funding~~make scheduled debt payments on a timely basis, weor at all, and may be required to ~~significantly curtail~~delay, limit, reduce or cease our ~~planned activities, including research and development programs and commercialization activities.~~operations.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

~~Until such time,~~Unless and until we generate sufficient cash flow from sales of our products, including Ocaliva for PBC and, if ~~ever, as we can generate substantial product revenues,~~approved, OCA for NASH, we expect to ~~seek additional funding~~finance our future cash needs through ~~a combination of~~public or private equity ~~offerings,~~or debt financings, government or other third-party funding, marketing and distribution arrangements ~~and~~or other collaborations, strategic alliances and licensing ~~arrangements.~~arrangements, or a combination of these sources. Additional funding may not be available to us on acceptable terms, orif at all.

The terms of any future financing may adversely affect the ~~holdings or the rights~~interests of our ~~security holders. To~~existing securityholders. For example, to the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. We also could be required to seek funds through arrangements with licensing or collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We have a limited operating history as a commercial organization, which may make it difficult to predict our future performance, and we expect to continue to face a number of factors that may cause operating results to fluctuate.

We are a biopharmaceutical company with a limited operating history as a commercial ~~entity.~~organization. Prior to the ~~commercial~~ launch and commercialization of Ocaliva for PBC, ~~in the United States in June 2016 and certain European countries in 2017,~~ our operations were limited to developing our technology, ~~and~~ undertaking preclinical studies and clinical trials of our product candidates and ~~engaging in pre-commercial activities~~preparing for the commercial launch of Ocaliva infor PBC. ~~We do not have approval~~Other than Ocaliva for ~~any~~PBC, none of our other product ~~candidates.~~candidates have received regulatory approval. Consequently, any predictions regarding our future success or viability may not be as accurate as they could be if we had a longer operating history or greater experience commercializing approved products.

~~While we commercially launched~~The commercialization of Ocaliva for PBC ~~in the United States, Europe~~has been and ~~certain other jurisdictions, we will need to conduct further activities to develop and cultivate a sustainable market for our drug in this orphan disease. These efforts~~ will continue to be, and, if approved, the commercialization of OCA for NASH will be, expensive and time-consuming, and we cannot be certain that we will be able to ~~successfully develop a market. For example, we will need~~generate sufficient revenues from sales of Ocaliva for PBC and, if approved, OCA for NASH in our target markets to conduct significant sales and marketing activities in jurisdictions where Ocaliva receives marketing approval. In the event we are unable to effectively develop and maintain a market for Ocaliva in PBC, our ability to effectively commercialize Ocaliva would be limited, and we would not be able to generate product revenues successfully.

offset such costs. Furthermore, our financial condition and operating results have varied significantly in the past and are expected to

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continue to significantly fluctuate from quarter-to-quarter orand year-to-year due to a variety of factors, many of which are ~~beyond~~outside of our control. ~~Factors relating to our business that may contribute to these fluctuations include:~~

Such factors include, but are not limited to:

·●

our ability to successfully commercialize Ocaliva for PBC;

●

our ability to maintain our regulatory approval of Ocaliva for PBC in the United States, Europe, Canada, Israel, Australia and other jurisdictions in which we have or may receive marketing authorization;

●

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 in the jurisdictions in which we intend to seek approval or completing and timely reporting the results of our NASH or PBC clinical trials;

●

our ability to timely and cost-effectively file for and obtain regulatory ~~review and~~ approval of our product candidates, including OCA for NASH, in ~~clinical development;~~the United States, Europe and our other target markets;

·●

~~delays in the commencement, enrollment~~conditions that may be imposed by regulatory authorities on our marketing approvals for our products and ~~timing of clinical trials;~~

difficulties in identifying and treating patients suffering from our target indications, including those due to PBC and PSC being rare diseases and NASH currently requiring an invasive liver biopsy for diagnosis;

~~the success of our clinical trials through all phases of clinical development,~~product candidates, such as the ~~success~~need for clinical outcomes data (and not just results based on achievement of a surrogate endpoint), and any related restrictions, limitations and/or warnings contained in the label of any of our ~~Phase 3 REGENERATE trial of OCA in non-cirrhotic NASH patients with liver fibrosis;~~products or product candidates;

·●

any potential side effects ofassociated with Ocaliva ~~and~~for PBC, OCA for NASH or our other product candidates that could delay or prevent approval, ~~or cause~~require that an approved ~~drug to~~product be taken off the ~~market;~~market, require the inclusion of safety warnings or precautions or otherwise limit the sale of such product or product candidate;

·●

~~the required timeframe for us to receive and analyze data from our clinical trials;~~

~~our ability to identify and develop additional product candidates;~~

~~market acceptance of Ocaliva and our product candidates, which may be affected by the reimbursement that our products receive from payors;~~

our ability to establish and maintain anrelationships 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 NASH, and our clinical trial activities;

●

our ability to identify, develop and successfully commercialize our products and product candidates, including our ability to timely and successfully launch OCA for 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 NASH or our other product candidates among physicians, patients and healthcare payors;

●

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

·●

competition from existing ~~products~~drugs or new ~~products~~drugs that ~~may emerge;~~become available;

·●

~~the ability of patients or healthcare providers to obtain coverage or reimbursement for our products and the extent to which such coverage or reimbursement will be provided;~~

our ability to ~~adhere to clinical trial requirements directly~~prevent system failures, data breaches or ~~with third parties such as contract research organizations, or CROs;~~violations of data protection laws;

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·●

~~our dependency on third-party manufacturers~~costs and outcomes relating to ~~manufacture our products and key ingredients;~~any disputes, governmental inquiries or investigations, 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 orand maintain ~~collaborations, licensing or other arrangements;~~relationships with collaborators with development, regulatory and commercialization expertise;

·●

~~the costs to us,~~our need for and ~~our ability and our third-party collaborators’~~ ability to generate or obtain ~~maintain and protect our intellectual property rights;~~additional financing;

·●

~~costs related to~~our estimates regarding future expenses, revenues and ~~outcomes of potential intellectual property, securities~~capital requirements and ~~other litigation;~~the accuracy thereof;

·●

our use of cash and short-term investments;

●

our ability to ~~adequately support future growth;~~acquire, license and invest in businesses, technologies, product candidates and products;

·●

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

·●

our ability to ~~build and improve~~manage the growth of our ~~company’s~~operations, infrastructure, personnel, systems and controls;

·●

~~potential product liability claims; and~~

our ability to obtain and maintain adequate insurance ~~coverage.~~coverage;

31●

the impact of general U.S. and foreign economic, industry, market, regulatory or political conditions, including the potential impact of Brexit; 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 SEC, including our Annual Report on Form 10-K for the year ended December 31, 2018.

Risks Related to the Development and the Regulatory Review and

Approval of Our Products and Product Candidates

We cannot be certain ifwhether Ocaliva will receive full approval for PBC in jurisdictions where it has previously received accelerated or conditional approval, or that Ocaliva will be approved for PBC in ~~other jurisdictions.~~any jurisdictions beyond those in which it is currently approved. Furthermore, OCA may ~~fail to become~~not be approved for NASH or any other indication beyond PBC and we may not ~~be able to successfully~~ 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 aour products and product ~~candidate and issues relating to its approval and marketing~~candidates are subject to extensive regulation by the FDA in the United States, the EMA in Europe and various regulatory authorities in other countries, with regulations differing from country to country. We are not permitted to market our product candidates in the United States or Europe until we receive approval of ~~a New Drug Application, or~~an NDA, from the FDA, or ~~a Marketing Authorization Application, or~~an MAA, from the EMA, respectively. Currently, our ability to generate ~~revenue related to~~ product sales ~~will depend~~depends on the successful marketing of Ocaliva for PBC ~~and~~in the ~~development and~~jurisdictions in which it has received regulatory approval. 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 ~~OCA for the treatment NASH and~~ our other product ~~candidates.~~

candidates, including OCA for NASH.

Ocaliva is our only drug that has been approved for ~~sale.~~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 ~~has been~~was approved for PBC under the accelerated approval pathway. Accelerated approval was granted for ~~OCA in~~Ocaliva for PBC based on a reduction in alkaline ~~phosphatase;~~phosphatase (“ALP”); however, an improvement in

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survival or disease-related symptoms has not yet been established. Continued approval of Ocaliva for ~~this indication~~PBC in the United States may be contingent upon the verification and description of clinical benefit in confirmatory trials. Our Phase 4 COBALT confirmatory outcomes trial may fail to show a clinical benefit for ~~OCA in~~Ocaliva for PBC or may not satisfy ~~the~~applicable regulatory requirements ~~of the regulatory authorities~~ for other reasons.

As ~~part of~~specified by the applicable post-marketing requirements, our COBALT trial includes ~~a cross-section~~subjects across the spectrum of PBC ~~patients with~~disease, including early ~~moderately advanced~~ and advanced ~~disease according to the so-called Rotterdam criteria.~~PBC. We have agreed to evaluate the safety and efficacy of Ocaliva in patients with moderate to severe hepatic impairment and as a monotherapy in patients with PBC. ~~Finally,~~In addition, we have ~~also~~ agreed to develop and characterize a lower dose formulation of Ocaliva to allow for once daily dosing in patients with moderate or advanced hepatic impairment.

We commenced our commercial launch of Ocaliva for PBC in certain European countries in 2017 ~~after~~following the European ~~Commission granted~~Commission’s grant of conditional approval ~~for Ocaliva for the treatment of PBC. The~~in December 2016. Our marketing authorization in the European Union is conditioned on the completion of the COBALT trial and a trial evaluating the safety and efficacy of Ocaliva in patients with moderate to severe hepatic impairment.

~~In May~~Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia, and we ~~received a marketing authorization with conditions for Ocaliva in PBC in Canada. We also plan to apply for~~are pursuing marketing approval of Ocaliva for PBC in ~~certain~~our other ~~markets across~~international target markets. If obtained, continued approval of Ocaliva for PBC in such jurisdictions may be contingent upon the ~~world.~~verification and description of clinical benefit in confirmatory trials. Any delay or failure in satisfying the post-marketing regulatory commitments and requirements to which we are or may become subject, including our Phase 4 COBALT trial, may jeopardize the continued approval of Ocaliva for PBC in the United States, European Union and other jurisdictions.

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 ~~our products~~OCA will be approved for use in additional ~~indications.~~indications such as NASH. NDAs and MAAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of an NDA or an MAA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA and the EMA review processes can take years to complete and approval is ~~never~~not guaranteed. Even after the submission of an NDA, to the FDA ~~the FDA must~~may decide ~~whether~~not to accept ~~or reject~~ the submission for ~~filing.~~filing and review. Similarly, there may be delays in the EMA’s review process following the submission of an MAA, or the EMA may determine that the submission does not support approval. In addition, in June 2016, eligible members of the electorate in the United Kingdom decided by referendum to leave the European Union, ~~or Brexit. Since~~in what is often referred to as “Brexit”. Because a significant proportion of the regulatory framework in the United Kingdom is derived from European Union directives and regulations, ~~the referendum~~Brexit could materially change the regulatory regime applicable to our operations, including with respect to Ocaliva orfor PBC and, if approved, OCA for NASH and our other product candidates.

~~Approvals~~As is the case with the approval of Ocaliva for PBC, any future approvals or potential future approvals may also be conditional upon the completion of one or more clinical trials. In addition, delays in approvals or rejections of marketing applications in the United States, Europe or other countries may be based upon many factors, including, for example, regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory endpoint requirements, regulatory questions regarding safety or risk-benefit profile, different interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding our product candidates or ~~other~~approved products. ~~Regulatory~~Initial and continued regulatory approval is also dependent on successfully passing regulatory inspection ~~of our company,~~requirements applicable to us, our clinical sites and our key vendors, including requirements that we and ~~to ensure compliance~~such parties comply with applicable good clinical, pharmacovigilance, laboratory and manufacturing practices ~~regulation.~~regulations. Critical findings could jeopardize or delay the approval of ~~the NDA~~our NDAs or ~~MAA.~~MAAs or impair our ability to maintain our marketing approvals.

~~We will also be required~~Prior to receiving regulatory approval, we must finalize the ~~negotiations and discussions on~~product label for each of our product ~~labels for the respective jurisdictions~~candidates in each jurisdiction in which we seek regulatory approval. Even if aour product is approved, the FDA, EMA or ~~the EMA, as the case may be,~~other applicable regulatory authority may limit the indications or uses for which ~~the~~our product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials, risk mitigation programs, monitoring or reporting as ~~conditions~~a condition of approval. Also, regulatory approval for ~~any~~our approved products may be withdrawn. In addition,

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obtaining regulatory approval for the marketing of our product candidates may be withdrawn. Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of drug candidates with which we must comply prior to marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one country does not ensure that we will be able to obtain regulatory approval for such product in any other country.

WeIn order to obtain regulatory approval for OCA for indications other than PBC, we will need to complete a number of additional clinical trials and ~~other studies for the continued development~~studies. For example, in connection with our Phase 3 clinical program of OCA ~~in indications other than PBC. For example,~~for NASH, we are currently ~~have ongoing~~conducting our Phase 3 REGENERATE trial ~~of OCA~~ in ~~non-cirrhotic~~patients with liver fibrosis due to NASH through clinical outcomes in order to confirm clinical benefit and our Phase 3 REVERSE trial for NASH patients with ~~liver fibrosis. We also intend to conduct additional trials in NASH, such as one in NASH patients with~~compensated cirrhosis. ~~In each of these cases, our~~Our ability to obtain and maintain the regulatory approvals necessary to commercialize ~~our product candidates~~OCA for indications other than PBC, including NASH, will depend on our ability to successfully design, conduct and complete these ~~additional~~ trials, ~~as well as assemble various other data~~the efficacy, safety and risk-benefit profile of OCA demonstrated by such trials and our ability to ~~complete our~~prepare and submit complex regulatory filings ~~for OCA~~ in ~~the relevant indication or patient population.~~

accordance with applicable regulatory requirements.

There can be no assurance that weOCA will ~~be able to~~ receive marketing approval for ~~OCA in~~ PBC in jurisdictions where it ishas not yet been approved or for NASH in any jurisdiction, or that any of our other product candidates will receive marketing approval for ~~OCA~~any indication in ~~NASH or~~ any ~~other indication.~~jurisdiction. We cannot predict whether our clinical trials and studies ~~as to~~for our product candidates, including OCA for PBC, NASH or any other indication, ~~or patient population~~ will be successful, or whether ~~regulators~~regulatory authorities will agree with our conclusions ~~regarding~~relating to the ~~preclinical studies and~~ clinical trials and studies we ~~have conducted to date~~conduct, or whether such regulatory authorities will require us to conduct additional ~~studies~~clinical trials or ~~trials.~~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 have submitted an NDA in the United States and currently intend to file for approval of OCA for NASH in Europe based on the results from the 18-month analysis of our Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH, we do not know if one pivotal clinical trial will be sufficient for marketing approval or if ~~regulators~~regulatory authorities in the United States, Europe or our other target markets will ~~ultimately agree to a surrogate endpoint for accelerated approval of~~approve OCA for ~~the treatment of NASH. While the interim analysis for the REGENERATE trial will be based~~NASH patients with liver fibrosis on a histological endpoint as was the case in the Phase 2b clinical trial for the treatment of NASH, known as the FLINT trial, sponsored by the U.S. National Institute of Diabetes and Digestive and Kidney Diseases,an accelerated or ~~NIDDK, a part of the National Institutes of Health, our~~conditional basis, or at all. Our Phase 3 REGENERATE trial has different trial designs. For example, upon the finalization of a protocol amendment underway, the primary endpoint for the interim analysis for REGENERATE may be achieved based on one of: (i) the proportion of OCA-treated patients relative to placebo achieving at least one stage of liver fibrosis improvement with no worsening of NASH or (ii) the proportion of OCA-treated patients relative to placebo achieving NASH resolution with no worsening of liver fibrosis. Furthermore, we selected a definition for NASH resolution for the trial, which defines a responder as a patient achieving a histologic score of 0 for ballooning and 0 or 1 for inflammation. The REGENERATE trial will also remainremains blinded after the interim analysis and will continue to follow patients until the occurrence of a pre-specified number of adverse liver-related clinical events, including progression to cirrhosis, to confirm clinical benefit on a post-marketing ~~basis. While the statistical analysis planned for our REGENERATE trial is designed based on the data from the FLINT trial, the differences in the two trials may limit the utility of using FLINT as a~~ basis, ~~for the design of the REGENERATE trial.~~

Furthermore, the Phase 2 dose ranging trial of OCA in 200 adult NASH patients in Japan conducted by our collaborator, Sumitomo Dainippon, did not meet its primary endpoint with statistical significance. In this 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 baseline characteristics between the patients in the Japanese Phase 2 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 conducted by NIDDK. For example, differences were observed among the patient population at baseline in relation to gender mix and metabolic factors like weight, diabetes status, dyslipidemia and hypertension. While our REGENERATE trial was designed based on the results of the FLINT trial and is anticipated to enroll a predominantly Western NASH patient population, the results of the FLINT trial may not be replicated in our REGENERATE trial. There is no assurance that Sumitomo Dainippon will initiate any registrational trials in NASH and the results of any additional trial conducted by Sumitomo Dainippon may not be an improvement as compared to those from the Phase 2 trial on Japanese NASH patients.

if approved.

If we are unable to obtain ~~approval from the FDA, the EMA or other~~ regulatory ~~agencies~~approval for OCA for PBC in the jurisdictions in which it is not currently approved or obtain regulatory approval in the United States, European Union and ~~our~~ other ~~product candidates,~~jurisdictions for OCA for other indications, such as NASH, or ~~if, subsequent to approval, we are unable to successfully commercialize OCA or~~for our other product candidates, we ~~will~~may not be able to generate sufficient revenue to become profitable or to continue our operations.

We are developing product candidates for the treatment of rare diseases or diseases for which there are no or limited therapies, such as PBC ~~NASH~~ and ~~PSC,~~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 ~~increased~~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 ~~diseases and other~~ indications ~~we may pursue will be~~is subject to ~~increased~~heightened risk.

~~The~~In the United States, the FDA generally requires two adequate and well-controlled pivotal clinical trials to approve an NDA. Furthermore, for full approval of an NDA, the FDA requires a demonstration of efficacy based on a clinical benefit endpoint. ~~Under Subpart H regulations, the~~The FDA ~~can~~may grant accelerated approval based on a surrogate endpoint reasonably likely to predict clinical benefit. Even ~~if results from~~though our ~~planned~~ 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 ~~highly significant and we believe~~ reasonably believed by us to be likely to predict clinical benefit, the FDA may not accept the results of such trials ~~and grant accelerated approval of~~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, including the NDA we submitted for NASH in September 2019. 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 ~~indication.~~regulatory application does not support the approval of the product candidate. In such a case, the FDA may issue a complete response

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letter that may require that we conduct and/or complete additional clinical trials and preclinical studies or provide other additional information or data before it will reconsider our application for approval. Any such requirements may be substantial, expensive and time-consuming, and there is no guarantee that the FDA will ultimately decide that any such regulatory application supports the approval of the product candidate. The FDA may also refer any regulatory application, such as the NDA we submitted in September 2019 or any other regulatory application we may file for OCA for NASH, 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 ~~the~~such product ~~candidate~~candidates by demonstrating the correlation of ~~biochemical~~the surrogate endpoint therapeutic response in patients with a significant reduction in adverse clinical outcomes over time. ~~If a confirmatory~~For example, interim analysis results at 18 months in our Phase 3 REGENERATE trial were based on surrogate endpoints and the impact on clinical outcomes has not been confirmed. The REGENERATE trial is ~~required,~~ongoing to confirm the clinical benefit of OCA for NASH. 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 ~~may be~~have made or expect to make seeking approval of OCA for 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 ~~have the trial be substantially underway at the time we submit an NDA. It is possible that our NDA submission~~conduct a clinical outcomes study with respect to Ocaliva for regulatory approval will not be accepted by the FDA for review or, even if it is accepted for review, that there may be delays in the FDA’s review process and that the FDA may determine that our NDA does not merit the approval of the product candidate, in which case the FDA may require that we conduct and/or complete additional clinical trials and preclinical studies before it will reconsider our application for approval.

PBC. Following discussions with regulatory authorities, we initiated our COBALT clinical outcomes confirmatory trial infor PBC in December 2014 prior to the approval of ~~Ocaliva.~~Ocaliva for PBC. The COBALT trial includes ~~a cross-section~~subjects across the spectrum of PBC ~~patients with~~disease, including early ~~moderately advanced~~ and advanced ~~disease according to the so-called Rotterdam criteria.~~PBC. We have agreed to evaluate the safety and efficacy of Ocaliva in patients with moderate to severe hepatic impairment and as a monotherapy in patients with PBC. We have agreed to similar requirements with the EMA as part of the conditional approval of Ocaliva in PBC in Europe. We may be required to conduct other post-marketing studies based on our regulatory interactions with other regulatory agencies across the world. There can be no assurance that our COBALT trial ~~or other trials~~ conducted as part of our post-marketing obligations will confirm that the surrogate ~~endpoints~~endpoint used for accelerated approval of Ocaliva for PBC will eventually show an adequate correlation with clinical ~~outcomes.~~outcomes or that our clinical trial in PBC patients with moderate to severe hepatic impairment will be successful. If any such trial fails to show such adequate correlation, we may not be able to maintain our previously granted marketing approval of Ocaliva for ~~Ocaliva~~PBC. Similarly, if approved based on a surrogate endpoint, continued approval of OCA for other indications, or of any of our other product candidates, may be contingent upon the verification and description of clinical benefit in ~~PBC.~~

confirmatory trials.

Our marketing authorization in the European Union for Ocaliva for the treatment of PBC is not a full ~~approval and~~approval. Instead, it is conditional on the conduct of certain post-approval studies. Our ability to ~~obtain and~~ maintain conditional marketing authorization of Ocaliva for PBC in the European Union ~~will be~~is limited to specific circumstances and subject to several conditions and obligations ~~if obtained~~that we may be unable to satisfy in whole or at all, including the completion of one or more clinical ~~outcome~~outcomes trials to confirm the clinical benefit of Ocaliva infor PBC. Conditional marketing authorizations based on incomplete clinical data may be granted for a limited number of listed medicinal products for human use, including products designated as orphan medicinal products under European Union law, if ~~(1)~~(i) the risk-benefit balance of the product is positive, ~~(2)~~(ii) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, ~~(3)~~(iii) unmet medical needs will be fulfilled and ~~(4)~~(iv) the benefit to public health of the immediate availability on the market of the medicinal product outweighs the risk inherent in the fact that additional data are still required. Specific obligations, including ~~with respect~~obligations relating to the successful completion of ongoing or new studies and ~~with respect to~~ the collection of pharmacovigilance data, may be specified in the conditional marketing authorization. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions.

Although we have successfully renewed our conditional marketing authorization in the European Union in the past, there can be no assurance that we will be able to do so in the future. Failure to renew our conditional marketing authorization would prevent us from continuing to market Ocaliva for PBC in Europe.

Our ongoing Phase 3 REGENERATE trial of OCA in ~~non-cirrhotic NASH~~ patients with liver fibrosis due to NASH incorporates an interim primary surrogate endpoint that may serve as the basis for ~~a supplemental NDA filing for~~ accelerated approval in the United States and as the basis for a conditional approval in Europe. Accelerated approval in the United States and conditional approval in the European Union for OCA infor NASH are subject to similar risks as discussed above in relation to OCA for PBC. ~~The~~In the REGENERATE primary ~~endpoint in the Phase 2b FLINT trial of~~efficacy analysis, once-daily OCA in NASH patients was based on liver biopsy and was defined as an improvement of two or more points in the NAFLD activity score (a system of scoring the histopathological features in the liver), or NAS,25 mg met, with ~~no worsening of liver fibrosis. In contrast, upon the finalization of a protocol amendment underway,~~statistical significance, the primary endpoint ~~for~~agreed with the ~~interim analysis for REGENERATE may be achieved based on one of: (i) the proportion~~FDA of ~~OCA-treated patients relative to placebo achieving~~fibrosis improvement by at least one stage ~~of liver fibrosis improvement~~ with no worsening of NASH ~~or (ii)~~(defined as no worsening of hepatocellular ballooning, no worsening of lobular inflammation and no worsening of steatosis) at the planned 18-month analysis.

