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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

OR

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

For the transition period from                          to                         

Commission file number: 001-35668

INTERCEPT PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

    

22-3868459

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

10 Hudson Yards, 37th Floor

New York, NY 10001

(Address of Principal Executive Offices and Zip Code)

(646) 747-1000

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ICPT

Nasdaq Global Select Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of shares of the registrant’s common stock outstanding as of September 30, 2020 was 32,992,436.

Table of Contents

Intercept Pharmaceuticals, Inc.

INDEX

PART I
FINANCIAL INFORMATION

   

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets at September 30, 2020 (Unaudited) and December 31, 2019 (Audited)

8

Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2020 and 2019 (Unaudited)

9

Condensed Consolidated Statements of Comprehensive Loss for the three and nine-month periods ended September 30, 2020 and 2019 (Unaudited)

10

Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity for the three and nine-month periods ended September 30, 2020 and 2019 (Unaudited)

11

Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2020 and 2019 (Unaudited)

13

Notes to Condensed Consolidated Financial Statements (Unaudited)

14

Item 2.

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

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.

Controls and Procedures

44

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

45

Item 1A.

Risk Factors

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

100

Item 6.

Exhibits

101

Exhibit Index

102

Signatures

103

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

2

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

our ability to successfully commercialize Ocaliva for PBC;
our ability to maintain our regulatory approval of Ocaliva for PBC in the United States, Europe, Canada, Israel, Australia and other jurisdictions in which we have or may receive marketing authorization;
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 following the issuance of the CRL by the FDA; 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; or 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;
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 REMS, 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;
the initiation, timing, cost, conduct, progress and results of our research and development activities, preclinical studies and clinical trials, including any issues, delays or failures in identifying patients, enrolling patients, treating patients, retaining patients, meeting specific endpoints in the jurisdictions in which we intend to seek approval or completing and timely reporting the results of our NASH or PBC clinical trials;

3

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our ability to establish and maintain relationships with, and the performance of, third-party manufacturers, contract research organizations and other vendors upon whom we are substantially dependent for, among other things, the manufacture and supply of our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our clinical trial activities;
our ability to identify, develop and successfully commercialize our products and product candidates, including our ability to successfully launch OCA for liver fibrosis due to NASH, if approved;
our ability to obtain and maintain intellectual property protection for our products and product candidates, including our ability to cost-effectively file, prosecute, defend and enforce any patent claims or other intellectual property rights;
the size and growth of the markets for our products and product candidates and our ability to serve those markets;
the degree of market acceptance of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH or our other product candidates among physicians, patients and healthcare payors;
the availability of adequate coverage and reimbursement from governmental and private healthcare payors for our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our ability to obtain adequate pricing for such products;
our ability to establish and maintain effective sales, marketing and distribution capabilities, either directly or through collaborations with third parties;
competition from existing drugs or new drugs that become available;
our ability to prevent system failures, data breaches or violations of data protection laws;
costs and outcomes relating to any disputes, governmental inquiries or investigations, regulatory proceedings, legal proceedings or litigation, including any securities, intellectual property, employment, product liability or other litigation;
our collaborators’ election to pursue research, development and commercialization activities;
our ability to establish and maintain relationships with collaborators with development, regulatory and commercialization expertise;
our need for and ability to generate or obtain additional financing;
our estimates regarding future expenses, revenues and capital requirements and the accuracy thereof;
our use of cash and short-term investments;
our ability to acquire, license and invest in businesses, technologies, product candidates and products;
our ability to attract and retain key personnel to manage our business effectively;
our ability to manage the growth of our operations, infrastructure, personnel, systems and controls;
our ability to obtain and maintain adequate insurance coverage;

4

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the impact of COVID-19, including any impact on our results of operations or financial position, related quarantines and government actions, delays relating to our regulatory applications, disruptions relating to our ongoing clinical trials or involving our contract research organizations, study sites or other clinical partners, disruptions relating to our supply chain or involving our third-party manufacturers, distributors or other distribution partners, facility closures or other restrictions, and the extent and duration thereof;
the impact of general U.S. and foreign economic, industry, market, regulatory or political conditions, including the potential impact of Brexit; and
the other risks and uncertainties identified under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q and in our other periodic filings filed with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2019.

NOTE REGARDING TRADEMARKS

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

5

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SUMMARY RISK FACTORS

Investing in our securities involves a high degree of risk. Investors should carefully consider the risks and uncertainties discussed under the caption “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019 before deciding whether to invest in our securities. The following is a list of some of these risks:

Risks Related to Our Financial Position and Need for Additional Capital

We are currently dependent on the successful commercialization of Ocaliva for PBC. To the extent Ocaliva is not commercially successful, our business, financial condition and results of operations may be materially and adversely affected and the price of our common stock may decline.
We have never been profitable. We expect to incur losses for the foreseeable future, and we may never achieve or sustain profitability.
We will require substantial additional funding, which may not be available to us on acceptable terms, if at all. If adequate funds are not available to us, we may be required to delay, limit, reduce or cease our operations.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
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.

Risks Related to the Development and the Regulatory Review and

Approval of Our Products and Product Candidates

We cannot be certain whether Ocaliva will receive full approval for PBC in jurisdictions where it has previously received accelerated or conditional approval, or that Ocaliva will be approved for PBC in any jurisdictions beyond those in which it is currently approved. Furthermore, OCA may not be approved on an accelerated basis, or at all, for NASH or any other indication beyond PBC and we may not receive regulatory approval for any other product candidate. Without regulatory approval, we will not be able to market and commercialize our product candidates.
We are developing product candidates for the treatment of rare diseases or diseases for which there are no or limited therapies, such as PBC and NASH, and for some of which there is little clinical experience, and our development approach involves new endpoints and methodologies. As a result, there is a heightened risk that we will not be able to gain agreement with regulatory authorities regarding an acceptable development plan, that the outcome of our clinical trials will not be favorable or that, even if favorable, regulatory authorities may not find the results of our clinical trials to be sufficient for marketing approval.
Delays or difficulties in the commencement, enrollment and completion of our clinical trials and studies could increase our product development costs and delay, limit or prevent us from obtaining regulatory approval for OCA and our other product candidates.
COVID-19 could materially and adversely affect our clinical trials.
Failure can occur at any stage of clinical development. The results of earlier clinical trials are not necessarily predictive of future results and any product candidate we or our collaborators advance through clinical trials, including OCA, may not have favorable results in later clinical trials or receive or maintain regulatory approval.
Our product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require that our products be taken off the market or include new or additional safety warnings. Any such events may limit our existing and future product sales and materially and adversely affect our business, financial condition and results of operations.
We may not be able to obtain or, if approved, maintain orphan drug exclusivity for our approved products or product candidates, which could cause our revenues to suffer.

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Risks Related to the Commercialization of Our Products

Sales of Ocaliva may be adversely affected by safety and labeling changes required by the FDA.
We are subject to uncertainty relating to pricing and reimbursement. Failure to obtain or maintain adequate coverage, pricing and reimbursement for Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, or our other future approved products, if any, could have a material adverse impact on our ability to commercialize such products.
Legislative and regulatory healthcare reform may adversely affect our business.
Ocaliva and our other future approved products, if any, may not achieve broad market acceptance among physicians, patients and healthcare payors, and revenues generated from their sales may be limited as a result.
If we fail to develop OCA for additional indications such as NASH, our commercial opportunity will be limited.

Risks Related to Our Business and Strategy

We depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively as if we performed these functions ourselves.
We face rapid technological change and competition from other biotechnology and pharmaceutical companies. Our operating results will suffer if we fail to compete effectively.
Our business and operations would suffer in the event of system failures, data breaches or violations of data protection laws.

Risks Related to Our Intellectual Property

It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does not adequately protect our products such as Ocaliva and product candidates such as OCA for liver fibrosis due to NASH, others may compete against us more directly, which could harm our business, possibly materially.
If we do not obtain protection under the Hatch-Waxman Act in the United States (and similar legislation outside of the United States) extending the terms of our patents and/or providing data or other exclusivity for our products and product candidates, our business may be materially harmed.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, and such litigation may divert the attention of our management and scientific personnel and adversely affect our development and commercialization efforts.

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

Risks Related to Ownership of Our Common Stock

We have previously been, and are currently, subject to securities class action litigation and may be subject to similar or other litigation in the future. Such matters can be expensive, time-consuming and have a material adverse effect on our business, results of operations and financial condition.
Our stock price has been and may in the future be volatile, which could cause holders of our common stock to incur substantial losses.

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PART I

Item 1. Financial Statements.

