SEC Filing - Intercept Pharmaceuticals, Inc.

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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 June 30, 2022

OR

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

	For the transition period from to

Commission file number: 001-35668

INTERCEPT PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

305 Madison Avenue,

Morristown, NJ 07960

(Address of Principal Executive Offices and Zip Code)

(646) 747-1000

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

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

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

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

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

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

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Intercept Pharmaceuticals, Inc.

INDEX

PART I FINANCIAL INFORMATION

Item 1.	Financial Statements

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

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

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

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

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

	Notes to Condensed Consolidated Financial Statements (Unaudited)	12

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

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

Item 6.	Exhibits	55

Exhibit Index		56

Signatures		58

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

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

●

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

●

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

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

●

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

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

●

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

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

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

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

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

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

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

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

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

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

●	our ability to comply with data protection laws;

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

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

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

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

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

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

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

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

●	our ability to obtain and maintain adequate insurance coverage;

●

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

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

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

●

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

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

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

●

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

NOTE REGARDING TRADEMARKS

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

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PART I

Item 1. Financial Statements.

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)


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

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)


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

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

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

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)


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

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

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(Unaudited)

(In thousands)



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

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

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

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

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


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

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Overview of Business

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

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

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

2. Basis of Presentation

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

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

Reclassifications

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

Use of Estimates

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

3. Summary of Significant Accounting Policies

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

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

Held for Sale and Discontinued Operations

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

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

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

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

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

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

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

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



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

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

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

4. Discontinued Operations

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

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

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



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

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

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


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

Product revenue, net	$	28,628	$	28,398	$	58,065	$	52,760
Cost of sales		490		363		1,025		881
Selling, general and administrative		15,194		13,773		27,447		27,943
Research and development		55