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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 March 31, 2021

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 March 31, 2021 was 33,154,107.

Table of Contents

Intercept Pharmaceuticals, Inc.

INDEX

PART I
FINANCIAL INFORMATION

   

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets at March 31, 2021 (Unaudited) and December 31, 2020 (Audited)

8

Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2021 and 2020 (Unaudited)

9

Condensed Consolidated Statements of Comprehensive Loss for the three-month periods ended March 31, 2021 and 2020 (Unaudited)

10

Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity for the three-month periods ended March 31, 2021 and 2020 (Unaudited)

11

Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2021 and 2020 (Unaudited)

12

Notes to Condensed Consolidated Financial Statements (Unaudited)

13

Item 2.

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

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

39

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

95

Item 6.

Exhibits

95

Exhibit Index

96

Signatures

97

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

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, including, but not limited to, statements regarding the progress, timing and results of our clinical trials, including our clinical trials for the treatment of nonalcoholic steatohepatitis (“NASH”), the safety and efficacy of our approved product, Ocaliva (obeticholic acid or “OCA”) for primary biliary cholangitis (“PBC”), and our product candidates, including OCA for liver fibrosis due to NASH, the timing and acceptance of our regulatory filings and the potential approval of OCA for liver fibrosis due to NASH, the review of our New Drug Application 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, including in connection with the newly identified safety signal ("NISS") relating to Ocaliva identified by the FDA in May 2020 and with respect to patients with PBC with decompensated cirrhosis and in a subset of patients with compensated cirrhosis;
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;
the outcomes of ongoing discussions with the FDA and the European Medicines Agency ("EMA") regarding the feasibility of the COBALT and 401 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

3

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manufacture and supply of our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our clinical trial activities;
our ability to identify, develop and successfully commercialize our products and product candidates, including our ability to successfully launch OCA for liver fibrosis due to NASH, if approved;
our ability to obtain and maintain intellectual property protection for our products and product candidates, including our ability to cost-effectively file, prosecute, defend and enforce any patent claims or other intellectual property rights;
the size and growth of the markets for our products and product candidates and our ability to serve those markets;
the degree of market acceptance of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH or our other product candidates among physicians, patients and healthcare payors;
the availability of adequate coverage and reimbursement from governmental and private healthcare payors for our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our ability to obtain adequate pricing for such products;
our ability to establish and maintain effective sales, marketing and distribution capabilities, either directly or through collaborations with third parties;
competition from existing drugs or new drugs that become available;
our ability to attract and retain key personnel to manage our business effectively;
our ability to prevent 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, cash equivalents and short-term investments;
our ability to acquire, license and invest in businesses, technologies, product candidates and products;
our ability to manage the growth of our operations, infrastructure, personnel, systems and controls;
our ability to obtain and maintain adequate insurance coverage;
continuing threats from COVID-19, including additional waves of infections, and their impacts including quarantines and other government actions; delays relating to our regulatory applications; disruptions relating to our ongoing clinical trials or involving our contract research organizations, study sites or other clinical partners; disruptions relating to our supply chain or involving our third-party manufacturers, distributors or other distribution partners; and facility closures or other restrictions; and the impact of the foregoing on our results of operations and financial position;
the impact of general U.S. and foreign economic, industry, market, regulatory or political conditions, including the 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.

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 ®

4

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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.

5

Table of Contents

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, 2020 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.
Continuing threats from COVID-19, including additional waves of infections, 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)

March 31, 

December 31, 

2021

2020

    

(Unaudited)

    

(Audited)

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

92,946

$

58,151

Restricted cash

7,433

7,503

Investment debt securities, available-for-sale

 

318,237

 

411,516

Accounts receivable, net of allowance for credit losses of $198 and $235, respectively

 

42,594

 

41,549

Prepaid expenses and other current assets

 

26,353

 

27,022

Total current assets

 

487,563

 

545,741

Fixed assets, net

 

5,487

 

6,326

Inventory

 

8,992

 

9,027

Security deposits

 

6,908

 

7,068

Other assets

 

11,161

 

12,327

Total assets

$

520,111

$

580,489

Liabilities and Stockholders’ Deficit

 

  

 

  

Current liabilities:

 

 

  

Accounts payable, accrued expenses and other liabilities

$

140,783

$

171,039

Short-term interest payable

 