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

September 30, 

December 31, 

2020

2019

    

(Unaudited)

    

(Audited)

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

45,311

$

70,055

Restricted cash

6,180

4,725

Investment debt securities, available-for-sale

 

445,269

 

582,567

Accounts receivable, net of allowance for credit losses of $224 and $0, respectively

 

39,049

 

38,044

Prepaid expenses and other current assets

 

25,282

 

25,924

Total current assets

 

561,091

 

721,315

Fixed assets, net

 

4,898

 

5,202

Inventory

 

8,359

 

8,462

Security deposits

 

6,949

 

6,661

Other assets

 

10,055

 

13,246

Total assets

$

591,352

$

754,886

Liabilities and Stockholders’ (Deficit) Equity

 

  

 

  

Current liabilities:

 

 

  

Accounts payable, accrued expenses and other liabilities

$

157,674

$

153,968

Short-term interest payable

 

5,450

 

8,037

Total current liabilities

 

163,124

 

162,005

Long-term liabilities:

 

  

 

  

Long-term debt

 

553,216

 

532,078

Long-term other liabilities

 

5,299

 

9,247

Total liabilities

$

721,639

$

703,330

Commitments and contingencies (Note 18)

Stockholders’ (deficit) equity:

 

  

 

  

Common stock par value $0.001 per share; 90,000,000 and 45,000,000 shares authorized; 32,992,436 and 32,853,066 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

33

 

33

Additional paid-in capital

 

2,217,625

 

2,176,133

Accumulated other comprehensive loss, net

 

(1,746)

 

(1,144)

Accumulated deficit

 

(2,346,199)

 

(2,123,466)

Total stockholders’ (deficit) equity

 

(130,287)

 

51,556

Total liabilities and stockholders’ (deficit) equity

$

591,352

$

754,886

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Revenue:

  

 

 

  

 

  

Product revenue, net

$

79,521

$

61,545

$

229,422

$

179,286

Licensing revenue

 

 

405

 

 

1,216

Total revenue

 

79,521

 

61,950

 

229,422

 

180,502

Operating expenses:

 

  

 

  

 

  

 

  

Cost of sales

 

1,826

 

487

 

4,555

 

1,738

Selling, general and administrative

 

70,619

 

76,828

 

262,537

 

223,738

Research and development

 

48,858

 

60,168

 

139,587

 

178,163

Restructuring

13,381

13,381

Total operating expenses

 

134,684

 

137,483

 

420,060

 

403,639

Operating loss

 

(55,163)

 

(75,533)

 

(190,638)

 

(223,137)

Other income (expense):

 

  

 

  

 

 

  

Interest expense

 

(12,091)

 

(11,795)

 

(35,801)

 

(29,518)

Other income, net

 

785

 

2,495

 

3,706

 

6,132

Total other (expense), net

 

(11,306)

 

(9,300)

 

(32,095)

 

(23,386)

Net loss

$

(66,469)

$

(84,833)

$

(222,733)

$

(246,523)

Net loss per common and potential common share:

 

  

 

  

 

  

 

  

Basic and diluted

$

(2.01)

$

(2.59)

$

(6.76)

$

(7.88)

Weighted average common and potential common shares outstanding:

 

  

 

  

 

  

 

  

Basic and diluted

 

32,989

 

32,717

 

32,957

 

31,275

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Net loss

$

(66,469)

$

(84,833)

$

(222,733)

$

(246,523)

Other comprehensive (loss) income:

 

  

 

  

 

  

 

  

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

Unrealized (losses) gains on investment debt securities

 

(730)

 

451

 

230

 

1,646

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

 

 

2

 

53

 

6

Net unrealized (losses) gains on investment debt securities

$

(730)

$

453

$

283

$

1,652

Foreign currency translation gains (losses)

 

109

 

(687)

 

(891)

 

(463)

Other comprehensive (loss) income

$

(621)

$

(234)

$

(608)

$

1,189

Comprehensive loss

$

(67,090)

$

(85,067)

$

(223,341)

$

(245,334)

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

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

(Unaudited)

(In thousands)

Three months ended September 30, 2020

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss, Net

    

Deficit

    

Deficit

Balance - June 30, 2020

32,981

$

33

$

2,202,026

$

(1,125)

$

(2,279,730)

$

(78,796)

Stock-based compensation

 

 

 

15,825

 

 

 

15,825

Net proceeds from exercise of stock options

14

Employee withholding taxes related to stock-based awards

(3)

(226)

(226)

Other comprehensive loss

 

 

 

(621)

 

 

(621)

Net loss

 

 

 

 

 

(66,469)

 

(66,469)

Balance - September 30, 2020

 

32,992

$

33

$

2,217,625

$

(1,746)

$

(2,346,199)

$

(130,287)

Nine months ended September 30, 2020

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss, Net

    

Deficit

    

Equity (Deficit)

Balance - December 31, 2019

32,853

$

33

$

2,176,133

$

(1,144)

$

(2,123,466)

$

51,556

Stock-based compensation

44,381

44,381

Net proceeds from exercise of stock options

149

(1,052)

(1,052)

Employee withholding taxes related to stock-based awards

(10)

(1,837)

(1,837)

Other comprehensive loss

(602)

(602)

Net loss

(222,733)

(222,733)

Balance - September 30, 2020

 

32,992

$

33

$

2,217,625

$

(1,746)

$

(2,346,199)

$

(130,287)

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Three months ended September 30, 2019

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss, Net

    

Deficit

    

Equity

Balance - June 30, 2019

32,696

$

33

$

2,116,481

$

(836)

$

(1,940,475)

$

175,203

Stock-based compensation

 

 

 

13,130

 

 

 

13,130

Recognition of debt discount on 2026 Convertible Notes

26,577

26,577

Net proceeds from exercise of stock options

37

773

773

Employee withholding taxes related to stock-based awards

119

119

Other comprehensive loss

 

 

 

(234)

 

 

(234)

Net loss

 

 

 

 

 

(84,833)

 

(84,833)

Balance - September 30, 2019

 

32,733

$

33

$

2,157,080

$

(1,070)

$

(2,025,308)

$

130,735

Nine months ended September 30, 2019

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss, Net

    

Deficit

    

Equity

Balance - December 31, 2018

29,694

$

30

$

1,800,144

$

(2,259)

$

(1,778,785)

$

19,130

Stock-based compensation

42,809

42,809

Recognition of debt discount on 2026 Convertible Notes

85,915

85,915

Issuance of common stock from public and private placement offerings, net of underwriting fees and issuance costs

2,880

3

227,177

227,180

Net proceeds from exercise of stock options

159

2,511

2,511

Employee withholding taxes related to stock-based awards

(1,476)

(1,476)

Other comprehensive income

1,189

1,189

Net loss

(246,523)

(246,523)

Balance - September 30, 2019

 

32,733

$

33

$

2,157,080

$

(1,070)

$

(2,025,308)

$

130,735

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine Months Ended September 30, 

    

2020

    

2019

Cash flows from operating activities:

 

  

 

  

Net loss

$

(222,733)

$

(246,523)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Stock-based compensation

 

44,381

 

42,809

(Accretion) amortization of (discount) premium on investment debt securities

 

2,617

 

(595)

Amortization of deferred financing costs

 

1,883

 

1,529

Depreciation

2,282

2,839

Non-cash operating lease cost

 

4,645

 

3,974

Gain on lease termination

(1,995)

Loss on the disposal of fixed assets

 

 

2,682

Accretion of debt discount

 

19,255

 

15,051

Provision for allowance of credit losses

224

Changes in operating assets:

 

  

 

  

Accounts receivable

 

(821)

 

(7,128)

Prepaid expenses and other current assets

 

(1,705)

 

(3,320)

Inventory

 

(110)

 

(2,240)

Security deposits

(263)

1,018

Other assets

(19,489)

Changes in operating liabilities:

 

  

 

  

Accounts payable, accrued expenses and other current liabilities

 

4,261

 

33,990

Operating lease liabilities

(5,380)

(5,019)

Interest payable

(2,587)

(2,012)

Deferred revenue

 

 

(1,216)

Long-term other liabilities

9,516

Net cash (used in) operating activities

 

(154,051)

 

(176,129)

Cash flows from investing activities:

 

  

 

  

Purchases of investment debt securities

 

(282,629)

 

(560,733)

Sales and maturities of investment debt securities

 

417,592

 

306,898

Purchases of equipment, leasehold improvements, and furniture and fixtures

 

(1,990)

 

(1,041)

Net cash provided by (used in) investing activities

 

132,973

 

(254,876)

Cash flows from financing activities:

 

  

 

  

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

223,424

Proceeds from issuance of common stock, net of issuance costs

227,180

Proceeds from exercise of options, net

 

1,300

 

2,511

Payments of employee withholding taxes related to stock-based awards

(1,837)

(1,476)

Net cash (used in) provided by financing activities

 

(537)

 

451,639

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

 

(1,674)

 

(505)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(23,289)

 

20,129

Cash, cash equivalents and restricted cash at beginning of period

 

74,780

 

43,248

Cash, cash equivalents and restricted cash at end of period

$

51,491

$

63,377

Supplemental disclosure of non-cash transactions:

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

$

1,230

$

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

Cash and cash equivalents

$

45,311

$

63,377

Restricted cash

6,180

Total cash, cash equivalents and restricted cash

$

51,491

$

63,377

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.    Overview of Business

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

2.    Basis of Presentation

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation. Certain information that is normally required by U.S. GAAP has been condensed or omitted in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2020. In the opinion of management, these unaudited condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim unaudited condensed consolidated financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC.

Use of Estimates

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

We are not presently aware of any events or circumstances arising from the coronavirus (“COVID-19”) pandemic that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities.

3.    Summary of Significant Accounting Policies

With the exception of the change for the accounting of credit losses as a result of the adoption of Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments” and related amendments (collectively, “ASC 326”), there have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Credit Losses

      Accounts receivable

The allowance for credit losses is based on the Company’s assessment of the collectibility of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, the aging of the accounts receivable balances, credit conditions that may affect a customer’s ability to pay, current and forecast economic conditions and other relevant factors.

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The following table summarizes the allowance for credit losses activity on the Company’s trade receivables for the nine-month period ended September 30, 2020 (in thousands):

Balance at December 31, 2019

$

Provision for credit losses

235

Write-offs

(11)

Balance at September 30, 2020

$

224

Available-for-sale investment debt securities

For available-for-sale investment debt securities in an unrealized loss position, the Company first assesses whether it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the amortized cost basis is written down to fair value through income. For any investment debt securities that do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. Management considers the extent in which the fair value of the security is less than amortized costs, any changes to the rating of the security by a rating agency, changes in interest rates, and any other adverse factors related to the security. If the assessment indicates a credit loss, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security. If the expected present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value is below the amortized cost basis. Any impairment not recorded through an allowance is recognized in Other comprehensive (loss) income.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of the security is confirmed or whether either of the criteria regarding intent or requirement to sell is met.

The Company excludes accrued interest from both the fair value and amortized cost basis in the assessment of credit losses on its available-for-sale investment debt securities and will instead elect to write-off any uncollectible accrued interest receivable balances in a timely manner, which is defined by the Company as when interest due becomes 90 days delinquent.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, which replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 was subsequently updated by ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, to clarify that entities should include recoveries when estimating the allowance for credit losses. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments. Credit losses relating to available-for-sale investment debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The Company adopted the practical expedient to exclude the accrued interest included in the fair value and amortized cost basis in the assessment of credit losses on its available-for-sale investment debt securities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and must be adopted using a modified retrospective approach, with certain exceptions. The Company adopted ASC 326 on January 1, 2020 and its adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or

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hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The Company adopted ASU 2018-13 on January 1, 2020 and its adoption did not have an impact on the Company’s condensed consolidated financial statements and related disclosures.

Recent Accounting Pronouncements to be Adopted

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

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 accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company plans to adopt the standard effective January 1, 2021 and is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

4.    Cash, Cash Equivalents and Investment Debt Securities

The following table summarizes the Company’s cash, cash equivalents and investment debt securities as of September 30, 2020 and December 31, 2019:

As of September 30, 2020

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

$

45,311

$

$

$

$

45,311

Total cash and cash equivalents

45,311

45,311

Investment debt securities:

 

  

 

  

 

  

 

  

 

  

Commercial paper

 

26,463

 

 

8

 

(1)

 

26,470

Corporate debt securities

 

417,727

 

 

1,159

 

(87)

 

418,799

Total investment debt securities

 

444,190

 

 

1,167

 

(88)

 

445,269

Total cash, cash equivalents and investment debt securities

$

489,501

$

$

1,167

$

(88)

$

490,580

16

Table of Contents

As of December 31, 2019

Gross

Gross

Unrealized

Unrealized

    

Amortized Cost

Gains

    

Losses

    

Fair Value

(in thousands)

Cash and cash equivalents:

 

  

 

  

 

  

Cash and money market funds

$

62,557

$

$

$

62,557

Commercial paper

7,498

7,498

Total cash and cash equivalents

70,055

70,055

Investment debt securities:

 

  

 

  

 

  

 

  

Commercial paper

 

42,806

 

43

 

(1)

 

42,848

Corporate debt securities

 

538,965

 

835

 

(81)

 

539,719

Total investment debt securities

 

581,771

 

878

 

(82)

 

582,567

Total cash, cash equivalents and investment debt securities

$

651,826

$

878

$

(82)

$

652,622

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

As of September 30, 2020

Less than 12 months

12 months or longer

Total

(in thousands)

Gross

Gross

Gross