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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x

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

For the quarterly period ended September 30, 2017

OR

¨

For the quarterly period ended September 30, 2022

OR

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

For the transition period from                          to                         

For the transition period from              to           

Commission file number: 001-35668

INTERCEPT PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

22-3868459

(State or Other Jurisdiction of


Incorporation or Organization)

(I.R.S. Employer


Identification Number) No.)

10 Hudson Yards, 37th FL

New York, NY

10001
(Address of Principal Executive Offices)(Zip Code)

(646) 305 Madison Avenue,

Morristown, NJ07960

(Address of Principal Executive Offices and Zip Code)

(646) 747-1000

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ICPT

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   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.

Large accelerated filer

 x

Accelerated filer

¨

Non-accelerated filer

 ¨(Do not check if a smaller reporting company)

Smaller reporting company

¨

Emerging growth company

 ¨

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

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

AsThe number of shares of the registrant’s common stock outstanding as of September 30, 2017, there were 25,102,079 shares2022 was 41,417,127.

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

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 (Unaudited)2022 and December 31, 2016 (Audited)2021 (Unaudited)

5

6

Condensed Consolidated Statements of Operations for the three and nine monthnine-month periods ended September 30, 20172022 and 20162021 (Unaudited)

6

7

Condensed Consolidated Statements of Comprehensive LossIncome (Loss) for the three and nine monthnine-month periods ended September 30, 20172022 and 20162021 (Unaudited)

7

8

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

9

Condensed Consolidated Statements of Cash Flows for the nine monthnine-month periods ended September 30, 20172022 and 20162021 (Unaudited)

8

11

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

13

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

34

Item 3.

Quantitative and Qualitative DisclosureDisclosures About Market Risk

27

44

Item 4.

Controls and Procedures

27

45

PART II
OTHER INFORMATION

OTHER INFORMATION

Item 1.Legal Proceedings

27

Item 1.

Legal Proceedings

46

Item 1A.Risk Factors

28

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

55

Item 3.6.

Defaults Upon Senior Securities

60Exhibits

56

Item 4.Exhibit Index

Mine Safety Disclosures

60

57

Item 5.Signatures

Other Information

60
Item 6.Exhibits60
Signatures61
Exhibit Index62

58

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.

2

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

These statements involve knownconstitute 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 success of our existing business and operations, including Ocaliva for PBC;
the potential benefit and commercial potential ofour ability to successfully commercialize Ocaliva® (obeticholic acid, or OCA) in primary biliary cholangitis, or for PBC and, if approved, OCA for NASH;
our ability to maintain our regulatory approval of Ocaliva in PBC in the United States, Europe and other jurisdictions in which we have or may receive marketing authorization;for PBC;
·our ability to timely and cost-effectively file for and obtain regulatory approval of our product candidates on an accelerated basis or at all, including OCA for liver fibrosis due to NASH;
our ability to address the initiation, cost,issues raised in the complete response letter (“CRL”) received in June 2020 with respect to OCA for NASH;
any advisory committee recommendation or dispute resolution determination that our product candidates, including OCA for liver fibrosis due to NASH, should not be approved or approved only under certain conditions;
any future determination that the regulatory applications and subsequent information we submit for our product candidates, including OCA for liver fibrosis due to NASH, do not contain adequate clinical or other data or meet applicable regulatory requirements for approval;
the progress, timing, progress and results of our development activities, preclinical studiesREGENERATE clinical trial, including the safety and clinical trials;efficacy of OCA for liver fibrosis due to NASH, and the use of a consensus panel approach to histology reads;
our pre-submission meeting with the FDA in July 2022 in which we reviewed with the FDA the planned content and the timing of the submission of our NDA for OCA for liver fibrosis due to NASH;
our planned resubmission of an NDA to the FDA for OCA for liver fibrosis due to NASH, and the potential timing, review, acceptance, and approval of the NDA;
·the timing of and our ability to obtain regulatory approval of OCA in indications other than PBC and regulatory approval of any other product candidates which we may develop;

·conditions that may be imposed by regulatory authorities on our marketing approvals for our products and product candidates, including OCA for liver fibrosis due to NASH, such as the need for clinical outcomes data (and not just results based on achievement of a surrogate endpoint), any risk mitigation programs such as a Risk Evaluation and Mitigation Strategies (“REMS”) program, and any related restrictions, limitations and/or warnings contained in the label of any of our products or product candidates;
any potential side effects associated with Ocaliva for PBC, OCA for liver fibrosis due to NASH or our other product candidates that could delay or prevent approval, require that an approved product be taken off the market, require the inclusion of safety warnings or precautions, or otherwise limit the sale of such product or product candidate, including in connection with our update to the Ocaliva prescribing information in May 2021 contraindicating Ocaliva for

3

·patients with PBC and decompensated cirrhosis, a prior decompensation event, or compensated cirrhosis with evidence of portal hypertension;
the initiation, timing, cost, conduct, progress and results of our plansresearch and development activities, preclinical studies and clinical trials, including any issues, delays or failures in identifying patients, enrolling patients, treating patients, retaining patients, meeting specific endpoints, or completing and timely reporting the results of our NASH or PBC clinical trials;
the outcomes of interactions with regulators, including the FDA regarding our clinical trials;
our ability to establish and maintain relationships with, and the performance of, third-party manufacturers, contract research organizations and other vendors upon whom we are substantially dependent for, among other things, the manufacture and supply of our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our clinical trial activities;
our ability to identify, develop and successfully commercialize our products and product candidates;candidates, including our ability to successfully launch OCA for liver fibrosis due to NASH, if approved;
·our ability to obtain and maintain intellectual property protection for our products and product candidates;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 fromOcaliva for PBC and, if approved, OCA for liver fibrosis due to NASH or our other product candidates among physicians, patients and healthcare payors;
·the successavailability 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 liver fibrosis due to NASH, and our ability to obtain adequate pricing for such products;
·regulatory developments in the United Statesour 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 attract and retain key personnel to manage our business effectively;
our ability to prevent or defend against system failures or security or data breaches due to cyber-attacks, or cyber intrusions, including ransomware, phishing attacks and other malicious intrusions;
our ability to comply with data protection laws;
costs and outcomes relating to any disputes, governmental inquiries or investigations, regulatory proceedings, legal proceedings or litigation, including any securities, intellectual property, employment, product liability or other litigation;
our collaborators’ election to pursue research, development and commercialization activities;
·our ability to attractestablish and maintain relationships with collaborators with development, regulatory and commercialization expertise;
·our need for and ability to generate or obtain additional financing;
·our estimates regarding future expenses, revenues and capital requirements and the accuracy thereof;
·our use of cash, cash equivalents and short-term investments; and
·our ability to attractacquire, license and retain key scientificinvest in businesses, technologies, product candidates and products;
our ability to manage the growth of our operations, infrastructure, personnel, systems and controls;
our ability to obtain and maintain adequate insurance coverage;
continuing threats from COVID-19, including additional waves of infections, and their impacts including quarantines and other government actions; delays relating to our regulatory applications; disruptions relating to our ongoing clinical trials or management personnel.involving our contract research organizations, study sites or other clinical partners; disruptions relating to our supply chain or involving our third-party manufacturers, distributors or other distribution partners; and facility closures or other restrictions; and the impact of the foregoing on our results of operations and financial position;
the impact of general economic, industry, market, regulatory or political conditions;

4

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.

3how we use the funds received from the sale of our ex-U.S. business to Advanz Pharma;
disagreements or legal, operational, or other business problems arising from our ongoing relationship with Advanz Pharma, including the licensing of the ex-U.S. rights to Ocaliva for PBC and, if approved, OCA for NASH, our operational separation from our former ex-U.S. commercial operations, and our agreement to supply Advanz Pharma with OCA;
unexpected tax, regulatory, litigation, or other liabilities;
whether we receive any future earn-outs or royalties under the Advanz Pharma transaction documents; and
the other risks and uncertainties identified under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q and in our other periodic filings filed with the U.S. Securities and Exchange Commission (the “SEC”), including our most recent Annual Report.

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® name and logo and the 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 ™ 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.

4

5

PART I

Item 1. FINANCIAL STATEMENTSFinancial Statements.

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)

September 30, 

December 31, 

2022

2021

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

113,195

$

84,709

Restricted cash

6,981

8,119

Investment debt securities, available-for-sale

 

377,656

 

334,980

Accounts receivable, net of allowance for credit losses of $58 and $58, respectively

 

26,168

 

28,337

Prepaid expenses and other current assets

 

21,370

 

21,735

Current assets of discontinued operations

30,138

Total current assets

 

545,370

 

508,018

Fixed assets, net

 

1,276

 

3,281

Inventory

 

6,274

 

7,883

Security deposits

 

1,125

 

4,284

Other assets

 

5,359

 

3,557

Total assets

$

559,404

$

527,023

Liabilities and Stockholders’ Equity (Deficit)

 

  

 

  

Current liabilities:

 

 

  

Accounts payable, accrued expenses and other liabilities

$

109,888

$

103,780

Short-term interest payable

 

2,244

 

8,601

Current portion of long-term debt

109,452

Current liabilities of discontinued operations

55,780

Total current liabilities

 

221,584

 

168,161

Long-term liabilities:

 

 

  

Long-term debt

 

222,856

 

539,782

Long-term other liabilities

 

7,288

 

3,042

Total liabilities

$

451,728

$

710,985

Commitments and contingencies (Note 16)

Stockholders’ equity (deficit):

 

  

 

  

Common stock par value $0.001 per share; 90,000,000 shares authorized; 41,417,127 and 29,572,953 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

 

41

 

30

Additional paid-in capital

 

2,231,667

 

2,308,653

Accumulated other comprehensive loss, net

 

(7,969)

 

(2,873)

Accumulated deficit

 

(2,116,063)

 

(2,489,772)

Total stockholders’ equity (deficit)

 

107,676

 

(183,962)

Total liabilities and stockholders’ equity (deficit)

$

559,404

$

527,023

  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.

5

6

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Revenue:

  

 

 

  

 

  

Product revenue, net

$

77,588

$

66,640

$

208,491

$

192,117

Total revenue

 

77,588

 

66,640

 

208,491

 

192,117

Operating expenses:

 

  

 

  

 

  

 

  

Cost of sales

 

424

 

224

 

956

771

Selling, general and administrative

 

43,274

 

41,271

 

121,013

 

130,255

Research and development

 

44,034

 

44,712

 

136,753

 

132,991

Restructuring

(284)

Total operating expenses

 

87,732

 

86,207

 

258,722

 

263,733

Operating loss

 

(10,144)

 

(19,567)

 

(50,231)

 

(71,616)

Other (expense) income:

 

  

 

  

 

 

  

Interest expense

 

(5,237)

 

(14,095)

 

(18,579)

 

(39,103)

(Loss) gain on extinguishment of debt

(91,759)

16,511

(91,739)

16,511

Other income, net

 

3,053

 

210

 

2,691

 

2,389

Total other (expense) income, net

 

(93,943)

 

2,626

 

(107,627)

 

(20,203)

Loss from continuing operations

$

(104,087)

$

(16,941)

$

(157,858)

$

(91,819)

Income from discontinued operations, net of income taxes

$

371,540

$

13,309

$

400,499

$

36,673

Net income (loss)

$

267,453

$

(3,632)

$

242,641

$

(55,146)

Net income (loss) per common and potential common share (basic and diluted):

 

  

 

  

 

  

 

  

Net loss from continuing operations

$

(3.04)

$

(0.53)

$

(5.05)

$

(2.81)

Net income from discontinued operations

$

10.83

$

0.42

$

12.81

$

1.12

Net income (loss)

$

7.80

$

(0.11)

$

7.76

$

(1.69)

Weighted average common and potential common shares outstanding:

 

 

 

 

Basic and diluted

 

34,293

31,736

31,262

32,679

  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.

6

7

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Comprehensive LossIncome (Loss
)

(Unaudited)

(In thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Net income (loss)

$

267,453

$

(3,632)

$

242,641

$

(55,146)

Other comprehensive loss:

 

  

 

  

 

  

 

  

Net changes related to available-for-sale investment debt securities:

Unrealized losses on investment debt securities

 

(670)

 

(171)

 

(2,196)

 

(538)

Reclassification adjustment for realized gains on investment debt securities included in other income, net

 

 

 

 

2

Net unrealized losses on investment debt securities

$

(670)

$

(171)

$

(2,196)

$

(536)

Foreign currency translation and other

Release of currency translation adjustments associated with sale of business

(7,319)

(7,319)

Foreign currency translation gains

 

2,568

 

72

4,419

 

49

Other comprehensive loss

$

(5,421)

$

(99)

$

(5,096)

$

(487)

Comprehensive income (loss)

$

262,032

$

(3,731)

$

237,545

$

(55,633)

  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.

7

8

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows
Changes in Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss, Net

    

Deficit

    

(Deficit) Equity

Balance - June 30, 2022

29,798

$

30

$

2,016,201

$

(2,548)

$

(2,383,516)

$

(369,833)

Stock-based compensation

5,788

5,788

Issuance of common stock under equity plan

269

Employee withholding taxes related to stock-based awards

(9)

(135)

(135)

Net proceeds from exercise of stock options

29

433

433

Issuance of common stock for repurchase of convertible notes

 

11,330

 

11

 

209,380

 

 

 

209,391

Other comprehensive loss

(5,421)

(5,421)

Net income

267,453

267,453

Balance - September 30, 2022

 

41,417

$

41

$

2,231,667

$

(7,969)

$

(2,116,063)

$

107,676

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss, Net

    

Deficit

    

(Deficit) Equity

Balance - December 31, 2021

29,573

$

30

$

2,308,653

$

(2,873)

$

(2,489,772)

$

(183,962)

Stock-based compensation

21,052

21,052

Issuance of common stock under equity plan

520

Employee withholding taxes related to stock-based awards

(35)

(480)

(480)

Net proceeds from exercise of stock options

29

433

433

Issuance of common stock for repurchase of convertible notes

11,330

11

209,380

209,391

Reclassification of the equity components of the Convertible Notes to liability upon adoption of ASU 2020-06

 

 

 

(307,371)

 

 

131,068

 

(176,303)

Other comprehensive loss

(5,096)

(5,096)

Net income

242,641

242,641

Balance - September 30, 2022

 

41,417

$

41

$

2,231,667

$

(7,969)

$

(2,116,063)

$

107,676

9

  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 

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss, Net

    

Deficit

    

Deficit

Balance - June 30, 2021

33,201

$

33

$

2,249,497

$

(2,865)

$

(2,449,860)

$

(203,195)

Stock-based compensation

8,616

8,616

Repurchase of common stock

(4,522)

(4)

(75,821)

(75,825)

Extinguishment of allocated costs related to exchange of convertible notes

(37,213)

(37,213)

Extinguishment of allocated costs related to repurchase of convertible notes

(1,933)

(1,933)

Bifurcation of conversion option upon issuance of convertible notes, net of issuance costs

147,458

147,458

Issuance of common stock for services

770

1

9,999

10,000

Proceeds from capped call transactions

57

57

Issuance of common stock under equity plan

112

Employee withholding taxes related to stock-based awards

(14)

(264)

(264)

Other comprehensive loss

(99)

(99)

Net loss

(3,632)

(3,632)

Balance - September 30, 2021

29,547

$

30

$

2,300,396

$

(2,964)

$

(2,453,492)

$

(156,030)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss, Net

    

Deficit

    

Deficit

Balance - December 31, 2020

33,016

$

33

$

2,233,937

$

(2,477)

$

(2,398,346)

$

(166,853)

Stock-based compensation

25,483

25,483

Repurchase of common stock

(4,522)

(4)

(75,821)

(75,825)

Extinguishment of allocated costs related to exchange of convertible notes

(37,213)

(37,213)

Extinguishment of allocated costs related to repurchase of convertible notes

(1,933)

(1,933)

Bifurcation of conversion option upon issuance of convertible notes, net of issuance costs

147,458

147,458

Issuance of common stock for services

770

1

9,999

10,000

Proceeds from capped call transactions

57

57

Issuance of common stock under equity plan

353

18

18

Employee withholding taxes related to stock-based awards

 

(70)

(1,589)

(1,589)

Other comprehensive loss

 

 

 

 

(487)

 

 

(487)

Net loss

(55,146)

(55,146)

Balance - September 30, 2021

29,547

$

30

$

2,300,396

$

(2,964)

$

(2,453,492)

$

(156,030)

See accompanying notes to the condensed consolidated financial statements.

8

10

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine Months Ended September 30, 

    

2022

    

2021

Cash flows from operating activities:

 

  

 

  

Net income (loss)

$

242,641

$

(55,146)

Less: Income from operations of discontinued operations, net of tax

400,499

36,673

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

Stock-based compensation

 

16,658

 

20,881

Amortization of premium on investment debt securities

 

716

 

3,384

Amortization of deferred financing costs

 

2,242

 

1,990

Write-off of fixed assets

2,400

Depreciation

 

491

 

2,430

Non-cash operating lease cost

1,435

3,541

Accretion of debt discount

 

 

21,885

Loss (gain) on early extinguishment of debt

91,739

(16,511)

Gain on lease termination

(1,101)

Provision for allowance on credit losses

(8)

Changes in operating assets:

 

 

Accounts receivable

 

2,169

 

(518)

Prepaid expenses and other current assets

 

442

 

648

Inventory

 

232

 

190

Security deposits

3,157

345

Other assets

32

Changes in operating liabilities:

 

 

Accounts payable, accrued expenses and other current liabilities

 

13,791

 

(26,003)

Operating lease liabilities

(1,479)

(4,550)

Interest payable

(6,357)

(2,021)

Net cash used in operating activities - continuing operations

(31,291)

(86,136)

Net cash provided by operating activities - discontinued operations

9,317

39,895

Net cash used in operating activities

 

(21,974)

 

(46,241)

Cash flows from investing activities:

 

  

 

  

Purchases of investment debt securities

 

(401,069)

 

(278,438)

Sales and maturities of investment debt securities

 

355,485

 

334,233

Purchases of equipment, leasehold improvements, and furniture and fixtures

 

(865)

 

(397)

Net cash (used in) provided by investing activities - continuing operations

(46,449)

55,398

Net cash provided by investing activities - discontinued operations

363,233

Net cash provided by investing activities

 

316,784

 

55,398

Cash flows from financing activities:

 

  

 

  

Payments for repurchases of convertible senior notes

(261,562)

57

Proceeds from exercise of options, net

433

18

Payments of employee withholding taxes related to stock-based awards

(480)

(1,589)

Payments of debt issuance costs

(35)

Payments for repurchase of common stock

(75,825)

Proceeds from issuance of Notes

117,551

Proceeds from terminations of capped call options

(38,129)

Net cash (used in) provided by financing activities - continuing operations

 

(261,644)

 

2,083

Net cash (used in) provided by financing activities - discontinued operations

Net cash (used in) provided by financing activities

(261,644)

 

2,083

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(7,399)

 

71

Net increase in cash, cash equivalents and restricted cash

 

25,767

 

11,311

Cash, cash equivalents and restricted cash at beginning of period

 

94,409

 

65,654

Cash, cash equivalents and restricted cash at end of period

120,176

76,965

Less: Cash, cash equivalents and restricted cash of discontinued operations

1,622

Cash, cash equivalents and restricted cash of continuing operations

$

120,176

$

75,343

11

Supplemental disclosure of non-cash transactions:

Right-of-use asset obtained in exchange for new operating lease obligations

$

(5,654)

$

Non-cash investing and financing activities

Net increase in accrued fixed assets

$

21

$

Reconciliation of cash, cash equivalents and restricted cash included in the condensed consolidated balance sheets:

Cash and cash equivalents

$

113,195

$

68,329

Restricted cash

6,981

7,014

Total cash, cash equivalents and restricted cash

$

120,176

$

75,343

Supplemental non-cash disclosure:

Issuance of common stock to noteholders in connection with repurchase of convertible notes

$

209,391

$

Exchange for existing 2023 and 2026 convertible notes

$

$

(421,200)

Exchange for new 2026 secured convertible notes

$

$

382,400

Issuance of common stock to financial advisor in connection with convertible notes exchange

$

$

10,000

Recognition of conversion option upon issuance of 2026 secured convertible notes

$

$

150,704

Extinguishment of conversion options upon exchange and repurchase of 2023 convertible notes and exchange of 2026 convertible notes

$

$

(39,146)

Supplementary cash flow data:

Income taxes paid

$

455

$

See accompanying notes to the condensed consolidated financial statements.