5,450

 

8,037

Total current liabilities

 

146,233

 

179,076

Long-term liabilities:

 

  

 

  

Long-term debt

 

568,114

 

560,582

Long-term other liabilities

 

5,762

 

7,684

Total liabilities

$

720,109

$

747,342

Commitments and contingencies (Note 15)

Stockholders’ deficit:

 

  

 

  

Common stock par value $0.001 per share; 90,000,000 shares authorized; 33,154,107 and 33,015,614 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

 

33

 

33

Additional paid-in capital

 

2,241,273

 

2,233,937

Accumulated other comprehensive loss, net

 

(2,538)

 

(2,477)

Accumulated deficit

 

(2,438,766)

 

(2,398,346)

Total stockholders’ deficit

 

(199,998)

 

(166,853)

Total liabilities and stockholders’ deficit

$

520,111

$

580,489

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

March 31, 

    

2021

    

2020

Revenue:

  

 

Product revenue, net

$

81,661

$

72,652

Total revenue

 

81,661

 

72,652

Operating expenses:

 

  

 

  

Cost of sales

 

810

 

852

Selling, general and administrative

 

59,271

 

98,558

Research and development

 

50,766

 

56,687

Restructuring

161

Total operating expenses

 

111,008

 

156,097

Operating loss

 

(29,347)

 

(83,445)

Other income (expense):

 

  

 

  

Interest expense

 

(12,419)

 

(11,777)

Other income, net

 

1,346

 

2,239

Total other (expense), net

 

(11,073)

 

(9,538)

Net loss

$

(40,420)

$

(92,983)

Net loss per common and potential common share:

 

  

 

  

Basic and diluted

$

(1.22)

$

(2.86)

Weighted average common and potential common shares outstanding:

 

  

 

  

Basic and diluted

 

33,139

 

32,561

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

March 31, 

    

2021

    

2020

Net loss

$

(40,420)

$

(92,983)

Other comprehensive loss:

 

  

 

  

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

Unrealized losses on investment debt securities

 

(344)

 

(2,163)

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

 

2

 

9

Net unrealized losses on investment debt securities

$

(342)

$

(2,154)

Foreign currency translation gains (losses)

 

281

 

(512)

Other comprehensive loss

$

(61)

$

(2,666)

Comprehensive loss

$

(40,481)

$

(95,649)

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)

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

 

 

 

8,419

 

 

 

8,419

Net proceeds from exercise of stock options

141

Employee withholding taxes related to stock-based awards

(3)

(1,083)

(1,083)

Other comprehensive loss

 

 

 

(61)

 

 

(61)

Net loss

 

 

 

 

 

(40,420)

 

(40,420)

Balance - March 31, 2021

 

33,154

$

33

$

2,241,273

$

(2,538)

$

(2,438,766)

$

(199,998)

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

12,473

12,473

Net proceeds from exercise of stock options

88

(1,783)

(1,783)

Employee withholding taxes related to stock-based awards

 

(4)

$

$

(1,322)

$

$

$

(1,322)

Other comprehensive loss

 

 

 

 

(2,660)

 

 

(2,660)

Net loss

(92,983)

(92,983)

Balance - March 31, 2020

32,937

$

33

$

2,185,501

$

(3,804)

$

(2,216,449)

$

(34,719)

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)

Three Months Ended March 31, 

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net loss

$

(40,420)

$

(92,983)

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

 

  

 

  

Stock-based compensation

 

8,419

 

12,473

Amortization of premium on investment debt securities

 

1,220

 

536

Amortization of deferred financing costs

 

671

 

614

Depreciation

 

870

 

764

Non-cash operating lease cost

1,509

1,584

Accretion of debt discount

 

6,861

 

6,276

Provision for allowance of credit losses, net of write-offs

198

179

Changes in operating assets:

 

 

  

Accounts receivable

 

(1,408)

 

(6,549)

Prepaid expenses and other current assets

 

547

 

(7,122)

Inventory

 

86

 

(2,377)

Security deposits

95

50

Changes in operating liabilities:

 

 

  

Accounts payable, accrued expenses and other current liabilities

 

(29,286)

 

(7,899)

Operating lease liabilities

(1,425)

(1,690)