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Although a numerically greater proportion of ~~OCA-treated~~ patients ~~relative~~in both OCA treatment groups compared to placebo ~~achieving~~achieved the primary endpoint of NASH resolution with no worsening of liver ~~fibrosis. Furthermore, we selected a definition for NASH resolution~~fibrosis in the primary efficacy analysis, this result did not reach statistical significance. As agreed with the FDA, in order for the ~~trial,~~primary objective to be met, the study was required to achieve one of the two primary endpoints. In November 2018, the EMA issued draft regulatory guidance in which defines a responder as a patient achieving a histologic score of 0 for ballooning and 0 or 1 for inflammation. Currently, other biopharmaceutical companies are enrolling or have initiated trials in certain subpopulations ofit presented its preliminary views with respect to various NASH patients based on different endpoints from those in the FLINT and REGENERATE trials. Although the FDA acknowledged at recent workshops the possibility of granting accelerated approval for NASH therapies usingclinical development matters, including with respect to potential surrogate endpoints, with potential examples including histological improvement, using the NAS or another scoring system, histological resolution of NASH, or improvements in fibrosis in pre-cirrhotic patients with NASH, the FDAand requested comments thereon by August 2019. Although we did not ~~provide any formal regulatory guidance~~reach agreement with the EMA on ~~approvable endpoints~~the definition and ~~may not accept~~analysis of a surrogate endpoint prior to the readout of the 18-month analysis of the REGENERATE trial, we believe that the totality of the REGENERATE data supports the submission of an MAA with the EMA. However, the data that we submit to the EMA may not ultimately be found by the EMA to be sufficient for ~~OCA~~marketing approval. In June 2019, the FDA issued new draft guidance on the development of drugs for the treatment of ~~NASH.~~

~~It is possible~~NASH patients with compensated cirrhosis. Although we believe that, if ~~we seek marketing~~successful, our Phase 3 REVERSE trial will support a regulatory submission seeking accelerated approval of OCA for ~~non-cirrhotic~~NASH with compensated cirrhosis in the U.S., we do not know if achievement of the primary endpoint will ultimately be found sufficient by the FDA for approval.

While OCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis and we have submitted an NDA in the United States and currently intend to file in Europe for approval of OCA for NASH based on the results from the 18-month interim ~~results~~analysis of our Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH, we do not know if one pivotal clinical trial will be sufficient for marketing approval or if regulatory authorities in the United States, Europe or our ~~NDA~~other target markets will approve OCA for NASH patients with liver fibrosis on an accelerated or conditional basis, or at all. In addition, our regulatory submission may not be accepted by the FDA for review ~~or,~~and, even if accepted for review, there may be delays in the FDA’s review process ~~and~~or the FDA may determine that our ~~NDA~~submission does not ~~merit~~support the approval of OCA for the treatment of ~~non-cirrhotic NASH patients. The~~NASH. Similarly, there may be delays in the EMA’s review process or the EMA may determine that our submission does not support the approval of OCA for the treatment of NASH. Before granting approval, the FDA and/or the EMA may also require that we continue our Phase 3 REGENERATE trial until ~~its full~~ completion to assess the potential benefits of OCA treatment on liver-related and other clinical outcomes. Our regulatory pathway for OCA for the treatment of NASH will depend upon our discussions with the FDA and the EMA. As a result, we may face difficulty in ~~designing~~establishing an acceptable registration strategy ~~around~~with respect to our Phase 3 REGENERATE ~~or any~~and REVERSE trials, as well as other trials we may conduct in ~~different~~other subpopulations of NASH patients. ~~In addition, since the design of the REGENERATE trial deviates from that of the FLINT trial, there is an increased risk that the results of the REGENERATE trial would differ from the FLINT results.~~

If we continue the development of OCA ~~in PSC,~~for primary sclerosing cholangitis (“PSC”), we ~~intend to~~may seek marketing approval based on a surrogate endpoint. ~~The~~While the EMA issued draft regulatory guidance in November 2018, the FDA ~~and EMA have~~has not issued formal guidance regarding a validated ~~any~~ surrogate endpoint as a basis for seeking approval in ~~PSC~~PSC. Identifying an acceptable surrogate endpoint may take longer than we expect and any surrogate endpoint we select may ultimately not be accepted by the FDA, EMA or other applicable regulatory ~~agencies.~~authorities.

~~The EMA and regulatory authorities~~Prior to any approval of OCA for NASH or OCA for PBC in ~~other countries~~jurisdictions in which ~~we may seek~~it is not currently approved or the approval ~~for, and market, OCA or~~of our other product candidates, the FDA, EMA or other applicable regulatory authorities may require additional preclinical studies and/or clinical trials, ~~prior to granting approval. It~~which may be expensive and time consuming to conduct and ~~complete additional preclinical studies and clinical trials that the FDA, EMA and other regulatory authorities may require us to perform. As~~complete. Consequently, any such ~~any~~ requirement ~~by the FDA, EMA or other regulatory authorities~~ that we conduct additional preclinical studies or clinical trials could materially and adversely affect our business, financial condition and results of operations. Furthermore, even if we receive ~~regulatory~~such approval, ~~of OCA for~~ the ~~treatment of any of our targeted indications, the~~relevant labeling ~~for our product candidates in the United States, Europe or other countries in which we have received or seek approval~~ may include restrictions, limitations and/or warnings that could impact the commercial success of OCA or our other product ~~candidates.~~candidates in the applicable markets.

Delays or difficulties in the commencement, enrollment and completion of our clinical trials and studies could ~~result in increased~~increase our product development costs ~~to us~~ and delay, limit or ~~limit our ability to obtain~~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 ~~limit the~~prevent us from obtaining or maintaining regulatory approval offor OCA and our other product candidates. We are currently ~~have underway~~conducting a number of clinical trials, including our Phase 4 COBALT clinical outcomes confirmatory trial of ~~OCA in~~Ocaliva for PBC, our Phase 3 REGENERATE trial of OCA in patients with liver fibrosis due to NASH through clinical outcomes in order to confirm clinical benefit and our Phase 23 REVERSE trial of OCA for NASH patients with compensated cirrhosis. We are also conducting our CARE trial of OCA in pediatric patients

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with biliary ~~atresia. We continue to work towards expanding our overall NASH development program with additional trials and studies, including~~atresia as a ~~Phase 3 trial in NASH patients with cirrhosis, which we expect to initiate in~~part of an EMA-approved Pediatric Investigation Plan supporting the ~~second half~~conditional approval of ~~2017, and we plan on conducting additional development activities in other diseases.~~Ocaliva for PBC. The results from these clinical trials and our other clinical trials and studies may not be available when we ~~expect or~~anticipate and we may be required to conduct additional clinical trials or ~~preclinical~~ studies not currently planned in order for our product candidates, including OCA for PBC and NASH, to ~~receive approval for OCA as a treatment for~~be approved or to maintain approvals in the ~~related indication.~~U.S., Europe or the other jurisdictions in which our products are approved. In addition, our clinical programs are subject to a number of ~~variables~~risks and ~~contingencies,~~uncertainties, such as the results of other trials, patient ~~enrollments~~enrollment, safety issues or regulatory interactions that ~~may~~could result in a change inof trial design or timing. ~~As such,~~Consequently, we do not know whether ~~any~~our current or future clinical trials or studies of OCA or our other product candidates will begin ~~on time~~ or ~~will~~ be completed on schedule, if at all.

The commencement, enrollment and completion of our clinical trials ~~can~~and studies may be delayed, suspended or ~~suspended~~otherwise adversely affected for a variety of reasons, including:

·●

our inability to obtain sufficient funds ~~required for a~~to complete or continue our clinical ~~trial or lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions;~~trials;

·●

our inability to reach agreements on acceptable terms with prospective ~~CROs~~contract research organizations (“CROs”) and trial sites, the terms of which ~~can~~may be subject to extensive negotiation and may vary significantly among ~~different~~our various CROs and trial sites;

·●

clinical holds, other regulatory objections to our commencing or continuing a clinical trial or ~~the~~our inability to obtain regulatory approval to commence a clinical ~~trial~~trials in countries that require such approvals;

·●

our discussions with the FDA, EMA or ~~non-U.S. regulators~~other regulatory authorities prior to, or following, the initiation of our clinical trials, regarding, among other matters, the scope or design of our clinical trials, ~~which may occur at various times,~~ including ~~subsequent to the initiation of the clinical trial;~~trial endpoints, protocols and statistical analysis plans, and any modifications thereto;

·●

our inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indications targeted by our product candidates;

·●

~~the~~any delay in receiving results from, or ~~the~~ failure to achieve the necessary results in, ~~other~~our clinical trials;

·●

our inability to obtain approval from institutional review boards or ~~IRBs,~~independent ethics committees to conduct aour clinical ~~trial~~trials at their respective sites;

·●

any data monitoring committee recommendation that our clinical trials be modified, suspended or terminated due to safety, lack of efficacy or other reasons;

●

severe or unexpected drug-related adverse ~~effects~~events experienced by patients or any determination that a clinical trial presents unacceptable health risks;

·●

aany breach of the terms of any relevant agreement ~~with, or for any other reason~~ by us, our current or future collaborators that have responsibility for the clinical development of any of our product candidates ~~including Sumitomo Dainippon Pharma Co., Ltd., or Sumitomo Dainippon,~~ or investigators ~~leading~~conducting clinical trials on our product candidates;

·●

our inability to timely manufacture, or obtain from our contract manufacturers, sufficient quantities of ~~the~~our product candidate required for aour clinical ~~trial;~~trials; and

·●

any difficulty recruiting, ~~and~~ enrolling or retaining patients ~~to participate~~ in our clinical trials ~~for a variety of reasons, including meeting~~based on, among other factors, the enrollment criteria for our ~~trial,~~clinical trials, the rarity of the disease, or the characteristics of the population being studied, the risks of the procedures that may be required as part of the ~~trial,~~clinical trials, such as a liver biopsy, ~~and~~the availability of our products to patients generally following the approval of such products or competition from other clinical trial programs recruiting patients for the same indications as our product ~~candidates; and~~candidates.

~~inability to retain enrolled patients after a clinical trial is underway.~~

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For example, our Phase 3 REGENERATE trial is a large and ~~complex Phase 3~~complicated clinical trial in a disease without any approved therapies and involves serial liver ~~biopsies.~~biopsies over many years. While we announced topline results from the ~~completion~~18-month analysis of ~~enrollment of the interim analysis cohort~~our pivotal Phase 3 REGENERATE trial in ~~May 2017,~~February 2019, REGENERATE is planned to continue through clinical outcomes in order to confirm clinical benefit and ~~continuously evaluate and implement a variety of options to complete enrollment as quickly as possible,~~ there can be no assurance that we will ~~be able to enroll~~retain a sufficient number of patients in the full study cohort or complete the clinical outcomes trial in accordance with the study protocol or on a timely ~~basis.~~basis, if at all. Similarly, our COBALT clinical outcomes confirmatory trial for PBC includes subjects across the spectrum of PBC disease, including early and advanced PBC, and there can be no assurance that we will enroll and retain a sufficient number of patients in the full study or complete the clinical outcomes trial in accordance with the study protocol or on a timely basis, if at all. As we engage in other large and complicated trials and trials in advanced disease populations, we may experience a number of ~~complications~~challenges that may negatively affect or delay our plans ~~or our~~and development programs.

Additionally, we have in the past occasionally experienced difficulties enrolling and retaining patients enrolled in our clinical trials. Difficulties in enrolling and retaining patients may delay our clinical trials or result in negative or inconclusive outcomes, and we or our collaborators may decide, or regulatory authorities may require us, to conduct additional clinical trials or additional analyses of existing clinical trials. Any delay or compromises with respect to the validity of our clinical trials may have a material adverse effect on our business or decrease our competitive position relative to other biotechnology or pharmaceutical companies with whom we compete.

In addition, if we or any of our collaborators are required to conduct additional preclinical or clinical ~~trials~~studies or other ~~preclinical studies of~~development work on our product candidates beyond ~~those~~that contemplated, our ability to obtain regulatory approval of these product candidates and generate revenue from their sales would be similarly harmed.

Clinical 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 ~~Sumitomo Dainippon~~ or our ~~potential future~~ 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 ~~our~~ 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 aour product ~~candidate.~~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 a clinical trials, including trial endpoints, protocols and statistical analysis plans, can determine whether ~~its results~~such trials will support ~~approval of a~~ product approvals, and flaws in the design of ~~a clinical trial~~such trials may not become apparent until ~~the clinical trial is~~such trials are well-advanced. We may be unable to design and execute a clinical ~~trial~~trials to support regulatory approval. Further, clinical trials of ~~potential products~~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 efficacy for any indication, we will not be able to obtain regulatory approval for them, and our prospects and business may be materially and adversely affected.

~~In some instances, there can~~There may be significant variability in the safety and/or efficacy results ~~between~~we see in different trials ~~of the same~~studying OCA or our other product ~~candidate~~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 in the rate of ~~dropout~~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 ~~to obtain regulatory~~or result in the approval ~~to market~~of our product ~~candidates.~~candidates by regulatory authorities. If we are unable to bring any of our current or future product candidates to market, ~~or to~~ acquire any ~~marketed,~~ previously approved products or maintain approval for our approved products, our ability to create long-term stockholder value will be limited.

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Although Ocaliva for PBC has received accelerated approval in the United States and conditional approval in the European Union, its full approval depends on the completion and results of post-marketing clinical trials, including ~~the~~our Phase 4 COBALT trial. We cannot assure you that these trials will demonstrate a correlation of ~~biochemical~~the surrogate endpoint therapeutic response in patients taking Ocaliva for PBC with a significant reduction in adverse clinical ~~events~~outcomes over time.

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 ~~the~~200 adult NASH patients in Japan conducted by our collaborator, Sumitomo Dainippon, ~~Phase 2 trial~~ did not meet its primary endpoint with statistical significance. In ~~this~~the Sumitomo Dainippon trial, there was a dose dependent, although not statistically significant, increase in the percentage of ~~OCA treated~~OCA-treated patients compared to placebo who achieved the primary endpoint ~~(p=~~(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 ~~in NASH conducted in Japan by our collaborator Sumitomo Dainippon~~ involved different doses of OCA being administered to the trial subjects than those utilized in ~~FLINT.~~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 ~~FLINT. While~~the Phase 2b FLINT trial.

In February 2019, we announced topline results from the 18-month analysis of our pivotal Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH. 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 ~~designed~~required to achieve one of the two primary endpoints. While OCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis and we have submitted an NDA in the United States and currently intend to file in Europe for approval of OCA for NASH based on the results from the 18-month analysis of ~~the FLINT trial and is anticipated to enroll a predominantly Western NASH patient population, the results of the FLINT trial may not be replicated in~~ our ~~REGENERATE trial. In addition, since the design of the~~Phase 3 REGENERATE trial deviates from that of the FLINT trial, there is an increased risk that the results of the REGENERATE trial would differ from the FLINT results. Even though OCA has been granted breakthrough therapy designation by the FDA,in patients with liver fibrosis due to NASH, we do not know if one pivotal clinical trial will be sufficient for marketing approval or if ~~regulators~~regulatory authorities in the United States, Europe or our other target markets will ~~agree to a surrogate endpoint for accelerated approval of~~approve OCA for NASH patients with liver fibrosis on an accelerated or conditional basis, or at all. Additionally, interim analysis results at 18 months were based on surrogate endpoints and the ~~treatment of NASH. As a result, it may take longer than anticipated to initiate and complete the~~impact on clinical outcomes has not been confirmed. Our Phase 3 REGENERATE trial ~~or our Phase 3 program in NASH~~is ongoing to confirm the clinical benefit of OCA for ~~other patient subpopulations.~~NASH.

Our product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require that our ~~product candidates to~~products be taken off the market ~~require them to~~or include new or additional safety ~~warnings or otherwise~~warnings. Any such events may limit ~~their sales.~~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 ~~agonist of the farnesoid X receptor, or FXR.~~FXR agonist. With the exception of the endogenous human bile acid chenodeoxycholic acid ~~or CDCA,~~ 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 infor PBC were pruritus, ~~or itching,~~ 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 ~~OCA~~ 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%) ~~patients~~ were in the OCA 10 mg ~~OCA~~ group and one (1%) ~~patient~~ was in the OCA titration group. Pruritus also has been observed in other clinical trials of OCA. Decreases in ~~HDL~~high density lipoprotein (“HDL”) cholesterol were also observed during treatment in ~~the~~our Phase 3 POISE trial. In our Phase

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2 trials for OCA infor PBC, a dose-response relationship was observed ~~for~~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. The European label for Ocaliva also notes that elevations in alanine amino transferase and aspartate aminotransferase were observed in patients treated with OCA.

Ocaliva is contraindicated for PBC patients with complete biliary obstruction in the United States and the European Union. For patients with moderate or severe hepatic impairment (Child Pugh B or C cirrhosis), who represent approximately 3% of PBC patients, the U.S. label for Ocaliva in PBC includes an adjustment in the dosing regimen and the EU label recommends an adjusted dosing regimen due to potential exposure levels in this population. For patients with HDL reductions and no response to Ocaliva after one year at the maximum tolerated dose, the U.S. label asks prescribing physicians to weigh the risks against the benefits of continuing treatment.

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 healthcare provider~~Dear Health Care Provider (“DHCP”) letter, and the FDA also subsequently issued ~~their~~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 ~~close~~ monitoring of PBC patients for progression of their disease and the occurrence of liver-related adverse reactions. In addition to the DHCP letter, we ~~have taken~~took actions to enhance education about appropriate use of Ocaliva. These initiatives ~~include:~~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 ~~completing adjudication of all~~adjudicating reported cases of serious liver injury, including in patients with no or mild hepatic impairment. ~~Pursuant~~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 ~~FDA's~~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 weto 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 ~~been working~~engaged with relevant regulatory authorities to ensure that the ~~FDA on updates to~~Ocaliva label sufficiently reinforces the ~~label to better ensure~~importance of appropriate ~~and safe use of Ocaliva and anticipate the updated label by early 2018.~~dosing in patients with advanced cirrhosis. These events and any safety concerns associated with Ocaliva, perceived or real, may ~~cause decreased demand for~~adversely affect the successful development and commercialization of our product candidates and lead to a loss of revenues.

~~Based on information~~Ocaliva is contraindicated for PBC patients with complete biliary obstruction in the ~~manuscript~~United States and the European Union. For PBC patients with HDL reductions and no response to Ocaliva after one year at the maximum tolerated dose, the U.S. label asks prescribing physicians to weigh the risks against the benefits of continuing treatment.

In the 18-month analysis of our pivotal Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH, the safety population included 1,968 randomized patients who received at least one dose of investigational product (OCA or placebo) with exposures up to 37 months. Adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of OCA. The frequency of serious adverse events was similar across treatment groups (11% in placebo, 11% in OCA 10 mg and 14% in OCA 25 mg), and no serious adverse event occurred in > 1% of patients in any treatment group. There were 3 deaths in the study (2 in placebo: bone cancer and cardiac arrest and 1 in OCA 25 mg: glioblastoma) and none were considered related to treatment. The most common adverse event reported was dose-related pruritus (19% in placebo, 28% in OCA 10 mg and 51% in OCA 25 mg). The incidence of pruritus across all three treatment groups was highest in the first three months and decreased thereafter. The large majority of pruritus events were mild to moderate, with severe pruritus occurring in a small number of patients (< 1% in placebo, < 1% in OCA 10 mg and 5% in OCA 25 mg). A higher incidence of pruritus-associated treatment discontinuation was observed for OCA 25 mg (< 1% in placebo, < 1% in OCA 10 mg and 9% in OCA 25 mg). According to the clinical study protocol, investigator assessed severe pruritus mandated treatment discontinuation. Consistent with observations from previous NASH studies, OCA treatment was associated with an increase in low density lipoprotein (“LDL”) cholesterol, with a peak increase of 22.6 mg/dL at 4 weeks and subsequently reversing and approaching baseline at month 18 (4.0 mg/dL increase from baseline). Triglycerides rapidly and continually decreased in the OCA treatment groups through month 18. There were few and varied serious cardiovascular events and incidence was balanced across the three treatment groups (2% in placebo, 1% in OCA 10 mg and 2% in OCA 25 mg). With respect to hepatobiliary events, more patients (3%) on OCA 25 mg experienced gallstones or cholecystitis compared to < 1% on placebo and 1% on OCA 10 mg. While hepatic serious adverse events were rare (< 1% incidence in each of the three treatment groups), more occurred in the OCA 25 mg group with no pattern attributable to OCA.

In the Phase 2b FLINT trial, ~~published in November 2014,~~ pruritus occurred more frequently in the OCA treatment group than in the placebo treatment group (23% vs. 6%, p < ~~0.001)~~0.0001) and at a higher grade (predominately moderate pruritus)~~, but resulted in only one patient discontinuation in the~~. OCA treatment ~~group. In the FLINT trial, OCA treatment~~ was

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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. ~~As previously disclosed, these~~These changes in cholesterol levels, along with ~~achieving~~ 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 ~~has~~ 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.

InFurthermore, the Phase 2 dose ranging trial of OCA in 200 adult NASH patients in Japan conducted by our collaborator, Sumitomo Dainippon, did not meet statistical significance for the primary endpoint. The primary endpoint in the Sumitomo Dainippon trial was histologic improvement defined as at least a two-point improvement in the nonalcoholic fatty liver disease activity score with no worsening of fibrosis. In this 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.

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 ~~OCA~~ group, 10% of patients in the OCA 10 mg ~~OCA~~ group and 55% of patients in the OCA 25 mg ~~OCA~~ group. All adverse events were mild to moderate and two patients discontinued treatment in the OCA 25 mg ~~OCA~~ group due to pruritus. Over 95% of the patients completing the double-blind phase of CONTROL enrolled in the ~~long-term safety extension~~LTSE phase of the trial.

During the ~~ongoing~~ LTSE phase of CONTROL, there ~~has been~~was one patient ~~death~~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 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. While~~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 ~~this was~~these events were possibly related to ~~treatment, the principal investigator and~~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 ~~was~~were unlikely related to OCA.

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In our Phase 2 AESOP trial of OCA infor PSC, pruritus was the most common adverse event, occurringin 46% of patients on placebo, 60% of patients in the OCA 1.5 mg to 3 mg ~~OCA~~ group and 67% of patients in the OCA 5 mg to 10 mg ~~OCA~~ group, with the severity increasing with dose. One (4%) patient in the OCA 1.5 mg to 3 mg ~~OCA~~ group and three (12%) patients in the OCA 5 mg to 10 mg ~~OCA~~ group discontinued OCA due to pruritus compared to none in the placebo group.

Additional or unforeseen side effects ~~from~~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 ~~PBC,~~the United States, Europe and certain of our other target markets, OCA ~~will be~~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 ~~PSC, biliary atresia~~ and other potential indications. Furthermore, our commercial ~~efforts~~sales of Ocaliva for ~~Ocaliva in~~ 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, ~~and~~ result in a delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label ~~warnings.~~

warnings or result in the withdrawal of previously granted marketing approvals.

In addition, our ~~drug~~product candidates are being developed as potential treatments for severe, life threatening diseases and, as a result, our trials will necessarily be conducted in a patient ~~population~~populations that will be more prone than the general population to exhibit certain disease states or adverse events. For example, ~~as we expand~~ our ~~overall NASH development program, we intend to conduct trials in advanced patient populations, such as in our planned~~ Phase 3 REVERSE trial in NASH patients with ~~cirrhosis.~~compensated cirrhosis has expanded our NASH development program into a more advanced NASH patient population and accordingly imposes certain eligibility requirements for uptitration, as well as certain monitoring requirements thereafter. Ocaliva is ~~used~~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 inby patients using ~~commercial product were due~~our approved products are related to our ~~drugs~~product candidates or ~~drug candidates~~approved products or some other ~~factor, resulting in our company~~factor. As a result, we and our development programs ~~being~~may be negatively affected even if such events or symptoms are ultimately determined to be unlikely related to our ~~drugs and drug candidates.~~product candidates or approved products. We ~~further~~ cannot assure you that additional or more severe adverse side effects ~~with respect~~related to OCA or our other product candidates will not ~~develop~~be observed in ~~future~~our clinical trials or in the commercial ~~use, which~~setting. If observed, such adverse side effects could delay or preclude regulatory approval of OCA, limit commercial use or ~~limit its commercial use.~~

result in the withdrawal of previously granted marketing approvals.

If we or others ~~later~~ identify undesirable or unacceptable side effects caused by our ~~products~~product candidates or ~~product candidates:~~

products:

·●

~~regulatory authorities~~we may ~~require~~be required to modify, suspend or terminate our clinical trials;

●

we may be required to modify or include additional dosage and administration instructions, warnings and precautions, contraindications, boxed warnings, limitations, restrictions or other statements in the ~~addition of labeling statements, specific warnings, a contraindication~~product label for our approved products, or issue field alerts to physicians and ~~pharmacies;~~pharmacies or implement other risk mitigation programs;

·●

we may be required to ~~change instructions regarding the way the product is administered,~~ conduct costly additional clinical ~~trials or change the labeling of the product;~~trials;

·●

we may be subject to limitations on how we may promote ~~the product;~~our approved products;

·●

sales of ~~the product~~our approved products may decrease significantly;

·●

regulatory authorities may require us to take our approved ~~product~~products off the market;

·●

we may be subject to regulatory investigations, government enforcement actions, litigation or product liability claims; and

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our products may become less competitive or our reputation may suffer.

Breakthrough therapy designation for OCA may not lead to faster development or regulatory processes ~~nor does it~~or increase the likelihood that the FDA will approve OCA ~~will receive marketing approval~~ for ~~NASH.~~

the treatment of NASH patients with fibrosis.

If a drug is intended for the treatment of a serious or life-threatening condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development, the FDA may grant a breakthrough therapy designation. Breakthrough therapy designation is intended to facilitate the development, and expedite the review, of such drugs, but the breakthrough therapy designation does not assure ~~any such qualification or ultimate~~ marketing approval by the FDA.

In January 2015, we received breakthrough therapy designation for OCA infor the treatment of NASH patients with fibrosis. However, there is no guarantee that the receipt of breakthrough therapy designation will result in a faster development process, review or approval ~~for~~of OCA ~~in fibrotic~~for NASH patients with fibrosis or increase the likelihood that OCA will be granted marketing approval for ~~fibrotic~~ NASH ~~patients. Likewise,~~patients with fibrosis. Similarly, any future breakthrough therapy designation ~~for~~relating to any other potential indication of OCA or our other product candidates will neither ~~guarantees~~guarantee a faster development process, review or approval nor ~~improves~~improve the likelihood of the grant of marketing approval by the FDA ~~for any such potential indication of OCA~~ compared to ~~drugs considered for approval under~~ conventional FDA procedures. In addition, the FDA may withdraw any breakthrough therapy designation at any time. WeWhile we may seek a breakthrough therapy designation for ~~other~~one or more of our product candidates ~~but~~in the future, we can give no assurance that the FDA ~~may not~~will grant ~~this status to any of our proposed product candidates.~~such status.

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

Regulatory authorities in some jurisdictions, including the United States and Europe, 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 and the European Union for the treatment of PBC and PSC.

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 ~~EMA~~FDA or the ~~FDA~~EMA from approving another marketing application for the same product ~~for that time~~during the exclusivity period. The applicable exclusivity period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified.

Orphan drug exclusivity may be lost if the FDA or EMA 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. In addition, ~~it is possible that orphan marketing~~the European exclusivity ~~attaching to the marketing authorization will~~period can be reduced to six years if, at the end of the fifth year, ~~following the receipt of marketing authorization, the EMA and the Committee for Orphan Medicinal Products determine~~it is established that the product ~~does not satisfy~~no longer meets the ~~requisite~~ criteria ~~including demonstration of significant clinical benefit (having regard to requirements set out in the applicable EU regulations and guidance) where it is shown based on the available evidence that~~for orphan drug designation because, for example, the product is sufficiently profitable not to justify ~~not to maintain the marketing~~maintenance of market exclusivity.

~~The~~Any failure to maintain orphan drug status ~~may impact our ability to receive a premium price for OCA or our other products and~~ may subject us to mandatory price discounts in ~~Europe. In addition, our ability to launch~~Europe and result in ~~Europe may be delayed and we may lose~~the loss of other benefits, such as tax exemptions for sales. As such, the loss of orphan drug status may have a negative effect on our ability to successfully commercialize our products, earn revenues and achieve profitability.

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 ~~and~~or EMA ~~can~~may subsequently approve ~~the later~~another product for the same condition if the FDA or EMA concludes that the later product is clinically superior ~~in that~~(i.e., it is shown to be safer, more effective or makes a major contribution to patient ~~care.~~

Ifcare). Any inability to secure or maintain orphan drug status or the ~~FDA~~exclusivity benefits of this status could have a material adverse impact on our ability to develop and ~~EMA~~commercialize our product candidates and ~~other regulatory agencies do not approve~~approved products.

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We rely entirely on third parties for the ~~manufacturing facilities of our future contract manufacturers for commercial production on a timely basis or at all, we may not be able to commercialize any~~manufacture of our product requirements for our preclinical studies and clinical trials, as well as our commercial supply of Ocaliva and, if approved, OCA for NASH and our other product candidates, ~~or commercialization~~and also depend on third-party vendors and CROs for certain of our clinical trial and product ~~candidates~~development activities. Our business could be ~~delayed.~~

harmed if our third-party manufacturers fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices, or if our third-party vendors or CROs assisting us with our clinical trials and product development activities fail to comply with their contractual commitments or applicable regulatory obligations or if we lose our relationships with our third-party vendors and CROs.

We do not ~~intend to~~ manufacture the pharmaceutical products that we ~~plan to sell.~~sell or the product candidates that we are developing. We ~~currently have agreements with a~~rely on third-party contract ~~manufacturer~~manufacturers for ~~the production~~all of ~~the~~our required raw materials, active pharmaceutical ~~ingredients~~ingredient and ~~the formulation of sufficient quantities of drug~~finished product for our commercial sales and for our existing and anticipated clinical trials and preclinical ~~studies that we plan to conduct prior to and after seeking regulatory approval. If~~studies. Any inability by our contract ~~manufacturer should cease~~manufacturers to continue to provide services to us for any reason ~~we likely would experience delays in advancing~~could adversely affect our commercialization efforts and clinical ~~trials while we identify and qualify one or more replacement suppliers~~development program, and we may be unable to ~~obtain~~identify, qualify and engage replacement ~~supplies~~suppliers on terms that are favorable to ~~us.~~

us on a timely basis, if at all.

We currently have ~~a long-term supply~~an agreement with PharmaZell ~~GMBH~~GmbH for the manufacture ofand commercial supply of Ocaliva and, if approved, OCA for ~~Ocaliva.~~NASH. While we have procured ~~sufficient~~ supplies for the ~~commercial launch~~commercialization of Ocaliva infor PBC and, if approved, OCA for NASH, we may not be able to procure sufficient supplies of Ocaliva and, if approved, OCA for NASH on ~~a continued~~an ongoing basis. We ~~are also seeking~~have engaged in activities to qualify ~~one~~additional or ~~more~~ back-up suppliers, ~~for our active ingredients; however, we~~but these suppliers may not be able to ~~enter into additional~~meet our long-term commercial supply ~~agreements~~requirements for Ocaliva or, if approved, OCA ~~with~~for NASH or other ~~third-party manufacturers.~~indications on acceptable terms, or at all. We do not have agreements for long-term supplies of any of our other product candidates. We currently obtain ~~these~~ supplies and services relating to our other product candidates from our third-party contract manufacturers on a purchase order basis.

~~Additionally, the~~The facilities used by any contract manufacturer to manufacture OCA or any of our other product candidates must be the subject of a satisfactory inspection before the FDA or ~~the~~ regulators in other jurisdictions approve the product candidate manufactured at that facility. We are completely dependent on these third-party manufacturers for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of our finished ~~products.~~products, including Ocaliva. If our manufacturers ~~cannot successfully manufacture material that conform~~are unable to meet our requirements in accordance with our product specifications and applicable current ~~good manufacturing practice~~Good Manufacturing Practices (“cGMP”) requirements, ~~of any governmental agency whose jurisdiction to which we are subject,~~ our products or product candidates will not be approved or, if already approved, may be subject to ~~recalls.~~

recall.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured ~~the products or~~our product candidates and products ourselves, including:

·●

the possibility that we are unable to enter into or renew aour manufacturing ~~agreement~~agreements with a third ~~party to manufacture OCA~~parties on acceptable terms, or ~~our product candidates;~~at all;

·●

the possible termination, breach or non-performance by our third-party manufacturers of ~~the~~our manufacturing agreements ~~by the third parties because of~~based on factors beyond our control; and

·●

our inability to timely identify and qualify a replacement for any of our third-party manufacturers in the ~~possibility of~~event any such third-party manufacturer fails to meet our product requirements or following the termination, expiration or nonrenewal of ~~the~~our agreements ~~by the third parties before we are able to arrange for a qualified replacement~~with such third-party manufacturer.

Any of these factors could ~~cause~~disrupt the ~~delay of approval or disruption of commercialization~~supply of our ~~products~~product candidates or ~~product candidates,~~approved products, cause us to incur higher costs, ~~prevent us from commercializing~~delay the approval of our ~~products and~~ product candidates ~~successfully~~or prevent or disrupt the ~~supply~~commercialization of our ~~products after commercial launch.~~approved products. Furthermore, if any of our product candidates, including OCA for NASH, are approved and our contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for ~~our products~~such product candidate following its approval and could lose potential revenue. It may take several years to establish an alternative long-term source of supply and to have any such new source approved by the ~~government agencies~~regulatory authorities that regulate our ~~products.~~products in the United States, Europe and our other target markets.

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We depend on third-party vendors and CROs for certain of our clinical trial and product development activities. If any of these providers fail to comply with their contractual commitments or applicable regulatory obligations, our business could be materially and adversely affected. In addition, if we are unable to maintain our relationship with any one or more of these providers, we could experience a significant delay in both identifying another comparable provider and then contracting for its services, which could materially and adversely affect our clinical trial and product development efforts. We may be unable to retain an alternative provider on reasonable terms, or at all. Even if we locate an alternative provider, it is likely that such a provider will need additional time to respond to our needs and may not provide the same type or level of services as the original provider. Any third-party vendors and CROs that we retain are subject to the FDA’s regulatory requirements and similar foreign standards and we do not have control over compliance with these regulations by these providers. The FDA and other regulatory authorities enforce these regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If these regulations are not adhered to by these providers, or if such providers fail to timely correct any non-compliance, the commercialization and development of our product candidates ~~receive regulatory~~or approved products could be delayed, which could materially and adversely harm our business and financial condition.

Even though we have received conditional approval of Ocaliva for PBC, we ~~will~~and our contract manufacturers are still be subject to strict, ongoing regulatory ~~requirements governing manufacturing~~requirements.

Even though we have received conditional approval of Ocaliva 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, we and ~~marketing of~~ our ~~products and, as a result, we could face future development and regulatory difficulties.~~

~~Our product candidates, if approved, will also be~~contract manufacturers are subject to ongoing regulatory requirements ~~for~~relating to, among other things, Ocaliva’s manufacturing, packaging, labeling ~~packaging, storage, advertising, promotion, record-keeping~~ and ~~submission of safety and other post-market information.~~storage. In addition, ~~approved products,~~we and our contract manufacturers and our contract manufacturers’ facilities are required to comply with extensive FDA and EMA requirements and the requirements of other similar ~~agencies,~~regulatory authorities, including ~~ensuring~~requirements that quality control and manufacturing procedures conform to current ~~Good Manufacturing Practices, or~~ cGMPs. As such, we and our contract manufacturers are subject to ~~continual review~~periodic cGMP inspections and ~~periodic~~other inspections ~~to assess compliance with cGMPs. Accordingly, we~~ and ~~others with whom we work~~audits required by law or industry standard and must continue to expend time, money and effort ~~in all areas of regulatory~~to ensure compliance ~~including~~with applicable manufacturing, production and quality ~~control.~~control requirements. We ~~will~~are also be required to report certain adverse reactions and production problems, if any, to the FDA, ~~and~~ EMA and other similar ~~agencies~~regulatory authorities and to comply with certain requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and generally must be consistent with the information in the product’s approved label. ~~Accordingly, we may not promote our approved products such as Ocaliva for indications or uses for which they are not approved.~~

If a regulatory ~~agency~~authority such as the FDA discovers previously unknown problems with ~~a product,~~one of our products, such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of ~~a product,~~one of our products, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market. IfIn addition, if we or our ~~product candidates~~contract manufacturers, other third-party vendors or collaborators fail to comply with applicable regulatory requirements, a regulatory agency ~~may:~~

may, among other things:

·●

issue ~~warning letters;~~Form 483 notices or Warning Letters, in the case of the FDA, or similar notices, in the case of other regulatory agencies;

·●

mandate modifications to our promotional materials or require us to provide corrective information to healthcare practitioners;

·●

require us or our collaborators to enter into a consent decree or permanent injunction, which ~~can~~may include the imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

·●

recall our products;

●

suspend any of our ongoing clinical studies;

●

impose ~~other~~ administrative, ~~or judicial~~ civil or criminal penalties;

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withdraw regulatory ~~approval;~~approval or require changes to our product label, including the inclusion of additional warnings or changes to the approved indication;

·●

refuse to approve pending applications or supplements to approved applications filed by us ~~Sumitomo Dainippon~~ or our ~~potential future~~ collaborators;

·●

impose restrictions on our operations or those of our contract manufacturers, including costly new manufacturing requirements; or

·●

seize or detain products.

We must comply with environmental, health and safety laws and regulations

Our activities involve the controlled storage, use and disposal of hazardous materials. We are subject to federal, state, city and local laws and regulations, in and outside the United States, governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe that the safety procedures we use for handling and disposing of these materials comply with the standards prescribed by applicable laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, regulatory authorities may curtail the use of these materials and interrupt our business operations. We do not currently maintain hazardous materials insurance coverage.

Risks Related to the Commercialization of Our Products

~~Reimbursement decisions~~Sales of Ocaliva may be adversely affected by ~~third-party payors~~safety and labeling changes required by the FDA.

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 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 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. These events, the revised label, any future label changes that may ~~have an adverse effect on~~be required by the FDA or other relevant regulatory authorities and any safety concerns associated with Ocaliva, perceived or real, may materially and adversely affect our Ocaliva commercialization efforts and, consequently, our financial condition and results of operations.

We are subject to uncertainty relating to pricing and ~~market acceptance of~~reimbursement. Failure to obtain or maintain adequate coverage, pricing and reimbursement for Ocaliva for PBC, OCA for NASH, if approved, or our ~~product candidates,~~other future approved products, if ~~approved. If there is not sufficient~~any, could have a material adverse impact on our ability to commercialize such products.

The availability and extent of coverage and reimbursement from governmental and private healthcare payors for our products, ~~or they~~including Ocaliva for PBC and, if approved, OCA for NASH, and our ability to obtain adequate pricing for such products are ~~not covered at all, it is less likely~~key factors that ~~they~~ will ~~be widely used.~~

~~Market acceptance and sales of any products or product candidates that we develop will depend on reimbursement policies and may be affected by~~affect our future ~~healthcare reform measures.~~commercial prospects. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish payment levels. ~~We cannot be certain that reimbursement~~Sales of our products depend and will depend substantially, both domestically and internationally, on the extent to which their cost will be ~~available for Ocaliva~~paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations or ~~any~~reimbursed by government health administration authorities, private health coverage

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insurers and other ~~products~~third-party payors. Accordingly, the coverage and ~~product candidates that we develop. Also,~~ reimbursement ~~policies~~decisions of such governmental and private healthcare payors could reduce the demand for, or the price paid for, our products. If these payors do not consider our products to be cost-effective alone, or relative to other approved therapies, they may not cover our products or, if they do, they may apply utilization management restrictions, high patient cost-sharing obligations, or restrict the level of reimbursement.

Third-party payors are increasingly challenging the prices charged for pharmaceuticals products, and many also limit reimbursement for newly-approved products and indications. Third-party payors often attempt to contain healthcare costs by demanding price discounts or rebates and limiting both the types and variety of drugs that they will cover and the amounts that they will pay for drugs. As a result, they may not provide adequate payment for our products. Similarly, the containment of healthcare costs has become a priority for federal and state governments and the pricing of pharmaceutical products has been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could adversely affect our ability to successfully commercialize our products. In addition, we may be required to conduct post-marketing studies in order to demonstrate the cost-effectiveness of our products to payors’ satisfaction. Such studies might require us to commit a significant amount of management’s time and our financial and other resources and our products might not ultimately be considered cost-effective.

We do not know if Ocaliva for PBC will obtain and maintain broad acceptance from third-party payors in the jurisdictions in which it is, or may in the future be, approved. In addition, we do not know if OCA for NASH will obtain and maintain broad acceptance from third-party payors, if approved. The coverage determination process is a time-consuming and costly process that requires us to provide scientific and clinical support for the use of Ocaliva for PBC and, if approved, OCA for NASH to each payor separately, with no assurance that coverage will be obtained or maintained. The market for a drug depends significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. Third-party payors may refuse to include a particular drug in their formularies or restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available, even if not approved for the indication for which the branded drug is approved. Due to there being no uniform policy of coverage and reimbursement in the United States among commercial payors, coverage and reimbursement for pharmaceutical products may differ significantly from payor to payor. If we are unable to obtain and maintain adequate coverage from third-party payors, the adoption of Ocaliva for PBC and, if approved, OCA for NASH by physicians and patients may be limited. This in turn could affect our ability to successfully commercialize Ocaliva for PBC and, if approved, OCA for NASH and have a material adverse impact our profitability, results of operations, financial condition and future success.

We cannot be certain that we will be able to obtain and maintain adequate coverage, pricing and reimbursement for our products, including Ocaliva for PBC, OCA for NASH, if approved, or our other future approved products, if any. If coverage or reimbursement is not available or is available on a limited basis, or if we are unable to obtain and maintain adequate pricing, we may not be able to successfully commercialize Ocaliva for PBC, OCA for NASH, if approved, or ~~any~~our other future approved products, ~~or product candidates that we develop.~~if any.

Legislative healthcare reform may adversely affect our business.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ~~or MMA,~~(the “MMA”) changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. Any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

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In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act ~~or collectively, ACA,~~(collectively, the “ACA”), became law in the United States. ~~The goal~~Among other things, the purpose of the ACA iswas to reduce the cost of ~~health care~~healthcare and substantially change the way ~~health care~~healthcare is financed by both governmental and private insurers. The ACA requires discounts under the Medicare drug benefit program and increased the rebates paid by pharmaceutical companies on drugs covered by Medicaid. The ACA also imposes an annual fee, which increases ~~annually,~~each year, on sales by branded pharmaceutical manufacturers. ~~Following~~Since its enactment, there have been a number of judicial, executive and legislative challenges to the ~~November 2016 U.S. elections~~ACA, including recent tax legislation that removes the financial penalties for people who do not carry health insurance commencing in 2019 and ~~the inauguration of~~an Executive Order signed in October 2017 by President Trump directing federal agencies to modify how the ACA is implemented. There is still uncertainty ~~exists about~~whether the ACA will undergo additional revisions, and we cannot predict the impact of any future ~~of the coverage expansion provided by the ACA; while Congressional~~modifications. There have also been recent state legislative efforts to ~~repeal~~address drug costs, which have generally focused on increasing transparency around drug costs or limiting drug prices. We cannot predict the ~~ACA have not yet resulted in the passage~~success of ~~a bill, the President and congressional leaders continue to express interest in repealing these ACA provisions and replacing them with alternatives that may be less costly and provide~~any such current or future federal or state Medicaid programs and private health plans more flexibility. It is possible that these repeal and replacement initiatives, if enacted into law, could ultimately result in fewer individuals having health insurance coverage and/or in individuals having insurance coverage with less generous benefits. The scope of potential future legislation to repeal and replace ACA provisions is highly uncertain in many respects, and it is possible that some of the ACA provisions that generally hurt the research-based pharmaceutical industry could also be repealed along with ACA coverage expansion provisions; however, at this time the coverage expansion provisions of the ACA appear most likely to be repealed and replaced.

In addition, third-party payors attempt to contain health care costs by demanding price discounts or rebates and limiting both the types and variety of drugs that they will cover and the amounts that they will pay for drugs. As a result, they may not cover or provide adequate payment for our products. We might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of our products or any other future products to such payors’ satisfaction. Such studies might require us to commit a significant amount of management’s time and our financial and other resources. Our products might not ultimately be considered cost-effective. Adequate third-party reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. The market for a drug will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. Third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available, even if not approved for the indication for which the branded drug is approved. In addition, due to there being no uniform policy of coverage and reimbursement in the United States among commercial payors, coverage and reimbursement for pharmaceutical products may differ significantly from payor to payor.

We do not know if the price we have selected for Ocaliva will receive broad acceptance from third-party payors. The coverage determination process may be a time-consuming and costly process that requires us to provide scientific and clinical support for the use of Ocaliva in PBC to each payor separately, with no assurance that coverage will be obtained. If we are unable to obtain adequate coverage of Ocaliva from third-party payors, the adoption of Ocaliva by physicians and patients as a treatment for PBC may be limited. This in turn could affect our ability to successfully commercialize Ocaliva and adversely impact our profitability, results of operations, financial condition and future success.

legislative efforts.

Reimbursement in the European Union and many other territories must be negotiated on a country-by-country basis and in many countries ~~the~~a product cannot be commercially launched until reimbursement is approved. The timing to complete the negotiation process in each country is highly uncertain. While we have been able to achieve rapid reimbursement decisions in some countries, as in the case in the United Kingdom, we expect that it may still require a number of months before we receive a reimbursement decision in many other countries. Even after a price is negotiated, countries frequently request or require adjustments to the price and other concessions over time or require approvals regionally. Reimbursement agencies in Europe are often more conservative than those in the United States and the reimbursement process is often slower since reimbursement decisions are made on a country-by-country basis. Prices for drugs in Europe are generally lower than in the United States and tend to decrease over time.

The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change ~~the~~their healthcare ~~system~~systems in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale of ~~OCA~~Ocaliva and ~~any~~our other future approved products, ~~that we develop,~~if any, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. Pricing pressures recently experienced by the pharmaceutical industry may be further exacerbated by legislative and policy changes ~~under consideration~~considered by the Trump ~~administration.~~administration and the United States Congress.

Ocaliva and our other ~~product candidates,~~future approved products, if ~~approved,~~any, may not achieve broad market acceptance among physicians, patients and healthcare payors, and ~~as a result our~~ revenues generated from their sales may be ~~limited.~~

limited as a result.

The commercial success of Ocaliva orfor PBC, OCA for NASH, if approved, and our other future approved products, ~~or product candidates that we develop,~~ if ~~approved,~~any, will depend upon their acceptance among the medical community, including physicians, healthcare payors and patients. In order for Ocaliva to be commercially successful infor PBC, we ~~will~~ need to demonstrate its utility as a cost-effective treatment for PBC patients who have an inadequate response to UDCA or who are unable to tolerate ursodiol, referred to as second line treatment, and show that it is more effective than any other alternatives that may be developed as a second line treatment for PBC, particularly given the much higher price that we charge for Ocaliva compared to the price of generically available ursodiol.UDCA. Ocaliva also must be shown to be a safe and tolerable treatment in a commercial use setting as it is intended to be a lifetime therapy for patients eligible for treatment. InWe cannot be certain that Ocaliva for PBC, OCA for NASH, if approved, or our other future approved products, if any, will achieve an adequate level of acceptance among the medical community, including physicians, healthcare payors and ~~PSC, since there are currently no approved therapies, we do not know the degree to which OCA will be accepted as a therapy, even if approved.~~

patients.

The degree of market acceptance of our ~~product candidates will depend~~approved products depends on a number of factors, including:

·●

limitations, warnings, precautions, boxed warnings, contraindications, restrictions or ~~warnings~~other statements contained in ~~our~~the product ~~candidates’~~label approved by the FDA, EMA or ~~EMA-approved labeling;~~other relevant regulatory authorities;

·●

changes in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for any of our ~~product candidates,~~products, such as ~~ursodiol~~UDCA for the treatment of PBC;

·●

limitations in the approved ~~clinical~~ indications for our ~~product candidates;~~products;

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demonstrated and perceived clinical safety and efficacy compared to ~~other~~competitive products;

·●

a lack of ~~significant~~ adverse side ~~effects;~~effects, including deaths and other serious adverse events;

·●

sales, marketing and distribution support;

·●

the availability of reimbursement from managed care plans and other third-party payors;

·●

the timing of the market introduction ~~and perceived effectiveness~~ of competitive products;

·●

the degree of cost-effectiveness;

·●

availability of alternative therapies at similar or lower cost, including ~~generics~~generic and over-the-counter products;

·●

the extent to which our ~~product candidates~~products are approved for inclusion on formularies of hospitals and managed care organizations;

·●

whether and to what extent our ~~product candidates~~products are ~~designated~~recommended under physician treatment guidelines for the treatment of the indications for which we have received regulatory approval;

·●

adverse publicity ~~about~~concerning our ~~product candidates~~products or favorable publicity ~~about~~concerning competitive products;

·●

the convenience and ease of administration of our ~~product candidates;~~products; and

·●

potential product liability claims.

In addition, the potential market opportunity for Ocaliva for PBC, OCA for NASH, if approved, and our other future approved products, ~~and product candidates~~if any, is difficult to precisely estimate. ~~While ursodiol is the established standard of care for PBC, a majority of patients while on therapy remain at ALP levels above the upper limit of normal, or ULN. According to~~For example, our analysis of industry data in PBC, approximately 65% of patients treated with ursodiol experience elevated ALP levels, with approximately 35% of patients experiencing ALP levels greater than 1.67 times ULN. In addition, a small minority of PBC patients (estimated at approximately 3% of patients) are intolerant to ursodiol therapy. Our estimates of the potential market opportunity for Ocaliva for ~~the treatment of~~ PBC include a number of key assumptions related to prevalence rates, patients’ access to healthcare, diagnosis rates and patients’ response to or tolerance of ~~OCA,~~Ocaliva, which are based on available literature and epidemiology research in PBC, our industry knowledge gained through market research and other methods, industry publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions. If any of these assumptions prove to be inaccurate, then the actual market for Ocaliva infor PBC could be smaller than our estimates of our potential market opportunity. If the actual market opportunity for Ocaliva for PBC, OCA for NASH, if approved, or our ~~product candidates~~other future approved products, if any, is smaller than we expect, our product revenue may be ~~limited.~~

limited and our financial condition and results of operations may be materially and adversely affected.

If Ocaliva for PBC, OCA for NASH, if approved, or our ~~product candidates are~~other future approved ~~but~~products, if any, do not achieve an adequate level of acceptance ~~by physicians, patients,~~among the medical community, ~~and~~including physicians, healthcare payors and patients, sufficient revenue may not be generated from these products and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of Ocaliva for PBC, OCA for NASH, if approved, and our ~~product candidates~~other future approved products, if any, may require significant resources and may never be successful.

We have limited sales, marketing orand distribution experience and we will ~~have~~need to continue to invest in significant additional resources to develop those capabilities or enter into acceptable third-party sales and marketing arrangements.

We have limited sales, marketing orand distribution experience as a commercial organization. ~~The~~Ocaliva is our first approved product and the commercial launch of Ocaliva for PBC ~~represents~~is our first product launch. We ~~also plan to commercialize~~are commercializing Ocaliva for PBC ~~in certain other countries outside~~using a combination of our internal commercial organization, a contract sales organization and third-party distributors depending on the ~~United States~~jurisdiction. We are developing our commercialization strategy for OCA for NASH, if approved, and ~~Europe ourselves with a targeted sales force if we receive marketing approval. We may utilize the services of third-party collaborators in certain other jurisdictions. We~~ have not yet decided on our commercialization strategy for OCA infor other indications ~~and~~or for our other

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product ~~candidates.~~candidates, in each case, if approved. To develop internal sales, distribution and marketing capabilities, we have invested and expect to continue to invest significant additional amounts of financial and management resources.

Recruiting and training a commercial organization is expensive, ~~and time consuming~~time-consuming and could delay any product launch. If the commercial launch of aan approved product ~~candidate~~ for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment could be lost if we cannot retain or reposition our sales and marketing personnel.

For ~~product candidates~~approved products where we decide to perform sales, marketing and distribution functions ourselves or through third parties, we could face a number of additional risks, including:

·●

we or our third-party sales collaborators may not be able to attract and build, or retain, an effective marketing or sales force;

·●

the cost of securing or establishing a marketing or sales force may exceed the revenues generated by ~~any~~our products; and

·●

our ~~direct~~ sales and marketing efforts may not be successful.

We ~~have a collaboration with Sumitomo Dainippon for~~may utilize the ~~development and commercialization~~services of ~~OCA~~third-party collaborators in ~~Japan, China, South Korea and potentially other Asian countries, if approved, and may elect to seek additional strategic collaborators for our product candidates.~~certain jurisdictions. We may have limited or no control over the sales, marketing and distribution activities of these third ~~parties. Our~~parties, and our future revenues may depend heavily on their success.

We could incur significant liability if it is determined that we have improperly promoted or are improperly promoting Ocaliva for PBC or any of our product candidates prior to their approval.

Physicians are permitted to prescribe drug products for uses that are not described in the ~~success~~product’s labeling and that differ from those approved by the FDA or other applicable regulatory agencies. Off-label uses are common across medical specialties. Although the FDA and other regulatory agencies do not regulate a physician’s choice of treatments, the ~~efforts~~FDA and other regulatory agencies do restrict communications on the subject of off-label use. Companies are not permitted to promote drugs in a manner inconsistent with applicable regulatory guidance. The FDA, the U.S. Department of Justice (“DOJ”) and other regulatory and enforcement authorities actively enforce laws and regulations prohibiting the improper promotion of approved products, as well as the promotion of products for which marketing approval has not been obtained. A company that is found to have improperly promoted off-label uses will be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. A significant number of pharmaceutical companies have received inquiries or been the subject of investigations by various governmental authorities in the United States and abroad. For example, in May 2018, we received a subpoena from the SEC requesting information in connection with our patient assistance program and certain of our commercial activities.

While we have implemented a corporate compliance program based on what we believe are current best practices, we cannot provide any assurance that governmental authorities, including the DOJ, SEC or FDA, will find that our business practices comply with all current or future administrative or judicial interpretations of potentially applicable laws and regulations. In addition, government and regulatory agencies may hold us responsible for any actions by our sales representatives or sales organizations, including our contract sales organization, to the extent that they do not comply with applicable laws and regulations. If we or our contract sales organization fail to comply with any of these ~~third parties.~~laws and regulations, we could be subject to a range of penalties, including criminal and significant civil penalties, fines, damages, curtailment or restructuring of our operations, exclusion, disqualification or debarment from participation in federally- or state-funded healthcare programs or other sanctions or litigation, any of which could have a material adverse impact on our business, financial condition and results of operations.

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If we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting or physician payment disclosure laws, we may be subject to civil or criminal penalties.

In addition to FDA restrictions on the marketing of pharmaceutical products, several other types of state and federal healthcare laws, commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. Other jurisdictions ~~such as~~including Europe have similar laws and are enacting more stringent regulations. These laws include false claims and anti-kickback statutes. If we market our products and our products are paid for by governmental programs, it is possible that some of our business activities could be subject to challenge under one or more of these laws.

Federal false claims laws generally prohibit ~~any person~~anyone from knowingly and willingly presenting, or causing to be presented, aany claims for the payment for goods (including drugs) or services to third-party payers (including Medicare and Medicaid) that are false ~~claim for payment~~or fraudulent. The federal civil monetary penalties statute, likewise, imposes penalties against any person or entity that, among other things, is determined to ~~the federal government~~have presented or ~~knowingly making, or causing~~caused to be ~~made,~~presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false ~~statement to get a false claim paid.~~ or fraudulent.

The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to ~~induce, or in return for, purchasing, leasing, ordering or arranging for~~generate business, including the purchase ~~lease~~ or ~~order~~prescription of ~~any healthcare item or service~~a particular product covered by Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. ~~Most states also have statutes or regulations similar~~In addition, such exemptions and safe harbors are subject to change from time to time. For example, in early 2019, the U.S. Department of Health and Human Services issued a proposed rule that, if finalized, would modify the discount safe harbor under the federal anti-kickback ~~law~~statute to eliminate protection for certain drug discounts paid by manufacturers to plan sponsors under Medicare Part D or Medicaid managed care organizations or the pharmacy benefit managers working with these organizations.

The Health Insurance Portability and Accountability Act of 1996 (as amended by the Health Information Technology for Economic and Clinical Health Act, “HIPAA”) created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or obtain, by means of false ~~claims laws, which apply to items and services covered~~or fraudulent pretenses, or promises, any of the money or property owned by, ~~Medicaid and other state programs,~~ or ~~in several states, apply~~under the custody or control of, any healthcare benefit program, regardless of the ~~payor. Administrative, civil~~payor (e.g., public or private) and ~~criminal sanctions may be imposed~~knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. HIPAA also imposes significant requirements on the receipt and transfer of protected health information.

In addition, the federal transparency requirements under ~~these~~the Physician Payments Sunshine Act require certain manufacturers of drugs, including us, for which payment is available under certain federal healthcare programs annually to report information related to payments and other transfers of value to physicians and teaching hospitals, and physician ownership and investment interests.

Finally, we must offer discounted pricing or rebates on Ocaliva under various federal and state ~~laws.~~healthcare programs, and report specific prices to government agencies under healthcare programs. The calculations necessary to determine the prices reported are complex and the failure to report prices accurately may expose us to significant penalties.

~~Over~~There are foreign and state law equivalents of these laws and regulations, such as anti-kickback, false claims, transparency and data privacy and security laws, to which we are currently and/or may in the ~~past few years, a~~future be subject. We may also be subject to foreign and state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Many of these laws differ from each other in significant ways, thus increasing the cost and complexity of our compliance efforts.

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A number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, ~~such as:~~including providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in ~~off-label promotion;~~improper promotional activities; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates.

~~We will incur significant liability if it is determined that~~If we ~~are promoting any “off-label” use of Ocaliva.~~

~~Physicians are permitted to prescribe drug products for uses that are not described in the product’s labeling and that differ from those approved by the FDA~~ or ~~other applicable regulatory agencies. Off-label uses~~our operations are common across medical specialties. Although the FDA and other regulatory agencies do not regulate a physician’s choice of treatments, the FDA and other regulatory agencies do restrict communications on the subject of off-label use. Companies are not permitted to promote drugs for off-label uses. Accordingly, we may not promote Ocaliva in the United States for use in any indications other than for the treatment of patients with PBC in combination with ursodiol in adults with an inadequate response to ursodiol or as monotherapy in adults unable to tolerate ursodiol. The FDA and other regulatory and enforcement authorities actively enforce laws and regulations prohibiting promotion of off-label uses and the promotion of products for which marketing approval has not been obtained. A company that is found to ~~have improperly promoted off-label uses will~~be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant ~~liability, including~~ civil ~~and administrative remedies as well as criminal sanctions. A significant number~~penalties, damages, fines, imprisonment, exclusion of ~~pharmaceutical companies have been the target of inquiries and investigations by various governmental authorities in the~~products from reimbursement under United States federal or state healthcare programs, and ~~abroad.~~

~~Notwithstanding~~ the ~~regulatory restrictions on off-label promotion, the FDA~~curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially and ~~other regulatory authorities allow companies~~adversely affect our ability to engage in truthful, non-misleading, and non-promotional scientific exchange concerning their products. We intend to continue engaging in medical education activities and communicate with healthcare providers in compliance with all applicable laws, regulatory guidance and industry best practices.

~~While we have implemented a corporate compliance program based on what we believe are the current best practices, we cannot provide any assurance that governmental authorities will find that~~operate our business ~~practices comply with current or future administrative or judicial interpretations~~and our financial results. Although compliance programs can mitigate the risk of ~~potentially applicable laws~~investigation and ~~regulations. If we fail to comply with any~~prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and ~~regulations, we could be subject to a range of regulatory actions, including suspension or termination of clinical trials, the failure to approve a product candidate, restrictions on~~divert our ~~products or manufacturing processes, withdrawal of Ocaliva or other products~~management’s attention from the market, significant fines, disqualification or debarment from participation in federally-funded healthcare programs or other sanctions or litigation, any of which events may have a significant adverse impact on our business.

~~If any~~operation of our ~~current strategic collaborators fails to perform its obligations or terminates its agreement~~business. Moreover, achieving and sustaining compliance with ~~us, the development and commercialization of the products or product candidates under such agreement could be delayed or terminated and our business could be substantially harmed.~~these laws may prove costly.

We currently have strategic collaborations in place relating to certain of our product candidates. We entered into an exclusive license agreement with Sumitomo Dainippon regarding the development and commercialization of Ocaliva for PBC and OCA for NASH in Japan, China and South Korea and provided Sumitomo Dainippon with an option to extend its exclusive license to different indications as well as certain other Asian countries. These strategic collaborations may not be scientifically or commercially successful due to a number of important factors, including the following:

Sumitomo Dainippon has significant discretion in determining the efforts and resources that each will apply to its strategic collaboration with us. The timing and amount of any cash payments, milestones and royalties that we may receive under such agreement will depend on, among other things, the efforts, allocation of resources and successful development and commercialization of our product candidates by Sumitomo Dainippon under the agreement;

Our agreement with Sumitomo Dainippon restricts it from developing or commercializing any FXR agonist to treat PBC or NASH during the term of the agreement other than pursuant to the Sumitomo Dainippon agreement. Subject to these restrictions, it is possible that Sumitomo Dainippon may develop and commercialize, either alone or with others, or be acquired by a company that has, products that are similar to or competitive with the product candidates that it licenses from us;

~~Sumitomo Dainippon may change the focus of its development and commercialization efforts or pursue higher-priority programs;~~

Sumitomo Dainippon may, under specified circumstances, terminate its strategic collaborations with us on short notice and for circumstances outside of our control, which could make it difficult for us to attract new strategic collaborators or adversely affect how we are perceived in the scientific and financial communities;

Sumitomo Dainippon has, under certain circumstances, the right to maintain or defend our intellectual property rights licensed to them in their territories, and, although we may have the right to assume the maintenance and defense of our intellectual property rights if our strategic collaborator does not, our ability to do so may be compromised by our strategic collaborator’s acts or omissions;

Sumitomo Dainippon may utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability; and

~~Sumitomo Dainippon may not comply with all applicable regulatory requirements, or fail to report safety data in accordance with all applicable regulatory requirements.~~

If Sumitomo Dainippon fails to develop or effectively commercialize OCA, we may not be able to replace it with another collaborator. For example, there is no assurance that Sumitomo Dainippon will initiate any registrational trials in NASH and the results of any additional trial conducted by Sumitomo Dainippon may not be an improvement as compared to those from the Phase 2 trial on Japanese NASH patients. We may also be unable to obtain, on terms acceptable to us, a license from such strategic collaborator to any of its intellectual property that may be necessary or useful for us to continue to develop and commercialize a product candidate. Any of these events could have a material adverse effect on our business, results of operations and our ability to achieve future profitability, and could cause our stock price to decline.

We may not be successful in establishing, implementing and maintaining development and commercialization collaborations, which could adversely affect our ability to develop certain of our product candidates and our financial condition and operating results. If any strategic collaborator fails to perform its obligations under, or terminates, its agreement with us, our business could be substantially harmed.

~~Because developing~~Developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, expanding manufacturing capabilities and marketing approved products are expensive, complex and time-consuming undertakings. As a result, we have in the past entered into, and may in the future seek to enter into, collaborations with ~~companies that have more experience~~third parties upon whom we may rely for financial resources and ~~resources than we have. For example, we have entered into a collaboration with Sumitomo Dainippon~~ for ~~OCA.~~development, regulatory and commercialization expertise for selected products or product candidates and in selected jurisdictions. We may establish ~~additional~~ collaborations ~~for~~with respect to the development and commercialization of OCA in ~~territories outside of those licensed by Sumitomo Dainippon~~various jurisdictions and for our other product ~~candidates and research programs, including INT-767 and INT-777.~~candidates. Additionally, ~~if any of our product candidates receives marketing approval,~~ we may enter into sales and marketing arrangements with third parties with respect to our ~~unlicensed territories.~~ approved products in all or certain jurisdictions.

Our collaborators may fail to develop or effectively commercialize products, product candidates or technologies for a variety of reasons, including a lack of sufficient resources, a decision not to devote the necessary resources due to internal constraints, such as limited cash or human resources, a change in strategic focus or a failure to obtain the necessary regulatory approvals.

If we are unable to enter into new arrangements or maintain our existing arrangements ~~or enter into any new such arrangements~~ on acceptable terms, ifor at all, we may be unable to effectively market and sell our products in certain of our target markets. We expect to face competition in seeking appropriate collaborators. Moreover, collaboration and similar arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements for the development of our product candidates.

When we collaborate with a third party for development and commercialization of a product candidate or approved product, we ~~can~~ expect to relinquish some or all of the control over the future success of that product candidate or approved product to the third party. ~~For example, Sumitomo Dainippon has the exclusive rights to OCA in Japan, China and South Korea and a right of first refusal to license OCA in several other Asian countries.~~ Our collaboration partner may not devote sufficient resources to ~~the~~development or commercialization ~~of our product candidates~~ or may otherwise fail in their development or commercialization. The terms of any collaboration or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into ~~including our collaboration with Sumitomo Dainippon,~~ may be ~~unsuccessful in the development and commercialization of our product candidates.~~unsuccessful. In some cases, we may be responsible for continuing preclinical and initial clinical development of a partnered product candidate or research program, ~~under a collaboration arrangement,~~ and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development. If we are unable to reach agreements with suitable collaborators, ~~for our product candidates,~~ we ~~would face~~may incur increased costs and we may be forced to limit the number of ~~our~~products or product candidates we can commercially develop or the territories in which we can commercialize ~~them and we might fail to commercialize products or programs for which a suitable collaborator cannot be found.~~them. If we fail to achieve successful collaborations, our operating results and financial condition ~~will~~could be materially and adversely affected.

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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. ~~Among our other product candidates, only INT-767 is currently in clinical development.~~ One of our strategies is to pursue clinical development of OCA infor NASH and other progressive non-viral liver diseases, to the extent that we have sufficient ~~funding.~~

funding to do so.

PBC is an orphan ~~disease. Since Ocaliva is indicated for use in PBC in combination with ursodiol in adults with an inadequate response to ursodiol or as monotherapy in adults unable to tolerate ursodiol,~~disease and the potential market size for Ocaliva for PBC is ~~expected to be~~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 currently 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 able to successfully commercialize OCA ~~successfully.~~

for NASH.

The completion of development, securing of approval and commercialization of OCA for additional indications such as NASH will require substantial additional funding, is subject to numerous risks and ~~is prone to the risks of failure inherent in drug development.~~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 ~~FDA or EMA~~regulatory approval to market OCA for the treatment of NASH or any ~~of these~~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 ~~these~~NASH or other additional indications, our commercial opportunity will be limited and our business prospects will suffer.

Risks Related to Our Business and Strategy

We depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively as if we performed these functions ourselves.

We outsource and plan to continue to outsource substantial portions of our operations to third-party service providers, including CROs for certain of our clinical trial and product development activities, contract manufacturers for the production of active pharmaceutical ingredient and finished drug product for our commercial sales and for our clinical trials and preclinical studies and a contract sales organization for the commercialization of Ocaliva in certain jurisdictions. We will likely also use the services of third-party vendors in connection with our future commercialization activities, including product sales, marketing and distribution. Our agreements with third-party service providers are typically on a study-by-study and/or project-by-project basis. Typically, we may terminate these agreements with notice and are responsible for the supplier’s previously incurred costs. In addition, a number of third-party service providers that we retain will be subject to the FDA’s and EMA’s regulatory requirements and similar standards outside of the United States and Europe and we do not have control over compliance with these regulations by these providers. If these providers do not adhere to applicable governing practices and standards, the commercialization of Ocaliva and the development of OCA and our other product candidates could be delayed or stopped, which could severely harm our business and financial condition.

Because we have relied on third parties, our internal capacity to perform these functions is limited. Outsourcing these functions involves the risk that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. In the past, we experienced difficulties with a third-party contract manufacturer for OCA, including delays in receiving adequate clinical trial supplies as and when requested. We subsequently replaced this manufacturer, but it is possible that we could experience similar difficulties in the future. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. There are a limited number of third-party service providers that have the specialized expertise required to achieve our business objectives. Identifying, qualifying and managing the performance of third-party service providers can be difficult, time-consuming and cause delays in our development programs. Despite our growth,

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we have limited internal resources available to identify and monitor third-party service providers. To the extent we are unable to identify, retain and successfully manage the performance of third-party service providers, our business may be materially and adversely affected. We may further be subject to the imposition of civil or criminal penalties if their conduct violates applicable law.

Our third-party service providers generally are not prohibited from providing their services to other biopharmaceutical companies, including companies that currently or may in the future compete with us. For example, certain of our third-party service providers and consultants may be able to develop intellectual property to which we do not have rights under our agreements and that may eventually be used to develop products that compete with our products. Although we generally have confidentiality and non-disclosure agreements in place with our third-party service providers and consultants, such third parties may be able to provide services to other companies without violating the terms of our agreements. In addition, although we may seek to enter into non-compete arrangements with our key third-party service providers, such arrangements are difficult to negotiate and we may be unable to successfully enter into or enforce such arrangements.

We face rapid technological change and competition from other biotechnology and pharmaceutical ~~companies and our~~companies. Our operating results will suffer if we fail to compete effectively.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of our competitors have financial, sales and marketing, manufacturing and distribution, legal, regulatory and product development resources substantially greater ~~financial and other resources, such as larger research and development staff and more experienced marketing and manufacturing organizations.~~than ours. Large pharmaceutical companies, in particular, have extensive experience in research, clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater ~~research,~~ sales and marketing capabilities and often have collaborative arrangements in our target ~~markets with leading companies and research institutions.~~markets. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make ~~the~~our products or product candidates ~~that we develop~~ obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or FDA, EMA or ~~EMA~~other regulatory approval or discovering, developing and commercializing drugs for the diseases that we are targeting before we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.

Some of the pharmaceutical and biotechnology companies that we expect to compete with include 3-V Biosciences, Inc., 89bio, Inc., Allergan ~~Plc, AstraZeneca~~ plc, Acorda Therapeutics, Inc., Affimune Limited, Akcea Therapeutics, Inc., Akero Therapeutics, Inc., Arrowhead Pharmaceuticals, Inc., AstraZeneca plc, Boehringer Ingelheim GmbH, Bristol-Myers Squibb Company, ~~Conatus Pharmaceuticals~~Can-Fite BioPharma Ltd., Celgene Corporation, Cirius Therapeutics, Inc., ~~Cymabay~~Corcept Therapeutics Incorporated, CymaBay Therapeutics, Inc., Dr. Falk Pharma GmbH, Durect Corporation, Eli Lilly and Company, Enanta Pharmaceuticals, Inc., ~~ENYO Pharma SAS,~~Forma Therapeutics, Inc. Galectin Therapeutics Inc., Galecto Biotech AB, Galmed ~~Medical Research~~Pharmaceuticals Ltd., Genfit SA, Genkyotex, Gilead Sciences, Inc., GlaxoSmithKline ~~Immuron~~plc, GRI Bio, Inc., Hanmi Pharmaceutical Co., Ltd., ~~Islet Sciences,~~HighTide Therapeutics Inc., Immuron Limited, Inventiva, Ionis Pharmaceuticals, Inc., Kowa Company, Ltd., Lipocine Inc., Madrigal Pharmaceuticals, Inc., MediciNova, Inc., Metacrine, Inc., ~~MiNA Therapeutics,~~Mitsubishi Tanabe Pharma Corporation, Nash Pharmaceuticals Inc., NGM Biopharmaceuticals, Inc., Novartis ~~International~~ AG, Novo Nordisk A/S, ~~Shire plc,~~NuSirt Biopharma, Inc., Oramed Pharmaceuticals Inc., Pfizer Inc., Poxel SA, Second Genome, Inc., Sinew Pharma Inc., Theratechnologies, Inc., Viking Therapeutics, Inc., Yagrit International Ltd and Zydus Pharmaceuticals (USA) Inc. ~~Bezafibrate,~~Ocaliva competes with UDCA (or ursodiol), a ~~fibrate that has not been~~first-line therapy approved for ~~commercialization by~~ the ~~FDA~~treatment of PBC that is available generically at a significantly lower cost than Ocaliva. Although we have a license to develop and ~~is only available outside of~~commercialize bezafibrate in the United States, bezafibrate has been studied in multiple clinical trials for the treatment of liver diseases including PBC and ~~NASH.~~NASH outside of the United States. Genfit SA has an ongoing Phase 3 clinical trial of ~~GFT505,~~elafibranor, a dual PPAR alpha/delta agonist, in NASH. Genfit is also studying ~~GFT505~~elafibranor for the treatment of PBC. Gilead Sciences, Inc. is conducting multiple Phase 3 clinical trials in NASH patients of various disease severity with selonsertib, an inhibitor of the apoptosis signal-regulating kinase 1. Gilead Sciences, Inc. is also exploring additional studies in NASH for GS-0976,studying firsocostat, a small molecule allosteric inhibitor that acts at the protein-protein homodimer interface of acetyl-CoA carboxylases acquired from Nimbus Therapeutics, LLC, and cilofexor, an FXR agonist, ~~known as GS-9674.~~in NASH patients. Gilead Sciences, Inc. is also studying a number of compounds in other liver diseases including ~~PBC and PSC.~~PBC. Allergan ~~Plc~~plc has an ongoing Phase 3 clinical trial of cenicriviroc, ~~an immunomodulator that blocks C-C chemokine receptor type 2~~a dual CCR2 and ~~type 5,~~CCR5 inhibitor, for the treatment of NASH. CymaBay Therapeutics, Inc. is studying seladelpar, a peroxisome

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proliferator-activated receptor δ agonist, for the treatment of PBC and NASH. A number of other companies have trials in PBC, NASH and other liver diseases that we are targeting.

In addition, many universities and private and public research ~~institutes~~institutions may become active in our target disease areas. The results from our ~~POISE and FLINT~~clinical trials and the approval of Ocaliva for PBC have brought more attention to our targeted indications and bile acid chemistry. As a result, we believe that additional companies and organizations may seek to compete with us in the future. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly than OCA or any other product candidates that we are currently developing or that we may develop, which could render our products or product candidates obsolete and noncompetitive.

Our ability to compete may also be affected because, in many cases, insurers or other third-party payors seek to encourage the use of generic products.

Off-label uses of other potential treatments may limit the commercial potential of our products and product candidates, especially given the pricing of Ocaliva and the anticipated pricing for our product candidates. For example, while fibrates are not approved for use in PBC, off-label use of fibrate drugs has been ~~reported, though many fibrates are specifically contraindicated for use in PBC due to potential concerns over acute and long-term safety in this patient population.~~reported. In NASH, a number of treatments, including vitamin E (an antioxidant), insulin sensitizers ~~(such as metformin)~~(e.g., metformin, pioglitazone), antihyperlipidemic agents ~~(such as~~(e.g., gemfibrozil), pentoxifylline and ~~ursodiol,~~UDCA, are used off-label. Although none of these treatments have been clearly shown in clinical trials to alter the course of the disease, in a previous study conducted by the NASH Clinical Research Network, ~~similar~~ improvements ~~to those observed with OCA in the FLINT trial~~ in certain histological measures of NASH were reported with vitamin E and pioglitazone. Various other treatments, both approved and unapproved, have been used in the other indications we are targeting.

We believe that our ability to successfully compete will depend on, among other things:

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the results of our and our strategic collaborators’ clinical trials and preclinical studies;

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our ability to recruit, enroll and ~~enroll~~retain patients for our clinical trials;

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the efficacy, safety and ~~reliability~~tolerability of Ocaliva and our other ~~product candidates;~~future approved products, if any;

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the speed at which we develop our product candidates;

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our ability to design and successfully execute appropriate clinical trials;

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our ability to maintain ~~a good relationship~~productive relationships with regulatory authorities;

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the timing and scope of regulatory approvals, if any;

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our ability to commercialize and market ~~any of~~Ocaliva and our ~~product candidates that receive regulatory approval;~~other future approved products, if any;

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the price of our products;

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our ability to obtain adequate levels of reimbursement under private and governmental health insurance plans, including Medicare;

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our ability to protect our intellectual property rights related to our products;

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our ability to manufacture and sell commercial quantities of ~~any~~Ocaliva and our other future approved products, if any, to the market; and

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the acceptance of our ~~product candidates~~products by physicians and other ~~health care~~healthcare providers.

If our competitors market products that are more effective ~~safer~~or safe or less expensive than our ~~future~~ products ~~if any,~~ or that reach the market sooner than our ~~future~~ products, ~~if any,~~ we may not achieve commercial success. In addition, the biopharmaceutical industry is

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characterized by rapid technological change. Because our research approach integrates many technologies, it may be difficult for us to stay abreast of the rapid changes in ~~each technology.~~other technologies. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies, products or product candidates obsolete, less competitive or not economical.

~~We depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively as if we performed these functions ourselves.~~

We outsource and plan to continue to outsource substantial portions of our operations to third-party service providers, including the conduct of preclinical studies and clinical trials, collection and analysis of data and manufacturing. Although we are currently commercializing Ocaliva using our internal commercial organization, we will likely use the services of third-party vendors in relation to our future commercialization activities, including product sales, marketing and distribution. Our agreements with third-party service providers are on a study-by-study and/or project-by-project basis. Typically, we may terminate the agreements with notice and are responsible for the supplier’s previously incurred costs. In addition, a number of third-party service providers that we retain will be subject to the FDA’s and EMA’s regulatory requirements and similar standards outside of the United States and Europe and we do not have control over compliance with these regulations by these providers. Consequently, if these providers do not adhere to applicable governing practices and standards, the development and commercialization of Ocaliva and our other product candidates could be delayed or stopped, which could severely harm our business and financial condition.

Because we have relied on third parties, our internal capacity to perform these functions is limited to management oversight. Outsourcing these functions involves the risk that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. In the past, we experienced difficulties with a third-party contract manufacturer for OCA, including delays in receiving adequate clinical trial supplies as requested within the requested time periods. We subsequently replaced this manufacturer with other third-party contract manufacturers for OCA. It is possible that we could experience similar difficulties in the future. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. There are a limited number of third-party service providers that specialize or have the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. Despite our recent growth, we currently have a small number of employees, which limits the internal resources we have available to identify and monitor third-party service providers. To the extent we are unable to identify, retain and successfully manage the performance of third-party service providers in the future, our business may be adversely affected. We may further be subject to the imposition of civil or criminal penalties if their conduct of clinical trials violates applicable law.

Our third-party service providers generally are not prohibited from providing their services to other biopharmaceutical companies, including companies that currently or may in the future compete with us. For example, certain of our third-party service providers and consultants may be able to develop intellectual property to which we are not entitled under our agreements which may eventually be used to develop products that compete with our products. Although we generally have confidentiality and non-disclosure agreements in place with our third-party service providers and consultants, such third parties may be able to provide services to other companies without violating the terms of our agreements. In addition, although we may seek to enter into non-compete arrangements with our key third-party service providers, such arrangements are difficult to negotiate and we may be unable to successfully enter into such arrangements.

A variety of risks associated with our international business operations and our planned international business relationships could materially and adversely affect our business.

We have ~~a wholly-owned subsidiary in the United Kingdom which serves as our headquarters for our international operations. We have also~~ formed a number of ~~other wholly-owned~~ subsidiaries in ~~Europe and Canada~~jurisdictions outside of the United States in ~~preparation for the anticipated~~connection with or in anticipation of our commercial ~~launch of Ocaliva in PBC~~or other business activities in those jurisdictions. ~~Although we~~We are ~~currently~~ commercializing Ocaliva for PBC using a combination of our internal commercial organization, ~~we will likely use~~a contract sales organization and third-party distributors depending on the services of third-party vendors in relation to our future commercialization activities, including product sales, marketing and distribution. In addition, we have entered into collaborations with Sumitomo Dainippon for the development of OCA, and we may enter into agreements with other third parties for the development and commercialization of OCA or our other product candidates in international markets.jurisdiction. Our international operations and business relationships subject us to additional risks that may materially and adversely affect our business and ability to attain or sustain ~~profitable operations,~~profitability, including:

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the far-reaching anti-bribery and anti-corruption legislation in the United Kingdom, including the U.K. Bribery Act, and elsewhere and escalation of investigations and prosecutions pursuant to such laws;

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compliance with complex import and export control laws;

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restrictions on direct investments by foreign entities and trade restrictions;

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differing regulatory requirements for drug approvals ~~internationally;~~internationally and the inability to obtain necessary foreign regulatory, pricing or reimbursement approvals for our products in a timely manner, or at all;

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uncertainty regarding the collectability of accounts receivable;

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difficulties in staffing and managing international operations;

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potentially reduced protection for our intellectual property rights;

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potential third-party patent rights in countries outside of the United States;

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the potential for so-called “parallel importing,” which is what occurs when a local seller ~~e.g., a pharmacy, faced with relatively high local prices,~~ opts to import goods from another jurisdiction with relatively low prices, rather than buying them locally;

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unexpected changes in tariffs, trade barriers and regulatory ~~requirements;~~requirements and the imposition of governmental controls;

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economic weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including ~~several~~ countries in Europe;

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compliance with tax, employment, immigration and labor laws ~~for~~applicable to our employees working or traveling abroad;

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taxes in other countries;

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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other ~~obligations~~transactional risks incident to doing business in ~~another country;~~foreign countries;

·●

workforce uncertainty in countries where labor unrest is more common than in the United States;

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·●

production shortages resulting from events affecting raw material supply or manufacturing capabilities abroad; ~~and~~

·●

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and ~~fires.~~fires; and

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increasingly complex standards for complying with foreign laws and regulations that may differ substantially from country to country and may conflict with corresponding U.S. laws and regulations.

In June 2016, eligible members of the electorate in the United Kingdom decided by referendum to leave the European Union, in what is often referred to as Brexit. Negotiations for Brexit have caused political and economic uncertainty, including in the regulatory framework applicable to the operations of biotechnology and pharmaceutical companies, and this uncertainty may persist for years. Brexit could, among other outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union, result in changes to, and uncertainty regarding the application and interpretation of, national and international laws and regulations and introduce other legal and regulatory complexities. For example, because a significant proportion of the regulatory framework in the United Kingdom is derived from European Union directives and regulations, Brexit could materially change the regulatory regime applicable to our operations, including with respect to Ocaliva for PBC and, if approved, OCA for NASH and our other product candidates. Such outcomes could make it more difficult and expensive for us to do business in Europe, complicate our clinical, manufacturing and regulatory strategies and impair our ability to obtain and maintain regulatory approval for, and, if approved, commercialize, our products and product candidates in Europe. In addition, our ability to continue to conduct our international operations out of the United Kingdom, where the headquarters for our international operations is located, may be materially and adversely affected. While we have undertaken a number of Brexit-related contingency planning initiatives, the full potential financial, legal, regulatory and other implications of Brexit are uncertain and we cannot make any assurances regarding the extent to which our business may be adversely affected thereby.

In addition, we are subject to the anti-bribery and anticorruption laws of the United States, as well as of foreign jurisdictions where we operate, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Generally, these laws prohibit paying or offering anything of value to a foreign government official for the purpose of obtaining or retaining business. U.S. and foreign regulators have increased their enforcement of anti-bribery and anticorruption laws in recent years, and failure to comply with these laws could result in various adverse consequences, including:

●

the possible delay in approval or refusal to approve our product candidates;

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recalls, seizures or withdrawal from the market of an approved product;

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disruption in the supply or availability of our products or suspension of export or import privileges;

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the imposition of civil or criminal sanctions;

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the prosecution of executives overseeing our international operations; and

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damage to our reputation.

Any significant impairment of our ability to develop our product candidates or sell our approved products outside of the United States could adversely impact our business and financial results.

Our business and operations would suffer in the event of system failures, data breaches or violations of data protection laws.

We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personally identifiable information. It is

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critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. The size and complexity of our information technology systems, and those of third-party vendors with whom we contract, and the volume of data we retain, make such systems potentially vulnerable to breakdown, malicious intrusion, security breaches and other cyber-attacks. Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. A security breach or privacy violation that leads to disclosure or modification of, or prevents access to, personally identifiable information or other protected information could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal information, resulting in increased costs or loss of revenue. Similarly, the loss of clinical trial data from completed or ongoing or planned clinical trials could prevent us from obtaining regulatory approval or delay our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. While we have implemented security measures to protect our data security and information technology systems, such measures may not prevent such events. Significant disruptions of our information technology systems or breaches of data security could have a material adverse effect on our business, financial condition and results of operations.

Our information security systems are subject to laws and regulations, or may become subject to new laws and regulations, requiring that we take measures to protect the privacy and security of certain information we gather and use in our business. For example, HIPAA, and its implementing regulations impose, among other requirements, certain regulatory and contractual requirements regarding the privacy and security of personal health information. In addition to HIPAA, numerous other federal and state laws, including, without limitation, state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and storage of personal information.

In July 2016, U.S. and European Commission officials adopted a new framework called the EU-U.S. Privacy Shield to govern cross-border flows of personal information. We adopted the EU-U.S. Privacy Shield and have certified to its requirements since October 2016. In May 2018, the General Data Protection Regulation (the “GDPR”) took effect in the European Union. The GDPR imposes more stringent data protection requirements, and provides for greater penalties for noncompliance, than previous EU data protection legislation. Although the GDPR applies across the European Union without the need for local implementing legislation, local data protection authorities retain the ability to interpret the GDPR, which has the potential to create inconsistencies on a country-by-country basis. In addition, we do not know the extent of the impact that ~~the~~ Brexit ~~will~~may have on our ~~business. As a result~~ability to transfer personal information between EU member states and the United Kingdom and we may need to develop new mechanisms to permit for the transfer of this data. Implementation of the ~~Brexit, it is possible that Scotland~~GDPR and ~~Northern Ireland may each conduct~~other changes in privacy and data protection laws or regulations could require changes to certain of our business practices, thereby increasing our costs. While we are actively employing the EU-U.S. Privacy Shield and the Swiss-U.S. Privacy Shield as a ~~referendum~~means to ~~decide whether~~legitimize the transfer of personal information from the European Union and Switzerland to ~~leave~~ the United ~~Kingdom. Furthermore, other European countries may seek~~States, and are engaging in activities to ~~conduct referenda with respect to continuing membership~~comply with the ~~European Union. We do~~GDPR requirements, we may be unsuccessful in these efforts. In addition, if currently available mechanisms utilized for the transfer of personal information, such as the EU-U.S. Privacy Shield and the Swiss-U.S. Privacy Shield, are invalidated in litigation or otherwise, we may not ~~know~~be able to ~~what extent these changes will impact~~employ suitable mechanisms to continue such transfers and our ~~business. Our~~ ability to conduct our ~~international~~ business ~~out~~may be materially impacted.

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The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues that may affect our business. There is a degree of uncertainty associated with the legal and regulatory environment around privacy and data protection laws, which continue to develop in ways we cannot predict, including with respect to evolving technologies, such as cloud computing. Privacy and data protection laws may be interpreted and applied inconsistently from country to country and impose inconsistent or conflicting requirements. Varying jurisdictional requirements could increase the costs and complexity of compliance or require us to change our business practices in a manner adverse to our business. A determination that we have violated privacy or data protection laws could result in significant damage awards, fines and other penalties that could, individually or in the aggregate, materially harm our business and reputation.

We have significantly expanded our operations and plan to continue our expansion to support our future development strategy for OCA for indications other than PBC, including NASH. We may experience difficulties in managing our significant growth.

We have significantly expanded our operations, including the size of our employee base, and expect to continue to grow as we pursue our future development and commercialization strategy. As we advance our preclinical and clinical development programs for OCA and our other product candidates, seek regulatory approval in the United States and elsewhere and pursue our product development programs, we may need to increase our product development, scientific and administrative headcount. We will also need to grow our commercial capabilities. Such an evolution may impact our strategic focus and our deployment and allocation of resources. Our management, personnel and systems may experience difficulty in adjusting to our growth and strategic focus.

In addition, in order to continue to meet our obligations as a public company and to support our anticipated longer-term growth, we will need to increase our general and administrative capabilities. We have also expanded our operations geographically and formed a number of subsidiaries outside of the United ~~Kingdom~~States. In addition to our U.S. offices, we have an office in London, which serves as the headquarters for our international operations, and regional offices in a number of other countries, and we may further expand our geographical footprint. Our management, personnel and systems may not be adequate to support this future growth. Furthermore, we may face a number of complexities, such as being subject to national collective bargaining agreements for employees, in some of the countries in which we operate.

Our need to effectively manage our operations, growth and various projects requires that we:

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successfully attract and recruit new employees or consultants with the expertise and experience we require in the United States, Europe and other jurisdictions;

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develop and expand our commercial infrastructure;

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manage our clinical programs effectively, which are often conducted at numerous domestic and international clinical sites, and advance our other development efforts; and

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continue to improve our operational, financial and management controls, reporting systems and procedures.

If we are unable to successfully manage our growth and the increased complexity of our operations, our business may be materially and adversely affected.

We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.

We may not be able to attract or retain qualified personnel and consultants due to the intense competition for such individuals among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development and commercial objectives, our ability to raise additional capital and our ability to implement our business strategy.

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Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development, regulatory, commercialization and business development expertise of Dr. Mark Pruzanski, our co-founder, president and chief executive officer, and the other members of our executive team, as well as other key employees and consultants. If we lose one or more of our executive officers or other key employees or consultants, our ability to implement our business strategy successfully could be seriously harmed. Any of our executive officers or other key employees or consultants may terminate their employment at any time and replacing such individuals may be difficult and time-consuming because of the limited number of individuals in our industry with the necessary breadth of skills and experience. Competition to hire and retain employees and consultants from this limited pool is intense, and we may be unable to hire, train, retain or motivate such individuals.

We also have key scientific and clinical advisors and consultants who assist us in formulating our research, development, clinical and regulatory strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us and such individuals typically will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, our advisors may assist other companies in developing products or technologies that may compete with ours.

Failure to establish and maintain adequate financial infrastructure and accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

As a public company, we operate in a demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act of 2002 and related rules and regulations, expanded disclosure requirements, accelerated reporting requirements and complex accounting rules. Responsibilities imposed by the Sarbanes-Oxley Act include establishing and maintaining corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.

In particular, our compliance with Section 404 of the Sarbanes-Oxley Act has required and will continue to require that we incur substantial accounting-related expenses and expend significant management efforts. Our testing, or the testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls that we would be required to remediate in a timely manner. If we are not able to comply with the requirements of the Sarbanes-Oxley Act, we could be subject to sanctions or investigations by the SEC, the Nasdaq Global Select Market or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our securities. Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results of operations would likely be materially and adversely affected.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA, the SEC or other domestic or foreign regulators, provide accurate information to the FDA, the SEC or other domestic or foreign regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive regulation in the United States and abroad intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. Such laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Misconduct and misappropriation of confidential information by our employees or third parties may also include improper trading in our securities, which may harm our reputation and result in enforcement actions against us. We have adopted a global code of business conduct and implemented a corporate compliance program, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from

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governmental inquires, investigations or other actions or lawsuits stemming from a failure to comply with applicable laws or regulations. The outcome of any such inquiry, investigation, action or lawsuit could have a significant negative impact on our business, including as a result of the imposition of significant fines or other sanctions. In addition, the institution of any such inquiry, investigation, action or lawsuit could negatively impact the market price of our securities.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for our products or product candidates and may have to limit or suspend their use.

The use of our product candidates in clinical trials and the sale of any products for which we have obtained or may obtain marketing approval, such as Ocaliva for PBC, expose us to the risk of product liability claims. Product liability claims may be brought against us or our collaborators by participants enrolled in our clinical trials, patients, healthcare providers or others. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of their merit or eventual outcome, product liability claims may result in:

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withdrawal of clinical trial participants;

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termination of clinical trial sites or entire clinical trial programs;

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costs of related litigation;

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substantial monetary awards to patients or other claimants;

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decreased demand for our products and loss of revenues;

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impairment of our business reputation;

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diversion of management and scientific resources from our business operations; and

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the inability to develop and commercialize our products and product candidates or the withdrawal of our products from the market.

We have obtained limited product liability insurance coverage. Our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. Large judgments have been awarded in class action lawsuits based on the unanticipated side effects of drug products. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash resources and adversely affect our business.

Our insurance policies are expensive and only protect us from some business risks, which leave us exposed to significant uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, if our current levels of coverage are adequate or if we will be able to obtain insurance with adequate levels of coverage in the future, if at all. Any significant uninsured liability may require us to pay substantial amounts, which could materially and adversely affect our financial position and results of operations. Furthermore, any increase in the volatility of our stock price, among other factors, may result in us being required to pay substantially higher premiums for our directors’ and officers’ insurance, and may make it difficult for us to obtain adequate coverage on reasonable terms, if at all.

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If we engage in an in-license transaction, acquisition, reorganization or business combination, we will face a variety of risks that could adversely affect our business operations and our securityholders.

From time to time, we have considered, and we will continue to consider in the future, strategic business initiatives intended to further the expansion and development of our business. These initiatives may include in-licensing or acquiring products, technologies or businesses or entering into a business combination with another company. If we pursue such a strategy, we could, among other things:

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issue equity securities that would dilute our current stockholders’ ownership;

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incur substantial debt that may place strains on our operations;

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be required to dedicate substantial operational, financial and management resources to integrate new products, technologies or businesses;

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assume substantial actual or contingent liabilities;

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impair our ability to make payments of interest and principal on our outstanding debt, including the Convertible Notes;

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reprioritize our development programs or cease development and commercialization activities with respect to certain of our product candidates or approved products; or

●

merge or otherwise enter into a business combination with another company, which may result in our stockholders receiving cash and/or securities of the other company on terms that certain of our stockholders may not deem desirable.

We may use our limited financial and human resources to pursue a particular research program or product candidate that is ultimately unsuccessful or less successful than other programs or product candidates that we may have forgone or delayed.

Because we have limited resources, we may forego or delay the development of certain programs or product candidates that later prove to have greater commercial potential than the programs or product candidates that we do pursue. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs for product candidates may not yield any commercially viable products. If we fail to accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other arrangements or we may allocate our limited internal resources to that product candidate when it would have been more advantageous to enter into such an arrangement. Any such failure could have a material adverse effect on our business, financial condition or results of operations.

Changes in our effective income tax rate could adversely affect our results of operations.

We are subject to income taxes in the United States and various foreign jurisdictions. Various factors may have favorable or unfavorable effects on our effective income tax rate. These factors include, but are not limited to, interpretations of existing tax laws, changes in tax laws and rates, the accounting for stock options and other stock-based compensation, changes in accounting standards, future levels of research and development spending, changes in the mix and level of pre-tax earnings ~~by taxing jurisdiction,~~in different jurisdictions, the outcome of audits or other examinations by the U.S. Internal Revenue Service and tax regulators ofin other jurisdictions, the accuracy of our estimates for unrecognized tax benefits, the realization of deferred tax assets ~~or by~~and changes to our ownership or capital structure.

In late 2017, the United States enacted the Tax Cuts and Jobs Act of 2017 (the “TCJA”), which significantly changed U.S. tax law, including by implementing a reduction in the corporate tax rate to 21%, moving from a worldwide tax system

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to a territorial system and imposing new or additional limitations on the deductibility of interest expense and executive compensation.

The impact on our effective income tax rate resulting from the above-mentioned factors and others may be significant and could adversely affect our results of operations.

We have been significantly expanding our operations and the size of our company and will need to continue our expansion to support our NASH program. We may experience difficulties in managing our significant growth.

From December 31, 2014 to December 31, 2016, our employee base has grown from 136 to 456 employees. As we advance our programs for OCA in NASH and other potential indications and our other product candidates, seek regulatory approval in the United States and elsewhere, increase the number of ongoing product development programs and advance our product candidates through preclinical studies and clinical trials, we will need to increase our product development, scientific and administrative headcount to manage these programs. We will also need to grow our commercial capabilities, which will require us to hire additional personnel for the launch and ongoing marketing and sale of Ocaliva in PBC and any product candidate for which we obtain marketing approval. In addition, in order to continue to meet our obligations as a public company and to support the anticipated longer-term growth in the other functions at our company, we will need to increase our general and administrative capabilities. We are also expanding our operations geographically and formed a number of wholly-owned subsidiaries outside of the United States. In addition to our U.S. offices, we also have an office in London, United Kingdom which serves as our headquarters for our operations in Europe and international markets, and regional offices in a number of these countries. In the longer term, we may further expand our geographical footprint. Our management, personnel and systems currently in place may not be adequate to support this future growth. Furthermore, we may face a number of complexities, such as being subject to national collective bargaining agreements for employees, in some of the countries in which we operate.

~~Our need to effectively manage our operations, growth and various projects requires that we:~~

~~successfully attract and recruit new employees or consultants with the expertise and experience we will require in the United States, Europe and in other jurisdictions;~~

~~manage our clinical programs effectively, which we anticipate being conducted at numerous clinical sites across the world, and advance our other development efforts;~~

~~develop and expand our marketing and sales infrastructure; and~~

~~continue to improve our operational, financial and management controls, reporting systems and procedures.~~

~~If we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.~~

~~We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.~~

We may not be able to attract or retain qualified personnel and consultants across our organization due to the intense competition for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development and commercial objectives, our ability to raise additional capital and our ability to implement our business strategy.

Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development, regulatory, commercialization and business development expertise of Mark Pruzanski, our co-founder and president and chief executive officer, and our other key employees and consultants. If we lose one or more of our executive officers, or key employees or consultants, our ability to implement our business strategy successfully could be seriously harmed. Any of our executive officers or key employees or consultants may terminate their employment at any time. Replacing executive officers, key employees and consultants may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully. Competition to hire and retain employees and consultants from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel and consultants.

We have scientific and clinical advisors and consultants, such as our co-founder Professor Roberto Pellicciari, who assist us in formulating our research, development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.

Failure to establish and maintain adequate finance infrastructure and accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

As a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act of 2002, and the related rules and regulations of the Securities and Exchange Commission, expanded disclosure requirements, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing and maintaining corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.

Our compliance with Section 404 of the Sarbanes-Oxley Act has required and will continue to require that we incur substantial accounting expense and expend significant management efforts. Our testing, or the testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls that we would be required to remediate in a timely manner so as to be able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner each year, we could be subject to sanctions or investigations by the Securities and Exchange Commission, the NASDAQ Stock Market or other regulatory authorities which would require additional financial and management resources and could adversely affect the market price of our common stock. Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with health care fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations in the United States and abroad intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Misconduct and misappropriation of confidential information by our employees or third parties may also include improper trading in our securities, which may harm our reputation and result in enforcement actions against us. We have adopted a global code of business conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for our products and product candidates and may have to limit their use.

The use of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approval, such as Ocaliva in PBC, expose us to the risk of product liability claims. Product liability claims may be brought against us or our collaborators by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling our products. If we cannot successfully defend ourselves against any such claims, we would incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

~~withdrawal of clinical trial participants;~~

~~termination of clinical trial sites or entire trial programs;~~

~~costs of related litigation;~~

~~substantial monetary awards to patients or other claimants;~~

~~decreased demand for our product candidates and loss of revenues;~~

~~impairment of our business reputation;~~

~~diversion of management and scientific resources from our business operations; and~~

~~the inability to commercialize our product candidates or the withdrawal of our products from the market.~~

We have obtained limited product liability insurance coverage in the United States for the use of OCA in our U.S. clinical trials and commercial sales and in selected other jurisdictions where we are conducting clinical trials. Our product liability insurance coverage in the United States is currently limited to an aggregate of $10 million. We have clinical trial and commercial product liability insurance coverage outside of the United States in amounts that vary by country. As such, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. We intend to expand our insurance coverage for products to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash resources and adversely affect our business.

~~Our insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured liabilities.~~

We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of operations. Furthermore, the increased volatility of our stock price may result in us being required to pay substantially higher premiums for our directors’ and officers’ insurance than those to which we are currently subject, and may even lead a large number of underwriters to be unwilling to cover us.

If we engage in an in-license transaction, acquisition, reorganization or business combination, we will incur a variety of risks that could adversely affect our business operations or our stockholders.

From time to time, we have considered, and we will continue to consider in the future, strategic business initiatives intended to further the expansion and development of our business. These initiatives may include in-licensing or acquiring products, technologies or business or entering into a business combination with another company. If we pursue such a strategy, we could, among other things:

~~issue equity securities that would dilute our current stockholders’ percentage ownership;~~

~~incur substantial debt that may place strains on our operations;~~

~~spend substantial operational, financial and management resources to integrate new products, technologies or businesses;~~

~~assume substantial actual or contingent liabilities;~~

~~reprioritize our development programs and even cease development and commercialization of our product candidates; or~~

merge with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash and/or shares of the other company on terms that certain of our stockholders may not deem desirable.

Although we intend to evaluate and consider in-license transactions, acquisitions, reorganizations and business combinations in the future, we have no agreements or understandings with respect to any acquisition, reorganization or business combination at this time.

~~Our business and operations would suffer in the event of system failures or data breaches.~~

Despite the implementation of security measures and policies, our internal information technology systems, as well as those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

Although to date we have not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs, damage to our reputation and/or monetary damages. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.

Our information security systems are subject to laws and regulations requiring that we take measures to protect the privacy and security of certain information we gather and use in our business. For example, the Health Insurance Portability and Accountability Act, or HIPAA, and its implementing regulations impose, among other requirements, certain regulatory and contractual requirements regarding the privacy and security of personal health information. In addition to HIPAA, numerous other federal and state laws, including, without limitation, state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and storage of personal information.

Various foreign countries where we may process personal information also have, or are developing, laws governing the collection, use, disclosure and storage of personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues that may affect our business. In July 2016, U.S. and European Commission officials adopted a new framework called the EU-U.S. Privacy Shield to govern cross-border flows of personal data. We adopted the EU-U.S. Privacy Shield and certified to its requirements in October 2016. In May 2018, the General Data Protection Regulation (“GDPR”) will supersede current EU data protection legislation, impose more stringent EU data protection requirements, and provide for greater penalties for noncompliance. While we are actively employing the EU-U.S. Privacy Shield as a means to legitimize the transfer of personal information from the EU and Switzerland to the United States, and are engaging in activities to comply with the GDPR requirements, we may be unsuccessful in these efforts.

Risks Related to Our Intellectual Property

It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does not adequately protect our products such as Ocaliva and product candidates such as OCA for NASH, others ~~could~~may compete against us more directly, which ~~would~~could harm our business, possibly materially.

Our commercial success will depend in part on ~~obtaining~~our ability to obtain and ~~maintaining~~maintain patent, ~~protection~~trademark and trade secret protection ofcovering our ~~current and future~~ products such as Ocaliva and product candidates, ~~and the methods used to manufacture them,~~ as well as our ability to successfully ~~defending these patents~~defend our intellectual property against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products ~~and product candidates~~ is dependent upon the extent to which we have regulatory exclusivity or intellectual property-based exclusivity rights under valid and enforceable patents or ~~trade secrets~~other intellectual property that cover ~~these activities.~~

our products. If we fail to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from launching generic versions of our products, from using our proprietary technologies or from marketing products that are very similar or identical to ours.

The patent positions of ~~biotechnology and~~ pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged to date in the United States or in ~~many~~foreign jurisdictions, ~~outside~~and the legal standards relating to the patentability, validity and enforceability of ~~the United States.~~pharmaceutical patents are evolving. Changes in either the patent laws or in interpretations of patent laws in ~~the United States~~U.S. and ~~other countries~~foreign jurisdictions may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be enforced in the patents that we currently own or that may ~~be issued~~issue from the applications we ~~currently own~~have filed or may ~~own~~file in the future or those that we may license from third parties. Additionally, our currently pending or future patent applications may not result in issued patents, and any term extensions or reissues that we seek may not be granted. Further, if any patents we obtain or license are deemed invalid ~~and~~or unenforceable, it could impact our ability to commercialize or license our technology or we may not be able to prevent third parties from launching generic versions of our products, or from developing or marketing products that are similar or identical to ours.

There have been numerous changes to the patent laws that may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. In September 2011, the America Invents Act was signed into law. The final substantive provisions of the America Invents Act became effective in March 2013. The America Invents Act included a number of significant changes to U.S. patent law that affect the way patent applications are filed, prosecuted and litigated, including, among other things, changing from a “first to invent” to a “first inventor to file” system and creating processes, such as Inter Partes Review (“IPR”) and other post-grant review processes, that permit third parties to challenge the patentability of granted patents before the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office (the “USPTO”). The IPR process, for example, permits any person to challenge the validity of a patent on the grounds that it was anticipated or made obvious by prior art. The America Invents Act and its implementation could ~~be adversely affected.~~

increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Others have filed, and in the future, are likely to file, patent applications covering products and technologies that are similar or competitive to ours, or may be important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed or in-licensed by us, or that we or our licensors will not be involved in infringement, interference, derivation, opposition, nullity, invalidity or ~~invalidity~~other similar proceedings before U.S. or non-U.S. patent offices. ~~Our patents may also be challenged under other proceedings, such as~~ ~~inter partes review~~ ~~and post-grant review proceedings introduced by provisions~~

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The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

·●

~~others may be able to develop a platform similar to, or better than, ours in a way that is not covered by the claims of our patents;~~

others may be able to make compounds that are similar to our products ~~and~~or product candidates but that are not covered by the claims of our patents;

·●

we might not have been the first to make the inventions covered by our patents or pending patent applications;

·●

we might not have been the first to file patent applications for these inventions;

·●

others may independently develop similar or alternative technologies, or may duplicate any of our technologies;

·●

any patents that we obtain may not provide us with any competitive ~~advantages;~~advantages or exclusivity in a particular product area or indication or for the length of time we have anticipated;

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we may not develop additional proprietary technologies that are patentable; or

·●

the patents of others may have an adverse effect on our business.

~~As of September 30, 2017, we were~~We are the owner of record of ~~over 110~~numerous issued ~~or granted~~ U.S. and non-U.S. patents ~~relating to OCA~~ with claims directed to pharmaceutical compounds, pharmaceutical compositions, methods of making these compounds and methods of using these compounds in various indications. ~~We were also~~In addition, we are the owner ~~at that date~~ of record of ~~over 100~~numerous pending U.S. and non-U.S. patent applications, ~~relating to OCA in these areas.~~

~~In addition, as of September 30, 2017, we were the owner of record of approximately 220 issued or granted U.S.~~ and non-U.S. patents relating to our product candidates other than OCA, with claims directed to pharmaceutical compounds, pharmaceutical compositions, methods of making these compounds and methods of using these compoundsregularly pursue additional patent applications in various ~~indications. We were also the owner of record of approximately 70 pending U.S. and non-U.S. patent applications relating to such other product candidates in these areas.~~jurisdictions.

~~Patents covering the~~The issued composition of matter ofpatents for OCA are expected to expire in 2022 at the ~~soonest~~earliest and ~~2033~~2036 at the latest if the appropriate maintenance, renewal, annuity, or other government fees are paid. We expect that the other patents in the OCA portfolio, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, would expire from 2022 to 2033. We expect the issued INT-767 composition of matter patent in the United States, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire in 2029. We expect the other patents in the INT-767 portfolio, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire from 2027 to 2029. We expect the issued INT-777 composition of matter patent in the United States, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire in 2030. We expect the other patents in the INT-777 portfolio, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire from 2028 to 2030.

We have received assignments of rights to the INT-767 patent portfolio from all inventors, with the exception of one inventor. That inventor is contractually obligated to provide an assignment to us. Thus, we believe that we are the owner of the INT-767 patent portfolio by virtue of this contractual obligation and the patent assignments we have received. By virtue of the patent assignments we have received and other contractual obligations owed to us, we believe we are the owner of the INT-777 patent portfolio. Without patent protection, onincluding patent protection covering the composition of matter of our products and product candidates, our ability to stop others from using or selling our products and product candidates may be limited.

Due to the patent laws of a country, or the decisions of a patent examiner in a country or our own filing strategies, we may not obtain patent coverage for all of our products and product candidates or methods involving these candidates in the parent patent application. WeWhile we plan to pursue divisional patent applications or continuation patent applications in the United States and other countries to obtain claim coverage for inventions which were disclosed but not claimed in the parent patent ~~application.~~application, we cannot be certain that such patents will be granted or that the scope of any patent granted will prevent third parties from selling the same or similar products.

If we do not obtain protection under the Hatch-Waxman Act and similar legislation outside of the United States by extending the patent terms and obtaining data exclusivity for our products and product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of our products, ~~and product candidates,~~ U.S. patents may be eligible for a limited extension of patent term under the Drug Price Competition and Patent Term Restoration Act of 1984 ~~referred to as the Hatch-Waxman Act.~~(the “Hatch-Waxman Act”). The Hatch-Waxman Act permits an extension of patent term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, an extension may not be granted because of, for example, failure to apply within applicable deadlines, failure to apply prior to expiration of relevant patents or failure to satisfy applicable requirements. Moreover, the applicable time period or ~~the~~ scope of patent protection afforded could be less than what is requested. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened, ~~and~~ our competitors may obtain approval of competing products following our patent expiration and our revenue could be reduced, possibly materially.

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Our primary composition of matter patent for OCA expires in 2022. In light of the U.S. marketing approval of ~~OCA in~~Ocaliva for PBC in May 2016, we ~~have~~ applied for an extension toof the patent term for this patent in the United States through 2027. In addition, in connection with the conditional approval of Ocaliva for PBC in the European Union, we applied for supplementary patent certification (“SPC”) to extend the patent term for this patent in the European Union through 2027. We ~~expect to take~~have received grants of SPC in Austria, Cyprus, Denmark, France, Germany, Greece, Ireland, Italy, Norway, Portugal, Spain and Sweden. We have also taken similar actions in other jurisdictions and countries where ~~similar~~ regulations ~~exist. In the event that we are unable to obtain any~~providing for patent term ~~extensions, the~~extension exist. The issued composition of matter patents for OCA are expected to expire in 2022 at the ~~soonest~~earliest and ~~2033~~2036 at the latest ~~assuming they withstand any challenge. We expect that the other patents for the OCA portfolio,~~ if the appropriate maintenance, renewal, annuity, or other ~~governmental~~government fees are ~~paid, would expire from 2022 to 2033.~~paid.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property ~~rights.~~

rights, and such litigation may divert the attention of our management and scientific personnel and adversely affect our development and commercialization efforts.

If we choose to go to court or engage in other adversarial proceedings to stop another party from using the inventions claimed in any of our current or future patents, ~~we obtain,~~ that individual or company has the right to ask the court or adjudicating body to rule that such patents are invalid, not infringed or should not be enforced against that third party. These lawsuits and proceedings are expensive and would consume time and resources and divert the attention of ~~managerial~~management and scientific personnel even if we ~~were~~are successful in ~~stopping the infringement of such patents.~~defending our rights. In addition, there is a risk that ~~the~~such court or adjudicating body will decide that such patents are ~~not valid~~invalid, unenforceable or not infringed, and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of such patents is upheld, the court or adjudicating body will refuse to stop the other party on the ground that such other party’s activities do not infringe our rights to such patents. In addition, the U.S. Supreme Court has modified some tests ~~used~~utilized by the ~~U.S. Patent and Trademark Office, or~~ USPTO in granting patents over the past 20 years, which may decrease the likelihood that we will be able to obtain patents and increase the likelihood of ~~challenge of any~~challenges to our patents or the patents we ~~obtain or~~ license.

We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts ~~and stop us from commercializing~~and/or delay, halt or increase the costs of ~~commercializing~~ our ~~product and product candidates.~~

commercialization efforts.

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We cannot guarantee that our products, or the manufacture or use of our product candidates, will not infringe third-party patents. Furthermore, a third party may claim that we or our manufacturing or commercialization ~~collaborators~~partners are using inventions covered by the third party’s patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our products and product candidates. ~~These~~The defense of these lawsuits ~~are~~is often costly and could affect our results of operations and divert the attention of ~~managerial~~our management and scientific personnel. There is also a risk that a court ~~would~~could decide that we or our manufacturing or commercialization ~~collaborators~~partners are infringing the third party’s patents and ~~would~~ order us or our ~~collaborators~~partners to stop the activities covered by the patents. In that event, we or our ~~commercialization collaborators~~partners may ~~not have a viable way around the patent and may need~~be required to halt or delay commercialization or development of the relevant ~~product.~~product or product candidate. In addition, there is a risk that a court ~~will~~could order us or our ~~collaborators~~partners to pay the other party damages for having violated the other party’s ~~patents. In the future,~~patents, and we may ~~agree~~be subject to ~~indemnify~~indemnification obligations with respect to any such payments made by our ~~commercial collaborators against certain intellectual property infringement claims brought by third parties.~~partners. The pharmaceutical and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products, product candidates or methods of use. The coverage of patents is subject to interpretation by the courts, and ~~the~~such interpretation is not always uniform.

If we are sued for patent infringement, we would need to demonstrate that our products, product candidates or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in ~~these~~such proceedings, we may incur substantial costs and divert our management’s time and attention, ~~in pursuing these proceedings,~~ which could have a material adverse effect on ~~us.~~our business. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we fail to obtain a license, develop or obtain non-infringing technology, or defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in ~~bringing~~the commercialization of our products and product candidates ~~to market~~ and be precluded from manufacturing or selling our products and product candidates.

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We cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that we were the first to invent ~~the~~or file with respect to a technology, because:

·●

some patent applications in the United States may be unpublished or otherwise maintained in secrecy until the patents are issued;

·●

patent applications in the United States are typically not published until 18 months after the priority date; and

·●

publications in the scientific literature often lag behind actual discoveries.

Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference, derivation or ~~derivation~~other similar proceeding declared by the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, ~~if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior to our own invention,~~ resulting in a loss of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications, and such patent applications may be entitled to priority over our applications in such jurisdictions.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater financial and other resources. In addition, ~~any~~ uncertainties resulting from the initiation and continuation of any such litigation could have a material adverse effect on the market price of our securities and our ability to raise the funds necessary to continue our operations.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated ~~for~~as a result of non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on our patents ~~and/or~~and patent applications ~~will be due~~are required to be paid to the USPTO and ~~various governmental~~foreign patent agencies ~~outside of the United States~~ in several stages over the lifetime of ~~the~~such patents ~~and/or~~and patent applications. ~~We have systems in place to remind us to pay these fees, and we employ a third-party service provider and rely on this service provider to pay these fees due to~~In addition, the USPTO and ~~non-U.S. patent agencies. The USPTO and various non-U.S. governmental~~foreign patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We ~~employ~~have implemented systems and engaged reputable ~~law firms and other professionals~~third-party service providers to help usensure that we comply ~~and in many cases, an~~with such requirements on a timely basis, but inadvertent ~~lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However,~~lapses may occur and there are situations in which noncompliance can result in abandonment or lapse of the relevant patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. InAny such an event may impair our ~~competitors might be able to enter~~competitive position in the ~~market~~relevant jurisdiction and ~~this circumstance would~~ have a material adverse effect on our ~~business.~~financial condition or results of operations.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology, products and ~~products~~product candidates could be significantly diminished.

As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these ~~claims. Even if we are successful in defending against these~~ claims, ~~litigation~~which could result in substantial costs and be a distraction to ~~management.~~

our management even if we are successful.

We may rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to ~~protect.~~protect, and may not prevent others from independently and lawfully developing similar or identical products that circumvent our intellectual property. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively

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prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. ~~In addition, others~~

Third parties, including competitors of ours, may also independently discover our trade secrets ~~and~~or other proprietary information. ~~For example, in September 2016, the Department of Health and Human Services adopted new~~In addition, we may be required under U.S. or foreign transparency initiatives or other regulations ~~mandating sponsors~~ to publicly ~~post~~disclose or otherwise make available certain data from clinical trials of products subject to FDA regulation. Although the implementation of the regulations may be delayed, this and other transparency initiatives may result in making publicly available information that we ~~may~~ consider to be ~~trade secrets or~~ proprietary, ~~information. Moreover, the EMA has already adopted a policy of general transparency both in relation to requests under EU freedom of information legislation for access to~~including pre-clinical and clinical research data once marketing authorizations are granted and through proactive disclosure of clinical data on its website. This policy coupled with imminent requirements for public disclosure of clinical research data under a new EU Clinical Trial Regulation, means that public disclosure will ordinarily be made of substantial research data that previously would have been considered commercially confidential.data. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets or other proprietary information is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside of the United States are sometimes ~~less willing~~reluctant to protect trade secrets. ~~Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.~~ Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade ~~secret protection~~secrets and other proprietary information could adversely affect our competitive business position.

We have not yet registered all of our trademarks and failure to secure ~~those~~such registrations could adversely affect our business.

We have ~~applied for and obtained a number of trademarks and service marks to further protect the proprietary position of our products. As of September 30, 2017, we have over 580~~numerous trademark and service mark registrations and ~~over 290~~ pending trademark and service mark applications in the United States and abroad.

Our trademark applications may not be allowed for registration orand our registered trademarks may not be maintained or enforced. During prosecution of applications for trademark registration, we may receive rejections or refusals. Although we are given an opportunity to respond, ~~to those rejections,~~ we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many other jurisdictions provide third parties ~~are given~~with an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings have been filed and may in the future be filed against certain of our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.

Trademark protection varies in accordance with local ~~law, and continues~~laws. Trademarks remain in force in some countries as long as the trademark is used and in other countries as long as the trademark is registered. Trademark registrations generally are for fixed but renewable terms. We cannot provide any assurances that any trademarks or service marks will be sufficient to prevent competitors from adopting similar names. The adoption of similar names by competitors could impede our ability to build brand identity and may lead to customer confusion, which could adversely affect our sales or profitability.

We have received approval from both the FDA and EMA for Ocaliva®, the proprietary name for OCA, as well as the associated logo. The Ocaliva trademarks have registered in jurisdictions, including the United States, member states of the Community Trademark, Australia, Great Britain, New Zealand, Norway, Switzerland, Taiwan and certain other countries.

Risks Related to Our Indebtedness

Servicing our debt will require significant amounts of cash, and we may not have sufficient cash flow from our business to pay our debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance the $460.0 million aggregate principal amount of ~~3.25% convertible senior notes due~~ 2023 Convertible Notes that we issued in July 2016 and/or ~~convertible notes~~the $230.0 million aggregate principal amount of 2026 Convertible Notes that we issued in May 2019 or any other indebtedness we or our subsidiaries may incur in the future depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt, including the ~~convertible notes.~~Convertible Notes. If we are unable to generate cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be unfavorable to us or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time we seek to refinance such indebtedness. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

We may incur substantially more debt or take other actions ~~which~~that would affect our ability to pay the principal of and interest on our debt.

We and our subsidiaries may be able to incur substantial additional debt in the future, some of which may be secured debt. We and our subsidiaries ~~will~~are not be restricted under the terms of the ~~indenture~~indentures governing the ~~convertible notes~~Convertible Notes or

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otherwise from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking ~~a number of~~ other actions ~~that are not limited by the terms of the indenture governing the convertible notes~~ that could have the effect of diminishing our ability to service our debt when due.

~~The conditional conversion feature of the convertible notes, if triggered, may adversely affect our financial condition and operating results.~~

In the event the conditional conversion feature of the convertible notes is triggered, holders will be entitled to convert their convertible notes at any time during specified periods at their option. If one or more holders elect to convert their convertible notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their convertible notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the convertible notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the ~~convertible notes, is the subject of recent changes that~~Convertible Notes, could have a material effect on our reported financial results.

Under Accounting Standards Codification Subtopic 470-20, ~~Debt~~“Debt with Conversion and Other ~~Options, which we refer to as~~ Options” (“ASC ~~470-20,~~470-20”), an entity must separately account for the liability and equity components of ~~the~~ convertible debt instruments (such as the ~~convertible notes)~~Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the ~~convertible notes~~Convertible Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and the value of the equity component ~~would be~~is treated as original issue discount for purposes of accounting for the debt component of the ~~convertible notes.~~Convertible Notes. As a result, we ~~will be~~are required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of the ~~convertible notes~~Convertible Notes to their face amount over the term of the ~~convertible notes. We will report lower net income in our financial results because~~Convertible Notes. Because ASC 470-20 ~~will require~~requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, we report lower net income in our financial results, which could adversely affect ~~our reported or future financial results,~~ the ~~trading~~market price of our common stock and the ~~trading~~market price of the ~~convertible notes.~~

Convertible Notes.

In addition, under certain circumstances, convertible debt instruments (such as the ~~convertible notes)~~Convertible Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the ~~convertible notes~~Convertible Notes will not be included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the ~~convertible notes,~~Convertible Notes, then our diluted earnings per share would be adversely affected.

~~Provisions in the indenture governing the convertible notes may deter or prevent a business combination that may be favorable to you.~~

If a fundamental change occurs prior to the maturity date of the convertible notes, holders of the convertible notes will have the right, at their option, to require us to repurchase all or a portion of their convertible notes. In addition, if a make-whole fundamental change occurs prior to the maturity date of the convertible notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its convertible notes in connection with such make-whole fundamental change. Furthermore, the indenture governing the convertible notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the convertible notes and the indenture. These and other provisions in the indenture could deter or prevent a third party from acquiring us even when the acquisition may be favorable to you.

Risks Related to Ownership of Our Common Stock

~~An active trading market~~Ownership in our common stock is highly concentrated and your ability to influence corporate matters may ~~not~~ be ~~maintained.~~limited as a result.

~~The trading market in~~Our executive officers, directors and stockholders who own more than 5% of our outstanding common stock ~~has been extremely volatile. The quotation~~together beneficially own a significant percentage of our common stock based on ~~The NASDAQ Global Select Market does not assure that a meaningful, consistent~~reports filed with the SEC. If these stockholders were to choose to act together, they would be able to significantly influence matters submitted to our stockholders for approval, including the election of directors and ~~liquid trading market will exist. We cannot predict whether an active market for our common stock will be maintained in the future. An absence~~approval of ~~an active trading market could adversely affect our stockholders’ ability to sell our common stock at current market prices in short time periods,~~any merger, consolidation, sale of all or possibly at all. Additionally, market visibility for our common stock may be limited and such lack of visibility may have a depressive effect on the market price for our common stock. As of September 30, 2017, approximately 30.1%substantially all of our outstanding shares of common stock was held by our officers, directors, beneficial owners of 5% or more of our securities (other than FMR LLC, Carmignac Gestion, Capital World Investors, Ameriprise Financial, Inc. and their respective affiliates) and their respective affiliates, which adversely affects the liquidity of the trading market for our common stock, in as much as federal securities laws restrict sales of our shares by these stockholders. If our affiliates continue to hold their shares of common stock, there will be limited trading volume in our common stock, which may make it more difficult for investors to sell their shares or increase the volatility of our stock price.

~~We were previously, and are currently, subject to securities class action litigation and may be subject to similar~~assets or other ~~litigation in the future, which may divert management’s attention.~~

We have previously been subject to securities class action lawsuits. In February 2014, two purported securities class actions were filed against us and certain of our officers, which were eventually consolidated. In May 2016, the defendants reached an agreement with the lead plaintiff to seek Court approval of a proposed resolution and the settlement was ultimately granted final approval by the Court in September 2016. While the final judgment and order of the Court included a dismissal of the action with prejudice against all defendants and the defendants did not admit any liabilitybusiness combination or reorganization, as ~~part of the settlement, the total payment aggregated to $55.0 million, of which $10.0 million was paid by our insurers.~~

A lawsuit has been filed alleging, among other things, that we and certain of our officers violated federal securities laws by making allegedly material false and/or misleading statements regarding our business, operational and compliance policies. The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees. While we believe we have meritorious defenses and intent to rigorously defend ourselves, we cannot predict the outcome of this lawsuit.

~~There may be additional suits or proceedings brought in the future. Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for~~well as our management and ~~detracts from our ability to fully focus our internal resources~~affairs. This concentration of voting power could delay or prevent an acquisition of us on ~~our business activities,~~terms that other securityholders may desire. The interests of this group of stockholders may not always coincide with your interests or the interests of other securityholders and ~~we cannot predict how long it~~they may ~~take to resolve these matters. In addition, we may incur substantial legal fees~~act in a manner that advances their best interests and ~~costs in connection with litigation. Although we may receive insurance coverage~~not necessarily those of other securityholders, including seeking a premium value for ~~certain adversarial proceedings, coverage could be denied or prove to be insufficient. It is possible that we could, in~~their common stock, and might affect the future, incur judgment or enter into settlement of claims for monetary damages. A decision adverse to our interests could result in the payment of substantial damages and could have a material adverse effect on our business, results of operations and financial condition.

~~Our stock~~market price ~~has been and may in the future be volatile, which could cause holders~~ of our common stock and the Convertible ~~Notes to incur substantial losses.~~Notes.

The trading price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Since our initial public offering which occurred in October 2012, the price of our common stock on The NASDAQ Global Select Market has ranged from $17.96 per share to $497.00 per share. In addition to the other factors discussed in this “Risk Factors” section, these factors include:

~~failure to successfully commercialize Ocaliva for PBC in jurisdictions where we have received marketing authorization or our inability to receive marketing approval for Ocaliva in other jurisdictions;~~

~~adverse results or delays in our clinical trials;~~

~~inability to obtain additional funding;~~

any delay in filing an IND, NDA, MAA or comparable submission for any of our products and product candidates and any adverse development or perceived adverse development with respect to the regulatory review of such submission;

~~failure to successfully develop and commercialize OCA for indications other than PBC and any of our other product candidates;~~

~~inability to obtain adequate product supply for OCA and our future product candidates or the inability to do so at acceptable prices;~~

~~results of clinical trials of our competitors’ products;~~

~~regulatory actions with respect to our products or our competitors’ products;~~

~~changes in laws or regulations applicable to our products or future products;~~

~~failure to meet or exceed financial projections we may provide to the public;~~

~~failure to meet or exceed the estimates and projections of the investment community;~~

~~actual or anticipated fluctuations in our financial condition and operating results;~~

~~actual or anticipated changes in our growth rate relative to our competitors;~~

~~actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;~~

~~competition from existing products or new products that may emerge;~~

~~announcements by us, our collaborators or our competitors of significant acquisitions, strategic collaborations, joint ventures, collaborations or capital commitments;~~

~~issuance of new or updated research or reports by securities analysts;~~

~~fluctuations in the valuation of companies perceived by investors to be comparable to us;~~

~~share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;~~

~~additions or departures of key management or scientific personnel;~~

~~disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;~~

~~announcement or expectation of additional financing efforts;~~

~~significant lawsuits, including patent, stockholder or product liability litigation, involving us;~~

~~sales of our common stock by us, our insiders or our other stockholders;~~

~~failure to adopt appropriate information security systems, including any systems that may be required to support our growing and changing business requirements;~~

~~market conditions for biopharmaceutical stocks in general; and~~

~~general economic, industry and market conditions.~~

Furthermore, the stock markets in general and the market for biotechnology companies in particular have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations may negatively impact the market price of shares of our common stock, regardless of our actual operating performance. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We have been in the past, and may be in the future, the target of this type of litigation, which could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. As a result of this volatility, our stockholders could incur substantial losses.

We have a significant stockholder, which will limit your ability to influence corporate matters, may give rise to conflicts of interest and could result in future substantial sales of shares of our common stock into the market.

Genextra S.p.A.~~, together with its affiliates, whom we refer to collectively as Genextra,~~ (“Genextra”) is our largest ~~stockholder. As of September 30, 2017, Genextra owned 6,454,953 shares of our common stock. The shares of common stock owned by Genextra represented approximately 25.7%~~stockholder and owns a significant minority percentage of our outstanding common ~~stock as of September 30, 2017.~~stock. Accordingly, Genextra exerts and will continue to exert significant influence over us and any action requiring the approval of the holders of our common stock, including the election of directors and amendments to our organizational documents, such as increases in our authorized shares of common stock and approval of significant corporate transactions. This concentration of voting power makes it less likely that any other holder of common stock ~~or directors of our business~~ will be able to affect the way we are managed and could delay or prevent an acquisition of us on terms that other ~~stockholders~~securityholders may desire.

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Furthermore, the interests of Genextra may not always coincide with ~~your interests or~~ the interests of other ~~stockholders,~~securityholders, and Genextra may act in a manner that advances its best interests and not necessarily those of other ~~stockholders,~~securityholders, including seeking a premium value for its common stock, and might affect the ~~prevailing~~ market price ~~for~~of our common ~~stock.~~stock and the Convertible Notes. Our board of directors, which consists of ~~nine~~ten directors, including one associated with Genextra, has the power to set the number of directors on our board from time to time.

Genextra also may sell ~~share~~shares of our common stock into the market from time to ~~time. If~~time, and we in the future engage in a registered offering of our common stock, we could also determine, as we have done in the past, to register for sale a portion of Genextra’s shares as part of that same offering to provide for the orderly sale of such shares. We cannot predict the effect, if any, that future sales by Genextra may have on the market price of our common stock or the Convertible Notes. In addition, Genextra has informed us that it has pledged shares of our common stock that it holds as collateral in connection with a margin loan. Enforcement against such collateral could materially and adversely affect the price of our common stock or the Convertible Notes.

An active trading market in our common stock may not be maintained.

The trading market in our common stock has been extremely volatile. The quotation of our common stock on the Nasdaq Global Select Market does not assure that a meaningful, consistent and liquid trading market will exist. We cannot predict whether an active market for our common stock will be maintained in the future. An absence of an active trading market could adversely affect your ability to sell our common stock at current market prices in short time periods, or possibly at all. Additionally, market visibility for our common stock may be limited and such lack of visibility may have a depressive effect on the market price for our common stock.

We have previously been, and are currently, subject to securities class action litigation and may be subject to similar or other litigation in the future. Such matters can be expensive, time-consuming and have a material adverse effect on our business, results of operations and financial condition.

We have previously been subject to securities class action lawsuits. In February 2014, two purported securities class actions were filed against us and certain of our officers, which were eventually consolidated. In May 2016, the defendants reached an agreement with the lead plaintiff to seek court approval of a proposed resolution and the settlement was ultimately granted final approval by the court in September 2016. While the final judgment and order of the court included a dismissal of the action with prejudice against all defendants and the defendants did not admit any liability as part of the settlement, the total payment aggregated to $55.0 million, of which $10.0 million was paid by our insurers.

In September 2017, a lawsuit and, in January 2018, a follow-on lawsuit were filed alleging that we and certain of our officers made material misrepresentations and/or omissions of material fact regarding Ocaliva dosing, use and pharmacovigilance-related matters, as well as our 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. While we believe that we have a number of valid defenses to the claims described above and intend to vigorously defend ourselves, the matters are in the early stages of litigation and no assessment can be made as to the likely outcome of the matters or whether they will be material to us.

We may be subject to additional suits or proceedings brought in the future and, as has been the case with many companies in our industry, we may from time to time receive inquiries and subpoenas and other types of information requests from government authorities and others. For example, in May 2018, we received a subpoena from the SEC requesting information in connection with our patient assistance program and certain of our commercial activities. While the ultimate outcome of any such investigations, inquiries, information requests and legal proceedings is difficult to predict, adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices, product recalls, significant costs, payments, damages or fines or other administrative, civil or criminal remedies, liabilities or penalties, which may have a material adverse effect on our business, results of operations and financial condition. In addition, monitoring and defending against legal actions, whether or not meritorious, and responding to investigations, inquiries and information requests is expensive, time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities, and we cannot predict how long it may take to resolve such matters. Although we may receive insurance coverage for certain adversarial proceedings, coverage could be denied or prove to be insufficient. It is possible that we could, in the future, incur a judgment or enter into settlement of

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claims for monetary damages. A decision adverse to our interests could result in the payment of substantial damages and could have a material adverse effect on our business, results of operations and financial condition.

Our stock price has been and may in the future be volatile, which could cause holders of our common stock to incur substantial losses.

The market price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Since our initial public offering in October 2012, the price of our common stock on the Nasdaq Global Select Market has ranged from $17.96 per share to $497.00 per share. In addition to the other factors discussed in this “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018, the factors that may result in wide fluctuations in the price of our common stock include any:

●

receipt of additional marketing authorizations for Ocaliva in our target markets or for our product candidates, including OCA for NASH;

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failure to successfully commercialize Ocaliva for PBC or our other approved products in the United States, Europe and our other target markets in which we have or may receive marketing authorization or our inability to maintain regulatory approval for Ocaliva or our other approved products in such markets;

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issues, delays or failures in identifying patients, enrolling patients, treating patients, retaining patients, meeting specific endpoints in the jurisdictions in which we intend to seek approval or completing and timely reporting the results of our NASH or PBC clinical trials;

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inability to obtain additional funding;

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delay in filing an investigational new drug application, NDA, MAA or comparable submission for any of our product candidates, including OCA for NASH, and any adverse development or perceived adverse development with respect to the regulatory review of any such submission;

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failure to successfully develop, obtain regulatory approval of and, if approved, commercialize OCA for indications other than PBC, such as NASH, or any of our other product candidates;

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potential side effects associated with Ocaliva for PBC, OCA for NASH or our other product candidates;

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inability to obtain adequate product supply of Ocaliva, OCA or any of our other product candidates or the inability to do so at acceptable prices;

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results of clinical trials of our competitors’ products and product candidates;

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regulatory actions with respect to our products or product candidates or our competitors’ products or product candidates;

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changes in laws or regulations applicable to our products or product candidates;

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failure to meet or exceed financial projections or guidance we may provide to the public;

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failure to meet or exceed the estimates and projections of the investment community;

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actual or anticipated fluctuations in our financial condition and operating results;

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actual or anticipated changes in our growth rate relative to our competitors;

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actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;

●

competition from existing products or new products that may emerge;

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announcements by us, our collaborators or our competitors of significant acquisitions, strategic collaborations, joint ventures, collaborations or capital commitments;

●

issuance of new or updated research or reports by securities analysts;

●

fluctuations in the valuation of companies perceived by investors to be comparable to us;

●

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

●

additions or departures of key management or scientific personnel;

●

disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

●

announcement or expectation of additional financing efforts;

●

disputes, governmental inquiries or investigations, legal proceedings or litigation, including any securities, intellectual property, employment, product liability or other litigation;

●

sales of our common stock by us, our insiders or our other stockholders;

●

failure to adopt appropriate information security systems, including any systems that may be required to support our growing and changing business requirements, or prevent system failures, data breaches or violations of data protection laws;

●

market conditions for biopharmaceutical stocks in general; and

●

general economic, industry and market conditions.

Any of these factors could also affect the trading price of the Convertible Notes.

Furthermore, stock markets in general and the market for biotechnology companies in particular have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations may negatively impact the market price of our securities, regardless of our actual operating performance. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We have been in the past, and are currently subject to this type of litigation, which could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. As a result of this volatility, you could incur substantial losses.

If our stockholders sell substantial amounts of our common stock, the market price of our common stock or the Convertible Notes may decline even if our business is doing well.

A significant number of shares of our common stock are held by a small number of stockholders, including Genextra. Sales of a significant number of shares of our common stock, or the expectation that such sales may occur, could significantly reduce the market price of our common stock or the Convertible Notes. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate. We have also registered the offer and sale of all of the shares of common stock that we may issue under our equity compensation plans, including upon the exercise of stock options. These shares may be freely sold in the public market upon issuance.

Additionally, sales of our common stock by our executive officers or directors, even when done during an open trading window under our policies with respect to insider sales or done under a trading plan adopted in accordance with the guidelines set forth by Rule 10b5-1, may adversely impact the market price of our common stock or the Convertible Notes.

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Although we do not expect that the relatively small volume of such sales would itself significantly impact the market price of our common stock or the Convertible Notes, the market could react negatively to the announcement of such sales, which could in turn affect the market price of our common stock and the Convertible Notes. Furthermore, Genextra has informed us that it has pledged shares of our common stock that it holds as collateral in connection with a margin loan. Enforcement against such collateral could materially and adversely affect the price of our common stock and the Convertible Notes.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosure due to error or fraud may occur and not be detected.

You may experience future dilution as a result of future equity offerings or strategic transactions.

InWe may raise additional funds through the ~~future, we may issue~~issuance and sale of additional shares of our common stock or other securities convertible into or exchangeable for our common stock. For example, in May 2019, we issued and sold an aggregate of 2,879,760 shares of common stock and $230.0 million aggregate principal amount of the 2026 Convertible Notes, in ~~order~~April 2018, we issued and sold an aggregate of 4,257,813 shares of common stock and in July 2016, we issued and sold $460.0 million aggregate principal amount of the 2023 Convertible Notes. Conversions of the Convertible Notes will dilute the ownership interests of existing shareholders to ~~raise additional capital or~~the extent that we elect to deliver shares of our common stock (or a combination of cash and shares of our common stock) in connection ~~with strategic transactions, including potential in-licenses or acquisitions~~therewith. In addition, the existence of ~~products, technologies or businesses. We cannot assure you that we will be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than~~the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could depress the price ~~per share you paid for~~of our shares. If we issue securities in connection with a strategic transaction, we cannot assure you that the value of the assets we receive will be commensurate with the value of the securities we may issue, Investors purchasing or otherwise acquiring shares or other securities from us in the future could have rights, preferences or privileges senior to those of existing stockholders and you may experience dilution. Youcommon stock. We may also ~~incur additional dilution upon the exercise~~issue shares of ~~any outstanding~~common stock, stock options, ~~or vesting of~~restricted stock, restricted stock units or ~~awards.~~other stock-based awards under our existing or future equity incentive plans or other employee or director compensation plans. The issuance of additional shares of common stock (including pursuant to conversions of the Convertible Notes) or other securities convertible into or exchangeable for our common stock, or the perception that such issuances may occur, may materially and adversely affect the price of our common stock and the Convertible Notes.

If securities or industry analysts cease publishing research or reports about us, our business or our market, or if they publish inaccurate or unfavorable reports about us or our ~~stock,~~securities, the price of our ~~stock~~securities and trading volume in our securities could decline.

The ~~trading~~ market for our common stock and the Convertible Notes depends in part on the research and reports that securities or industry analysts publish about our company. We do not have any control over these analysts, and there can be no assurance that analysts will continue to cover us or provide favorable coverage. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our stock price ~~would likely~~and the price of the Convertible Notes may decline. If one or more of the analysts covering us fail to regularly publish reports on us, demand for our common stock ~~could~~and the Convertible Notes may decline, which could cause our stock price and the price of the Convertible Notes and trading volume to decline.

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Anti-takeover provisions in our restated certificate of incorporation and our restated bylaws, as well as provisions of Delaware law and certain provisions of the Convertible Notes, might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the ~~trading~~market price of our common ~~stock.~~

stock or the Convertible Notes.

Provisions in our restated certificate of incorporation and restated bylaws, as well as provisions of Delaware law, ~~contain provisions that~~ may discourage, delay or prevent a merger, acquisition or other change in control that ~~stockholders may~~our securityholders consider favorable, including transactions in which ~~you~~securityholders might otherwise receive a premium for ~~your shares of our common stock.~~their securities. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Our corporate governance documents include provisions:

·●

authorizing the issuance of “blank check” convertible preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

·●

prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders, to the extent that no stockholder, together with its affiliates, holds more than 50% of our voting stock;

·●

eliminating the ability of stockholders to call a special meeting of stockholders;

·●

permitting our board of directors to accelerate the vesting of outstanding equity awards upon certain transactions that result in a change of control; and

·●

establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.

In addition, as a Delaware corporation, we are subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law ~~or DGCL,~~(the “DGCL”), which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock. Any provision of our restated certificate of incorporation or restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our ~~stockholders~~securityholders to receive a premium for their ~~shares of our common stock,~~securities, and could also affect the price that some investors are willing to pay for our common ~~stock.~~stock or the Convertible Notes.

Certain provisions of the Convertible Notes could also make it more difficult or more expensive for a third party to acquire us. For example, if an acquisition event constitutes a “fundamental change” under the terms of the Convertible Notes, holders of the Convertible Notes will have the right to require us to purchase their Convertible Notes for cash. Similarly, if an acquisition event constitutes a “make-whole fundamental change” under the terms of the Convertible Notes, we may be required to increase the conversion rate for holders who convert their Convertible Notes in connection with such make-whole fundamental change.

The existence of the foregoing provisions and anti-takeover measures may also frustrate or prevent any attempts by our stockholders to replace or remove our current management or members of our board of directors and could limit the price that investors might be willing to pay in the future for shares of our common ~~stock.~~stock or the Convertible Notes. They could also deter potential acquirers of our company, thereby reducing the likelihood that ~~you~~our securityholders could receive a premium for ~~your common stock~~their securities in an acquisition.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against us and may reduce the amount of money available to us.

As permitted by Section 102(b)(7) of the DGCL, our restated certificate of incorporation limits the liability of our directors to the fullest extent permitted by law. In addition, as permitted by Section 145 of the DGCL, our restated certificate of incorporation and restated bylaws provide that we shall indemnify, to the fullest extent authorized by the DGCL, each person who is involved in any litigation or other proceeding because such person is or was a director or officer of our company, or is or was serving as an officer or director of another entity at our request, against all expense,

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loss or liability reasonably incurred or suffered in connection therewith. Our restated certificate of incorporation provides that the right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition, ~~provided, however, that such advance payment will only be made upon delivery~~subject to us of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification. If we do not pay a proper claim for indemnification in full within 60 days after we receive a written claim for such indemnification, except in the case of a claim for an advancement of expenses, in which case such period is 20 days, our restated certificate of incorporation and our restated bylaws authorize the claimant to bring an action against us and prescribe what constitutes a defense to such action.

Section 145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action (i.e., one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

certain conditions. The rights conferred in the restated certificate of incorporation and the restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons. ~~We have entered into indemnification agreements with each of our officers and directors.~~

The above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers for monetary damages for breach of their fiduciary duty ~~as directors~~ by shifting the burden of such losses and expenses to us. Although we ~~have increased the coverage under our~~carry directors’ and officers’ liability insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely harm our business and financial condition and limit the funds available to ~~stockholders~~securityholders who may choose to bring a claim against our company.

We do not intend to pay dividends in the foreseeable future.

We do not anticipate paying cash dividends in the future. As a result, only appreciation of the price of shares of our common stock will provide a return to stockholders, which may not occur. Investors seeking cash dividends should not invest in our common stock. You may not realize any return on your investment in our common stock and may lose some or all of your investment.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

~~As of December 31, 2016, we had~~We have significant net operating loss carryforwards (“NOLs”) for U.S. Federal income tax purposes. The enactment of the TCJA in late 2017 modified the ability of companies to utilize NOLs arising in tax years beginning on or after January 1, 2018 by providing that such NOLs may be carried-forward indefinitely and used to offset up to 80 percent of taxable income in any given future year. Existing NOLs that arose in tax years beginning prior to January 1, 2018 were not affected by the TCJA and are generally eligible to be carried-forward for up to 20 years and used to fully offset taxable income in future years. Our pre-2018 NOLs will expire for U.S. Federal income tax purposes ~~of $562.3 million, which expire~~ between 2024 and ~~2036.~~2037. We also have certain state and foreign NOLs in varying amounts depending on the different state and foreign tax laws.

~~Our~~In addition, our ability to utilize our NOLs may be limited under Section 382 of ~~the Internal Revenue Code of 1986, as amended, or~~ the Internal Revenue Code or similar rules. The Section 382 limitations apply if an “ownership change” occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). We have evaluated whether one or more ownership changes under Section 382 have occurred since our inception and have determined that there have been at least two such changes. Although we believe that these ownership changes have not resulted in material limitations on our ability to use these NOLs, our ability to utilize these NOLs may be limited due to future ownership changes or for other reasons. ~~Additionally, tax laws limit the time during which NOLs and certain other tax attributes may be utilized against future taxes.~~ As a result, we may not be able to take full advantage of our carryforwards for U.S. federal, state, and foreign tax purposes.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
Not applicable.

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Issuer Purchases of Equity Securities

~~Set forth below is~~The following table provides certain information ~~regarding securities sold by us~~with respect to purchases of our common stock during the ~~nine~~three months ended September 30, 2017 that were not registered under the Securities Act of 1933, as amended, or the Securities Act. Also included is the consideration, if any, received by us for the securities and information relating to the section of the Securities Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.2019.

~~Between January 1 and September 30, 2017, we did not issue or sell any shares on an unregistered basis.~~

~~Purchase of Equity Securities~~

~~We did not purchase any of our registered equity securities during the period covered by this Quarterly Report on Form 10-Q.~~

Maximum Number (or

Total Number of Shares

Approximate Dollar Value) of

Total Number of

Average

Purchased as Part of Publicly

Shares that May Yet Be

Shares

Price Paid

Announced Plans or

Purchased Under the Plans or
Period

Purchased (1)

per Share

Programs

Programs

July 1, 2019 through July 31, 2019

2,801

$
78.80

—

—
August 1, 2019 through August 31, 2019

1,493

$
63.61

—

—
September 1, 2019 through September 30, 2019

—

—

—

—
Total

4,294

$
73.52

—

—

(1)	Represents shares of common stock withheld to satisfy taxes associated with the vesting of restricted stock awards.

~~Item 3. Defaults Upon Senior Securities.~~
~~None.~~
~~Item 4. Mine Safety Disclosures.~~
~~None.~~
Item 5. Other ~~Information.~~Information
On November 1, 2019, the Company entered into a third amendment (the “New York Lease Amendment”) to the lease agreement (the “New York Lease”) with Legacy Yards Tenant LP relating to the space leased for the Company’s global corporate headquarters at 10 Hudson Yards in New York. The New York Lease Amendment (i) extends the term of the New York Lease through March 2022 and (ii) provides for the lease of an additional approximately 4,500 square feet beginning in January 2020 for a total of approximately 45,600 square feet of office space in New York.
~~None.~~The foregoing is only a summary description of the terms of the New York Lease Amendment, does not purport to be complete and is qualified in its entirety by reference to the New York Lease Amendment, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

Item 6. Exhibits.
The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth onin the Exhibit Index below, which ~~Exhibit Index~~ is incorporated herein by reference.
Exhibit Index
60
Exhibit
Number
Description of Exhibit
10.1

Third Amendment to Lease, dated November 1, 2019, between the Registrant and Legacy Yards Tenant LP

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 September 30, 2019, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018
87

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(audited), (ii) Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2019 and 2018 (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine-month periods ended September 30, 2019 and 2018 (unaudited), (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine-month periods ended September 30, 2019 and 2018 (unaudited), (v) Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2019 and 2018 (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).

(1)

This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained 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.~~

INTERCEPT PHARMACEUTICALS, INC.

Date: November ~~6, 2017~~5, 2019
By:
/s/ Mark Pruzanski, M.D.

Mark Pruzanski, M.D.

President and Chief Executive Officer

(Principal Executive Officer)

Date: November ~~6, 2017~~5, 2019
By:
/s/ Sandip Kapadia

Sandip Kapadia

Chief Financial Officer and Treasurer

(Principal Financial Officer)

61

89
~~Exhibit Index~~
~~Exhibit~~
~~Number~~
~~Description of Exhibit~~
~~10.1~~
~~First Amendment to Lease Agreement between Legacy Yards Tenant LP and the Registrant, dated as of June 27, 2017.~~
~~31.1~~ ~~Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~31.2~~ ~~Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~32.1~~ ~~Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~101~~ The following materials from the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheet at September 30, 2017 (unaudited) and December 31, 2016 (audited), (ii) Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2017 and 2016 (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine month periods ended September 30, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2017 and 2016 (unaudited) and (v) Notes to Condensed Consolidated Financial Statements (unaudited).

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

~~10 Hudson Yards, 37~~^th FL ~~New York, NY~~		~~10001~~
~~(Address of Principal Executive Offices)~~		~~(Zip Code)~~

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

Large accelerated filer⌧	x		Accelerated filer	¨◻

Non-accelerated filer◻	¨	~~(Do not check if a smaller reporting company)~~	Smaller reporting company☐
		¨

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

¨
	For the quarterly period ended September 30, 2019

OR

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

	For the transition period from to

	September 30,			December 31,
	2017			2016
	(Unaudited)			(Audited)

Assets
Current assets:
Cash and cash equivalents	$	120,244		$	43,675
Investment securities, available-for-sale		372,506			645,710
Accounts receivable, net		14,487			9,126
Prepaid expenses and other current assets		14,278			9,354
Total current assets		521,515			707,865
Fixed assets, net		18,141			11,295
Inventory, net		3,897			2,279
Security deposits		16,873			17,814
Total assets	$	560,426		$	739,253
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities	$	82,070		$	65,551
Short-term interest payable		3,737			7,267
Short-term portion of deferred revenue		1,782			5,694
Total current liabilities		87,589			78,512
Long-term liabilities:
Long-term debt		351,984			341,356
Long-term other liabilities		6,068			-
Long-term portion of deferred revenue		3,118			4,453
Total liabilities		448,759			424,321
Stockholders’ equity:
Preferred stock par value $0.001 per share; 5,000,000 shares authorized; none outstanding as of September 30, 2017 and December 31, 2016, respectively		-			-
Common stock par value $0.001 per share; 45,000,000 shares authorized; 25,102,079 and 24,819,918 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		25			25
Additional paid-in capital		1,470,545			1,426,168
Accumulated other comprehensive loss, net		(632	)		(2,801	)
Accumulated deficit		(1,358,271	)		(1,108,460	)
Total stockholders’ equity		111,667			314,932
Total liabilities and stockholders’ equity	$	560,426		$	739,253

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenue:
Product revenue, net	$	40,889		$	4,732		$	91,933		$	4,807
Licensing revenue		445			445			1,336			6,336
Total revenue		41,334			5,177			93,269			11,143

Operating expenses:
Cost of sales		172			-			548			-
Selling, general and administrative		61,356			52,802			189,363			197,382
Research and development		45,977			35,411			134,001			102,292
Total operating expenses		107,505			88,213			323,912			299,674
Operating loss		(66,171	)		(83,036	)		(230,643	)		(288,531	)

Other income (expense):
Interest expense		(7,354	)		(7,065	)		(21,840	)		(7,065	)
Other income, net		924			1,286			3,388			2,807
		(6,430	)		(5,779	)		(18,452	)		(4,258	)
Net loss	$	(72,601	)	$	(88,815	)	$	(249,095	)	$	(292,789	)

Net loss per common and potential common share:
Basic and diluted	$	(2.89	)	$	(3.59	)	$	(9.96	)	$	(11.90	)

Weighted average common and potential common shares outstanding:
Basic and diluted		25,104			24,738			25,021			24,614

	Nine Months Ended September 30,
	2017			2016

Cash flows from operating activities:
Net loss	$	(249,095	)	$	(292,789	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		41,584			27,041
Amortization of investment premium		2,777			3,736
Amortization of deferred financing costs		1,052			326
Depreciation		3,256			2,187
Accretion of debt discount		9,576			3,001
Realized gain on investments		-			52
Changes in operating assets:
Prepaid expenses and other current assets		(4,924	)		(984	)
Accounts receivable		(5,361	)		-
Inventory		(1,618	)		-
Security deposits		-			(1,803	)
Changes in operating liabilities:
Accounts payable, accrued expenses and other current liabilities		16,519			1,699
Long-term other liabilities		6,068			-
Interest payable		(3,530	)		3,738
Deferred revenue		(5,247	)		817
Net cash used in operating activities		(188,943	)		(252,979	)
Cash flows from investing activities:
Purchases of investment securities		(127,002	)		(443,323	)
Refund of security deposits		941			-
Sales of investment securities		398,543			361,019
Purchases of equipment, leasehold improvements, and furniture and fixtures		(10,102	)		(4,005	)
Net cash provided by (used in) investing activities		262,380			(86,309	)
Cash flows from financing activities:
Payments for capped call transactions and associated costs		-			(38,364	)
Proceeds from issuance of Convertible Notes, net of issuance costs		-			447,715
Proceeds from exercise of options, net		2,077			4,429
Net cash provided by financing activities		2,077			413,780
Effect of exchange rate changes		1,055			(2,018	)
Net increase in cash and cash equivalents		76,569			72,474
Cash and cash equivalents – beginning of period		43,675			32,742
Cash and cash equivalents – end of period	$	120,244		$	105,216


	Nine Months Ended September 30,
	2019		2018

Cash flows from operating activities:
Net loss	$	(246,523)	$	(221,237)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		42,809		38,415
(Accretion) amortization of (discount) premium on investment debt securities		(595)		266
Amortization of deferred financing costs		1,529		1,144
Depreciation		2,839		3,551
Non-cash operating lease cost		3,974		—
Gain on lease termination		(1,995)		—
Loss on the disposal of fixed assets		2,682		1,331
Accretion of debt discount		15,051		10,412
Unrealized gain on investments		—		(119)
Changes in operating assets:
Prepaid expenses and other current assets		(3,320)		(856)
Accounts receivable		(7,128)		(5,579)
Inventory		(2,240)		(3,995)
Security deposits		1,018		7,138
Other assets		(19,489)		—
Changes in operating liabilities:
Accounts payable, accrued expenses and other current liabilities		33,990		(11,719)
Operating lease liabilities		(5,019)		—
Long-term other liabilities		9,516		(1,300)
Interest payable		(2,012)		(3,738)
Deferred revenue		(1,216)		(1,616)
Net cash used in operating activities		(176,129)		(187,902)
Cash flows from investing activities:
Purchases of investment debt securities		(560,733)		(378,261)
Sales and maturities of investment debt securities		306,898		293,307
Purchases of equipment, leasehold improvements, and furniture and fixtures		(1,041)		(45)
Net cash used by investing activities		(254,876)		(84,999)
Cash flows from financing activities:
Proceeds from issuance of 2026 Convertible Notes, net of issuance costs		223,424		—
Proceeds from issuance of common stock, net of issuance costs		227,180		261,362
Proceeds from exercise of options, net		2,511		3,201
Payments of employee withholding taxes related to stock-based awards		(1,476)		(1,458)
Net cash provided by financing activities		451,639		263,105
Effect of exchange rate changes		(505)		(835)
Net increase/(decrease) in cash and cash equivalents		20,129		(10,631)
Cash and cash equivalents – beginning of period		43,248		70,013
Cash and cash equivalents – end of period	$	63,377	$	59,382


	As of September 30, 2019
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(in thousands)
Cash and cash equivalents:
Cash and money market funds	$	63,377	$	—	$	—	$	63,377
Total cash and cash equivalents		63,377		—		—		63,377
Investment debt securities:
Commercial paper		70,009		62		(8)		70,063
Corporate debt securities		574,046		984		(95)		574,935
U.S. government and agency securities		3,992		4		—		3,996
Total investment debt securities		648,047		1,050		(103)		648,994
Total cash, cash equivalents and investment debt securities	$	711,424	$	1,050	$	(103)	$	712,371

	As of September 30, 2017
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses			Fair Value
	(In thousands)
Cash and cash equivalents:
Cash and money market funds	$	120,244	$	-	$	-		$	120,244
Investment securities:
Commercial paper		11,468		-		(4	)		11,464
Corporate debt securities		342,252		1		(433	)		341,820
U.S. government and agency securities		19,248		-		(26	)		19,222
Total investments		372,968		1		(463	)		372,506
Total cash, cash equivalents and investments	$	493,212	$	1	$	(463	)	$	492,750

	As of December 31, 2016
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses			Fair Value
	(In thousands)
Cash and cash equivalents:
Cash and money market funds	$	43,675	$	-	$	-		$	43,675
Investment securities:
Commercial paper		66,185		-		(71	)		66,114
Corporate debt securities		554,847		14		(1,443	)		553,418
U.S. government and agency securities		26,254		-		(76	)		26,178
Total investments		647,286		14		(1,590	)		645,710
Total cash, cash equivalents and investments	$	690,961	$	14	$	(1,590	)	$	689,385


	As of December 31, 2018
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(in thousands)
Cash and cash equivalents:
Cash and money market funds	$	43,248	$	—	$	—	$	43,248
Investment debt securities:
Commercial paper		34,353		—		(26)		34,327
Corporate debt securities		349,854		27		(704)		349,177
U.S. government and agency securities		9,410		5		(7)		9,408
Total investment debt securities		393,617		32		(737)		392,912
Total cash, cash equivalents and investment debt securities	$	436,865	$	32	$	(737)	$	436,160


	Useful lives
	(Years)	September 30, 2019		December 31, 2018
		(in thousands)
Office equipment and software	3	$	4,343	$	3,986
Leasehold improvements	Over life of lease		10,444		14,464
Furniture and fixtures	7		3,974		3,907
Subtotal			18,761		22,357
Less: accumulated depreciation			(12,788)		(11,946)
Fixed assets, net		$	5,973	$	10,411

	Useful lives
	(Years)	September 30, 2017			December 31, 2016
		(In thousands)
Office equipment and software	3	$	5,044		$	4,942
Leasehold improvements	Over life of lease		15,280			6,668
Furniture and fixtures	7		5,250			4,202
Subtotal			25,574			15,812
Less: accumulated depreciation			(7,433	)		(4,517	)
Fixed assets, net		$	18,141		$	11,295


			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
	(in thousands)
September 30, 2019
Assets
Cash and cash equivalents:
Money market funds (included in cash and cash equivalents)	$	31,691	$	31,691	$	—	$	—
Available-for-sale debt securities:
Commercial paper		70,063		—		70,063		—
Corporate debt securities		574,935		—		574,935		—
U.S. government and agency securities		3,996		—		3,996		—
Total financial assets	$	680,685	$	31,691	$	648,994	$	—

December 31, 2018
Assets
Money market funds (included in cash and cash equivalents)	$	11,647	$	11,647	$	—	$	—
Available-for-sale debt securities:
Commercial paper		34,327		—		34,327		—
Corporate debt securities		349,177		—		349,177		—
U.S. government and agency securities		9,408		—		9,408		—
Total financial assets	$	404,559	$	11,647	$	392,912	$	—

			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
	(In thousands)
September 30, 2017
Assets:
Money market funds (included in cash and cash equivalents)	$	37,426	$	37,426	$	-	$	-
Available for sale securities:
Commercial paper		11,464		-		11,464		-
Corporate debt securities		341,820		-		341,820		-
U.S. government and agency securities		19,222		-		19,222		-
Total financial assets:	$	409,932	$	37,426	$	372,506	$	-

December 31, 2016
Assets:
Money market funds (included in cash and cash equivalents)	$	11,755	$	11,755	$	-	$	-
Available for sale securities:
Commercial paper		66,114		-		66,114		-
Corporate debt securities		553,418		-		553,418		-
U.S. government and agency securities		26,178		-		26,178		-
Total financial assets	$	657,465	$	11,755	$	645,710	$	-


	Fair Value as of
	September 30, 2019		December 31, 2018
	(in thousands)
Due in one year or less	$	486,971	$	319,717
Due after one year through two years		162,023		73,195
Total investments in debt securities	$	648,994	$	392,912

	Fair Value as of
	September 30, 2017		December 31, 2016
	(In thousands)
Due in one year or less	$	344,852	$	456,184
Due after 1 year through 5 years		27,654		189,526
Total investments in debt securities	$	372,506	$	645,710


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
Product revenue, net:
U.S.	$	45,232	$	36,684	$	133,914	$	99,697
ex-U.S.		16,313		9,897		45,372		25,211
Total product revenue, net	$	61,545	$	46,581	$	179,286	$	124,908

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(In thousands)
Product revenue, net:
U.S.	$	36,176	$	4,732	$	83,829	$	4,807
ex-U.S.		4,713		-		8,104		-
Total product revenue, net	$	40,889	$	4,732	$	91,933	$	4,807


				Weighted
				Average
	Number	Weighted		Remaining	Aggregate
	of Options	Average		Contractual	Intrinsic Value
	(in thousands)	Exercise Price		Term (years)	(in thousands)
Outstanding at December 31, 2018	1,873	$	97.63	7.5	$	45,381
Granted	484	$	105.55	—	$	—
Exercised	(69)	$	36.59	—	$	—
Cancelled/forfeited	(148)	$	92.40	—	$	—
Expired	(54)	$	165.26	—	$	—
Outstanding at September 30, 2019	2,086	$	97.93	7.4	$	11,747
Expected to vest	985	$	91.42	8.7	$	2,533
Exercisable	1,101	$	103.75	6.3	$	9,214

						Weighted
						Average
	Number			Weighted		Remaining		Aggregate
	of Shares			Average		Contractual		Intrinsic Value
	(In thousands)			Exercise Price		Term (years)		(In thousands)
Outstanding at December 31, 2016		1,553		$	117.80		7.4	$	48,308
Granted		499		$	113.27		-	$	-
Exercised		(85	)	$	24.36		-	$	-
Cancelled/forfeited		(103	)	$	141.78		-	$	-
Expired		(53	)	$	214.69		-	$	-
Outstanding at September 30, 2017		1,811		$	116.76		7.3	$	15,118
Expected to vest		1,811		$	116.76		7.3	$	15,118
Exercisable		914		$	102.08		6.0	$	15,115


		Weighted
	Number of	Average Grant Date
	Awards	Fair Value
	(in thousands)
Non-vested awards at December 31, 2018	773	$	76.10
Granted	354	$	110.05
Vested	(261)	$	78.71
Forfeited	(83)	$	85.67
Non-vested awards at September 30, 2019	783	$	89.57

				Weighted
	Number of			Average Fair
	Awards			Value
	(In thousands)
Non-vested shares outstanding, December 31, 2016		381		$	136.89
Granted		262		$	113.41
Vested		(133	)	$	135.92
Forfeited		(46	)	$	134.77
Non-vested shares outstanding, September 30, 2017		464		$	124.11

(U/L)	Placebo (N = 25)		OCA 1.5-3 mg (N = 25)			OCA 5-10 mg (N = 26)
Mean Baseline ALP		563		423			429

Least Squares (LS) Mean Change from Baseline in ALP at Week 12		-53		-57			-135	*

LS Mean Change from Baseline in ALP at Week 24		-27		-105			-110	*†

LS Mean Percent Change from Baseline at Week 24		+1%		-22	%*		-22	%*

	- UDCA									+ UDCA
	Placebo			OCA 1.5-3 mg			OCA 5-10 mg			Placebo			OCA 1.5-3 mg			OCA 5-10 mg
LS Mean Percent Change from Baseline in ALP at Week 12		-5	%		-12	%		-30	%		-1	%		-1	%		-16	%

LS Mean Percent Change from Baseline in ALP at Week 24		-7	%		-19	%		-25	%		19	%		-15	%		-14	%

	Three Months Ended September 30,						Dollar Change
	2017			2016
	(In thousands)
Revenue:
Product revenue, net	$	40,889		$	4,732		$	36,157
Licensing revenue		445			445			-
Total revenue		41,334			5,177			36,157
Operating expenses:
Cost of sales		172			-			172
Selling, general and administrative		61,356			52,802			8,554
Research and development		45,977			35,411			10,566
Total operating expenses		107,505			88,213			19,292
Operating loss		(66,171	)		(83,036	)		16,865
Other income (expense):
Interest expense		(7,354	)		(7,065	)		(289	)
Other income, net		924			1,286			(362	)
		(6,430	)		(5,779	)		(651	)
Net loss	$	(72,601	)	$	(88,815	)	$	16,214


					Maximum Number (or
				Total Number of Shares	Approximate Dollar Value) of
	Total Number of	Average		Purchased as Part of Publicly	Shares that May Yet Be
	Shares	Price Paid		Announced Plans or	Purchased Under the Plans or
Period	Purchased (1)	per Share		Programs	Programs

July 1, 2019 through July 31, 2019	2,801	$	78.80	—	—
August 1, 2019 through August 31, 2019	1,493	$	63.61	—	—
September 1, 2019 through September 30, 2019	—		—	—	—
Total	4,294	$	73.52	—	—

	60
Exhibit Number		Description of Exhibit

10.1		Third Amendment to Lease, dated November 1, 2019, between the Registrant and Legacy Yards Tenant LP

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 September 30, 2019, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018


	INTERCEPT PHARMACEUTICALS, INC.

Date: November ~~6, 2017~~5, 2019	By:	/s/ Mark Pruzanski, M.D.
		Mark Pruzanski, M.D.
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November ~~6, 2017~~5, 2019	By:	/s/ Sandip Kapadia
		Sandip Kapadia
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)

~~Exhibit~~ ~~Number~~		~~Description of Exhibit~~

~~10.1~~		~~First Amendment to Lease Agreement between Legacy Yards Tenant LP and the Registrant, dated as of June 27, 2017.~~

~~31.1~~		~~Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~		~~Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~32.1~~		~~Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~101~~		The following materials from the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheet at September 30, 2017 (unaudited) and December 31, 2016 (audited), (ii) Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2017 and 2016 (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine month periods ended September 30, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2017 and 2016 (unaudited) and (v) Notes to Condensed Consolidated Financial Statements (unaudited).