12

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 founded in 2002 and 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”).

On May 5, 2022, the Company entered into a series of agreements to sell the Company’s ex-U.S. commercial operations and biliary atresia. Founded in 2002 in New York, Intercept now has operations insublicense the right to commercialize Ocaliva for PBC and, if approved, OCA for NASH outside of the United States Europeto Advanz Pharma and Canada.its affiliates (collectively, “Advanz”) (the “Disposition Transaction”). Consideration under the agreements totaled $405 million up front, subject to adjustments including for cash, working capital, and assumed liabilities. On July 1, 2022, the Company completed the Disposition Transaction.

2.

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

2.    Basis of Presentation

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).All intercompany accountsbalances 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 U.S. Securities and Exchange Commission (“SEC”). Operating results for the three and nine months ended September 30, 20172022 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2017.2022. In the opinion of management, these unaudited condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim unaudited condensed consolidated financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company'sCompany’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2016,2021, included in the Company’s 2016 Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.

Reclassifications

Certain reclassificationsamounts in prior periods have been madereclassified to prior period amountsreflect the impact of the discontinued operations treatment in the Company’s unaudited condensed consolidated statements of operationsorder 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 accordanceconformity with U.S. GAAP requires management to make estimates and assumptionsjudgments 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.Summary of Significant Accounting Policies

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, 2016.2021. With the exception of the accounting for

13

held for sale assets and liabilities and discontinued operations under ASC 205-20, Presentation of Financial Statements: Discontinued Operations (“ASC 205”), as discussed below, and the related impacts under ASC 260, Earnings per Share (“ASC 260)” as discussed in Note 15, there have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Annual Report, other than the adoption of the accounting pronouncements below.

Revenue RecognitionHeld for Sale and Discontinued Operations

Product Revenue, Net

Revenue is recognizedAssets and liabilities of a group of components of an entity are classified as held for sale when all of the four basicfollowing criteria for a plan of revenue recognition aresale have been met: (1) persuasive evidencemanagement, having the authority to approve the action, commits to a plan to sell the entities to be sold; (2) the entities to be sold are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such entities to be sold; (3) an arrangement exists; (2) delivery has occurred or servicesactive program to locate a buyer and other actions required to complete the plan to sell the entities have been rendered; (3)initiated; (4) the feesale of the entities is fixedprobable and is expected to be completed within one year; (5) the entities are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or determinable;the plan will be withdrawn.

Components of an entity that are classified as held for sale and (4) collectabilityhave operations and cash flows that can be clearly distinguished from the rest of the entity are required to be reported as assets and liabilities held for sale.  A disposal of a group of components that is reasonably assured. Whenclassified as held for sale is reported as discontinued operations if the revenue recognitiondisposal represents a strategic shift that has and will have a major effect on our operations and financial results.

In the period in which the components meet held-for-sale or discontinued operations criteria, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. Assets classified as held for sale are not met, we deferreported at the recognitionlower of revenue by recording deferred revenue ontheir carrying value or fair value less costs to sell. Depreciation and amortization of assets ceases upon designation as held for sale. For components that meet the balance sheet until such time thatdiscontinued operations criteria, the results of operations for the discontinued operation are reclassified into separate line items in the condensed consolidated statements of operations, net of income taxes for all criteria are met.

periods presented.

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

Additional details surrounding the Company's assets and liabilities classified as discontinued operations are included in Note 4.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

14

After adoption, the Company accounts for the treatment of PBC inConvertible Notes entirely as liabilities measured at amortized cost. The Company did not elect the United States in June 2016. In December 2016,fair value option. Additionally, the European Commission granted conditional approvalCompany will no longer incur non-cash interest expense for the treatmentamortization of PBCdebt discount related to the previously separated equity components. The Company will apply the if-converted methodology in computing diluted earnings per share if and when profitability is achieved.

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

    

As Reported

    

ASU 2020-06

As Adjusted

December 31, 2021

Adjustments

January 1, 2022

 

(in thousands)

Convertible Notes

$

539,782

$

176,303

$

716,085

Additional paid-in capital

$

2,308,653

$

(307,371)

$

2,001,282

Accumulated deficit

$

(2,489,772)

$

131,068

$

(2,358,704)

Under the modified retrospective method, comparative prior periods are not adjusted.

4. Discontinued Operations

On May 5, 2022, the Company commenced launch in January of 2017. In May 2017, Health Canada granted a conditional approvalentered into the Disposition Transaction. Consideration under the agreements totaled $405 million up front, subject to adjustments including for the treatment of PBCcash, working capital, and the Company commenced launch in July of 2017.assumed liabilities. The Company sells Ocalivais entitled to a limited numberreceive an additional cumulative $45 million from Advanz contingent upon receipt of specialty pharmacies which dispenseextensions of orphan drug exclusivity from the product directly to patients. The specialty pharmacies are referred to as the Company’s customers.

9

EMA and MHRA. The Company provides the right of return to its customers for unopened product for a limited time before 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 recognition at the time of shipment. Accordingly, the Company 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 inalso receive royalties on any future net sales of OCA in NASH outside of the U.S., should Advanz obtain marketing authorization for this indication in ex-U.S. regions. The Company continues to be responsible for the manufacturing and supply of OCA globally while Advanz is responsible for packaging, distribution and commercialization of the therapy in all markets outside of the U.S. In addition, the Company will be responsible for any difference between the cumulative rebate estimated for France for periods prior to July 1, 2022 and the amount agreed through final negotiations with the French government. Under the Sublicense Agreement, we agreed to continue to conduct certain post-marketing work and other activities with respect to Ocaliva for PBC, including continuing to conduct certain PBC studies (the “PBC Post-Marketing Work”). The Company will be reimbursed by Advanz for a portion of $4.1the total R&D costs related to the PBC Post-Marketing Work.

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

The Company recognized a gain of $372.4 million, net of taxes on the sale of the ex-U.S. commercial operations upon closing.

Income for performing services under the Transitional Services Agreement (the “TSA”), recorded within Other income, net was $1.9 million for the three and nine months ended September 30, 2017.2022. The Company also establishedtotal amount recognized as a new reservereduction to Research & development expenses for a portion of $0.7 million during the third quarter of 2017 relatedtotal R&D costs to future returns from its customers under its various contracts.

The Company recognized net sales of Ocaliva of $40.9 million and $4.7be reimbursed by Advanz in relation to the PBC Post-Marketing Work was $3.1 million for the three and nine months ended September 30, 20172022. Cash inflows were $1.4 million for the three and 2016, respectively,nine months ended September 30, 2022 under the TSA and $91.9 millionSublicense Agreement.

Amounts applicable to prior years have been recast to conform to the discontinued operations presentation. All amounts included in the notes to the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted.

15

The following table presents the carrying amounts of the classes of assets and $4.8 millionliabilities related to the discontinued operations as of September 30, 2022 and December 31, 2021:

September 30, 2022

December 31, 2021

Restricted cash

$

$

1,581

Accounts receivable, net of allowance for credit losses

 

 

19,280

Prepaid expenses and other current assets

3,551

Fixed assets, net

96

Inventory

736

Security deposits

2,332

Other assets

2,562

Total assets classified as discontinued operations in condensed consolidated balance sheets

$

$

30,138

Accounts payable, accrued expenses and other liabilities

$

$

54,436

Long-term other liabilities

1,344

Total liabilities classified as discontinued operations in condensed consolidated balance sheets

$

$

55,780

As of September 30, 2022, there were no assets or liabilities classified as discontinued operations.

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

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Product revenue, net

$

$

26,187

$

58,065

$

78,947

Cost of sales

 

169

 

434

 

1,194

 

1,315

Selling, general and administrative

 

636

 

12,068

 

28,083

 

40,011

Research and development

 

4

 

335

 

255

 

614

Restructuring

3

198

Other (expense) income, net

 

(7)

 

(38)

 

(390)

 

(136)

(Loss) income from discontinued operations

$

(816)

$

13,309

$

28,143

$

36,673

Gain on the sale of the ex-U.S. commercial operations and sublicense

380,356

380,356

Income from discontinued operations, pre-tax

$

379,540

$

13,309

$

408,499

$

36,673

Income tax expense

(8,000)

(8,000)

Income from discontinued operations, net of tax

$

371,540

$

13,309

$

400,499

$

36,673

16

The following table presents the calculation of the gain on sale related to the discontinued operations for the three and nine months ended September 30, 2022.

September 30, 2022

Proceeds from sale of business

$

366,500

Transaction costs

(9,901)

Carrying value of net liabilities sold

25,918

Working capital adjustments

(7,153)

Release of accumulated currency translation adjustments for disposed subsidiaries

7,319

Supply & manufacturing agreement liability

(2,327)

Gain on sale, pre-tax

380,356

Income tax expense

(8,000)

Gain on sale, net of tax

$

372,356

The following table presents the net cash provided by operating activities for the assets and liabilities classified as discontinued operations for the nine months ended September 30, 20172022 and 2016, respectively.2021 respectively:

Nine Months Ended September 30, 

    

2022

    

2021

Net income from discontinued operations

 

$

400,499

 

$

36,673

Adjustment of non-cash activities

4,937

5,562

Decrease (increase) in accounts receivable

18,235

(4,881)

Decrease in prepaid expenses and other current assets

3,746

2,003

Decrease (increase) in inventory

242

(23)

Decrease in security deposits

2,191

Decrease in operating lease liabilities

(386)

(802)

(Decrease) increase in accounts payable, accrued expenses and other current liabilities

(53,647)

1,363

Reclassification of cash proceeds from sale of business to investing activities

(366,500)

Net cash provided by operating activities

$

9,317

$

39,895

Proceeds from sale of business, net of cash

363,233

Net cash provided by investing activities

$

363,233

$

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 that the Company charges its customers for Ocaliva. The Company estimates its net product revenues by deducting from its 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.

Recent Accounting Pronouncements

In May 2014, theFinancial 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. 

10

17

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, 2017,5.    Cash, Cash Equivalents 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.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”) which supersedes Topic 840, Leases. ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability on their balance sheets for all the leases with terms greater than twelve months. Based on certain criteria, leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. For leases with a term of twelve months 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 the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced before the effective date of Topic 842, including continuing to account for leases that commence before the effective date in accordance with previous guidance, unless the lease is modified. The Company is evaluating the impact of the adoption 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 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.

11

In July 2017, the FASB issued ASU 2017-11, 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). 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 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 ASU 2017-11 on its financial statements and related disclosures, but does not expect it to have a significant impact.

4.Significant Agreements

Sumitomo Dainippon Pharma Co, Ltd. (Sumitomo Dainippon)

In March 2011, the Company entered into an exclusive license agreement with Sumitomo Dainippon to research, develop and commercialize OCA as a therapeutic for the treatment of PBC and NASH in Japan and China (excluding Taiwan). Under the terms of the license agreement, the Company received an up-front 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 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 million of the development milestones under its collaboration agreement with 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. In May 2014, Sumitomo Dainippon exercised its option under the license agreement to add Korea as part of its licensed territories and paid the Company a $1.0 million up-front fee. Sumitomo Dainippon has the option to add several other Asian countries to its territory to pursue OCA for additional indications. Sumitomo Dainippon will be 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 Sumitomo Dainippon and determined that it is a revenue arrangement with multiple deliverables, or performance obligations. The Company’s substantive performance obligations under this license 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 development period is currently estimated as continuing through June 2020 and, as such, the up-front payment and payments made in respect of the Korea option are being recognized ratably over this period.During the three months ended September 30, 2017 and 2016, the Company recorded licensing revenue of approximately $0.4 millionand $0.4 million, respectively. During the nine months ended September 30, 2017 and 2016, the Company recorded licensing revenue ofapproximately $1.3 millionand $6.3 million, respectively.

12

5.Cash, Cash Equivalents and Investments

Investment Debt Securities

The following table summarizes the Company’s cash, cash equivalents and investmentsinvestment debt securities as of September 30, 20172022 and December 31, 2016:2021:

As of September 30, 2022

Allowance

Gross

Gross

for Credit

Unrealized

Unrealized

    

Amortized Cost

Losses

    

Gains

    

Losses

    

Fair Value

(in thousands)

Cash and cash equivalents:

 

  

 

  

 

  

 

  

Cash and money market funds

$

95,225

$

$

$

$

95,225

Commercial paper

13,977

(4)

13,973

Corporate debt securities

3,997

3,997

Total cash and cash equivalents

113,199

(4)

113,195

Investment debt securities:

 

  

 

  

 

  

 

  

 

  

Commercial paper

 

108,091

 

 

(254)

 

107,837

Corporate debt securities

 

245,321

 

(2,018)

 

243,303

U.S. government agency bonds

11,751

1

(117)

11,635

U.S. Treasury securities

14,965

(84)

14,881

Total investment debt securities

 

380,128

 

 

1

 

(2,473)

 

377,656

Total cash, cash equivalents and investment debt securities

$

493,327

$

$

1

$

(2,477)

$

490,851

As of December 31, 2021

Allowance

Gross

Gross

for Credit

Unrealized

Unrealized

    

Amortized Cost

Losses

    

Gains

    

Losses

Fair Value

 As of September 30, 2017 
    Gross Gross    
    Unrealized Unrealized    
 Amortized Cost  Gains  Losses  Fair Value 
 (In thousands) 

(in thousands)

Cash and cash equivalents:                

 

  

 

  

 

  

 

  

Cash and money market funds $120,244  $-  $-  $120,244 

$

76,709

$

$

$

$

76,709

Investment securities:                

Commercial paper

8,000

8,000

Total cash and cash equivalents

84,709

84,709

Investment debt securities:

 

  

 

  

 

  

 

  

 

  

Commercial paper  11,468   -   (4)  11,464 

 

84,513

 

 

 

(49)

 

84,464

Corporate debt securities  342,252   1   (433)  341,820 

 

232,721

 

16

 

(245)

 

232,492

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 

Municipal bonds

5,028

(1)

5,027

U.S. Treasury securities

12,998

(1)

12,997

Total investment debt securities

 

335,260

 

 

16

 

(296)

 

334,980

Total cash, cash equivalents and investment debt securities

$

419,969

$

$

16

$

(296)

$

419,689

  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

18

The aggregate fair value of the Company held a total of forty eight positionsCompany’s available-for-sale investment debt securities that werehave been in a continuous unrealized loss position for moreless than twelve months. The Company has determined that the unrealized losses are deemed to be temporary impairmentsmonths or twelve months or longer is as offollows:

As of September 30, 2022

Less than 12 months

12 months or longer

Total

(in thousands)

Gross

Gross

Gross

Unrealized

Unrealized

Unrealized

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

Commercial paper

$

107,837

$

(254)

$

$

$

107,837

$

(254)

Corporate debt securities

224,195

(1,906)

19,110

(111)

243,305

(2,017)

U.S. government agency bonds

10,383

(118)

10,383

(118)

U.S. Treasury securities

14,881

(84)

14,881

(84)

Total

$

357,296

$

(2,362)

$

19,110

$

(111)

$

376,406

$

(2,473)

As of December 31, 2021

Less than 12 months

12 months or longer

Total

(in thousands)

    

Gross

    

    

Gross

    

    

Gross

Unrealized

Unrealized

Unrealized

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

Commercial paper

$

81,464

$

(49)

$

$

$

81,464

$

(49)

Corporate debt securities

196,120

(245)

 

196,120

 

(245)

Municipal bonds

5,027

(1)

5,027

(1)

U.S. Treasury securities

12,997

(1)

12,997

(1)

Total

$

295,608

$

(296)

$

$

$

295,608

$

(296)

At September 30, 2017. The2022 and December 31, 2021, respectively the Company believes thathad 117 and 97 available-for-sale investment debt securities in an unrealized loss position without an allowance for credit losses. Unrealized losses on corporate debt securities have not been recognized into income because the unrealized losses generallyissuers’ bonds 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 theof high credit quality of(rated A3/A- or higher) and the issuer decline in fair value is largely due to market conditions and/or underlying assets. Becausechanges in interest rates. Management does not intend to sell and it is likely that management will not be required to sell the Company hassecurities prior to the ability and intent to hold these investments until aanticipated recovery of their amortized cost basis. The issuers continue to make timely interest payments on the bonds. The fair value which may be maturity, it does not consideris expected to recover as the investments to be other-than-temporarily impairedbonds approach maturity.

Accrued interest receivable on available-for-sale investment debt securities totaled $1.4 million and $1.3 million at September 30, 2017.

6.Fixed Assets, Net

Fixed assets are stated at cost2022 and depreciated or amortized usingDecember 31, 2021, respectively, is excluded from the straight-line method based on useful lives as follows:

  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.Inventory, Net

Inventories are stated at the lowerestimate of cost or market. Inventories consist of the following:

  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.Accounts Payable, Accrued Expenses and Other Liabilities

Accounts payable, accruedcredit losses and is included in Prepaid expenses and other liabilities consisted of the following:current assets.

  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 

9.6.    Fair Value Measurements

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

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

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

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

19

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

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, 2022

 

  

 

  

 

  

 

  

Assets

 

  

 

  

 

  

 

  

Cash and cash equivalents:

Money market funds

$

80,977

$

80,977

$

$

Commercial paper

13,973

13,973

Corporate debt securities

3,997

3,997

Available-for-sale investment debt securities:

 

 

 

 

  

Commercial paper

 

107,837

 

��

 

107,837

 

Corporate debt securities

 

243,303

 

 

243,303

 

U.S. government agency bonds

11,635

11,635

U.S. Treasury securities

14,881

14,881

Total financial assets

$

476,603

$

95,858

$

380,745

$

December 31, 2021

 

  

 

  

 

  

 

  

Assets

 

  

 

  

 

  

 

  

Cash and cash equivalents:

Money market funds

$

39,287

$

39,287

$

$

Commercial paper

8,000

8,000

Available-for-sale investment debt securities:

 

 

 

 

  

Commercial paper

 

84,464

 

 

84,464

 

Corporate debt securities

 

232,492

 

 

232,492

 

Municipal bonds

5,027

5,027

U.S. Treasury securities

12,997

12,997

Total financial assets

$

382,267

$

52,284

$

329,983

$

     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  $- 

20

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

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

Fair Value as of

    

September 30, 2022

    

December 31, 2021

(in thousands)

Due in one year or less

$

336,422

$

305,914

Due after one year through two years

 

41,234

 

29,066

Total investment debt securities

$

377,656

$

334,980

  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.

7.    Fixed Assets, Net

10.Long-Term Debt

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, 2022

    

December 31, 2021

(in thousands)

Office equipment and software

 

3

$

3,036

$

4,751

Leasehold improvements

 

Shorter of remaining lease term or useful life

 

669

 

12,884

Furniture and fixtures

 

7

 

1,280

 

3,772

Subtotal

 

4,985

 

21,407

Less: accumulated depreciation

 

(3,709)

 

(18,126)

Fixed assets, net

$

1,276

$

3,281

8.    Inventory

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

    

September 30, 2022

    

December 31, 2021

(in thousands)

Work-in-process

$

6,113

$

7,801

Finished goods

 

161

 

82

Inventory

$

6,274

$

7,883

21

9.    Accounts Payable, Accrued Expenses and Other Liabilities

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

    

September 30, 2022

    

December 31, 2021

(in thousands)

Accounts payable

$

21,303

$

17,598

Accrued employee compensation

 

19,533

 

20,845

Accrued contracted services

 

45,745

 

51,136

Accrued rebates, returns, discounts and other incentives

14,491

11,626

Accrued income taxes payable (see Note 14)

7,380

Other liabilities

1,436

2,575

Accounts payable, accrued expenses and other liabilities

$

109,888

$

103,780

Research & Development Tax Credit

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

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

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

With respect to the 2019 RDEC claim, in February 2022, the Company received a payment of $3.8 million from HMRC. Given the claim review has not been finalized for the 2019 year, the $3.8 million credit received along with an additional $0.6 million due to foreign currency translation are recorded as a deferred liability within Accounts payable, accrued expenses, and other liabilities. The Company will be entitled to this benefit based on the terms of the Disposition Transaction.

22

10.  Current and Long-Term Debt

Debt, net of debt issuance costs and discounts, and deferred financing costs, consistsconsisted of the following:

  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 

    

September 30, 2022

December 31, 2021

2026 Convertible Secured Notes

2026 Convertible Notes

2023 Convertible Notes

2026 Convertible Secured Notes

2026 Convertible Notes

2023 Convertible Notes

(in thousands)

Liability component

Principal

$

111,143

$

115,349

$

109,808

$

500,000

$

115,349

$

113,655

Unamortized debt issuance costs

(1,857)

(1,778)

(356)

(7,132)

(2,313)

(816)

Unamortized debt discount

(141,303)

(30,228)

(7,430)

Net carrying amount

$

109,286

$

113,571

$

109,452

$

351,565

$

82,808

105,409

Equity component, net of issuance costs*

$

147,458

$

62,841

$

97,072

On July 6, 2016,*Recorded as a reduction of Additional paid-in capital upon the Company issued $460.0 million aggregate principaladoption of ASU 2020-06.

As of September 30, 2022, the net carrying amount of the 3.25%2023 Convertible Notes is recorded in Current portion of long-term debt.

The Company has three series of convertible senior notes due 2023 (“Convertibleoutstanding (together, the “Convertible Notes”). The Company received net proceeds of $447.6 million after deducting underwriting discounts and estimated offering expenses of approximately $12.4 million. The Company used approximately $38.4 million of the net proceeds from the offering to fund the payment of the cost of the capped call transactions that were entered into in connection with the issuance of the Convertible Notes.

The Convertible Notes are senior unsecured obligations of the Company. Interest is payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2017. The Convertible Notes mature on July 1, 2023, unless earlier repurchased, redeemed or converted. The Convertible NotesAll three series are convertible at the option of holders, under certain circumstances and during certain periods, into cash, shares of the Company’s common stock, or a combination thereof, at the Company’s election.

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

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

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

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

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

23

On August 18, September 1, and September 6, 2022, the Company entered into privately negotiated agreements to repurchase $327.9 million, $44.5 million, and $9.3 million of 2026 Convertible Secured Notes, using a combination of cash and equity, which purchases closed on August 25, September 6, and September 8, 2022, respectively.

The Company exchanged the existing 2026 Convertible Secured Notes for $222.0 million, $22.7 million, and $5.2 million in cash, respectively, and 9,358,269, 1,653,130, and 318,000 shares, respectively, of newly issued common stock, par value $0.001 per share.

Based on the Company’s closing stock price on the dates of the agreements of $19.70, $18.06, and $16.32, respectively, the shares were worth $184.4 million, $29.9 million, and $5.2 million, respectively.

On September 9, 2022, the Company entered into a privately negotiated agreement to repurchase $7.1 million of 2026 Convertible Secured Notes using cash, which purchase closed on September 19, 2022. The Company exchanged the existing 2026 Convertible Secured Notes for $8.2 million in cash.

In accordance with Accounting Standards Codification (“ASC”) Subtopic 470-20, “Debt with Conversion and Other Options” (“ASC 470-20”) the repurchases of the 2026 Convertible Secured Notes were all treated as extinguishments of debt. The differences between the reacquisition prices of the debt and the net carrying amounts, resulted in losses on extinguishment of $91.8 million.

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

September 30, 2022

    

December 31, 2021

(in thousands)

2026 Convertible Secured Notes

$

116,112

$

543,370

2026 Convertible Notes

$

87,125

$

69,492

2023 Convertible Notes

$

106,963

$

107,727

The Note Indentures

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

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

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

Semi-annual payment dates

First payment date

First

Second

Maturity date*

2026 Convertible Secured Notes

February 15, 2022

February 15

August 15

February 15, 2026

2026 Convertible Notes

November 15, 2019

May 15

November 15

May 15, 2026

2023 Convertible Notes

January 1, 2017

January 1

July 1

July 1, 2023

* Unless earlier repurchased, redeemed, or converted.

24

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

(i)

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

(ii)

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

(iii)

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

(iv)

Upon the occurrence of specified corporate events.

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

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

The initial conversion raterates of the Convertible Notes is 5.0358 shares of the Company’s common stock per $1,000 principal amount, of Convertible Notes, which is equivalent to an initialand the approximate conversion price, of approximately $198.58 per share of the Company’s common stock. Theare as follows:

Initial conversion rate

    

Approximate conversion price

2026 Convertible Secured Notes

47.7612

$20.94

2026 Convertible Notes

9.2123

$108.55

2023 Convertible Notes

5.0358

$198.58

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

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

15

The capped call transactions are expected generally to reduce the potential dilution upon conversion of the 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,No sinking fund is greater than the strike price of the capped call transactions, which initially corresponds to the conversion price of the Convertible Notes, and is subject to anti-dilution adjustments generally similar to those applicable to the conversion rate of the Convertible Notes. The cap price of the capped call transactions is initially $262.2725 per share, and is subject to certain adjustments under the terms of the 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, exceeds the cap price of the capped call transactions, there would nevertheless be dilution upon conversion of the Convertible Notes to the extent that such market price exceeds the cap price of the 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 Convertible Notes. This resulted in the recognition of $334.4 million as the liability component of the Convertible Notes and the recognition of the residual $113.2 million as the debt discount with a corresponding increase to additional paid-in capitalprovided for the equity componentany of the Convertible Notes.

If the Company undergoes a fundamental change (as defined in the applicable indenture), noteholders may require the Company to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100%

25

of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to (but excluding) the fundamental change repurchase date.

Interest expense was $7.4 millionUpon the occurrence of certain corporate events (i.e., a “make-whole fundamental change”, as defined in the applicable indenture), the Company will, under certain circumstances, increase the conversion rate for holders of the Convertible Notes who elect to convert in connection with such corporate events. In addition, with respect to the 2026 Convertible Secured Notes, (1) if the Company elects to redeem all or part of such notes and $7.1 million forprovides notice of redemption to the three monthsholders or (2) if the Stock Price Conversion Condition is satisfied with respect to any calendar quarter commencing after the quarter ended September 30, 20172022, the Company will, under certain circumstances, increase the conversion rate for holders who elect to convert (1) during the related redemption period, or (2) in connection with such Stock Price Conversion Condition. Upon a Company redemption of the 2026 Convertible Secured Notes, holders of notes called for redemption may be eligible to receive a make-whole premium. The Company, at its option, will satisfy the conversion obligation through cash, shares of common stock, or a combination of cash and common stock. The right to redeem the 2026 Convertible Secured Notes requires the Company to specify a date of redemption no earlier than 60 days and no later than 90 days after the notice of redemption is sent. If a holder elects to convert its 2026 Convertible Secured Notes prior to the effective date of a make-whole fundamental change or the date of the redemption notice, then it is not entitled to the increased conversion rate in connection with such make-whole fundamental change or redemption.

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

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

The Capped Call Transactions

On June 30, 2016, respectively,in connection with the pricing of the 2023 Convertible Notes, the Company entered into privately-negotiated capped call agreements (the “Base Capped Calls”) with each of Royal Bank of Canada, UBS AG, London Branch, and $21.8Credit Suisse Capital LLC. On July 1, 2016, in connection with the underwriters’ exercise of their over-allotment option in full, the Company entered into additional capped call agreements (the “Additional Capped Calls” and, together with the Base Capped Calls, the “Capped Calls”) with same counterparties.

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

In August 2021, in connection with the exchange of 2023 Convertible Notes, of the 460,000 Capped Call options outstanding (400,000 Base Capped Call options and 60,000 Additional Capped Call Options), 306,486 options were terminated (246,486 Base Capped Call options and 60,000 Additional Capped Call options), equivalent to approximately 1.5 million and $7.1shares.

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

26

Interest Expense on Convertible Notes

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

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

    

2026 Convertible Secured Notes

2026 Convertible Notes

2023 Convertible Notes

Total

2026 Convertible Secured Notes

2026 Convertible Notes

2023 Convertible Notes

Total

(in thousands)

Contractual interest expense

$

3,127

$

577

$

892

$

4,596

$

11,877

$

1,731

$

2,729

$

16,337

Amortization of debt issuance costs

407

117

117

641

1,540

349

353

2,242

Accretion of debt discount

 

 

 

 

 

 

 

 

Total interest expense

$

3,534

$

694

$

1,009

$

5,237

$

13,417

$

2,080

$

3,082

$

18,579

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

    

2026 Convertible Secured Notes

2026 Convertible Notes

2023 Convertible Notes

Total

2026 Convertible Secured Notes

2026 Convertible Notes

2023 Convertible Notes

Total

(in thousands)

Contractual interest expense

$

2,090

$

876

$

2,487

$

5,453

$

2,090

$

3,176

$

9,962

$

15,228

Amortization of debt issuance costs

149

152

333

634

149

538

1,303

1,990

Accretion of debt discount

 

2,993

 

1,990

 

3,025

 

8,008

 

2,993

 

7,033

 

11,859

 

21,885

Total interest expense

$

5,232

$

3,018

$

5,845

$

14,095

$

5,232

$

10,747

$

23,124

$

39,103

The effective interest rates during the three and nine months ended September 30, 20172022 for the 2026 Convertible Secured Notes, 2026 Convertible Notes and 2016, respectively, related to2023 Convertible Notes are 4.03%, 2.44% and 3.69%, respectively. The effective interest rates during the three and nine months ended September 30, 2021 for the 2026 Convertible Notes.Secured Notes, 2026 Convertible Notes and 2023 Convertible Notes were 12.80%, 9.90% and 8.42%, respectively. Accrued interest on the Convertible Notes was approximately $3.7$2.2 million and $7.3$8.6 million as of September 30, 20172022 and December 31, 2016,2021, respectively.

The CompanyCompany’s total recorded debt issuance costs of $12.4are $8.7 million, which are being amortized using the effective interest method.method through the date of maturity. As of September 30, 2017, $10.72022, $0.4 million of debt issuance costs for the 2023 Convertible Notes are recordedunamortized on the unaudited condensed consolidated balance sheetsheets in Long-Term Debt, in accordance with ASU 2015-03.Current portion of long-term debt. As of September 30, 2017,2022 and December 31, 2021, $3.6 million of debt issuance costs for the Company had outstanding borrowings2026 Convertible Secured Notes and 2026 Convertible Notes and $10.3 million of $460.0debt issuance costs for the 2026 Convertible Secured Notes, 2026 Convertible Notes and 2023 Convertible Notes, respectively, are unamortized on the condensed consolidated balance sheets in Long-term debt. Cash payments for interest were $22.7 million related toand $17.3 million for the Convertible Notes.nine months ended September 30, 2022 and 2021, respectively.

11.Product Revenue, Net

11.  Product Revenue, Net

The Company recognized U.S. Ocaliva net sales of Ocaliva of $40.9$77.6 million and $4.7$66.6 million for the three months ended September 30, 20172022 and 2016,2021, respectively and $91.9$208.5 million and $4.8$192.1 millionfor the nine months ended September 30, 20172022 and 2016,2021, respectively.

27

Credit Losses

The following table below summarizes consolidated product revenue, net by region:the allowance for credit losses activity on the Company’s trade receivables for the nine-month period ended September 30, 2022 (in thousands):

Balance at December 31, 2021

$

58

Provision for credit losses

Write-offs

Balance at September 30, 2022

$

58

  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. Research and Development Tax Credit

12.Stock Compensation

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

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

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

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

13.   Stock Compensation

In April 2022, the Company’s Compensation Committee and Board of Directors approved the Amended and Restated Equity Incentive Plan (“2022 Plan”), which became effective upon stockholder approval at the annual meeting of stockholders on May 25, 2022, and which replaced the Company’s 2012 EquityStock Incentive Plan (“2012 Plan”) became effective upon. Under the pricing2022 Plan, the Company may grant stock options, which include incentive stock options (“ISOs”) and non-qualified stock options (“NSOs”), stock grants, which include unrestricted shares, restricted shares (“RSAs”) and performance restricted shares (“PSAs”) along with stock-based awards, which include restricted stock unit awards (“RSUs”) and performance restricted stock unit awards (“PRSUs”). The pool of the initial public offering in October 2012. At the same time, the 2003 Stock Incentive Plan (“2003 Plan”) was terminated and 555,843available shares available under the 20032022 Plan were added to the 2012 Plan.

On January 1, 2017, the numberconsists of those shares reserved for issuancewhich remained unallocated under the 2012 Plan, was increased by 993,558plus any shares assubject to previously issued awards which are forfeited. The 2022 Plan does not contain an evergreen share replenishment clause and prohibits the repricing of stock options. The 2022 Plan will remain effective for a result of the automatic increaseten-year term, expiring in shares reserved pursuant to the terms thereof.2032.

The estimated fair value of the stock options that have been granted underin the 2003 and 2012 Plans isnine months ended September 30, 2022 was determined utilizing thea Black-Scholes option-pricing model at the date of grant. The fair value of restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) that have beenthe RSUs granted under the 2012 Plan is determined utilizing the closing stock price on the date of grant.

16

The following table summarizes stock option activity duringin the nine months ended September 30, 2017:

        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 

As2022 was determined utilizing the closing price of September 30, 2017, there was approximately $54.2 millionthe Company’s common stock on the date of total unrecognized compensation expense related to the unvested stock options shown in the table above, which is expected to be recognized over a weighted average period of 2.5 years.

grant. The 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 —% —%

The following table summarizes the aggregate RSU and RSA activity duringPRSUs granted in 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, there2022 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.

determined utilizing the Monte Carlo simulation method. The Company accounts for all forfeitures when they occur. Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest. When performance based grantsvest and are issued,not forfeited.

28

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

Weighted

Average

Number

Weighted

Remaining

Aggregate

of Options

Average

Contractual

Intrinsic Value

    

(in thousands)

    

Exercise Price

    

Term (years)

    

(in thousands)

Outstanding at December 31, 2021

 

2,252

$

50.28

 

7.2

$

408

Granted

 

493

$

15.04

 

$

Exercised

 

(29)

$

15.01

 

$

93

Cancelled/forfeited

 

(164)

$

27.60

 

$

Expired

 

(105)

$

99.54

 

$

Outstanding at September 30, 2022

 

2,447

$

43.00

 

7.0

$

45

Expected to vest

 

954

$

21.97

 

8.7

$

45

Exercisable

 

1,493

$

56.45

 

5.9

$

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. As of September 30, 2022, the total compensation cost related to non-vested option awards not yet recognized is approximately $13.2 million with a weighted average remaining vesting period of 1.23 years.

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

Nine Months Ended September 30, 

    

2022

    

2021

Volatility

 

66.4 - 67.7

%

65.2 - 69.3

%

Expected term (in years)

 

5.5 - 6.0

 

3.75 - 6.0

 

Risk-free rate

 

1.3 - 2.8

%  

0.4 - 0.9

%

Expected dividend yield

 

%  

%

The following table summarizes the aggregate RSU, RSA and PRSU activity during the nine months ended September 30, 2022 (under both the 2012 Plan and the 2022 Plan):

Weighted

Number of

Average Grant Date

    

Awards

    

Fair Value

(in thousands)

Non-vested awards at December 31, 2021

 

968

$

39.58

Granted

 

819

$

15.69

Vested

(411)

$

30.74

Forfeited

 

(193)

$

38.72

Non-vested awards at September 30, 2022

 

1,183

$

26.23

As of September 30, 2022, there is approximately $20.8 million of total unrecognized compensation expense related to unvested RSUs, RSAs and PRSUs, which is expected to be recognized over a weighted average vesting period of 1.54 years.

During the nine months ended September 30, 2022, the Company recognizes no expense until achievementgranted a total of 168,600 PRSUs to certain of the Company’s executive officers. The performance criterion for such PRSUs is based on the Total Shareholder Return (“TSR”) of the Company’s common stock relative to the TSR of the companies comprising the S&P Biotechnology Select Industry Index (the “TSR Peer Group”) over a 3-year performance period and is accounted for as a market condition under ASC Topic 718, Compensation – Stock Compensation. The TSR for the Company or a member of the TSR Peer Group is

29

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 requirementperiod, 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 deemed probable.then used to calculate the payout percentage, which may range from zero percent (0%) to one hundred and fifty percent (150%) of the target award. The Company utilized a Monte Carlo simulation to determine the grant date fair value of such PRSUs.

The Company recorded approximately $0.2 million and $0.7 million of stock-based compensation related to such PRSUs granted during the three and nine months ended September 30, 2022.

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

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

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

(in thousands)

Selling, general and administrative

$

4,411

$

5,737

$

12,485

$

16,255

Research and development

 

1,377

 

1,451

 

4,173

 

4,626

Restructuring

Total stock-based compensation

$

5,788

$

7,188

$

16,658

$

20,881

  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

13.Net Loss Per Share

Stock-based compensation expense recognized under discontinued operations, included in net income from discontinued operations, was $0 and $1.4 million for the three months ended September 30, 2022 and 2021, respectively and $4.4 million and $4.6 million for the nine months ended September 30, 2022 and 2021, respectively.

14. Income Taxes

The following table presentsCompany recorded a provision for income taxes of $8.0 million for the historicalthree and nine months ended September 30, 2022, respectively. No income tax provision was recorded for the three and nine months ended September 30, 2021. The taxprovision has been recorded within discontinued operations as it relates to the income tax impact on the sale of the international business to Advanz. The Company expects to utilize net operating loss carryforwards (“NOLs”) to offset the income tax impact on the sale, however, primarily due to limitations on the amount of NOLs which can be used, the Company recorded an income tax provision in the United Kingdom and certain U.S. state jurisdictions of $6.5 million and $1.5 million, respectively. There is no income tax expense recorded in continuing operations for the three and nine months ended September 30, 2022 and 2021, respectively.

15.   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, 2022 and 2021, the diluted loss per share computations for such periods did not assume the conversion of the Convertible Notes, exercise of stock options or vesting of RSUs or PRSUs as they would have had an anti-dilutive effect on loss per share. The Company utilized the control number concept in the computation of basic and diluted earnings per share. The control number used is net loss from continuing operations. The control number requires that the

30

same number of potentially dilutive securities applied in computing diluted earnings 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 from continuing operations be applied to all other categories of income or loss. Since the Company had a net loss from continuing operations for all periods presented, no dilutive effect has been recognized in the calculation of income from discontinued operations per 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 September 30, 2022 and 2021, as the inclusion thereof would have been anti-dilutive:

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

2022

    

2021

(in thousands)

(in thousands)

Shares issuable upon conversion of Convertible Notes

18,462

14,806

23,169

7,930

Options

 

2,483

 

2,692

2,474

 

2,722

Unvested restricted stock units

 

1,233

 

1,244

1,351

 

1,221

Total

 

22,178

 

18,742

26,994

 

11,873

  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

16. Commitments and Contingencies

Legal Proceedings

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

Shareholder Litigation

The Company currently is involved in a derivative suit related to a purported shareholder class action lawsuit. The Company believes that it has a number of valid defenses to the claims of the litigant, and intends to vigorously defend itself. At this time, a discontinuance of the derivative suit has been agreed to by the parties, and is pending approval by the New York state court. Accordingly, the Company does not expect a material loss from this matter.

The 2017 Litigation

On September 27, 2017, a purported shareholder class action, initially styled DeSmet v. Intercept Pharmaceuticals, Inc., et al., was filed in the United States District Court for the Southern District of New York, naming the Company and certain of its officers as defendants. On June 1, 2018, the Court appointed lead plaintiffs in the lawsuit, and on July 31, 2018, the lead plaintiffs filed an amended complaint, captioned Hou Liu and Amy Fu v. Intercept Pharmaceuticals, Inc., et al., naming the Company and certain of its current and former officers as defendants. The lead plaintiffs claimed 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 alleged that material misrepresentations and/or omissions of material fact were made in the Company’s public disclosures during that period, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. The alleged improper disclosures relate to statements regarding Ocaliva dosing and use, and pharmacovigilance-related matters, as well as the Company’s operations, financial performance, and prospects. The plaintiffs sought unspecified monetary damages on behalf of the putative class, an award of costs and expenses, including attorney’s fees, and rescissory damages. On September 14, 2018, the Company filed a motion to dismiss the amended complaint. On March 26, 2020, the Court granted the Company’s motion to dismiss the amended complaint in its entirety, and on March 27, 2020 the Court entered judgment in favor of the Company. On May 8, 2020, the plaintiffs filed a motion to set aside the judgment and grant leave to file a second amended complaint. On September 9, 2020, the Court denied the plaintiffs’ motion, finding that the proposed second amended complaint did not cure the deficiencies identified in the amended complaint. On October 9, 2020, the plaintiffs

31

filed a notice of appeal to the United States Court of Appeals for the Second Circuit and on January 25, 2021, the plaintiffs filed an appellate brief challenging the March 27, 2020 judgment, the September 9, 2020 judgment, and other court orders. On April 23, 2021, the Company filed a response brief in the Second Circuit appellate proceeding. On May 14, 2021, the plaintiffs filed a reply brief. On December 9, 2021, oral argument was held in the Second Circuit. On June 16, 2022, the Second Circuit entered a summary order affirming the order of the District Court dated September 9, 2020.

Separately, on December 1, 2017, a purported shareholder demand was made on the Company based on substantially the same allegations as those set forth in the securities case above. Also, on January 5, 2018, a follow-on derivative suit, styled Davis v. Pruzanski, et al., was filed in New York state court by shareholder Gregg Davis based on substantially the same allegations as those set forth in the securities case above. The derivative litigation was stayed pending the exhaustion of all appeals relating to the dismissal of the securities case. Following exhaustion of such appeals, on October 7, 2022, the parties stipulated to and agreed to a discontinuance of the derivative suit. The stipulation is currently pending approval by the New York state court.

Patent Litigation

The Company has received paragraph IV certification notice letters from seven generic drug manufacturers indicating that each such manufacturer submitted to the FDA an Abbreviated New Drug Application (“ANDA”) seeking approval to manufacture and sell a generic version of the Company’s 5 mg and 10 mg dosage strengths of Ocaliva® (obeticholic acid) for PBC prior to the expiration of certain patents listed for Ocaliva in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”).

The seven generic drug manufacturers and when we received their initial paragraph IV certification notices are as follows: (1) Apotex Inc. (“Apotex”) (July 2020), (2) Lupin Limited (“Lupin”) (July 2020), (3) Amneal Pharmaceuticals of New York, LLC, as U.S. agent for Amneal EU Limited (collectively, “Amneal”) (July 2020), (4) Optimus Pharma Pvt Ltd (“Optimus”) (July 2020), (5) MSN Pharmaceuticals Inc. and MSN Laboratories Private Limited (collectively, “MSN”) (July 2020), (6) Dr. Reddy’s Laboratories, Inc., and Dr. Reddy’s Laboratories, Ltd. (collectively, “Dr. Reddy’s”) (December 2020), and (7) Zenara Pharma Private Limited (“Zenara”) (August 2022).

Each paragraph IV certification notice alleged that the challenged Orange Book patents were invalid, unenforceable, and/or would not be infringed by the commercial manufacture, use, or sale of the generic products described in the generic manufacturer’s respective ANDA. In each case, within 45 days of receipt of the paragraph IV certification notice, the Company initiated a patent infringement suit against the generic manufacturer in the United States District Court for the District of Delaware. As a result, under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), the FDA cannot grant final approval of each generic manufacturer’s ANDA before the earlier of November 27, 2023 (or, for Zenara, February 8, 2025), or a court decision in their favor. The Company has since received additional paragraph IV certification notices from certain of the generic manufacturers challenging additional Ocaliva Orange Book patents, and the Company amended its complaints against the generic challengers accordingly to add infringement allegations in relation thereto.

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

On August 16, 2022, the Company entered into a settlement agreement with Dr. Reddy’s resolving the patent litigation over Dr. Reddy’s ANDA.

Under the terms of the agreement, the Company granted Dr. Reddy’s a non-exclusive, non-sublicensable, non-transferable, royalty-free license to commercialize its generic version of Ocaliva in the United States commencing on October 26, 2035, or earlier under certain circumstances. The parties filed the settlement agreement with the Federal Trade Commission and the Department of Justice pursuant to applicable law and terminated their litigation pursuant to a consent judgment that was approved by the court. Similar patent litigation by the Company against the other ANDA filers remains pending.

32

Trial against Amneal, Apotex, Lupin, MSN, and Optimus is scheduled for February 27, 2023. A trial date for the Zenara case, which was filed on September 16, 2022, has not been set.

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

33

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

Operations.

TheYou should read the following discussion and analysis of our financial condition and results of operations should be read together with our unauditedcondensed consolidated financial statements and theaccompanying notes to those financial statements appearingincluded elsewhere in this Quarterly Report on Form 10-Q and theour 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 withfor the Securitiesyear ended December 31, 2021 (the “Annual Report”). This discussion and Exchange Commission on March 1, 2017. This discussionanalysis contains forward-looking statements, thatwhich 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 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 for the treatment of primary biliary cholangitis (“PBC”) in combination with ursodeoxycholic acid (“UDCA”) in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA.

In addition to commercializing OCA for PBC under the Ocaliva brand name, we are also currently developing OCA for additional indications, including nonalcoholic steatohepatitis (“NASH”). We are also developing product candidates in various stages of clinical and clinicalpreclinical 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.

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

In September 2022, we had a supplemental NDA (“sNDA”) pre-submission meeting with the FDA in which we reviewed our post-marketing requirements with respect to Ocaliva. We intend to submit the data from the COBALT and HEROES-US studies as well additional data, including data from other real world evidence studies, as part of a broader evidence package in the sNDA in support of full approval forof Ocaliva for the treatment of PBC, which we anticipate submitting to the FDA in 2023. If this data package does not support fulfillment of our post-marketing obligations, we may not be able to maintain our previously granted marketing approval of Ocaliva for PBC.

Our lead development product candidate is OCA for the potential treatment of NASH. In February 2019, we announced topline results from the planned 18-month interim analysis of our pivotal Phase 3 clinical trial of OCA in

34

patients with liver fibrosis due to NASH, known as the REGENERATE trial (the “Original Analysis”). The REGENERATE trial is ongoing and is expected to continue through clinical outcomes for verification and description of the clinical benefit of OCA. In June 2020, we commencedreceived a complete response letter (“CRL”) from the FDA stating that our European commercial launchNDA for OCA for the treatment of liver fibrosis due to NASH could not be approved in January 2017.its present form. We had our end of review meeting with the FDA in October 2020 to discuss the FDA’s risk-benefit assessment in the CRL based on its review of the available data, as well as our proposed resubmission of our NDA for the treatment of liver fibrosis due to NASH. The meeting was constructive and the FDA provided us with helpful guidance regarding supplemental data we can provide to further characterize OCA’s efficacy and safety profile that could support resubmission based on our Phase 3 REGENERATE 18-month biopsy data, together with a safety assessment from our ongoing studies.

Following our end of review meeting, we had a dialogue with FDA regarding the REGENERATE study to clarify data, a new consensus read methodology for liver biopsies, and analyses required to resubmit our NDA. In May 2017, Health Canada grantedconnection with the potential resubmission of our NDA, we conducted a conditional approvalnew interim analysis of our ongoing pivotal Phase 3 REGENERATE trial of OCA using a biopsy consensus read methodology in the same intent-to-treat (“ITT”) population as the Original Analysis (the “New Interim Analysis”).

In July 2022, we announced topline results from the New Interim Analysis. In this new interim analysis of the ITT population from REGENERATE, 22.4% of subjects randomized to once-daily oral OCA 25 mg met the primary endpoint of achieving at least one stage of fibrosis improvement with no worsening of NASH at month 18 on liver biopsy compared with 9.6% of subjects on placebo (p<0.0001). The results were consistent with the Original Analysis, which also showed that OCA 25 mg had a statistically significant effect on fibrosis improvement (p=0.0002). The New Interim Analysis used a consensus panel approach to histology reads, in line with recent FDA guidance, while the Original Analysis used individual central readers. A numerically greater proportion of individuals in the OCA 25 mg treatment group compared to placebo achieved the endpoint of resolution of NASH with no worsening of liver fibrosis but, consistent with the Original Analysis, the results for Ocalivathe endpoint of resolution of NASH were not statistically significant. As part of the New Interim Analysis, a safety evaluation was conducted in PBC2477 subjects from the REGENERATE trial who took at least one dose of study drug (placebo, OCA 10 mg, or OCA 25 mg). Topline results from this ongoing safety evaluation showed that treatment-emergent adverse events (TEAEs), treatment-emergent serious adverse events (TESAEs), and deaths were generally balanced across the OCA and placebo treatment groups in this new safety population. The most common TEAE was pruritus (24% in placebo, 33% in OCA 10 mg and 55% in OCA 25 mg) and pruritus was the most common cause for treatment discontinuation. As part of the safety review of the New Interim Analysis, independent groups of experts reviewed certain categories of safety events to provide a blinded adjudication as specifically requested by the FDA. These included events pertaining to hepatic safety (excluding clinical outcomes), cardiovascular and renal. Topline analysis through four years of treatment showed a numerically higher number of adjudicated hepatic safety events for OCA 25 mg, the majority of which were mild in severity. For adjudicated core major adverse cardiovascular events and adjudicated acute kidney injury events, frequency of events was low and balanced across treatment groups. Consistent with its mechanism of action as an FXR agonist, OCA treatment was associated with an increase in LDL at Month 1 which returned to near baseline values by Month 12. Based on the results of the New Interim Analysis, we commenced our commercial launch in July 2017. We also planintend to file for marketing authorizationre-submit the NDA for OCA in liver fibrosis due to NASH by the end of 2022.

In July 2022, we had a pre-submission meeting with the FDA in which we reviewed the planned structure and the timing of the submission of our NDA and have had an ongoing dialogue as we prepare to re-submit. As we previously disclosed, the Company will need to overcome the risk-benefit assessment of the FDA from the prior review of the NDA for OCA for the treatment of liver fibrosis due to NASH. Although we believe that the insights we have gained from the re-analysis and from the larger and more robust safety database provide an improved risk-benefit, there can be no assurances that the FDA will change its view on risk-benefit and will approve such NDA on an accelerated basis, or at all.

In September 2022, we announced that REVERSE, a Phase 3 study evaluating the safety and efficacy of OCA in patients with compensated cirrhosis due to NASH, did not meet its primary endpoint of a ≥ 1-stage histological improvement in fibrosis with no worsening of NASH following up to 18 months of therapy. No new safety signals for OCA were observed in this population of patients with cirrhosis. In the REVERSE study of 919 randomized subjects with compensated cirrhosis due to NASH, 11.1% (p=NS) of subjects who were randomized to receive once-daily oral OCA 10 mg and 11.9% (p=NS) of subjects who were randomized to receive OCA 10 mg titrated to 25 mg (OCA 10-to-25 mg) after three months achieved a ≥1-stage improvement in fibrosis with no worsening of NASH after up to 18 months of

35

treatment, compared with 9.9% of subjects who received placebo. Though the REVERSE study did not succeed on the histological evaluation of the primary endpoint, a positive impact on liver stiffness as defined by transient elastography was noted in both OCA 10 mg and OCA 10-to-25 mg arms. Safety was evaluated in 916 subjects who took at least one dose of study drug (placebo, OCA 10 mg or OCA 10-to-25 mg). Treatment-emergent adverse events (TEAEs), treatment-emergent serious adverse events (TESAEs) and deaths were balanced across all treatment groups in REVERSE. The most common TEAE was pruritus (31% in placebo, 41% in OCA 10 mg and 57% in OCA 10-to-25 mg) and pruritus was the most common reason for treatment discontinuation. Serious gallbladder-related events were balanced across arms (0.6% in placebo, 1.0% in OCA 10 mg, 1.0% in OCA 10-to-25 mg). Consistent with the known mechanism of action of FXR-agonists, the OCA 10-to-25 mg arm had a higher incidence of gallstones.

We are evaluating the efficacy, safety and tolerability of OCA in combination with bezafibrate in patients with PBC in other target markets.

OCA is also being developeda Phase 2 study outside of the United States. In the United States, we have an ongoing Phase 1 study to treat a varietybetter characterize the exposure response of other non-viral progressive liver diseases such as nonalcoholic steatohepatitis, or NASH, primary sclerosing cholangitis, or PSC,the fixed-dose combination, which has completed enrollment, and biliary atresia.we have an open Investigational New Drug (“IND”) application with the FDA. 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 received orphan drug designationalso conducting a second Phase 2 study in the United States and the European Union for the treatment of PBC and PSC and breakthrough therapy designation from the U.S. Food and Drug Administration, or FDA, for the treatment of NASH patients with liver fibrosis.

OCA achieved the primary endpoint inevaluating a Phase 2b clinical trial for the treatment of NASH, 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 NASH patients with liver fibrosis, known as the REGENERATE trial. REGENERATE includes a pre-planned histology-based interim analysis after 72 weeks of treatment. In May 2017, we completed enrollment of the interim analysis cohort for the REGENERATE trial. We anticipate top-line results from the interim analysis in the first half 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 effectsfixed-dose combination 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. We continue to work towards expanding our overall NASH development program with additional trials and studies, including a Phase 3 trial in NASH patients with cirrhosis, which we expect to initiate by the end of 2017.

In addition to PBC and NASH, we continue to invest in research of OCA for additional patient populations with 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, where we have exclusively licensed OCA to Sumitomo Dainippon Pharma Co., Ltd., or Sumitomo Dainippon along with an option to exclusively license OCA in certain other Asian countries. We own or have rights to various trademarks, copyrights and trade names used in our business, including Ocaliva.

19

Our net loss for the nine months ended September 30, 2017 and 2016 was approximately $249.1 million and $292.8 million, respectively. As 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 our operations.

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

On October 23, 2017, we announced additional results from the Phase 2 AESOP trial evaluating OCAbezafibrate for the treatment of patients with PSC.PBC who have not achieved an adequate biochemical response to UDCA. Our longer-term goal is developing and seeking regulatory approval for a fixed dose combination regimen in PBC and potentially in other diseases.

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

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

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

Under the Transitional Services Agreement (the “TSA”), we agreed to provide certain transitional services for periods of up to six months to Advanz for continuity purposes.

Under the Sublicense Agreement, we agreed to continue to conduct certain post-marketing work and other activities with respect to Ocaliva for PBC, including continuing to conduct certain PBC studies (the “PBC Post-Marketing Work”). The Company will be reimbursed by Advanz for a 24-week, double-blind, placebo-controlled, dose-rangingportion of the total R&D costs related to the PBC Post-Marketing Work.

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

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

36

discontinued operations presentation. Refer to Note 4 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

Recent Developments

On August 16, we entered into a settlement agreement with Dr. Reddy’s resolving the patent litigation over Dr. Reddy’s ANDA seeking approval to market a generic version of Ocaliva prior to expiration of our patents.

On September 20, we announced that a key publication in Gastroenterology showed that people receiving OCA for PBC in a clinical trial setting had greater transplant-free survival compared to patients with PBC selected from “real-world” patient registries who did not receive OCA.

On September 30, we announced that REVERSE, a Phase 3 study evaluating the efficacysafety and safetyefficacy of OCA compared to placebo in 77 patients with PSC. Patients were randomizedcompensated cirrhosis due 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 theNASH, did not meet its primary endpoint of a ≥ 1-stage histological improvement in fibrosis with no worsening of NASH following up to 18 months of therapy. No new safety signals for OCA were observed in this population of patients with cirrhosis.

Debt Retirement

In August and September 2022, we entered into a series of exchange agreements and agreed with a limited number of existing noteholders of our 2026 Convertible Secured Notes to exchange approximately $388.9 million aggregate principal amount of existing notes for $258.2 million in cash and 11,329,399 shares of newly issued common stock (equivalent to $219.4 million), for total consideration of $477.6 million. Net of these exchanges, the AESOP trial: patients receiving 5 mgprincipal balance of OCA dailythe 2026 Convertible Secured Notes was reduced by $388.9 million from $500.0 million to $111.1 million.

The result of these activities was to lower principal debt outstanding by 54% or $388.9 million to $336.3 million and decrease annual cash interest expense by 58% or $13.6 million to $9.8 million on an annual basis. In addition, these activities reduced overall potential shareholder dilution associated 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.2026 Convertible Secured Notes.

(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.

Financial Overview

Revenue

We commenced our commercial launch of Ocaliva for use inthe treatment of PBC in the United States in June 2016. In December 2016,We sell Ocaliva to a limited number of specialty pharmacies which dispense the European Commission granted conditional approval for Ocaliva for the treatment of PBC and we commencedproduct directly to patients. The specialty pharmacies are referred to as our European commercial launch in January 2017. In May 2017, Health Canada granted a conditional approval for Ocaliva in PBC and we commenced our commercial launch in July 2017.customers.

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.

Product Revenue, Net

We recognize revenue upon delivery of Ocaliva to our customers, net of discounts, rebates and incentives associated with the product. We provide the right of return to our customers for unopened product for a limited time before and after its expiration date. Prior to July 2017, given our limited sales history for Ocaliva and the inherent uncertainties in estimating product returns,

Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), 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 to 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 transactions since our commercial launch in the second quarter of 2016. We now believe we have accumulated sufficient data to reasonably estimate product returns and, therefore, we will now effectively recognize revenue at the time of shipment to our customers (sell-in basis)

During the third quarter of 2017, 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 whenand the customer receives Ocaliva. We evaluate the creditworthiness of each of our customers to determine whether collection is 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) reasonablyWe estimate our net product revenues. We calculatevariable revenue by calculating gross product revenues based on the wholesale acquisition cost that we chargescharge our customers for Ocaliva. We estimateOcaliva, 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)(ii) estimated costs of incentives offered to certain indirect customers including patients.patients and (iii) trade allowances, such as invoice discounts for prompt payment and customer fees.

37

Licensing RevenueTable of Contents

We recognize revenue derived from our collaborative agreementsrecognized net sales of Ocaliva of $77.6 million and $66.6 million for the development and commercialization of certain of our product candidates. In March 2011, we entered into an exclusive licensing agreement with Sumitomo Dainippon for the development of OCA in Japan, China and Korea. Under the terms of the agreement, we have received up-front payments 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. As ofthree months ended September 30, 2017, we have achieved $6.0 million of the development2022 and regulatory milestones.

For accounting purposes, the up-front payments are recorded as deferred revenue2021, respectively, and amortized over time and milestone payments are recognized once earned. We recognized $1.3$208.5 million and $6.3$192.1 million respectively, in license revenue resulting from milestone payments and the amortization of the up-front payments under the collaboration agreement for the nine months ended September 30, 20172022 and 2016. We anticipate that we will recognize revenue of approximately $1.8 million per year through 2020, for the amortization of the relevant up-front collaboration payments from Sumitomo Dainippon.2021, respectively.

Selling, General and Administrative Expenses

Our selling, generalWe 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 (“SG&A”) expenses due toas a result of, among other initiatives, the commercialization of Ocaliva for PBC in the United States, EuropeStates. In addition, we have incurred significant selling, general and certain other countries,administrative expenses and may in the future incur similar expenses in connection with the preparation for the potential commercialization of OCA in PBC infor liver fibrosis due to NASH, if approved, and our other international marketsfuture approved products, if any, and development activities for OCA in indications other than PBCany maintenance of our general and other product candidates. We further plan on expanding our operations bothadministrative 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 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.States.

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, manufacturingpursuing 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 researchWe 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 substantialas 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 ofNASH, 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, 20172022 and 2016

2021

The following table summarizes our results of operations for each of the three months ended September 30, 20172022 and 2016, together with the changes in those items in dollars:2021:

  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

Three Months Ended September 30,

    

2022

    

2021

(in thousands)

Revenue:

 

  

 

  

Product revenue, net

 

$

77,588

$

66,640

Total revenue

 

 

77,588

 

66,640

Operating expenses:

 

Cost of sales

 

424

 

224

Selling, general and administrative

 

 

43,274

 

41,271

Research and development

 

 

44,034

 

44,712

Restructuring

 

 

Total operating expenses

 

 

87,732

 

86,207

Other (expense) income:

 

Interest expense

 

 

(5,237)

 

(14,095)

(Loss) gain on extinguishment of debt

(91,759)

16,511

Other income, net

 

 

3,053

 

210

Total other (expense) income, net

 

 

(93,943)

 

2,626

Loss from continuing operations

$

(104,087)

$

(16,941)

Income from discontinued operations, net of tax

$

371,540

$

13,309

Net income (loss)

$

267,453

$

(3,632)

38

Revenues

Revenues

Product revenue, net was approximately $40.9$77.6 million and $4.7$66.6 million for the three months ended September 30, 20172022 and 2016,2021, 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, 20172022 and 2016, licensing2021, product revenue, net was approximately $445,000solely comprised of U.S. Ocaliva net sales. The increase in product revenues was driven by operational growth, primarily due to increased unit sales volumes 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.higher pricing.

Cost of sales

Cost of sales was $172,000 and $0 for the three 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 $61.4$0.4 million and $52.8$0.2 million for the three months ended September 30, 20172022 and 2016,2021, respectively. The $8.6 million net increase between periods isOur cost of sales for the three months ended September 30, 2022 and 2021 consisted primarily due to an increase in personnel-related costs of $4.5 million to support our commercialpackaging, labeling, materials and international initiativesrelated expenses.

Selling, general and an increase of $5.8 million in indirectadministrative 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 developmentadministrative expenses were $46.0$43.3 million and $35.4$41.3 million for the three months ended September 30, 20172022 and 2016, respectively, representing a2021, respectively. The $2.0 million net increase of $10.6 million. This net increase in researchbetween periods was primarily driven by increased commercial activities and costs related to our ANDA litigation.

Research and development expense primarily reflects increases in OCA researchexpenses

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 $7.4expenses were $44.0 million and $7.1$44.7 million for the three months ended September 30, 20172022 and 2016, respectively due2021, respectively. The $0.7 million net decrease between periods was primarily driven by lower costs for NASH and cholestasis activities, partially offset by increased costs related to the issuance of our 3.25% convertible senior notes due 2023, or Convertible Notes, in July 2016.pipeline compound activities as well as R&D cost-sharing reimbursements from Advanz.

Other income, netInterest expense

Other income, netInterest expense was $924,000$5.2 million and $1.3$14.1 million infor the three months ended September 30, 20172022 and 2016,2021, respectively. The $362,000 decreaseFor the quarter ended September 30, 2022, interest expense related to the principal amounts outstanding for the 2023 Convertible Notes, 2026 Convertible Notes and 2026 Convertible Secured Notes and no longer included any accretion of debt discounts, which was $8.0 million for the three months ended September 30, 2021, after the adoption of ASU 2020-06. For the quarter ended September 30, 2021, interest expense related to the principal amounts outstanding for the 2023 Convertible Notes, 2026 Convertible Notes and 2026 Convertible Secured Notes.

(Loss) gain on extinguishment of debt

(Loss) gain on extinguishment of debt was ($91.8) million and $16.5 million for the three months ended September 30, 2022 and 2021, respectively. For the quarter ended September 30, 2022, the loss on extinguishment of debt relates to the repurchases of the 2026 Convertible Secured Notes. For the quarter ended September 30, 2021, the gain on extinguishment of debt relates to the exchange of debt and repurchase of 2023 Convertible Notes.

Other income, net

Other income, net was $3.1 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively. Such income is primarily attributable to decreased interest income earned on cash, cash equivalents and investment debt securities along with additional income recognized during the quarter ended September 30, 2022 for transitional services provided by us.

Income from discontinued operations, net of tax

Income from discontinued operations, net of tax was $371.5 million and $13.3 million for the three months ended September 30, 2022 and 2021, respectively. The increase in income from discontinued operations was a result of the $372.4 million gain recognized on the sale of the sale our ex-U.S. commercial operations and sublicense to Advanz offset

39

by a decrease in operating income associated with product revenues and operating expenses, which decreased compared toare no longer included after the prior year period primarily due toclosing of the sales of investment securitiessale during the three months ended September 30, 2017.2022.

Income taxes

For the three months ended September 30, 20172022 and 2016,2021, no income tax expense or benefit was recognized.recognized for our continuing operations. 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.

Comparison of the Nine Months Ended September 30, 20172022 and 20162021

Nine Months Ended September 30, 

    

2022

    

2021

(in thousands)

Revenue:

 

  

 

  

Product revenue, net

$

208,491

$

192,117

Total revenue

 

208,491

 

192,117

Operating expenses:

Cost of sales

 

956

 

771

Selling, general and administrative

 

121,013

 

130,255

Research and development

 

136,753

 

132,991

Restructuring

 

 

(284)

Total operating expenses

 

258,722

 

263,733

Other (expense) income:

Interest expense

 

(18,579)

 

(39,103)

(Loss) gain on extinguishment of debt

(91,739)

16,511

Other income, net

 

2,691

 

2,389

Total other (expense), net

 

(107,627)

 

(20,203)

Loss from continuing operations

$

(157,858)

$

(91,819)

Income from discontinued operations, net of tax

$

400,499

$

36,673

Net income (loss)

$

242,641

$

(55,146)

Revenues

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

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$208.5 million and $4.8$192.1 million for the nine months ended September 30, 20172022 and 2016,2021, 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 $83.8 million and $8.1 million in the United States and in ex-U.S. countries, respectively, duringFor the nine months ended September 30, 2017. For each2022 and 2021, product revenue, net was solely comprised of the nine months ended September 30, 2017U.S. Ocaliva net sales. The increase in product revenues was driven by operational growth, primarily due to higher pricing and 2016, licensing revenue was approximately $1.3 million and $6.3 million, 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.increased unit sales volumes, partially offset by higher gross to net deductions.

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$1.0 million and $197.4$0.8 million for the nine months ended September 30, 20172022 and 2016,2021, respectively. The $8.0 million net decrease between periods isOur cost of sales for the nine months ended September 30, 2022 and 2021 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 pluspackaging, labeling, materials and related legalexpenses.

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 developmentadministrative expenses were $134.0$121.0 million and $102.3$130.3 million for the nine months ended September 30, 20172022 and 2016, respectively, representing2021, respectively. The $9.3 million net decrease between periods was primarily driven by lower headcount, along with a net increasedecrease in costs for commercial and medical affairs activities.

40

Research and development expense primarily reflects increases in OCA researchexpenses

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 $21.8expenses were $136.8 million and $7.1$133.0 million for the nine months ended September 30, 20172022 and 2016, respectively due to2021, respectively. The $3.8 million net increase between periods was primarily driven by a $7.2 million reduction in recognition of UK R&D tax credits under the issuanceSME and RDEC schemes and higher costs for INT-787 and cholestasis activities, partially offset by lower NASH development costs as well as R&D cost-sharing reimbursements of the Convertible Notes, in July 2016.$3.1 million from Advanz.

Other income, netInterest expense

Other income, netInterest expense was $3.4$18.6 million and $2.8$39.1 million infor the nine months ended September 30, 20172022 and 2016,2021, respectively. The $0.6For the nine months ended September 30, 2022, interest expense related to the principal amounts outstanding for the 2023 Convertible Notes, 2026 Convertible Notes and 2026 Convertible Secured Notes and no longer included any accretion of debt discounts, which was $21.9 million increasefor the nine months ended September 30, 2021, after the adoption of ASU 2020-06. For the nine months ended September 30, 2021, interest expense related to the principal amounts outstanding for the 2023 Convertible Notes, 2026 Convertible Notes and 2026 Convertible Secured Notes.

(Loss) gain on extinguishment of debt

(Loss) gain on extinguishment of debt was ($91.7) million and $16.5 million for the three months ended September 30, 2022 and 2021, respectively. For the quarter ended September 30, 2022, the loss on extinguishment of debt relates to the repurchases of the 2026 Convertible Secured Notes. For the quarter ended September 30, 2021, the gain on extinguishment of debt relates to the exchange of debt and repurchase of 2023 Convertible Notes.

Other income, net

Other income, net was $2.7 million and $2.4 million for the nine months ended September 30, 2022 and 2021, respectively. Such income is primarily attributable to interest income earned on cash, cash equivalents and investment debt securities which increased comparedalong with additional income recognized during the quarter ended September 30, 2022 for transitional services provided by us.

Income from discontinued operations, net of tax

Income from discontinued operations, net of tax was $400.5 million and $36.7 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in income from discontinued operations was a result of the $372.4 million gain recognized on the sale of the sale our ex-U.S. commercial operations and sublicense to Advanz offset by a decrease in operating income associated with product revenues and operating expenses, given one fewer quarter of product revenues were included in the prior year period primarily due to the net proceeds from the issuance of our Convertible Notes in July 2016.nine months ended September 30, 2022.

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Income taxes

For the nine months ended September 30, 20172022 and 2016,2021, no income tax expense or benefit was recognized.recognized for our continuing operations. 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 Liquidityliquidity

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

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Continued cash generation is highly dependent on the success of our commercial product, Ocaliva, as well as the success of our product candidates if approved. The absence of cash flows from discontinued operations are not expected to affect future liquidity and capital resources.

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

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

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

Cash Flows

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

Nine Months Ended September 30, 

    

2022

    

2021

(in thousands)

Net cash from continuing operations (used in) provided by:

 

  

 

  

Operating activities

$

(31,291)

$

(86,136)

Investing activities

 

(46,449)

 

55,398

Financing activities

 

(261,644)

 

2,083

Effect of exchange rate changes

 

(7,399)

 

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Net increase in cash, cash equivalents and restricted cash classified as discontinued operations

372,550

39,895

Net increase in cash, cash equivalents and restricted cash

$

25,767

$

11,311

Operating Activities. Net cash used in operating activities for continuing operations of approximately $31.3 million during the nine months ended September 30, 2017,2022 was primarily a result of our $157.9 million net loss from continuing operations, partially offset by a loss of $91.7 million on the extinguishments of debt, a net increase in operating assets and liabilities of $12.0 million, $16.7 million in stock-based compensation, and $2.4 million of write-offs of fixed assets. Cash flows for the nine months ended September 30, 2022 include net cash receipts of $3.8 million reflecting payments from the HMRC for the U.K. R&D tax credit claims.

Net cash provided by operating activities for discontinued operations of approximately $9.3 million during the nine months ended September 30, 2022 was primarily a result of $400.5 million net income from discontinued operations and $4.4 million in stock-based compensation, partially offset by the reclassification of $366.5 million in cash proceeds from the sale of the business to investing activities and a net decrease in operating assets and liabilities of $29.6 million.

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Net cash used in operating activities for continuing operations of approximately $86.1 million during the nine months ended September 30, 2021 was primarily a result of our $91.8 million net loss from continuing operations, a net decrease in operating assets and liabilities of $31.9 million and a gain on extinguishment of debt of $16.5 million, partially offset by $20.9 million in stock-based compensation, $11.9 million for accretion of the discount on the 2023 Convertible Notes, $7.0 million for accretion of the discount on the 2026 Convertible Notes, $3.5 million for non-cash operating lease costs, $3.0 million for accretion of the discount on the 2026 Convertible Secured Notes and $2.4 million of depreciation. Cash flows for the nine months ended September 30, 2021 include cash receipts of $4.2 million reflecting payments from the HMRC for the U.K. R&D tax credit claims.

Net cash provided by operating activities for discontinued operations of approximately $39.9 million during the nine months ended September 30, 2021 was primarily a result of our $36.7 million net income from discontinued operations, and $4.6 million in stock-based compensation partially offset by a net decrease in assets and liabilities from discontinued operations of $2.3 million.

The effect of exchange rate changes on cash increased operating cash flows and comprehensive income during the nine months ended September 30, 2022 given the significant fluctuations in the rate of exchange between the U.S. dollar and the pound sterling. In particular, as a result of our sale of our ex-U.S. business, we had an accumulated deficithave additional exposure to fluctuations in the pound sterling as our only remaining business operations outside of $1.4 billion. the U.S. are in the United Kingdom.

Investing Activities. For the nine months ended September 30, 2022, net cash used in investing activities for continuing operations of approximately $46.4 million primarily reflects the purchase of investment debt securities of $401.1 million, partially offset by the sales and maturities of investment debt securities of $355.5 million.

For the nine months ended September 30, 2022, net cash provided by investing activities for discontinued operations reflects the net cash proceeds of $363.2 million received from the sale of the ex-U.S. business to Advanz.

For the nine months ended September 30, 2021, net cash provided by investing activities for continuing operations of approximately $55.4 million primarily reflects the sales and maturities of investment debt securities of $334.2 million, partially offset by the purchase of investment debt securities of $278.4 million.

Financing Activities. Net cash used in financing activities for continuing operations of approximately $261.6 million in the nine months ended September 30, 2022, primarily consisted of payments of $258.2 million for the repurchase of 2026 Convertible Secured Notes and $3.9 million for the repurchase of 2023 Convertible Notes.

Net cash provided by financing activities for continuing operations of approximately $2.1 million in the nine months ended September 30, 2021 primarily consisted of $117.6 million of proceeds from the sale of 2026 Convertible Secured Notes, offset by payments of $75.8 million for the repurchase of common stock and $38.1 million for the repurchase of 2023 Convertible Notes.

Future Funding Requirements

We are currently developing OCA for additional indications, including NASH, and other product candidates through various stages of clinical and preclinical development. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. In addition, we have incurred and anticipate that we will continue to incur lossessignificant research and development, product sales, marketing, manufacturing and distribution expenses relating to the commercialization of Ocaliva for at least the next several years. We expectPBC. As part of our longer-term strategy, we anticipate that we will incur significant expenses in connection with our research and development efforts, the commercialization of our other products such as OCA for liver fibrosis due to NASH, if approved, and selling,the maintenance of our general and administrative expenses willinfrastructure. We may also engage in business development activities that involve potential in- or out-licensing of products or technologies or acquisitions of other products, technologies or businesses.

As of September 30, 2022, we had $497.8 million in cash, cash equivalents, restricted cash and investment debt securities. We currently expect to continue to incur significant operating expenses in the fiscal year ending December 31, 2022. These expenses are planned to support, among other initiatives, the continued commercialization of Ocaliva for

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PBC, our continued clinical development of OCA for PBC and NASH and our other earlier stage research and development programs. Although we believe that our existing capital resources, together with our net sales of Ocaliva for PBC, will be significant and, as a result,sufficient to fund our anticipated operating requirements for the next twelve months following the filing of this report, we willmay need to raise 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. operating requirements beyond that period.Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently,As of September 30, 2022, our funds are primarily held in cashU.S. treasuries, U.S. government agency bonds, corporate bonds, commercial paper and money market bank accountsaccounts.

We recently used a combination of cash proceeds received from the sale of our international business as well as common stock to fund the repurchases of the 2026 Convertible Secured Notes. Our short-term obligations include $109.8 million of 2023 Convertible Notes outstanding scheduled to mature on July 1, 2023, and investments,$226.5 million of convertible notes scheduled to mature in 2026, 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:

  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 usedwill need to be paid off or refinanced, if not converted. Furthermore, in operating activities of approximately $188.9 million during the nine months ended September 30, 2017 was primarily a resultlight of our $249.1 million net loss, partially offset by a net increase of $41.6 million in stock-based compensation, $9.6 million for accretionreceipt of the discount on our Convertible Notes, $2.8 million forCRL from the amortization of investment premium and $3.3 million of depreciation.

Net cash usedFDA 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.

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

For the nine months ended September 30, 2016, net cash used in investing activities primarily reflects the sale of investment securities of $361.0 million, partially offset by the purchase of investment securities of $443.3 million and $4.0 million of capital expenditures relatedJune 2020 with respect to our offices.

Financing Activities. Net cash provided by financing activities inNDA for OCA for liver fibrosis due to NASH and the nine months ended September 30, 2017 consisted primarily of $2.1 million from the exercise of options to purchase common stock.

Net cash provided by financing activities in the nine months ended September 30, 2016 consisted primarily of $447.7 million from the proceeds of the issuance of Convertible Notes, net of issuance costsnumerous risks and $4.4 million from the exercise of options to purchase common stock, partially offset by $38.4 million of payments for capped call transactions anduncertainties associated costs.

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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 otherwith pharmaceutical 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 additionalcommercialization, any delays in, or unanticipated costs associated with, our plans to further expand our operations indevelopment, regulatory or commercialization efforts could significantly increase the United States, Europe and in certain other countries. In addition, subject to obtaining regulatory approvalamount 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, we had $492.7 million in cash, cash equivalents and investment securities. We currently project adjusted 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. These expenses are planned to support the continued commercialization of Ocaliva in PBC in the United States and other markets, the continued clinical development for OCA in PBC, NASH and PSC and our other earlier stage pipeline programs. We may make additional investments over 2017 as our business evolves. Our adjusted operating expense estimate 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 expense 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 sufficientcapital required by us to fund our operating expensesrequirements. Accordingly, we may seek to access the public or private capital markets whenever conditions are favorable, to issue new securities, or to refinance or repurchase existing securities, even if we do not have an immediate need for additional capital at that time.

Given the latest strategic financial moves including the sale of our international business and repurchases of our 2026 Convertible Secured Notes, we have improved our capital expenditure requirements. However, we currently believestructure and are well-positioned for the future to grow our existing business in PBC, progress on our NASH development program and advance our pipeline products.

Our forecasts regarding the period of time that our cash and cash equivalentsexisting capital resources will be sufficient for us to:

·continueto meet our operating requirements and the initial commercialization of Ocaliva for PBC in the United States, the European Union and other jurisdictions where it has received 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 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
·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, both near and long-term, will depend on a variety of factors, many of which are outside of our control. Such 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 and the product candidates that we pursue, including our product candidates in preclinical development such as INT-777;
·the expansion of our operations, personnel and the size of our company and our need to continue to expand in the longer term;
·the costs associated with securing and establishing manufacturing capabilities and procuring the materials necessary for our products and product candidates;

·market acceptance of our products and product candidates, which may be affected by reimbursement from payors;

26

·the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;
·our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of 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 or other intellectual property rights;
·the effect of competing technological and market developments; and
·other cash needs that may arise as we continue to operate our business.

include, but are not limited to, those factors listed above under “Cautionary Note Regarding Forward-Looking Statements”.

We have no committed external sources of funding. Until such time, if ever, as we can consistently generate profits from our operationsfunding and become profitable, we expect to finance our cash needs 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. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders 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. 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,may not be available when we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licensesneed them on terms that are acceptable to us, or at all. If adequate funds are not available to us, we may not be favorableable 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

Except as discussed above regarding Advanz Pharma and Commitments

Thereour repurchases of 2026 Convertible Secured Notes, 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—Future Funding Requirements—Future Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2016.

2021.

Off-Balance Sheet Arrangements

As of September 30, 2017,2022, 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 DisclosureDisclosures 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 sinceto 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.

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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 officerChief Executive Officer and principal financial officerChief 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 overOver Financial Reporting

There were no changes in our internal control over financial reporting that occurred during theour 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 ProceedingsProceedings.

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 16 to our disclosures.

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We believe that we have valid defenses to the claims in the lawsuit 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.

Item 1A. Risk Factors

The following risk factors and other informationunaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below andincorporated by reference herein.

Item 1A. Risk Factors.

As of the date of this Quarterly Report on Form 10-Q, there are no material changes to the risk factors set forth in Part I, Item 1A, Risk Factors in our other filings areAnnual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 2, 2022, and the risk factors set forth in Part II, Item 1A, Risk Factors, in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 filed with the SEC on August 3, 2022, except for the following Risk Factors. The following set of Risk Factors does not purport to be a full list of risks relating to the only ones we face.business of the Company and any of these factors or others disclosed in our Annual Report on Form 10-K or Quarterly Report on Form 10-Q could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks and uncertaintiesrisk factors not presently known to us or that we presentlycurrently deem less significantimmaterial 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 occur, our business, financial condition,or results of operations and future growth prospects could be materially and adversely affected.

Risks Relatedoperations. We may disclose changes to Our Financial Position and Need for Additional Capital

We are dependent on the successful commercialization of Ocaliva® (obeticholic acidsuch risk factors or OCA), 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 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 in adults with an inadequate response to ursodiol or as monotherapy in adults unable to tolerate ursodiol.

Our ability to generate profitsdisclose additional risk factors from operations and become profitable will depend on the success of commercial sales of Ocaliva. However, the successful commercialization of Ocaliva in PBC is subject to many risks. We are currently undertaking our first commercial launch with Ocaliva in PBC, and there is no guarantee that we will be able to do so successfully. There are numerous examples of unsuccessful product launches and failures to meet expectations of market potential, including by pharmaceutical companies with more experience and resources than us.

The commercial success of Ocaliva 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 Ocaliva will have in PBC. For example, if the patient population suffering from PBC is smaller than we estimate, or even if the patient population matches our estimate but Ocaliva is not widely accepted as a treatment for PBC, the commercial potential of Ocaliva 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. Furthermore, any negative development in any other development program of 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 adversely impact the commercial results and potential of Ocaliva.

As a result, we cannot foresee if Ocaliva will ever be accepted as a therapy in PBC that eventually results in revenues that can sustain operations. It may take the passage of a significant amount of time to generate sufficient revenues to sustain operations even if 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 PBC in such other jurisdictions, which may also limit our prospects. If the commercialization of Ocaliva for PBC is unsuccessful or perceived to be disappointing, the long-term prospects of Ocaliva and our company may be significantly harmed.

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 million, $226.4 million and $283.2 million for the years ended December 31, 2016, 2015 and 2014, respectively, and $249.1 million and $292.8 million for the nine months ended September 30, 2017 and 2016, respectively. To date, we have financed our operations primarily through public and private securities offerings and payments received under our licensing and collaboration agreements. At September 30, 2017, we had $492.7 million in cash, cash equivalents and investment securities.

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

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We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we 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 regulatory approvals for OCA in nonalcoholic steatohepatitis, or 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 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. 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, continue our Phase 3 clinical program of OCA in NASH, including the Phase 3 REGENERATE trial in non-cirrhotic NASH patients with liver fibrosis, and continue the development of OCA in PSC. We also expect to continue the development of OCA 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 in OCA called CARE. Our overall development program for OCA in NASH is expected to include a number of trials, such as the Phase 2 clinical trial, referred to as the CONTROL trial, to assess the lipid metabolic effects of OCA 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 clinical trial for INT-767, an earlier stage product candidate. 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, 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 regulatory approval, or if they do 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 the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues.

We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce or cease our operations.

We are currently advancing OCA through clinical development for multiple indications and other product candidates through various stages of clinical and preclinical development. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive.

In addition, 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. We have incurred and anticipate incurring significant expenses as we continue to commercialize Ocaliva in PBC. As part of our longer-term strategy, we also anticipate incurring expenses in connection with increasestime in our product development, scientific, commercial and administrative personnel and expansion of our facilities and infrastructure infuture filings with 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 activities that involve potential in- or out-licensing of products or technologies or acquisitions of other products, technologies or businesses.

As of September 30, 2017, we had $492.7 million in cash, cash equivalents and investment securities. We currently project adjusted 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. These expenses are planned to support the continued commercialization of Ocaliva in PBC in the United States and other markets, and continued clinical development for OCA in PBC and NASH and our other earlier stage pipeline programs. We may make additional investments over 2017 as our business evolves. Accordingly, we will continue to require substantial additional capital in connection with our continuing operations, including continuing our clinical development and commercialization activities, despite having started to generate revenues from product sales. Because successful development and commercialization of our products and product candidates is uncertain, we are unable to estimate the actual funds required to complete the research and development and commercialization of our products and product candidates.

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 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 operating expenses and capital expenditure requirements. However, we currently believe that our cash and cash equivalents will be sufficient for us to:

·continue the initial commercialization of Ocaliva for PBC in the United States, the European Union and other jurisdictions where it has received marketing approval;

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·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;
·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
·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 and the product candidates that we pursue, including our product candidates in preclinical development such as INT-777;
·the expansion of our operations, personnel and the size of our company and our need to continue to expand in the longer term;
·the costs associated with securing and establishing manufacturing capabilities and procuring the materials necessary for our products and product candidates;
·market acceptance of 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 and technologies;
·our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of 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 or other intellectual property rights;
·the effect of competing technological and market developments; and
·other cash needs that may arise as we continue to operate our business.

We have no committed external sources of funding. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail our planned activities, including research and development programs and commercialization activities.

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, if ever, as we can generate substantial product revenues, we expect to seek additional funding 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. Additional funding may not be available to us on acceptable terms or at all.

The terms of any financing may adversely affect the holdings or the rights of our security holders. 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 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. Prior to the commercial launch 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 for Ocaliva in PBC. We do not have approval for any of our other product candidates.

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While we commercially launched Ocaliva for PBC in the United States, Europe 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 expensive and time-consuming, and we cannot be certain that we will be able to successfully develop a market. For example, we will need 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.

Furthermore, our financial condition and operating results have varied significantly in the past and are expected to continue to significantly fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include:

·any delays in regulatory review and approval of our product candidates in clinical development;

·delays in the commencement, enrollment 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, such as the success of our Phase 3 REGENERATE trial of OCA in non-cirrhotic NASH patients with liver fibrosis;

·potential side effects of Ocaliva and our other product candidates that could delay or prevent approval or cause an approved drug to be taken off the market;

·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 an effective sales and marketing infrastructure directly or through collaborations with third parties;

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

·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 or with third parties such as contract research organizations, or CROs;

·our dependency on third-party manufacturers to manufacture our products and key ingredients;

·our ability to establish or maintain collaborations, licensing or other arrangements;

·the costs to us, and our ability and our third-party collaborators’ ability to obtain, maintain and protect our intellectual property rights;

·costs related to and outcomes of potential intellectual property, securities and other litigation;

·our ability to adequately support future growth;

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

·our ability to build and improve our company’s infrastructure, systems and controls;

·potential product liability claims; and

·our ability to obtain and maintain adequate insurance coverage.

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SEC.

Risks Related to the Development and the Regulatory Review and
Approval of Our Products and Product CandidatesClinical Trials

We cannot be certain if Ocaliva will receive full approval for PBC in jurisdictions where it has received accelerated or conditional approval, or that Ocaliva will be approved for PBC in other jurisdictions. Furthermore, OCA may fail to become approved for any other indication 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 of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the FDA in the United States, the EMA in Europe and 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 NDA, from the FDA or a Marketing Authorization Application, or MAA, from the EMA, respectively. Currently, our ability to generate revenue related to product sales will depend on the successful marketing of Ocaliva for PBC and the development and regulatory approval of OCA for the treatment NASH and our other product candidates.

Ocaliva is our only drug that has been approved for sale. In the United States, Ocaliva has been approved for PBC under the accelerated approval pathway. Accelerated approval was granted for OCA in PBC based on a reduction in alkaline phosphatase; however, an improvement in survival or disease-related symptoms has not been established. Continued approval of Ocaliva for this indication may be contingent upon 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 PBC or may not satisfy the requirements of the regulatory authorities for other reasons.

As part of the post-marketing requirements, our COBALT trial includes a cross-section of PBC patients with early, moderately advanced and advanced disease according to the so-called Rotterdam criteria. We have agreed to evaluate the safety and efficacy of Ocaliva in patients with moderate to severe hepatic impairment and as monotherapy in patients with PBC. Finally, 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 the European Commission granted conditional approval for Ocaliva for the treatment of PBC. The 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 2017, we received a marketing authorization with conditions for Ocaliva in PBC in Canada. We also plan to apply for marketing approval of Ocaliva for PBC in certain other markets across the world.

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 will be approved for use in additional indications. 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 guaranteed. Even after the submission of an NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing. 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 a significant proportion of the regulatory framework in the United Kingdom is derived from European Union directives and regulations, the referendum could materially change the regulatory regime applicable to our operations, including with respect to Ocaliva or our other product candidates.

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 regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding 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 products. Regulatory approval is also dependent on successfully passing regulatory inspection of our company, our clinical sites and key vendors and to ensure compliance with applicable good clinical, laboratory and manufacturing practices regulation. Critical findings could jeopardize or delay the approval of the NDA or MAA.

We will also be required to finalize the negotiations and discussions on our product labels for the respective jurisdictions in which we seek regulatory approval. Even if a product is approved, the FDA or the EMA, as the case may be, may limit the indications or uses for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials, risk mitigation programs or reporting as conditions of approval. Also, regulatory approval for any 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 in any other country.

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We will need to complete a number of clinical trials and other studies for the continued development of OCA in indications other than PBC. For example, we currently have ongoing our Phase 3 REGENERATE trial of OCA in non-cirrhotic NASH patients with liver fibrosis. We also intend to conduct additional trials in NASH, such as one in NASH patients with cirrhosis. In each of these cases, our ability to obtain the approvals necessary to commercialize our product candidates will depend on our ability to conduct and complete these additional trials as well as assemble various other data to complete our regulatory filings for OCA in the relevant indication or patient population.

There can be no assurance that we will be able to receive marketing approval for OCA in PBC in jurisdictions where it is not yet approved or marketing approval for OCA in NASH or any other indication. We cannot predict whether our trials and studies as to NASH or any other indication or patient population will be successful or whether regulators will agree with our conclusions regarding the preclinical studies and clinical trials we have conducted to date or require us to conduct additional studies or trials. For example, while OCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis, we do not know if one pivotal clinical trial will be sufficient for marketing approval or if regulators will ultimately agree to a surrogate endpoint for accelerated approval of OCA for the treatment of NASH. While the interim analysis for the REGENERATE trial will be based 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, or NIDDK, a part of the National Institutes of Health, 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 remain blinded after the interim analysis and 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 we are unable to obtain approval from the FDA, the EMA or other regulatory agencies for OCA and our other product candidates, or if, subsequent to approval, we are unable to successfully commercialize OCA or our other product candidates, we will 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 increaseda 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 beis subject to increasedheightened risk.

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

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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 thesuch product candidatecandidates by demonstrating the correlation of biochemicalthe surrogate endpoint therapeutic response in patients with a significant reduction in adverse clinical outcomes over time. If a confirmatoryFor example, the results of the New Interim Analysis were based on surrogate endpoints and the impact on clinical outcomes trial is required, we may be required to have the trial be substantially underway at the time we submit an NDA. It is possible that our NDA submission for regulatory approval willhas 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.

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Following discussions with regulatory authorities, we initiated our COBALT clinical outcomes confirmatory trial in PBC in December 2014 prior to the approval of Ocaliva. The COBALT trial includes a cross-section of PBC patients with early, moderately advanced and advanced disease according to the so-called Rotterdam criteria. We have agreed to evaluate the safety and efficacy of Ocaliva in patients with moderate to severe hepatic impairment and as 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.been confirmed. There can be no assurance that our COBALT trial or other trials conducted as partthe clinical outcomes portion of our post-marketing obligationsREGENERATE trial will confirm that the surrogate endpointsendpoint used as the basis of the regulatory submissions we have made or expect to make seeking approval of OCA for accelerated approvalliver fibrosis due to NASH will eventually show an adequate correlation with clinical outcomes.

In addition, as a condition of the accelerated approval of Ocaliva for PBC in the United States, we are required to conduct a clinical outcomes study with respect to Ocaliva for PBC. Based on a review by the DMC of an unblinded pre-specified interim efficacy analysis of the COBALT trial and unblinded safety and pharmacokinetic data from both the COBALT and 401 trials, the DMC stated that it was not feasible to continue the COBALT trial as designed and noted the challenges in enrolling and maintaining placebo-controlled post-marketing studies in this rare disease setting. We notified the FDA of the DMC’s recommendation and based on discussions with the FDA, which are ongoing, we closed our COBALT and 401 trials and compiled data available from these studies. In June 2022, we announced topline results from our COBALT trial. The primary endpoint, as agreed with the FDA, was time to first occurrence of any of the following clinical endpoints: all-cause death, liver transplant, hospitalization for other serious liver-related events, signs of progression to hepatic decompensation, or signs of development of portal hypertension. The study did not demonstrate a statistically significant difference between Ocaliva and placebo on the primary endpoint. The safety and tolerability of Ocaliva were consistent with its known profile and adverse events were in line with expectations for patients with advanced PBC based on the natural history of the disease.In June 2022, we also announced topline results for our HEROES-US study, a retrospective real-world study that evaluated data from a U.S. claims database, to compare clinical outcomes in a pre-defined group of patients with PBC who were treated with Ocaliva and a comparable group of PBC patients who were eligible, but who were not treated with Ocaliva. The results from the HEROES-US study showed a statistically significant and clinically meaningful reduction in all-cause death, liver transplant, or hospitalization for hepatic decompensation among Ocaliva-treated patients compared to the control group.

In September 2022, we had an sNDA pre-submission meeting with the FDA in which we reviewed our post-marketing requirements with respect to Ocaliva. We intend to submit the data from the COBALT and HEROES-US studies as well additional data, including data from other real world evidence studies, as part of a broader evidence package in the sNDA in support of full approval of Ocaliva for the treatment of PBC, which we anticipate submitting to the FDA in 2023. If any such trial fails to show such adequate correlation,this data package does not support fulfillment of our post-marketing obligations, we may not be able to maintain our previously granted marketing approval of Ocaliva for Ocaliva in PBC.

Our marketing authorization inlead development product candidate is OCA for the European Unionpotential treatment of NASH. In February 2019, we announced the results of the REGENERATE Original Analysis. The REGENERATE trial is ongoing and is expected to continue through clinical outcomes for Ocalivaverification and description of the clinical benefit of OCA. In June 2020, we received a CRL from the FDA stating that our NDA for OCA for the treatment of PBC isliver fibrosis due to NASH could not a full approval and is conditionalbe approved in its present form. The CRL indicated that, based on post-approval studies. Our ability to obtain and maintain conditional marketing authorization in the European Union will be limited to specific circumstances and subject to several conditions and obligations, if obtained at all, includingdata the completion of one or more clinical outcome trials to confirmFDA had reviewed, the clinicalFDA determined that the predicted benefit of Ocaliva in PBC. Conditional marketing authorizationsOCA based on incomplete clinical data may be granteda surrogate histopathologic endpoint remained uncertain and did not sufficiently outweigh the potential risks to support accelerated approval for a limited numberthe treatment of listed medicinal products for human use, including products designated as orphan medicinal products under European Union law, if (1) the risk-benefit balance of the product is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) unmet medical needs will be fulfilled and (4) 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 to the 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.

Our ongoing Phase 3 REGENERATE trial of OCA in non-cirrhotic NASH patients with liver fibrosis incorporates an interim primary surrogate endpoint that may serve asdue to NASH. We had our end of review meeting with the basis for a supplemental NDA filing for accelerated approvalFDA in October 2020 to discuss the FDA’s risk-benefit assessment in the United States and approval in Europe. Accelerated approval in the United States and conditional approval in the European Union for OCA in NASH are subject to similar risks as discussed above in relation to OCA for PBC. The primary endpoint in the Phase 2b FLINT trial of OCA in NASH patients wasCRL based on liver biopsy and was definedits review of the available data, as an improvementwell as our proposed resubmission of two or more points inour NDA for the NAFLD activity score (a system of scoring the histopathological features in the liver), or NAS, with no worseningtreatment of liver fibrosis.fibrosis due to NASH. The meeting with FDA provided us with helpful guidance regarding supplemental data we can provide to further characterize OCA’s efficacy and safety profile that could support resubmission based on our Phase 3 REGENERATE 18-month biopsy data, together with a safety assessment from our ongoing studies.

Following our end of review meeting, we had a dialogue with FDA regarding the REGENERATE study to clarify data, a new consensus read methodology for liver biopsies, and analyses required to re-submit our NDA. In contrast, uponconnection with the finalizationpotential resubmission of a protocol amendment underway,our NDA, we conducted the New Interim Analysis. In the New Interim Analysis of the

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ITT population from REGENERATE, 22.4% of subjects randomized to once-daily oral OCA 25 mg met 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)at month 18 on liver biopsy compared with 9.6% of subjects on placebo (p<0.0001). These results are consistent with the Original Analysis, which also showed that OCA 25 mg had a statistically significant effect on fibrosis improvement (p=0.0002). The New Interim Analysis used a consensus panel approach to histology reads, in line with recent FDA guidance, while the Original Analysis used individual central readers. A numerically greater proportion of OCA-treated patients relativeindividuals in the OCA 25 mg treatment group compared to placebo achievingachieved the endpoint of resolution of NASH resolution with no worsening of liver fibrosis. Furthermore, we selected a definition for NASH resolutionfibrosis but, consistent with the Original Analysis, the results for the trial, which defines a responder as a patient achieving a histologic scoreendpoint of 0 for ballooning and 0 or 1 for inflammation. Currently, other biopharmaceutical companies are enrolling or have initiated trials in certain subpopulations of 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 using surrogate endpoints, with potential examples including histological improvement, using the NAS or another scoring system, histological resolution of NASH were not statistically significant. As part of the New Interim Analysis, a safety evaluation was conducted in 2477 subjects from the REGENERATE trial who took at least one dose of study drug (placebo, OCA 10 mg, or improvementsOCA 25 mg). Topline results from this ongoing safety evaluation showed that treatment-emergent adverse events (TEAEs), treatment-emergent serious adverse events (TESAEs), and deaths were generally balanced across the OCA and placebo treatment groups in fibrosisthis new safety population. The most common TEAE was pruritus (24% in pre-cirrhotic patientsplacebo, 33% in OCA 10 mg and 55% in OCA 25 mg) and pruritus was the most common cause for treatment discontinuation. Serious gallbladder-related events occurred in <3% of subjects in any treatment group and, consistent with NASH,its known mechanism of action, OCA 25 mg had higher rates of biliary events including gallstones.

In July 2022, we had a pre-submission meeting with the FDA did not provide any formal regulatory guidance on approvable endpointsin which we reviewed the planned structure and may not accept a surrogate endpointthe timing of the submission of our NDA and have had an ongoing dialogue as we prepare to re-submit. As we previously disclosed, the Company will need to overcome the risk-benefit assessment of the FDA from the prior review of the NDA for OCA for the treatment of liver fibrosis due to NASH. Although we believe that the insights we have gained from the re-analysis and from the larger and more robust safety database provide an improved risk-benefit, there can be no assurances that the FDA will change its view on risk-benefit and will approve such NDA on an accelerated basis, or at all.

It is possibleIn September 2022, we announced that if we seek marketing approvalREVERSE, a Phase 3 study evaluating the safety and efficacy of OCA in patients with compensated cirrhosis due to NASH, did not meet its primary endpoint of a ≥ 1-stage histological improvement in fibrosis with no worsening of NASH following up to 18 months of therapy. In the REVERSE study of 919 randomized subjects with compensated cirrhosis due to NASH, 11.1% (p=NS) of subjects who were randomized to receive once-daily oral OCA 10 mg and 11.9% (p=NS) of subjects who were randomized to receive OCA 10 mg titrated to 25 mg (OCA 10-to-25 mg) after three months achieved a ≥1-stage improvement in fibrosis with no worsening of NASH after up to 18 months of treatment, compared with 9.9% of subjects who received placebo. Safety was evaluated in 916 subjects who took at least one dose of study drug (placebo, OCA 10 mg or OCA 10-to-25 mg). Treatment-emergent adverse events (TEAEs), treatment-emergent serious adverse events (TESAEs) and deaths were balanced across all treatment groups in REVERSE. The most common TEAE was pruritus (31% in placebo, 41% in OCA 10 mg and 57% in OCA 10-to-25 mg) and pruritus was the most common reason for non-cirrhotictreatment discontinuation. Serious gallbladder-related events were balanced across arms (0.6% in placebo, 1.0% in OCA 10 mg, 1.0% in OCA 10-to-25 mg). Consistent with the known mechanism of action of FXR-agonists, the OCA 10-to-25 mg arm had a higher incidence of gallstones.

While OCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis based on the interim results of our REGENERATE trial,and we intend to re-submit our NDA submission mayfor approval of OCA for liver fibrosis due to NASH following the results from the New Interim Analysis, we do not know if this will be accepted bysufficient for marketing approval or if the FDA will approve OCA for reviewliver fibrosis due to NASH on an accelerated or even if accepted for review, thereconditional basis, or at all. There may be delays in the FDA’sFDA review processprocesses and the FDA may determine that our NDA does not merit the approval of OCA for the treatment of non-cirrhotic NASH patients. The FDA 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.outcomes for purposes of marketing approval. Our regulatory pathway for OCA for the treatment of NASH will depend upon our ongoing discussions with the FDA and EMA.FDA. As a result, we may face difficulty in designingestablishing an acceptable registration strategy aroundwith respect to our Phase 3 REGENERATE or anytrial, as well as other trials we may conduct in differentother subpopulations of NASH patients. In addition, since the design

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If we continue the development of OCA in PSC, we intend to seek marketing approval based on a surrogate endpoint. The FDA and EMA have not validated any surrogate endpoint as a basis for seeking approval in PSC and any surrogate endpoint we select may ultimately not be accepted by the regulatory agencies.

The EMA and regulatory authorities in other countries in which we may seek approval for, and market, OCADelays or our other product candidates may require additional preclinical studies and/or clinical trials prior to granting approval. It 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 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 approval of OCA for the treatment of any of our targeted indications, the labeling for our product candidates in the United States, Europe or other countries in which we have received or seek approval may include limitations that could impact the commercial success of our product candidates.

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Delaysdifficulties in the commencement, enrollment and completion of our clinical trials and studies could result in increasedincrease our product development costs to us and delay, limit or limit our ability to obtainprevent 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 theprevent us from obtaining or maintaining regulatory approval for OCA and our other product candidates. The results of our product candidates. We currently have underway a number of trials including our Phase 4 COBALT clinical outcomes confirmatory trial of OCA in PBC, our Phase 3 REGENERATE trial of OCA in NASH and our Phase 2 CARE trial of OCA in biliary atresia. We continue to work towards expanding our overall NASH development program with additional trials and studies, including a Phase 3 trial in NASH patients with cirrhosis, which we expect to initiate in the second half of 2017, and we plan on conducting additional development activities in other diseases. The results from these trials may not be available when we expect oranticipate 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 forbe approved or to maintain approvals in the related indication.U.S. In addition, our clinical programs are subject to a number of variablesrisks and contingencies,uncertainties, such as the results of other trials, patient enrollmentsenrollment, safety issues or regulatory interactions that maycould result in a change of trial design or timing. Any delays or difficulties in timing. As such,completing one of our clinical trials could increase our product development costs and limit or prevent us from obtaining or maintaining regulatory approval. Consequently, we do not know whether anyour 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 clinical trials can be delayed or suspended for a variety of reasons, including:

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

·inability to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

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

·discussions with the FDA or non-U.S. regulators regarding the scope or design of our clinical trials, which may occur at various times, including subsequent to the initiation of the clinical trial;

·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 delay in receiving results from or the failure to achieve the necessary results in other clinical trials;

·inability to obtain approval from institutional review boards, or IRBs, to conduct a clinical trial at their respective sites;

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

·a breach of the terms of any agreement with, or for any other reason by, 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 clinical trials on our product candidates;

·inability to timely manufacture sufficient quantities of the product candidate required for a clinical trial;

·difficulty recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our trial, the rarity of the disease or the characteristics of the population being studied, the risks of procedures that may be required as part of the trial, such as a liver biopsy, and competition from other clinical trial programs for the same indications as our product candidates; and

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

For example, our Phase 3 REGENERATE trial is a large and complex Phase 3complicated clinical trial in a disease without any approved therapies and involves serial liver biopsies.biopsies over many years. While we announced the completion of enrollment oftopline results from the interim analysis cohortNew Interim Analysis in May 2017, and continuously evaluate and implement a variety of options to complete enrollment as quickly as possible,July 2022, there can be no assurance the FDA will approve our NDA for OCA for NASH on an accelerated or conditional basis, or at all. In September 2022, we announced that we will be ableour REVERSE trial evaluating the safety and efficacy of OCA in patients with compensated cirrhosis due to enrollNASH, did not meet its primary endpoint of a sufficient number≥ 1-stage histological improvement in fibrosis with no worsening of patients or complete the trial on a timely basis.NASH following up to 18 months of therapy. As we engage in other large and complicated trials and trials in advanced disease populations, we may experience a number of complicationschallenges that may negatively affect or delay our plans or ourand development programs.

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

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Clinical failureFailure 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.

For example, in September 2022, we announced that our REVERSE trial did not meet its primary endpoint of a ≥ 1-stage histological improvement in fibrosis with no worsening of NASH following up to 18 months of therapy.

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

In some instances, there canThere may be significant variability in the safety and/or efficacy results betweenwe see in different trials of the samestudying OCA or our other product candidatecandidates 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 dropoutdropouts 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

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efficacy and safety to obtain regulatoryor result in the approval to marketof 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.

Although Ocaliva has received accelerated approval in the United States and conditional approval in the European Union, its full approval depends on the results of post-marketing clinical trials, including the Phase 4 COBALT trial. We cannot assure you that these trials will demonstrate a correlation of biochemical therapeutic response in patients taking Ocaliva with a significant reduction in adverse clinical events 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 the200 adult NASH patients in Japan conducted by our former collaborator, Sumitomo Dainippon, Phase 2 trial did not meet its primary endpoint with statistical significance. In thisthe Sumitomo Dainippon trial, there was a dose dependent, although not statistically significant, increase in the percentage of OCA treatedOCA-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 our REGENERATE trial was designed based onthe Phase 2b FLINT trial.

In February 2019, we announced the results from the REGENERATE Original Analysis. In the primary efficacy analysis, once-daily OCA 25 mg met, with statistical significance, the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH (defined as no worsening of hepatocellular ballooning, no worsening of lobular inflammation and no worsening of steatosis) at the planned 18-month analysis. Although a numerically greater proportion of patients in both OCA treatment groups compared to placebo achieved the primary endpoint of NASH resolution with no worsening of liver fibrosis in the primary efficacy analysis, this result did not reach statistical significance. As agreed with the FDA, in order for the primary objective to be met, the study was required to achieve one of the 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 REGENERATE trial deviates from that of the FLINT trial, there is an increased risk thattwo primary endpoints. Notwithstanding the results of the REGENERATE trial would differ18-month analysis, the CRL indicated that, based on the data the FDA had reviewed, the FDA had determined that the predicted benefit of OCA based on a surrogate histopathologic endpoint remained uncertain and did not sufficiently outweigh the potential risks to support accelerated approval for the treatment of patients with liver fibrosis due to NASH. The FDA recommended that we submit additional post-interim analysis efficacy and safety data from the FLINT results. Even thoughongoing REGENERATE study in support of potential accelerated approval and that the long-term outcomes phase of the study should continue.

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

In September 2022, we announced that REVERSE, a Phase 3 study evaluating the safety and efficacy of OCA in patients with compensated cirrhosis due to NASH, did not meet its primary endpoint of a ≥ 1-stage histological improvement in fibrosis with no worsening of NASH following up to 18 months of therapy. In the REVERSE study of 919 randomized subjects with compensated cirrhosis due to NASH, 11.1% (p=NS) of subjects who were randomized to receive once-daily oral OCA 10 mg and 11.9% (p=NS) of subjects who were randomized to receive OCA 10 mg titrated to 25 mg (OCA 10-to-25 mg) after three months achieved a ≥1-stage improvement in fibrosis with no worsening of NASH after up to 18 months of treatment, compared with 9.9% of subjects who received placebo.

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While we intend to resubmit to the FDA our NDA for approval of OCA for liver fibrosis due to NASH following the results of the New Interim Analysis, we do not know if one pivotal clinical trialsuch results will be sufficient for marketing approval or if regulatorsthe FDA will agree to a surrogate endpoint for accelerated approval ofapprove OCA for the treatment of NASH. As a result, it may take longer than anticipatedliver fibrosis due to initiate and complete the Phase 3 REGENERATE trialNASH on an accelerated or our Phase 3 program in NASH for other patient subpopulations.conditional basis, or at all.

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 toproducts be taken off the market require them toor include new or additional safety warnings or otherwisewarnings. 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 high density lipoprotein HDL cholesterol were also observed during treatment in theour Phase 3 POISE trial. In our Phase 2 trials for OCA infor PBC, a dose-response relationship was observed forin 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.

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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 providerDear Health Care Provider (“DHCP”) letter, and the FDA also subsequently issued theirits 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 takentook 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 alladjudicating reported cases of serious liver injury, including in patients with no or mild hepatic impairment. PursuantIn 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'sthen-existing dosing schedule for patients with Child-Pugh Class B or C or decompensated cirrhosis. In addition, the FDA issued an updated drug safety communication to accompany the revised label. We remain focused on the safety of all of the patients using Ocaliva within and outside of our ongoing clinical studies and have engaged with relevant regulatory authorities to ensure that the Ocaliva label sufficiently reinforces the importance of appropriate dosing in patients with advanced cirrhosis.

In 2020 the FDA notified us that, in the course of its routine safety surveillance, in May of that year it began to evaluate a newly identified safety signal, or NISS, regarding liver disorder for Ocaliva which the FDA classified as a potential risk, focused on a subset of the cirrhotic, or more advanced, PBC patients who had taken Ocaliva. In May 2021, the NISS process was concluded and we have been workingaligned with the FDA on updatesupdated Ocaliva prescribing information in the United States, and Ocaliva is now contraindicated for patients with PBC and decompensated cirrhosis, a prior decompensation event, or compensated cirrhosis with evidence of portal hypertension, in addition to the label to better ensure appropriateexisting contraindication for complete biliary obstruction. This issue, and safe useany other safety concerns associated with Ocaliva, perceived or real, may

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adversely affect the successful development and anticipate the updated label by early 2018. These events may cause decreased demand forcommercialization of our product candidates and lossapproved products, including Ocaliva, and materially and adversely affect our business including future revenue generated by Ocaliva.

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

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

In September 2022, we announced topline results for REVERSE, a Phase 3 study evaluating the safety and efficacy of OCA in patients with compensated cirrhosis due to NASH. Safety was evaluated in 916 subjects who took at least one dose of study drug (placebo, OCA 10 mg or OCA 10-to-25 mg). Treatment-emergent adverse events (TEAEs), treatment-emergent serious adverse events (TESAEs) and deaths were balanced across all treatment groups in REVERSE. The most common TEAE was pruritus (31% in placebo, 41% in OCA 10 mg and 57% in OCA 10-to-25 mg) and pruritus was the most common reason for treatment discontinuation. Serious gallbladder-related events were balanced across arms (0.6% in placebo, 1.0% in OCA 10 mg, 1.0% in OCA 10-to-25 mg). Consistent with the known mechanism of action of FXR-agonists, the OCA 10-to-25 mg arm had a higher incidence of gallstones.

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 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, theseThese 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.

In theDecember 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

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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 extensionLTSE phase of the trial.

During the ongoing LTSE phase of CONTROL, there has beenwas one patient deathdeath. 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. Whilefailure, 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 wasthese events were possibly related to treatment, the principal investigator andtreatment. 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 waswere unlikely related to OCA.

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

Additional or unforeseen side effects fromrelating 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, OCA will beis 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 effortssales 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 drugproduct candidates are being developed as potential treatments for severe, life threateninglife-threatening diseases and, as a result, our trials will necessarily be conducted in a patient populationpopulations that will beare 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 trial in NASH patients with cirrhosis. Ocaliva is usedprescribed 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 dueour approved products are related to our drugsproduct candidates or drug candidatesapproved products or some other factor, resulting in our companyfactor. As a result, we and our development programs beingmay 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 respectrelated to OCA or our other product candidates will not developbe observed in futureour clinical trials or in the commercial use, whichsetting. 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.

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

·regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

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

·we may be subject to limitations on how we may promote the product;

·sales of the product may decrease significantly;

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

·we may be subject to litigation or product liability claims; and

·our reputation may suffer.

Risks Related to the Development and the Regulatory Review and

Breakthrough therapy designationApproval of Our Products and Product Candidates

We cannot be certain whether Ocaliva will receive full approval for PBC in the United States. Furthermore, OCA may not lead to faster developmentbe approved on an accelerated basis, or at all, for NASH or any other indication beyond PBC and we may not receive regulatory processes nor does it increase the likelihood that OCA will receive marketing approval for NASH.

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 in 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 OCA in fibrotic NASH patients or increase the likelihood that OCA will be granted marketing approval for fibrotic NASH patients. Likewise, any future breakthrough therapy designation for any other potential indication of OCA neither guarantees a faster development process, review orproduct candidate. Without regulatory approval, nor improves the likelihood of the grant of marketing approval by 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. We may seek a breakthrough therapy designation for other of our product candidates, but the FDA may not grant this status to any of our proposed product candidates.

We maywe will not be able to obtain or maintain orphan drug exclusivity formarket and commercialize our product candidates.

The development, testing, manufacture, packaging, labeling, storage, approval, promotion, advertising, distribution, marketing and export and import, among other things, of our products and product candidates if approved, which would cause our revenuesare subject 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,extensive regulation by 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.

Generally, if a We are not permitted to market our 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 or the FDA from approving another marketing application for the same product for that time period. The applicable period is seven yearscandidates in the United States and ten years in Europe. The European exclusivity period can be reduced to six years ifuntil we receive approval of a product no longer meetsNDA from 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 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 exclusivity attaching to the marketing authorization will 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 that the product does not satisfy 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 the product is sufficiently profitable to justify not to maintain the marketing exclusivity.

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The failure to maintain orphan status may impactFDA. Currently, our ability to receive a premium pricegenerate product sales depends on the successful marketing of Ocaliva for OCA or our other products and may subject us to mandatory price discounts in Europe.PBC. In addition,the future, our ability to launchgenerate product sales in Europe may be delayed and we may lose other benefits such as tax exemptions for sales. As such, the loss of orphan drug status may have a negative effect on our abilityaddition 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 EMA can subsequently approve the later product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

If the FDA and EMA and other regulatory agencies do not approve 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 of our product candidates or commercialization of our product candidates could be delayed.

We do not intend to manufacture the pharmaceutical products that we plan to sell. We currently have agreements with a contract manufacturer for the production of the active pharmaceutical ingredients and the formulation of sufficient quantities of drug product for commercial sales and for our clinical trials and preclinical studies that we plan to conduct prior to and after seeking regulatory approval. If our contract manufacturer should cease to provide services to us for any reason, we likely would experience delays in advancing our clinical trials while we identify and qualify one or more replacement suppliers and we may be unable to obtain replacement supplies on terms that are favorable to us.

We currently have a long-term supply agreement with PharmaZell GMBH for the manufacture of commercial supply for Ocaliva. While we have procured sufficient supplies for the commercial launchthose of Ocaliva for PBC will depend on whether we are successful in PBC, we may not be able to procure sufficient supplies of Ocaliva on a continued basis. We are also seeking to qualify one or more back-up suppliers for our active ingredients; however, we may not be able to enter into additional long-term commercial supply agreements for OCA with other third-party manufacturers. We do not have agreements for long-term supplies of any of our other product candidates. We currently obtain these supplies and services from our third-party contract manufacturers on a purchase order basis.

Additionally, the facilities used by any contract manufacturer to manufacture OCA or anyobtaining regulatory approval 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 atincluding OCA for liver fibrosis due to NASH.

Ocaliva is our only drug that facility. We are completely dependent on these third-party manufacturershas been approved for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of our finished products. If our manufacturers cannot successfully manufacture material that conform to our specifications and current good manufacturing practice 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.

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

·the possibility that we are unable to enter into or renew a manufacturing agreement with a third party to manufacture OCA or our product candidates;

·the possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and

·the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacement third-party manufacturer.

Any of these factors could cause the delay of approval or disruption of commercialization of our products or product candidates, cause us to incur higher costs, prevent us from commercializing our products and product candidates successfully or disrupt the supply of our products after commercial launch. Furthermore, if any of our product candidates are approved and 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 and could lose potential revenue. It may take several years to establish an alternative source of supply and to have any such new source approved by the government agencies that regulate our products.

Even if our product candidates receive regulatory approval, we will still be subject to strict regulatory requirements governing manufacturing 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 subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information. In addition, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA and EMA requirements and requirements of other similar agencies, including ensuring 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 and periodic inspections to assess compliance with cGMPs. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA and EMA and other similar agencies 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 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.

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If a regulatory agency discovers previously unknown problems with a product, 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, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

·issue warning letters;

·mandate modifications to 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 include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

·impose other administrative or judicial civil or criminal penalties;

·withdraw regulatory approval;

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

·impose restrictions on operations, including costly new manufacturing requirements; or

·seize or detain products.

Risks Related to the Commercialization of Our Products

Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance of Ocaliva or our product candidates, if approved. If there is not sufficient reimbursement for our products or they are not covered at all, it is less likely 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 future healthcare reform measures. 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 will be available for Ocaliva or any other products and product candidates that we develop. Also, reimbursement policies could reduce the demand for, or the price paid for, our products. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize Ocaliva or any other products or product candidates that we develop.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or 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.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, ACA, became law in the United States. The goal of ACA is to reduce the cost of health care and substantially change the way health care 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, on sales by branded pharmaceutical manufacturers. Following the November 2016 U.S. elections and the inauguration of President Trump, uncertainty exists about the future of the coverage expansion provided by the ACA; while Congressional efforts to repeal the ACA have not yet resulted in the passage 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 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,sale 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.

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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 nothas only been 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.

Reimbursement in the European Union and many other territories must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. The timing to complete the negotiation process in each country is highly uncertain. 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 generally 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 healthcare system 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 and any other products that we develop, 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 by the Trump administration.

Ocaliva and other product candidates, if approved, 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.

The commercial success of Ocaliva or our other products or product candidates that we develop, if approved, will depend upon their acceptance among the medical community, including physicians, healthcare payors and patients. In order for Ocaliva to be commercially successful in PBC, we will need to demonstrate its utility as a treatment for patients who have an inadequate response to 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. 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. In NASH 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.

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

·limitations or warnings contained in our product candidates’ FDA or EMA-approved labeling;

·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, such as ursodiol for the treatment of PBC;

·limitations in the approved clinical indications for our product candidates;

·demonstrated clinical safety and efficacy compared to other products;

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·lack of significant adverse side effects;

·sales, marketing and distribution support;

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

·timing of market introduction and perceived effectiveness of competitive products;

·the degree of cost-effectiveness;

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

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

·whether our product candidates are designated under physician treatment guidelines for the treatment of the indications for which we have received regulatory approval;

·adverse publicity about our product candidates or favorable publicity about competitive products;

·convenience and ease of administration of our product candidates; and

·potential product liability claims.

In addition, the potential market opportunity for our products and product candidates 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 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, 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 in PBC could be smaller than our estimates of our potential market opportunity. If the actual market opportunity for Ocaliva or our product candidates is smaller than we expect, our product revenue may be limited.

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

We have limited sales, marketing or distribution experience and we will have 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 or distribution experience as a commercial organization. The commercial launch of Ocaliva for PBC represents our first product launch. We also plan to commercialize Ocaliva for PBC in certain other countries outside of the United States 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 in other indications and for our other product candidates. 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 and could delay any product launch. If the commercial launch of a 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 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 products; and

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

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

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

In addition to FDA restrictions on 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 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 prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. 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 the purchase, lease or order of any healthcare item or service 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 to the federal anti-kickback law and federal false claims laws, which apply to items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative, civil and criminal sanctions may be imposed under these federal and state laws.

Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, such as: 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; 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 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 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 ursodiolUDCA in adults with an inadequate response to ursodiolUDCA 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 subject to significant liability, including civil and administrative remedies as well as criminal sanctions. A significant number of pharmaceutical companies have been the target of inquiries and investigations by various governmental authorities inUDCA. In the United States, and abroad.

NotwithstandingOcaliva was approved for PBC under the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies 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 our business practices comply with current or future administrative or judicial interpretations of potentially applicable laws and regulations. If we fail to comply with any of these laws 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 our products or manufacturing processes, withdrawal of Ocaliva or other products 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.

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If any of our current strategic collaborators fails to perform its obligations or terminates its agreement 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.

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 ofaccelerated approval pathway. Accelerated approval was granted for 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 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.

Because developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, expanding manufacturing capabilities and marketing approved products are expensive, we have entered into, and may seek to enter into, collaborations with companies that have more experience and resources than we have. For example, we have entered into a collaboration with Sumitomo Dainippon for OCA. We may establish additional collaborations for development and commercialization of OCA in territories outside of those licensed by Sumitomo Dainippon and for other product candidates and research programs, including INT-767 and INT-777. 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. If we are unable to maintain our existing arrangements or enter into any new such arrangements on acceptable terms, if at all, we may be unable to effectively market and sell our products in our target markets. We expect to face competition in seeking appropriate collaborators. Moreover, collaboration 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, we can expect to relinquish some or all of the control over the future success of that product candidate 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 commercialization of our product candidates or may otherwise fail in their 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. In some cases, we may be responsible for continuing preclinical and initial clinical development of a 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 increased costs, we may be forced to limit the number of our product candidates we can commercially develop or the territories in which we commercialize them and we might fail to commercialize products or programs for which a suitable collaborator cannot be found. If we fail to achieve successful collaborations, our operating results and financial condition will be materially and adversely affected.

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If we fail to develop OCA for additional indications, 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 in NASH and other progressive non-viral liver diseases, to the extent that we have sufficient funding.

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, the market size is expected to be 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 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 for a long 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 successfulreduction in developing and obtaining marketing approval of OCA for the treatment of NASH, we may not be able to commercialize OCA successfully.

The completion of development, securing of approval and commercialization of OCA for additional indications will require substantial additional funding and is prone to the risks of failure inherentALP; however, an improvement in drug development. 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 FDAsurvival or EMA approval to market OCA for the treatment of any of these 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 additional indications, our commercial opportunity will be limited and our business prospects will suffer.

Risks Related to Our Business and Strategy

We face competition from other biotechnology and pharmaceutical companies and 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 greater financial and other resources, such as larger research and development staff and more experienced marketing and manufacturing organizations. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading companies and research institutions. 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 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 or EMA 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 we expect to compete with include Allergan Plc, AstraZeneca plc, Acorda Therapeutics, Inc., Boehringer Ingelheim GmbH, Bristol-Myers Squibb Company, Conatus Pharmaceuticals Inc., Cymabay Therapeutics, Inc., Dr. Falk Pharma GmbH, Durect Corporation, Enanta Pharmaceuticals, Inc., ENYO Pharma SAS, Galectin Therapeutics Inc., Galmed Medical Research Ltd., Genfit SA, Gilead Sciences, Inc., GlaxoSmithKline, Immuron Ltd., Islet Sciences, Inc., Madrigal Pharmaceuticals, Inc., Metacrine, Inc., MiNA Therapeutics, NGM Biopharmaceuticals, Novartis International AG, Novo Nordisk A/S, Shire plc, Viking Therapeutics, Inc. and Zydus Pharmaceuticals Inc. Bezafibrate, a fibrate thatdisease-related symptoms has not yet been approved for commercialization by the FDA and is only available outside of the United States, has been studied in multiple clinical trials for the treatment of liver diseases including PBC and NASH. Genfit SA has an ongoing Phase 3 clinical trial of GFT505, a dual PPAR alpha/delta agonist, in NASH. Genfit is also studying GFT505 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, a small molecule allosteric inhibitor that acts at the protein-protein homodimer interface of acetyl-CoA carboxylases acquired from Nimbus Therapeutics, LLC, and an FXR agonist known as GS-9674. Gilead Sciences, Inc. is also studying a number of compounds in other liver diseases including PBC and PSC. Allergan Plc has an ongoing Phase 3 clinical trial of cenicriviroc, an immunomodulator that blocks C-C chemokine receptor type 2 and type 5, for the treatment of NASH. A number of other companies have trials in PBC, NASH and other liver diseases we are targeting.

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In addition, many universities and private and public research institutes may become active in our target disease areas. The results from our POISE and FLINT trials and theestablished. Continued 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 obsolete and noncompetitive.

Off-label uses of other potential treatments may limit the commercial potential of our 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. In NASH, a number of treatments, including vitamin E (an antioxidant), insulin sensitizers (such as metformin), antihyperlipidemic agents (such as gemfibrozil), pentoxifylline and ursodiol, 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:

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

·our ability to recruit and enroll patients for our clinical trials;

·the efficacy, safety and reliability of Ocaliva and our other product candidates;

·the speed at which we develop our product candidates;

·our ability to design and successfully execute appropriate clinical trials;

·our ability to maintain a good relationship with regulatory authorities;

·the timing and scope of regulatory approvals, if any;

·our ability to commercialize and market any of our product candidates that receive regulatory approval;

·the price of our products;

·adequate levels of reimbursement under private and governmental health insurance plans, including Medicare;

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

·our ability to manufacture and sell commercial quantities of any approved products to the market; and

·acceptance of our product candidates by physicians and other health care providers.

If our competitors market products that are more effective, safer 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 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. 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 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.

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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 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 in preparation for the anticipated commercial launch of Ocaliva in PBC in those jurisdictions. 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. 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. Our international operations and business relationships subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations, including:

·differing regulatory requirements for drug approvals internationally;

·potentially reduced protection for intellectual property rights;

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

·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;

·unexpected changes in tariffs, trade barriers and regulatory requirements;

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

·compliance with tax, employment, immigration and labor laws for employees traveling abroad;

·taxes in other countries;

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

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

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

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

For example, we do not know the extent of the impact that the Brexit will have on our business. As a result of the Brexit, it is possible that Scotland and Northern Ireland may each conduct a referendum to decide whether to leave the United Kingdom. Furthermore, other European countries may seek to conduct referenda with respect to continuing membership with the European Union. We do not know to what extent these changes will impact our business. Our ability to conduct our international business out of the United Kingdom may be materially and adversely affected.

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, the outcome of examinations by the U.S. Internal Revenue Service and regulators of other jurisdictions, the accuracy of our estimates for unrecognized tax benefits, the realization of deferred tax assets, or by changes to our ownership or capital structure. 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.

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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.

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 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;

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·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 limitedcontingent upon the verification and description of clinical benefit in confirmatory trials and our satisfaction of our other post-marketing regulatory requirements. Any failure by us to confirm the clinical benefit of Ocaliva for PBC due to COVID-19 or other factors may jeopardize the continued approval of Ocaliva for PBC.

In addition, we continue to work to execute on our post-marketing regulatory commitments with respect to Ocaliva. Based on a review by the DMC of an aggregateunblinded pre-specified interim efficacy analysis of $10 million. We have clinicalthe COBALT trial and commercial product liability insurance coverage outsideunblinded safety and pharmacokinetic data from both the COBALT and 401 trials, the DMC stated that it was not feasible to continue the COBALT trial as designed and noted the challenges in enrolling and maintaining placebo-controlled post-marketing studies in this rare disease setting. We notified the FDA of the United States in amounts that vary by country. As such,DMC’s recommendation and based on discussions with the FDA, which are ongoing, we closed our insurance coverage mayCOBALT and 401 trials and compiled data available from these studies. In June 2022, we announced topline results from our COBALT trial. The primary endpoint, as agreed with the FDA, was time to first occurrence of any of the following clinical endpoints: all-cause death, liver transplant, hospitalization for other serious liver-related events, signs of progression to hepatic decompensation, or signs of development of portal hypertension. The study did not 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,demonstrate a statistically significant difference between Ocaliva and placebo on the primary endpoint: 71 subjects in the future,Ocaliva arm progressed to clinical events compared to 80 in the placebo arm (p=0.30; HR 0.84). The safety and tolerability of Ocaliva were consistent with its known profile and adverse events were in line with expectations for patients with advanced PBC based on the natural history of the disease. In June 2022, we also announced topline results for our HEROES-US study, a retrospective real-world study that evaluated data from a U.S. claims database, to compare clinical outcomes in a pre-defined group of patients with PBC who were treated with Ocaliva and a comparable group of PBC patients who were eligible, but who were not treated with Ocaliva. The results from the HEROES-US study showed a statistically significant and clinically meaningful reduction in all-cause death, liver transplant, or hospitalization for hepatic decompensation among Ocaliva-treated patients compared to the control group. In the Ocaliva arm (n=429), 8 events were observed compared to 226 in the control group (n=4,585) with a weighted hazard ratio of 0.38 (p= 0.027). HEROES-US is one of two HEROES studies we are conducting that utilizes real-world data to assess the impact of Ocaliva on clinical outcomes in PBC patients.

In September 2022, we had an sNDA pre-submission meeting with the FDA in which we reviewed our post-marketing requirements with respect to Ocaliva. We intend to submit the data from the COBALT and HEROES-US studies as well additional data, including data from other real world evidence studies, as part of a broader evidence package in the sNDA in support of full approval of Ocaliva for the treatment of PBC, which we anticipate submitting to the FDA in 2023. If this data package does not support fulfillment of our post-marketing obligations, 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 obtainpreviously granted marketing approval of Ocaliva for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurancePBC.

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Ocaliva is not approved for any indication other than PBC. We currently have no other products approved for marketing. Large judgmentssale and we cannot guarantee that we will ever have been awardedadditional marketable products or that OCA will be approved for use in class action lawsuitsadditional indications such as NASH. NDAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. NDAs must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of a NDA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA review processes can take years to complete and approval is not guaranteed. Even after the submission of a NDA, the FDA may decide not to accept the submission for filing and review or may determine that the submission does not support approval. For example, in 2020 we received a CRL from the FDA with respect our NDA for OCA for liver fibrosis due to NASH. The CRL indicated that, based on drugsthe data the FDA had reviewed, the FDA determined that the predicted benefit of OCA based on a surrogate histopathologic endpoint remained uncertain and did not sufficiently outweigh the potential risks to support accelerated approval for the treatment of patients with liver fibrosis due to NASH.

In July 2022, we 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 resourcesa pre-submission meeting with the FDA in which we reviewed the planned structure 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. Somethe timing of the policiessubmission of our NDA and have had an ongoing dialogue as we currentlyprepare to re-submit. As we previously disclosed, the Company will need to overcome the risk-benefit assessment of the FDA from the prior review of the NDA for OCA for the treatment of liver fibrosis due to NASH. Although we believe that the insights we have gained from the re-analysis and from the larger and more robust safety database provide an improved risk-benefit, there can be no assurances that the FDA will change its view on risk-benefit and will approve such NDA on an accelerated basis, or at all.

In order to obtain and/or maintain include general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, ifregulatory approval for OCA for indications other than PBC, we will be ableneed 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 positioncomplete additional clinical trials 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.

Althoughstudies. For example, we intend to evaluatere-resubmit our NDA for OCA for patients with liver fibrosis following the results of the New Interim Analysis, but we can provide no assurances that the FDA will grant approval. Our ability to obtain and consider in-license transactions, acquisitions, reorganizationsmaintain the regulatory approvals necessary to commercialize OCA for indications other than PBC, including NASH, will depend on our ability to successfully design, conduct and business combinationscomplete these trials, the efficacy, safety and risk-benefit profile of OCA demonstrated by such trials and our ability to prepare and submit complex regulatory filings in the future, we have no agreements or understandingsaccordance with respect to any acquisition, reorganization or business combination at this time.applicable regulatory requirements.

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.

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Although to date we have not experienced any material losses relating to cyber-attacks or other information security breaches, thereThere can be no assurance that weOcaliva will not suffer such losses inreceive full approval from the future. If suchFDA or that OCA will receive marketing approval on an event were to occur and cause interruptions in our operations, it could result in a material disruptionaccelerated or conditional basis, or at all for NASH, or that any of our drug development programs, damage toother product candidates will receive marketing approval for any indication in any jurisdiction. We cannot predict whether 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 ofstudies for our product candidates, couldincluding OCA for NASH or any other indication, will be delayed.successful, whether regulatory authorities will agree with our conclusions relating to the clinical trials and studies we conduct, or whether such regulatory authorities will require us to conduct additional clinical trials or studies.

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, while OCA received breakthrough therapy designation from the Health Insurance PortabilityFDA in January 2015 for the treatment of NASH patients with liver fibrosis and Accountability Act,we intend to resubmit our NDA for OCA for liver fibrosis due to NASH following the results of the New Interim Analysis, we do not know if the FDA will approve OCA for liver fibrosis due to NASH on an accelerated or 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.conditional basis, or at all.

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. WhileIf we are actively employing the EU-U.S. Privacy Shield as a meansunable 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, andobtain or maintain regulatory approval for OCA for PBC or for other indications, we may not be able to ensure their protection. If our patent position does not adequately protect our products and product candidates, others could compete against us more directly, which would harm our business, possibly materially.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our current and future products and product candidates and the methods usedgenerate sufficient revenue to manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sellmaintain profitability or importing our products and product candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.

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 jurisdictions outside of the United States. Changes in either the patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be enforced in the patents that may be issued from the applications we currently own or may own in the future, or license from third parties. Further, if any patents we obtain or license are deemed invalid and unenforceable, our ability to commercialize or license our technology could be adversely affected.

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 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 or invalidity 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 of the America Invents Act.

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 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 pending patent applications;

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

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

·any patents that we obtain may not provide us with any competitive advantages;

·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 the owner of record of over 110 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 the owner at that date of record of over 100 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 compounds 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.

Patents covering the composition of matter of OCA expire in 2022 at the soonest and 2033 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 on 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. 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.

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 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 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.

Our primary composition of matter patent for OCA expires in 2022. In light of the U.S. marketing approval of OCA in PBC in May 2016, we have applied for an extension to the patent term for this patent in the United States through 2027. We expect to take similar actions in other jurisdictions and countries where similar regulations exist. In the event that we are unable to obtain any patent term extensions, the issued composition of matter patents for OCA are expected to expire in 2022 at the soonest and 2033 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 fees are paid, would expire from 2022 to 2033.

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

If we choose to go to court or engage in other adversarial proceedings to stop another party from using the inventions claimed in any 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 and scientific personnel even if we were successful in stopping the infringement of such patents. In addition, there is a risk that the court or adjudicating body will decide that such patents are not valid 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 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 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 or increase the costs of commercializing our product and product candidates.

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 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 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 lawsuits are costly and could affect our results of operations and divert the attention of managerial and scientific personnel. There is a risk that a court would decide that we or our commercialization collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our commercialization collaborators may not have a viable way around the patent and may need to halt commercialization of the relevant product. In addition, there is a risk that a court will order us or our collaborators to pay the other party damages for having violated the other party’s patents. In the future, we may agree to indemnify our commercial collaborators against certain intellectual property infringement claims brought by third parties. 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 or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.

If we are sued for patent infringement, we would need to demonstrate that our products 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 proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. 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 our products and product candidates to market and be precluded from manufacturing or selling our products and product candidates.

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 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 or derivation 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 resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

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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 non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or 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 the USPTO and non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

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 and products 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 could result in substantial costs and be a distraction to management.

We 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. 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 prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. For example, in September 2016, the Department of Health and Human Services adopted new regulations mandating sponsors to publicly post 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 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 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. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing 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 trade secret protection could adversely affect our competitive business position.

We have not yet registered all of our trademarks and failure to secure those 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 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 or 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, third parties are given 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 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 lead to customer confusion, which could adversely affect our sales or profitability.

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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 we issued in July 2016, or convertible notes or any 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. 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 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 not be restricted under the terms of the indenture governing the convertible notes 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 could have a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the 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 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 treated as original issue discount for purposes of accounting for the debt component of the convertible notes. As a result, we will be 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 to their face amount over the term of the convertible notes. We will report lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the convertible notes.

In addition, under certain circumstances, convertible debt instruments (such as the 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 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, 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.

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Risks Related to Ownership of Our Common Stock

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 our stockholders’ 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. As of September 30, 2017, approximately 30.1% 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 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 liability 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 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 these matters. In addition, we may incur substantial legal fees and costs in connection with litigation. 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 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 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.

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;

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·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.

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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, 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% of our outstanding common stock as of September 30, 2017. 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 may desire.

Furthermore, the interests of Genextra may not always coincide with your interests or the interests of other stockholders, and Genextra may act in a manner that advances its best interests and not necessarily those of other stockholders, including seeking a premium value for its common stock, and might affect the prevailing market price for our common stock. Our board of directors, which consists of nine 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 of our common stock into the market from time to time.  If 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 for our common stock.

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.

In the future, we may issue additional shares of our common stock or other securities convertible into or exchangeable for our common stock in order to raise additional capital or in connection with strategic transactions, including potential in-licenses or acquisitions 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 price per share you paid for 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. You may also incur additional dilution upon the exercise of any outstanding stock options or vesting of restricted stock units or awards.

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 our stock, the price of our stock and trading volume could decline.

The trading market for our common stock 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 decline. If one or more of the analysts covering us fail to regularly publish reports on us, demand for our common stock could decline, which could cause our stock price and trading volume to decline.

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

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 consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. 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;

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·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, 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 to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

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. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock 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, 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 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.

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 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 who may choose to bring a claim against our company.

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

As of December 31, 2016, we had net operating loss carryforwards, or NOLs, for U.S. Federal income tax purposes of $562.3 million, which expire between 2024 and 2036. We also have certain state and foreign NOLs in varying amounts depending on the different state and foreign tax laws.

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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

Set forth below is information regardingExcept as disclosed in our filings on Form 8-K, we did not sell any unregistered securities sold by us during the ninethree 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.2022.

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

PurchaseIssuer Purchases 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.three months ended September 30, 2022.

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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.

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Exhibit Index

60

Exhibit
Number

Description of Exhibit

10.1++

Amendment to Transitional Services Agreement, dated July 26, 2022, between Intercept Pharmaceuticals, Inc. (“ICPT Inc.”) and Advanz Pharma Services (UK) Limited (“Advanz Services”) (previously filed, and incorporated by reference from Exhibit 10.8 to Form 10-Q filed on August 3, 2022, File No. 001-35668).

10.2

Amendment to Safety Data Exchange Agreement, dated July 1, 2022, between ICPT Inc. and Mercury Pharma Group Limited (“Mercury Pharma”) (previously filed, and incorporated by reference from Exhibit 10.9 to Form 10-Q filed on August 3, 2022, File No. 001-35668).

10.3

Amendment to Share Purchase Agreement, dated July 1, 2022, between ICPT Inc. and Mercury Pharma (previously filed, and incorporated by reference from Exhibit 10.10 to Form 10-Q filed on August 3, 2022, File No. 001-35668).

31.1

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

31.2

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

32.1(1)

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

101

The following materials from the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2022, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021 (unaudited), (ii) Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited), (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited), (v) Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2022 and 2021 (unaudited) and (vi) Notes to Condensed Consolidated Financial Statements (unaudited).

104

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

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

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

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SIGNATURES

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

INTERCEPT PHARMACEUTICALS, INC.

INTERCEPT PHARMACEUTICALS, INC.

Date: November 6, 20171, 2022

By:

/s/ Mark PruzanskiJerome Durso

Mark Pruzanski, M.D.

Jerome Durso

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 6, 20171, 2022

By:

/s/ Sandip KapadiaAndrew Saik

Sandip Kapadia

Andrew Saik

Chief Financial Officer

(Principal Financial Officer)

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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.
31.1Certification 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.
31.2Certification 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.
32.1Certification 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.
101The 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).

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