Interest payable

(2,587)

(2,587)

Net cash used in operating activities

 

(54,650)

 

(98,731)

Cash flows from investing activities:

 

  

 

  

Purchases of investment debt securities

 

(50,533)

 

(34,444)

Sales and maturities of investment debt securities

 

142,250

 

106,693

Purchases of equipment, leasehold improvements, and furniture and fixtures

 

(377)

 

(432)

Net cash provided by investing activities

 

91,340

 

71,817

Cash flows from financing activities:

 

  

 

  

Proceeds from exercise of options, net

 

 

569

Payments of employee withholding taxes related to stock-based awards

(1,083)

(1,322)

Net cash used in financing activities

 

(1,083)

 

(753)

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

 

(882)

 

(694)

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

 

34,725

 

(28,361)

Cash, cash equivalents and restricted cash at beginning of period

 

65,654

 

74,780

Cash, cash equivalents and restricted cash at end of period

$

100,379

$

46,419

Supplemental disclosure of non-cash transactions:

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

$

$

1,006

Non-cash investing and financing activities

Net decrease in accrued fixed assets

$

(348)

$

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

Cash and cash equivalents

$

92,946

$

41,408

Restricted cash

7,433

5,011

Total cash, cash equivalents and restricted cash

$

100,379

$

46,419

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 months ended March 31, 2021 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2021. 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, 2020, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 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 or judgments or revise the carrying value of our assets or liabilities.

3.    Summary of Significant Accounting Policies

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, 2020 that are of significance, or potential significance, to the Company.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 adopted ASU 2019-12 on January 1, 2021 and its

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adoption did not have any material impact on the Company’s condensed consolidated financial statements and related disclosures.

Recent Accounting Pronouncements to be Adopted

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 expects the impact of this standard to be material 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 March 31, 2021 and December 31, 2020:

As of March 31, 2021

Allowance

Gross

Gross

for Credit

Unrealized

Unrealized

    

Amortized Cost

Losses

    

Gains

    

Losses

    

Fair Value

(in thousands)

Cash and cash equivalents:

 

  

 

  

 

  

 

  

Cash and money market funds

$

85,946

$

$

$

$

85,946

Commercial paper

2,000

2,000

U.S. treasuries

5,000

5,000

Total cash and cash equivalents

92,946

92,946

Investment debt securities:

 

  

 

  

 

  

 

  

 

  

Commercial paper

 

57,676

 

 

5

 

(6)

 

57,675

Corporate debt securities

 

260,444

 

 

195

 

(77)

 

260,562

Total investment debt securities

 

318,120

 

 

200

 

(83)

 

318,237

Total cash, cash equivalents and investment debt securities

$

411,066

$

$

200

$

(83)

$

411,183

As of December 31, 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

$

58,151

$

$

$

$

58,151

Total cash and cash equivalents

58,151

58,151

Investment debt securities:

 

  

 

  

 

  

 

  

 

  

Commercial paper

 

55,460

 

 

6

 

(9)

 

55,457

Corporate debt securities

 

355,597

 

 

529

 

(67)

 

356,059

Total investment debt securities

 

411,057

 

 

535

 

(76)

 

411,516

Total cash, cash equivalents and investment debt securities

$

469,208

$

$

535

$

(76)

$

469,667

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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 March 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

$

23,184

$

(6)

$

$

$

23,184

$

(6)

Corporate debt securities

131,758

(77)

131,758

(77)

Total

$

154,942

$

(83)

$

$

$

154,942

$

(83)

As of December 31, 2020

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

$

32,970

$

(9)

$

$

$

32,970

$

(9)

Corporate debt securities

 

143,076

 

(67)

 

 

 

143,076

 

(67)

Total

$

176,046

$

(76)

$

$

$

176,046

$

(76)

At March 31, 2021, the Company had 61 available-for-sale investment debt securities in an unrealized loss position without an allowance for credit losses. Unrealized losses on corporate debt securities have not been recognized into income because the issuers’ bonds are of high credit quality (rated A3/A- or higher), management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery and the decline in fair value is largely due to market conditions and/or changes in interest rates. The issuers continue to make timely interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

Accrued interest receivable on available-for-sale investment debt securities totaled $1.3 million and $2.5 million at March 31, 2021 and December 31, 2020, respectively, is excluded from the estimate of credit losses and is included in Prepaid expenses and other current assets.

5.    Fair Value Measurements

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

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

Unadjusted Quoted Prices — The fair value of an asset or liability is based on unadjusted quoted prices in active markets for identical assets or liabilities (Level 1).
Pricing Models with Significant Observable Inputs — The fair value of an asset or liability is based on information derived from either an active market quoted price, which may require further adjustment based on the attributes of the financial asset or liability being measured, or an inactive market transaction (Level 2).
Pricing Models with Significant Unobservable Inputs — The fair value of an asset or liability is primarily based on internally derived assumptions surrounding the timing and amount of expected cash flows for the financial instrument. Therefore, these assumptions are unobservable in either an active or inactive market (Level 3).

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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 money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets. Investment debt securities are classified as Level 2 instruments based on market pricing and other observable inputs.

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)

March 31, 2021

 

  

 

  

 

  

 

  

Assets

 

  

 

  

 

  

 

  

Cash and cash equivalents:

Money market funds

$

64,204

$

64,204

$

$

Commercial paper

2,000

2,000

U.S. treasuries

5,000

5,000

Available-for-sale investment debt securities:

 

  

 

 

  

 

  

Commercial paper

 

57,675

 

 

57,675

 

Corporate debt securities

 

260,562

 

 

260,562

 

Total financial assets

$

389,441

$

69,204

$

320,237

$

December 31, 2020

 

  

 

  

 

  

 

  

Assets

 

  

 

  

 

  

 

  

Cash and cash equivalents:

Money market funds

$

15,492

$

15,492

$

$

Available-for-sale investment debt securities:

 

  

 

  

 

  

 

  

Commercial paper

 

55,457

 

 

55,457

 

Corporate debt securities

 

356,059

 

 

356,059

 

Total financial assets

$

427,008

$

15,492

$

411,516

$

See Note 10 for the carrying amount and estimated fair value of our 2.00% Convertible Senior Notes due 2026 and 3.25% Convertible Senior Notes due 2023.

The aggregate fair value of all available-for-sale investment debt securities (commercial paper and corporate debt securities), by contractual maturity, are as follows:

Fair Value as of

    

March 31, 2021

    

December 31, 2020

(in thousands)

Due in one year or less

$

285,229

$

328,077

Due after one year through two years

 

33,008

 

83,439

Total investment debt securities

$

318,237

$

411,516

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

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6.    Fixed Assets, Net

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

Useful lives

    

(Years)

    

March 31, 2021

    

December 31, 2020

(in thousands)

Office equipment and software

 

3

$

5,369

$

5,364

Leasehold improvements

 

Shorter of remaining lease term or useful life

 

13,269

 

13,237

Furniture and fixtures

 

7

 

4,608

 

4,602

Subtotal

 

23,246

 

23,203

Less: accumulated depreciation

 

(17,759)

 

(16,877)

Fixed assets, net

$

5,487

$

6,326

7.    Inventory

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

    

March 31, 2021

    

December 31, 2020

(in thousands)

Work-in-process

$

8,463

$

8,394

Finished goods

 

529

 

633

Inventory

$

8,992

$

9,027

8. Leases

The Company leases various office spaces under non-cancelable operating leases with original lease periods expiring between the first quarter of 2022 and 2025. The Company also enters into leases for equipment. A number of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term. The exercise of lease renewal options is typically at the sole discretion of the Company; therefore, all renewals to extend the lease terms are not included in the right-of-use (“ROU”) assets and lease liabilities as they are not reasonably certain of exercise.

Operating lease assets and liabilities are classified on the condensed consolidated balance sheets as follows:

Leases

Classification

March 31, 2021

December 31, 2020

Assets

(in thousands)

Operating lease assets

Other assets

$

11,161

$

12,327

Total leased assets

$

11,161

$

12,327

Liabilities

Current

Operating lease liabilities

Accounts payable, accrued expenses and other liabilities

$

7,348

$

7,248

Noncurrent

Operating lease liabilities

Long-term other liabilities

5,762

7,684

Total operating lease liabilities

$

13,110

$

14,932

17

Table of Contents

Operating lease costs for the three-month periods ended March 31, 2021 and 2020, are as follows: