Intercept Pharmaceuticals
Annual Report 2015

Plain-text annual report

INTERCEPT PHARMACEUTICALS INC FORM 10-K (Annual Report) Filed 02/29/16 for the Period Ending 12/31/15 Address Telephone CIK Symbol SIC Code Industry 450 W. 15TH STREET SUITE 505 NEW YORK, NY 10011 646-747-1000 0001270073 ICPT 2834 - Pharmaceutical Preparations Biotechnology & Drugs Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.  UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One)xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015OR oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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.) 450 West 15 th Street, Suite 505 New York, NY 10011(Address of Principal Executive Offices) (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 Name of each exchange on which registeredCommon Stock, $0.001 par value NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes x No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.Yes o NoxIndicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DataFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one): Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o(Do not check if a smaller reporting company)Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No xThe aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant (without admittingthat any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stockwas last sold on June 30, 2015 was approximately $3,860,970,135. As of January 31, 2016, there were 24,405,977 shares of common stock,$0.001 par value per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCEThe registrant intends to file a definitive proxy statement pursuant to Regulation 14A in connection with its 2016 Annual Meeting ofStockholders. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.  TABLE OF CONTENTSTABLE OF CONTENTS PagePart I. Item 1.Business 1 Item 1A.Risk Factors 35 Item 1B.Unresolved Staff Comments 74 Item 2.Properties 74 Item 3.Legal Proceedings 74 Item 4.Mine Safety Disclosures 74 Part II. Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities 75 Item 6.Selected Financial Data 77 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 78 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 94 Item 8.Financial Statements and Supplementary Data 95 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 95 Item 9A.Controls and Procedures 95 Item 9B.Other Information 96 Part III. Item 10.Directors, Executive Officers and Corporate Governance 97 Item 11.Executive Compensation 97 Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters 97 Item 13.Certain Relationships and Related Transactions, and Director Independence 97 Item 14.Principal Accounting Fees and Services 97 Part IV. Item 15.Exhibits and Financial Statement Schedules 97 Signatures 98 i  TABLE OF CONTENTSForward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. Allstatements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding ourstrategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management andexpected market growth, are forward-looking statements. These statements involve known and unknown risks, uncertainties and otherimportant factors that may cause our actual results, performance or achievements to be materially different from any future results,performance or achievements expressed or implied by the forward-looking statements.The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,”“would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not allforward-looking statements contain these identifying words. These forward-looking statements include, among other things,statements about:•the initiation, cost, timing, progress and results of our development activities, preclinical studies and clinical trials;•the timing of and our ability to obtain and maintain regulatory approval of obeticholic acid, or OCA, and any other productcandidates we may develop, particularly the possibility that regulatory authorities may require clinical outcomes data (and notjust results based on achievement of a surrogate endpoint) as a condition to any marketing approval for OCA, and any relatedrestrictions, limitations and/or warnings in the label of any approved product candidates;•our plans to research, develop and commercialize our product candidates;•our ability to obtain and maintain intellectual property protection for our product candidates;•our ability to successfully commercialize our product candidates;•the size and growth of the markets for our product candidates and our ability to serve those markets;•the rate and degree of market acceptance of any future products, which may be affected by the reimbursement that ourproducts receive from payors;•the success of competing drugs that are or become available;•regulatory developments in the United States and other countries;•the performance of our third-party suppliers and manufacturers;•our collaborators’ election to pursue research, development and commercialization activities;•our ability to attract collaborators with development, regulatory and commercialization expertise;•our need for and ability to obtain additional financing;•our estimates regarding expenses, future revenues and capital requirements and the accuracy thereof;•our use of cash and short term investments; and•our ability to attract and retain key scientific or management personnel.These forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectationsdisclosed in our forward-looking statements, so you should not place undue reliance on our forward-looking statements. Actual resultsor events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Wehave based these forward-looking statements largely on our current expectations and projections about future events and trends that webelieve may affect our business, financial condition and operating results. We have included important factors in the cautionarystatements included in this Annual Report on Form 10-K, particularly in Item 1.A. Risk Factors, that could cause actual future resultsor events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect thepotential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.ii  TABLE OF CONTENTSYou should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to the Annual Report on Form10-K with the understanding that our actual future results may be materially different from what we expect. We do not assume anyobligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except asrequired by applicable law.Non-GAAP Financial MeasuresThis Annual Report on Form 10-K presents projected adjusted operating expense, which is a financial measure not calculated inaccordance with U.S. generally accepted accounting principles, or GAAP, and should be considered in addition to, but not as asubstitute for, operating expense that we prepare and announce in accordance with GAAP. We exclude certain items from adjustedoperating expense, such as stock-based compensation and other non-cash items, that management does not believe affect our basicoperations and that do not meet the GAAP definition of unusual or non-recurring items. We anticipate that stock-based compensationexpense will represent the most significant non-cash item that is excluded in adjusted operating expenses as compared to operatingexpenses under GAAP. A reconciliation of projected non-GAAP adjusted operating expense to operating expense calculated inaccordance with GAAP is not available on a forward-looking basis without unreasonable effort due to an inability to make accurateprojections and estimates related to certain information needed to calculate, for example, future stock-based compensation expense.Management also uses adjusted operating expense to establish budgets and operational goals and to manage our company’s business.Other companies may define this measure in different ways. We believe this presentation provides investors and management withsupplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect toprojected information.iii  TABLE OF CONTENTSPart IAll brand names or trademarks appearing in this Annual Report on Form 10-K are the property of their respective holders. Unlessthe context requires otherwise, references in this Annual Report on Form 10-K to “Intercept,” the “Company,” “we,” “us,” and“our” refer to Intercept Pharmaceuticals, Inc. and its consolidated subsidiaries.Item 1.BusinessOverviewWe are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat non-viral,progressive liver diseases. Our product candidates have the potential to treat orphan and more prevalent liver diseases for which therecurrently are limited therapeutic solutions.Our lead product candidate, obeticholic acid, or OCA, is a bile acid analog, a chemical substance that has a structure based on anaturally occurring human bile acid, that selectively binds to and activates the farnesoid X receptor, or FXR, which we believe hasbroad liver-protective properties. OCA has been tested in five placebo-controlled clinical trials, including a Phase 3 clinical trial inpatients with primary biliary cirrhosis, recently renamed primary biliary cholangitis, or PBC, and two Phase 2 clinical trials in patientswith nonalcoholic fatty liver disease, or NAFLD, and nonalcoholic steatohepatitis, or NASH. OCA met the primary efficacy endpointin each of these trials with statistical significance. In addition, in October 2015, we announced results from a Phase 2 dose ranging trialof OCA in 200 patients with NASH in Japan conducted by our collaborator, Sumitomo Dainippon Pharma Co., Ltd., or SumitomoDainippon.In January 2015, OCA received breakthrough therapy designation from the U.S. Food and Drug Administration, or FDA, for thetreatment of NASH patients with liver fibrosis. OCA has also been granted fast track designation by the FDA for the treatment ofpatients with PBC who have an inadequate response to or are intolerant of ursodiol. OCA has received orphan drug designation in theUnited States and the European Union for the treatment of PBC and primary sclerosing cholangitis, or PSC.Our most advanced development program for OCA is for PBC as a second line treatment for patients who have an inadequateresponse to or who are unable to tolerate standard of care therapy and therefore need additional treatment. PBC is a chronicautoimmune liver disease that, if inadequately treated, may eventually lead to cirrhosis, liver failure and death. In March 2014, wecompleted a Phase 3 clinical trial, known as the POISE trial, in which OCA achieved the primary endpoint for the treatment of PBC.We intend to use these results, along with two previously completed randomized Phase 2 clinical trials of OCA in PBC, as the basisfor seeking the first regulatory approvals to market OCA in the United States, Europe, Australia and Canada.In June 2015, we completed our filings for marketing approval of OCA in PBC in the United States under the FDA’s acceleratedapproval pathway. In August 2015, the FDA accepted for review our New Drug Application, or NDA, and granted Priority Review forOCA for the treatment of PBC. The FDA set a target date of May 29, 2016 to take action under the Prescription Drug User Fee Act, orPDUFA, after giving effect to a 90 day extension. The FDA has also publicly announced a planned advisory committee meeting dateof April 7, 2016. If we receive marketing approval from the FDA on the PDUFA date, we plan to initiate the commercial launch ofOCA in PBC in the United States in June 2016.In June 2015, we also received notice of the acceptance of the Marketing Authorization Application, or MAA, for review by theEuropean Medicines Agency, or EMA, for use of OCA in PBC. If we are successful in the EMA review process, we anticipatereceiving marketing approval in late 2016, with planned commercial launches thereafter in certain European countries. We also plan toapply for marketing approval of OCA in PBC in other markets across the world such as Australia and Canada.OCA achieved the primary endpoint in a Phase 2b clinical trial for the treatment of NASH, known as the FLINT trial, which wassponsored by the U.S. National Institute of Diabetes and Digestive and Kidney Diseases, or NIDDK, a part of the National Institutes ofHealth. The FLINT trial was completed in late July 2014. We initiated our Phase 3 clinical trial in non-cirrhotic NASH patients withliver fibrosis, known as the REGENERATE trial, in September 2015. In December 2015, we initiated a Phase 2 clinical trial, known asthe CONTROL trial, to characterize the lipid metabolic effects of OCA and cholesterol management effects of concomitant statinadministration in NASH patients.1  TABLE OF CONTENTSIn addition to PBC and NASH, we plan to continue our research on OCA in patient populations suffering from other liver diseases,as we believe that FXR has broad therapeutic potential. In December 2014, we initiated an international Phase 2 clinical trial, knownas the AESOP trial, in patients with PSC to evaluate the effects of 24 weeks of treatment with varying doses of OCA compared toplacebo. In October 2015, we initiated a Phase 2 clinical trial, known as the CARE trial, of OCA in pediatric patients with biliaryatresia. This trial will evaluate the effects of 11 weeks of OCA treatment where patients with biliary atresia will be randomized tovarying doses of OCA or a control group receiving only their current treatment. As part of our development program, in November2015, we initiated a Phase 1 clinical trial of our second product candidate to enter clinical development, called INT-767, a dual FXRand TGR5 agonist, in healthy volunteers. We are currently evaluating our future development strategy for OCA in other indications,for INT-767 and for our pre-clinical candidates. The following chart shows the current stage of development of OCA in differentpatient populations and the preclinical programs for our other product candidates.Pipeline Focused on Liver Diseases with Limited/No Approved TherapiesOur current patents for OCA are scheduled to expire at various times through 2033. Our current plan is to commercialize OCAourselves in the United States and Europe for the treatment of PBC, NASH and other indications primarily by targeting physicianswho specialize in the treatment of liver and intestinal diseases, including both hepatologists and gastroenterologists. We ownworldwide rights to OCA outside of Japan, China and Korea, where we have exclusively licensed OCA to Sumitomo Dainippon alongwith an option to exclusively license OCA in certain other Asian countries.By virtue of our patent portfolio and the proprietary know-how of our employees and our collaborators at the University ofPerugia, we believe that we hold a leading position in the fields of bile acid chemistry and therapeutics. Starting with OCA and itsunderlying patents, which were assigned to us under our agreements with Professor Roberto Pellicciari, Ph.D., one of our co-founders,other researchers and the University of Perugia, our collaboration has resulted in a pipeline of bile acid analogs in addition to OCA,such as INT-767 and INT-777. Through our collaboration with Professor Pellicciari and TES Pharma Srl, we are continuing ourresearch to rationally design compounds that bind selectively and potently to FXR and other bile acid receptors.2  TABLE OF CONTENTSOur StrategyOur strategy is to develop and commercialize novel therapeutics for patients with non-viral, progressive liver diseases, beginningwith OCA for the treatment of PBC, NASH and other follow-on indications that we believe are underserved by existing marketedtherapies. The key elements of our strategy are to:•obtain marketing approval of OCA for the treatment of PBC in the United States, Europe and other countries;•commercialize OCA in the United States, Europe and other countries, initially for the treatment of PBC;•continue to develop OCA for the treatment of NASH and seek regulatory approval of OCA in this indication;•continue to develop OCA in other orphan and more prevalent liver diseases; and•advance the development of earlier-stage product candidates in our pipeline.In order to achieve our strategic objectives, we have, and will remain, focused on hiring and retaining a highly skilled managementteam and employee base with extensive experience and specific skill sets relating to the selection, development and commercializationof therapies for liver diseases with high unmet medical need. We anticipate that we will continue to increase our product development,scientific, commercial and administrative personnel significantly in the United States and abroad as part of our longer-term growthstrategy.Overview of Liver Function, Bile Acids and Chronic Liver DiseasesThe liver performs many functions that are crucial for survival, including the regulation of bile acid metabolism. Bile acids arenatural detergent-like emulsifying agents that are released from the gallbladder into the intestine when food is ingested, and areessential for the absorption of dietary cholesterol and other nutrients. Cholesterol bound by bile acids is taken up by the liver, wherethe cholesterol is then converted into one of two primary bile acids. The bile acids are then actively secreted into bile ducts, whicheventually empty into the gallbladder. This digestive cycle of bile flow from gallbladder to intestine to liver and back is called theenterohepatic recirculation of bile.In addition to facilitating nutrient absorption, bile acids have a much broader role than previously realized in regulating multiplebiological functions. They are also complex signaling molecules that integrate metabolic and immune pathways involved in thehealthy functioning of various tissues and organs. For example, the actions of bile acids in the liver, intestine and kidney regulaterepair mechanisms that modulate inflammation and fibrosis, or scarring, which can lead to progressive organ damage.The biological effects of bile acids are mediated through dedicated receptors. The best understood is the farnesoid X receptor, anuclear receptor that regulates bile acid synthesis and clearance from the liver, thereby preventing excessive bile acid build-up in theliver, which may be toxic. As a result, FXR is a target for the treatment of liver diseases such as PBC and PSC that involve impairedbile flow, a condition called cholestasis, in which the liver is exposed to higher than normal levels of bile acids, causing significantdamage over time due to the detergent effects of bile acids. In addition, bile acid activation of FXR induces anti-fibrotic, anti-inflammatory, anti-steatotic and other mechanisms that are necessary for the normal regeneration of the liver and may play a role inthe treatment of more prevalent liver diseases such as NASH and alcoholic hepatitis. Based on the discovery of similar FXR-mediatedprotective mechanisms in other organs exposed to bile acids, we believe that FXR may also be a potential target for the treatment of anumber of intestinal, kidney and other diseases.Our Lead Product Candidate: Obeticholic Acid (OCA)Primary Biliary Cirrhosis (PBC; Renamed Primary Biliary Cholangitis)Our current clinical focus is on the development of OCA, a novel, orally administered FXR agonist that we believe has broadliver-protective properties and may effectively counter a variety of chronic insults to the liver that cause fibrosis, which can eventuallylead to cirrhosis, liver transplant and death. Our first targeted disease is PBC, an orphan indication with a significant unmet medicalneed.3  TABLE OF CONTENTSPBC is a rare liver disease that primarily results from autoimmune destruction of the bile ducts that transport bile acids out of theliver, resulting in cholestasis. As the disease progresses, persistent toxic build-up of bile acids causes progressive liver damage markedby chronic inflammation and fibrosis. In response to the bile acid mediated toxicity seen in PBC, liver cells release alkalinephosphatase, or ALP, a liver enzyme that is a key biomarker of the disease pathology. Elevated blood levels of ALP are used as theprimary means of diagnosis of PBC and are closely monitored in patients as the most important indicator of treatment response andprognosis.While PBC is rare, it is the most common cholestatic liver disease. An estimated 90% of patients are women, with approximatelyone in 1,000 women over the age of 40 afflicted by the disease. The mean age of diagnosis is about 40 years and the typical initialpresentation occurs between the ages of 30 and 65 years. In the United States, the disease is currently the second leading indication forliver transplant among women. A majority of PBC patients are asymptomatic at the time of initial diagnosis, but most developsymptoms over time. Fatigue and pruritus, or itching, are the most common symptoms in PBC patients. Less common symptomsinclude dry eyes and mouth, as well as jaundice, which can be seen in more advanced disease. Based on the guidelines of theAmerican Association for the Study of Liver Disease, or AASLD, and the European Association for the Study of the Liver, or EASL,the clinical diagnosis of PBC is established based on the presence of (i) a positive anti-mitochondrial antibody, or AMA, a marker ofthis autoimmune disease seen in up to 95% of PBC patients, and (ii) elevated serum levels of ALP. In the earlier stages of PBC, ALPis often the only abnormally elevated liver enzyme, rising to between two to ten times higher than normal values. Bilirubin is a markerof liver function and is also monitored in PBC to provide an indication of how well the liver is functioning. Liver biopsy can be usedto confirm the diagnosis of PBC, but is not required and is becoming less-frequently performed.Disease progression in PBC varies significantly, with median survival in untreated patients of 7.5 years if symptomatic atdiagnosis and up to 16 years if asymptomatic at diagnosis. PBC patients whose disease is progressing have persistently elevated levelsof ALP and other liver enzymes, with abnormal bilirubin levels heralding more advanced disease. Data from published long-termstudies demonstrate that a significant portion of such patients with advancing disease progress to liver failure, transplant or deathwithin five to ten years, despite receiving ursodiol, the standard of care therapy.Currently Available Treatment Options for PBCThe only approved drug for the treatment of PBC is ursodeoxycholic acid, available generically as ursodiol, which is the standardinitial course of therapy for all PBC patients. Ursodiol is a naturally occurring bile acid found in small quantities in humans and it isthe least detergent of the various types of bile acids that make up the bile pool. In PBC patients, the typical daily dose of ursodiol ofapproximately one gram represents more than one-fifth of the entire bile pool and, after ongoing therapy, it will comprise at least halfof the entire bile pool. It is believed that ursodiol treatment results in the bile pool being less toxic to the liver due to ursodiol’sdilution of other more detergent bile acids.In patients for whom ursodiol is effective, the treatment slows the progression of PBC, reducing the likelihood of liver failure andthe need for transplant. As shown in numerous clinical trials of ursodiol treatment, a positive therapeutic response is primarilydetermined by sustained reduction of ALP levels, along with maintenance of normal bilirubin levels, indicating adequatelycompensated liver function. This biochemical improvement has been shown to correlate well with improved clinical outcomes such astransplant-free survival.The outlook and treatment options for end-stage PBC patients who fail to respond to ursodiol are limited. Although other drugssuch as colchicine, budesonide, methotrexate and others have been tested as treatments in PBC, none has been shown to be botheffective and safe in altering the course of the disease. While a liver transplant may be curative, many patients fail to receive a donororgan in time, and for those who do receive an organ, there are very significant clinical risks such as infection and organ rejection, aswell as significant costs. In addition, the disease recurrence rate is as high as 18% at five years and up to 30% at ten years after livertransplant.4  TABLE OF CONTENTSOur PBC OpportunityWhile ursodiol is the established standard of care for PBC, a majority of patients while on therapy remain at ALP levels above theupper limit of normal, or ULN. According to our analysis of industry data in PBC, approximately 70% of patients treated with ursodiolexperience elevated ALP levels, with 35% of patients experiencing ALP levels greater than 1.67 times ULN. In addition, a smallminority of PBC patients (estimated at approximately 3%) are intolerant to ursodiol therapy. Patients with the greatest elevations inALP despite therapy and those intolerant to ursodiol represent a significant unmet medical need for second line therapy. Based on ourPhase 3 POISE results, which evaluated OCA in these patient groups, we believe represent patients with these characteristics would beeligible for OCA as a novel therapy.According to our analysis of industry data, there are approximately 290,000 people with PBC in our target markets consisting ofthe United States, certain European countries, Canada and Australia, of whom we believe approximately 110,000 have been diagnosedand are under the care of a physician for PBC. Although difficult to precisely estimate, based on our analysis of this data, we believethere are approximately 34,000 diagnosed PBC patients who still have an ALP level greater than 1.67 times ULN after treatment onursodiol who may currently be eligible for treatment with OCA. Of those 34,000 PBC patients, approximately 15,000 are estimated tobe in the United States and 19,000 in our target countries outside of the United States. We believe there are an additional 32,000patients who have an elevated ALP between ULN and 1.67 times ULN in these target countries. Our estimates of the potential marketopportunity for OCA for the treatment of PBC include a number of key assumptions related to prevalence rates, patients’ access tohealthcare, diagnosis rates and patients’ response to or tolerance of OCA, which are based on available literature and epidemiologyresearch in PBC, our industry knowledge gained through market research and other methods, industry publications, third-partyresearch reports and other surveys.Our Solution: OCA for PBCOverviewOur lead product candidate, OCA, is a bile acid analog and an FXR agonist derived from the primary human bile acidchenodeoxycholic acid, or CDCA. CDCA, a natural FXR agonist, has historically been used safely as a chronic therapy for cholesterolgallstone disease. OCA has received orphan drug designation in the United States and Europe for the treatment of PBC and PSC.OCA, if approved, would represent the first potent FXR agonist to market for the treatment of PBC, and represents a distinctmechanism of action relative to ursodiol, which has no known FXR effects.We have completed three double-blind, placebo-controlled trials of OCA in PBC patients, all of which met their primary andsecondary endpoints. We believe that the results of our POISE trial of OCA in PBC and our long-term safety extension trials in PBCpatients, which include a small group of patients who have been on OCA therapy for more than four years, demonstrate that OCAproduces a durable therapeutic response.We have also completed two randomized, placebo-controlled Phase 2 trials of OCA in PBC patients, one with OCA incombination with ursodiol and one with OCA as monotherapy, and our POISE trial. We intend to use the POISE trial results, alongwith two previously completed randomized Phase 2 clinical trials of OCA in PBC, as the basis for seeking the first regulatoryapprovals to market OCA in the United States and Europe.We own worldwide rights to OCA outside of Japan, China and Korea, where we have exclusively licensed OCA to SumitomoDainippon along with an option to exclusively license OCA in certain other Asian countries.OCA Benefits in PBCWe believe that OCA has the potential to provide the following benefits in the treatment of PBC:•Efficacy . In addition to achieving the primary endpoint in our Phase 2 and Phase 3 trials, 80% of OCA-treated patients acrosseach of our Phase 2 and Phase 3 trials experienced a reduction in ALP levels of at least 10%, which we consider to be aclinically meaningful improvement, as compared to 13% of placebo-treated patients.5  TABLE OF CONTENTS•Pharmacological Activity . Unlike ursodiol, which has no FXR-agonist activity, OCA is approximately 100-times more potentthan CDCA in activating the FXR receptor. In numerous animal models, sustained FXR activation with OCA treatment hasresulted in the prevention, and even reversal, of liver fibrosis. In our clinical trials, patients taking OCA also have experiencedsignificant reductions in common indicators of autoimmune activity such as interleukin 12, or IL-12, tumor necrosis factoralpha, or TNF-a, immunoglobulin M, or IgM, and C-reactive protein, or CRP. We believe that these observations demonstratepotential disease-modifying therapeutic activity directly addressing the underlying autoimmune pathology.•Ease of Use . We anticipate seeking approval of OCA for the treatment of PBC with the administration of a single tablet eachday. With proposed tablets containing 5 mg or 10 mg of OCA, any of these doses is a small fraction of the amount of ursodiolthat a PBC patient is typically prescribed.Phase 3 PBC Program for OCACompleted Phase 3 Trial: OCA as Combination Therapy in PBC Patients (POISE)In March 2014, we announced that the primary endpoint was achieved in our international POISE trial studying the safety andefficacy of once-daily treatment with OCA in PBC patients with an inadequate therapeutic response to, or who are unable to tolerate,ursodiol. In the trial, 217 patients were randomized to one of three groups: placebo, 10 mg OCA or 5 mg OCA for six months titratedto 10 mg OCA based on clinical response. Except for a small number of patients who were intolerant of ursodiol, the patients in theplacebo and OCA dosing groups received standard of care ursodiol treatment throughout the trial.The POISE data showed that OCA, at both a 10 mg dose and a 5 mg dose titrated to 10 mg, met the trial’s primary endpoint ofachieving a reduction in serum ALP to below a threshold of 1.67 times ULN, with a minimum of 15% reduction in ALP level frombaseline, and a normal bilirubin level after 12 months of therapy. Patients with ALP and bilirubin levels below the thresholds set forthin the POISE trial primary endpoint have been shown in long-term observational meta-analyses to have a significantly lower risk ofprogressing to liver transplant and death. The percentage of patients meeting the POISE trial primary endpoint was 10% in the placebogroup, 47% in the 10 mg OCA group and 46% in the OCA titration group (both dose groups p < 0.0001 as compared to placebo) in anintention-to-treat analysis. The placebo group experienced a mean decrease in ALP from baseline of 5%, compared to a significantmean decrease of 39% in the 10 mg OCA dose group and 33% in the OCA titration group (both dose groups p < 0.0001 as comparedto placebo). OCA treated patients achieved highly statistically significant reductions in ALP beginning as early as two weeks afterinitiation of treatment, with a peak effect achieved by six months.POISE Trial: Primary Endpoint6  TABLE OF CONTENTSIn addition, both OCA dose groups met pre-specified secondary endpoints of improving other clinically relevant liver enzymes.Reductions in gamma glutamyl transferase, or GGT, of 64% in the 10 mg OCA dose group and 50% in the OCA titration group,alanine transaminase, or ALT, of 42% in the 10 mg OCA dose group and 36% in the OCA titration group, and aspartate transaminase,or AST, of 24% in the 10 mg OCA dose group and 22% in the OCA titration group, were observed, respectively (both OCA dosegroups p < 0.0005 as compared to placebo). PBC patients typically have dyslipidemia with unique features, characterized bysignificantly elevated levels of high-density lipoprotein cholesterol, or HDL-C, and modestly or significantly elevated levels of low-density lipoprotein cholesterol, or LDL-C. OCA treatment led to a rapid and sustained dose-dependent decrease in HDL-C levels,similar to those seen in the prior PBC clinical trials, with most patients experiencing HDL-C within normal levels. No meaningfulsustained changes in LDL-C were observed in this setting.Pruritus, generally mild to moderate, was the most frequently reported adverse event associated with OCA treatment and wasobserved in 38% of patients on placebo, 70% of patients in the 10 mg OCA group and 56% of patients in the OCA titration group.Eight patients discontinued due to pruritus, of whom none were in the placebo group, seven (10%) patients were in the 10 mg OCAgroup and one (1%) patient was in the OCA titration group. Pruritus has also been observed in other clinical trials of OCA. As shownin the graph below, patient-reported pruritus severity, as measured by the visual analog score, or VAS, was not different between OCAand placebo groups at the end of the study. A majority of the pruritus events were found to be transient in nature, starting within thefirst month of dosing and decreasing in severity over time with continued treatment.POISE Trial: Pruritus ScoresApart from pruritus, the incidence of adverse events was generally similar across both OCA and placebo groups (placebo: 90%,OCA 10 mg: 86%, OCA titration: 89%). Overall, serious adverse events, or SAEs, occurred in 22 (10%) of the patients and, althoughthere were more SAEs in the OCA treatment groups, none were considered drug-related and there were no apparent patterns in theSAEs.7  TABLE OF CONTENTSOngoing Open-Label Long-Term Safety Extension of the POISE TrialFollowing the completion of the double-blind portion of the POISE trial described above, patients were given the option to enrollin an open-label long-term safety and efficacy extension trial, or the POISE LTSE. The POISE LTSE is currently ongoing. Patientscontinue to receive open-label OCA in this phase, and have been increased from a starting dose of 5 mg to as high as 25 mg, asclinically indicated. Of the 198 patients who completed the double-blind phase of the POISE trial, more than 95% continued in theLTSE phase of the trial.Regulatory PathwayOCA was granted Fast Track designation by FDA in May 2014 for the treatment of patients with PBC who have an inadequateresponse to or are intolerant of ursodiol. The Fast Track process allows a company to submit individual sections of its NDA for reviewby the FDA on a rolling basis as they are completed. In June 2015, we completed our filings for marketing approval of OCA in PBC inthe United States under the FDA’s accelerated approval pathway. In August 2015, the FDA accepted for review our NDA and grantedPriority Review for OCA for the treatment of PBC. The FDA set a target date of May 29, 2016 to take action under PDUFA, aftergiving effect to a 90 day extension. The FDA has also publicly announced a planned advisory committee meeting date of April 7,2016. If we receive marketing approval from the FDA on the PDUFA date, we plan to initiate the commercial launch of OCA in PBCin the United States in June 2016.In June 2015, we also received notice of the acceptance of the MAA for review by the EMA for use of OCA in PBC. If we aresuccessful in the EMA review process, we anticipate receiving marketing approval in late 2016, with planned commercial launchesthereafter in certain European countries. We also plan to apply for marketing approval of OCA in PBC in other markets across theworld such as Australia and Canada.A number of published clinical studies have demonstrated that lower levels of ALP, both independently or in conjunction withnormal bilirubin levels, correlate with a significant reduction in adverse clinical outcomes such as liver transplant and death. Webelieve that one of the key factors in the FDA’s and EMA’s potential acceptance of our POISE trial primary endpoint as a basis foraccelerated approval will be the result of meta-analyses of PBC clinical outcomes data of more than 6,000 PBC patients from 15academic centers in eight countries that have been compiled by the Global PBC Study Group, which we sponsored, as well as a datasetof over 6,000 PBC patients across the United Kingdom compiled by the UK PBC Group. These represent the largest prospective PBCclinical datasets assembled to analyze the correlation of biochemical therapeutic response with clinical outcomes in PBC patients.In the largest meta-analysis of individual PBC patient data conducted to date, published in the December 2014 issue ofGastroenterology , the Global PBC Study Group researchers confirmed that levels of ALP and bilirubin correlated with clinicaloutcomes of patients with PBC. Of the 4,845 patients included in the analysis, 1,118 reached a clinical outcome defined as livertransplantation or death. The researchers reported an association between ALP values and liver transplant-free survival, with higherALP values associated with worse prognosis. At one year after study enrollment, an ALP level of two times ULN best predictedpatient outcome but not significantly better than other lower ALP thresholds such as 1.67 times ULN. Among patients with ALP levelsless than or equal to two times ULN, 84% survived for at least a ten year follow-up period compared with 62% of those with levelsexceeding two times ULN (p < 0.0001). Elevated bilirubin levels were strongly correlated with worse prognosis and only 41% of suchpatients had not had a liver transplant or died over the subsequent 10 years compared with 86% of patients with normal bilirubin levels(p < 0.0001). We believe that these results, along with the published results of the UK PBC Group, show that the achievement of anALP level of less than 1.67 times ULN, together with a normal bilirubin level, correlates with a highly statistically significantreduction of risk and adverse clinical outcomes such as liver transplant and death in PBC patients.8  TABLE OF CONTENTSOngoing Confirmatory Clinical Outcomes Trial: The COBALT TrialAs part of our strategy for filing the NDA for OCA under the accelerated approval pathway, in December 2014 we initiated ourCOBALT confirmatory clinical outcomes trial in PBC, as required under FDA guidelines for accelerated approval, with detailed inputon the trial design from both FDA and EMA. The goal of the trial is to confirm that reduction of ALP with OCA treatment isassociated with a longer term benefit on liver-related clinical outcomes. This trial is currently enrolling patients and is expected to becompleted on a post-marketing basis.COBALT is designed to assess the effect of a once-daily dose of 5 mg or 10 mg of OCA in approximately 350 PBC patients withan inadequate therapeutic response to ursodiol or who are unable to tolerate ursodiol. In this trial, eligible patients with PBC continuetheir ursodiol treatment, except for those patients unable to tolerate ursodiol, and are being randomized into one of two arms ofapproximately 175 patients each. Patients receive, in addition to ursodiol, either placebo or 5 mg of OCA increasing over the course ofthe trial to 10 mg of OCA based on tolerability. The primary endpoint of the trial is based on clinical outcomes as measured by time tofirst occurrence of any of the following adjudicated events: death (all-cause), liver transplant, Model of End stage Liver Disease, orMELD, score greater than 15, hospitalization due to variceal bleeding, encephalopathy or spontaneous bacterial peritonitis,uncontrolled ascites or hepatocellular carcinoma.Nonalcoholic Steatohepatitis (NASH)NASH is a common and serious chronic liver disease caused by excessive fat accumulation in the liver, or steatosis, that inducesinflammation and may lead to progressive fibrosis and cirrhosis, followed by eventual liver failure and death. In NASH patients, forreasons that are as yet not completely understood, steatosis and other factors such as insulin resistance induce chronic inflammation inthe liver and may lead to progressive fibrosis and cirrhosis, followed by eventual liver failure and death.NASH is a more serious form of NAFLD. Although difficult to precisely estimate, we believe that roughly one quarter of the totalU.S. population and roughly 20% of the total population in France, Germany, Italy, Spain and the United Kingdom, or the EU5countries, has NAFLD. Of the NASH population in both the United States and the EU5 countries, more than 15% of patients arebelieved to have fibrosis of stage 2 or greater. We believe that similar prevalence will be found in other European countries, Japan andother developed countries. Additionally, NASH has become a highly prevalent liver disease in developing countries such as India andChina. Although the prevalence of NASH is lower in children, it has also become a serious disease burden in the pediatric population.There are currently no drugs approved for the treatment of NASH.Other common co-existing conditions such as obesity and type 2 diabetes, which are present in the majority of all NASH patients,are important risk factors. NASH has been linked in both developed and developing countries to the adoption of a Western diet, withincreased consumption of processed foods containing polyunsaturated fatty acids and fructose. More than 20% of NASH patientsprogress to cirrhosis within a decade of diagnosis. Owing to the rapidly increasing prevalence of the disease, NASH has become thesecond most common reason for liver transplant in the United States and is projected to become the leading indication for transplant inthe next few years, overtaking both chronic hepatitis C infection and alcoholic liver disease. NASH patients have a ten-fold greaterrisk of liver-related mortality as compared to the general population and a six-fold greater risk of liver-related mortality as comparedto patients with less severe NAFLD. The presence of type 2 diabetes in the broader NAFLD population is associated with a muchgreater mortality risk, with a 23-fold higher rate of liver-related mortality as compared to non-diabetic NAFLD patients. Additionally,NASH is now considered to be the leading, and a rapidly increasing, cause of hepatocellular carcinoma, or primary liver cancer, ofwhich up to 40% of cases in NASH patients develop prior to developing cirrhosis.9  TABLE OF CONTENTSCurrently, a definitive diagnosis of NASH is based on a histologic assessment of a liver biopsy for several key features associatedwith NASH, including, but not limited to, steatosis, lobular inflammation and hepatocyte ballooning. However, non-invasive methodsof diagnosis are being explored, including transient elastography (an ultrasound technology approved in Europe and more recently inthe United States for the measurement of liver fibrosis), magnetic resonance imaging and serum biomarkers. NASH diagnosis rates inthe United States and the EU5 countries are very low, driven by a lack of approved treatment options and a lack of non-invasivediagnosis options. We believe the availability of novel therapeutics and non-invasive technologies will be critical to increase diagnosisrates.Currently Available Treatment Options for NASHThere are currently no drugs approved for the treatment of NAFLD or NASH. However, various therapeutics are used off-label forthe treatment of NASH, such as vitamin E (an antioxidant), insulin sensitizers (e.g., metformin), antihyperlipidemic agents (e.g.,gemfibrozil), pentoxifylline and ursodiol. Lifestyle changes, including modification of diet and exercise to reduce body weight, as wellas treatment of concomitant diabetes and dyslipidemia, are commonly accepted as the standard of care, but have not conclusively beenshown to prevent disease progression.NASH Unmet Medical NeedAlthough some of the off-label treatments described above have been studied as possible treatments for NASH, none has beenapproved by the FDA or EMA as a treatment for this disease. Currently, the outlook and treatment options for end-stage NASHpatients are limited. Although liver transplant can be curative, many patients fail to receive a donor organ in time, and for those whodo, there are very significant clinical risks, such as infection and organ rejection, as well as significant costs. In addition, the post-transplant recurrence rate of NASH has been shown to be as high as 25% at 18 months. Given the lack of available treatment options,we believe that there is a significant unmet need for a novel therapy for NASH, particularly in those patients with advanced fibrosisand cirrhosis and those with a high risk of disease progression due to other co-morbidities such as type 2 diabetes.Our Solution: OCA for NASHOCA’s Potential Benefits in NASHFXR activation has been shown to play a key role in the regulation of the metabolic pathways relevant to NASH, highlighting FXRas a potential drug target for treatment of the disease. Given the significant unmet medical need of patients with NASH, we believethat the potent ability of OCA to activate FXR could result in a major clinical benefit through potential amelioration or reversal ofliver fibrosis, inflammation, steatosis, and insulin resistance. We believe that OCA has the potential to provide the following benefitsin the treatment of NASH:•Pharmacological Activity. In addition to achieving the primary endpoint in the Phase 2b FLINT trial in NASH patients, asignificantly greater number of OCA-treated patients achieved an improvement of at least one fibrosis stage (35% vs 19%, p =0.004), with OCA showing greater response rates as compared to placebo across all stages of fibrosis. In animal models,sustained FXR activation with OCA treatment has resulted in the reversal of liver fibrosis, the reversal of portal hypertension,the prevention of atherosclerosis, and improvements in triglycerides, inflammation, steatosis and insulin sensitivity. Mice thatlack functional FXR (so-called knockout mice) spontaneously develop NASH accompanied by hypertriglyceridemia andinsulin resistance, and go on to develop hepatocellular carcinoma, or primary liver cancer. We believe that the combinedmechanisms of FXR activation, coupled with the occurrence of NASH in animals lacking FXR, support the potential disease-modifying therapeutic potential of OCA in directly addressing the underlying disease pathology in NASH.•Ease of Use. We anticipate seeking approval of OCA for the treatment of NASH at a single daily dose.10  TABLE OF CONTENTSPhase 2 NASH Program for OCAPhase 2 Trial: OCA as Therapy in Type 2 Diabetic Patients with NAFLDWe previously completed a double-blind, placebo-controlled Phase 2 clinical trial of OCA in 64 type 2 diabetic patients withNAFLD. We believe that a majority of the patients in this trial were likely to have had NASH and, not simple steatosis, given thedisease’s association with obesity and diabetes and based upon an evaluation of serum fibrosis biomarkers from trial participants. Inthis trial, OCA therapy significantly improved insulin sensitivity both in the liver and peripheral tissues, thereby meeting the primaryendpoint in the trial with a mean improvement in liver insulin sensitization from baseline of approximately 24.5% in the combinedOCA dose groups, as compared to a worsening of approximately 5.5% in the placebo group (p = 0.011). Insulin resistance, particularlyin the liver, is considered to be an important contributor to NASH disease pathology. In this trial, significant improvements in weightloss were also noted in patients receiving OCA therapy, along with improvements in liver enzymes such as GGT and AST.OCA was generally well-tolerated by the trial patients, with side effects in the treatment groups not meaningfully different thanthose reported on placebo (apart from mild constipation in the 50 mg group). Consistent with anticipated FXR-related lipid metaboliceffects starting with the clearance of excess lipid load from the liver, there were changes in mean serum lipid profiles observed in theOCA treatment groups compared with the placebo group that included decreased concentrations of triglycerides, increasedconcentrations of LDL-C and slightly decreased concentrations of HDL-C from baseline. In our publication of the results, we observedthat once-daily treatment for six weeks at the 25 mg OCA dose, which we subsequently selected to advance in our NASH developmentprogram, led to an approximately 12% decrease in mean triglycerides to 170 mg/dL from a baseline mean level of 193 mg/dL, anapproximately 22% increase in mean LDL cholesterol to 120 mg/dL from a baseline mean level of 98 mg/dL, and an approximately5% decrease in mean HDL cholesterol to 35 mg/dL from a baseline mean level of 37 mg/dL.Phase 2b FLINT Trial for NASHOCA achieved the primary endpoint in the Phase 2b trial for the treatment of NASH, known as the FLINT trial, which wassponsored by the NIDDK, a part of the National Institutes of Health. A significantly greater number of OCA-treated patients alsoachieved an improvement of at least one fibrosis stage (35% vs 19%, p = 0.004), with OCA showing greater response rates ascompared to placebo across all stages of fibrosis. After FLINT was completed in late July 2014, we disclosed top-line results in ourQuarterly Report on Form 10-Q for the quarter ended June 30, 2014 and the results were subsequently published online in the Lancetin November 2014. The summary of the FLINT trial results described below are based on information and data provided to us by theNIDDK. This trial was a double-blind, placebo-controlled trial of a once-daily dose of 25 mg of OCA or placebo given for 72 weeks in283 patients with biopsy-proven NASH.a. Primary EndpointThe percentage of patients meeting the FLINT primary histological endpoint, defined as a decrease in the NAFLD Activity Score,or NAS, of at least two points with no increase in the fibrosis score following 72 weeks of treatment, was 45% in the OCA treatmentgroup and 21% in the placebo group (p = 0.0002, n = 219). The mean pre-treatment baseline NAS for patients in the OCA treatmentgroup was 5.3 of a total possible score of eight (comprised of hepatocellular ballooning 0 – 2, lobular inflammation 0 – 3 and steatosis0 – 3). Subgroup analyses showed significant response rates in the OCA treatment group in patients with risk factors for diseaseprogression, including baseline fibrosis stage, co-morbid type 2 diabetes mellitus, ALT, insulin resistance and severe obesity (eachfactor p < 0.05 for OCA compared to placebo based on 95% confidence interval of published odds ratios). The graph below shows theresults of the primary endpoint in the FLINT trial and the improvements in NAS for various subgroups published in the Lancet .11  TABLE OF CONTENTSPrimary Endpoint: Improvement in NAS by Two Points with no Worsening of Fibrosis*p < 0.05, *** p < 0.001. P-values calculated with the Cochran-Mantel-Haenszel test, stratified by clinic and diabetes status.b. Secondary Efficacy Endpoint: Fibrosis ImprovementA significantly greater number of OCA-treated patients also achieved an improvement of at least one fibrosis stage (35% versus19%, p = 0.004). Based on our retrospective analyses of the FLINT data, more OCA-treated patients exhibited fibrosis improvement ofat least two fibrosis stages (15% versus 6%, not significant) and exhibited fibrosis improvements regardless of baseline fibrosis stageand a significantly greater number of OCA-treated patients also achieved complete resolution of fibrosis (17% versus 5%, p = 0.0018).Also, our retrospective analysis of the FLINT data showed that fewer OCA-treated patients progressed to bridging fibrosis (15%versus 18%, not significant) or to cirrhosis (2% versus 5%, not significant). The NASH clinical research network fibrosis stagingsystem was used to categorize the pattern of fibrosis and architectural remodeling of the liver: no fibrosis (F0), perisinusoidal orperiportal fibrosis (F1), perisinusoidal and periportal fibrosis (F2), bridging fibrosis (F3) and cirrhosis (F4). Fibrosis sub-stages 1a, 1band 1c were considered F1 for the analysis.c. Secondary Efficacy Endpoint: NASH ResolutionThe secondary endpoint of NASH resolution, based on a global histological assessment, also showed improvement, although notstatistically significant (22% versus 13%, p = 0.0832, not significant). A central reading of all baseline and end-of-trial biopsies wasperformed at the end of the trial, based on which only 80% of patients were confirmed to have definite NASH, while the remaining20% were diagnosed as borderline NASH (10%) or not-NASH (10%). A retrospective subgroup analysis on the completer populationcomprised only of definite NASH patients at baseline showed that a significantly greater number of OCA-treated patients achievedNASH resolution compared with placebo-treated patients (19% versus 8%; p = 0.0278).The graph below shows these results from the FLINT trial for fibrosis improvement, fibrosis resolution, fibrosis progression andNASH resolution.12  TABLE OF CONTENTSFLINT Trial: Improvement in Histological Endpoints*p < 0.05, **p < 0.01. P-values calculated with the Cochran-Mantel-Haenszel test, stratified by clinic and diabetes status. NSindicates that the results are not significant.Retrospective analyses after the unblinding of results can potentially introduce bias and regulatory authorities typically givegreatest weight to results from pre-specified analyses as compared to retrospective analyses.d. Additional Secondary EndpointsMore OCA-treated patients experienced significant improvements in the major histological features of NASH, including steatosis(61% versus 38%, p = 0.001), lobular inflammation (53% versus 35%, p = 0.006) and hepatocellular ballooning (46% versus 31%, p =0.03), as compared to the placebo treatment group. Trends were similar between the two treatment groups for portal inflammation,which is not a component of the NAS and is typically mild in adult NASH patients.The histological improvements observed in OCA-treated patients versus placebo were accompanied by significant reductions inrelevant biochemical parameters, including the serum liver enzymes ALT (p < 0.0001), AST (p = 0.0001) and GGT (p < 0.0001), eachof which were above generally accepted normal limits at baseline, and total bilirubin (p = 0.002). A modest but statistically significantincrease in ALP (p < 0.0001) in the OCA treatment group was also observed, but levels remained within typical normal limits.OCA treatment was associated with serum lipid changes, including average increases in total cholesterol and LDL-C and anaverage decrease in HDL-C, that developed within 12 weeks of treatment initiation, then began reversing through the end of treatmentand returned to baseline during the 24-week post-treatment follow-up phase. Based on these observations, lipid management wasemphasized partway into the trial, using generally accepted guidelines. At 72 weeks as compared to baseline, the following effectswere observed in the OCA treatment group: an increase in mean total cholesterol (0.16 mmol/L or 6 mg/dL increase OCA versus 0.19mmol/L or 7mg/dL decrease placebo, p < 0.0009), an increase in mean LDL-C (0.22 mmol/L or 9 mg/dL increase OCA versus 0.22mmol/L or 8 mg/dL decrease placebo, p < 0.0001), a decrease in mean HDL-C (0.02 mmol/L or 1 mg/dL decrease OCA versus 0.03mmol/L or 1 mg/dL increase placebo, p = 0.01)13  TABLE OF CONTENTSand a decrease in triglycerides (0.22 mmol/L or 20 mg/dL decrease OCA versus 0.08 mmol/L or 7 mg/dL decrease placebo, p = 0.88,not significant).A post-hoc analysis showed OCA-treated patients who initiated statins during the FLINT trial (n=26) experienced a rapid reversalof their observed mean LDL-C increase to below baseline levels, with a mean decrease after 72 weeks of treatment of -18.9 mg/dL. Incontrast, other OCA-treated patients with no reported initiation or change in statin therapy experienced an increase in LDL-C thatpeaked at week 12 and was sustained over the 72 week treatment period. Patients treated with statins at baseline who maintained statintreatment over the duration of the study (n=50) experienced a mean LDL-C increase of 8.7 mg/dL at 72 weeks. Patients not treatedwith statins during the study (n=65) experienced a mean LDL-C increase of 16.0 mg/dL. Treatment related LDL-C increases in allgroups reversed with treatment discontinuation. This analysis suggests that the OCA-associated LDL-C increase reaches a maximumpeak and plateaus soon after initiation of therapy and that concomitant statin use in NASH patients receiving OCA may mitigatetreatment-related LDL-C increases.In the FLINT trial, statistically significant weight loss of an average of 2.3 kilograms was observed in OCA patients compared tono weight loss in the placebo group (p = 0.008), and this weight loss reverted towards baseline during the 24-week follow-up phase. Apre-specified sensitivity analysis conducted by the investigators showed that weight loss was not a driver of the primary endpoint. Anincrease in a marker of hepatic insulin resistance known as HOMA-IR (calculated using the product of fasting plasma insulin andglucose) was observed at 72 weeks in the OCA treatment group (p = 0.01). However, there was an imbalance in baseline plasmainsulin levels (201 pmol/L OCA versus 138 pmol/L placebo), and an even larger relative and absolute increase in HOMA-IR wasobserved in the placebo group at the conclusion of the 24-week follow-up phase. This is potentially attributable to the inherentvariability in HOMA-IR measurements, particularly in patients with type 2 diabetes, that have been shown to make single time-pointto time-point changes of this magnitude clinically uninterpretable. There were virtually no changes in mean hemoglobin A1c, ameasure of average blood sugar control over a period of approximately three months, in either OCA or placebo groups at 72 weeks. Ina previous study of OCA in diabetic NAFLD patients, described in more detail above, employing the hyperinsulinemic-euglycemicinsulin clamp, the gold standard for detecting changes in insulin resistance, OCA improved the glucose disposal rate consistent withreduced insulin resistance.e. Safety and TolerabilityOCA was generally well tolerated in the FLINT trial. Adverse events were generally mild to moderate in severity and theincidence in the OCA and placebo treatment groups was similar for all symptoms except pruritus. Pruritus in the OCA treatment groupoccurred more frequently (23% versus 6%, p < 0.0001), at a higher grade (predominantly moderate pruritus) but resulted in only onepatient discontinuation. The incidence of severe or life threatening events was not different between the two treatment groups andmost of the events in both groups were deemed to be unrelated to treatment, including all severe or life threatening cardiovascularevents. As previously disclosed, two deaths occurred in the OCA treatment group, but neither was considered related to OCAtreatment.Phase 2 Sumitomo Dainippon Trial for NASHIn October 2015, we announced the results of a 72-week Phase 2 dose ranging trial of OCA in 200 adult patients with NASH inJapan. The trial was conducted by our collaborator, Sumitomo Dainippon. In this trial, 202 Japanese biopsy-proven NASH patients(NAS of 5-8) were randomized into one of four arms to receive either a 10 mg, 20 mg or 40 mg dose of OCA, or placebo, and 200 ofthese patients — 50 per group — initiated treatment for a 72-week double-blind treatment phase, followed by a 24-week off treatmentphase. The primary endpoint was histologic improvement defined as at least a two point improvement in NAS with no worsening offibrosis.The primary efficacy analysis was conducted on an intention to treat, or ITT, basis, testing the dose dependent effects of once dailyOCA (10 mg, 20 mg and 40 mg) versus placebo on the primary endpoint. The ITT analysis included all randomized patients whoreceived treatment (50 per group), and patients who discontinued or did not have a repeat biopsy were treated as non-responders. Apre-specified completer analysis was conducted on the patients who had biopsies at both baseline and 72 weeks (45, 44, 44 and 37patients in the placebo, 10 mg, 20 mg and 40 mg OCA groups, respectively).14  TABLE OF CONTENTSThis trial did not meet its primary endpoint with statistical significance. The ITT results in the table below show a dose dependentincrease in the percentage of OCA treated patients compared to placebo who achieved the primary endpoint (p=0.053, not significant).The 40 mg OCA dose group achieved statistical significance on the primary endpoint compared to placebo (p=0.0496). Dose-dependent trends not reaching statistical significance were also observed for several other pre-specified histologic endpoints, includingthe percentage of patients with steatosis and inflammation improvement, ballooning resolution and NASH resolution. No differencewas seen in fibrosis improvement in the OCA groups compared to placebo. ITT Results Placebo N=50 10 mg N=50 20 mg N=50 40 mg N=50 NAS improvement ≥ 2 points 10 (20%) 11 (22%) 14 (28%) 19 (38%) p=0.053*with no worsening of fibrosis p=0.8070** p=0.3378** p=0.0496** *Primary efficacy analysis is a stratified Cochran-Armitage test with multiple contrast coefficients. Statistical significance is basedon a p-value < 0.05.**The secondary efficacy analysis is a CMH (Cochran-Mantel-Haenszel) test stratified by baseline fibrosis stage for pairwisecomparison of each OCA group compared to the placebo group. The multiplicity was not adjusted.In the completer analysis, similar dose dependent effects were observed, with 51% of patients in the 40 mg dose group comparedto 22% in the placebo group meeting the primary endpoint (p=0.0061).With the exception of dose dependent pruritus, OCA appeared to be generally safe and well tolerated. The number of pruritusassociated discontinuations were 0, 0, 2 and 5 patients in the placebo, 10 mg, 20 mg and 40 mg OCA groups, respectively. Changes inlipid parameters, including LDL-C, HDL-C and triglycerides, appeared to be consistent with previously reported lipid changes inWestern NASH patients. No other meaningful differences in the rate of adverse events between the OCA and placebo groups werenoted.We have been informed by Sumitomo Dainippon that it is exploring the initiation of a Phase 3 clinical trial for OCA in NASHpatients intended to support the registration of this indication in Japan.REGENERATE: Phase 3 Trial in NASH with Advanced Liver FibrosisIn September 2015, we initiated the previously announced international Phase 3 trial of OCA in patients with non-cirrhotic NASHwith advanced liver fibrosis, known as the REGENERATE trial, which is currently enrolling patients. The REGENERATE trial wasdesigned following discussions with the FDA and EMA. The study population is expected to primarily be comprised of WesternNASH patients with histologic evidence of stage 2 or stage 3 liver fibrosis. In addition, the trial will include an exploratory cohort ofNASH patients with histologic evidence of early stage 1 liver fibrosis and concomitant diabetes, obesity or elevated ALT, who are atincreased risk of progression to cirrhosis. These patients with early stage 1 liver fibrosis will not be included in the primary endpointanalysis.REGENERATE is designed as a double-blind, placebo-controlled Phase 3 clinical trial and is expected to enroll approximately2,000 NASH patients at up to 300 qualified centers worldwide and assess the potential benefits of OCA treatment on liver-related andother clinical outcomes. Patients are being randomized into one of three groups receiving a once-daily dose of placebo, 10 mg OCA or25 mg OCA. The trial will include a pre-planned interim histology analysis after 72 weeks of treatment in 1,400 patients, which ifsuccessful is intended to serve as the basis for seeking initial U.S. and international marketing approvals of OCA for the treatment ofNASH patients with liver fibrosis. The REGENERATE trial will remain blinded after the interim analysis and continue to followpatients until the occurrence of a pre-specified number of adverse liver-related clinical events, including progression to cirrhosis, toconfirm clinical benefit on a post-marketing basis.Two co-primary endpoints will be assessed in the interim analysis: (i) the proportion of OCA-treated patients relative to placeboachieving at least one stage of liver fibrosis improvement with no worsening of NASH and (ii) the proportion of OCA-treated patientsrelative to placebo achieving NASH resolution with no worsening of liver fibrosis. The REGENERATE trial will also assesssecondary outcome measures such as improvement of both fibrosis and NASH and the resolution of fibrosis.15  TABLE OF CONTENTSAdditional NASH Clinical ProgramsIn December 2015, we initiated a Phase 2 clinical trial, known as the CONTROL trial, to characterize the lipid metabolic effects ofOCA and cholesterol management effects of concomitant statin administration in NASH patients. CONTROL is expected to enroll 80NASH patients who are naïve to statin therapy or have undergone a statin washout, and will include a 16-week double-blind phasefollowed by an optional two year long term safety extension phase.We intend to complete our planning for a Phase 2 program in NASH patients with cirrhosis in 2016. The objectives of this trial areto understand the safety and tolerability of OCA in NASH patients with cirrhosis and portal hypertension and to evaluate the effect ofOCA in reducing portal pressure as assessed by hepatic venous pressure gradient, or HVPG.NASH Regulatory PathwayIn January 2015, OCA received breakthrough therapy designation from the FDA for the treatment of NASH patients with liverfibrosis. The breakthrough therapy designation was created by the FDA to speed the availability of new therapies for serious or life-threatening conditions. Drugs qualifying for this designation must show credible evidence of a substantial improvement on a clinicallysignificant endpoint over available therapies, or over placebo if there is no available therapy. The breakthrough therapy designationconstitutes one of four expedited programs for serious conditions including accelerated approval, priority review and fast-trackdesignation, all of which can also be granted to the same drug if relevant criteria are met. The breakthrough therapy designationconfers several benefits, including intensive FDA guidance and discussion and eligibility for submission of a rolling NDA.Primary Sclerosing Cholangitis (PSC)PSC is a rare, serious life-threatening, chronic cholestatic liver disease characterized by progressive destruction of bile ducts witheventual onset of cirrhosis and its complications. PSC has about one-third the prevalence of PBC and more than 60% of cases occur inmen.PSC is usually diagnosed by preliminary assessment of liver biochemistry, with or without reported symptoms, and confirmed bycholangiography, typically magnetic resonance cholangiopancreatography or endoscopic retrograde cholangiopancreatography, orERCP. ALP is elevated in most PSC patients, consistent with cholestasis, and ALT and GGT are also typically elevated, but not in allcases. Bilirubin is often normal in early-stage PSC but increases with progression of the disease. The mean age at diagnosis is 40years. Approximately 75% of PSC patients have overlapping inflammatory bowel disease, principally ulcerative colitis.Median survival for PSC patients has been previously estimated as 8 to 12 years from diagnosis in symptomatic patients,depending upon stage of the disease at the time of diagnosis. Complications involving the biliary tree are common and includecholangitis as well as ductal strictures and gallstones, both of which may require frequent endoscopic or surgical interventions. PSC isoften complicated by the development of malignancies, with cholangiocarcinoma being the most common.Despite evaluation of multiple treatments, liver transplant is currently the only treatment shown to improve clinical outcomes.Ursodiol is often used for the treatment of PSC due to improvements in liver biochemistry following initiation of therapy. Despitegeneral biochemical improvement, ursodiol has not been shown to improve transplant-free survival and, at high doses, has beenassociated with increased risk for serious complications. However, as there are no approved drugs for the treatment of PSC, somephysicians treat patients with ursodiol, typically at a dose of 13 to 15 mg/kg/day. PSC is the fourth leading indication for livertransplant. However, the post-transplant recurrence rate of PSC has been shown to be as high as 20%.Phase 2 AESOP Trial: OCA as Therapy in PSCIn December 2014, we initiated an international Phase 2 clinical trial, referred to as the AESOP trial, to evaluate the effects of 24weeks of treatment with varying doses of OCA compared to placebo in patients with PSC. The primary endpoint is the reduction ofserum ALP levels, as compared to placebo. In addition, OCA’s effect on other secondary liver function endpoints, as well assymptoms of ulcerative colitis (a disease occurring in a majority of patients with PSC), will be assessed. This trial is anticipated toenroll16  TABLE OF CONTENTSapproximately 75 patients in the United States and Europe. Following the completion of the 24-week double-blind portion of the trial,patients will be given the option to enroll in an open-label long-term safety and efficacy extension trial.Biliary AtresiaBiliary atresia is a life-threatening condition in infants in which the bile ducts inside or outside the liver do not have normalopenings. With biliary atresia, bile becomes trapped, builds up, and damages the liver. The damage leads to scarring, loss of livertissue, and cirrhosis. The two types of biliary atresia are fetal and perinatal. Fetal biliary atresia appears while the baby is in the womb.Perinatal biliary atresia is much more common and does not become evident until two to four weeks after birth. Some infants,particularly those with the fetal form, also have birth defects in the heart, spleen, or intestines. Biliary atresia is rare and only affectsabout one out of every 18,000 infants. The disease is more common in females, premature babies, and children of Asian or AfricanAmerican heritage. Biliary atresia is not an inherited disease and is most likely caused by an event in the womb or around the time ofbirth. No single test can definitively diagnose biliary atresia, resulting in the need for a series of tests. All infants who still havejaundice two to three weeks after birth, or who have gray or white stools after two weeks of birth, should be checked for liver damage.Once diagnosed, biliary atresia is treated with a liver transplant or, more frequently, a surgery called the Kasai procedure, in whichthe bile ducts are connected directly to the small intestine. After the Kasai procedure, some infants continue to have liver problemsand, even with the return of bile flow, some infants develop cirrhosis. Possible complications after the Kasai procedure include ascites,bacterial cholangitis, portal hypertension, and pruritus. Even after a successful Kasai surgery, most infants with biliary atresia slowlydevelop cirrhosis over the years and require a liver transplant by adulthood.Phase 2 CARE Trial: OCA as Therapy in Biliary AtresiaIn October 2015, we initiated a Phase 2 clinical trial of OCA, referred to as the CARE trial, in pediatric patients with biliaryatresia. The CARE trial will evaluate the effects of 11 weeks of OCA treatment where patients with biliary atresia will be randomizedto varying doses of OCA or a control group receiving only their current treatment. The primary endpoint is to evaluate thepharmacokinetics and the safety and tolerability of OCA treatment. In addition, OCA’s effect on hepatobiliary indices and biomarkerswill be assessed. This trial is anticipated to enroll approximately 60 patients in the United States and Europe. All patients will be giventhe option to enroll in an open-label long-term safety and efficacy extension trial. In addition to studying the effects of OCA treatmentin biliary atresia, this trial is a part of the approved Paediatric Investigation Plan, or PIP, in support of the MAA for OCA in PBC inthe European Union.Potential Future Product CandidatesIn addition to OCA, we are developing other novel bile acid analog compounds targeting FXR and a second dedicated bile acidreceptor called TGR5, which is a target of interest for the treatment of type 2 diabetes and other gastrointestinal indications. We intendto continue advancing these and other product candidates as we build our pipeline.INT-767INT-767 is an orally administered dual FXR and TGR5 agonist that, like OCA, is derived from the primary human bile acidCDCA. This product candidate has been shown to be approximately three times more potent than OCA as an FXR agonist. In animalmodels of chronic liver, intestinal and kidney diseases, INT-767 has consistently demonstrated greater anti-fibrotic and anti-inflammatory effects than OCA.We have received assignments of rights to the INT-767 patent portfolio from all inventors, with the exception of one inventor.That inventor is contractually obligated to provide an assignment to us. Thus, we believe that we are the owner of the INT-767 patentportfolio by virtue of this contractual obligation and the patent assignments we have received.In November 2015, we announced the initiation of a Phase 1 clinical trial of INT-767 in healthy volunteers. The goal of the Phase1 trial is to assess safety and pharmacokinetics in a single ascending dose escalation phase followed by a multiple ascending dosephase in healthy volunteers.17  TABLE OF CONTENTSINT-777INT-777 is an orally administered TGR5 agonist that is derived from the primary human bile acid cholic acid. We have completedthe preclinical studies necessary for the filing of an IND. By virtue of the patent assignments we have received and other contractualobligations owed to us, we believe we are the exclusive owner of the INT-777 patent portfolio.Our in vitro studies of INT-777 showed that the product candidate has the potential to selectively target TGR5, a receptor that hasbeen shown to directly regulate the release of glucagon like peptide-1, or GLP-1, in the intestine with resulting insulin sensitizingeffects. There are several important and effective marketed drugs that enhance the effects of GLP-1 through different mechanisms, butnone are able to induce the endogenous production of this hormone, and we believe there is interest in the potential for a TGR5 agonistto provide additive benefits. TGR5 has also been shown in animal models to regulate other metabolic pathways in brown fat andskeletal muscle that drive energy expenditure. The receptor may also play a role in the control of inflammation, which is increased ininsulin resistant diabetic conditions.In animal models of diabetes, treatment with INT-777 induced GLP-1 secretion, with resulting insulin sensitivity andnormalization of glycemic control, increased basal energy expenditure and prevention of weight gain, and a reduction in blood lipidlevels together with liver steatosis and fibrosis. We believe that these preclinical results could support further development of INT-777and our other TGR5 agonists in the treatment of type 2 diabetes, associated metabolic disorders and other gastrointestinal indications.We intend to continue development of INT-777 through potential collaborations with third parties, over the next several years.Strategic Collaborations and Research ArrangementsSumitomo Dainippon PharmaOn March 29, 2011, we entered into a license agreement with Sumitomo Dainippon Pharma Co., Ltd., under which we grantedSumitomo Dainippon an exclusive license to research, develop and commercialize OCA as a therapeutic for the treatment of PBC andNASH in Japan and China (excluding Taiwan). Under the terms of the agreement, Sumitomo Dainippon is required to usecommercially reasonable efforts to develop and commercialize OCA in its licensed territories for the treatment of PBC and NASH,and we are obligated under the agreement to use commercially reasonable efforts to develop OCA outside of Sumitomo Dainippon’slicensed territories. We are also responsible for supplying Sumitomo Dainippon with clinical and commercial supply of OCArequested by Sumitomo Dainippon pursuant to clinical and commercial supply agreements that include terms specified in theagreement. Sumitomo Dainippon has agreed during the term of the agreement to not commercialize any compound that is an FXRagonist for use in the treatment of PBC or NASH other than pursuant to the agreement.We granted Sumitomo Dainippon an option under the agreement to obtain an exclusive license to commercialize OCA forindications other than PBC and NASH on the same terms as are set forth in the agreement. Sumitomo Dainippon may exercise thisoption with respect to any indication at any time during the two-year period commencing on the date we notify Sumitomo Dainipponof the commencement of a Phase 3 clinical trial involving OCA for such indication, subject to Sumitomo Dainippon’s payment of anoption fee for each additional indication. No option fee is required to be paid by Sumitomo Dainippon if it exercises its option for anyadditional indication only in China.In addition to Japan and China, which are the original licensed territories, we also granted Sumitomo Dainippon an option underthe agreement to add Korea, Taiwan, Malaysia, Vietnam, the Philippines, Thailand, Singapore and/or Indonesia to its exclusive licenseon the same terms as are set forth in the agreement. Sumitomo Dainippon may exercise this option with respect to any such country atany time up until the date on which regulatory approval to commercialize OCA is granted in Japan, subject to Sumitomo Dainippon’spayment of an option fee for each country. If we accept or make a bona fide offer of exclusive rights to a third party to develop andcommercialize OCA in any of these countries, we must first notify Sumitomo Dainippon and Sumitomo Dainippon has the right toexercise its option with respect to any such country. In addition, prior to accepting or making a bona fide offer of any exclusivedevelopment and commercialization rights involving OCA in the United States and Canada to a third party, we must first engage ingood faith18  TABLE OF CONTENTSnegotiations with Sumitomo Dainippon with respect to the grant to Sumitomo Dainippon of exclusive rights to develop andcommercialize OCA in such countries. In May 2014, Sumitomo Dainippon exercised its option to add Korea to its licensed territories.Sumitomo Dainippon made up-front payments to us in the amount of $16.0 million, including $1.0 million upon the exercise of itsoption to add Korea to its licensed territories. In addition, Sumitomo Dainippon may be required to pay us up to an aggregate ofapproximately $30.0 million for the achievement of development milestones, $70.0 million for the achievement of regulatory approvalmilestones and $200.0 million for the achievement of sales milestones based on aggregate sales amounts. As of March 2, 2015, wehave achieved $1.0 million of the development milestones. Sumitomo Dainippon is also obligated to pay us tiered royalties rangingfrom the tens to the twenties in percent based on net sales of OCA products in Japan and the other Asian countries covered by thisagreement. The term of the agreement, and Sumitomo Dainippon’s obligation to pay royalties to us for each OCA product, expires ona country-by-country basis on the later of the expiration of the exclusivity period in such country, whether through the expiration ofapplicable patents or the introduction of generic drugs that compete with the OCA product, or ten years after the first commercial saleof such OCA product for the first or second indication in that country. Royalty rates are subject to reduction under the agreement inspecified circumstances, including, with respect to any country in the exclusive territory, if sales of generic products reach a certainthreshold market share in that country over a specified period.Sumitomo Dainippon may terminate the agreement in its entirety or on a country-by-country or indication-by-indication basisupon 90 days’ written notice. Either we or Sumitomo Dainippon may terminate the agreement in the event of the uncured materialbreach by or bankruptcy of the other party, subject to certain dispute resolution procedures. If Sumitomo Dainippon were to terminatethe agreement for our material breach, it would have a perpetual license following the effective date of termination, subject to thepayment by Sumitomo Dainippon of a royalty based on net sales of OCA products, the amount of which will depend on whether theeffective date of termination occurs prior to or after the date of first commercial sale of an OCA product. If we were to terminate theagreement for Sumitomo Dainippon’s material breach or if Sumitomo Dainippon were to voluntarily terminate the agreement,Sumitomo Dainippon’s license under the agreement would terminate.CommercializationIn anticipation of the potential marketing authorization of OCA in PBC in the United States and Europe in 2016, we are in the finalstages of establishing a commercial organization and distribution capabilities. In the United States and Europe, due to the nature ofchronic liver diseases and the limited options for treatment, patients suffering from diseases such as PBC often have a high degree oforganization, which may make it easier to identify target populations if and when OCA is approved for PBC and subsequently forother indications. We believe that the market for the treatment of PBC, NASH and other indications is a specialty care market drivenby key opinion leaders in the hepatology and gastroenterology fields. Most patients are treated by physicians who specialize in thetreatment of liver disease, including hepatologists and certain gastroenterologists and endocrinologists.Our current plan is to commercialize OCA ourselves in the United States, certain European countries, Canada and Australia if it isapproved. We anticipate that our commercialization efforts will include our internal commercial organization, sales people and otherspecialists, and contracted outside resources. Outside of the United States, Europe, Canada and Australia, subject to obtainingnecessary marketing approvals, we likely will seek to commercialize OCA through distribution or other collaboration arrangements.We believe that the build out of our U.S. commercial infrastructure is mostly complete with the recent hiring of the U.S. territorybusiness managers and other field personnel in October 2015. We also significantly expanded our commercial and other infrastructureinternationally in 2015, and plan on making additional investments over 2016 should key regulatory milestones be achieved on atimely basis.If OCA is approved for the treatment of patients with PBC, we believe that it will be possible to commercialize OCA for thisindication with a relatively small specialty sales organization that would target a limited and focused group of specialist physicians. Asa result of our ongoing clinical work, we have been engaged in dialogue with specialists who treat patients with PBC. We believe thatthese activities have19  TABLE OF CONTENTSprovided us with a growing knowledge of the physicians we plan to target for the commercial launch of OCA for PBC in the UnitedStates and Europe, subject to the receipt of applicable marketing approvals. We intend to leverage the infrastructure and capabilities ofour PBC-focused specialty sales organization during our pre-commercial preparation for the commercialization of OCA in NASH andother potential indications, if approved for these indications. Though we are continuing our market research and other pre-commercialplanning for OCA in NASH, we currently anticipate that we would require a larger specialty sales organization that would target abroader group of hepatologists, gastroenterologists and other specialists focused on NASH if we receive marketing approval for thisindication.We exclusively licensed rights to OCA to Sumitomo Dainippon in Japan, China and Korea, along with an option to expand thisexclusive license into certain other Asian countries. We will rely on Sumitomo Dainippon to commercialize OCA in its territory.CompetitionThe biopharmaceutical industry is characterized by intense competition and rapid innovation. Although we believe that we hold aleading position in bile acid chemistry, our competitors may be able to develop other compounds or drugs that are able to achievesimilar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnologycompanies, specialty pharmaceutical companies and universities and other research institutions. Smaller or early-stage companies mayalso prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Webelieve the key competitive factors that will affect the development and commercial success of our product candidates are efficacy,safety and tolerability profile, reliability, convenience of dosing, price, the level of generic competition and reimbursement.Our most advanced product candidate, OCA, is an FXR agonist currently being developed to treat non-viral, progressive liverdiseases. We are aware of other companies, including Novartis International AG, Gilead Sciences, Inc., Enanta Pharmaceuticals, Inc.,Eli Lilly, Co., ENYO Pharma SAS, Exelixis, Inc. and Akarna Therapeutics Ltd. that have FXR agonists in Phase 2 or earlier stages ofclinical or preclinical development that could be used to treat PBC, NASH and the other liver diseases we are targeting.OCA is currently being developed as a second line treatment for PBC where ursodiol is the only therapy that is approved fortreatment and is generically available at a significantly lower cost than branded products. While fibrates are not approved for use inPBC, off-label use of fibrate drugs has been reported, though many fibrates are specifically contraindicated for use in PBC due topotential concerns over acute and long-term safety in this patient population. Ongoing Phase 3 clinical trials for the treatment of PBCinclude an investigator-sponsored trial of bezafibrate, a fibrate that has not been approved for commercialization by the FDA and isonly available outside of the United States, and a combination of ursodiol and budesonide, a steroid, sponsored by Dr. Falk PharmaGmbH. We are aware of several other companies that have product candidates in Phase 2 or earlier clinical or preclinical developmentfor the treatment of PBC, including FXR agonists from Novartis International AG (LJN452) and Enanta Pharmaceuticals, Inc. (EDP-305), Bristol-Myers Squibb’s marketed anti-CTL4 fusion protein (abatacept) and FF Pharmaceuticals’ anti-CD40 monoclonal antibody(FFP104). Additionally, several companies have product candidates aimed at the cholestatic-induced pruritus associated with PBC,including apical sodium dependent bile acid transport inhibitors being developed by GlaxoSmithKline (GSK2330672) and Albireo(A4250).There are currently no therapeutic products approved for the treatment of NASH, NAFLD, portal hypertension, complications ofcirrhosis or alcoholic hepatitis. There are several marketed therapeutics that are currently used off-label for the treatment of NASH,such as vitamin E (an antioxidant), insulin sensitizers (e.g., metformin), antihyperlipidemic agents (e.g., gemfibrozil), pentoxifyllineand ursodiol, but none has been clearly shown in clinical trials to show a significant reversal in liver fibrosis. Genfit SA has anongoing Phase 3 clinical trial of GFT505, a dual PPAR alpha/delta agonist. Gilead Sciences, Inc. is conducting multiple Phase 2clinical trials in NASH patients of various disease severity with both simtuzumab, an anti-body against the lysyl oxidase-like 2enzyme, and GS-4997, an inhibitor of the apoptosis signal-regulating kinase 1. Gilead Sciences, Inc. is also studying an FXR agonist(GS-9674) for the treatment of NASH. We are aware of several other companies that have product candidates in Phase 2 clinical orearlier clinical or preclinical development for the treatment of NASH, including Novo Nordisk A/S, Conatus Pharmaceuticals20  TABLE OF CONTENTSInc., Nitto Denko Corporation, Tobira Therapeutics, Inc., Cempra Pharmaceuticals, Islet Sciences, Inc., Galectin Therapeutics Inc.,Zydus Pharmaceuticals Inc., NGM Biopharmaceuticals Inc., Galmed Medical Research Ltd., Bristol-Myers Squibb, MediciNova, Inc.,FibroGen, Inc., Genkyotex SA, Viking Therapeutics, Inc., AstraZeneca plc, Enanta Pharmaceuticals, Inc., Durect Corporation,Immuron Ltd., Boehringer Ingelheim GmbH, MiNA Therapeutics, NuSirt Biopharma, Inc., Protalix Biotherapeutics, and Medivation,Inc. While there is no approved treatment for PSC, ursodiol is often prescribed off-label for PSC patients. We are aware of severalcompanies that have product candidates in Phase 2 clinical or earlier stage clinical or preclinical development for the treatment ofPSC, including Tobira Therapeutics, Inc., Biotie Therapies Corp. (acquired by Acorda Therapeutics, Inc.), Dr. Falk Pharma GmbH,Gilead Sciences, Inc. and Shire plc.We believe that OCA offers key potential advantages over ursodiol and other products in development that could enable OCA, ifapproved for these indications, to capture meaningful market share. However, many of our potential competitors have substantiallygreater financial, technical and human resources than we do, as well as greater experience in the discovery and development of productcandidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, ourcompetitors may be more successful than us in obtaining approval from the FDA or from other regulators for drugs and achievingwidespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than anyproduct candidate we may commercialize and may render our product candidates obsolete or non-competitive before we can recoverthe expenses of their development and commercialization. We anticipate that we will face intense and increasing competition as newdrugs enter the market and other advanced technologies become available. Finally, the development of new treatment methods for thediseases we are targeting could render our product candidates non-competitive or obsolete. NASH is a complex disease and it isunlikely that any one therapeutic option will be optimal for every NASH patient. In addition, our ability to compete may be affectedbecause in many cases insurers or other third-party payors seek to encourage the use of generic products.Intellectual PropertyThe proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how areimportant to our business. We have sought patent protection in the United States and internationally for OCA, INT-767 and INT-777,and our discovery programs, and other inventions to which we have rights, where available and when appropriate. Our policy is topursue, maintain and defend patent rights, whether developed internally or licensed from third parties, and to protect the technology,inventions and improvements that are commercially important to the development of our business. We also rely on trade secrets thatmay be important to the development of our business.Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of ourcurrent and future product candidates and the methods used to develop and manufacture them, as well as successfully defending thesepatents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing ourproducts depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patentapplications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in thefuture will be commercially useful in protecting our product candidates, discovery programs and processes. For this and morecomprehensive risks related to our intellectual property, please see Item 1A. “Risk Factors — Risks Relating to Our IntellectualProperty.”OCA (lead product candidate; FXR agonist)The patent portfolio for OCA contains patents and patent applications directed to compositions of matter, manufacturing methods,and methods of use. As of December 31, 2015, we owned seven U.S. patents, seven pending U.S. patent applications, andcorresponding foreign patents and patent applications. Foreign patents have been granted in 31 European countries as well asAustralia, Canada, China, Israel, Japan, and Macao. In January 2016, we received notification of grant of additional OCA compositionof matter patents. We expect the composition of matter patents, if the appropriate maintenance, renewal, annuity or othergovernmental fees are paid, to expire in 2022 (worldwide) at the soonest and 2033 at the latest. It is possible that the 2022 expirationdate of the composition of matter patent in the United States may be extended up to five21  TABLE OF CONTENTSadditional years under the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-WaxmanAct. Patent term extension may be available in certain foreign countries upon regulatory approval. We expect the other patents in theportfolio, if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire from 2022 to 2033.INT-767 (dual FXR/TGR5 agonist)The patent portfolio for INT-767 contains patents and patent applications directed to compositions of matter and methods of use.As of December 31, 2015, we owned three U.S. patents, two pending U.S. patent applications, and corresponding foreign patents andpatent applications. Foreign patents have been granted in Australia, China, 34 European countries as well as Hong Kong, India, Israeland Japan. We expect the issued composition of matter patent in the United States, if the appropriate maintenance, renewal, annuity orother governmental fees are paid, to expire in 2029. It is possible that the term of the composition of matter patent in the United Statesmay be extended up to five additional years under the provisions of the Hatch-Waxman Act. We expect the foreign composition ofmatter patents, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire in 2027. Patent termextension may be available in certain foreign countries upon regulatory approval. We expect the other patents in the portfolio, if theappropriate maintenance, renewal, annuity or other governmental fees are paid, to expire from 2027 to 2029. We have receivedassignments of rights to the INT-767 patent portfolio from all inventors, with the exception of one inventor. That inventor iscontractually obligated to provide an assignment to us. Thus, we believe that we are the owner of the INT-767 patent portfolio byvirtue of this contractual obligation and the patent assignments we have received.INT-777 (TGR5 agonist)The patent portfolio for INT-777 contains patents and patent applications directed to compositions of matter and methods of use.As of December 31, 2015, we owned three U.S. patents, two pending U.S. patent applications, and corresponding foreign patents andpatent applications. Foreign patents have been granted in Australia, China, 9 Eurasian countries, 30 European countries, Hong Kong,Israel, Japan, Macao, Mexico, Singapore, South Korea, and South Africa. We expect the composition of matter patent in the UnitedStates, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire in 2030. It is possible that theterm of the composition of matter patent in the United States may be extended up to five additional years under the provisions of theHatch-Waxman Act. We expect the foreign composition of matter patents, if the appropriate maintenance, renewal, annuity or othergovernmental fees are paid, to expire beginning in 2028. Patent term extension may be available in certain foreign countries uponregulatory approval. We expect the other patents in the portfolio, if the appropriate maintenance, renewal, annuity or othergovernmental fees are paid, to expire from 2028 to 2030.Trade SecretsIn addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets andknow-how can be difficult to protect. We seek to protect our proprietary processes, in part, by confidentiality agreements andinvention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. Theseagreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of our data,trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our informationtechnology systems.ManufacturingWe do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans todevelop our own manufacturing operations in the foreseeable future. We currently rely on third-party contract manufacturers for all ofour required raw materials, active pharmaceutical ingredient, or API, and finished product for clinical trials and preclinical studies thatwe are conducting and plan to conduct prior to and after seeking regulatory approval. We are currently seeking to contract to qualifyone or more back-up API manufacturers. We do not have long-term agreements with any of these third parties. We also do not haveany current contractual relationships for the manufacture of commercial supplies of any of our product candidates. We currently obtainthese supplies and services from our third-party contract22  TABLE OF CONTENTSmanufacturers on a purchase order basis. We intend to enter into agreements with a third-party contract manufacturer and one or moreback-up manufacturers for the commercial production of those products. Development and commercial quantities of any products thatwe develop will need to be manufactured in facilities, and by processes, that comply with the requirements of the FDA, EMA and theregulatory agencies of other jurisdictions in which we are seeking approval. We currently employ internal resources to manage ourmanufacturing contractors.Government Regulation and Product ApprovalGovernment authorities in the United States, at the federal, state and local level, and analogous authorities in other countriesextensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage,advertising, distribution, marketing and export and import of products such as those we are developing. Our product candidates mustbe approved by the FDA through the NDA process before they may be legally marketed in the United States and by the EMA throughthe MAA process before they may be legally marketed in Europe. Our product candidates will be subject to similar requirements inother countries prior to marketing in those countries. The process of obtaining regulatory approvals and the subsequent compliancewith applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financialresources.United States Government RegulationNDA Approval ProcessesIn the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and implementingregulations. An applicant seeking approval to market and distribute a new drug product in the United States must typically undertakethe following:•completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s goodlaboratory practice, or GLP, regulations;•submission to the FDA of an IND, which must take effect before human clinical trials may begin;•approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may beinitiated;•performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, toestablish the safety and efficacy of the proposed drug product for each indication;•preparation and submission to the FDA of an NDA;•review of the product by an FDA advisory committee, where appropriate or if applicable;•satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, orcomponents thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirementsand to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality andpurity;•satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCP and the integrity of the clinicaldata;•payment of user fees and securing FDA approval of the NDA; and•compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, and post-approval outcomes studies required by the FDA.Once a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinicaltests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor mustsubmit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND.Some nonclinical testing may continue even after the IND is submitted. In addition to including the results of the nonclinical studies,the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the23  TABLE OF CONTENTSparameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacydetermination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day timeperiod, places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns beforeclinical trials can begin. A clinical hold may occur at any time during the life of an IND, and may affect one or more specific studiesor all studies conducted under the IND.All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. Theymust be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusioncriteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, andprogress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must timely report toFDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected adverse reactionover that listed in the protocol or investigation brochure, or any findings from other studies or animal or in vitro testing that suggest asignificant risk in humans exposed to the drug. An IRB at each institution participating in the clinical trial must review and approvethe protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and theconsent form that must be provided to each research subject or the subject’s legal representative, monitor the study until completedand otherwise comply with IRB regulations.Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:•Phase 1. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption,metabolism, distribution and elimination. In the case of some products for severe or life-threatening diseases, such as cancer,especially when the product may be inherently too toxic to ethically administer to healthy volunteers, the initial human testingis often conducted in patients.•Phase 2. Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safetyrisks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance andoptimal dosage.•Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patientpopulation at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratioof the product and provide an adequate basis for product labeling.Human clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. TheFDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects orpatients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at itsinstitution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated withunexpected serious harm to patients. In some cases, clinical trials are overseen by an independent group of qualified experts organizedby the trial sponsor, or the clinical monitoring board or data safety monitoring board, or DSMB. This group provides authorization forwhether or not a trial may move forward at designated check points. These decisions are based on the limited access to data from theongoing trial.During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points maybe prior to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may berequested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for theFDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss theirPhase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval of thenew drug. If a Phase 2 clinical trial is the subject of discussion at the end of Phase 2 meeting with the FDA, a sponsor may be able torequest a special protocol assessment, or SPA, the purpose of which is to reach agreement with the FDA on the Phase 3 clinical trialprotocol design and analysis that will form the primary basis of an efficacy claim.24  TABLE OF CONTENTSAccording to published guidance on the SPA process, a sponsor which meets the prerequisites may make a specific request for anSPA and provide information regarding the design and size of the proposed clinical trial. The FDA is supposed to evaluate the protocolwithin 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and arequest for additional information. An SPA request must be made before the proposed trial begins, and all open issues must beresolved before the trial begins. If a written agreement is reached, it will be documented and made part of the record. The agreementwill be binding on the FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreementof the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or efficacy ofthe drug was identified after the testing began.Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop additional informationabout the chemistry and physical characteristics of the drug and finalize a process for manufacturing commercial quantities of theproduct in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batchesof the drug and the manufacturer must develop methods for testing the quality, purity and potency of the drug. Additionally,appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate doesnot undergo unacceptable deterioration over its proposed shelf-life.The results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process,analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part of anNDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees, but a waiver ofsuch fees may be obtained under specified circumstances. The FDA reviews all NDAs submitted to ensure that they are sufficientlycomplete for substantive review before it accepts them for filing. It may request additional information rather than accept an NDA forfiling. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject toreview before the FDA accepts it for filing.Once the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. Adrug representing a significant improvement over available therapies in treatment, prevention or diagnosis of disease may receivepriority review. The FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may requireadditional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy thecriteria for approval. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for itsintended use and whether its manufacturing is cGMP-compliant. The FDA may refer the NDA to an advisory committee for reviewand recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by therecommendation of an advisory committee, but it generally follows such recommendations. The FDA has publicly announced aplanned advisory committee meeting date of April 7, 2016 relating to OCA in PBC. Before approving an NDA, the FDA will inspectthe facility or facilities where the product is manufactured and tested.Fast Track, Breakthrough Therapy, Priority Review and Accelerated ApprovalThe FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need inthe treatment of a serious or life-threatening disease or condition. These programs are fast track designation, breakthrough therapydesignation and priority review designation.Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one ormore other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to addressunmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA andthe FDA may initiate review of sections of a fast track product’s NDA before the application is complete.A product may also be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more otherdrugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product maydemonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantialtreatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough25  TABLE OF CONTENTStherapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the productsponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary projectlead for the review team; and taking other steps to design the clinical trials in an efficient manner. In January 2015, OCA receivedbreakthrough therapy designation from the FDA for the treatment of NASH patients with liver fibrosis.The FDA may also designate a product for priority review if it is a drug that treats a serious condition and, if approved, wouldprovide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed drugrepresents a significant improvement when compared with other available therapies. A priority designation is intended to direct overallattention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketingapplication from ten months to six months.In addition, the FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningfultherapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on a surrogateendpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition whenthe product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity ormortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit,taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Drugsgranted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.In the case of unprecedented accelerated approval endpoints, this determination occurs during the review of the NDA. Unlessotherwise informed by the FDA, an applicant must submit to the FDA for consideration during the preapproval review period copiesof all promotional materials, including promotional labeling as well as advertisements, intended for dissemination or publicationwithin 120 days following marketing approval. After 120 days following marketing approval, unless otherwise informed by the FDA,the applicant must submit promotional materials at least 30 days prior to the intended time of initial dissemination of the labeling orinitial publication of the advertisement.OCA has been granted fast track designation by the FDA for the treatment of patients with PBC who have an inadequate responseto or are intolerant of ursodiol. In August 2015, the FDA accepted for review our NDA and granted priority review for OCA in PBC.The FDA has set a target date of May 29, 2016 to take action under PDUFA, after giving effect to a 90 day extension. The FDA haspublicly announced a planned advisory committee meeting date of April 7, 2016.In accordance with the applicable requirements under the accelerated approval pathway, we initiated a clinical outcomesconfirmatory trial for OCA in PBC, known as the COBALT trial, in December 2014, following discussions with the FDA. We do notexpect completion of this trial to be a condition to the receipt of marketing approval and, as a result, plan to complete the trialfollowing our receipt of marketing approval. Approval of a drug may be withdrawn if trials fail to verify clinical benefit or do notdemonstrate sufficient clinical benefit to justify the risks associated with the drug (e.g., show a significantly smaller magnitude orduration of benefit than was anticipated based on the observed effect on the surrogate).Post-approval RequirementsDrugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA,including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution,advertising and promotion and reporting of adverse experiences with the product. Once an approval is granted, the FDA may withdrawthe approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market.Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawalof the product from the market. After approval, some types of changes to the approved product, such as adding new indications,manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA mayrequire testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA hasthe power to prevent or limit further marketing of a product based on the results of these post-marketing programs.26  TABLE OF CONTENTSDrug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register theirestablishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and somestate agencies for compliance with cGMP and other laws. Changes to the manufacturing process are strictly regulated and often requireprior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations fromcGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsormay decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and qualitycontrol to maintain cGMP compliance.Failure to comply with the applicable U.S. requirements at any time during the product development process or approval process,or after approval, may subject us to administrative or judicial sanctions, any of which could have a material adverse effect on us.These sanctions could include:•refusal to approve pending applications;•withdrawal of an approval;•imposition of a clinical hold;•warning letters;•product seizures;•total or partial suspension of production or distribution; or•injunctions, fines, disgorgement, or civil or criminal penalties.The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may bepromoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agenciesactively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperlypromoted off-label uses may be subject to significant liability.We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products.Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disruptproduction or distribution, or require substantial resources to correct.From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisionsgoverning the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidanceare often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible topredict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact ofsuch changes, if any, may be.Patent Term Extension and Data ExclusivityDepending upon the timing, duration and specifics of FDA approval of the use of our drug candidates, some of our U.S. patentsmay be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referredto as the Hatch-Waxman Act. The Hatch-Waxman Act permits an extension patent term of up to five years as compensation for patentterm lost during product development and the FDA regulatory review process. However, the extension of patent term cannot extendthe remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term extension period isgenerally one-half the time between the effective date of an IND, and the submission date of an NDA, plus the time between thesubmission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for theextension and the application for extension must be made prior to expiration of the patent. The United States Patent and TrademarkOffice, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future,we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add27  TABLE OF CONTENTSpatent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in thesubmission of the relevant NDA.Data exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCAprovides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of an NDA fora new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing thesame active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, theFDA may not accept for review an abbreviated new drug application, or ANDA. However, an application may be submitted after fouryears if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketingexclusivity for an NDA, 505(b)(2) NDA or supplement to an approved NDA if new clinical investigations, other than bioavailabilitystudies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application,for example, for new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditionsassociated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing theoriginal active agent for other conditions of use. Five-year and three-year exclusivity will not delay the submission or approval of afull NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of thepreclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.Pediatric Exclusivity and Pediatric UseUnder the Best Pharmaceuticals for Children Act, or BPCA, certain drugs may obtain an additional six months of exclusivity, ifthe sponsor submits information requested in writing by the FDA, or a Written Request, relating to the use of the active moiety of thedrug in children. The FDA may not issue a Written Request for studies on unapproved or approved indications or where it determinesthat information relating to the use of a drug in a pediatric population, or part of the pediatric population, may not produce healthbenefits in that population.We have not received a Written Request for such pediatric studies, although we may ask the FDA to issue a Written Request forsuch studies in the future. To receive the six-month pediatric market exclusivity, we would have to receive a Written Request from theFDA, conduct the requested studies in accordance with a written agreement with the FDA or, if there is no written agreement, inaccordance with commonly accepted scientific principles, and submit reports of the studies. A Written Request may include studies forindications that are not currently in the labeling if the FDA determines that such information will benefit the public health. The FDAwill accept the reports upon its determination that the studies were conducted in accordance with and are responsive to the originalWritten Request or commonly accepted scientific principles, as appropriate, and that the reports comply with the FDA’s filingrequirements.In addition, the Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric studies for most drugs andbiologicals, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. UnderPREA, original NDAs, biologics license application and supplements thereto, must contain a pediatric assessment unless the sponsorhas received a deferral or waiver. The required assessment must assess the safety and effectiveness of the product for the claimedindications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for whichthe product is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or all of the pediatricsubpopulations. A deferral may be granted for several reasons, including a finding that the drug or biologic is ready for approval foruse in adults before pediatric studies are complete or that additional safety or effectiveness data needs to be collected before thepediatric studies begin. After April 2013, the FDA must send a non-compliance letter to any sponsor that fails to submit the requiredassessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.As part of the FDASIA, Congress made a few revisions to BPCA and PREA, which were slated to expire on September 30, 2012,and made both laws permanent.28  TABLE OF CONTENTSRegulation Outside of the United StatesIn addition to regulations in the United States, we will be subject to regulations of other countries governing clinical trials andcommercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval bythe comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in suchcountries and approval of the regulators of such countries or economic areas, such as the European Union, before we may marketproducts in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing,pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDAapproval.Under European Union regulatory systems, a company may submit marketing authorization applications under a centralized,decentralized or mutual recognition marketing authorization procedure. The centralized procedure provides for the grant of a singlemarketing authorization for a medicinal product by the European Commission on the basis of an opinion by the EMA. A centralizedmarketing authorization is valid for all European Union member states and three of the four EFTA States (Iceland, Liechtenstein andNorway). The decentralized marketing authorization procedure involves the submission of an application for marketing authorizationto the competent authority of all European Union member states in which the product is to be marketed. One national competentauthority, selected by the applicant, assesses the application for marketing authorization. The competent authorities of the otherEuropean Union member states are subsequently required to grant marketing authorization for their territory on the basis of thisassessment, except where grounds of potential serious risk to public health require this authorization to be refused. The mutualrecognition procedure provides for mutual recognition of marketing authorizations delivered by the national competent authorities ofEuropean Union member states by the approval authorities of other European Union member states. The holder of a nationalmarketing authorization may submit an application to the competent authority of a European Union member state requesting that thisauthority recognize the marketing authorization delivered by the competent authority of another European Union member state.Prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all measuresincluded in an EMA-approved Paediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMAhas granted (1) a product-specific waiver, (2) a class waiver, or (3) a deferral for one or more of the measures included in the PIP. Inthe case of orphan medicinal products, completion of an approved PIP can result in an extension of the aforementioned marketexclusivity period from ten to twelve years.It is also possible that a marketing authorization from the EMA could be conditional on post-approval studies and not considered afull approval. A manufacturer’s ability to obtain and maintain conditional marketing authorization in the European Union will belimited to specific circumstances and subject to several conditions and obligations, if obtained at all. Conditional marketingauthorizations based on incomplete clinical data may be granted for a limited number of listed medicinal products for human use,including products designated as orphan medicinal products under European Union law, if (1) the risk-benefit balance of the product ispositive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) unmetmedical needs will be fulfilled and (4) the benefit to public health of the immediate availability on the market of the medicinal productoutweighs the risk inherent in the fact that additional data are still required. Specific obligations, including with respect to thecompletion of ongoing or new studies, and with respect to the collection of pharmacovigilance data, may be specified in theconditional marketing authorization. Conditional marketing authorizations are valid for one year, and may be renewed annually, if therisk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions.Similarly to the United States, both marketing authorization holders and manufacturers of medicinal products are subject tocomprehensive regulatory oversight by the EMA and the competent authorities of the individual European Union member states bothbefore and after grant of the manufacturing and marketing authorizations. This includes European Union cGMP rules, which governquality control of the manufacturing process and require documentation policies and procedures. We and our third party manufacturersare required to ensure that all of our processes, methods and equipment are compliant with cGMP.29  TABLE OF CONTENTSFailure by us or by any of our third party partners, including suppliers, manufacturers and distributors to comply with EuropeanUnion laws and the related national laws of individual European Union member states governing the conduct of clinical trials,manufacturing approval, marketing authorization of medicinal products and marketing of such products, both before and after grant ofmarketing authorization, may result in administrative, civil or criminal penalties. These penalties could include delays or refusal toauthorize the conduct of clinical trials or to grant marketing authorization, product withdrawals and recalls, product seizures,suspension, withdrawal, or variation of the marketing authorization, total or partial suspension of production, distribution,manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.Orphan Drug DesignationUnder the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition,which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available inthe United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphandrug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of thetherapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey anyadvantage in or shorten the duration of the regulatory review and approval process.If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has suchdesignation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications tomarket the same drug for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity,however, could also block the approval of one of our products for seven years if a competitor obtains approval of the same drug asdefined by the FDA or if our drug candidate is determined to be contained within the competitor’s product for the same indication ordisease. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity andmay obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan productultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it maynot be entitled to exclusivity.As in the United States, we may apply for designation of a product as an orphan drug for the treatment of a specific indication inthe European Union before the application for marketing authorization is made. Orphan drugs in Europe enjoy economic andmarketing benefits, including up to ten years of market exclusivity for the approved indication. The market exclusivity period for theauthorized therapeutic indication may be reduced to six years if, at the end of the fifth year, it is established that the orphan designationcriteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of marketexclusivity. In addition, a competing similar medicinal product may in limited circumstances be authorized prior to the expiration ofthe market exclusivity period, including if it is shown to be safer, more effective or otherwise clinically superior to the orphan-designated product.OCA has received orphan drug designation in the United States and the European Union for the treatment of PBC and PSC. Any ofour orphan-designated products and product candidates can lose orphan designation, and the related benefits, if it is demonstrated thatthe orphan designation criteria are no longer met.Pricing and ReimbursementSales of our products will depend, in part, on the extent to which the costs of our products will be covered by third-party payors,such as government health programs, commercial insurance plans and managed healthcare organizations. These third-party payors areincreasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs hasbecome a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, statelegislatures and foreign governments have shown significant interest in implementing cost-containment programs, including pricecontrols, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could furtherlimit our net revenue and results. If these30  TABLE OF CONTENTSthird-party payors do not consider our products to be effective (or cost-effective in some markets outside of the United States)compared to other therapies, they may not cover our products after approved as a benefit under their plans or, if they do, the level ofpayment may not be sufficient to allow us to sell our products on a profitable basis.Medicare is a U.S. federal healthcare program that provides coverage for certain healthcare items and services to individuals aged65 years or older, as well as individuals of any age with certain disabilities and illnesses. Medicare Part D may affect reimbursementof our products upon approval. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entitieswhich will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans andprescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is notstandardized. Part D prescription drug plan sponsors are not required to pay for all covered outpatient drugs, and each Part D plan candevelop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D plan drugformularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all thedrugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by apharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for ourproducts for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D plan willlikely be lower than the prices we might otherwise obtain. Moreover, while Part D provides prescription drug benefits only toMedicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own paymentrates. Any reduction in payment made by Medicare may result in a similar reduction in payments from non-governmental payors.Medicaid is a government healthcare program that provides coverage for certain healthcare items and services to low-incomechildren, families, pregnant women and people with disabilities. It is jointly funded by the federal and state governments, and it isadministered by individual states with parameters established by the federal government. Therefore, coverage and reimbursement fordrugs may vary by state Medicaid program. A manufacturer must enter into a Medicaid Rebate Agreement to have its products beeligible for coverage by Medicaid. Under the Medicaid program, and per the Medicaid Rebate Agreement, manufacturers agree toreport certain prices to the government and pay rebates to state Medicaid programs based on Medicaid utilization of themanufacturer’s covered drugs. In January 2016, the Centers for Medicare & Medicaid Services, or CMS, released a final ruleimpacting the calculation and reporting of prices by manufacturers under the Medicaid program. We continue to evaluate how thisfinal rule may affect the reimbursement of our product candidate and rebates paid to state Medicaid programs.Federal law requires any company that participates in the Medicaid Drug Rebate Program to also participate in the Public HealthService’s 340B drug pricing program in order for federal funds to be available for the manufacturer’s drugs under Medicaid. The 340Bpricing program requires participating manufacturers to charge statutorily-defined covered entities no more than the 340B “ceilingprice” for the manufacturer’s covered outpatient drugs. The Patient Protection and Affordable Care Act, as amended by the HealthCare and Education Affordability Reconciliation Act of 2010, collectively referred to as the ACA, extended eligibility to participate inthe 340B pricing program to certain additional types of hospitals (including critical access hospitals, sole community hospitals, ruralreferral centers and freestanding cancer hospitals). However, for purposes of these newly eligible covered entities, the ACAspecifically excluded from the definition of “covered outpatient drugs” certain drugs designated as “orphan drugs” under section 526of the FDCA, such as our product candidate.The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectivenessof different treatments for the same illness. A plan for the research will be developed by the Department of Health and HumanServices, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status ofthe research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are notintended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the salesof any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible thatcomparative effectiveness research demonstrating benefits in a31  TABLE OF CONTENTScompetitor’s product could adversely affect the sales of our product candidates. If third-party payors do not consider our products to becost-effective compared to other available therapies, they may not cover our products as a benefit under their plans or, if they do, thelevel of payment may not be sufficient to allow us to sell our products on a profitable basis.In addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed.The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options forits member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursementand to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal productor it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on themarket. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical productswill allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the EuropeanUnion do not follow price structures of the United States and generally tend to be significantly lower.U.S. Fraud and Abuse LawsAny present or future arrangements with third-party payors, healthcare providers and professionals and customers may expose usto broadly applicable fraud and abuse and other healthcare laws and regulations that may restrict certain marketing and contractingpractices. These laws include, and are not limited to, anti-kickback and false claims statutes.The federal Anti-Kickback Statute (42 U.S.C. §1320a-7b(b)) prohibits, among other things, persons from knowingly and willfullysoliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual, or thefurnishing, recommending, or arranging for any good or service, for which payment may be made under federal and state healthcareprograms such as Medicare and Medicaid. Remuneration is not defined in the federal Anti-Kickback Statute and has been broadlyinterpreted to include anything of value, including for example, gifts, discounts, coupons, the furnishing of supplies or equipment,credit arrangements, payments of cash, waivers of payments, ownership interests and providing anything at less than its fair marketvalue. This statute has been broadly interpreted to apply to manufacturer arrangements with prescribers, purchasers and formularymanagers, among others.The federal False Claims Act imposes civil penalties, including through civil whistleblower or qui tam actions, against individualsor entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false orfraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. Thegovernment and qui tam relators have brought False Claims Act actions against pharmaceutical companies on the theory that theirpractices have caused false claims to be presented to the government. There is also a separate false claims provision imposing criminalpenalties.Other LawsThe Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technologyfor Economic and Clinical Health Act, imposes criminal liability for executing a scheme to defraud any healthcare benefit programand also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security andtransmission of individually identifiable health information.HIPAA also imposes criminal liability for knowingly and willfully falsifying, concealing or covering up a material fact or makingany materially false statements in connection with the delivery of or payment for healthcare benefits, items or services.The federal Physician Payments Sunshine Act requirements under the ACA, and its implementing regulations, requiremanufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Servicesinformation related to payments and other transfers of value made to covered recipients, such as physicians and teaching hospitals, andphysician ownership and investment interests. Payments made to physicians and research institutions for clinical trials are includedwithin the ambit of this law.32  TABLE OF CONTENTSA number of states also have statutes or regulations similar to the federal Anti-Kickback Statute and False Claims Act that apply toitems and services reimbursed under Medicaid and other state programs. Some state anti-kickback statutes apply not just togovernment payors, but to all payors, including commercial payors.EmployeesAs of December 31, 2015, we had 405 employees, of which 216 employees were in our drug development operations, 117employees were in our commercial group and 72 employees were in our corporate group. As of December 31, 2015, 309 employeeswere based in the United States, 89 employees were based in Europe and 7 employees were based in Canada. None of our employeesare represented by a labor union and we consider our employee relations to be good.Corporate InformationWe were incorporated in the State of Delaware on September 4, 2002. Our principal executive offices are located at 450 West 15 thStreet, Suite 505, New York, NY 10011, and our telephone number is (646) 747-1000. We also have administrative offices in SanDiego, California and London, United Kingdom.Our corporate website address is www.interceptpharma.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of1934, as amended, or the Exchange Act, are available free of charge on our website as soon as reasonably practicable after weelectronically file such material with, or furnish it to, the Securities and Exchange Commission. The Securities and ExchangeCommission maintains an internet site that contains our public filings with the Securities and Exchange Commission and otherinformation regarding our company, at www.sec.gov. These reports and other information concerning our company may also beaccessed at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Thepublic may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at1-800-SEC-0330. The contents of these websites are not incorporated into this Annual Report. Further, our references to the URLs forthese websites are intended to be inactive textual reference only.Legal ProceedingsFrom time to time we are party to legal proceedings in the course of our business in addition to those described below. We do not,however, expect such other legal proceedings to have a material adverse effect on our business, financial condition or results ofoperations.On February 21, 2014 and February 28, 2014, purported shareholder class actions, styled Scot H. Atwood v. InterceptPharmaceuticals, Inc. et al. and George Burton v. Intercept Pharmaceuticals, Inc. et al. , respectively, were filed in the United StatesDistrict Court for the Southern District of New York, naming us and certain of our officers as defendants. These lawsuits were filed bystockholders who claim to be suing on behalf of anyone who purchased or otherwise acquired our securities between January 9, 2014and January 10, 2014.The lawsuits allege that we made material misrepresentations and/or omissions of material fact in our public disclosures during theperiod from January 9, 2014 to January 10, 2014, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, asamended, and Rule 10b-5 promulgated thereunder. The alleged improper disclosures relate to our January 9, 2014 announcement thatthe FLINT trial had been stopped early based on a pre-defined interim efficacy analysis. Specifically, the lawsuits claim that theJanuary 9, 2014 announcement was misleading because it did not contain information regarding certain lipid abnormalities seen in theFLINT trial in OCA-treated patients compared to placebo.On April 22, 2014, two individuals each moved to consolidate the cases and a lead plaintiff was subsequently appointed by theCourt. On June 27, 2014, the lead plaintiff filed an amended complaint on behalf of the putative class as contemplated by the order ofthe Court. On August 14, 2014, the defendants filed a motion to dismiss the complaint. Oral arguments on the motion to dismiss wereheld on February 24, 2015. On March 4, 2015, the defendants’ motion to dismiss was denied by the Court. The defendants answeredthe amended complaint on April 13, 2015. On July 15, 2015, the plaintiff moved for class33  TABLE OF CONTENTScertification and appointment of class representatives and class counsel. On September 14, 2015, the defendants opposed the plaintiff’sclass certification motion. The plaintiff filed its reply to the defendants’ opposition on October 14, 2015, to which the defendants fileda sur-reply on November 10, 2015. Oral arguments on the class certification motion were held on January 20, 2016. No decision hasbeen made by the Court on the class certification motion. The parties are currently undergoing discovery in relation to this matter.Dispositive motions are due on September 16, 2016.The lead plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses,including attorneys’ fees.We believe that we have valid defenses to the claims in the lawsuit, have denied liability and intend to defend ourselvesvigorously. There can be no assurance, however, that we will be successful. At this time, no assessment can be made as to the likelyoutcome of this action or whether the outcome will be material to us. Therefore, we have not accrued for any loss contingencies relatedto this lawsuit.34  TABLE OF CONTENTSItem 1A.Risk FactorsExcept for the historical information contained herein, this Annual Report on Form 10-K contains forward-looking statements thatinvolve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for thefuture, future operating and economic performance and other statements regarding future performance. These statements are notguarantees of future performance or events. Our actual results could differ materially from those discussed in this Annual Report onForm 10-K. Important factors that could cause or contribute to these differences include, but are not limited to, those discussed in thefollowing section, as well as those discussed in Part II, Item 7 entitled “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and elsewhere throughout this Annual Report on Form 10-K.You should consider carefully the following risk factors, together with all of the other information included in this Annual Reporton Form 10-K. If any of the following risks, either alone or taken together, or other risks not presently known to us or that wecurrently believe to not be significant, develop into actual events, then our business, financial condition, results of operations orprospects could be materially adversely affected. If that happens, the market price of our common stock could decline, andstockholders may lose all or part of their investment.Risks Related to Our Financial Position and Need for Additional CapitalWe have never been profitable. Currently, we have no products approved for commercial sale, and to date we have not generatedany revenue from product sales. As a result, our ability to reduce our losses and reach profitability is unproven, and we may neverachieve or sustain profitability.We have never been profitable and do not expect to be profitable in the foreseeable future. We have incurred net losses in eachyear since our inception, including net losses of $226.4 million, $283.2 million and $67.8 million for the years ended December 31,2015, 2014 and 2013, respectively. To date, we have financed our operations primarily through private placements of our convertiblepreferred stock, convertible notes and warrants to purchase common stock, public offerings of our common stock and paymentsreceived under our licensing and collaboration agreements with Sumitomo Dainippon Pharma Co., Ltd., or Sumitomo Dainippon, andLes Laboratoires Servier and Institut de Recherches Servier, which are collectively referred to as Servier. At December 31, 2015, wehad $628.1 million in cash, cash equivalents and investment securities.We have devoted substantially all of our resources to our development efforts relating to our product candidates, includingconducting clinical trials of our product candidates, providing general and administrative support for these operations, protecting ourintellectual property and engaging in activities to prepare for the commercialization of our product candidates. Although we have atarget date of May 29, 2016 for the U.S. Food and Drug Administration, or FDA, to take action under the Prescription Drug User FeeAct, or PDUFA, we do not yet have any products approved for sale and have not generated any revenues from product sales. Weexpect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of,and seek regulatory approvals for, obeticholic acid, or OCA, which is our lead product candidate, and our other product candidates,prepare for and begin the commercialization of any approved products, and add infrastructure and personnel in the United States andEurope to support our product development and commercialization efforts and operations as a public company. We anticipate that anysuch losses could be significant for the next several years as we continue our confirmatory clinical outcomes trial of OCA, referred toas the COBALT trial, in primary biliary cirrhosis, recently renamed primary biliary cholangitis, or PBC, continue our long-term safetyextension phases of our clinical trials of OCA in PBC, continue our Phase 3 clinical program of OCA in nonalcoholic steatohepatitis,or NASH, including the Phase 3 REGENERATE trial in non-cirrhotic NASH patients with liver fibrosis, continue our AESOP Phase 2clinical trial of OCA for primary sclerosing cholangitis, or PSC, and finalize other planned activities for regulatory approval of OCAin PBC. We also expect that continuing the development of OCA in additional diseases, such as biliary atresia, a rare pediatric diseasecharacterized by deficient bile duct development for which we initiated a Phase 2 trial in OCA called CARE. We also initiated a Phase2 clinical trial, referred to as the CONTROL trial, to assess the lipid metabolic effects of OCA and the effects of concomitant statinadministration in NASH patients. Furthermore, in November 2015, we initiated a Phase 1 clinical trial for INT-767, an earlier stageproduct candidate. Our expenses could increase if35  TABLE OF CONTENTSwe are required by the FDA or the European Medicines Agency, or EMA, to perform studies or trials in addition to those currentlyexpected, or if there are any delays in completing our clinical trials or the development of any of our product candidates. We alsoanticipate that we will continue to increase our product development, scientific, commercial and administrative personnel significantlyand expand our facilities and infrastructure in the United States and abroad as part of our longer-term growth strategy.Our ability to generate profits from operations and become profitable will depend on our ability to obtain marketing approval for,and commercialize, our product candidates. We do not expect to generate significant revenues unless and until we obtain marketingapproval for, and commercialize, OCA for the treatment of PBC and other indications. This will require us to be successful in a rangeof challenging activities, including:•obtaining approval to market OCA for the treatment of PBC, NASH and other indications and patient populations;•expanding our manufacturing of commercial supply for OCA;•establishing sales, marketing and distribution capabilities to effectively market and sell OCA in the United States and Europe;and•negotiating and securing reimbursement from third-party payors for OCA.While we are conducting pre-commercial activities, such as patient profiling, to better understand how physicians care for PBCpatients, PBC is a rare disease in which no new therapy has been approved in approximately 20 years. As such, there is significantuncertainty in the degree of market acceptance OCA will have in PBC. Even if we receive marketing approvals for OCA in PBC andcommence our commercial launch, we do not expect to generate significant revenues in PBC in 2016. We cannot foresee if OCA willever be accepted as a therapy in PBC eventually resulting in sustained revenues and it may take the passage of a significant amount oftime to generate significant sustained revenues even if OCA becomes accepted as a therapy in PBC.If OCA or any of our other product candidates fails in clinical trials or does not gain regulatory approval, or if our productcandidates do not achieve market acceptance, we may never become profitable. Our net losses and negative cash flows have had, andwill continue to have, an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks anduncertainties associated with pharmaceutical product development and commercialization, we are unable to accurately predict thetiming or amount of increased expenses or when, or if, we will be able to achieve profitability. The amount of future net losses willdepend, in part, on the rate of future growth of our expenses and our ability to generate revenues.We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not soavailable, may require us to delay, limit, reduce or cease our operations.We are currently advancing OCA through clinical development for multiple indications and other product candidates throughpreclinical development. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, isexpensive. In June 2015, we completed our filings for marketing approval of OCA in PBC in the United States under the FDA’saccelerated approval pathway. In August 2015, the FDA accepted for review our New Drug Application, or NDA, and granted priorityreview for OCA in PBC. The FDA set a target date of May 29, 2016 to take action under PDUFA, after giving effect to a 90 dayextension. The FDA has also publicly announced a planned advisory committee meeting date of April 7, 2016. We are also currentlyin the regulatory review process with the EMA. If we receive marketing approval from the FDA on the PDUFA date, we plan toinitiate the commercial launch of OCA in PBC in the United States in June 2016. In June 2015, we also received notice of theacceptance of the Marketing Authorization Application, or MAA, for review by the EMA for use of OCA in PBC. If we are successfulin the EMA review process, we anticipate receiving marketing approval in late 2016, with planned commercial launches thereafter incertain European countries. We also plan to apply for marketing approval of OCA in PBC in other markets such as Australia andCanada.We have incurred and expect to incur additional costs associated with operating as a public company and further plan onexpanding our operations in the United States, Europe and in other countries such as Canada and Australia. In addition, subject toobtaining regulatory approval of any of our product candidates, we36  TABLE OF CONTENTSexpect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipateincurring significant expenses as we prepare for the potential commercialization of OCA in PBC, including significant expensesrelating to our sales, marketing and distribution capabilities and increasing our drug manufacturing activities. As part of our longer-term strategy, we also anticipate incurring significant expenses in connection with our planned increase in our product development,scientific, commercial and administrative personnel and expansion of our facilities and infrastructure in the United States and abroad.As of December 31, 2015, we had $628.1 million in cash, cash equivalents and investment securities. We currently projectadjusted operating expenses in the range of $360 million to $400 million in the fiscal year ending December 31, 2016, which excludesstock-based compensation and other non-cash items. These expenses are planned to support the continued clinical developmentprogram for OCA in PBC, NASH and PSC, increased OCA manufacturing activities, the continued development of INT-767 and otherpreclinical pipeline programs, as well as pre-commercial and commercial activities. We believe that the build out of our U.S.commercial infrastructure for the PBC commercial launch is mostly complete with the hiring of our U.S. territory business managersand other field personnel in October 2015. We also significantly expanded our commercial and other infrastructure internationally in2015, and plan on making additional investments over 2016 should key regulatory milestones be achieved on a timely basis. Ouradjusted operating expense estimate for 2016 is higher than our adjusted operating expenses for 2015 reflecting the increase inheadcount that occurred in the latter part of 2015 and the anticipated increases in commercialization and research and developmentexpenses. Accordingly, we will continue to require substantial additional capital in connection with our continuing operations,including continuing our clinical development and commercialization activities. Because successful development of our productcandidates is uncertain, we are unable to estimate the actual funds required to complete the research and development andcommercialization of our products under development.Adjusted operating expense is a financial measure not calculated in accordance with U.S. generally accepted accounting principles,or GAAP. We anticipate that stock-based compensation expense will represent the most significant non-cash item that is excluded inadjusted operating expenses as compared to operating expenses under GAAP. See “Non-GAAP Financial Measures” for moreinformation.Due to the many variables inherent to the development and commercialization of novel therapies, such as the risks described inthis “Risk Factors” section of our Annual Report on Form 10-K, and our rapid growth and expansion, we currently cannot accuratelyor precisely predict the duration beyond 2016 over which we expect our cash and cash equivalents to be sufficient to fund ouroperating expenses and capital expenditure requirements. However, we currently believe that our cash and cash equivalents will besufficient for us to:•continue and expand our clinical development programs for OCA in PBC, NASH and PSC, such as continuing, but notcompleting, our planned Phase 3 clinical program for OCA in NASH, including the REGENERATE trial, our ongoing AESOPtrial for OCA in PSC, and our ongoing COBALT confirmatory clinical outcomes trial of OCA in PBC;•advance the continued development of INT-767, including the completion of a recently initiated Phase 1 clinical trial, and ourpreclinical compounds, but not completing the clinical or preclinical development needed, as the case may be, for INT-767 orour preclinical compounds;•increase OCA manufacturing activities, including investing in supply chain and product development, preparing for our PBCcommercial launch and planning for the continuation of our clinical program in NASH, but not manufacture the supply neededfor any potential commercial launch of OCA in NASH;•prepare for and, if we obtain marketing approval on a timely basis, initiate the commercial launch of OCA in PBC in both theUnited States and certain European countries, but not commercially launch OCA in PBC in other countries across the world;and•expand, if necessary, our clinical, regulatory, medical affairs and commercial infrastructure through the time we initiate suchplanned commercial launch of OCA in PBC in both the United States and certain European countries, but not expand suchinfrastructure as may be required in the longer term.37  TABLE OF CONTENTSAccordingly, we will continue to require substantial additional capital in connection with our continuing operations, includingcontinuing our clinical development and commercialization activities. Because successful development of our product candidates isuncertain, we are unable to estimate the actual funds required to complete the research and development and commercialization of ourproducts under development.The amount and timing of our future funding requirements will depend on many factors, including:•the willingness of the FDA and EMA to accept the POISE trial, which is our completed Phase 3 clinical trial for PBC, as wellas our other clinical and preclinical studies and other work, as the basis for review and marketing approval of OCA for PBC;•the progress, costs, results of and timing of our COBALT confirmatory clinical outcomes trial of OCA for the treatment ofPBC, the completion of which we expect will not be a condition to the receipt of marketing approval in the United States or theEuropean Union;•the progress, costs, results of and timing of the Phase 3 program and other supporting trials and studies necessary to supportanticipated filings for marketing approval in NASH, including the sufficiency of the REGENERATE trial to be accepted as thesole pivotal trial for marketing approval or the acceptability of a surrogate endpoint for accelerated approval of OCA for thetreatment of NASH;•the progress, costs, results of and timing of clinical development of OCA for other indications, including our Phase 2 AESOPtrial of OCA in PSC and our Phase 2 CARE trial of OCA in biliary atresia;•the significant expansion of our operations, personnel and the size of our company and our need to continue to expand in thelonger term;•the outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals;•the number and characteristics of product candidates that we pursue, including INT-767 which is in a Phase 1 clinical trial, andour product candidates in preclinical development such as INT-777;•the ability of our product candidates to progress through preclinical and clinical development successfully and in a timelymanner;•the expansion of our research and development activities;•the costs and timing of commercialization activities, including product sales, marketing and distribution, for any of our productcandidates that receive marketing approval;•the costs associated with securing and establishing manufacturing capabilities and procuring the materials necessary for ourproduct candidates;•market acceptance of our product candidates, which may be affected by the reimbursement that our products receive frompayors;•the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;•our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing ofany payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution,defense and enforcement of any patents or other intellectual property rights;•our need and ability to hire and retain additional management, scientific and medical, commercial and other qualifiedpersonnel and the substantial cost of retaining such additional personnel;•the effect of competing technological and market developments;38  TABLE OF CONTENTS•our need to implement and maintain internal systems, software and infrastructure, including those to assist in our financial andreporting, clinical development and commercialization efforts and to support our personnel and operations as our businessevolves; and•the economic and other terms, timing of and success of our existing licensing arrangements and any collaboration, licensing orother arrangements into which we may enter in the future.We have no committed external sources of funding. We may seek additional funding through a combination of equity offerings,debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategicalliances and licensing arrangements. Additional funding may not be available to us on acceptable terms or at all. In addition, theterms of any financing may adversely affect the holdings or the rights of our stockholders. In addition, the issuance of additionalshares by us, or the possibility of such issuance, may cause the market price of our shares to decline.If we are unable to obtain funding on a timely basis, we may be required to significantly curtail our planned activities, includingresearch and development programs and commercialization activities. We also could be required to seek funds through arrangementswith collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or product candidates orotherwise agree to terms unfavorable to us.Our revenues to date have been generated through our collaboration agreements and we may not receive any additional revenuesunder such agreements.To date, our sources of revenue have been the payments received under our collaboration and license agreements with SumitomoDainippon and Servier. Additional payments under each of the Sumitomo Dainippon and Servier agreements are based on the exerciseof optional rights held by our collaborators under the agreements or the achievement of various research, development, regulatory andcommercial sales milestones and royalty payments based on the sales of the products covered by such agreements. Future paymentsfrom Sumitomo Dainippon and Servier under their respective collaboration and license agreements are uncertain because SumitomoDainippon or Servier, as the case may be, may choose not to exercise their optional rights under the agreements or continue research ordevelopment activities for the product candidates under license in their licensed territory, the product candidates may not be approvedfor the proposed indications or, even if any product candidate is approved for one or more indications, it may not be commerciallysuccessful. If we are unable to develop and commercialize one or more of our product candidates, either alone or with collaborators, orif revenues from any such collaboration product candidate that receives marketing approval are insufficient, we will not achieveprofitability. Even if we achieve profitability, we may not be able to sustain or increase profitability.We have a limited operating history and we expect a number of factors to cause our operating results to fluctuate on a quarterlyand annual basis, which may make it difficult to predict our future performance.We are a development stage biopharmaceutical company with a limited operating history. Our operations to date have been limitedto developing our technology and undertaking preclinical studies and clinical trials of our product candidates and engaging in pre-commercial activities for OCA in PBC. Although the FDA set a target date of May 29, 2016 to take action under PDUFA, we have notyet obtained regulatory approvals for any of our product candidates. Consequently, any predictions made about our future success orviability may not be as accurate as they could be if we had a longer operating history or approved products on the market. Ourfinancial condition and operating results have varied significantly in the past and are expected to continue to significantly fluctuatefrom quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating to ourbusiness that may contribute to these fluctuations include:•any delays in regulatory review and approval of our product candidates in clinical development, including our ability toreceive approval from the FDA and the EMA for OCA for the treatment of PBC based on our POISE trial, and our otherclinical and preclinical studies and other work, as the basis for review and approval of OCA for PBC;•delays in the commencement, enrollment and timing of clinical trials;39  TABLE OF CONTENTS•difficulties in identifying and treating patients suffering from our target indications, including those due to PBC and PSC beingrare diseases and NASH currently requiring an invasive liver biopsy for diagnosis;•the success of our clinical trials through all phases of clinical development, such as the success of our Phase 3 REGENERATEtrial of OCA in non-cirrhotic NASH patients with liver fibrosis;•potential side effects of our product candidates that could delay or prevent approval or cause an approved drug to be taken offthe market;•the required timeframe for us to receive and analyze data from our clinical trials;•our ability to identify and develop additional product candidates;•market acceptance of our product candidates, which may be affected by the reimbursement that our products receive frompayors;•our ability to establish and maintain an effective sales and marketing infrastructure directly or through collaborations withthird parties;•competition from existing products or new products that may emerge;•the ability of patients or healthcare providers to obtain coverage or reimbursement for our products and the extent to whichsuch coverage or reimbursement will be provided;•our ability to adhere to clinical trial requirements directly or with third parties such as contract research organizations, orCROs;•our dependency on third-party manufacturers to manufacture our products and key ingredients;•our ability to establish or maintain collaborations, licensing or other arrangements;•the costs to us, and our ability and our third-party collaborators’ ability to obtain, maintain and protect our intellectual propertyrights;•costs related to and outcomes of potential intellectual property, securities and other litigation;•our ability to adequately support future growth;•our ability to attract and retain key personnel to manage our business effectively;•our ability to build and improve our company’s infrastructure, systems and controls;•potential product liability claims; and•our ability to obtain and maintain adequate insurance coverage.Risks Related to Regulatory Review and Approval of Our Product CandidatesWe cannot be certain that OCA or any of our other product candidates will receive regulatory approval and the timeline of anysuch approval. Without regulatory approval we will not be able to market and commercialize our product candidates.We are initially developing OCA for the treatment of patient populations with non-viral, progressive liver diseases, with a currentprincipal focus on PBC, NASH and PSC, and our business currently depends entirely on the successful development andcommercialization of OCA.Our ability to generate revenue related to product sales, if ever, will depend on the successful development and regulatory approvalof OCA, particularly for the treatment of PBC and NASH, and our other product candidates.We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. Thedevelopment of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the FDA inthe United States, the EMA in Europe and regulatory authorities in other countries, with regulations differing from country to country.We are not40  TABLE OF CONTENTSpermitted to market our product candidates in the United States or Europe until we receive approval of an NDA from the FDA or anMAA from the EMA, respectively. While we have completed the submissions of our NDA and MAA for OCA in PBC, we have notyet received marketing authorization from either the FDA or EMA for any of our product candidates.NDAs and MAAs must include extensive preclinical and clinical data and supporting information to establish the productcandidate’s safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regardingthe chemistry, manufacturing and controls for the product. Obtaining approval of an NDA or an MAA is a lengthy, expensive anduncertain process, and we may not be successful in obtaining approval. The FDA and the EMA review processes can take years tocomplete and approval is never guaranteed. Even after the submission of an NDA to the FDA, the FDA must decide whether to acceptor reject the submission for filing. We completed our filing the NDA with the FDA and the MAA with the EMA in June 2015. InAugust 2015, the FDA accepted our NDA for filing and granted Priority Review for OCA for the treatment of PBC. The target date forthe FDA to take action under PDUFA was initially set for February 29, 2016. In December 2015, our PDUFA action date wasextended to May 29, 2016 due to an information request from the FDA that resulted in the submission of additional clinical dataanalyses. As part of the regulatory review process, the FDA and EMA will continue to review our submission package and conductregulatory inspections of us and our vendors. We have provided responses as to many of the issues that have been identified in theregulatory review process and continue to respond with respect to others. We may be requested to provide further information, whichmay impact our regulatory review process. It remains possible that one or more of the issues identified to date, or other issues that maybe identified by the FDA or EMA as the review process continues, may result in the FDA and/or the EMA not approving thesemarketing applications or delaying approval. As a result, we cannot be certain that our applications will be reviewed in a timelymanner or approved.Approvals may also be conditional upon the completion of one or more clinical trials. In addition, delays in approvals or rejectionsof marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatoryrequests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding differentinterpretations of data and results, changes in regulatory policy during the period of product development and the emergence of newinformation regarding our product candidates or other products. Regulatory approval is also dependent on successfully passingregulatory inspection of our company, our clinical sites and key vendors and to ensure compliance with applicable good clinical,laboratory and manufacturing practices regulation. Critical findings could jeopardize or delay the approval of the NDA or MAA.Even if a product is approved, the FDA or the EMA, as the case may be, may limit the indications or uses for which the productmay be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials orreporting as conditions of approval. Also, regulatory approval for any of our product candidates may be withdrawn. Regulatoryauthorities in countries outside of the United States and Europe also have requirements for approval of drug candidates with which wemust comply prior to marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one countrydoes not ensure that we will be able to obtain regulatory approval in any other country.We have completed a randomized, placebo-controlled Phase 3 trial of OCA in PBC patients, which we refer to as the POISE trial,and two randomized, placebo-controlled Phase 2 trials of OCA in PBC patients, one with OCA in combination with ursodiol and onewith OCA as monotherapy. Following discussions with the FDA and EMA, we are also conducting our COBALT clinical outcomesconfirmatory trial of OCA in PBC, which must be completed on a post-approval basis. Furthermore, we will need to complete anumber of clinical trials and other studies for the continued development of OCA in indications other than PBC. For example, weinitiated our Phase 3 REGENERATE trial of OCA in non-cirrhotic NASH patients with liver fibrosis in September 2015 and initiatedour Phase 2 CONTROL trial to characterize the lipid metabolic effects of OCA and cholesterol management effects of concomitantstatin administration in NASH patients in December 2015. We also intend to complete our planning for a Phase 2 program in NASHpatients with cirrhosis in 2016. In each of these cases, our ability to obtain the approvals necessary to commercialize our41  TABLE OF CONTENTSproduct candidates will depend on our ability to conduct and complete these additional trials as well as assemble various other data tocomplete our regulatory filings for OCA in the relevant indication or patient population.There can be no assurance that we will be able to receive marketing approval for OCA in PBC or that we will be able to completeour regulatory filings for any other indication on a timely basis or at all. We cannot predict whether our trials and studies as to NASHor any other indication or patient population will be successful or whether regulators will agree with our conclusions regarding thepreclinical studies and clinical trials we have conducted to date or require us to conduct additional studies or trials. For example, whileOCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis,we do not know if one pivotal clinical trial will be sufficient for marketing approval or if regulators will ultimately agree to a surrogateendpoint for accelerated approval of OCA for the treatment of NASH. While the interim histological endpoint is similar to that in thePhase 2b clinical trial for the treatment of NASH, known as the FLINT trial, sponsored by the U.S. National Institute of Diabetes andDigestive and Kidney Diseases, or NIDDK, a part of the National Institutes of Health, our Phase 3 REGENERATE trial has differenttrial designs. For example, the REGNERATE trial will include the following interim co-primary endpoints which are intended to serveas the basis for seeking marketing approvals in the United States, Europe and other countries: (i) the proportion of OCA-treatedpatients relative to placebo achieving at least one stage of liver fibrosis improvement with no worsening NASH and (ii) the proportionof OCA-treated patients relative to placebo achieving NASH resolution with no worsening of liver fibrosis. The REGENERATE trialwill also remain blinded after the interim analysis and continue to follow patients until the occurrence of a pre-specified number ofadverse liver-related clinical events, including progression to cirrhosis, to confirm clinical benefit on a post-marketing basis.Furthermore, the Phase 2 dose ranging trial of OCA in 200 adult NASH patients in Japan conducted by our collaborator,Sumitomo Dainippon, did not meet its primary endpoint with statistical significance. In this trial, there was a dose dependent, althoughnot statistically significant, increase in the percentage of OCA treated patients compared to placebo who achieved the primaryendpoint (p=0.053). In addition, no difference was seen in fibrosis improvement in the OCA groups compared to placebo. The baselinecharacteristics between the patients in the Japanese Phase 2 trial conducted by Sumitomo Dainippon were distinct in a number of waysfrom those of the Western patients included in the Phase 2b FLINT trial conducted by NIDDK. For example, differences wereobserved among the patient population at baseline in relation to gender mix and metabolic factors like weight, diabetes status,dyslipidemia and hypertension. While our REGENERATE trial was designed based on the results of the FLINT trial and is anticipatedto enroll a predominantly Western NASH patient population, the results of the FLINT trial may not be replicated in ourREGENERATE trial. Although Sumitomo Dainippon has informed us that it is exploring the initiation of a Phase 3 clinical trial forOCA in NASH patients intended to support the registration of this indication in Japan, the results may not be an improvement ascompared to those from the Phase 2 trial on Japanese NASH patients.If we are unable to obtain approval from the FDA, the EMA or other regulatory agencies for OCA and our other productcandidates, or if, subsequent to approval, we are unable to successfully commercialize OCA or our other product candidates, we willnot be able to generate sufficient revenue to become profitable or to continue our operations.We are developing product candidates for the treatment of rare diseases or diseases for which there are no or limited therapies andfor some of which there is little clinical experience, and our development approach involves new endpoints and methodologies. Asa result, there is increased risk that we will not be able to gain agreement with regulatory authorities regarding an acceptabledevelopment plan, the outcome of our clinical trials will not be favorable or that, even if favorable, regulatory authorities may notfind the results of our clinical trials to be sufficient for marketing approval.Currently, there are no approved therapies for NASH or PSC. As a result, the design and conduct of clinical trials for thesediseases and other indications we may pursue will be subject to increased risk.The FDA generally requires two pivotal clinical trials to approve an NDA. Furthermore, for full approval of an NDA, the FDArequires a demonstration of efficacy based on a clinical benefit endpoint. Under Subpart42  TABLE OF CONTENTSH regulations, the FDA can grant accelerated approval based on a surrogate reasonably likely to predict clinical benefit. The POISEprimary endpoint is a surrogate endpoint that we believe is reasonably likely to predict clinical benefit, therefore meeting the FDA’sSubpart H requirements for consideration under its accelerated approval regulation. In August 2015, the FDA accepted our NDA forfiling and granted Priority Review for OCA for the treatment of PBC. A target date of May 29, 2016 has been set to take action underPDUFA, after giving effect to a 90 day extension. It is unlikely we will receive definitive written guidance from the FDA prior toformal review of our NDA as to the acceptability of the POISE trial surrogate endpoint to support an approval of OCA for thetreatment of PBC. Although the results from our POISE trial are highly significant and supported by two controlled Phase 2 trials, ourPOISE trial and our regulatory submissions package may nonetheless not be sufficient to support approval in the United States. Inaddition, it is possible that the FDA may not complete its review of our NDA by the specified PDUFA action date, may seek to delayour PDUFA date through a major amendment as it did in December 2015 for our NDA for OCA in PBC or may provide a completeresponse letter denying our application for marketing authorization. We anticipate that similar risks will apply to other indications forwhich we intend to seek marketing approval for our product candidates under accelerated approval regulations. For example, we willface these risks for OCA for the treatment of NASH because of our plan to seek accelerated approval based on the REGENERATEtrial which incorporates interim co-primary surrogate endpoints.In order to support the clinical utility of the surrogate endpoint for OCA as a treatment for PBC, we have sponsored anindependent study pooling and analyzing long-term PBC patient data from a number of leading PBC academic centers, which we referto as the Global PBC Study Group. Furthermore, an academic consortium in the United Kingdom has published the results of anotherlarge observational study in PBC patients in the United Kingdom. Although we believe the results of both studies are supportive of theclinical utility of our surrogate endpoint for the use of OCA in PBC, the supporting data may still not be accepted by the FDA in itsconsideration of the adequacy of our surrogate endpoint under an NDA for OCA for the treatment of PBC. In addition to the riskaround the acceptability of the surrogate biochemical endpoint to support accelerated approval, there are quality assurance risksaround the data supporting assessment of the biochemical endpoint. It is possible that key parameters such as the validation of theassay and consistency across laboratories will not be acceptable to FDA and could delay or jeopardize approval of the NDA.The FDA has also informed us that, even if it provides us an accelerated approval for OCA, we will be required to conduct a post-approval clinical outcomes trial to confirm the clinical benefit of OCA in PBC by demonstrating the correlation of biochemicaltherapeutic response in patients taking OCA with a significant reduction in adverse clinical outcomes over time. Following discussionswith the FDA, we initiated our COBALT clinical outcomes confirmatory trial in December 2014. There can be no assurance that ourCOBALT trial will confirm that the surrogate endpoints used for accelerated approval will eventually show an adequate correlationwith clinical outcomes. If the COBALT trial fails to show such adequate correlation, we may not be able to maintain our previouslygranted marketing approval for OCA in PBC.Likewise, while we completed our filing of the MAA with the EMA in June 2015, we will not receive definitive feedback from theEMA prior to formal review of our MAA as to the acceptability of the POISE trial endpoint to support a marketing authorization ofOCA for the treatment of PBC. It is also possible that any marketing authorization we receive from the EMA for OCA for thetreatment of PBC could be conditional on post-approval studies and not considered a full approval. Our ability to obtain and maintainconditional marketing authorization in the European Union will be limited to specific circumstances and subject to several conditionsand obligations, if obtained at all, including the completion of a clinical outcomes trial to confirm the clinical benefit of OCA in PBC.Conditional marketing authorizations based on incomplete clinical data may be granted for a limited number of listed medicinalproducts for human use, including products designated as orphan medicinal products under European Union law, if (1) the risk-benefitbalance of the product is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinicaltrial data, (3) unmet medical needs will be fulfilled and (4) the benefit to public health of the immediate availability on the market ofthe medicinal product outweighs the risk inherent in the fact that additional data are still required. Specific obligations, including withrespect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data, may be specified inthe43  TABLE OF CONTENTSconditional marketing authorization. Conditional marketing authorizations are valid for one year, and may be renewed annually, if therisk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions.Our Phase 3 REGENERATE trial of OCA in non-cirrhotic NASH patients with liver fibrosis, which was initiated in September2015, incorporates interim co-primary surrogate endpoints that may serve as the basis for a supplemental NDA filing for acceleratedapproval in the United States and approval in Europe. Accelerated approval in the United States and conditional approval in theEuropean Union for OCA in NASH are subject to similar risks as discussed above in relation to OCA for PBC. The primary endpointin the Phase 2b FLINT trial of OCA in NASH patients was based on liver biopsy and was defined as an improvement of two or morepoints in the NAFLD activity score (a system of scoring the histopathological features in the liver), or NAS, with no worsening of liverfibrosis and the co-primary endpoints for our REGENERATE trial are: (i) the proportion of OCA-treated patients relative to placeboachieving at least one stage of liver fibrosis improvement with no worsening NASH and (ii) the proportion of OCA-treated patientsrelative to placebo achieving NASH resolution with no worsening of liver fibrosis. Currently, other biopharmaceutical companies areenrolling or have initiated trials in certain subpopulations of NASH patients based on different endpoints from those in the FLINT andREGENERATE trials. Although the FDA acknowledged at recent workshops the possibility of granting accelerated approval forNASH therapies using surrogate endpoints, with potential examples including histological improvement, using the NAS or anotherscoring system, histological resolution of NASH, or improvements in fibrosis in pre-cirrhotic patients with NASH, the FDA did notprovide any formal regulatory guidance on approvable endpoints and may not accept a surrogate endpoint for OCA for the treatmentof NASH.The FDA generally requires two pivotal clinical trials to approve an NDA. Therefore, even if we achieve favorable results in asingle Phase 3 clinical trial, the FDA may not accept this one trial as an adequate basis for approval and require that we conduct andcomplete a second Phase 3 clinical trial before considering an NDA for any of the indications for which we may seek marketingapproval for our product candidates. Our NDA for OCA for the treatment of PBC patients who have an inadequate response to or areintolerant of ursodiol will be based on the results of three clinical trials — the POISE trial and two Phase 2 trials. It is possible that ourfinal NDA submission for regulatory approval will not be accepted by the FDA for review or, even if it is accepted for review, thatthere may be delays in the FDA’s review process and that the FDA may determine that our NDA does not merit the approval of OCAfor the treatment of PBC, in particular because we have only conducted a single Phase 3 clinical trial of OCA for the treatment ofPBC, in which case the FDA may require that we conduct and/or complete additional clinical trials and preclinical studies before itwill reconsider our application for approval. A similar risk applies if we seek marketing approval of OCA for non-cirrhotic NASHpatients with liver fibrosis based on the interim results of our REGENERATE trial. Our regulatory pathway for OCA for the treatmentof NASH will depend upon our discussions with the FDA and EMA. As a result, we may face difficulty in designing an acceptableregistration strategy around REGENERATE or any other trials in different subpopulations of NASH patients. In addition, since thedesign of the REGENERATE trial deviates from that of the FLINT trial, there is an increased risk that the results of theREGENERATE trial would differ from the FLINT results.The EMA and regulatory authorities in other countries in which we may seek approval for, and market, OCA or our other productcandidates may require additional preclinical studies and/or clinical trials prior to granting approval. It may be expensive and timeconsuming to conduct and complete additional preclinical studies and clinical trials that the FDA, EMA and other regulatoryauthorities may require us to perform. As such, any requirement by the FDA, EMA or other regulatory authorities that we conductadditional preclinical studies or clinical trials could materially and adversely affect our business, financial condition and results ofoperations. Furthermore, even if we receive regulatory approval of OCA for the treatment of any of our targeted indications, thelabeling for our product candidates in the United States, Europe or other countries in which we seek approval may include limitationsthat could impact the commercial success of our product candidates.44  TABLE OF CONTENTSDelays in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limitour ability to obtain regulatory approval for OCA and our other product candidates.Delays in the commencement, enrollment and completion of clinical trials could increase our product development costs or limitthe regulatory approval of our product candidates. We initiated our COBALT clinical outcomes confirmatory trial of OCA in PBC inDecember 2014, our Phase 2 AESOP trial of OCA in PSC in December 2014, our REGENERATE trial in September 2015, our Phase2 CARE trial of OCA in biliary atresia in October 2015 and our Phase 2 CONTROL trial to assess the lipid metabolic effects of OCAand the effects of concomitant statin administration in NASH patients in December 2015. The results from these trials may not beavailable when we expect or we may be required to conduct additional clinical trials or preclinical studies not currently planned toreceive approval for OCA as a treatment for the related indication, in which case we would require additional funding. In addition, ourclinical programs are subject to a number of variables and contingencies, such as the results of other trials or regulatory interactionsthat may result in a change in timing. As such, we do not know whether any future trials or studies of our other product candidates,including our COBALT trial, will begin on time or will be completed on schedule, if at all.The commencement, enrollment and completion of clinical trials can be delayed or suspended for a variety of reasons, including:•inability to obtain sufficient funds required for a clinical trial or lack of adequate funding to continue the clinical trial due tounforeseen costs or other business decisions;•inability to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject toextensive negotiation and may vary significantly among different CROs and trial sites;•clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatoryapproval to commence a clinical trial in countries that require such approvals;•discussions with the FDA or non-U.S. regulators regarding the scope or design of our clinical trials;•inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinicaltrial programs, including some that may be for the same indications targeted by our product candidates;•the delay in receiving results from or the failure to achieve the necessary results in other clinical trials;•inability to obtain approval from institutional review boards, or IRBs, to conduct a clinical trial at their respective sites;•severe or unexpected drug-related adverse effects experienced by patients or any determination that a clinical trial presentsunacceptable health risks;•a breach of the terms of any agreement with, or for any other reason by, current or future collaborators that have responsibilityfor the clinical development of any of our product candidates, including Sumitomo Dainippon and Servier or investigatorsleading clinical trials on our product candidates;•inability to timely manufacture sufficient quantities of the product candidate required for a clinical trial;•difficulty recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting theenrollment criteria for our trial, the risks of procedures that may be required as part of the trial, such as a liver biopsy, andcompetition from other clinical trial programs for the same indications as our product candidates; and•inability to retain enrolled patients after a clinical trial is underway.45  TABLE OF CONTENTSFor example, in the past, we experienced delays in our Phase 2 clinical trial of OCA given as a monotherapy to patients with PBCbecause we were unable to find and enroll a sufficient number of trial patients who met the specific enrollment criteria in accordancewith our anticipated trial schedule.Changes in regulatory requirements and guidance may also occur and we or any of our collaborators may need to amend clinicaltrial protocols to reflect these changes with appropriate regulatory authorities. Amendments may require us or any of our collaboratorsto resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of aclinical trial.In addition, if we or any of our collaborators are required to conduct additional clinical trials or other preclinical studies of ourproduct candidates beyond those contemplated, our ability to obtain regulatory approval of these product candidates and generaterevenue from their sales would be similarly harmed.Clinical failure can occur at any stage of clinical development. The results of earlier clinical trials are not necessarily predictive offuture results and any product candidate we, Sumitomo Dainippon, Servier or our potential future collaborators advance throughclinical trials may not have favorable results in later clinical trials or receive regulatory approval.Clinical failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results,and we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. Inaddition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data asfavorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early clinical trials doesnot ensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to demonstratethe efficacy and safety of a product candidate. A number of companies in the pharmaceutical industry, including those with greaterresources and experience than us, have suffered significant setbacks in Phase 3 clinical trials and at other stages of clinicaldevelopment, even after seeing promising results in earlier clinical trials.In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the designof a clinical trial may not become apparent until the clinical trial is well-advanced. We may be unable to design and execute a clinicaltrial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical or feasible tocontinue development efforts. If OCA or our other product candidates are found to be unsafe or lack efficacy, we will not be able toobtain regulatory approval for them, the prospects for approval of OCA would be materially and adversely affected and our businesswould be harmed.In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same productcandidate due to numerous factors, including changes or differences in trial protocols, differences in composition of the patientpopulations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We donot know whether any Phase 2, Phase 3 or other clinical trials we or any of our collaborators may conduct will demonstrate consistentor adequate efficacy and safety to obtain regulatory approval to market our product candidates. If we are unable to bring any of ourcurrent or future product candidates to market, or to acquire any marketed, previously approved products, our ability to create long-term stockholder value will be limited.We believe that the results of our POISE trial and our long-term safety extension trials in PBC patients, which include patientswho currently have been on OCA therapy for more than four years, demonstrate that OCA produces a durable therapeutic response.We completed our filings for marketing approval of OCA in PBC in the United States and the European Union in June 2015. InAugust 2015, the FDA accepted our NDA for filing and granted Priority Review for OCA for the treatment of PBC. The target date forthe FDA to take action under PDUFA was initially set for February 29, 2016. In December 2015, our PDUFA action date wasextended to May 29, 2016 due to an information request from the FDA that resulted in the submission of additional clinical dataanalyses. We cannot assure you that our POISE trial results will result in our receiving marketing approval for OCA in PBC or that ourongoing COBALT clinical outcomes confirmatory trial of OCA in PBC will demonstrate a correlation of biochemical therapeuticresponse in patients taking OCA with a significant reduction in adverse clinical events over time. In addition, it is possible that theFDA may not46  TABLE OF CONTENTScomplete its review of our NDA by the specified PDUFA action date, may seek to delay our PDUFA date through a major amendmentor may provide a complete response letter denying our application for marketing authorization.In December 2014, we received comprehensive datasets from the FLINT trial, which met its primary endpoint with statisticalsignificance. In October 2015, we announced that the Phase 2 dose ranging trial of OCA in the Sumitomo Dainippon Phase 2 trial didnot meet its primary endpoint with statistical significance. In this trial, there was a dose dependent, although not statisticallysignificant, increase in the percentage of OCA treated patients compared to placebo who achieved the primary endpoint (p=0.053). Inaddition, no difference was seen in fibrosis improvement in the OCA groups compared to placebo. The Phase 2 trial in NASHconducted in Japan by our collaborator Sumitomo Dainippon involved different doses of OCA being administered to the trial subjectsthan those utilized in FLINT. Furthermore, the baseline characteristics between the patients in the Japanese Phase 2 trial conducted bySumitomo Dainippon were distinct in a number of ways from those of the Western patients included in FLINT. While ourREGENERATE trial was designed based on the results of the FLINT trial and is anticipated to enroll a predominantly Western NASHpatient population, the results of the FLINT trial may not be replicated in our REGENERATE trial. In addition, since the design of theREGENERATE trial deviates from that of the FLINT trial, there is an increased risk that the results of the REGENERATE trial woulddiffer from the FLINT results. Even though OCA has been granted breakthrough therapy designation by the FDA, we do not know ifone pivotal clinical trial will be sufficient for marketing approval or if regulators will agree to a surrogate endpoint for acceleratedapproval of OCA for the treatment of NASH. As a result, it may take longer than anticipated to initiate and complete the Phase 3REGENERATE trial or our Phase 3 program in NASH for other patient subpopulations.Our product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval isreceived, require our product candidates to be taken off the market, require them to include safety warnings or otherwise limit theirsales.A substance that binds to a receptor of a cell and triggers a response by that cell is called an agonist. OCA has been shown to be apotent agonist of the farnesoid X receptor, or FXR. With the exception of the endogenous human bile acid CDCA and cholic acid,there are no approved FXR agonists and the adverse effects from long-term exposure to this drug class are unknown. Unforeseen sideeffects from any of our product candidates could arise either during clinical development or, if approved, after the approved producthas been marketed.The most common side effects observed in clinical trials of OCA in PBC were pruritus, or itching, fatigue, headaches, nausea,constipation and diarrhea. In our Phase 2 PBC clinical trial of OCA in combination with ursodiol, approximately 8% of the patientsenrolled in the 10 mg and 25 mg dose groups withdrew from the trial due to severe pruritus. At the 50 mg dose, approximately 25% ofthe patients withdrew from the trial due to severe pruritus. In our POISE trial, pruritus, generally mild to moderate, was the mostfrequently reported adverse event associated with OCA treatment and was observed in 38% of patients on placebo, 68% of patients inthe 10 mg OCA group and 56% of patients in the OCA titration group (5 mg to 10 mg). Eight patients discontinued due to pruritus, ofwhom none were in the placebo group, seven (10%) patients were in the 10 mg OCA group and one (1%) patient was in the OCAtitration group (in a patient who had titrated up to 10 mg). Pruritus also has been observed in other clinical trials of OCA.Based on information in the manuscript for the FLINT trial published in November 2014, pruritus occurred more frequently in theOCA treatment group than in the placebo treatment group (23% vs. 6%, p < 0.001) and at a higher grade (predominately moderatepruritus), but resulted in only one patient discontinuation in the OCA treatment group. In the FLINT trial, OCA treatment wasassociated with changes in serum lipid levels, including increases in total cholesterol and LDL cholesterol and a decrease in HDLcholesterol, that were observed within 12 weeks of initiating treatment, peaked and then decreased in magnitude while on treatment,and reversed further during the 24-week post-treatment period. As previously disclosed, these changes in cholesterol levels, along withachieving the pre-defined efficacy criteria, played a role in the decision of the FLINT data and safety monitoring board to terminatethe treatment phase of FLINT, and the publication of the FLINT results has noted the need for further study of these changes. InDecember 2015, we initiated CONTROL, a Phase 2 trial characterizing the lipid metabolic effects of OCA and cholesterolmanagement effects of concomitant statin administration in NASH patients. There were two patient47  TABLE OF CONTENTSdeaths in the FLINT trial that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013,and neither death was considered related to OCA treatment.Additional or unforeseen side effects from these or any of our other product candidates could arise either during clinicaldevelopment or, if approved, after the approved product has been marketed. If new side effects are found during the development ofOCA for any indication, if known side effects are shown to be more severe than previously observed or if OCA is found to have otherunexpected characteristics, we may need to abandon our development of OCA for PBC, NASH, PSC, biliary atresia and otherpotential indications.The range and potential severity of possible side effects from systemic therapies is significant. The results of future clinical trialsmay show that our product candidates cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinicaltrials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, or result inmarketing approval from the FDA and other regulatory authorities with restrictive label warnings.In addition, our drug candidates are being developed as potential treatments for severe, life threatening diseases and, as a result,our trials will necessarily be conducted in a patient population that will be more prone than the general population to exhibit certaindisease states or adverse events. It may be difficult to discern whether certain events or symptoms observed during our trials were dueto our drug candidates or placebo, resulting in our company and our development programs being negatively affected even if suchevents or symptoms are ultimately determined to be unlikely related to our drug candidates. We further cannot assure you thatadditional or more severe adverse side effects with respect to OCA will not develop in future clinical trials, which could delay orpreclude regulatory approval of OCA or limit its commercial use.If any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable sideeffects caused by such products:•regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts tophysicians and pharmacies;•we may be required to change instructions regarding the way the product is administered, conduct additional clinical trials orchange the labeling of the product;•we may be subject to limitations on how we may promote the product;•sales of the product may decrease significantly;•regulatory authorities may require us to take our approved product off the market;•we may be subject to litigation or product liability claims; and•our reputation may suffer.Any of these events could prevent us, Sumitomo Dainippon, Servier or our potential future collaborators from achieving ormaintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which inturn could delay or prevent us from generating significant revenues from the sale of our products.Breakthrough therapy designation for OCA may not lead to faster development or regulatory processes nor does it increase thelikelihood that OCA will receive marketing approval for NASH.If a drug is intended for the treatment of a serious or life-threatening condition and preliminary clinical evidence indicates that thedrug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such assubstantial treatment effects observed early in clinical development, the FDA may grant a breakthrough therapy designation.Breakthrough therapy designation is intended to facilitate the development, and expedite the review of such drugs, but thebreakthrough therapy designation does not assure any such qualification or ultimate marketing approval by the FDA.In January 2015, we received breakthrough therapy designation for OCA in the treatment of NASH patients with fibrosis.However, there is no guarantee that the receipt of breakthrough therapy designation will result in a faster development process, reviewor approval for OCA in fibrotic NASH patients or increase the likelihood that OCA will be granted marketing approval for fibroticNASH patients. Likewise, any future48  TABLE OF CONTENTSbreakthrough therapy designation for any other potential indication of OCA neither guarantees a faster development process, review orapproval nor improves the likelihood of the grant of marketing approval by FDA for any such potential indication of OCA comparedto drugs considered for approval under conventional FDA procedures. In addition, the FDA may withdraw any breakthrough therapydesignation at any time. We may seek a breakthrough therapy designation for other of our product candidates, but the FDA may notgrant this status to any of our proposed product candidates.We may not be able to obtain or maintain orphan drug exclusivity for our product candidates, if approved, which would cause ourrevenues to suffer.Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs and biologics forrelatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drugif it is a drug or biologic intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than200,000 individuals annually in the United States.Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication forwhich it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA fromapproving another marketing application for the same product for that time period. The applicable period is seven years in the UnitedStates and ten years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteriafor orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified.Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or ifthe manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.In addition, it is possible that orphan drug designation in Europe will not be maintained following approval if the EMA determines thatthe product does not satisfy the requisite criteria including demonstration of significant clinical benefit. In November 2015, theEuropean Commission set forth a consultation document and a notice detailing proposed amendments to the rules governing orphanmedicinal products which may make it more difficult to demonstrate significant clinical benefit at the time of marketing authorization.The result of this process may impact our ability to maintain orphan drug designation in Europe.The failure to maintain orphan status may impact our ability to receive a premium price for OCA or our other products and maysubject us to mandatory price discounts in Europe. In addition, our ability to launch in Europe may be delayed and we may lose otherbenefits such as tax exemptions for sales. As such, the loss of orphan drug status may have a negative effect on our ability tosuccessfully commercialize our products, earn revenues and achieve profitability.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competitionbecause different products can be approved for the same condition. Even after an orphan drug is approved, the FDA and EMA cansubsequently approve the later product for the same condition if the FDA concludes that the later product is clinically superior in thatit is shown to be safer, more effective or makes a major contribution to patient care.Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance of our productcandidates, if approved. If there is not sufficient reimbursement for our products or they are not covered at all, it is less likely thatthey will be widely used.Market acceptance and sales of OCA or any other product candidates that we develop, if approved, will depend on reimbursementpolicies and may be affected by future healthcare reform measures. Government authorities and third-party payors, such as privatehealth insurers and health maintenance organizations, decide which drugs they will cover and establish payment levels. We cannot becertain that reimbursement will be available for OCA or any other product candidates that we develop. Also, reimbursement policiescould reduce the demand for, or the price paid for, our products. If reimbursement is not available or is available on a limited basis, wemay not be able to successfully commercialize OCA or any other product candidates that we develop.49  TABLE OF CONTENTSIn the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, changed the wayMedicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicarecoverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will becovered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices forphysician-administered drugs. Any negotiated prices for our products covered by a Part D prescription drug plan will likely be lowerthan the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, privatepayors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in paymentthat results from the MMA may result in a similar reduction in payments from non-governmental payors.In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education AffordabilityReconciliation Act, or collectively, ACA, became law in the United States. The goal of ACA is to reduce the cost of health care andsubstantially change the way health care is financed by both governmental and private insurers. The ACA requires discounts under theMedicare drug benefit program and increased the rebates paid by pharmaceutical companies on drugs covered by Medicaid. The ACAalso imposes an annual fee, which increases annually, on sales by branded pharmaceutical manufacturers.In addition, third-party payors attempt to contain health care costs by demanding price discounts or rebates and limiting both thetypes and variety of drugs that they will cover and the amounts that they will pay for drugs. As a result, they may not cover or provideadequate payment for our products. We might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness ofour products or any other future products to such payors’ satisfaction. Such studies might require us to commit a significant amount ofmanagement’s time and our financial and other resources. Our products might not ultimately be considered cost-effective. Adequatethird-party reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on ourinvestment in product development.Reimbursement in the European Union and many other territories must be negotiated on a country-by-country basis and in manycountries the product cannot be commercially launched until reimbursement is approved. The timing to complete the negotiationprocess in each country is highly uncertain, and in some countries we expect that it may exceed 12 months. Even after a price isnegotiated, countries frequently request or require adjustments to the price and other concessions over time. Reimbursement agenciesin Europe are often more conservative than those in the United States and the reimbursement process is often slower sincereimbursement decisions are made on a country-by-country basis.The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatoryproposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makersand payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the statedgoals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceuticalindustry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. We expect toexperience pricing pressures in connection with the sale of OCA and any other products that we develop, due to the trend towardmanaged healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.If we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws,we may be subject to civil or criminal penalties.In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws,commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing practices in thepharmaceutical industry. Other jurisdictions such as Europe have similar laws and are enacting more stringent regulations. These lawsinclude false claims and anti-kickback statutes. If we market our products and our products are paid for by governmental programs, itis possible that some of our business activities could be subject to challenge under one or more of these laws.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment tothe federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcareprogram anti-kickback statute prohibits, among50  TABLE OF CONTENTSother things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing,leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service covered by Medicare, Medicaid orother federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceuticalmanufacturers on the one hand and prescribers, purchasers or formulary managers on the other. Although there are several statutoryexemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors aredrawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subjectto scrutiny if they do not qualify for an exemption or safe harbor. Most states also have statutes or regulations similar to the federalanti-kickback law and federal false claims laws, which apply to items and services covered by Medicaid and other state programs, or,in several states, apply regardless of the payor. Administrative, civil and criminal sanctions may be imposed under these federal andstate laws.Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for avariety of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and othermonetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to setreimbursement rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Programto reduce liability for Medicaid rebates.If the FDA and EMA and other regulatory agencies do not approve the manufacturing facilities of our future contractmanufacturers for commercial production on a timely basis or at all, we may not be able to commercialize any of our productcandidates or commercialization of our product candidates could be delayed.We do not intend to manufacture the pharmaceutical products that we plan to sell. We currently have agreements with a contractmanufacturer for the production of the active pharmaceutical ingredients and the formulation of sufficient quantities of drug productfor the COBALT clinical outcomes confirmatory trial of OCA in PBC and the long-term safety extension phase of the POISE trial forOCA in PBC, our Phase 3 NASH program for OCA, including the REGENERATE trial, and the certain other trials and preclinicalstudies that we plan to conduct prior to and after seeking regulatory approval. If our contract manufacturer should cease to provideservices to us for any reason, we likely would experience delays in advancing our clinical trials while we identify and qualify one ormore replacement suppliers and we may be unable to obtain replacement supplies on terms that are favorable to us.We do not have agreements for commercial supplies of OCA or any of our other product candidates. We currently obtain thesesupplies and services from our third-party contract manufacturers on a purchase order basis. We are currently seeking to contract toqualify one or more back-up API manufacturers. While we have procured sufficient supplies for the commercial launch of OCA, wemay not be able to reach agreements with these or other contract manufacturers for sufficient supplies to continue commercial sales ofOCA on a long-term basis.Additionally, the facilities used by any contract manufacturer to manufacture OCA or any of our other product candidates must bethe subject of a satisfactory inspection before the FDA or the regulators in other jurisdictions approve the product candidatemanufactured at that facility. We are completely dependent on these third-party manufacturers for compliance with the requirementsof U.S. and non-U.S. regulators for the manufacture of our finished products. If our manufacturers cannot successfully manufacturematerial that conform to our specifications and current good manufacturing practice requirements of any governmental agency whosejurisdiction to which we are subject, our product candidates will not be approved or, if already approved, may be subject to recalls.Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates,including:•the possibility that we are unable to enter into a manufacturing agreement with a third party to manufacture our productcandidates;51  TABLE OF CONTENTS•the possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and•the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualifiedreplacement third-party manufacturer.Any of these factors could cause the delay of approval or commercialization of our product candidates, cause us to incur highercosts, prevent us from commercializing our product candidates successfully or disrupt the supply of our products after commerciallaunch. Furthermore, if any of our product candidates are approved and contract manufacturers fail to deliver the required commercialquantities of finished product on a timely basis and at commercially reasonable prices and we are unable to find one or morereplacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and qualityand on a timely basis, we would likely be unable to meet demand for our products and could lose potential revenue. It may take severalyears to establish an alternative source of supply for our product candidates and to have any such new source approved by thegovernment agencies that regulate our products.Even if our product candidates receive regulatory approval, we will still be subject to strict regulatory requirements governingmanufacturing and marketing of our products and, as a result, we could face future development and regulatory difficulties.Our product candidates, if approved, will also be subject to ongoing regulatory requirements for labeling, packaging, storage,advertising, promotion, record-keeping and submission of safety and other post-market information. In addition, approved products,manufacturers and manufacturers’ facilities are required to comply with extensive FDA and EMA requirements and requirements ofother similar agencies, including ensuring that quality control and manufacturing procedures conform to current Good ManufacturingPractices, or cGMPs. As such, we and our contract manufacturers are subject to continual review and periodic inspections to assesscompliance with cGMPs. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areasof regulatory compliance, including manufacturing, production and quality control. We will also be required to report certain adversereactions and production problems, if any, to the FDA and EMA and other similar agencies and to comply with certain requirementsconcerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject toa variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. Accordingly,we may not promote our approved products, if any, for indications or uses for which they are not approved.If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity orfrequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling ofa product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If ourproduct candidates fail to comply with applicable regulatory requirements, a regulatory agency may:•issue warning letters;•mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;•require us or our collaborators to enter into a consent decree or permanent injunction, which can include imposition of variousfines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;•impose other administrative or judicial civil or criminal penalties;•withdraw regulatory approval;•refuse to approve pending applications or supplements to approved applications filed by us, Sumitomo Dainippon, Servier orour potential future collaborators;•impose restrictions on operations, including costly new manufacturing requirements; or•seize or detain products.52  TABLE OF CONTENTSRisks Related to the Commercialization of Our ProductsEven if approved, our product candidates may not achieve broad market acceptance among physicians, patients and healthcarepayors, and as a result our revenues generated from their sales may be limited.Our NDA and MAA for OCA in PBC has been undergoing regulatory review with the FDA and EMA, respectively. If we receivemarketing approval from the FDA on the PDUFA date, we plan to initiate the commercial launch of OCA in PBC in the United Statesin June 2016. Furthermore, if we are successful in the EMA review process, we anticipate receiving marketing approval in late 2016,with planned commercial launches thereafter in certain European countries.The commercial success of OCA or our other product candidates, if approved, will depend upon their acceptance among themedical community, including physicians, healthcare payors and patients. For PBC, the current standard of care is ursodeoxycholicacid, which is available generically as ursodiol. In order for OCA to be commercially successful, we will need to demonstrate that it issafe and effective for the treatment of patients who have an inadequate response to or who are unable to tolerate ursodiol, referred toas second line treatment, and is more effective than any other alternatives that may be developed as a second line treatment for PBC,particularly given the much higher price that we anticipate charging for OCA compared to the price of generically available ursodiol.In NASH and PSC, since there are currently no approved therapies, we do not know the degree to which OCA will be accepted as atherapy, even if approved.The degree of market acceptance of our product candidates will depend on a number of factors, including:•limitations or warnings contained in our product candidates’ FDA or EMA-approved labeling;•changes in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications forany of our product candidates, such as ursodiol for the treatment of PBC;•limitations in the approved clinical indications for our product candidates;•demonstrated clinical safety and efficacy compared to other products;•lack of significant adverse side effects;•sales, marketing and distribution support;•availability of reimbursement from managed care plans and other third-party payors;•timing of market introduction and perceived effectiveness of competitive products;•the degree of cost-effectiveness;•availability of alternative therapies at similar or lower cost, including generics and over-the-counter products;•the extent to which our product candidates are approved for inclusion on formularies of hospitals and managed careorganizations;•whether our product candidates are designated under physician treatment guidelines for the treatment of the indications forwhich we have received regulatory approval;•adverse publicity about our product candidates or favorable publicity about competitive products;•convenience and ease of administration of our product candidates; and•potential product liability claims.In addition, the potential market opportunity for our product candidates is difficult to precisely estimate. While ursodiol is theestablished standard of care for PBC, a majority of patients while on therapy remain at ALP levels above the upper limit of normal, orULN. According to our analysis of industry data in PBC, approximately 70% of patients treated with ursodiol experience elevatedALP levels, with 35% of patients experiencing ALP levels greater than 1.67 times ULN. In addition, a small minority of PBC patients(estimated at approximately 3%) are intolerant to ursodiol therapy. Our estimates of the potential market53  TABLE OF CONTENTSopportunity for OCA for the treatment of PBC include a number of key assumptions related to prevalence rates, patients’ access tohealthcare, diagnosis rates and patients’ response to or tolerance of OCA, which are based on available literature and epidemiologyresearch in PBC, our industry knowledge gained through market research and other methods, industry publications, third-partyresearch reports and other surveys. While we believe that our internal assumptions are reasonable, no independent source has verifiedsuch assumptions. If any of these assumptions prove to be inaccurate, then the actual market for OCA could be smaller than ourestimates of our potential market opportunity. If the actual market opportunity for our product candidates is smaller than we expect,our product revenue may be limited.If our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients, the medicalcommunity and healthcare payors, sufficient revenue may not be generated from these products and we may not become or remainprofitable. In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates mayrequire significant resources and may never be successful.We have no sales, marketing or distribution experience and we will have to invest significant additional resources to develop thosecapabilities or enter into acceptable third-party sales and marketing arrangements.We have no sales, marketing or distribution experience and have only recently started the build out of our internal commercialorganization. We plan to commercialize OCA for PBC in the United States and Europe ourselves with a targeted sales force if andwhen it is approved and may utilize the services of third-party collaborators in certain jurisdictions. To develop internal sales,distribution and marketing capabilities, we have invested and will continue to invest significant additional amounts of financial andmanagement resources, some of which will be committed prior to any confirmation that OCA or any of our other product candidateswill be approved. For example, in October 2015, we hired our territory business managers who are anticipated to constitute our salesforce upon approval. Recruiting and training a commercial organization is expensive and time consuming and could delay any productlaunch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and distributioncapabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercializationexpenses. This may be costly, and our investment could be lost if we cannot retain or reposition our sales and marketing personnel.For product candidates where we decide to perform sales, marketing and distribution functions ourselves or through third parties,we could face a number of additional risks, including:•we or our third-party sales collaborators may not be able to attract and build an effective marketing or sales force;•the cost of securing or establishing a marketing or sales force may exceed the revenues generated by any products; and•our direct sales and marketing efforts may not be successful.We have entered into an agreement with Sumitomo Dainippon for the development and commercialization of OCA in Japan,China, South Korea and potentially other Asian countries, if approved, and have entered into an agreement with Servier to assist in thedevelopment and commercialization of certain of our earlier stage agonists of a dedicated bile acid receptor called TGR5 outside of theUnited States and Japan, if approved, and may elect to seek additional strategic collaborators for our product candidates. We may havelimited or no control over the sales, marketing and distribution activities of these third parties. Our future revenues may dependheavily on the success of the efforts of these third parties.If any of our current strategic collaborators fails to perform its obligations or terminates its agreement with us, the developmentand commercialization of the product candidates under such agreement could be delayed or terminated and our business could besubstantially harmed.We currently have strategic collaborations in place relating to certain of our product candidates. We entered into an exclusivelicense agreement with Sumitomo Dainippon regarding the development and commercialization of OCA for PBC and NASH in Japan,China and South Korea and provided Sumitomo54  TABLE OF CONTENTSDainippon with an option to extend its exclusive license to different indications as well as certain other Asian countries. We enteredinto a strategic collaboration with Servier initially focused on the identification and optimization of novel TGR5 agonists for thetreatment of type 2 diabetes and other associated disorders. These strategic collaborations may not be scientifically or commerciallysuccessful due to a number of important factors, including the following:•Sumitomo Dainippon and Servier have significant discretion in determining the efforts and resources that each will apply totheir strategic collaboration with us. The timing and amount of any cash payments, milestones and royalties that we mayreceive under such agreements will depend on, among other things, the efforts, allocation of resources and successfuldevelopment and commercialization of our product candidates by Sumitomo Dainippon and Servier under their respectiveagreements;•Our agreement with Servier provides it with wide discretion in deciding which novel compounds to advance through thepreclinical and clinical development process. It is possible for Servier to reject certain compounds at any point in the research,development and clinical trial process without triggering a termination of their agreement with us;•Our agreement with Sumitomo Dainippon restricts it from developing or commercializing any FXR agonist to treat PBC orNASH during the term of the agreement other than pursuant to the Sumitomo Dainippon agreement and our agreement withServier restricts it from developing or commercializing any TGR5 receptor agonist during the term of the agreement other thanpursuant to the Servier agreement. Subject to these restrictions, it is possible that Sumitomo Dainippon or Servier may developand commercialize, either alone or with others, or be acquired by a company that has, products that are similar to orcompetitive with the product candidates that they license from us;•Sumitomo Dainippon or Servier may change the focus of their development and commercialization efforts or pursue higher-priority programs;•Sumitomo Dainippon or Servier may, under specified circumstances, terminate their strategic collaborations with us on shortnotice and for circumstances outside of our control, which could make it difficult for us to attract new strategic collaborators oradversely affect how we are perceived in the scientific and financial communities;•Sumitomo Dainippon and Servier have, under certain circumstances, the right to maintain or defend our intellectual propertyrights licensed to them in their territories, and, although we may have the right to assume the maintenance and defense of ourintellectual property rights if our strategic collaborators do not, our ability to do so may be compromised by our strategiccollaborators’ acts or omissions;•Sumitomo Dainippon or Servier may utilize our intellectual property rights in such a way as to invite litigation that couldjeopardize or invalidate our intellectual property rights or expose us to potential liability; and•Sumitomo Dainippon or Servier may not comply with all applicable regulatory requirements, or fail to report safety data inaccordance with all applicable regulatory requirements.If either Sumitomo Dainippon or Servier fails to develop or effectively commercialize OCA or any TGR5 compounds,respectively, we may not be able to replace them with another collaborator. For example, although Sumitomo Dainippon has informedus that it is exploring the initiation of a Phase 3 clinical trial for OCA in NASH patients intended to support the registration of thisindication in Japan, Sumitomo Dainippon may ultimately decide not to pursue such a trial or cease continuing development despitecommencing the trial. We may also be unable to obtain, on terms acceptable to us, a license from such strategic collaborator to any ofits intellectual property that may be necessary or useful for us to continue to develop and commercialize a product candidate. Any ofthese events could have a material adverse effect on our business, results of operations and our ability to achieve future profitability,and could cause our stock price to decline.55  TABLE OF CONTENTSWe may not be successful in establishing and maintaining development and commercialization collaborations, which couldadversely affect our ability to develop certain of our product candidates and our financial condition and operating results.Because developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, expanding manufacturingcapabilities and marketing approved products are expensive, we have entered into, and may seek to enter into, collaborations withcompanies that have more experience and resources than we have. For example, we have entered into collaborations with SumitomoDainippon for OCA and Servier for our earlier stage TGR5 program. We may establish additional collaborations for development andcommercialization of OCA in territories outside of those licensed by Sumitomo Dainippon or for our earlier stage TGR5 program inthe United States or Japan and for other product candidates and research programs, including INT-767 and INT-777. Additionally, ifany of our product candidates receives marketing approval, we may enter into sales and marketing arrangements with third partieswith respect to our unlicensed territories. If we are unable to maintain our existing arrangements or enter into any new sucharrangements on acceptable terms, if at all, we may be unable to effectively market and sell our products in our target markets. Weexpect to face competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and timeconsuming to negotiate, document and implement and they may require substantial resources to maintain. We may not be successful inour efforts to establish and implement collaborations or other alternative arrangements for the development of our product candidates.When we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquishsome or all of the control over the future success of that product candidate to the third party. For example, Sumitomo Dainippon hasthe exclusive rights to OCA in Japan, China and South Korea and a right of first refusal to license OCA in several other Asiancountries. Our collaboration partner may not devote sufficient resources to the commercialization of our product candidates or mayotherwise fail in their commercialization. The terms of any collaboration or other arrangement that we establish may not be favorableto us. In addition, any collaboration that we enter into, including our collaborations with Sumitomo Dainippon and Servier, may beunsuccessful in the development and commercialization of our product candidates. In some cases, we may be responsible forcontinuing preclinical and initial clinical development of a product candidate or research program under a collaboration arrangement,and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development. If we are unableto reach agreements with suitable collaborators for our product candidates, we would face increased costs, we may be forced to limitthe number of our product candidates we can commercially develop or the territories in which we commercialize them and we mightfail to commercialize products or programs for which a suitable collaborator cannot be found. If we fail to achieve successfulcollaborations, our operating results and financial condition will be materially and adversely affected.If we fail to develop OCA for additional indications, our commercial opportunity will be limited.To date, we have focused the majority of our development efforts on the development of OCA for the second line treatment ofPBC. Among our other product candidates, only INT-767, which is undergoing Phase 1 clinical trials, is currently in clinicaldevelopment. One of our strategies is to pursue clinical development of OCA for other orphan and more common indications, to theextent that we have sufficient funding.PBC is a rare disease for which we plan to seek marketing approval for OCA as a second-line treatment and, as a result, the marketsize for treatments of PBC is limited. Furthermore, because a significant proportion of PBC patients do not exhibit any symptoms atthe time of diagnosis, PBC may be left undiagnosed for a significant period of time. Due to these factors, our ability to grow revenueswill be dependent on our ability to successfully develop and commercialize OCA for the treatment of additional indications, includingNASH. In particular, we believe that our future success will depend in large part on the results of our development of OCA for thetreatment of NASH. Although NASH is believed to be one of the most prevalent chronic liver diseases worldwide, NASH may be leftundiagnosed for a long time and a definitive diagnosis of NASH is currently based on a histological assessment of a liver biopsy,which impacts the ability to easily identify patients. Furthermore, even if we are successful in developing and obtaining marketingapproval of OCA for the treatment of NASH, we may not be able to commercialize OCA successfully.56  TABLE OF CONTENTSThe completion of development, securing of approval and commercialization of OCA for additional indications will requiresubstantial additional funding and is prone to the risks of failure inherent in drug development. We cannot provide you any assurancethat we will be able to successfully advance any of these indications through the development process. Even if we receive FDA orEMA approval to market OCA for the treatment of any of these additional indications, we cannot assure you that any such additionalindications will be successfully commercialized, widely accepted in the marketplace or more effective than other commerciallyavailable alternatives. If we are unable to successfully develop and commercialize OCA for these additional indications, ourcommercial opportunity will be limited and our business prospects will suffer.Risks Related to Our Business and StrategyWe face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail tocompete effectively.The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technologicalchange. We have competitors in the United States, Europe and other jurisdictions, including major multinational pharmaceuticalcompanies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and otherresearch institutions. Many of our competitors have greater financial and other resources, such as larger research and developmentstaff and more experienced marketing and manufacturing organizations. Large pharmaceutical companies, in particular, have extensiveexperience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. Thesecompanies also have significantly greater research, sales and marketing capabilities and collaborative arrangements in our targetmarkets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to acceleratediscovery and development of novel compounds or to in-license novel compounds that could make the product candidates that wedevelop obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or FDA or EMAapproval or discovering, developing and commercializing drugs for the diseases that we are targeting before we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, establishedcompanies.Some of the pharmaceutical and biotechnology companies we expect to compete with include Albireo AB, Akarna TherapeuticsLtd., AstraZeneca plc, Biotie Therapies Corp. (acquired by Acorda Therapeutics, Inc.), Boehringer Ingelheim GmbH, Bristol-MyersSquibb Company, Conatus Pharmaceuticals Inc., Dr. Falk Pharma GmbH, Durect Corporation, Eli Lilly, Enanta Pharmaceuticals, Inc.,ENYO Pharma SAS, Exelixis, Inc., FibroGen, Inc., FF Pharmaceuticals BV, Galectin Therapeutics Inc., Galmed Medical ResearchLtd., Genfit SA, Genkyotex SA, Gilead Sciences, Inc., GlaxoSmithKline, Immuron Ltd., Islet Sciences, Inc., Medivation, Inc., MiNATherapeutics, NGM Biopharmaceuticals, Nitto Denko Corporation, Novartis International AG, Novo Nordisk A/S, NuSirt Biopharma,Inc., Protalix Biotherapeutics, Shire plc, Tobira Therapeutics, Inc., Viking Therapeutics, Inc. and Zydus Pharmaceuticals Inc. OngoingPhase 3 clinical trials for the treatment of PBC include an investigator-sponsored trial of bezafibrate, a fibrate that has not beenapproved for commercialization by the FDA and is only available outside of the United States, and a combination of ursodiol andbudesonide, a steroid, sponsored by Dr. Falk Pharma GmbH. Genfit SA has an ongoing Phase 3 clinical trial of GFT505, a dual PPARalpha/delta agonist, in NASH. Gilead Sciences, Inc. is conducting multiple Phase 2 clinical trials in NASH patients of various diseaseseverity with both simtuzimab, an anti-body against the lysyl oxidase-like 2 enzyme, and GS-4997, an inhibitor of the apoptosissignal-regulating kinase 1. Gilead Sciences, Inc. is also studying an FXR agonist (GS-9674) for the treatment of NASH. A number ofcompanies have trials in PBC, NASH and other liver diseases we are targeting.In addition, many universities and private and public research institutes may become active in our target disease areas. The resultsfrom our POISE and FLINT trials have brought more attention to our targeted indications and bile acid chemistry. As a result, webelieve that additional companies and organizations may seek to compete with us in the future. Our competitors may succeed indeveloping, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly thanOCA or any other product candidates that we are currently developing or that we may develop, which could render our productsobsolete and noncompetitive.57  TABLE OF CONTENTSOff-label uses of other potential treatments may limit the commercial potential of our product candidates, especially given theanticipated pricing for our product candidates. For example, while fibrates are not approved for use in PBC, off-label use of fibratedrugs has been reported, though many fibrates are specifically contraindicated for use in PBC due to potential concerns over acute andlong-term safety in this patient population. In NASH, a number of treatments, including vitamin E (an antioxidant), insulin sensitizers(such as metformin), antihyperlipidemic agents (such as gemfibrozil), pentoxifylline and ursodiol, are used off-label. Although none ofthese treatments have been clearly shown in clinical trials to alter the course of the disease, in a previous study conducted by theNASH Clinical Research Network, similar improvements to those observed with OCA in the FLINT trial in certain histologicalmeasures of NASH were reported with vitamin E and pioglitazone. Various other treatments, both approved and unapproved, havebeen used in the other indications we are targeting.We believe that our ability to successfully compete will depend on, among other things:•the results of our and our strategic collaborators’ clinical trials and preclinical studies;•our ability to recruit and enroll patients for our clinical trials;•the efficacy, safety and reliability of our product candidates;•the speed at which we develop our product candidates;•our ability to design and successfully execute appropriate clinical trials;•our ability to maintain a good relationship with regulatory authorities;•the timing and scope of regulatory approvals, if any;•our ability to commercialize and market any of our product candidates that receive regulatory approval;•the price of our products;•adequate levels of reimbursement under private and governmental health insurance plans, including Medicare;•our ability to protect intellectual property rights related to our products;•our ability to manufacture and sell commercial quantities of any approved products to the market; and•acceptance of our product candidates by physicians and other health care providers.If our competitors market products that are more effective, safer or less expensive than our future products, if any, or that reach themarket sooner than our future products, if any, we may not achieve commercial success. In addition, the biopharmaceutical industry ischaracterized by rapid technological change. Because our research approach integrates many technologies, it may be difficult for us tostay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable tocompete effectively. Technological advances or products developed by our competitors may render our technologies or productcandidates obsolete, less competitive or not economical.We depend on third-party contractors for a substantial portion of our operations and may not be able to control their work aseffectively as if we performed these functions ourselves.We outsource and plan to continue to outsource substantial portions of our operations to third-party service providers, includingthe conduct of preclinical studies and clinical trials, collection and analysis of data and manufacturing. We will likely use the servicesof third-party vendors in relation to our commercialization activities, including product sales, marketing and distribution. Ouragreements with third-party service providers are on a study-by-study and/or project-by-project basis. Typically, we may terminate theagreements with notice and are responsible for the supplier’s previously incurred costs. In addition, a number of third-party serviceproviders that we retain will be subject to the FDA’s and EMA’s regulatory requirements and similar standards outside of the UnitedStates and Europe and we do not have control over compliance with these regulations by these providers. Consequently, if theseproviders do not adhere to applicable58  TABLE OF CONTENTSgoverning practices and standards, the development and commercialization of our product candidates could be delayed or stopped,which could severely harm our business and financial condition.Because we have relied on third parties, our internal capacity to perform these functions is limited to management oversight.Outsourcing these functions involves the risk that third parties may not perform to our standards, may not produce results in a timelymanner or may fail to perform at all. Several years ago, we experienced difficulties with a third-party contract manufacturer for OCA,including delays in receiving adequate clinical trial supplies as requested within the requested time periods. We subsequently replacedthis manufacturer with other third-party contract manufacturers for OCA. It is possible that we could experience similar difficulties inthe future. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties,which could increase the risk that this information will be misappropriated. There are a limited number of third-party service providersthat specialize or have the expertise required to achieve our business objectives. Identifying, qualifying and managing performance ofthird-party service providers can be difficult, time consuming and cause delays in our development programs. Despite our recentgrowth, we currently have a small number of employees, which limits the internal resources we have available to identify and monitorthird-party service providers. To the extent we are unable to identify, retain and successfully manage the performance of third-partyservice providers in the future, our business may be adversely affected. We may further be subject to the imposition of civil orcriminal penalties if their conduct of clinical trials violates applicable law.Our third-party service providers generally are not prohibited from providing their services to other biopharmaceutical companies,including companies that currently or may in the future compete with us. For example, certain of our third-party service providers andconsultants may be able to develop intellectual property to which we are not entitled under our agreements which may eventually beused to develop products that compete with our products. Although we generally have confidentiality and non-disclosure agreementsin place with our third-party service providers and consultants, such third parties may be able to provide services to other companieswithout violating the terms of our agreements. In addition, although we may seek to enter into non-compete arrangements with our keythird-party service providers, such arrangements are difficult to negotiate and we may be unable to successfully enter into sucharrangements.A variety of risks associated with our international business operations and our planned international business relationships couldmaterially adversely affect our business.We have recently formed a wholly-owned subsidiary in the United Kingdom which we anticipate will serve as our headquartersfor our operations in Europe and anticipate building out our European operations. We also currently have an Italian subsidiary that actsas our legal representative for our clinical trials in the European Union to satisfy European Union regulatory requirements. We havealso formed a number of other wholly-owned subsidiaries in Europe and Canada in preparation for the anticipated commercial launchof OCA in PBC. In addition, we have entered into an agreement with Sumitomo Dainippon for the development of OCA and withServier for our earlier stage TGR5 program, and we may enter into agreements with other third parties for the development andcommercialization of OCA or our other product candidates in international markets. Our international operations and businessrelationships subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations,including:•differing regulatory requirements for drug approvals internationally;•potentially reduced protection for intellectual property rights;•potential third-party patent rights in countries outside of the United States;•the potential for so-called “parallel importing,” which is what occurs when a local seller, e.g., a pharmacy, faced withrelatively high local prices, opts to import goods from another jurisdiction with relatively low prices, rather than buying themlocally;•unexpected changes in tariffs, trade barriers and regulatory requirements;•economic weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, includingseveral countries in Europe;•compliance with tax, employment, immigration and labor laws for employees traveling abroad;59  TABLE OF CONTENTS•taxes in other countries;•foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligationsincident to doing business in another country;•workforce uncertainty in countries where labor unrest is more common than in the United States;•production shortages resulting from events affecting raw material supply or manufacturing capabilities abroad; and•business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, includingearthquakes, volcanoes, typhoons, floods, hurricanes and fires.Changes in our effective income tax rate could adversely affect our results of operations.We are subject to income taxes in the United States and various foreign jurisdictions. Various factors may have favorable orunfavorable effects on our effective income tax rate. These factors include, but are not limited to, interpretations of existing tax laws,changes in tax laws and rates, the accounting for stock options and other stock-based compensation, changes in accounting standards,future levels of research and development spending, changes in the mix and level of pre-tax earnings by taxing jurisdiction, theoutcome of examinations by the U.S. Internal Revenue Service and regulators of other jurisdictions, the accuracy of our estimates forunrecognized tax benefits, the realization of deferred tax assets, or by changes to our ownership or capital structure. The impact on oureffective income tax rate resulting from the above-mentioned factors and others may be significant and could adversely affect ourresults of operations.We have been significantly expanding our operations and the size of our company and will need to continue our expansion tosupport our NASH program. We may experience difficulties in managing our significant growth.From December 31, 2014 to December 31, 2015, our employee base has grown from 136 to 405 employees. Of the 405 employeesas of December 31, 2015, 216 employees were in our drug development operations, 117 employees were in our commercial group and72 employees were in our corporate group. At December 31, 2015, 309 employees were based in the United States, 89 employeeswere based in Europe and 7 employees were based in Canada. As we advance our programs for OCA in NASH and other potentialindications and our other product candidates, seek regulatory approval in the United States and elsewhere, increase the number ofongoing product development programs and advance our product candidates through preclinical studies and clinical trials, we willneed to increase our product development, scientific and administrative headcount to manage these programs. We will also need togrow our commercial capabilities, which will require us to hire additional personnel, both for our ongoing pre-commercial activitiesand for the launch and ongoing marketing and sale of any product candidate for which we obtain marketing approval. In addition, inorder to continue to meet our obligations as a public company and to support the anticipated longer-term growth in the other functionsat our company, we will need to increase our general and administrative capabilities. We are also expanding our operationsgeographically and formed a number of wholly-owned subsidiaries outside of the United States, including our wholly-ownedsubsidiary in the United Kingdom. We also opened an office in London, United Kingdom which serves as our headquarters for ouroperations in Europe, Canada and Australia. In the longer term, we may further expand our geographical footprint. Our management,personnel and systems currently in place may not be adequate to support this future growth.Our need to effectively manage our operations, growth and various projects requires that we:•successfully attract and recruit new employees or consultants with the expertise and experience we will require in the UnitedStates, Europe and in other jurisdictions;•manage our clinical programs effectively, which we anticipate being conducted at numerous clinical sites across the world, andadvance our other development efforts;•develop and expand our marketing and sales infrastructure; and•continue to improve our operational, financial and management controls, reporting systems and procedures60  TABLE OF CONTENTSIf we are unable to successfully manage this growth and increased complexity of operations, our business may be adverselyaffected.We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.We may not be able to attract or retain qualified personnel and consultants across our organization due to the intense competitionfor qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are not able to attract andretain necessary personnel and consultants to accomplish our business objectives, we may experience constraints that will significantlyimpede the achievement of our development and commercial objectives, our ability to raise additional capital and our ability toimplement our business strategy.Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on thedevelopment, regulatory, commercialization and business development expertise of Mark Pruzanski, our co-founder and president andchief executive officer; David Shapiro, our chief medical officer; and our other key employees and consultants. If we lose one or moreof our executive officers, or key employees or consultants, our ability to implement our business strategy successfully could beseriously harmed. Any of our executive officers or key employees or consultants may terminate their employment at any time.Replacing executive officers, key employees and consultants may be difficult and may take an extended period of time because of thelimited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval ofand commercialize products successfully. Competition to hire and retain employees and consultants from this limited pool is intense,and we may be unable to hire, train, retain or motivate these additional key personnel and consultants.We have scientific and clinical advisors and consultants, such as our co-founder Professor Roberto Pellicciari, who assist us informulating our research, development and clinical strategies. These advisors are not our employees and may have commitments to, orconsulting or advisory contracts with, other entities that may limit their availability to us and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may losetheir services. In addition, our advisors may have arrangements with other companies to assist those companies in developing productsor technologies that may compete with ours.Failure to establish and maintain adequate finance infrastructure and accounting systems and controls could impair our ability tocomply with the financial reporting and internal controls requirements for publicly traded companies.As a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with theSarbanes-Oxley Act of 2002, and the related rules and regulations of the Securities and Exchange Commission, expanded disclosurerequirements, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by theSarbanes-Oxley Act include establishing and maintaining corporate oversight and adequate internal control over financial reportingand disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and areimportant to help prevent financial fraud.Our compliance with Section 404 of the Sarbanes-Oxley Act has required and will continue to require that we incur substantialaccounting expense and expend significant management efforts. Our testing, or the testing by our independent registered publicaccounting firm, may reveal deficiencies in our internal controls that we would be required to remediate in a timely manner so as to beable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we are not able to comply with therequirements of Section 404 of the Sarbanes-Oxley Act in a timely manner each year, we could be subject to sanctions orinvestigations by the Securities and Exchange Commission, the NASDAQ Stock Market or other regulatory authorities which wouldrequire additional financial and management resources and could adversely affect the market price of our common stock. Furthermore,if we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investorscould lose confidence in our reported financial information.61  TABLE OF CONTENTSOur employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards andrequirements and insider trading, which could significantly harm our business.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures tocomply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators,comply with health care fraud and abuse laws and regulations in the United States and abroad, report financial information or dataaccurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health careindustry are subject to extensive laws and regulations in the United States and abroad intended to prevent fraud, misconduct,kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing,discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employeemisconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatorysanctions and serious harm to our reputation. We have adopted a global code of business conduct, but it is not always possible toidentify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective incontrolling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuitsstemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are notsuccessful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including theimposition of significant fines or other sanctions.We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability fora product candidate and may have to limit its commercialization.The use of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approvalexpose us to the risk of product liability claims. Product liability claims may be brought against us or our collaborators by participantsenrolled in our clinical trials, patients, health care providers or others using, administering or selling our products. If we cannotsuccessfully defend ourselves against any such claims, we would incur substantial liabilities. Regardless of merit or eventual outcome,product liability claims may result in:•withdrawal of clinical trial participants;•termination of clinical trial sites or entire trial programs;•costs of related litigation;•substantial monetary awards to patients or other claimants;•decreased demand for our product candidates and loss of revenues;•impairment of our business reputation;•diversion of management and scientific resources from our business operations; and•the inability to commercialize our product candidates or the withdrawal of our products from the market.We have obtained limited product liability insurance coverage for our clinical trials in the United States and in selected otherjurisdictions where we are conducting clinical trials. Our product liability insurance coverage for clinical trials in the United States iscurrently limited to an aggregate of $10 million and outside of the United States we have coverage for amounts that vary by country.As such, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we maysuffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurancecoverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. We intend to expand ourinsurance coverage for products to include the sale of commercial products if we obtain marketing approval for our product candidatesin development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved formarketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. Asuccessful62  TABLE OF CONTENTSproduct liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decreaseour cash resources and adversely affect our business.Our insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significantuninsured liabilities.We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintaininclude general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ andofficers’ insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Anysignificant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position andresults of operations. Furthermore the increased volatility of our stock price may result in us being required to pay substantially higherpremiums for our directors’ and officers’ insurance than those to which we are currently subject, and may even lead a large number ofunderwriters to be unwilling to cover us.If we engage in an acquisition, reorganization or business combination, we will incur a variety of risks that could adversely affectour business operations or our stockholders.From time to time we have considered, and we will continue to consider in the future, strategic business initiatives intended tofurther the expansion and development of our business. These initiatives may include acquiring businesses, technologies or products orentering into a business combination with another company. If we pursue such a strategy, we could, among other things:•issue equity securities that would dilute our current stockholders’ percentage ownership;•incur substantial debt that may place strains on our operations;•spend substantial operational, financial and management resources to integrate new businesses, technologies and products;•assume substantial actual or contingent liabilities;•reprioritize our development programs and even cease development and commercialization of our product candidates; or•merge with, or otherwise enter into a business combination with, another company in which our stockholders would receivecash and/or shares of the other company on terms that certain of our stockholders may not deem desirable.Although we intend to evaluate and consider acquisitions, reorganizations and business combinations in the future, we have noagreements or understandings with respect to any acquisition, reorganization or business combination at this time.Our business and operations would suffer in the event of system failures or data breaches.Despite the implementation of security measures and policies, our internal information technology systems, as well as those of ourCROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, naturaldisasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in ouroperations, it could result in a material disruption of our drug development programs, damage to our reputation and/or monetarydamages. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in ourregulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption orsecurity breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential orproprietary information, we could incur liability and the further development of our product candidates could be delayed.Our information security systems are subject to laws and regulations requiring that we take measures to protect the privacy andsecurity of certain information we gather and use in our business. For example, the Health Insurance Portability and AccountabilityAct, or HIPAA, and its implementing regulations impose, among other requirements, certain regulatory and contractual requirementsregarding the privacy and security63  TABLE OF CONTENTSof personal health information. In addition to HIPAA, numerous other federal and state laws, including, without limitation, statesecurity breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern thecollection, use, disclosure and storage of personal information. Various foreign countries where we may process personal informationalso have, or are developing, laws governing the collection, use, disclosure and storage of personal information. The legislative andregulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacyand data protection issues that may affect our business. We have in the past relied on adherence to the U.S.-EU Safe HarborFramework as agreed to and set forth by the U.S. Department of Commerce and the European Commission as a means to legitimizecertain transfers of personal information from the European Economic Area, or EEA, to the United States. However, a recent opinionof the European Union Court of Justice, or ECJ, deemed the U.S.-EU Safe Harbor Framework an invalid method of protecting thetransfer of personal information from the EEA to the United States. While we are engaging in efforts to address the implications of theECJ opinion and actively employing other means to legitimize the transfer of personal information from the EEA to the United States,we may be unsuccessful in these efforts. Failure to comply with laws regarding data protection could expose us to risk of enforcementactions and the potential for significant penalties as well as the loss of access to certain data from the EU. Even if we are notdetermined to have violated these laws, government investigations into these issues typically require the expenditure of significantresources and can generate negative publicity, which could harm our business.Risks Related to Our Intellectual PropertyIt is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent positiondoes not adequately protect our product candidates, others could compete against us more directly, which would harm ourbusiness, possibly materially.Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of ourcurrent and future product candidates and the methods used to manufacture them, as well as successfully defending these patentsagainst third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our productcandidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover theseactivities.The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal andfactual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowedin pharmaceutical patents has emerged to date in the United States or in many jurisdictions outside of the United States. Changes ineither the patent laws or interpretations of patent laws in the United States and other countries may diminish the value of ourintellectual property. Accordingly, we cannot predict the breadth of claims that may be enforced in the patents that may be issued fromthe applications we currently own or may own in the future, or license from third parties. Further, if any patents we obtain or licenseare deemed invalid and unenforceable, our ability to commercialize or license our technology could be adversely affected.Others have filed, and in the future are likely to file, patent applications covering products and technologies that are similar,identical or competitive to ours or important to our business. We cannot be certain that any patent application owned by a third partywill not have priority over patent applications filed or in-licensed by us, or that we or our licensors will not be involved in interference,derivation, opposition or invalidity proceedings before U.S. or non-U.S. patent offices.The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and maynot adequately protect our rights or permit us to gain or keep our competitive advantage. For example:•others may be able to develop a platform similar to, or better than, ours in a way that is not covered by the claims of ourpatents;•others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of ourpatents;•we might not have been the first to make the inventions covered by our pending patent applications;64  TABLE OF CONTENTS•we might not have been the first to file patent applications for these inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies;•any patents that we obtain may not provide us with any competitive advantages;•we may not develop additional proprietary technologies that are patentable; or•the patents of others may have an adverse effect on our business.As of December 31, 2015, we were the owner of record of over 110 issued or granted U.S. and non-U.S. patents relating to OCAwith claims directed to pharmaceutical compounds, pharmaceutical compositions, methods of making these compounds, and methodsof using these compounds in various indications. We were also the owner at that date of record of 53 pending U.S. and non-U.S. patentapplications relating to OCA in these areas.In addition, as of December 31, 2015, we were the owner of record of over 160 issued or granted U.S. and non-U.S. patentsrelating to our product candidates other than OCA, with claims directed to pharmaceutical compounds, pharmaceutical compositions,methods of making these compounds and methods of using these compounds in various indications. We were also the owner of recordof over 90 pending U.S. and non-U.S. patent applications relating to such other product candidates in these areas.Patents covering the composition of matter of OCA expire in 2022 at the soonest and 2033 at the latest if the appropriatemaintenance renewal, annuity, or other government fees are paid. We expect that the other patents in the OCA portfolio, if theappropriate maintenance, renewal, annuity or other governmental fees are paid, would expire from 2022 to 2033. We expect the issuedINT-767 composition of matter patent in the United States, if the appropriate maintenance, renewal, annuity or other governmentalfees are paid, to expire in 2029. We expect the other patents in the INT-767 portfolio, if the appropriate maintenance, renewal, annuityor other governmental fees are paid, to expire from 2027 to 2029. We expect the issued INT-777 composition of matter patent in theUnited States, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire in 2030. We expect theother patents in the INT-777 portfolio, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expirefrom 2028 to 2030.We have received assignments of rights to the INT-767 patent portfolio from all inventors, with the exception of one inventor.That inventor is contractually obligated to provide an assignment to us. Thus, we believe that we are the owner of the INT-767 patentportfolio by virtue of this contractual obligation and the patent assignments we have received. By virtue of the patent assignments wehave received and other contractual obligations owed to us, we believe we are the owner of the INT-777 patent portfolio.Without patent protection on the composition of matter of our product candidates, our ability to assert our patents to stop othersfrom using or selling our product candidates in a non-pharmaceutically acceptable formulation may be limited.Due to the patent laws of a country, or the decisions of a patent examiner in a country, or our own filing strategies, we may notobtain patent coverage for all of our product candidates or methods involving these candidates in the parent patent application. Weplan to pursue divisional patent applications or continuation patent applications in the United States and other countries to obtain claimcoverage for inventions which were disclosed but not claimed in the parent patent application.If we do not obtain protection under the Hatch-Waxman Act and similar legislation outside of the United States by extending thepatent terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.Depending upon the timing, duration and specifics of FDA marketing approval of OCA and our other product candidates, if any,one or more of our U.S. patents may be eligible for limited extension of patent term under the Drug Price Competition and PatentTerm Restoration Act of 1984, referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits an extension of patent term ofup to five years as compensation for patent term lost during product development and the FDA regulatory review process. However,we may not be granted an extension because of, for example, failing to apply within applicable65  TABLE OF CONTENTSdeadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, theapplicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent termextension or restoration or the term of any such extension is less than we request, the period during which we will have the right toexclusively market our product will be shortened and our competitors may obtain approval of competing products following our patentexpiration, and our revenue could be reduced, possibly materially. In the event that we are unable to obtain any patent term extensions,the issued composition of matter patents for OCA are expected to expire in 2022 at the soonest and 2033 at the latest, assuming theywithstand any challenge. We expect that the other patents for the OCA portfolio, if the appropriate maintenance, renewal, annuity orother governmental fees are paid, would expire from 2022 to 2033.We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.If we choose to go to court to stop another party from using the inventions claimed in any patents we obtain, that individual orcompany has the right to ask the court to rule that such patents are invalid, not infringed, or should not be enforced against that thirdparty. These lawsuits are expensive and would consume time and resources and divert the attention of managerial and scientificpersonnel even if we were successful in stopping the infringement of such patents. In addition, there is a risk that the court will decidethat such patents are not valid or not infringed, and that we do not have the right to stop the other party from using the inventions.There is also the risk that, even if the validity of such patents is upheld, the court will refuse to stop the other party on the ground thatsuch other party’s activities do not infringe our rights to such patents. In addition, the U.S. Supreme Court has recently modified sometests used by the U.S. Patent and Trademark Office, or USPTO, in granting patents over the past 20 years, which may decrease thelikelihood that we will be able to obtain patents and increase the likelihood of challenge of any patents we obtain or license.We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop usfrom commercializing or increase the costs of commercializing our product candidates.Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We cannotguarantee that our products, or manufacture or use of our product candidates, will not infringe third-party patents. Furthermore, a thirdparty may claim that we or our manufacturing or commercialization collaborators are using inventions covered by the third party’spatent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling ourproduct candidates. These lawsuits are costly and could affect our results of operations and divert the attention of managerial andscientific personnel. There is a risk that a court would decide that we or our commercialization collaborators are infringing the thirdparty’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or ourcommercialization collaborators may not have a viable way around the patent and may need to halt commercialization of the relevantproduct. In addition, there is a risk that a court will order us or our collaborators to pay the other party damages for having violated theother party’s patents. In the future, we may agree to indemnify our commercial collaborators against certain intellectual propertyinfringement claims brought by third parties. The pharmaceutical and biotechnology industries have produced a proliferation ofpatents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods ofuse. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.If we are sued for patent infringement, we would need to demonstrate that our products or methods either do not infringe the patentclaims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. Forexample, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption ofvalidity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divertmanagement’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable toavoid infringing the patent rights of others, we may be required to seek a license, which may not be available, defend an infringementaction or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficientresources to bring these actions to66  TABLE OF CONTENTSa successful conclusion. In addition, if we fail to obtain a license, develop or obtain non-infringing technology or defend aninfringement action successfully, or have infringed patents declared invalid, we may incur substantial monetary damages, encountersignificant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.We cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that wewere the first to invent the technology, because:•some patent applications in the United States may be unpublished or otherwise maintained in secrecy until the patents areissued;•patent applications in the United States are typically not published until 18 months after the priority date; and•publications in the scientific literature often lag behind actual discoveries.Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any suchpatent application may have priority over our patent applications, which could further require us to obtain rights to issued patentscovering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have toparticipate in an interference or derivation proceeding declared by the USPTO to determine priority of invention in the United States.The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us,the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our U.S.patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications, and suchpatent applications may be entitled to priority over our applications in such jurisdictions.Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because theyhave substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation couldhave a material adverse effect on our ability to raise the funds necessary to continue our operations.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, feepayment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced oreliminated for non-compliance with these requirements.Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will bedue to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetimeof the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and rely onour outside counsel to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agenciesrequire compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent applicationprocess. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can becured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in whichnoncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patentrights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance wouldhave a material adverse effect on our business.We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technologyand products could be significantly diminished.As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at otherbiotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims thatthese employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their formeremployers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims,litigation could result in substantial costs and be a distraction to management.67  TABLE OF CONTENTSWe rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriateor obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees,consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietaryinformation. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequateremedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our tradesecrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether tomake additional information publicly available on a routine basis, including information that we may consider to be trade secrets orother proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if atall. Moreover, the EMA has already adopted a policy of general transparency both in relation to requests under EU freedom ofinformation legislation for access to pre-clinical and clinical research data once marketing authorizations are granted and throughproactive disclosure of clinical data on its website. This policy coupled with imminent requirements for public disclosure of clinicalresearch data under a new EU Clinical Trial Regulation, means that public disclosure will ordinarily be made of substantial researchdata that previously would have been considered commercially confidential. Enforcing a claim that a third party illegally obtained andis using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside theUnited States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalentknowledge, methods and know-how. Costly and time-consuming litigation could be necessary to enforce and determine the scope ofour proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive businessposition.We have not yet registered all of our trademarks and failure to secure those registrations could adversely affect our business.We have applied for a number of trademarks and service marks to further protect the proprietary position of our products. We haveapproximately 280 pending trademark and service mark applications in the United States and abroad. Our trademark applications maynot be allowed for registration or our registered trademarks may not be maintained or enforced. During prosecution of applications fortrademark registration, we may receive rejections or refusals. Although we are given an opportunity to respond to those rejections, wemay be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many other jurisdictions, thirdparties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition orcancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do notsecure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwisewould.Trademark protection varies in accordance with local law, and continues in some countries as long as the trademark is used and inother countries as long as the trademark is registered. Trademark registrations generally are for fixed but renewable terms. We cannotprovide any assurances that any trademarks or service marks will be sufficient to prevent competitors from adopting similar names.The adoption of similar names by competitors could impede our ability to build brand identity and lead to customer confusion, whichcould adversely affect our sales or profitability.In addition, we have not yet received final approval from regulatory authorities for a proprietary name for any of our productcandidates, including OCA, in any jurisdiction. Any proprietary name we propose to use with OCA in the United States and Europemust be approved by the FDA and EMA, respectively, regardless of whether we have registered it, or applied to register it, as atrademark. The FDA and EMA typically conduct a review of proposed product names, including an evaluation of potential forconfusion with other product names. If the FDA or EMA objects to our proposed proprietary product names, we may be required toexpend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicabletrademark laws, not infringe the existing rights of third parties and be acceptable to the regulatory agencies.68  TABLE OF CONTENTSRisks Related to Ownership of Our Common StockAn active trading market in our common stock may not be maintained.The trading market in our common stock has been extremely volatile. The quotation of our common stock on The NASDAQGlobal Select Market does not assure that a meaningful, consistent and liquid trading market will exist. We cannot predict whether anactive market for our common stock will be maintained in the future. An absence of an active trading market could adversely affectour stockholders’ ability to sell our common stock at current market prices in short time periods, or possibly at all. Additionally,market visibility for our common stock may be limited and such lack of visibility may have a depressive effect on the market price forour common stock. As of December 31, 2015, approximately 40.04% of our outstanding shares of common stock was held by ourofficers, directors, beneficial owners of 5% or more of our securities (other than FMR LLC, Carmignac Gestion, Capital WorldInvestors, Ameriprise Financial, Inc. and their respective affiliates) and their respective affiliates, which adversely affects the liquidityof the trading market for our common stock, in as much as federal securities laws restrict sales of our shares by these stockholders. Ifour affiliates continue to hold their shares of common stock, there will be limited trading volume in our common stock, which maymake it more difficult for investors to sell their shares or increase the volatility of our stock price.We are currently subject to securities class action litigation and may be subject to similar or other litigation in the future, whichmay divert management’s attention.On February 21, 2014 and February 28, 2014, purported shareholder class actions, styled Scot H. Atwood v. InterceptPharmaceuticals, Inc. et al. and George Burton v. Intercept Pharmaceuticals, Inc. et al. , respectively, were filed in the United StatesDistrict Court for the Southern District of New York, naming us and certain of our officers as defendants. These lawsuits were filed bystockholders who claim to be suing on behalf of anyone who purchased or otherwise acquired our securities between January 9, 2014and January 10, 2014.The lawsuits allege that we made material misrepresentations and/or omissions of material fact in our public disclosures during theperiod from January 9, 2014 to January 10, 2014, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, asamended, and Rule 10b-5 promulgated thereunder. The alleged improper disclosures relate to our January 9, 2014 announcement thatthe FLINT trial had been stopped early based on a pre-defined interim efficacy analysis. Specifically, the lawsuits claim that theJanuary 9, 2014 announcement was misleading because it did not contain information regarding certain lipid abnormalities seen in theFLINT trial in OCA-treated patients compared to placebo.On April 22, 2014, two individuals each moved to consolidate the cases and a lead plaintiff was subsequently appointed by theCourt. On June 27, 2014, the lead plaintiff filed an amended complaint on behalf of the putative class as contemplated by the order ofthe Court. On August 14, 2014, the defendants filed a motion to dismiss the complaint. Oral arguments on the motion to dismiss wereheld on February 24, 2015. On March 4, 2015, the defendants’ motion to dismiss was denied by the Court. The defendants answeredthe amended complaint on April 13, 2015. On July 15, 2015, the plaintiff moved for class certification and appointment of classrepresentatives and class counsel. On September 14, 2015, the defendants opposed the plaintiff’s class certification motion. Theplaintiff filed its reply to the defendants’ opposition on October 14, 2015, to which the defendants filed a sur-reply on November 10,2015. Oral arguments on the class certification motion were held on January 20, 2016. No decision has been made by the Court on theclass certification motion. The parties are currently undergoing discovery in relation to this matter. Dispositive motions are due onSeptember 16, 2016.The lead plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses,including attorneys’ fees.While we believe we have valid defenses to the claims in the lawsuit, have denied liability and intend to defend ourselvesvigorously, we cannot predict the outcome of the lawsuit. There may be additional suits or proceedings brought in the future.Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for our management and detracts fromour ability fully to focus our internal resources on our business activities, and we cannot predict how long it may take to resolve thesematters. In addition, we69  TABLE OF CONTENTSmay incur substantial legal fees and costs in connection with litigation. Although we have insurance, coverage could be denied orprove to be insufficient. We are not currently able to estimate the possible cost to us from these lawsuits, and we cannot be certain howlong it may take to resolve these lawsuits or the possible amount of any damages that we may be required to pay. We have notestablished any reserves for any potential liability relating to these lawsuits. It is possible that we could, in the future, incur judgmentor enter into settlement of claims for monetary damages. A decision adverse to our interests on either of these lawsuits could result inthe payment of substantial damages and could have a material adverse effect on our business, results of operations and financialcondition. In addition, the uncertainty of the currently pending lawsuits could lead to more volatility in our stock price.Our stock price has been and may in the future be volatile, which could cause purchasers of our common stock to incur substantiallosses.The trading price of our stock price has been, and is likely to continue to be, highly volatile and could be subject to widefluctuations in response to various factors, some of which are beyond our control. Since our initial public offering which occurred inOctober 2012, the price of our common stock on The NASDAQ Global Select Market has ranged from $17.96 per share to $497.00per share. In addition to the other factors discussed in this “Risk Factors” section, these factors include:•adverse results or delays in our clinical trials;•inability to obtain additional funding;•any delay in filing an IND, NDA, MAA or comparable submission for any of our product candidates and any adversedevelopment or perceived adverse development with respect to the regulatory review of such submission;•failure to successfully develop and commercialize OCA and any of our other product candidates;•failure to maintain our existing strategic alliances or enter into new alliances;•inability to obtain adequate product supply for OCA and our future product candidates or the inability to do so at acceptableprices;•results of clinical trials of our competitors’ products;•regulatory actions with respect to our products or our competitors’ products;•changes in laws or regulations applicable to our future products;•failure to meet or exceed financial projections we may provide to the public;•failure to meet or exceed the estimates and projections of the investment community;•actual or anticipated fluctuations in our financial condition and operating results;•actual or anticipated changes in our growth rate relative to our competitors;•actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;•competition from existing products or new products that may emerge;•announcements by us, our collaborators or our competitors of significant acquisitions, strategic collaborations, joint ventures,collaborations or capital commitments;•issuance of new or updated research or reports by securities analysts;•fluctuations in the valuation of companies perceived by investors to be comparable to us;•share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;•additions or departures of key management or scientific personnel;•disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patentprotection for our technologies;70  TABLE OF CONTENTS•announcement or expectation of additional financing efforts;•significant lawsuits, including patent or stockholder litigation, involving us;•sales of our common stock by us, our insiders or our other stockholders;•failure to adopt appropriate information security systems, including any systems that may be required to support our growingand changing business requirements;•market conditions for biopharmaceutical stocks in general; and•general economic, industry and market conditions.Furthermore, the stock markets in general and the market for biotechnology companies in particular have experienced extremeprice and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad marketand industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes orinternational currency fluctuations may negatively impact the market price of shares of our common stock, regardless of our actualoperating performance. In the past, companies that have experienced volatility in the market price of their stock have been subject tosecurities class action litigation. We are currently subject to class action securities lawsuits and may be the target of this type oflitigation in the future, which could result in substantial costs and divert our management’s attention from other business concerns,which could seriously harm our business. As a result of this volatility, our stockholders could incur substantial losses.We have a significant stockholder, which will limit your ability to influence corporate matters and may give rise to conflicts ofinterest.Genextra S.p.A., together with its affiliates, whom we refer to collectively as Genextra, is our largest stockholder. As of December31, 2015, Genextra owned 6,454,953 shares of our common stock. The shares of common stock owned by Genextra representedapproximately 26.5% of our outstanding common stock as of December 31, 2015. Accordingly, Genextra exerts and will continue toexert significant influence over us and any action requiring the approval of the holders of our common stock, including the election ofdirectors and amendments to our organizational documents, such as increases in our authorized shares of common stock and approvalof significant corporate transactions. This concentration of voting power makes it less likely that any other holder of common stock ordirectors of our business will be able to affect the way we are managed and could delay or prevent an acquisition of us on terms thatother stockholders may desire.Furthermore, the interests of Genextra may not always coincide with your interests or the interests of other stockholders, andGenextra may act in a manner that advances its best interests and not necessarily those of other stockholders, including seeking apremium value for its common stock, and might affect the prevailing market price for our common stock. Our board of directors,which consists of nine directors, including two affiliated with Genextra, has the power to set the number of directors on our board fromtime to time.Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.We are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed toreasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulatedand communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules andforms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occurbecause of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion oftwo or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our controlsystem, misstatements or insufficient disclosure due to error or fraud may occur and not be detected.71  TABLE OF CONTENTSYou may experience future dilution as a result of future equity offerings.In the future, we may offer additional shares of our common stock or other securities convertible into or exchangeable for ourcommon stock in order to raise additional capital. We cannot assure you that we will be able to sell shares or other securities in anyother offering at a price per share that is equal to or greater than the price per share you paid for our shares. Investors purchasingshares or other securities in the future could have rights, preferences or privileges senior to those of existing stockholders and you mayexperience dilution. You may incur additional dilution upon the exercise of any outstanding stock options or vesting of restricted stockunits or awards.If securities or industry analysts cease publishing research or reports about us, our business or our market, or if they publishinaccurate or unfavorable reports about our stock, the price of our stock and trading volume could decline.The trading market for our common stock depends in part on the research and reports that securities or industry analysts publishabout our company. We do not have any control over these analysts, and there can be no assurance that analysts will continue to coverus or provide favorable coverage. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate orunfavorable research about our business, our stock price would likely decline. If one or more of the analysts covering us fail toregularly publish reports on us, demand for our common stock could decline, which could cause our stock price and trading volume todecline.Anti-takeover provisions in our restated certificate of incorporation and our restated by-laws, as well as provisions of Delawarelaw, might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depressthe trading price of our common stock.Provisions in our restated certificate of incorporation and restated bylaws, as well as provisions of Delaware law, containprovisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may considerfavorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. Theseprovisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Our corporate governancedocuments include provisions:•authorizing the issuance of “blank check” convertible preferred stock, the terms of which may be established and shares ofwhich may be issued without stockholder approval;•prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of ourstockholders, to the extent that no stockholder, together with its affiliates, holds more than 50% of our voting stock;•eliminating the ability of stockholders to call a special meeting of stockholders;•permitting our board of directors to accelerate the vesting of outstanding equity awards upon certain transactions that result ina change of control; and•establishing advance notice requirements for nominations for election to the board of directors or for proposing matters thatcan be acted upon at stockholder meetings.In addition, as a Delaware corporation, we are subject to provisions of Delaware law, including Section 203 of the DelawareGeneral Corporation Law, or DGCL, which prevents some stockholders holding more than 15% of our outstanding common stockfrom engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.Any provision of our restated certificate of incorporation or restated by-laws or Delaware law that has the effect of delaying ordeterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our commonstock, and could also affect the price that some investors are willing to pay for our common stock.The existence of the foregoing provisions and anti-takeover measures may also frustrate or prevent any attempts by ourstockholders to replace or remove our current management or members of our board of directors and could limit the price thatinvestors might be willing to pay in the future for shares of our72  TABLE OF CONTENTScommon stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive apremium for your common stock in an acquisition.Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claimsagainst us and may reduce the amount of money available to us.As permitted by Section 102(b)(7) of the DGCL, our restated certificate of incorporation limits the liability of our directors to thefullest extent permitted by law. In addition, as permitted by Section 145 of the DGCL, our restated certificate of incorporation andrestated bylaws provide that we shall indemnify, to the fullest extent authorized by the DGCL, each person who is involved in anylitigation or other proceeding because such person is or was a director or officer of our company or is or was serving as an officer ordirector of another entity at our request, against all expense, loss or liability reasonably incurred or suffered in connection therewith.Our restated certificate of incorporation provides that the right to indemnification includes the right to be paid expenses incurred indefending any proceeding in advance of its final disposition, provided, however, that such advance payment will only be made upondelivery to us of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimatelydetermined that such director is not entitled to indemnification. If we do not pay a proper claim for indemnification in full within 60days after we receive a written claim for such indemnification, except in the case of a claim for an advancement of expenses, in whichcase such period is 20 days, our restated certificate of incorporation and our restated bylaws authorize the claimant to bring an actionagainst us and prescribe what constitutes a defense to such action.Section 145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (includingattorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suitor proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted ingood faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, withrespect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivativeaction (i.e., one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually andreasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if such personacted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation,except that no indemnification shall be provided if such person shall have been adjudged to be liable to the corporation, unless andonly to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonablyentitled to indemnity for such expenses despite such adjudication of liability.The rights conferred in the restated certificate of incorporation and the restated bylaws are not exclusive, and we are authorized toenter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify suchpersons. We have entered into indemnification agreements with each of our officers and directors.The above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers formonetary damages for breach of their fiduciary duty as directors by shifting the burden of such losses and expenses to us. Although wehave increased the coverage under our directors’ and officers’ liability insurance, certain liabilities or expenses covered by ourindemnification obligations may not be covered by such insurance or the coverage limitation amounts may be exceeded. As a result,we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely harm ourbusiness and financial condition and limit the funds available to stockholders who may choose to bring a claim against our company.Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.As of December 31, 2015 and 2014, we had net operating loss carryforwards, or NOLs, for federal income tax purposes of $454.4million and $221.2 million, respectively, which expire between 2024 and 2035. Our ability to utilize our NOLs may be limited underSection 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. The limitations apply if an “ownershipchange,” as defined by73  TABLE OF CONTENTSSection 382 of the Internal Revenue Code, occurs. Generally, an ownership change occurs when certain shareholders increase theiraggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically threeyears). We have evaluated whether one or more ownership changes as defined under Section 382 of the Internal Revenue Code haveoccurred since our inception and have determined that there have been at least two such changes. Although we believe that theseownership changes have not resulted in material limitations on our ability to use these NOLs, our ability to utilize these NOLs may belimited due to future ownership changes or for other reasons. Additionally, tax laws limit the time during which NOLs and certainother tax attributes may be utilized against future taxes. As a result, we may not be able to take full advantage of our carryforwards forfederal, state, and foreign tax purposes.Item 1B.Unresolved Staff CommentsNone.Item 2.PropertiesOur corporate headquarters and clinical development operations are located in New York, New York and San Diego, California,where we lease and occupy approximately 20,626 and 47,000 square feet of space, respectively.In February 2015, we entered into an underlease with Merck Sharp & Dohme Limited for our new office in the King’s Cross areaof London, United Kingdom. The lease provides us with approximately 6,000 rentable square feet in London for office space. Thelease term is anticipated to end in June 2019.On January 22, 2016, Intercept Pharma Europe Ltd., or IPEL, our wholly owned subsidiary, entered into an underlease withPerforming Right Society, Ltd. for additional office space in the Kings Cross area of London, United Kingdom. We are the guarantorto the underlease. The underlease provides IPEL with an additional 8,549 square feet of office space. The lease term is anticipated toend on May 31, 2024.On February 23, 2016, we entered into a sublease for an additional 10,785 square feet of office space in New York, New York.The lease term is anticipated to end on July 31, 2021.Item 3.Legal ProceedingsSee Item 1. “Business — Legal Proceedings” of this Annual Report on Form 10-K.Item 4.Mine Safety DisclosuresNot applicable.74  TABLE OF CONTENTSPART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock began trading on the NASDAQ Global Market on October 11, 2012 under the symbol “ICPT”. The followingtable sets forth, for the quarterly periods indicated, the high and low sales prices per share of our common stock as reported on theNASDAQ Global Select Market for each quarter in the years ended December 31, 2015 and 2014. Year Ended December 31, 2015 High LowFirst quarter $308.28 $144.79 Second quarter 314.88 232.19 Third quarter 285.00 150.00 Fourth quarter 217.99 137.28 Year Ended December 31, 2014 High LowFirst quarter $497.00 $65.22 Second quarter 339.67 209.00 Third quarter 349.08 208.00 Fourth quarter 264.92 128.50 StockholdersAs of January 31, 2016, there were 390 stockholders of record, which excludes stockholders whose shares were held in nominee orstreet name by brokers.Performance GraphThe following graph illustrates a comparison of the total cumulative stockholder return for our common stock from October 11,2012 through December 31, 2015 to two indices: the NASDAQ Composite Index and the NASDAQ Biotechnology Index. The graphassumes an initial investment of $100 on October 10, 2012 in our common stock, the stocks comprising the NASDAQ CompositeIndex, and the stocks comprising the NASDAQ Biotechnology Index and it assumes the reinvestment of dividends, if any. Historicalstockholder return is not necessarily indicative of the performance to be expected for any future periods.75  TABLE OF CONTENTSComparison of Cumulative Total Return* Among Intercept Pharmaceuticals, Inc., the NASDAQ Composite Index and the NASDAQ Biotechnology Index*$100 invested on 10/10/2012 in stock or index. Fiscal Year ending December 31, 2015.The performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating byreference this Form 10-K into any filing under the Securities Act of 1933, as amended, or Securities Act, or the Securities ExchangeAct of 1934, as amended, or Exchange Act, except to the extent that we specifically incorporate such information by reference, andshall not otherwise be deemed filed under such acts.Dividend PolicyWe have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends onour common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the developmentand expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and willdepend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions,restrictions imposed by applicable law and other factors our board of directors deems relevant.Equity Compensation PlansThe information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item12 of Part III of this Annual Report.Recent Sales of Unregistered SecuritiesExcept as previously disclosed in our Quarterly Reports during 2015, we did not sell any securities that were not registered underthe Securities Act.Issuer Purchases of Equity SecuritiesWe did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K.76  TABLE OF CONTENTSItem 6.Selected Financial DataThe selected financial data set forth below is derived from our audited consolidated financial statements. The following selectedconsolidated financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this Annual Reporton Form 10-K. The selected financial data in this section are not intended to replace our consolidated financial statements and therelated notes. Our historical results are not necessarily indicative of our future results. Years Ended December 31, 2015 2014 2013 2012 2011 (in thousands, except share and per share data)Statement of Operations Data: Licensing revenues $2,782 $1,742 $1,622 $2,446 $1,805 Operating expenses: Research and development 128,193 80,311 27,941 16,183 11,426 General and administrative 103,745 34,601 13,132 5,177 4,209 Total operating expenses 231,938 114,912 41,073 21,360 15,635 Loss from operations (229,156) (113,170) (39,451) (18,914) (13,830) Total other income (expense), net 2,727 (170,056) (28,341) (24,729) 1,093 Net loss $(226,429) $(283,226) $(67,792) $(43,643) $(12,737) Dividend on preferred stock, not declared — — — (2,630) (3,000) Net loss attributable to commonstockholders $(226,429) $(283,226) $(67,792) $(46,273) $(15,737) Net loss per share, basic and diluted $(9.56) $(13.63) $(3.76) $(7.36) $(4.73) Weighted average shares outstanding, basicand diluted 23,694,244 20,784,438 18,028,731 6,283,238 3,329,666 December 31, 2015 2014 2013 2012 2011 (in thousands)Balance Sheet Data: Cash, cash equivalents and short-terminvestments $628,056 $239,724 $144,832 $110,194 $17,707 Total assets 655,758 254,149 150,319 112,179 19,470 Accounts payable, accrued expenses andother liabilities 45,591 13,459 7,260 3,746 1,504 Warrant liability — — 50,112 30,359 5,836 Deferred revenue 8,017 9,799 10,541 12,162 14,608 Common and preferred stock 24 21 19 17 31 Additional paid-in capital 1,300,008 700,355 268,302 184,100 72,134 Accumulated deficit (695,630) (469,202) (185,976) (118,183) (74,540) Total stockholders’ equity (deficit) 602,149 230,891 82,406 65,912 (2,560) 77  TABLE OF CONTENTSItem 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operations together with ourconsolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historicalinformation, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Ouractual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. Wediscuss factors that we believe could cause or contribute to these differences below and elsewhere in this Annual Report on Form 10-K, including those set forth under Item 1A. “Risk Factors” and under “Forward-Looking Statements” in this Annual Report on Form10-K.OverviewWe are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat non-viral,progressive liver diseases. Our product candidates have the potential to treat orphan and more prevalent liver diseases for which therecurrently are limited therapeutic solutions.Our lead product candidate, obeticholic acid, or OCA, is a bile acid analog, a chemical substance that has a structure based on anaturally occurring human bile acid, that selectively binds to and activates the farnesoid X receptor, or FXR, which we believe hasbroad liver-protective properties. OCA has been tested in five placebo-controlled clinical trials, including a Phase 3 clinical trial inpatients with primary biliary cirrhosis, recently renamed primary biliary cholangitis, or PBC, and two Phase 2 clinical trials in patientswith nonalcoholic fatty liver disease, or NAFLD, and nonalcoholic steatohepatitis, or NASH. OCA met the primary efficacy endpointin each of these trials with statistical significance. In addition, in October 2015, we announced results from a Phase 2 dose ranging trialof OCA in 200 patients with NASH in Japan conducted by our collaborator, Sumitomo Dainippon Pharma Co., Ltd., or SumitomoDainippon.In January 2015, OCA received breakthrough therapy designation from the U.S. Food and Drug Administration, or FDA, for thetreatment of NASH patients with liver fibrosis. OCA has also been granted fast track designation by the FDA for the treatment ofpatients with PBC who have an inadequate response to or are intolerant of ursodiol. OCA has received orphan drug designation in theUnited States and the European Union for the treatment of PBC and primary sclerosing cholangitis, or PSC.Our most advanced development program for OCA is for PBC as a second line treatment for patients who have an inadequateresponse to or who are unable to tolerate standard of care therapy and therefore need additional treatment. PBC is a chronicautoimmune liver disease that, if inadequately treated, may eventually lead to cirrhosis, liver failure and death. In March 2014, wecompleted a Phase 3 clinical trial, known as the POISE trial, in which OCA achieved the primary endpoint for the treatment of PBC.We intend to use these results, along with two previously completed randomized Phase 2 clinical trials of OCA in PBC, as the basisfor seeking the first regulatory approvals to market OCA in the United States, Europe, Australia and Canada.In June 2015, we completed our filings for marketing approval of OCA in PBC in the United States under the FDA’s acceleratedapproval pathway. In August 2015, the FDA accepted our New Drug Application, or NDA, for filing and granted Priority Review forOCA for the treatment of PBC. The FDA set a target date of May 29, 2016 to take action under the Prescription Drug User Fee Act, orPDUFA, after giving effect to a 90 day extension. The FDA has also publicly announced a planned advisory committee meeting dateof April 7, 2016. If we receive marketing approval from the FDA on the PDUFA date, we plan to initiate the commercial launch ofOCA in PBC in the United States in June 2016.In June 2015, we also received notice of the acceptance of the Marketing Authorization Application, or MAA, for review by theEuropean Medicines Agency, or EMA, for use of OCA in PBC. If we are successful in the EMA review process, we anticipatereceiving marketing approval in late 2016, with planned commercial launches thereafter in certain European countries. We also plan toapply for marketing approval of OCA in PBC in other markets across the world such as Australia and Canada.OCA achieved the primary endpoint in a Phase 2b clinical trial for the treatment of NASH, known as the FLINT trial, which wassponsored by the U.S. National Institute of Diabetes and Digestive and Kidney Diseases, or NIDDK, a part of the National Institutes ofHealth. The FLINT trial was completed in late July 2014. We initiated our Phase 3 clinical trial in non-cirrhotic NASH patients withliver fibrosis, known as78  TABLE OF CONTENTSthe REGENERATE trial, in September 2015. In December 2015, we initiated a Phase 2 clinical trial, known as the CONTROL trial, tocharacterize the lipid metabolic effects of OCA and cholesterol management effects of concomitant statin administration in NASHpatients.In addition to PBC and NASH, we plan to continue our research on OCA in patient populations suffering from other liver diseases,as we believe that FXR has broad therapeutic potential. In December 2014, we initiated an international Phase 2 clinical trial, knownas the AESOP trial, in patients with PSC to evaluate the effects of 24 weeks of treatment with varying doses of OCA compared toplacebo. In October 2015, we initiated a Phase 2 clinical trial, known as the CARE trial, of OCA in pediatric patients with biliaryatresia. This trial will evaluate the effects of 11 weeks of OCA treatment where patients with biliary atresia will be randomized tovarying doses of OCA or a control group receiving only their current treatment. As part of our development program, in November2015, we initiated a Phase 1 clinical trial of our second product candidate to enter clinical development, called INT-767, a dual FXRand TGR5 agonist, in healthy volunteers. We are currently evaluating our future development strategy for OCA in other indications,for INT-767 and for our pre-clinical candidates.Our net losses were approximately $226.4 million, $283.2 million and $67.8 million for the years ended December 31, 2015, 2014and 2013, respectively. As of December 31, 2015, we had an accumulated deficit of approximately $695.6 million. Substantially allour net losses resulted from costs incurred in connection with our research and development programs and from general andadministrative costs associated with our operations and from the mark-to-market of our previously outstanding liability-classifiedwarrants.We have devoted substantially all of our resources to our development efforts relating to our product candidates, includingexpansion of our clinical, regulatory and medical affairs infrastructure, conducting clinical trials of our product candidates, expansionof our manufacturing activities, providing general and administrative support for our operations, engaging in pre-commercializationactivities and building our commercial infrastructure and protecting our intellectual property. We do not have any products approvedfor sale and have not generated any revenue from product sales. From our inception until December 31, 2015, we have funded ouroperations primarily through the private and public sales of preferred stock, common stock, convertible notes and warrants to purchasecommon stock and payments received under our collaboration agreements totaling $623.2 million (net of issuance costs of $33.7million). In February 2015, we completed a public offering of 1,150,000 shares of our common stock pursuant to a registrationstatement on Form S-3. After underwriting discounts and commissions and offering expenses, we received net proceeds ofapproximately $191.6 million. In April 2015, we completed a public offering of 1,330,865 shares of its common stock pursuant to aregistration statement on Form S-3. After underwriting discounts and commissions and offering expenses, we received net proceeds ofapproximately $367.1 million.We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Weanticipate that our expenses will increase substantially as we:•complete the development of our lead product candidate, OCA, for the treatment of PBC, and continue the development ofOCA in NASH, PSC and other patient populations;•seek to obtain regulatory approvals for OCA for PBC, NASH, PSC and other potential patient populations;•prepare for the potential commercialization of OCA in PBC, including enhancing our sales, marketing and distributioncapabilities and increasing our drug manufacturing activities;•continue development of our other product candidates, such as INT-767, and engage in other research and developmentactivities;•maintain, expand and protect our intellectual property portfolio;•increase our product development, scientific, commercial and administrative personnel and expand our facilities andoperations in the United States and abroad; and•operate as a public company.79  TABLE OF CONTENTSWe do not expect to generate revenue from product sales unless and until we successfully complete development and obtainmarketing approval for one or more of our product candidates, which is subject to significant uncertainty. Even if we receivemarketing approvals for OCA in PBC and commence our commercial launch, we do not expect to generate significant revenues inPBC in 2016. Accordingly, we anticipate that we will need to raise additional capital to commercialize OCA on a worldwide basis andcontinue our research and development activities in relation to OCA and our other pipeline candidates. Until such time, if ever, as wecan generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equityofferings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations,strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such otherarrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and whenneeded would have a negative impact on our financial condition and our ability to develop our product candidates.Our principal executive offices are in New York, New York. We also have administrative offices in San Diego, California andLondon, United Kingdom.Financial OverviewRevenueTo date, we have not generated any revenue from the sale of products. If we are successful with our regulatory approval processfor OCA in PBC, we expect to generate sales revenue starting in June 2016 in the United States and in 2017 in certain Europeancountries. We do not expect to generate any meaningful sales revenues until 2017 at the earliest.All of our revenue has been derived from our collaborative agreements for the development and commercialization of certain ofour product candidates. We have entered into an exclusive licensing agreement with Sumitomo Dainippon for the development ofOCA in Japan, China and Korea. Under the terms of the agreement, we have received up-front payments of $16.0 million, including$1.0 million upon the exercise by Sumitomo Dainippon of its option to add Korea to its licensed territories, and may be eligible toreceive up to approximately $300 million in additional payments for development, regulatory and commercial sales milestones forOCA in the licensed territories. As of December 31, 2015, we have achieved $1.0 million of the development milestones.For accounting purposes, the up-front payments are recorded as deferred revenue and amortized over time and milestone paymentsare recognized once earned. We recognized $2.8 million, $1.7 million and $1.6 million in license revenue for the years endedDecember 31, 2015, 2014 and 2013 respectively. For the year ended December 31, 2015, $1.8 million resulted from the amortizationof the up-front payments under the collaboration agreement and $1.0 million resulted from the milestone achieved in the period. All ofthe revenue recognized in the years ended December 31, 2014 and 2013 related to the amortization of the up-front payments under thecollaboration agreement. We anticipate that we will recognize revenue of approximately $1.8 million per year through 2020, for theamortization of the relevant up-front collaboration payments from Sumitomo Dainippon. We did not receive any milestone paymentsduring 2012, 2013 or 2014 related to our collaboration agreements. In the future, we may generate revenue from a combination oflicense fees and other up-front payments, research and development payments, milestone payments, product sales and royalties inconnection with our collaborations. We expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of thetiming of our achievement of preclinical, clinical, regulatory and commercialization milestones, if at all, the timing and amount ofpayments relating to such milestones and the extent to which any of our products are approved and successfully commercialized by usor our collaboration partners. If our collaboration partners fail to develop product candidates in a timely manner or obtain regulatoryapproval for them, our ability to generate future revenues, and our results of operations and financial position would be adverselyaffected.80  TABLE OF CONTENTSResearch and Development ExpensesSince our inception, we have focused our resources on our research and development activities, including conducting preclinicalstudies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. Werecognize research and development expenses as they are incurred. Our research and development expenses consist primarily of directcosts, personnel costs and indirect costs such as the following:Direct costs:•fees paid to consultants and clinical research organizations, or CROs, including in connection with our preclinical andclinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work,clinical trial database management, clinical trial material management and statistical compilation and analysis;•costs related to activities associated with acquiring and manufacturing OCA;•costs associated with discovery and early stage research initiatives; and•costs related to compliance with regulatory requirements.Personnel costs:•salaries and related benefit expenses for personnel in research and development functions; and•costs related to stock compensation granted to personnel in research and development functions.Indirect costs:•rent and other facilities-related costs; and•product-related legal costs.We plan to increase our research and development expenses for the foreseeable future as we continue the development of OCA forthe treatment of PBC, NASH and PSC and other indications and to further advance the development of our other product candidates,subject to the availability of additional funding.The table below summarizes our direct research and development expenses by program for the periods indicated. We do notallocate personnel and indirect costs related to our research and development function to specific product candidates. Those expensesare included in personnel costs and indirect research and development expense in the table below. Years Ended December 31, 2015 2014 2013 (in thousands)Direct research and development expense by program: OCA $58,906 $51,316 $16,467 Research and discovery initiatives 6,043 — — INT-767 6,265 1,527 534 INT-777 — — 49 Total direct research and development expense 71,214 52,843 17,050 Personnel costs 48,057 23,525 9,852 Indirect research and development expense 8,922 3,943 1,039 Total research and development expense $128,193 $80,311 $27,941 Personnel costs include stock-based compensation expense associated with stock options, restricted stock units, or RSUs, andrestricted stock awards, or RSAs, granted to employees and non-employees of $17.9 million, $11.7 million and $4.7 million for theyears ended December 31, 2015, 2014 and 2013, respectively. For the year ended December 31, 2015, we had a net increase of 66research and development personnel in support of our expansion in activities.81  TABLE OF CONTENTSThe successful development of our clinical and preclinical product candidates is highly uncertain. At this time, we cannotreasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development ofany of our clinical or preclinical product candidates or the period, if any, in which material net cash inflows from these productcandidates, including OCA, may commence. This is due to the numerous risks and uncertainties associated with developing drugs,including the uncertainty of:•the scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research anddevelopment activities;•future clinical trial results; and•the timing and receipt of any regulatory approvals.A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significantchange in the costs and timing associated with the development of that product candidate. For example, if the FDA or anotherregulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for thecompletion of clinical development of a product candidate or if we experience significant delays in any of our clinical trials, we couldbe required to expend significant additional financial resources and time on the completion of clinical development. We may also facedelays in the regulatory review process, as we did with OCA in PBC where the target date for the FDA to take action under PDUFA,was extended from February 29, 2016 until May 29, 2016.OCADuring 2015, the majority of our research and development resources were focused on completing our NDA and MAA filings forOCA for the treatment of PBC, which were completed during June 2015. In August 2015, the FDA accepted our NDA for filing andgranted priority review for OCA for the treatment of PBC. The FDA set a target date of May 29, 2016 to take action under PDUFA,after giving effect to a 90 day extension. The FDA has also publicly announced a planned advisory committee meeting date of April 7,2016. In addition to the review by the FDA, we are undergoing our regulatory review process with the EMA.In relation to OCA, we have incurred and expect to continue to incur significant expenses in connection with these efforts,including:•Continuing the long-term safety extension phase of our Phase 3 POISE trial of OCA in PBC potentially through 2019.•Continuing our COBALT clinical outcomes confirmatory trial for OCA in PBC which we expect to complete on apostmarketing basis.•Contracting with third-party manufacturers to increase OCA manufacturing activities, including investing in supply chain andproduct development, preparing for our PBC commercial launch and planning for the continuation of our clinical program inNASH, and working to secure second manufacturers as part of our strategy to secure more than one approved supplier of OCAin the future. We are building commercial supplies, including supplies of the starting material for manufacturing OCA.•Contracting with and planning to engage a number of consultants and other third party vendors in relation to our seeking ofregulatory approval and implementing various electronic software and systems in relation to our regulatory activities.In addition, we are evaluating OCA in non-viral, progressive liver diseases other than PBC, particularly NASH, PSC and biliaryatresia. We initiated our Phase 3 REGENERATE trial in non-cirrhotic NASH patients with liver fibrosis in September 2015, the Phase2 CONTROL trial to characterize the lipid metabolic effects of OCA and cholesterol management effects of concomitant statinadministration in NASH patients in December 2015, the Phase 2 AESOP trial of OCA in patients with PSC in December 2014, and thePhase 282  TABLE OF CONTENTSCARE trial of OCA in patients with biliary atresia in October 2015. As a result, we expect that our expenditures in connection withour NASH, PSC and biliary atresia programs will increase significantly in future periods.INT-767 and INT-777We intend to continue to develop INT-767 (a dual FXR/TGR5 agonist) and INT-777 (a selective TGR5 agonist). We initiated aPhase 1 clinical trial of INT-767 in healthy volunteers in November 2015. We also intend to conduct additional preclinical work onINT-777 to further characterize its therapeutic potential and to invest in product development in anticipation of further clinical trials.Other than OCA, our product development programs are at an early stage, and successful development of OCA and our futureproduct candidates from these programs is highly uncertain and may not result in approved products. Completion dates and completioncosts can vary significantly for each future product candidate and are difficult to predict. We anticipate we will make determinations asto which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability tomaintain or enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinicalsuccess of each future product candidate, as well as ongoing assessments as to each future product candidate’s commercial potential.We will need to raise additional capital and may seek additional strategic alliances in the future in order to advance our variousprograms.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries and related costs for employees in executive and operationalfunctions, including sales and marketing, finance, information technology, legal and human resources. Other significant general andadministrative expenses include stock-based compensation expenses, expenses related to our OCA pre-commercialization activities,facilities costs, and other expense of operating as a public company.Our general and administrative expenses have increased and will continue to increase as we operate as a public company and dueto the potential commercialization of our product candidates. We further plan on expanding our operations both in the United Statesand Europe, which will increase our general and administration expenses. We believe that these activities will result in increased costsrelated to the hiring of significant additional personnel, increased fees for outside consultants, lawyers and accountants and theaddition of facilities. We have also incurred and may continue to incur increased costs to comply with corporate governance, internalcontrols and similar requirements applicable to public companies with expanding operations and biopharmaceutical companiesseeking to commercialize its product candidates.Other Income, NetOther income, net primarily consists of interest income earned on our cash, cash equivalents and investment securities, offset bymanagement fees, capital base, franchise and real estate taxes.Revaluation of WarrantsIn conjunction with various financing transactions prior to our initial public offering, we issued warrants to purchase shares of ourcommon stock. As of December 31, 2014, all of the warrants were exercised or expired in accordance with their terms. Certain of thewarrants that were outstanding during 2014 included a provision that provided for a reduction in the warrant exercise price uponsubsequent issuances of additional shares of common stock for consideration per share less than the applicable per share warrantexercise price. The warrants containing this provision were deemed to be derivative instruments and as such, were recorded as aliability and marked-to-market at each reporting period. The fair value estimates of these warrants were determined using a Black-Scholes option-pricing model and were based, in part, on subjective assumptions. Non-cash changes in the fair value of the commonstock warrant liability from the prior period were recorded as a component of other income and expense for the years ended December31, 2014 and 2013.Critical Accounting Policies and EstimatesOur management’s discussion and analysis of our financial condition and results of operations is based on our consolidatedfinancial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, orGAAP. The preparation of these consolidated financial83  TABLE OF CONTENTSstatements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during thereporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience andon various other factors that we believe are reasonable under the circumstances, the results of which form the basis for makingjudgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results maydiffer from these estimates under different assumptions or conditions.While our significant accounting policies are more fully described in note 3 to our consolidated financial statements appearingelsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical for fullyunderstanding and evaluating our financial condition and results of operations.Revenue RecognitionWe recognize revenue when the following criteria are met: persuasive evidence that an arrangement exists, services have beenrendered, the price is fixed or determinable and collectability is reasonably assured.We have entered into collaboration agreements with Sumitomo Dainippon and other collaborators. The terms of these agreementsinclude nonrefundable up-front licensing fees, in addition to potential milestone payments and royalties on any future product salesdeveloped by the collaborators under our licenses. We assess these multiple elements in order to determine whether particularcomponents of the arrangement represent separate units of accounting.We recognize up-front license payments as revenue upon delivery of the license only if the license has stand-alone value. Theunderlying performance obligations are accounted for separately as the obligations are fulfilled. If the license is considered as nothaving stand-alone value, the arrangement is accounted for as a single unit of accounting and the license payments and payments forperformance obligations are recognized as revenue over the estimated period of when the performance obligations are performed.Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we determine the period overwhich the performance obligations will be performed and revenue will be recognized. If we cannot reasonably estimate the timing andthe level of effort to complete our performance obligations under the arrangement, then we recognize revenue under the arrangementon a straight-line basis over the period that we expect to complete our performance obligations.Our collaboration agreements also provide for potential milestone payments to us. As of December 31, 2015, we achieved $1.0million of the development milestones under our collaboration agreement with Sumitomo Dainippon. Revenues from milestonepayments, if they are non-refundable and considered substantive, are recognized upon successful accomplishment of the milestones. Ifmilestones are not considered substantive, milestone payments are initially deferred and recognized over the remaining performanceobligation.To date, we have not received any royalty payments and accordingly have not recognized any related revenue. We will recognizeroyalty revenue upon the sale of the related products, provided we have no remaining performance obligations under the arrangement.We record deferred revenue when payments are received in advance of the culmination of the earnings process. This revenue isrecognized in future periods when the applicable revenue recognition criteria have been met.Valuation of Stock-Based Compensation and Warrant LiabilityStock-Based CompensationWe record the fair value of stock options, restricted stock units, or RSUs, and restricted stock awards, or RSAs, issued toemployees as of the grant date as compensation expense. We recognize compensation expense over the requisite service period, whichis the vesting period. For non-employees, we also record stock options, RSUs and RSAs at their fair value as of the grant date. Wethen periodically re-measure the awards84  TABLE OF CONTENTSto reflect the current fair value at each reporting period until the non-employee completes the performance obligation or the date onwhich a performance commitment is reached. Expense is recognized over the related service period.Stock-based compensation expense has been reported in our statements of operations as follows: Years Ended December 31, 2015 2014 2013 (in thousands)General and administrative $16,223 $8,418 $4,723 Research and development 17,966 11,709 4,723 Total stock-based compensation $34,189 $20,127 $9,446 We calculate the fair value of stock-options using the Black-Scholes option-pricing model. The Black-Scholes option-pricingmodel requires the use of assumptions, including stock price volatility, the expected life of stock options, risk free interest rate and thefair value of the underlying common stock on the date of grant. Our key assumptions are:•The expected volatility was estimated based upon the historical volatility information of peer companies for each respectivereporting period. We calculated expected volatility based on reported data for selected reasonably similar publicly tradedcompanies for which the historical information is available. For the purpose of identifying peer companies, we considercharacteristics such as industry, length of trading history, similar vesting terms and in-the-money option status.•The assumed dividend yield is based on our expectation of not paying dividends for the foreseeable future.•We determine the average expected life of stock options based on the simplified method in accordance with the Securities andExchange Commission Staff Accounting Bulletin Nos. 107 and 110. We expect to use the simplified method until we havesufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.•We determine the risk-free interest rate by reference to implied yields available from U.S. Treasury securities with a remainingterm equal to the expected life assumed at the date of grant.•We estimate forfeitures based on our historical analysis of actual stock option forfeitures.We expect the impact of stock-based compensation to grow in future periods due to the potential increases in the value of ourcommon stock, increased headcount and additional stock option and other equity grants.We are required to estimate the level of forfeitures expected to occur and record compensation expense only for those awards thatwe ultimately expect will vest. For 2015, 2014 and 2013, we used a forfeiture rate of five percent. There were no significant forfeituresthrough December 31, 2015.85  TABLE OF CONTENTSResults of OperationsComparison of the Years Ended December 31, 2015 and 2014The following table summarizes our results of operations for the years ended December 31, 2015 and 2014, together with thechanges in those items in dollars and as a percentage: Years Ended December 31, Dollar Change % Change 2015 2014 (in thousands) Licensing revenue $2,782 $1,742 $1,040 60% Operating expenses: Research and development 128,193 80,311 47,882 60% General and administrative 103,745 34,601 69,144 200% Loss from operations (229,156) (113,170) (115,986) 102% Warrant revaluation expense — (170,832) 170,832 (100)% Other income, net 2,727 776 1,951 251% Net loss $(226,429) $(283,226) $56,797 (20)% Licensing RevenueLicensing revenue was $2.8 million and $1.7 million for the years ended December 31, 2015 and 2014, respectively. For yearsended December 31, 2015, $1.8 million resulted from the amortization of the up-front payments under the collaboration agreementwith Sumitomo Dainippon and $1.0 million resulted from the development milestone achieved in the period. All of the revenuerecognized in the year ended December 31, 2014 related to the amortization of the up-front payments under the collaborationagreement.Research and Development ExpensesResearch and development expenses were $128.2 million and $80.3 million for the years ended December 31, 2015 and 2014,respectively. The net increase in research and development expenses was $47.9 million. This increase in research and developmentexpense primarily reflects:•additional personnel on our development team to manage the increased activities around our OCA development program,resulting in increased compensation and related benefits costs of approximately $18.4 million;•increased OCA regulatory expenses, research expenses and clinical development-related expenses of approximately $7.5million;•increased stock-based compensation expense of approximately $6.2 million;•increased expenses related to our preclinical programs of approximately $6.0 million;•increased indirect expenses of approximately $5.1 million; and•increased expenses of approximately $4.7 million associated with our INT-767 program.General and Administrative ExpensesGeneral and administrative expenses were $103.7 million and $34.6 million for the years ended December 31, 2015 and 2014,respectively. The increase in general and administrative expenses of $69.1 million was primarily due to:•increased expenses of approximately $34.4 million related to pre-commercialization activities, which include marketing andpublic relations;•additional personnel to manage our increased operational activities, resulting in increased compensation and related benefitcosts of approximately $19.7 million;•increased stock-based compensation expense of approximately $7.8 million; and•increased operating costs such as legal, facilities and technology-related expenses of approximately $7.2 million.86  TABLE OF CONTENTSWarrant Revaluation ExpenseOur previously outstanding warrants were deemed to be derivative instruments that required liability classification and mark-to-market accounting. As such, at the end of each period, the fair values of the warrants were determined using a Black-Scholes option-pricing model, resulting in the recognition of losses of $170.8 million for the year ended December 31, 2014. These fluctuations invalue were primarily due to the increase in the price of the common stock underlying the warrants offset by declines in the estimatedlife of the warrants and the changes in volatility of the shares of common stock underlying the warrants.Other Income, NetOther income, net was primarily attributable to interest income earned on cash, cash equivalents and investment securities, whichincreased compared to the prior year period as a result of the increase in the investment balances from our April 2014, February 2015,and April 2015 equity financings, offset primarily by the increases in cash used in operations.Comparison of the Years Ended December 31, 2014 and 2013The following table summarizes our results of operations for the years ended December 31, 2014 and 2013, together with thechanges in those items in dollars and as a percentage: Years Ended December 31, Dollar Change % Change 2014 2013 (in thousands) Licensing revenue $1,742 $1,622 $120 7% Operating expenses: Research and development 80,311 27,941 52,370 187% General and administrative 34,601 13,132 21,469 163% Loss from operations (113,170) (39,451) (73,719) 187% Warrant revaluation expense (170,832) (28,441) (142,391) 501% Other income, net 776 100 676 676% Net loss $(283,226) $(67,792) $(215,434) 318% Licensing RevenueFor the years ended December 31, 2014 and 2013, we recorded a total of $1.7 million and $1.6 million respectively, of licensingrevenue, consisting of the up-front payments from our collaboration agreements with Sumitomo Dainippon.Research and Development ExpensesResearch and development expenses were $80.3 million and $27.9 million for the years ended December 31, 2014 and 2013,respectively. The net increase in research and development expenses was $52.4 million. This increase in research and developmentexpense primarily reflects:•increased direct clinical trial costs for OCA of approximately $22.9 million;•additional personnel on our development team to manage the increased activities around our OCA development program,resulting in increased compensation and related benefits costs of approximately $6.7 million;•increased non-cash stock-based compensation expense of approximately $7.0 million;•increased OCA manufacturing activities of approximately $6.4 million to support our commercial scale manufacturing andinvestment in clinical trial materials;87  TABLE OF CONTENTS•increased regulatory-related expenses, research-related expenses and clinical development-related expenses of approximately$5.5 million; and•increased expenses related to our research and preclinical programs of approximately $3.9 million.General and Administrative ExpensesGeneral and administrative expenses were $34.6 million and $13.1 million for the years ended December 31, 2014 and 2013,respectively. The increase in general and administrative expenses of $21.5 million was mainly due to:•increased expenses related to pre-commercialization activities of approximately $6.8 million;•additional personnel to manage our increased operational activities, resulting in increased compensation and related benefitcosts of approximately $5.8 million;•increased operating costs such as legal, facilities and technology-related expenses of approximately $5.1 million; and•increased non-cash stock-based compensation expense of approximately $3.7 million.Warrant Revaluation ExpenseOur previously outstanding warrants were deemed to be derivative instruments that required liability classification and mark-to-market accounting. As such, at the end of each period, the fair values of the warrants were determined using a Black-Scholes option-pricing model, resulting in the recognition of losses of $170.8 million and $28.4 million for the years ended December 31, 2014 and2013, respectively. These fluctuations in value were primarily due to the increase in the price of the common stock underlying thewarrants offset by declines in the estimated life of the warrants and the changes in volatility of the shares of common stock underlyingthe warrants.Liquidity and Capital ResourcesSources of LiquidityAs of December 31, 2015, we had an accumulated deficit of $695.6 million. We anticipate that we will continue to incur losses forat least the next several years. We expect that our research and development and general and administrative expenses will continue toincrease and, as a result, we will need additional capital to fund our operations, which we may seek to obtain through a combination ofequity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and othercollaborations, strategic alliances and licensing arrangements.We have funded our operations primarily through the sale of common stock, preferred stock, convertible notes and warrants andpayments received under our collaboration agreements totaling $623.2 million (net of issuance costs of $33.7 million), including $29.7million in net proceeds from our Series C financing in August 2012, $78.7 million in net proceeds from our initial public offering inOctober 2012, $61.2 million in net proceeds from our follow-on public offering in June 2013, $183.5 million in net proceeds from afollow-on public offering in April 2014, $191.6 million in net proceeds from a follow-on public offering in February 2015, $367.1million in net proceeds from the follow-on offering in April 2015 and the receipt of $17.4 million in up-front payments under ourlicensing and collaboration agreements with Sumitomo Dainippon and Servier. As of December 31, 2015, we had cash, cashequivalents and investment securities of $628.1 million. Cash in excess of immediate requirements is invested in accordance with ourinvestment policy, primarily with a view to liquidity and capital preservation. Currently, our funds are held in cash and money marketbank accounts and investments, all of which have maturities of less than two years.88  TABLE OF CONTENTSCash FlowsThe following table sets forth the significant sources and uses of cash for the periods set forth below: Years Ended December 31, 2015 2014 2013 (in thousands)Net cash provided by (used in): Operating activities $(162,902) $(87,738) $(28,006) Investing activities (389,472) (96,585) (70,214) Financing activities 565,469 190,983 66,072 Effect of exchange rate changes (376) — — Net increase (decrease) in cash and cash equivalents $12,719 $6,660 $(32,148) Operating Activities . Net cash used in operating activities of $163.0 million for the year ended December 31, 2015 was primarilya result of our $226.4 million net loss and net changes in operating assets and liabilities of $22.5 million, $34.2 million for stock-basedcompensation, $1.7 million for depreciation and the amortization of investment premium of $6.3 million.Net cash used in operating activities of $87.7 million for the year ended December 31, 2014 was primarily a result of our $283.2million net loss and net changes in operating assets and liabilities of $699,000 offset by the add-back of non-cash expense of $170.8million for warrant liability revaluation, $20.1 million for stock-based compensation, $443,000 for depreciation and the amortizationof interest premium of $3.4 million.Net cash used in operating activities of $28.0 million for the year ended December 31, 2013 was primarily a result of our $67.8million net loss and net changes in operating assets and liabilities of $200,000 offset by the add-back of non-cash expense of $28.4million for warrant liability revaluation, $9.4 million for stock-based compensation, $106,000 for depreciation and the amortization ofinterest premium of $1.6 million.Investing Activities . For the year ended December 31, 2015, net cash used in investing activities primarily reflects the netinvestment of the proceeds from the February 2015 public offering of $191.6 million and the April 2015 public offering of $367.1million, offset by expenditures for leasehold improvements of $5.9 million primarily for our King’s Cross, London facility and theexpansion of our New York headquarters.For the year ended December 31, 2014, net cash used in investing activities reflects the net investment of the proceeds from theApril 2014 public offering of $183.5 million and expenditures for leasehold improvements of $4.6 million as a result of the relocationof our San Diego facility.For the year ended December 31, 2013, net cash used in investing activities reflects the net investment of the proceeds from theJune 2013 public offering of $61.2 million and expenditures for leasehold improvements of $1.6 million as a result of the relocation ofour New York headquarters.Financing Activities . Net cash provided by financing activities in the year ended December 31, 2015 consisted primarily of netproceeds of the February 2015 public offering of $191.6 million and the April 2015 public offering of $367.1 million and $6.7 millionfrom the exercise of options to purchase common stock.Net cash provided by financing activities in the year ended December 31, 2014 consisted primarily of net proceeds of $183.5million from the completion of our April 2014 public offering and $7.5 million from the exercise of options and warrants to purchasecommon stock.Net cash provided by financing activities in the year ended December 31, 2013 consisted primarily of net proceeds of $61.2million from the completion of our June 2013 public offering and $4.8 million from the exercise of options and warrants to purchasecommon stock.Future Funding RequirementsTo date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue fromproduct sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval ofand commercialize OCA or any of our other product89  TABLE OF CONTENTScandidates. Even if we receive marketing approvals for OCA in PBC and commence our commercial launch, we do not expect togenerate significant revenues in PBC in 2016.At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as wecontinue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. In June 2015, wecompleted our filings for marketing approval of OCA in PBC in the United States and Europe. In August 2015, the FDA accepted forreview our NDA and granted priority review for OCA in PBC. The FDA set a target date of May 29, 2016 to take action underPDUFA, after giving effect to a 90 day extension. The FDA has also publicly announced a planned advisory committee meeting dateof April 7, 2016. We are also currently in the regulatory review process with the EMA.We have incurred and expect to incur additional costs associated with operating as a public company and further plan onexpanding our operations in the United States, Europe and in other countries such as Canada and Australia. In addition, subject toobtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for productsales, marketing, manufacturing and distribution. As part of our longer-term strategy, we also anticipate incurring significant expensesin connection with our planned increase in our product development, scientific, commercial and administrative personnel andexpansion of our facilities and infrastructure in the United States and abroad.As of December 31, 2015, we had $628.1 million in cash, cash equivalents and investment securities. Our adjusted operatingexpenses for the year ending December 31, 2015 was below our previously provided guidance of $240 million, driven primarily by thetiming of hiring of personnel, certain clinical trial and related expenses, market and medical research expenses and manufacturingrelated purchases for OCA. We currently project adjusted operating expenses in the range of $360 million to $400 million in the fiscalyear ending December 31, 2016, which excludes stock-based compensation and other non-cash items. These expenses are planned tosupport the continued clinical development program for OCA in PBC, NASH and PSC, increased OCA manufacturing activities, thecontinued development of INT-767 and other preclinical pipeline programs, as well as pre-commercialization activities commercialactivities. We believe that the build out of our U.S. commercial infrastructure is mostly complete with the recent hiring of the U.S.territory business managers and other field personnel in October 2015. We also significantly expanded our commercial and otherinfrastructure internationally in 2015, and plan on making additional investments over 2016 should key regulatory milestones beachieved on a timely basis. Our adjusted operating expense estimate for 2016 is higher than our adjusted operating expenses for 2015reflecting the increase in headcount that occurred in the latter part of 2015 and the anticipated increases in commercialization andresearch and development expenses.Adjusted operating expense is a financial measure not calculated in accordance with U.S. generally accepted accounting principles,or GAAP. We anticipate that stock-based compensation expense will represent the most significant non-cash item that is excluded inadjusted operating expenses as compared to operating expenses under GAAP. See “Non-GAAP Financial Measures” for moreinformation.Due to the many variables inherent to the development and commercialization of novel therapies and our rapid growth andexpansion, we currently cannot accurately and precisely predict the duration beyond 2016 over which we expect our cash and cashequivalents to be sufficient to fund our operating expenses and capital expenditure requirements. However, we currently believe thatour cash and cash equivalents will be sufficient for us to:•continue and expand our clinical development programs for OCA in PBC, NASH and PSC, such as continuing, but notcompleting, our planned Phase 3 clinical program for OCA in NASH, including the REGENERATE trial, our ongoing AESOPtrial for OCA in PSC, and our ongoing COBALT confirmatory clinical outcomes trial of OCA in PBC;•advance the continued development of INT-767, including the completion of a recently initiated Phase 1 clinical trial, and ourpreclinical compounds, but not completing the clinical or preclinical development needed, as the case may be, for INT-767 orour preclinical compounds;90  TABLE OF CONTENTS•increase OCA manufacturing activities, including investing in supply chain and product development, preparing for our PBCcommercial launch and planning for the continuation of our clinical program in NASH, but not manufacture the supply neededfor any potential commercial launch of OCA in NASH;•prepare for and, if we obtain marketing approval on a timely basis, initiate the commercial launch of OCA in PBC in both theUnited States and certain European countries, but not commercially launch OCA in PBC in other countries across the world;and•expand, if necessary, our clinical, regulatory, medical affairs and commercial infrastructure through the time we initiate suchplanned commercial launch of OCA in PBC in both the United States and certain European countries, but not expand suchinfrastructure as may be required in the longer term.Accordingly, we will continue to require substantial additional capital in connection with our continuing operations, includingcontinuing our clinical development and commercialization activities. Because successful development of our product candidates isuncertain, we are unable to estimate the actual funds required to complete the research and development and commercialization of ourproducts under development.The amount and timing of our future funding requirements will depend on many factors, including:•the willingness of the FDA and EMA to accept the POISE trial, which is our completed Phase 3 clinical trial for PBC, as wellas our other clinical and preclinical studies and other work, as the basis for review and marketing approval of OCA for PBC;•the progress, costs, results of and timing of our COBALT confirmatory clinical outcomes trial of OCA for the treatment ofPBC, the completion of which we expect will not be a condition to the receipt of marketing approval in the United States or theEuropean Union;•the progress, costs, results of and timing of the Phase 3 program and other supporting trials and studies necessary to supportanticipated filings for marketing approval in NASH, including the sufficiency of the REGENERATE trial to be accepted as thesole pivotal trial for marketing approval or the acceptability of a surrogate endpoint for accelerated approval of OCA for thetreatment of NASH;•the progress, costs, results of and timing of clinical development of OCA for other indications, including our Phase 2 AESOPtrial of OCA in PSC and our Phase 2 CARE trial of OCA in biliary atresia;•the significant expansion of our operations, personnel and the size of our company and our need to continue to expand in thelonger term;•the outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals;•the number and characteristics of product candidates that we pursue, including INT-767 which is in a Phase 1 clinical trial, andour product candidates in preclinical development such as INT-777;•the ability of our product candidates to progress through preclinical and clinical development successfully and in a timelymanner;•the expansion of our research and development activities;•the costs and timing of commercialization activities, including product sales, marketing and distribution, for any of our productcandidates that receive marketing approval;•the costs associated with securing and establishing manufacturing capabilities and procuring the materials necessary for ourproduct candidates;•market acceptance of our product candidates, which may be affected by the reimbursement that our products receive frompayors;91  TABLE OF CONTENTS•the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;•our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing ofany payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution,defense and enforcement of any patents or other intellectual property rights;•our need and ability to hire and retain additional management, scientific and medical, commercial and other qualifiedpersonnel and the substantial cost of retaining such additional personnel;•the effect of competing technological and market developments;•our need to implement and maintain internal systems, software and infrastructure, including those to assist in our financial andreporting, clinical development and commercialization efforts and to support our personnel and operations as our businessevolves; and•the economic and other terms, timing of and success of our existing licensing arrangements and any collaboration, licensing orother arrangements into which we may enter in the future.We have no committed external sources of funding. Until such time, if ever, as we can generate substantial revenue from productsales, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-partyfunding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To theextent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our commonstockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect therights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restrictingour ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raiseadditional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations,strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, futurerevenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.Contractual Obligations and CommitmentsOur long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal courseof business. The following table summarizes our significant contractual obligations and commercial commitments as of December 31,2015 and the effects such obligations are expected to have on our liquidity and cash flows in future periods: Payments Due By Period Total Less than 1 year 1 – 3 years 3-5 years More than 5years (in thousands)Operating leases $21,329 $3,453 $6,851 $4,443 $6,582 Purchase obligations 20,576 15,143 1,345 1,345 2,743 Total $41,905 $18,596 $8,196 $5,788 $9,325 We lease general and administrative office space in New York, New York, San Diego, California and Kings Cross, UnitedKingdom, pursuant to operating leases that expire in 2024, 2019 and 2024, respectively. In October 2013, we entered into a leaseagreement in New York City for our corporate headquarters, providing 11,124 square feet of space. We leased an additional 9,502square feet in December 2014. The lease for our New York City office will expire in July 2024.In May 2014, we entered into a lease agreement with The Irvine Company LLC for approximately 47,000 square feet in San Diegofor office space. The lease ends in September 2019; however, we have an option to further extend the lease for an additional five yearterm at market rates prevailing at such time.92  TABLE OF CONTENTSIn February 2015, we entered into an underlease with Merck Sharp & Dohme Limited for our new office in the King’s Cross areaof London, United Kingdom. The lease provides us with approximately 6,000 rentable square feet in London for office space. Thelease term is anticipated to end in June 2019.On January 22, 2016, Intercept Pharma Europe Ltd., or IPEL, our wholly owned subsidiary, entered into an underlease withPerforming Right Society, Ltd. for additional office space in the King’s Cross area of London, United Kingdom. We are the guarantorto the underlease. The underlease provides IPEL with an additional 8,549 square feet of space. The lease term is anticipated to end onMay 31, 2024. The annual rent is approximately £0.7 million (or approximately US$1.0 million), payable quarterly. IPEL is alsorequired to pay VAT on the rent. IPEL will be responsible for a portion of the insurance, certain service charges and taxes for thebuilding based on the floor area rented by them. As security for the underlease, IPEL has provided the landlord a rent deposit in anamount equal to 12 months’ rent, plus applicable VAT. The underlease is subject to an “upwards only” open market rent review of thecurrent market rent with review to take place on June 4, 2019.On February 23, 2016, we entered into a sublease with Restoration Hardware, Inc. for additional office space in New York City.The sublease provides us with an additional 10,785 square feet of office space. The lease term is anticipated to end on July 31, 2021.The annual rent is approximately $1.0 million payable monthly. We are also responsible for our proportionate share of increases inoperating expenses beginning January 2017 as well as our proportionate share of increases in real estate taxes over the average of the2015/2016 and 2016/2017 fiscal years. As security for the sublease, we must deliver a letter of credit in the amount of approximately$0.3 million in favor of the sublandlord within forty-five (45) days of execution of the sublease. While the letter of credit is pending,we provided the sublandlord with a temporary security deposit of $75,000 in cash which will be returned to us upon delivery of theletter of credit to the sublandlord.We are a party to license and research and development agreements with universities and other third parties, as well as patentassignment agreements, under which we have obtained rights to patents, patent applications and know-how. We enter into contracts inthe normal course of business with contract research organizations, or CROs, for clinical trials, clinical and commercial supplymanufacturing, with vendors for preclinical research studies and for other services and products for operating purposes. Ouragreements generally provide for termination within 90 days of notice. Such agreements are cancelable contracts and not included inthe table of contractual obligations and commitments. We have included as purchase obligations our commitments under agreementsto the extent they are quantifiable and are not cancelable.Under our agreement with Sumitomo Dainippon, we are required to use our commercially reasonable efforts to develop OCAoutside of the territories in which Sumitomo Dainippon has a license under the agreement. As these amounts are not quantifiable, theyare not included in the table above.Income TaxesNo income tax expense or benefit was recognized in the accompanying consolidated financial statements. Our deferred tax assetsare comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets sincewe have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our inception.Net Operating LossesAs of December 31, 2015 and 2014, we had net operating loss carryforwards, or NOLs, for federal income tax purposes of $454.4million and $221.2 million, respectively, which expire between 2024 and 2035. Our ability to utilize our NOLs may be limited underSection 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. The limitations apply if an “ownershipchange,” as defined by Section 382 of the Internal Revenue Code, occurs. Generally, an ownership change occurs when certainshareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testingperiod (typically three years). We have evaluated whether one or more ownership changes as defined under Section 382 of the InternalRevenue Code have occurred since our inception and have determined that there have been at least two such changes. Although webelieve that these ownership changes have not resulted in material limitations on our ability to use these NOLs, our ability to utilizethese NOLs may be limited due to future ownership changes or for other reasons. Additionally,93  TABLE OF CONTENTStax laws limit the time during which NOLs and certain other tax attributes may be utilized against future taxes. As a result, we may notbe able to take full advantage of our carryforwards for federal, state, and foreign tax purposes.Off-Balance Sheet ArrangementsWe did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined underSecurities and Exchange Commission rules.Recent Accounting PronouncementsIn August 2015, the Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2015-14 Revenue fromContracts with Customers (Topic 606) — Deferral of Effective Date. The FASB decided to defer the effective date of the guidance inUpdate 2014-09 by one year for public business entities. The core principle of the guidance is that an entity should recognized revenueto depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entityexpects to be entitled in exchanges for those goods or services. Public business entities will apply this guidance to annual reportingperiods beginning after December 15, 2017. We are evaluating the implications of this update.In November 2015, the FASB issued Accounting Standards update No. 2015-17 Income Taxes (Topic 740) to simplify thepresentation of deferred income taxes. The update requires that deferred tax liabilities and assets and associated valuation allowance beclassified as noncurrent in a classified statement of financial position. This update is effective for the financial statements issued forannual periods beginning after December 15, 2016 and interim periods within those annual periods. The adoption is not expected tohave an impact on our consolidated financial statements.In January 2016, the FASB issued Accounting Standards Update No. 2016-01 Financials Instruments — Overall (Subtopic 825-10) — Recognition and Measurement of Financial Assets and Financial Liabilities. The objective in the update was to enhance thereporting model for financial instruments to provide users of financial statements with more decision-useful information. Theamendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments.The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods withinthose fiscal years. We are evaluating the implications of this update.Basic and Diluted Net Loss Attributable to Common Stockholders per Share of Common StockOur Series A, B and C preferred stock represented participating securities. However, since we have operated at a loss sinceinception, and losses are not allocated to the preferred stock, the two class method did not affect our calculation of earnings per share.Upon the closing of our initial public offering, all outstanding shares of our preferred stock were converted into an aggregate of7,403,817 shares of common stock.Dilutive common stock equivalents would include the dilutive effect of convertible securities, common stock options, RSUs andwarrants to purchase common stock. Potentially dilutive common stock equivalents totaled approximately 1,541,164 shares, 1,495,254shares and 2,511,287 shares for the years ended December 31, 2015, 2014 and 2013, respectively. Potentially dilutive common stockequivalents were excluded from the diluted earnings per share denominator for all periods because of their anti-dilutive effect.Therefore, the weighted average shares used to calculate both basic and diluted earnings per share are the same.Item 7A.Quantitative and Qualitative Disclosures about Market RiskOur primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interestrates. We currently do not hedge interest rate exposure. Because of the short-term maturities of our cash equivalents and investmentsecurities, we do not believe that an increase in market rates would have any significant impact on the realized value of our investmentsecurities. If a 10% change in interest rates were to have occurred on December 31, 2015, this change would not have had a materialeffect on the fair value of our investment portfolio as of that date.We do not believe that our cash and cash equivalents and available for sale investments have significant risk of default orilliquidity. While we believe our cash, cash equivalents and available for sale investments do94  TABLE OF CONTENTSnot contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adversechanges in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financialinstitutions that are in excess of federally insured limits.We contract with CROs and investigational sites in Europe, Canada and Australia. We are therefore subject to fluctuations inforeign currency rates in connection with these agreements. We do not hedge our foreign currency exchange rate risk.Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had amaterial effect on our results of operations during 2015, 2014 or 2013.Item 8.Financial Statements and Supplementary DataThe financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An indexof those financial statements is found in Item 15.Item 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and proceduresas of December 31, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosedby a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reportsthat it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including itsprincipal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In designingand evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter howwell designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our managementnecessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on theevaluation of our disclosure controls and procedures as of December 31, 2015, our principal executive officer and principal financialofficer concluded that, as of such date, our disclosure controls and procedures were adequate and effective.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting for ourcompany. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as aprocess designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by thecompany’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies andprocedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures ofour company are being made only in accordance with authorizations of management and directors of the company; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our company’s assetsthat could have a material effect on the financial statements.95  TABLE OF CONTENTSInternal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or procedures may deteriorate.Our management, with the participation of our principal executive officer and principal financial officer, assessed the effectivenessof our internal control over financial reporting as of December 31, 2015. In making this assessment, our management used the criteriaset forth in the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on its assessment, management concluded that our internal control over financial reporting waseffective as of December 31, 2015 based on those criteria.Attestation Report of Independent Registered Public Accounting FirmThe effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by KPMG LLP, anindependent registered public accounting firm, as stated in their report which is included in this Annual Report on Form 10-K.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act), identified in connection with the evaluation of such internal control, that occurred during the three months endedDecember 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financialreporting.Item 9B.Other InformationOn February 23, 2016, we entered into a sublease with Restoration Hardware, Inc. for additional office space in New York City.The sublease provides us with an additional 10,785 square feet of office space. The lease term is anticipated to end on July 31, 2021.The annual rent is approximately $1.0 million payable monthly. We are also responsible for our proportionate share of increases inoperating expenses beginning January 2017 as well as our proportionate share of increases in real estate taxes over the average of the2015/2016 and 2016/2017 fiscal years. As security for the sublease, we must deliver a letter of credit in the amount of approximately$0.3 million in favor of the sublandlord within forty-five (45) days of execution of the sublease. While the letter of credit is pending,we provided the sublandlord with a temporary security deposit of $75,000 in cash which will be returned to us upon delivery of theletter of credit to the sublandlord.96  TABLE OF CONTENTSPART IIIItem 10.Directors, Executive Officers and Corporate GovernanceThe information required by this Item 10 is incorporated herein by reference to the information that will be contained in our proxystatement related to the 2016 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commissionwithin 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.Item 11.Executive CompensationThe information required by this Item 11 is incorporated herein by reference to the information that will be contained in our proxystatement related to the 2016 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commissionwithin 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this Item 12 is incorporated herein by reference to the information that will be contained in our proxystatement related to the 2016 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commissionwithin 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by this Item 13 is incorporated herein by reference to the information that will be contained in our proxystatement related to the 2016 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commissionwithin 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.Item 14.Principal Accounting Fees and ServicesThe information required by this Item 14 is incorporated herein by reference to the information that will be contained in our proxystatement related to the 2016 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commissionwithin 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.PART IVItem 15.Exhibits and Financial Statement Schedules(a) The following documents are filed as part of this Annual Report on Form 10-K:(1) Financial Statements: Reports of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statement of Comprehensive Loss F-6 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) F-7 Consolidated Statements of Cash Flows F-8 Notes to Consolidated Financial Statements F-9 (2) Financial Statement Schedules:All financial statement schedules have been omitted because they are not applicable, not required or the information required isshown in the financial statements or the notes thereto.(3) Exhibits. The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediatelyfollowing our consolidated financial statements. The Exhibit Index is incorporated herein by reference.97  TABLE OF CONTENTSSIGNATURESPursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused thisAnnual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.INTERCEPT PHARMACEUTICALS, INC. Date: February 29, 2016 By:/s/ Mark Pruzanski, M.D. Mark Pruzanski President and Chief Executive Officer (Principal Executive Officer)Date: February 29, 2016 By:/s/ Barbara Duncan Barbara Duncan Chief Financial Officer (Principal Financial and Accounting Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by thefollowing persons in the capacities indicated below and on the dates indicated: Signature Title Date/s/ Mark Pruzanski Mark Pruzanski President, Chief Executive Officer and Director(Principal Executive Officer) February 29, 2016/s/ Barbara Duncan Barbara Duncan Chief Financial Officer (Principal Financial andAccounting Officer) February 29, 2016/s/ Paolo Fundaro Paolo Fundaro Chairman of the Board of Directors February 29, 2016/s/ Srinivas Akkaraju Srinivas Akkaraju Director February 29, 2016/s/ Luca Benatti Luca Benatti Director February 29, 2016/s/ Gino Santini Gino Santini Director February 29, 2016/s/ Glenn Sblendorio Glenn Sblendorio Director February 29, 2016/s/ Jonathan Silverstein Jonathan Silverstein Director February 29, 2016/s/ Klaus Veitlinger Klaus Veitlinger Director February 29, 2016/s/ Dan Welch Dan Welch Director February 29, 201698  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2015 and 2014 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013 F-5 Consolidated Statement of Comprehensive Loss for the Years Ended December 31, 2015, 2014 and 2013 F-6 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2015,2014 and 2013 F-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013 F-8 Notes to Consolidated Financial Statements F-9 F-1  TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholders Intercept Pharmaceuticals, Inc.:We have audited the accompanying consolidated balance sheets of Intercept Pharmaceuticals, Inc. and subsidiaries as of December31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, andcash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statementsbased on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for ouropinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionof Intercept Pharmaceuticals, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cashflows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accountingprinciples.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),Intercept Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO), and our report dated February 29, 2016 expressed an unqualified opinion on the effectiveness of Intercept Pharmaceuticals,Inc.’s internal control over financial reporting./s/ KPMG LLP New York, New York February 29, 2016F-2  TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholders Intercept Pharmaceuticals, Inc.:We have audited Intercept Pharmaceuticals, Inc. and subsidiaries’ internal control over financial reporting as of December 31,2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Intercept Pharmaceuticals, Inc. and subsidiaries’ management is responsible formaintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal controlover financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectivenessof internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary inthe circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of theassets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, Intercept Pharmaceuticals, Inc. and subsidiaries maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO).We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of Intercept Pharmaceuticals, Inc. and subsidiaries as of December 31, 2015 and 2014, and the relatedconsolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in thethree-year period ended December 31, 2015 and our report dated February 29, 2016 expressed an unqualified opinion on thoseconsolidated financial statements./s/ KPMG LLP New York, New York February 29, 2016F-3  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. Consolidated Balance Sheets December 31, 2015 2014 (in thousands)Assets Current assets: Cash and cash equivalents $32,742 $20,023 Investment securities, available-for-sale 595,313 219,701 Prepaid expenses and other current assets 13,638 6,104 Total current assets 641,693 245,828 Fixed assets, net 10,047 5,852 Security deposits 4,018 2,469 Total assets $655,758 $254,149 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable, accrued expenses and other liabilities $45,591 $13,459 Short-term portion of deferred revenue 1,782 1,782 Total current liabilities 47,373 15,241 Long-term liabilities: Long-term portion of deferred revenue 6,236 8,017 Total liabilities $53,609 $23,258 Stockholders’ equity: Common stock 35,000,000 shares authorized; 24,391,430, and 21,415,243shares issued and outstanding as of December 31, 2015 and December31, 2014, respectively; par value $0.001 per share 24 21 Additional paid-in capital 1,300,008 700,355 Accumulated other comprehensive loss, net (2,253) (284) Accumulated deficit (695,630) (469,202) Total stockholders’ equity 602,149 230,891 Total liabilities and stockholders’ equity $655,758 $254,149 See accompanying notes to consolidated financial statements.F-4  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. Consolidated Statements of Operations Years Ended December 31, 2015 2014 2013 (in thousands)Licensing revenue $2,782 $1,742 $1,622 Costs and expenses: Research and development 128,193 80,311 27,942 General and administrative 103,745 34,601 13,132 Total costs and expenses 231,938 114,912 41,073 Other income (expense): Revaluation of warrants — (170,832) (28,441) Other income, net 2,727 776 100 2,727 (170,056) (28,341) Net loss $(226,429) $(283,226) $(67,792) Net loss attributable to common stockholders $(226,429) $(283,226) $(67,792) Net loss per share, basic and diluted $(9.56) $(13.63) $(3.76) Weighted average shares outstanding, basic and diluted 23,694 20,784 18,029 See accompanying notes to consolidated financial statements.F-5  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. Consolidated Statements of Comprehensive Loss Years Ended December 31, 2015 2014 2013 (in thousands)Net loss $(226,429) $(283,226) $(67,792) Other comprehensive loss: Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during theperiod (1,628) (369) 81 Reclassification for recognized gains on marketableinvestment securities during the period recognized inother income, net 3 25 — Net unrealized gains (losses) on marketable investmentsecurities $(1,625) $(344) $81 Foreign currency translation adjustments (347) — — Comprehensive loss $(228,401) $(283,570) $(67,711) See accompanying notes to consolidated financial statements.F-6  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. Consolidated Statements of Changes in Stockholders’ Equity For the Years Ended December 31, 2015, 2014, and 2013 (in thousands) Common Stock Additional Paid-in Capital AccumulatedDeficit Accumulated Other Comprehensive Income (Loss) Stockholders’ Equity (Deficit) Shares AmountBalance – December 31, 2012 16,527 $17 $184,100 $(118,183) $(21) $65,912 Stock-based compensation: Directors and employees — — 6,818 — — 6,818 Consultants — — 2,628 — — 2,628 Issuance of common stock from public offering, net ofunderwriting fees and issuance costs 1,990 2 61,167 — — 61,169 Warrants converted to common stock 235 — 8,696 — — 8,696 Net proceeds from exercise of stock options 638 1 4,893 — — 4,894 Other comprehensive income — — — — 81 81 Net loss — — — (67,792) (67,792) Balance – December 31, 2013 19,390 $19 $268,303 $(185,976) $60 $82,406 Stock-based compensation: Directors and employees — — 15,251 — — 15,251 Consultants — — 4,876 — — 4,876 Issuance of common stock from public offering, net ofunderwriting fees and issuance costs 600 1 183,475 — — 183,476 Warrants converted to common stock 835 1 220,943 — — 220,944 Net proceeds from exercise of stock options 591 1 7,507 — — 7,508 Other comprehensive income — — — — (344) (344) Net loss — — — (283,226) — (283,226) Balance – December 31, 2014 21,415 $21 $700,355 $(469,202) $(284) $230,891 Stock-based compensation: Directors and employees — — 29,409 — — 29,409 Consultants — — 4,780 — — 4,780 Issuance of common stock from public offering, net ofunderwriting fees and issuance costs 2,481 2 558,753 — — 558,755 Warrants converted to common stock — — — — — — Net proceeds from exercise of stock options 495 1 6,712 — — 6,713 Other comprehensive income — — — — (1,970) (1,970) Net loss — — — (226,429) — (226,429) Balance – December 31, 2015 24,391 $24 $1,300,008 $(695,630) $(2,253) $602,149 See accompanying notes to consolidated financial statements.F-7  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. Consolidated Statements of Cash Flows Years Ended December 31, 2015 2014 2013 (in thousands)Cash flows from operating activities: Net loss $(226,429) $(283,226) $(67,792) Adjustments to reconcile net loss to net cash used in operatingactivities: Revaluation of warrants — 170,832 28,441 Share-based compensation 34,189 20,127 9,446 Amortization of investment premium 6,302 3,366 1,615 Depreciation 1,691 443 106 Loss on the disposal of property and equipment — 20 — Changes in: Prepaid expenses, other current assets and security deposits (9,091) (4,759) (1,714) Accounts payable, accrued expenses and other currentliabilities 32,218 6,200 3,514 Deferred revenue (1,782) (741) (1,622) Net cash used in operating activities (162,902) (87,738) (28,006) Cash flows from investing activities: Purchases of investment securities (640,709) (204,344) (125,825) Sales of investment securities 257,172 112,402 57,241 Purchases of equipment, leasehold improvements, and furnitureand fixtures (5,935) (4,643) (1,629) Net cash used in investing activities (389,472) (96,585) (70,214) Cash flows from financing activities: Proceeds from issuance of stock offerings, net of issuance costs 558,756 183,475 61,169 Proceeds from exercise of options 6,713 7,508 4,894 Proceeds from exercise of warrants — — 8 Net cash provided by financing activities 565,469 190,983 66,072 Effect of exchange rate changes (376) — — Net increase (decrease) in cash and cash equivalents 12,719 6,660 (32,148) Cash and cash equivalents – beginning of period 20,023 13,363 45,512 Cash and cash equivalents – end of period $32,742 $20,023 $13,363 Supplemental disclosures of non-cash activities: Issuance of common stock for cashless warrant exchange $— $220,944 $8,696 Cash paid during the year for interest $— $— $— See accompanying notes to consolidated financial statements.F-8  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Overview of BusinessIntercept Pharmaceuticals, Inc. (“Intercept” or the “Company”), is a clinical stage biopharmaceutical company focused on thedevelopment and commercialization of novel therapeutics to treat non-viral, progressive liver diseases. The Company’s productcandidates have the potential to treat orphan and more prevalent liver diseases for which there currently are limited therapeuticsolutions. Intercept was incorporated in Delaware in September 2002.The Company has its principal executive offices in New York, New York.2. Basis of PresentationThe Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the UnitedStates of America (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results coulddiffer from those estimates.3. Summary of Significant Accounting PoliciesA. Principles of ConsolidationThe consolidated financial statements include the accounts of Intercept and its wholly owned subsidiaries. All intercompanybalances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investmentsaccounted for under the equity method.B. Cash and Cash EquivalentsThe Company considers all highly liquid securities with a maturity of three months or less at acquisition to be cash equivalents.C. Investment Securities, Available for SaleInvestment securities are considered to be available-for-sale and are carried at fair value. Unrealized gains and losses, if any, arereported in other comprehensive income (loss). The cost of investment securities classified as available-for-sale is adjusted foramortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income.Realized gains and losses, and declines in value judged to be other-than-temporary, if any, are also included in other income, net. Thecost of securities sold is based on the specific identification method. The estimated fair value of the available for sale securities isdetermined based on quoted market prices or rates for similar instruments.D. Fair Value of Financial InstrumentsFinancial instruments, including cash and cash equivalents, receivables, accounts payable and accrued liabilities are carried at costwhich management believes approximates fair value because of the short term maturity of these instruments.E. Risks and UncertaintiesThe Company is subject to risks common to companies in the pharmaceutical industry including failing to secure additionalfunding, uncertainties related to commercialization of products, and regulatory approval.F. Concentration of Credit RiskFinancial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash, cashequivalents and investment securities. The Company currently invests its excess cash primarily in money market funds, U.S. Treasurynotes, and high quality, marketable debt instruments of corporations, financial institutions and government sponsored enterprises. TheCompany has adopted an investment policy that includes guidelines relative to credit quality, diversification and maturities to preserveprincipal and liquidity.F-9  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS3. Summary of Significant Accounting Policies – (continued)G. Fixed AssetsFixed assets are stated at cost, and depreciated over the estimated useful life of the assets. Depreciation is recorded using thestraight-line method over the estimated useful lives of the respective assets, generally three to seven years. Leasehold improvementsare amortized over the shorter of the asset’s useful life or the life of the lease term. Expenditures for maintenance and repairs arecharged to expense as incurred.H. Impairment of Long-Lived AssetsLong-lived assets consist of fixed assets. The Company evaluates long-lived assets for impairment when events and circumstancesindicate that the carrying amount of an asset or group of assets may not be fully recoverable.I. Revenue RecognitionAll of the Company’s revenue during the periods covered by these financial statements has been derived from its research anddevelopment and licensing collaborations. These agreements include non-refundable up-front fees and the potential for research,development, regulatory and commercial milestone fees, as well as royalties on sales of licensed products, if and when such productsales occur. As of December 31, 2015, the Company has received up-front fees from its collaborations as well as developmentmilestone payments.The Company evaluates all deliverables within an arrangement to determine whether they provide value on a stand-alone basis.Based on this evaluation, the deliverables are separated into units of accounting. The arrangement consideration that is fixed anddeterminable at the inception of the arrangement is allocated to the separate units of accounting based on relative fair value. TheCompany may exercise significant judgment in determining whether a deliverable is a separate unit of accounting, as well as inestimating the selling prices of such units of accounting. For each unit of accounting identified within an arrangement, the Companydetermines the period over which the performance obligation occurs and recognizes the revenue using a straight-line method.The Company accounts for the development, regulatory and sales milestones within an arrangement in accordance with themilestone method of revenue recognition. This method allows for the recognition of consideration which is contingent on theachievement of a substantive milestone in its entirety in the period the milestone is achieved. Each future milestone is consideredsubstantive if it (i) relates solely to the past performance of the intellectual property to achieve the milestone; (ii) is reasonable relativeto all of the deliverables and payment terms in the arrangement; and (iii) is commensurate with either the Company’s performance orthe enhanced value of the intellectual property as a result of a specific outcome resulting from the Company’s performance.J. Research and Development ExpensesResearch and development costs that do not have alternative future use are charged to expense as incurred. This includes the costof conducting clinical trials, compensation and related overhead for employees and consultants involved in research and developmentand the cost of the Company’s manufacturing activities to supply ongoing and future clinical trials and preclinical studies as well aspreparations for commercialization of obeticholic acid or OCA.K. Stock-based CompensationThe Company estimates the fair value of stock options using the Black-Scholes option pricing model on the date of the grant.Restricted stock units and restricted stock awards are valued based on the closing price of the Company’s common stock on the date ofthe grant. The fair value of equity instruments expected to vest are recognized and amortized on a straight-line basis over the requisiteservice period of the award. Generally stock options fully vest four years from the grant date and have a term of ten years. TheCompany recognizes stock-based compensation for consultants on a mark — to-market basis which is updated on a quarterly basis.F-10  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS3. Summary of Significant Accounting Policies – (continued)L. Warrants to Purchase Common StockIn conjunction with various financing transactions, the Company issued warrants to purchase the Company’s common stock.Certain of the warrants included a so-called “down round” provision that provided for a reduction in the warrant exercise price if therewere subsequent issuances of additional shares of common stock for consideration per share less than the per share warrant exerciseprices and certain warrants contained a provision that required the underlying shares to be registered upon an initial public offering(IPO). These warrants were deemed to be derivative instruments and as such, were recorded as a liability and were marked-to-marketat each reporting period using the Black-Scholes option pricing model. The Company estimated the fair values of the warrants at eachreporting period using a Black-Scholes option-pricing. Management concluded, under the Company’s facts and circumstances, that theestimated fair values of the warrants using the Black-Scholes option-pricing model approximates, in all material respects, the valuesdetermined using a binomial valuation model. The estimates in the Black-Scholes option-pricing model and the binomial valuationmodel are based, in part, on subjective assumptions, including but not limited to stock price volatility, the expected life of thewarrants, the risk free interest rate and the fair value of the common stock underlying the warrants. Changes in the fair value of thecommon stock warrant liability from the prior period were recorded as a component of other income and expense.M. Net Income (Loss) Per ShareBasic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders (numerator) bythe weighted average number of common shares outstanding (denominator) during the period. Diluted net income (loss) per sharegives effect to all dilutive potential common shares outstanding during the period including stock options, restricted stock units(RSUs) and warrants using the treasury stock method.N. Income TaxesThe Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets andliabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets andliabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. The Companyestablishes a valuation allowance when it believes it is more likely than not that deferred tax assets will not be realized.The Company determines the need for a valuation allowance by assessing the probability of realizing deferred tax assets, takinginto consideration all available positive and negative evidence, including historical operating results, expectations of future taxableincome, carryforward periods available, various income tax strategies and other relevant factors. Significant judgment is required inmaking this assessment and to the extent future expectations change, the Company would have to assess the recoverability of itsdeferred assets at that time. At December 31, 2015 and 2014, the Company maintained a full valuation allowance on its deferred taxassets.At any one time the Company’s tax returns for numerous tax years are subject to examination by U.S. federal and state and foreigntaxing jurisdictions. The impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognizedin the financial statements at the largest amount that is more likely than not to be sustained. An uncertain income tax position will notbe recognized in the financial statements unless it is more likely than not to be sustained. At December 31, 2015 and 2014, theCompany had no reserves for unrecognized tax benefits.O. SegmentsThe Company operates in one segment. The Company is a biopharmaceutical company focused on discovering, developing andcommercializing treatments for non-viral, progressive liver diseases.F-11  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS3. Summary of Significant Accounting Policies – (continued)P. Recent Accounting PronouncementsIn August 2015, the Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2015-14 Revenue fromContracts with Customers (Topic 606) — Deferral of Effective Date. The FASB decided to defer the effective date of the guidance inUpdate 2014-09 by one year for public business entities. The core principle of the guidance is that an entity should recognized revenueto depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entityexpects to be entitled in exchanges for those goods or services. Public business entities will apply this guidance to annual reportingperiods beginning after December 15, 2017. Intercept is evaluating the implications of this update.In November 2015, the FASB issued Accounting Standards update No. 2015-17 Income Taxes (Topic 740) to simplify thepresentation of deferred income taxes. The update required that deferred tax liabilities and assets and associated valuation allowancebe classified as noncurrent in a classified statement of financial position. This update is effective for the financial statements issued forannual periods beginning after December 15, 2016 and interim periods within those annual periods. The adoption is not expected tohave an impact on the Company’s consolidated financial statements.In January 2016, the FASB issued Accounting Standards Update No. 2016-01 Financials Instruments — Overall (Subtopic 825-10) — Recognition and Measurement of Financial Assets and Financial Liabilities. The objective in the update was to enhance thereporting model for financial instruments to provide users of financial statements with more decision-useful information. Theamendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments.The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods withinthose fiscal years. Intercept is evaluating the implications of this update.4. Significant AgreementsSumitomo Dainippon Pharma Co., Ltd. (Sumitomo Dainippon)In March 2011, the Company entered into an exclusive license agreement with Sumitomo Dainippon to research, develop andcommercialize obeticholic acid (OCA) as a therapeutic for the treatment of primary biliary cirrhosis (PBC) and nonalcoholicsteatohepatitis (NASH) in Japan and China (excluding Taiwan). Under the terms of the license agreement, the Company received anup-front payment from Sumitomo Dainippon of $15.0 million and may be eligible to receive additional milestone payments of up to anaggregate of approximately $30.0 million in development milestones based on the initiation or completion of clinical trials, $70.0million in regulatory approval milestones and $200.0 million in sales milestones. The regulatory approval milestones include $15.0million for receiving marketing approval for OCA for NASH in Japan, $10.0 million for receiving marketing approval for OCA forNASH in China, and up to $5.0 million for receiving marketing approval for OCA for PBC in the United States. As of December 31,2015, the Company had achieved $1.0 million of the development milestones under its collaboration agreement with SumitomoDainippon. The sales milestones are based on aggregate sales amounts of OCA in the Sumitomo Dainippon territory and include $5.0million for achieving net sales of $50.0 million, $10.0 million for achieving net sales of $100.0 million, $20.0 million for achieving netsales of $200.0 million, $40.0 million for achieving net sales of $400.0 million and $120.0 million for achieving net sales of $1.2billion. The Company has determined that each potential future development, regulatory and sales milestone is substantive. In May2014, Sumitomo Dainippon exercised its option under the license agreement to add Korea as part of its licensed territories and paid theCompany a $1.0 million up-front fee. Sumitomo Dainippon has the option to add several other Asian countries to its territory to pursueOCA for additional indications. Sumitomo Dainippon will be responsible for the costs of developing and commercializing OCA in itsterritories. Sumitomo Dainippon is also required to make royalty payments ranging from the tens to the twenties in percent based onnet sales of OCA products in the Sumitomo Dainippon territory.F-12  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS4. Significant Agreements – (continued)The Company evaluated the license agreement with Sumitomo Dainippon and determined that it is a revenue arrangement withmultiple deliverables, or performance obligations. The Company’s substantive performance obligations under this license include anexclusive license to its technology, technical and scientific support to the development plan and participation on a joint steeringcommittee. The Company determined that these performance obligations represent a single unit of accounting, since, initially, thelicense does not have stand-alone value to Sumitomo Dainippon without the Company’s technical expertise and steering committeeparticipation during the development of OCA. This development period is currently estimated as continuing through June 2020 and, assuch, the up-front payment and payments made in respect of the Korea option are being recognized ratably over this period. During theyears ended December 31, 2015 and 2014, the Company recorded revenue of approximately $2.8 million and $1.7 million,respectively, in “Licensing Revenue” in its Condensed Consolidated Statement of Operations for the Company’s efforts under theagreement. For the year ended December 31, 2015, $1.8 million resulted from the amortization of the up-front payments under thecollaboration agreement and $1.0 million resulted from the development milestone achieved in the period. All of the revenuerecognized in the year ended December 31, 2014 related to the amortization of the up-front payments under the collaborationagreement.5. Cash, Cash Equivalents, and InvestmentsThe following table summarizes the Company’s cash, cash equivalents and investments as of December 31, 2015 and December31, 2014: As of December 31, 2015 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands)Cash and cash equivalents: Cash and money market funds $32,742 $— $— $32,742 Investment securities: Commercial paper 1,993 — (3) 1,990 Corporate debt securities 529,368 2 (1,720) 527,650 U.S. government and agency securities 65,854 1 (182) 65,673 Total investments 597,215 3 (1,905) 595,313 Total cash, cash equivalents and investments $629,957 $3 $(1,905) $628,055 As of December 31, 2014 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands)Cash and cash equivalents: Cash and money market funds $20,023 $— $— $20,023 Investment securities: Commercial paper 7,995 — (1) 7,994 Corporate debt securities 203,988 19 (282) 203,725 U.S. government and agency securities 7,998 — (16) 7,982 Total investments 219,981 19 (299) 219,701 Total cash, cash equivalents and investments $240,004 $19 $(299) $239,724 F-13  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS5. Cash, Cash Equivalents, and Investments – (continued)As of December 31, 2015, there were no marketable securities in a continuous unrealized loss position for more than twelvemonths.The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale investments aggregatedby investment category and length of time that individual securities have been in the position: As of December 31, 2015 Less than 12 months 12 Months or greater Total (in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized LossesCorporate debt securities $316,036 $(551) $201,676 $(1,169) $517,712 $(1,720) U.S. government and agencysecurities 15,793 (30) 44,879 (152) 60,672 (182) Commercial paper 1,990 (3) — — 1,990 (3) Total $333,819 $(584) $246,555 $(1,321) $580,374 $(1,905) As of December 31, 2014 Less than 12 months 12 Months or greater Total (in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value GrossUnrealizedLossesCorporate debt securities $86,221 $(63) $81,561 $(219) $167,782 $(282) Commercial paper 4,994 (1) — — 4,994 (1) U.S. government and agencysecurities — — 4,481 (16) 4,481 (16) Total $91,215 $(64) $86,042 $(235) $177,257 $(299) 6. Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets consisted of the following: December 31, 2015 2014 (in thousands)Prepaid expenses and other receivables $9,947 $3,547 Interest receivable 3,304 1,455 Contract receivable 47 1,091 Refundable tax credits 340 11 Prepaid expenses and other current assets $13,638 $6,104 F-14  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS7. Fixed Assets, NetFixed assets are stated at cost and depreciated or amortized using the straight-line method based on useful lives as follows: Useful lives (Years) December 31, 2015 2014 (in thousands)Office equipment and software 3 $2,188 $799 Leasehold improvements Over life of lease 6,818 3,322 Furniture and fixtures 7 3,402 2,410 Subtotal 12,408 6,531 Less: accumulated depreciation and amortization (2,361) (679) Fixed assets, net $10,047 $5,852 Depreciation and amortization expense for the years ended December 31, 2015, 2014 and 2013 was approximately $1.7 million,$443,000 and $106,000, respectively.8. Accounts Payable, Accrued Expenses and Other LiabilitiesAccrued expenses and other liabilities consisted of the following: December 31, 2015 2014 (in thousands)Accounts payable $4,170 $3,129 Accrued employee compensation 11,414 3,985 Accrued contracted services and other 30,007 6,345 Accounts payable, accrued expenses and other liabilities $45,591 $13,459 9. Warrants to Purchase Common StockThe Company’s activity related to warrants to purchase shares of common stock of the Company is noted in the table below. Warrants to Purchase Common Stock Weighted Average Exercise PriceWarrants issued and outstanding as of December 31, 2013 865,381 $10.40 Warrants exercised in 2014 (865,381) Warrants expired in 2014 — Warrants issued and outstanding as of December 31, 2014 — $— The warrants that required the underlying shares to be registered upon an IPO met the criteria to be a derivative instrument uponthe closing of the IPO in October 2012. The fair values of the warrants are reflected in the accompanying balance sheets and weredetermined using the Black-Scholes option-pricing model.On April 10, 2014, all the Company’s remaining warrants to purchase a total of 865,381 shares of its common stock wereexercised on a cashless basis into 834,758 shares of the Company’s common stock and as such no further revaluations are required.F-15  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS10. Fair Value MeasurementsThe 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 levelhierarchy 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 foridentical assets or liabilities (Level 1).•Pricing Models with Significant Observable Inputs — The fair value of an asset or liability is based on information derivedfrom either an active market quoted price, which may require further adjustment based on the attributes of the financial assetor 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 internallyderived assumptions surrounding the timing and amount of expected cash flows for the financial instrument. Therefore, theseassumptions are unobservable in either an active or inactive market (Level 3).The Company considers an active market as one in which transactions for the asset or liability occur with sufficient frequency andvolume to provide pricing information on an ongoing basis. Conversely, the Company views an inactive market as one in which thereare few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or amongmarket makers. Where appropriate, non-performance risk, or that of a counterparty, is considered in determining the fair values ofliabilities and assets, respectively.The Company’s cash deposits and money market funds are classified within Level 1 of the fair value hierarchy because they arevalued using bank balances or quoted market prices. Investments are classified as Level 2 instruments based on market pricing andother observable inputs.Financial assets carried at fair value are classified in the tables below in one of the three categories described above: Total Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands)December 31, 2015 Assets: Money market funds $4,826 $4,826 $— $— Available for sale securities: — Commercial paper 1,990 — 1,990 — Corporate debt securities 527,650 — 527,650 — U.S. government and agency securities 65,673 — 65,673 — Total financial assets: $600,139 $4,826 $595,313 $— F-16  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS10. Fair Value Measurements – (continued) Total Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands)December 31, 2014 Assets: Money market funds $21,284 $21,284 $— $— Available for sale securities: Commercial paper 7,994 — 7,994 — Corporate debt securities 203,725 — 203,725 — U.S. government and agency securities 7,982 — 7,982 — Total financial assets: $240,985 $21,284 $219,701 $— The estimated fair value of marketable debt securities (commercial paper, corporate debt securities, U.S. government and agencysecurities, and municipal securities) as of December 31, 2015 and 2014, respectively, by contractual maturity, are as follows: Fair Value as of December 31, 2015 2014 (in thousands)Due in one year or less $343,758 $130,159 Due after one year through 2 years 251,555 89,542 Total investments in debt securities $595,313 $219,701 Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations withoutcall or prepayment penalties.11. Stockholders’ Equity and Preferred StockCommon StockAs of December 31, 2015 and 2014, the Company had 35,000,000 authorized shares of common stock, $0.001 par value per share.In October 2012, the Company completed the IPO of its common stock pursuant to a registration statement on Form S-1. In theIPO, the Company sold an aggregate of 5,750,000 shares of common stock under the registration statement at a public offering price of$15.00 per share. Net proceeds were approximately $78.7 million, after deducting underwriting discounts and commissions andoffering expenses payable by the Company. Upon the closing of the IPO, all outstanding shares of the Company’s preferred stock(described below) were converted into 7,403,817 shares of common stock.In June 2013, the Company completed a public offering of 1,989,500 shares of its common stock at a public offering price of$33.01 per share. The shares were registered pursuant to a registration statement on Form S-1. Net proceeds were approximately $61.2million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.In April 2014, the Company completed a public offering of 1,000,000 shares of its common stock, of which 600,000 shares weresold by the Company and 400,000 shares were sold by certain selling stockholders, at a public offering price of $320.00 per share. Theshares were registered pursuant to a registration statement on Form S-3. After underwriting discounts and commissions and offeringexpenses, theF-17  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS11. Stockholders’ Equity and Preferred Stock – (continued)Company received net proceeds from the offering of approximately $183.5 million. The Company did not receive any proceeds fromthe sale of shares of common stock by the selling stockholders.In February 2015, the Company completed a public offering of 1,150,000 shares of its common stock at a public offering price of$176.00 per share. The shares were registered pursuant to a registration statement on Form S-3. After underwriting discounts andcommissions and estimated offering expenses, the Company received net proceeds of approximately $191.7 million.In April 2015, the Company completed a public offering of 1,330,865 shares of its common stock pursuant to a registrationstatement on Form S-3. After underwriting discounts and commissions and offering expenses, the Company received net proceeds ofapproximately $367.1 million.DividendsThe holders of common stock are entitled to receive dividends from time to time as declared by the board of directors. TheCompany has not declared any cash dividends on its common stock, and does not anticipate paying any cash dividends on its commonstock in the foreseeable future. The Company intends to retain all available funds and any future earnings to fund the development andexpansion of its business. Any future determination to pay dividends will be at the discretion of the board of directors and will dependupon a number of factors, including the results of operations, financial condition, future prospects, contractual restrictions, restrictionsimposed by applicable law and other factors the board of directors deems relevant.VotingThe holders of shares of common stock are entitled to one vote for each share held with respect to all matters voted on by thestockholders of the Company.Preferred StockAs of December 31, 2015 and 2014, the Company had 5,000,000 authorized shares of preferred stock, $0.001 par value per share,of which none are issued.12. Stock CompensationThe 2012 Equity Incentive Plan (2012 Plan) became effective upon the pricing of the IPO in October 2012. At the same time, the2003 Stock Incentive Plan (2003 Plan) was terminated and 555,843 shares available under the 2003 Plan were added to the 2012 Plan.The estimated fair value of the options that have been granted under the 2003 and 2012 Plans is determined utilizing the Black-Scholes option-pricing model at the date of grant. The fair value of the RSUs and RSAs that have been granted under the 2012 Plan isdetermined utilizing the closing stock price on the date of grant. There were 1,223,693 and 745,275 shares available for grantremaining under the 2012 Plan at December 31, 2015 and 2014, respectively. On January 1, 2016, 2015 and 2014 the numbers ofshares reserved for issuance under the 2012 Plan was increased by 976,101, 856,609 and 775,584 shares, respectively, as a result ofthe automatic increase in shares reserved pursuant to the terms thereof.F-18  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS12. Stock Compensation – (continued)Stock-based compensation expense for the years ended December 31, 2015, 2014 and 2013 includes compensation expense foremployee, director and consultant stock option grants and restricted stock grants as follows: Years Ended December 31, 2015 2014 2013 (in thousands)Stock options expense: Employees and directors $21,356 $12,148 $5,173 Consultants 2,592 3,700 2,275 23,948 15,848 7,448 Restricted stock expense: Employees and directors 8,052 3,102 1,646 Consultants 2,189 1,177 352 10,241 4,279 1,998 Total $34,189 $20,127 $9,446 Stock OptionsThe Company estimated the fair value of stock options granted in the periods presented using a Black-Scholes option-pricingmodel utilizing the following assumptions: Years Ended December 31, 2015 2014 2013Volatility 61 – 90% 70 – 150% 95 – 115% Expected term (in years) 5.1 – 7.0 4.0 – 7.0 5.3 – 6.1 Risk-free rate 0.2 – 2.2% 1.3 – 2.7% 0.9 – 3.0% Expected dividend yield —% —% —% The stock price for options granted prior to the IPO was determined based on a valuation of the Company’s common stock. Foroptions granted after the IPO, the stock price is the closing price on the date of grant. The risk-free interest rate was based on the ratefor U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. Theexpected life for options was based on the simplified method in accordance with SEC Staff Accounting Bulletin Nos. 107 and 110 asthe Company does not have sufficient historical exercise data due to the limited period of time the Company’s shares have beenpublicly traded. The expected volatility was estimated based on historical volatility information of peer companies that are publiclyavailable.For the years ended December 31, 2015, 2014 and 2013, the Company granted to its employees and directors a total of 284,039,452,424 and 584,550 stock options, respectively. For the years ended December 31, 2015, 2014 and 2013, the Company granted to itsconsultants a total of 7,298, 3,232 and 23,250 stock options, respectively.F-19  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS12. Stock Compensation – (continued)The Company’s combined outstanding employee and non-employee option activity for the period from December 31, 2014through December 31, 2015 is summarized as follows: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value(in thousands)Outstanding at December 31, 2014 1,436,055 $75.81 7.7 $141,506 Granted 291,337 $180.98 9.7 $— Exercised (308,627) $21.65 — $64,663 Cancelled/forfeited (69,501) $120.28 — $2,020 Expired (1,264) $246.10 — $— Outstanding at December 31, 2015 1,348,000 $108.49 7.3 $91,402 Expected to vest 1,327,290 $107.40 7.3 $91,127 Exercisable 670,533 $53.38 5.83 $74,219 The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and thedeemed fair value of the Company’s common stock for those shares that had exercise prices lower than the deemed fair value of theCompany’s common stock. As of December 31, 2015, the total compensation cost related to non-vested awards not yet recognized isapproximately $57.7 million with a weighted average remaining vesting period of 2.73 years. The weighted-average grant date fairvalue of options granted during the year ended December 2015 is $109.50The following table summarizes additional information about stock options outstanding: December 31, 2015Options Outstanding Options ExercisableExercise Price Number of Shares WeightedAverageRemaining Life Aggregate Intrinsic Value (in thousands) Number of Shares Weighted AverageRemaining Life Aggregate Intrinsic Value (in thousands)$8.00 – $25.00 370,221 5.1 $50,846 367,309 5.1 $50,471 $25.01 – $75.00 365,443 6.7 40,536 208,932 6.1 23,743 $75.01 – $175.00 343,594 9.4 20 33,440 9 5 $175.01 – $275.00 167,482 8.8 — 18,845 7.7 — $275.01 – $375.00 85,960 8.3 — 34,994 8.1 — $375.01 – $500.00 15,300 8.2 — 7,013 8.2 — 1,348,000 $91,402 670,533 $74,219 In April 2014, the Company issued 57,063 performance-based options to certain employees to purchase common stock that willvest upon the achievement of certain regulatory milestones related to OCA at future dates. In November 2014, the Company issued anadditional 10,839 performance-based options that will vest upon the achievement of the same regulatory milestones noted above. As ofboth December 31, 2015 and 2014, the achievement of the milestones was not deemed to be probable and no stock-basedcompensation expense was recognized for these performance-based options.The total intrinsic value of options exercised in 2015 was approximately $64.7 million. The total fair value of shares that vested in2015 was $24.6 million.F-20  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS12. Stock Compensation – (continued)Restricted Stock Units and AwardsThe following table summarizes the aggregate activities in relation to RSU and RSA activity for the years ended December 31,2014 and 2015 Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic ValueNon-vested Shares at December 31, 2014 119,348 $131.03 $18,618 Granted 153,971 $194.43 $22,996 Exercised (68,870) $104.33 $(10,286) Cancelled/forfeited (11,285) $218.11 $(1,685) Non-vested Shares at December 31, 2015 193,164 $183.19 $28,849 As of December 31, 2015, there was $29.4 million of unrecognized compensation expense related to unvested RSUs and RSAs,which is expected to be recognized over a weighted average of 3.09 years.The following table summarizes additional information about non-vested RSUs and RSAs outstanding: Number of Shares Price Intrinsic Value(in thousands)Employees and directors 186,847 $149.35 $27,906 Consultants 6,317 $149.35 943 Outstanding at December 31, 2015 193,164 $28,849 13. Income TaxesThe components of loss before income taxes for the years ended December 31, 2015, 2014 and 2013 includes the following: Years Ended December 31, 2015 2014 2013 (in thousands)United States $(116,349) $(283,226) $(67,792) Foreign (110,080) — — $(226,429) $(283,226) $(67,792) Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 34% to lossbefore income taxes as a result of the following: Years Ended December 31, 2015 2014 2013 (in thousands)Computed “expected” tax benefit $(76,986) $(96,297) $(23,049) State income taxes, net of federal tax effect — — — Change in the valuation allowance 40,973 36,052 13,354 Stock-based compensation (3,230) 342 (172) Officer compensation (1,778) 1,784 175 Foreign tax rate differences 37,427 — — Intercompany license of intellectual property 3,400 — — Mark to market warrant income — 58,083 9,673 Other 194 36 19 $— $— $— F-21  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS13. Income Taxes – (continued)The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2015 and 2014 arepresented below: December 31, 2015 2014 (in thousands)Deferred tax assets: Net operating loss and other carryforwards $127,364 $92,582 Stock compensation 9,929 5,321 Deferred revenue 2,846 4,316 Accrued compensation 3,058 1,744 Accrued expense 1,447 566 Intellectual property 1,775 — Other 802 154 Total deferred tax assets 147,221 104,683 Less valuation allowance (147,221) (104,683) Deferred tax assets — — Deferred tax liabilities — — Net deferred tax asset (liability) $— $— Net Operating LossesAs of December 31, 2015 and 2014, the Company had net operating loss carryforwards, or NOLs, for federal income tax purposesof $454.4 million and $221.2 million, respectively, which expire between 2024 and 2035. The Company also has certain state andforeign NOLs in varying amounts depending on the different state and foreign tax laws.The U.S. federal NOLs of $454.4 million and $221.2 million include approximately $151.0 million and $12.3 million,respectively, of excess tax benefits related to stock-based payments that are not recognized as a deferred tax asset. The benefit of thesedeductions will be recognized through additional paid-in capital at the time the tax deduction results in a reduction of current taxespayable.The Company’s ability to utilize its NOLs may be limited under Section 382 of the Internal Revenue Code of 1986, as amended, orthe Internal Revenue Code. The limitations apply if an “ownership change,” as defined by Section 382 of the Internal Revenue Code,occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50percentage points over their lowest ownership percentage in a testing period (typically three years). The Company has evaluatedwhether one or more ownership changes as defined under Section 382 of the Internal Revenue Code have occurred since its inceptionand have determined that there have been at least two such changes. Although the Company believes that these ownership changeshave not resulted in material limitations on its ability to use these NOLs, its ability to utilize these NOLs may be limited due to futureownership changes or for other reasons. Additionally, tax laws limit the time during which NOLs and certain other tax attributes maybe utilized against future taxes. As a result, the Company may not be able to take full advantage of its carryforwards for federal, state,and foreign tax purposes.Valuation AllowanceAt December 31, 2015 and 2014, the Company maintained a full valuation allowance on its deferred tax assets since it has not yetachieved sustained profitable operations. As a result, the Company has not recorded any income tax benefit since its inception. In2015, the valuation allowance for deferred tax assets increased by approximately $42.5 million. This includes an increase of $41.0million and $22.5 million for U.S. federalF-22  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS13. Income Taxes – (continued)and foreign tax, respectively, partially offset by a decrease of $21.0 million for state tax. The state tax decrease related primarily toreducing state NOLs to their net realizable value.Unrecognized Tax BenefitsAt December 31, 2015 and 2014, the Company had no reserves for unrecognized tax benefits.The Company is subject to taxation in the U.S. and various foreign jurisdictions. Of the major jurisdictions, the Company issubject to examination in: the United States for U.S. federal purposes for 2012 and forward and for state purposes for 2011 andforward. However, NOLs are subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin.14. CommitmentsFacility LeasesIn October 2013, the Company entered into a lease agreement to provide the Company with 11,124 rentable square feet (thePrimary Space) in New York City for its corporate headquarters. The rent for the Primary Space (without giving effect to any rentabatements) for the first year was approximately $801,000 and will increase by two percent annually until the end of the fifth leaseyear, at which point the annual rent will increase to approximately $940,000, and subsequently increase by two percent annually untilJuly 2024, the termination date. In accordance with the terms of the lease agreement, an additional 9,502 rentable square feet (theAdditional Space) were added to the Company’s lease in December 2014. The rent for the Additional Space (without giving effect toany rent abatements) for the first year is approximately $684,000 and will increase by two percent annually until the end of the fifthyear, at which point the annual rent will increase to approximately $803,000 for the sixth lease year, and subsequently increase by twopercent annually until the termination date. Under the terms of the lease, the Company was required to provide the landlord with aletter of credit in an amount equal to approximately $801,000 prior to entering into the lease, and $684,000 on the commencement ofthe lease for the Additional Space.In May 2014, the Company entered into a lease agreement with The Irvine Company LLC for approximately 47,000 square feet inSan Diego for office space. The lease term commenced in September 2014 and is scheduled to end in September 2019; however, theCompany has an option to further extend the lease for an additional five year term at market rates prevailing at such time. The rent forthe first year will be approximately $875,000 without giving effect to rent abatements and the rent will gradually increase every 12months during the lease term. During the first nine months, the Company received a partial rent abatement from the landlord. Thelandlord provided the Company with an allowance of approximately $2.4 million for improvements to the office space. Pursuant to theterms of the San Diego lease, the Company provided the landlord with a letter of credit for $874,000, which will decrease at certaintimes during the term of the lease.In February 2015, the Company entered into an underlease with Merck Sharp & Dohme Limited for an office in the King’s Crossarea of London, United Kingdom. The lease provides the Company with approximately 6,000 rentable square feet in London for officespace. The lease term is anticipated to end in June 2019. The annual rent is £470,608, payable quarterly. The Company is also requiredto pay value added tax (VAT) on the rent. The Company will be responsible for a portion of the insurance, certain service charges andtaxes for the building based on the floor area rented by it. As security for the underlease, the Company has provided the landlord witha rent deposit in the amount of £705,912, plus applicable VAT. The amount of the deposit may be reduced to £470,608 within 30 daysafter April 30, 2016 if there are no outstanding payments due and there are no material breaches of the underlease that have not beenunremedied in respect of which a drawdown notice has been served and has expired.F-23  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS14. Commitments – (continued)On January 22, 2016, Intercept Pharma Europe Ltd. (IPEL), a wholly owned subsidiary of the Company, entered into anunderlease with Performing Right Society, Ltd., for additional office space in the Kings Cross area of London, United Kingdom. TheCompany is the guarantor to the underlease. The underlease provides IPEL with an additional 8,549 square feet of space. The leaseterm is anticipated to end on May 31, 2024. The annual rent is approximately £726,665 (or approximately $1.0 million), payablequarterly. IPEL is also required to pay VAT on the rent. IPEL will be responsible for a portion of the insurance, certain service chargesand taxes for the building based on the floor area rented by them. As security for the underlease, IPEL has provided the landlord a rentdeposit in an amount equal to 12 months’ rent, plus applicable VAT. The underlease is subject to an “upwards only” open market rentreview of the market rent with review to take place on June 4, 2019.On February 23, 2016, the Company entered into a sublease with Restoration Hardware, Inc. for additional office space in NewYork City. The sublease provides the Company with an additional 10,785 square feet of office space. The lease term is anticipated toend on July 31, 2021. The annual rent is approximately $1.0 million payable monthly. The Company is also responsible for itsproportionate share of increases in operating expenses beginning January 2017 as well as its proportionate share of increases in realestate taxes over the average of the 2015/2016 and 2016/2017 fiscal years. As security for the sublease, the Company must deliver aletter of credit in the amount of approximately $0.3 million in favor of the sublandlord within forty-five (45) days of execution of thesublease. While the letter of credit is pending, the Company provided the sublandlord with a temporary security deposit of $75,000 incash which will be returned to the Company upon delivery of the letter of credit to the sublandlord.Rent expense under operating leases for facilities for the years ended December 31, 2015, 2014 and 2013 was approximately $3.8million, $1.7 million and $624,000, respectively. As of December 31, 2015, minimum operating lease payments under non-cancelableleases, as amended, are as follows: Year Ending December 31, Amount (in thousands)2016 $3,454 2017 3,383 2018 3,468 2019 2,677 2020 1,766 Thereafter 6,582 Total future minimum operating lease payments $21,330 15. Related Party TransactionsIn connection with the October 2013 secondary offering, pursuant to the third amended and restated stockholders agreement, theCompany reimbursed the selling stockholders for the expenses related to the offering (other than any underwriting discounts andcommissions), including approximately $58,000 for the legal fees of the selling stockholders.In connection with the April 2014 secondary offering, pursuant to the third amended and restated stockholders agreement, theCompany reimbursed the selling stockholders for the expenses related to the offering (other than any underwriting discounts andcommissions), including approximately $70,000 for the legal fees of the selling stockholders.F-24  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS16. Net Loss Per ShareThe following table presents the historical computation of basic and diluted net loss per share: Years Ended December 31, 2015 2014 2013 (in thousands, except share and share amounts)Historical Net loss per share Numerator: Net loss attributable to common stockholders $(226,429) $(283,226) $(67,792) Denominator: Weighted average shares outstanding, basic and diluted 23,694,244 20,784,438 18,028,731 Net loss per share, basic and diluted $(9.56) $(13.63) $(3.76) The following potentially dilutive securities have been excluded from the computations of diluted weighted average sharesoutstanding as of December 31, 2015, 2014 and 2013, as they would have been anti-dilutive: December 31, 2015 2014 2013 (in thousands)Options 1,348 1,436 1,525 Restricted stock units 193 119 121 Warrants to purchase common stock — — 865 Total 1,541 1,555 2,511 17. Quarterly Financial Data (unaudited)The following table summarizes the unaudited quarterly financial data for the years ended December 31, 2015 and 2014; Quarters Ended March 31, June 30, September 30, December 31, Total (in thousands, except for per share amounts)2015 Licensing revenue $1,445 $445 $445 $447 $2,782 Total costs and expenses 41,103 49,268 52,229 89,338 231,938 Net loss (39,386) (47,894) (50,896) (88,253) (226,429) Net loss per common share – basicand diluted $(1.78) $(1.99) $(2.10) $(3.62) 2014 Licensing revenue $405 $445 $445 $445 $1,742 Total costs and expenses 19,944 22,874 36,517 35,577 114,912 Net income (loss) (246,029) 33,470 (35,843) (34,824) (283,226) Net income (loss) per commonshare: Basic $(12.61) $1.60 $(1.69) $(1.63) Diluted $(12.61) $1.51 $(1.69) $(1.63) F-25  TABLE OF CONTENTSINTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS18. LitigationOn February 21, 2014 and February 28, 2014, purported shareholder class actions, styled Scot H. Atwood v. InterceptPharmaceuticals, Inc. et al. and George Burton v. Intercept Pharmaceuticals, Inc. et al., respectively, were filed in the United StatesDistrict Court for the Southern District of New York, naming the Company and certain of its officers as defendants. These lawsuitswere filed by stockholders who claim to be suing on behalf of anyone who purchased or otherwise acquired the Company’s securitiesbetween January 9, 2014 and January 10, 2014.The lawsuits allege that the Company made material misrepresentations and/or omissions of material fact in its public disclosuresduring the period from January 9, 2014 to January 10, 2014, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of1934, as amended, and Rule 10b-5 promulgated thereunder. The alleged improper disclosures relate to the Company’s January 9, 2014announcement that the FLINT trial had been stopped early based on a predefined interim efficacy analysis. Specifically, the lawsuitsclaim that the January 9, 2014 announcement was misleading because it did not contain information regarding certain lipidabnormalities seen in the FLINT trial in OCA-treated patients compared to placebo.On April 22, 2014, two individuals each moved to consolidate the cases and a lead plaintiff was subsequently appointed by theCourt. On June 27, 2014, the lead plaintiff filed an amended complaint on behalf of the putative class as contemplated by the order ofthe Court. On August 14, 2014, the defendants filed a motion to dismiss the complaint. Oral arguments on the motion to dismiss wereheld on February 24, 2015. On March 4, 2015, the defendants’ motion to dismiss was denied by the Court. The defendants answeredthe amended complaint on April 13, 2015. On July 15, 2015, the plaintiff moved for class certification and appointment of classrepresentatives and class counsel. On September 14, 2015, the defendants opposed the plaintiff’s class certification motion. Theplaintiff filed its reply to the defendants’ opposition on October 14, 2015, to which the defendants filed a sur-reply on November 10,2015. Oral arguments on the class certification motion were held on January 20, 2016. No decision has been made by the Court on theclass certification motion. The parties are currently undergoing discovery in relation to this matter. Dispositive motions are due onSeptember 16, 2016.The lead plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses,including attorneys’ fees.The Company believes that it has valid defenses to the claims in the lawsuit, has denied liability and intends to defend itselfvigorously. There can be no assurance, however, that the Company will be successful. At this time, no assessment can be made as tothe likely outcome of this action or whether the outcome will be material to the Company. Therefore, the Company has not accrued forany loss contingencies related to this lawsuit.The Company may become subject to claims and assessments from time to time in the ordinary course of business. Such mattersare subject to uncertainties and outcomes are not predictable with assurance. The Company accrues liabilities for such matters when itis probable that future expenditures will be made and such expenditures can be reasonably estimated. As of December 31, 2015, theCompany does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on theCompany’s business, financial condition, results of operations or cash flows.19. Subsequent EventsThe Company has evaluated events subsequent to the balance sheet date and determined there have not been any other events thathave occurred that would require adjustment to or disclosure in the consolidated financial statements.F-26  TABLE OF CONTENTSExhibit List Exhibit Number Exhibit Description Filed with this Report Incorporated by Reference herein from Form or Schedule Filing Date SEC File/Reg. Number3.1.1 Restated Certificate of Incorporation ofthe Registrant Form 8-K (Exhibit 3.1) 10/16/12 001-356683.1.2 Amendment to Restated Certificate ofIncorporation of the Registrant Form 8-K (Exhibit 3.1) 07/22/2014 001-356683.2 Restated Bylaws of the Registrant Form 8-K (Exhibit 3.2) 02/17/16 001-356684.1 Form of Common Stock Certificate ofthe Registrant Form S-8 (Exhibit 4.3) 11/07/12 333-1848104.2 Third Amended and RestatedStockholders Agreement by and amongthe Registrant, the holders of theRegistrant’s convertible preferred stock,the Registrant’s founders and certainother investors, dated August 9, 2012 Form S-1 (Exhibit 4.2) 09/04/12 333-183706Equity Compensation Plans 10.1.1 Amended and Restated 2003 StockIncentive Plan of the Registrant+ Form S-1 (Exhibit 10.1.1) 09/04/12 333-18370610.1.2 Form of Nonstatutory Stock OptionAgreement granted under the 2003Stock Incentive Plan of the Registrant+ Form S-1 (Exhibit 10.1.2) 09/04/12 333-18370610.1.3 Form of Incentive Stock OptionAgreement granted under the 2003Stock Incentive Plan of the Registrant+ Form S-1 (Exhibit 10.1.3) 09/04/12 333-18370610.1.4 Amendment to Amended and Restated2003 Stock Incentive Plan of theRegistrant+ Form S-1 (Exhibit 10.1.4) 09/04/12 333-18370610.2.1 Form of 2012 Equity Incentive Plan ofthe Registrant+ Amendment No. 1 to Form S-1 (Exhibit 10.2.1) 09/27/12 333-18370610.2.2 Form of Stock Option Grant Notice forDirectors under the 2012 EquityIncentive Plan of the Registrant+ Amendment No. 1 to Form S-1 (Exhibit 10.2.2) 09/27/12 333-18370610.2.3 Form of Stock Option Grant Notice forEmployees and Consultants under the2012 Equity Incentive Plan of theRegistrant+ Amendment No. 1 to Form S-1 (Exhibit 10.2.3) 09/27/12 333-18370610.2.4 Form of Restricted Stock Unit AwardGrant Notice for Directors under the2012 Equity Incentive Plan of theRegistrant+ Amendment No. 1 to Form S-1 (Exhibit 10.2.4) 09/27/12 333-183706  TABLE OF CONTENTS Exhibit Number Exhibit Description Filed with this Report Incorporated by Reference herein from Form or Schedule Filing Date SEC File/Reg. Number10.2.5 Form of Restricted Stock Unit AwardGrant Notice for Employees andConsultants under the 2012 EquityIncentive Plan of the Registrant+ Amendment No. 1 to Form S-1 (Exhibit 10.2.5) 09/27/12 333-18370610.2.6 Form of Restricted Stock Award GrantNotice for Directors under the 2012Equity Incentive Plan of the Registrant+ Form 10-Q (Exhibit 10.3) 05/09/14 001-3566810.2.7 Form of Restricted Stock Award GrantNotice for Employees and Consultantsunder the 2012 Equity Incentive Plan ofthe Registrant+ Form 10-Q (Exhibit 10.4) 05/09/14 001-3566810.3 Non-Employee Director CompensationPolicy+ Form 8-K (Exhibit 10.1) 02/17/16 001-35668Agreements with Executive Officers and Directors 10.4.1 Amended and Restated EmploymentAgreement by and between theRegistrant and Mark Pruzanski, datedMay 14, 2013+ Form 10-Q (Exhibit 10.5) 05/14/13 001-3566810.4.2 Non-Competition and Non-SolicitationAgreement by and between theRegistrant and Mark Pruzanski, datedJune 20, 2006+ Form S-1 (Exhibit 10.4.2) 09/04/12 333-18370610.4.3 Invention, Non-Disclosure, and Non-Solicitation Agreement by and betweenthe Registrant and Mark Pruzanski,dated December 31, 2009+ Form S-1 (Exhibit 10.4.3) 09/04/12 333-18370610.5.1 Amended and Restated EmploymentAgreement by and between theRegistrant and Barbara Duncan,effective as of May 14, 2013+ Form 10-Q (Exhibit 10.12) 05/14/13 001-3566810.5.2 Invention, Non-Disclosure, and Non-Solicitation Agreement by and betweenthe Registrant and Barbara Duncan,effective as of May 16, 2009+ Form S-1 (Exhibit 10.5.2) 09/04/12 333-18370610.6.1 Amended and Restated EmploymentAgreement by and between theRegistrant and David Shapiro, effectiveas of May 14, 2013+ Form 10-Q (Exhibit 10.11) 05/14/13 001-3566810.6.2 Invention, Non-Disclosure, and Non-Solicitation Agreement by and betweenthe Registrant and David Shapiro, datedMarch 31, 2008+ Form S-1 (Exhibit 10.6.2) 09/04/12 333-183706  TABLE OF CONTENTS Exhibit Number Exhibit Description Filed with this Report Incorporated by Reference herein from Form or Schedule Filing Date SEC File/Reg. Number10.7 Employment Agreement by andbetween the Registrant and RachelMcMinn, effective as of April 30, 2014+ Form 10-Q (Exhibit 10.2) 05/09/14 001-3566810.8 Form of Indemnification Agreement byand between the Registrant and each ofits directors and executive officers Form S-1 (Exhibit 10.7) 09/04/12 333-183706Lease Agreements 10.9 Lease Agreement between Jamestown405 West 15 th Street, L.P. and theRegistrant, dated October 15, 2013 Form 8-K (Exhibit 10.1) 10/21/13 001-3566810.10 Lease Agreement between The IrvineCompany LLC and the Registrant, datedMay 1, 2014 Form 8-K (Exhibit 10.1) 05/07/14 001-3566810.11 Underlease between the Registrant andMerck Sharp & Dohme Limited, datedFebruary 19, 2015 Form 8-K (Exhibit 10.1) 02/24/15 001-3566810.12 Underlease between the Registrant,Intercept Pharma Europe, Ltd. andPerforming Right Society, Ltd., datedJanuary 22, 2016 X 10.13 Office Sublease between the Registrantand Restoration Hardware, Inc., datedFebruary 23, 2016 X Agreements with Respect to Collaborations, Licenses, Research and Development 10.14 License Agreement by and between theRegistrant and Sumitomo DainipponPharma Co., Ltd., dated March 29,2011* Amendment No. 1 to Form S-1 (Exhibit 10.10) 09/27/12 333-183706Other Exhibits 21.1 Subsidiaries of the Registrant X 23.1 Consent of KPMG LLP, independentregistered public accounting firm X 31.1 Certification of the Chief ExecutiveOfficer X 31.2 Certification of the Chief FinancialOfficer X 32 Certification pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002 X  TABLE OF CONTENTS Exhibit Number Exhibit Description Filed with this Report Incorporated by Reference herein from Form or Schedule Filing Date SEC File/Reg. Number101 The following materials from InterceptPharmaceuticals, Inc.’s Annual Reporton Form 10-K for the year endedDecember 31, 2015, formatted in XBRL(eXtensible Business ReportingLanguage): (i) Consolidated BalanceSheets, (ii) Consolidated Statements ofOperations and Comprehensive Loss,(iii) Consolidated Statements ofChanges in Stockholders’ Equity, (iv)Consolidated Statements of Cash Flows,and (v) Notes to Consolidated FinancialStatements X (+)Management contract or compensatory plan or arrangement.(*)Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions.Exhibit 10.12 DATED 22 January 2016 PERFORMING RIGHT SOCIETY, LIMITED as Landlord and INTERCEPT PHARMA EUROPE LTD as Tenant and INTERCEPT PHARMACEUTICALS, INC as Guarantor UNDERLEASE relating to premises on the Sixth floor,2 Pancras Square, King’s Cross Central, London N1C 4AG 1 London StreetReadingRG1 4QWDX 4001 Reading 1t. 0118 951 6200  Contents ClauseNamePage 1Definitions and interpretation12The letting terms93Tenant’s covenants94Landlord’s covenants205Insurance226Disputes Under Superior Lease257Provisos258Guarantor’s covenant299Exclusion of Sections 24 – 28 of the Landlord and Tenant Act 19543010Registration of this Lease30 ScheduleNamePage 1Rights granted to the Tenant32 2Rights reserved to the Landlord34 3Matters to which the Lease is subject36 4The Sixth Floor Service Charge37 5Building Regulations and Accessway Regulations425Part 1 Building Regulations425Part 2 Accessway Regulations42 6Review of Principal Rent43 Execution Page48  LR1.Date of lease22 January 2016LR2.Title number(s)LR2.1Landlord’s title number(s) NGL943676 LR2.2Other title numbers NGL931387LR3.Parties to this LeaseLandlord PERFORMING RIGHT SOCIETY, LIMITED (company no. 00134396) whose registered office is at 2Pancras Square, London, United Kingdom, N1C 4AG Tenant INTERCEPT PHARMA EUROPE LTD (company no. 09224395) whose registered office is at One,Glass Wharf, Bristol BS2 0ZX Guarantor INTERCEPT PHARMACEUTICALS INC a company incorporated in the state of Delaware, USAwhose registered office is 450 W. 15th Street, Suite 505 New York, NY 10011, USALR4.PropertyIn the case of a conflict between this Clause and the remainder of this Lease then, for the purposesof registration, this Clause shall prevail As defined in Clause 1.1 (the “ Premises ”)LR5.Prescribed statements etcLR5.1Statements prescribed under rules 179 (dispositions in favour of a charity), 180 (dispositions by acharity) or 196 (leases under the Leasehold Reform, Housing and Urban Development Act 1993)of the Land Registration Rules 2003 None  LR5.2This Lease is made under, or by reference to, provisions of: None LR6.Term for which the Property is leasedThe term as defined in this Lease at Clause 1.1LR7.PremiumNoneLR8.Prohibitions or restrictions on disposingof this LeaseThis Lease contains a provision that prohibits or restricts dispositionsLR9.Rights of acquisition etc.LR9.1Tenant’s contractual rights to renew this Lease, to acquire the reversion or another leaseof the Property, or to acquire an interest in other land None LR9.2Tenant’s covenant to (or offer to) surrender this Lease None LR9.3Landlord’s contractual rights to acquire this Lease NoneLR10.Restrictive covenants given in this Leaseby the Landlord in respect of land otherthan the PropertyNoneLR11.EasementsLR11.1Easements granted by this Lease for the benefit of the Property As specified in Schedule 1 ( Rights granted to the Tenant ) LR11.2Easements granted or reserved by this Lease over the Property for the benefit of otherproperty As specified in Schedule 2 ( Rights reserved to the Landlord )LR12.Estate rentcharge burdening thePropertyNone LR13.Application for standard form ofrestrictionNone LR14.Declaration of trust where there is morethan one person comprising the TenantNot applicable  DATED 22 January 2016 PARTIES (1)PERFORMING RIGHT SOCIETY, LIMITED (company No. 00134396) whose registered office is at 2 Pancras Square, London, United Kingdom,N1C 4AG (the “ Landlord ”); (2)INTERCEPT PHARMA EUROPE LTD (company no. 09224395) whose registered office is at One, Glass Wharf, Bristol BS02 0ZX (the “ Tenant”); and (3)INTERCEPT PHARMACEUTICALS INC. a company incorporated in the state of Delaware, USA whose registered office is 450 W. 15th Street,Suite 505 New York, NY 10011, USA (the " Guarantor ") BACKGROUND (A)The Landlord is entitled to possession of Sixth Floor, 2 St Pancras Square, King’s Cross Central, London N1C 4AG (the Landlord’s Premises) under theterms of the Superior Lease (a copy of which is annexed to this Lease). (B)The Landlord has agreed to grant an underlease of the Premises to the Tenant on the terms set out in this lease. OPERATIVE PROVISIONS 1DEFINITIONS AND INTERPRETATION 1.1In this Lease: “ Accessway ” has the meaning given to this term in the Headlease. “ Accessway Regulations ” means the regulations set out in Schedule 5, Part 2 ( Accessway Regulations ) and any other reasonable regulations fromtime to time published in writing by the Landlord or the Superior Landlord in addition to or in substitution for those regulations in accordance with theprinciples of good estate management. “ Act ” means every act of parliament (whether specifically named in this Lease or not) which is relevant to the Building, its user or any persons orthings on the Building or the persons employed or having recourse to the Building whether or not in force at the date of this Lease and any reference toan Act shall (except where otherwise stated) include any statutory re-enactment or modification of it and any order, regulation, directive, bylaw, rule,regulation, consent or licence granted or required under it or drawing validity from it or by any public or local authority or by any court of competentjurisdiction. “ Agreement to Lease ” means an Agreement to Lease dated 22 January 2016 and made between (1) the Landlord (2) the Tenant and (3) the Guarantorproviding for the grant of this lease; “ Adjoining Premises ” means any other land or premises nearby or adjoining the Building and/or the Estate, whether or not such property is owned bythe Landlord at the date of this Lease or is ever owned by the Landlord in the future. “ Asset Rating ” has the meaning given in the EPB Regulations (as defined below).  “ Block B Common Parts ” has the meaning given to this term in the Headlease. “ Block Service Charge ” means a fair and reasonable proportion as determined by the Landlord’s Surveyor (acting reasonably but whose decisionsave in case of manifest error or injustice shall be final) from time to time of the Block B Service Charge payable by the Landlord pursuant to theSuperior Lease. “ Block B Service Charge ” has the meaning given to this term in the Headlease. “ Building ” means the premises demised by the Headlease (as defined in the definition of “Property” in clause 1.1 of the Headlease) being the buildingknown as 2 Pancras Square, King’s Cross Central, London N1C 4AG of which the Premises form part and which includes (without limitation): (a)all Conduits from time to time within or leading to the Building which serve it and which do not form part of the public mains; (b)the Service Systems and all other landlord’s fixtures forming part of the Building from time to time; (c)all additions, alterations and improvements made to the Building from time to time; (d)the Common Parts; (e)all parts of the Building reserved for the housing of the Service Systems or otherwise required or used for the provision of services andfacilities within or to the Building; (f)all structural or loadbearing walls, columns, slabs, joists and beams forming part of the Building, its foundations and roofs and all externalparts of the Building the repair and maintenance of which are not the responsibility of tenants or other occupiers of the Building; and (g)all structures, boundary walls and railings, if any, within the boundaries of the Building, but excludes: (h)any tenant’s fixtures forming part of the Building from time to time. “ Building Regulations ” means the regulations set out in Schedule 5, Part 1 ( Building Regulations ) and any other reasonable regulations from timeto time published by the Landlord in writing in addition to or in substitution for those regulations which shall be in accordance with the principles ofgood estate management of the Building. “ Building Service Charge ” means a fair and reasonable proportion as determined by the Landlord’s Surveyor (acting reasonably, but whose decisionshall be final save in case of manifest error or injustice) from time to time of the Building Service Charge as payable by the Landlord pursuant to theSuperior Lease. “ Common Parts ” means all parts of the Building which are available or provided by the Superior Landlord for the use of the Landlord in commonwith the Superior Landlord and the tenants or occupiers of the Building and/or for general amenity (including but without limitation any of thefollowing: the forecourts, accessways, entrances, pathways, colonnades and walkways, corridors, lobbies, stairways, lifts, toilets, storage areas, binstores or other refuse facilities, fire escapes, landscaped areas, Conduits and the Roof Terrace: but excluding the locker facilities and cycle store and anycafe or canteen provided by the Landlord). 2  “ Conduits ” means the Service Systems and all pipes, wires, cables, sewers, drains, ducts, flues, gutters, gullies and other service media (together withancillary equipment) within or exclusively serving the Building now or at any time during the Term. “ Deed of Guarantee ” means any deed of guarantee in respect of the obligations of the Tenant and (as appropriate) any deed of guarantee in respect ofthe obligations of an assignee of the Premises containing the terms set out in Clause 8 ( Guarantor’s covenant ) (with appropriate changes) or suchother terms as the Landlord may from time to time reasonably determine. “ EPB Regulations ” means the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007. “ EPC ” means the energy performance certificate and recommendation report, as defined in the Energy Performance of Buildings (Certificates andInspections) (England and Wales) Regulations 2007 as amended or updated from time to time. “ Estate ” means King’s Cross Central as shown edged in red on the Estate Plan as may be varied from time to time to reflect disposals or acquisitionsof land by the owner of the Estate. “ Estate Common Parts ” means those parts of the Estate which are common parts for the purposes of the Headlease. “ Estate Plan ” means the plan annexed to the Superior Lease and labelled “Estate Plan”. “ Estate Service Charge ” means a fair and reasonable proportion as determined by the Landlord’s Surveyor (acting reasonably but whose decisionsave in case of manifest error or injustice shall be final) from time to time of the estate service charge payable by the Landlord pursuant to the SuperiorLease. “ Existing EPC ” means such copy of the EPC for the Building and/or the Premises as the Landlord has provided from time to time. “ Group Company ” means a company which is in the same group of companies (within the meaning of section 42 of the Landlord and Tenant Act1954) as the Tenant. “ Guaranto r” means any guarantor of the Tenant’s (or its successors in title) obligations under this Lease. “ Headlease ” means the superior lease of the Building dated 18 December 2012 made between Kings Cross Central (Trustee (No. One)) Limited andKings Cross Central (Trustee (No. Two) Limited (1)) and KCC Nominee 1 (B4) Limited and KCC Nominee 2 (B4) Limited (2). “ Head Landlord” means the Superior Landlord’s reversioner for the time being. “ Insurance Rent ” means such sum as the Landlord’s Surveyor shall (acting reasonably but whose decision save in case of manifest error or injusticeshall be final) from time to time certify as being a fair proportion attributable to the Premises having regard to the floor area of the Premises and thefloor area of the Landlord’s Premises of the sum payable by the Landlord to the Superior Landlord under the Superior Lease for the Superior Landlordinsuring the Building and other matters in accordance with Clause 5.1 ( Landlord’s obligations ) (including the whole of any premium or cost paid orincurred by the Landlord in respect of insuring loss of the Principal Rent, the Sixth Floor Service Charge, the Building Service Charge, the EstateService Charge and the Block Service Charge for the Loss of Rent Period). 3  “ Insured Risks ” means fire, subterranean fire, lightning, aircraft (not being hostile aircraft) and things dropped from aircraft, explosion, riot, civilcommotion, malicious damage, storm, tempest, subsidence, flooding, bursting and overflowing of water tanks, apparatus or pipes or the escape of waterfrom any of them, earthquake, heave, landslip, subsidence and such other risks (including damage by terrorist acts) as the Superior Landlord deemsnecessary to insure against. “ Landlord ” means the person named as such in the Parties Clause and includes any other person for the time being entitled to the immediate reversionexpectant on the determination of the Term. “Landlord’s Premises” means the premises demised by the Superior Lease and as therein defined being the premises known as Sixth Floor, 2 PancrasSquare, King’s Cross Central, London N1C 4AG of which the Premises form part “Landlord’s Energy Management Costs” means the costs payable by the Landlord to the Superior Landlord under the Superior Lease for theSuperior Landlord: (a)acquiring allowances of any nature and paying all present and future taxes, charges, duties, or assessments of any nature relating to the supplyor consumption of energy, or relating to emissions consequential upon that supply or consumption (and whether those emissions are direct orindirect); (b)monitoring the supply and consumption of energy and such emissions; and (c)gathering and processing information relating to the supply and consumption of energy and to such emissions and where “Superior Landlord” includes an undertaking or group of undertakings of which the Superior Landlord is a member. “ Landlord’s Surveyor ” shall mean (at the Landlord’s absolute discretion) a chartered surveyor in the employment of the Landlord or a charteredsurveyor or firm of chartered surveyors or asset management company employing a chartered surveyor appointed by or on behalf of the Landlord fromtime to time for the purposes mentioned in this Lease. “ Lease ” means this lease and includes any Schedule to it, any licence granted pursuant to this lease and any deed of variation of the provisions of thislease and any deed or instrument supplemental to this lease. “ Lessee’s Fit Out Guide ” means the document setting out the Superior Landlord’s requirements for any works carried out by tenants of the Buildingin the form provided to the Tenant prior to the date of this Lease, with such reasonable amendments made by the Superior Landlord as the Landlordshall notify in writing to the Tenant from time to time. “ Loss of Rent Period ” means the period in respect of which the Landlord or Superior Landlord shall have insured against loss of the Principal Rent,the Sixth Floor Service Charge, the Building Service Charge, the Estate Service Charge and the Block Service Charge being not in any case less thanthree years. “ Net Internal Area ” means 794.2281 square metres. 4  “ Operational Rating ” has the meaning given in the EPB Regulations. “ Permitted Use ” means use as high class offices within class B1(a) of the Town and Country Planning (Use Classes) Order 1987 (as originallyenacted). “ Plan ” means a plan annexed to this Lease. “ Planning Acts ” means the “Consolidating Acts” as defined in the Planning (Consequential Provisions) Act 1990 and any other legislation relating totown and country planning in force from time to time. “ Planning Agreement ” means the agreement dated 22 December 2006 made under section 106 of the Town and Country Planning Act 1990 relatingto land known as King’s Cross Central in London and made between (1) The Mayor and Burgesses of the London Borough of Camden; (2) TheSecretary of State for Transport; (3) London and Continental Railways Limited; (4) National Carriers Limited; (5) Argent (King’s Cross) Limited; and(6) Transport for London as amended by agreements dated 8 April 2008, 30 July 2010, 11 January 2011, 4 November 2011, 23 December 2011, 20June 2012, 8 August 2012, 7 December 2012, 15 January 2013 and 28 June 2013. “ Planning Permission ” means the outline planning permission relating to the Estate dated 22 December 2006 under reference number 2004/2307/Pand the reserved matters approvals relating to the Premises dated 30 April 2010 under reference number 2010/0868/P as amended on 17 April 2012under reference number 2012/0907/P. “ Premises ” means office accommodation on part of the sixth floor of the Building, as shown for the purposes of identification only edged with a redline on the Premises Plan and which shall include: (a)the interior finishes on all walls and columns; (b)the inner half severed vertically or horizontally (as the case may be) of all non-loadbearing walls, floors, ceilings and other partitions betweenthe Premises and any Adjoining Premises or part of the Building; (c)the raised floors and any voids beneath them down to (but excluding) the loadbearing floor slab beneath them which support such raisedfloors; (d)the ceiling finishes and any suspended or false ceilings and any voids between them and the ceiling slab above them; (e)any central or other heating and air conditioning installations (including fan coil units); (f)all doors and door frames (including any glass in them) incorporated in all walls whether loadbearing or not; (g)all fixtures and fittings in or forming part of the Premises and all additions to the Premises; (h)all Conduits at any time in and exclusively serving the Premises; and (i)all alterations, additions or other works to the Premises; but shall exclude: (j)all structural parts of the Building; 5  (k)all Conduits except for those mentioned in paragraph (h); (l)all Common Parts; (m)the inside and outside of all external windows and other external lights and the frames, glass, equipment and fitments relating to externalwindows and lights; and (n)any meters or sub-meters for the supply of electricity or other services to the Property to the extent such are within the demise shown edgedred on the Premises Plan “ Premises Plan ” means the plan annexed to this Lease at Appendix 1 and labelled “Premises Plan”. “ Prescribed Rate ” means 4% per annum above Barclays Bank PLC’s Base Rate (or such other comparable rate as the Landlord may reasonablydesignate if that base rate ceases to be published) from time to time in force, compounded with quarterly rests on the usual quarter days. “ Principal Rent ” means Seven Hundred and Twenty Six Thousand Six Hundred and Sixty Five Pounds (£726,665.00) per annum subject to anyincrease in accordance with Schedule 6 ( Review of Principal Rent ). “ Recommendation Report ” has the meaning given in the EPB Regulations. “ Rent Commencement Date ” means the date of this lease “ Review Date ” means 4 June 2019. “ Roof Terrace ” means the area shown coloured yellow on the Roof Terrace Plan. “ Roof Terrace Plan ” means the plan annexed to the Superior Lease labelled “Roof Terrace Plan”. “ Schedule of Condition ” means the schedule of condition dated December 2015 and annexed to this Lease at Appendix 3 “ Service Charge Period ” means the period of 12 months ending on 31 December in each year, or such other period as the Landlord may from time totime determine and notify to the Tenant in writing. “ Service Systems ” means all electrical and mechanical apparatus, plant, machinery and equipment installed in the Building from time to time, usedfor the provision of services and facilities within or to the Building but excludes any installed by the Tenant or any other tenant or occupiers of theBuilding which are tenant’s fixtures. “ Sixth Floor Common Parts ” means those areas in the Landlord’s Premises which are made available by the Landlord from time to time for the useof the Tenant together with the Landlord and others as shown shaded green on the Plan. “ Sixth Floor Service Charge ” means the service charge as defined and calculated in accordance with Schedule 4 (Sixth Floor Service Charge). “Sixth Floor Services” means the services as defined in Schedule 4. “Specified Companies” means: 6  (a)Amazon - Amazon.com Inc (a company registered in the state of Delaware, USA under file number 2620453) of 1200 12th Avenue S Suite1200, Seattle, Washington 98144, USA and whose registered agent address is 2711 Centerville Rd STE 400, Wilmington, Delaware 19808,USA; (b)eBay - eBay Inc. (a company registered in the state of Delaware, USA under file number 2871352) of 2145 Hamilton Avenue, San Jose,California 95125 USA and whose registered agent address is 160 Greentree Dr STE 101, Dover, Delaware 19904, USA; (c)Facebook – Facebook Inc. (a company registered in the state of Delaware, USA under file number 3835815) of 1601 Willow Road, MenloPark, CA 94025, USA and whose registered agent address is 2711 Centerville Rd STE 400, Wilmington, Delaware 19808, USA; (d)Twitter – Twitter Inc. (a company registered in the state of Delaware, USA under file number 3835815) of 1355 Market Street, Suite 900, SanFrancisco, CA 94103, USA; (e)Apple – Apple Inc. (a company registered in the state of Delaware, USA under file number 3868031) of 1 Infinite Loop, Cupertino, CA95014, USA and whose registered agent address is Corporation Trust Center 1209 Orange St, Wilmington, Delaware 19801, USA; (f)Microsoft Corporation – Microsoft Corporation (a company registered in the state of Delaware, USA under file number 2357303) of OneMicrosoft Way, Redmond, Washington 98052, USA and whose registered agent address is 2711 Centerville Rd STE 400, Wilmington,Delaware 19808, USA; (g)Yahoo! – Yahoo! Inc. (a company registered in the state of Delaware, USA under file number 3011436) of 701 First Avenue, Sunnyvale, CA94089, USA and whose registered agent address is Corporation Trust Center 1209 Orange St, Wilmington, Delaware 19801, USA; (h)Groupon – Groupon Inc. (a company registered in the state of Delaware, USA under file number 4489613) of 600 West Chicago Avenue,Chicago, IL 60654, USA and whose registered agent address is Corporation Trust Center 1209 Orange St, Wilmington, Delaware 19801, US; (i)Yelp – Yelp Inc. (a company registered in the state of Delaware, USA under file number 3850893) of 706 Mission Street, San Francisco, CA94103, USA and whose registered agent address is 160 Greentree Dr STE 101, Dover, Delaware 19904, USA; (j)Ask.com – IAC Search & Media, Inc. (a company registered in the state of Delaware, USA under file number 3028980) of 555 12th Street,Suite 500, Oakland, CA 94607, USA and whose registered agent address is 160 Greentree Dr STE 101, Dover, Delaware 19904, USA; (k)any Group Companies and affiliates of the above companies listed in paragraphs (a) to paragraph (j); or (l)any corporate successors to all or substantially all of the businesses of any companies which fall under paragraphs (a) to (j). “ Superior Landlord ” means the Landlord’s immediate reversioner for the time being, at the date of this lease KCC Nominee 1 (B4) Limited(company No. 08136385) and KCC Nominee 2 (B4) Limited (company No. 08136493) both of whose registered office is at 4 Stable Street, LondonN1C 4AB as trustees for the KC (B2 & B4) Limited Partnership (Limited Partnership No. LP15093) whose principal office is at 4 Stable Streetaforesaid 7  “Superior Lease” means the lease dated 4 June 2014 and made between (1) KCC Nominee 1 (B4) Limited (company No. 08136385) and KCCNominee 2 (B4) Limited (company No. 08136493) and (2) Performing Right Society, Limited (company number 00134396) (a copy of which isannexed to this lease at Appendix 2) “ Tenant ” means the person named as such in the Parties Clause and includes the successors in title of the Tenant to the term created by this Lease andthe Tenant for the time being and from time to time under this Lease. “ Term ” means a term of years from and including the date of this lease to and including 31 May 2024. “ Termination of the Term ” means the determination of the Term whether by effluxion of time, re-entry, notice, surrender by operation of law or byany other means or cause. “ Uninsured Risk ” means an Insured Risk against which insurance is not or ceases to be obtainable on normal commercial terms in the Londoninsurance market at rates generally available in the London insurance market for a property of this type, size and location. “ Working Day ” means any day other than Saturday or Sunday or public or bank holidays when clearing banks in the United Kingdom are open to thepublic for the transaction of business. “ VAT ” means value added tax or any other tax of a like nature or levied in addition to or substitution for value added tax. 1.2The masculine includes the feminine and the singular the plural and vice versa. 1.3Obligations undertaken by any Tenant or Guarantor where the relevant party comprises more than a single person are joint and several obligations. 1.4Any covenant by the Tenant not to do an act or thing shall be construed as if it were also a covenant not to permit or suffer such act or thing. 1.5Rights excepted reserved or granted to the Landlord shall be construed as excepted, reserved, or granted to the Landlord the Superior Landlord and allpersons authorised by either of them. 1.6Any consent or approval of the Landlord required pursuant to the terms of this Lease to is valid only if given in writing and (where the Superior Leasewould require such consent or approval) the obligation to obtain such consent or approval shall include the obligation to obtain the Superior Landlord’sconsent or approval. 1.7Any consent or approval which is expressed in this Lease as not to be unreasonably withheld shall not be unreasonably delayed. 1.8References to a consent shall include a declaration made by the court that such consent has been unreasonably withheld or delayed but only when suchdeclaration cannot be challenged on appeal. 1.9The contents page, Clause headings and Schedule headings in this Lease are for reference only and shall not be deemed to form part of this Lease norshall they affect the construction of this Lease. 8  1.10Reference to any plan is to the relevant plan annexed to this Lease. 2THE LETTING TERMS In consideration of the rents reserved and the covenants on the part of the Tenant the Landlord demises the Premises with full title guarantee to theTenant together with the rights specified in Schedule 1 ( Rights granted to the Tenant ) excepting and reserving the rights specified in Schedule 2 (Rights reserved to the Landlord ) but subject to and where appropriate with the benefit of all matters contained or referred to in Schedule 3 ( Matters towhich the Lease is subject ) for the Term yielding and paying by way of rent yearly and proportionately for any less time than a year: (a)the Principal Rent payable by equal quarterly payments in advance on the usual quarter days in each year with the first payment being a dueproportion in respect of the period from Rent Commencement Date until the day before the next following quarter day (both dates inclusive)to be made on Rent Commencement Date; (b)the Insurance Rent payable within 20 Working Days of written demand but not in any event sooner than one month prior to thecommencement of the renewal date of such insurance; (c)the Sixth Floor Service Charge payable at the times and in the manner specified in Schedule 4 ( The Sixth Floor Service Charge ); (d)the Building Service Charge payable quarterly in advance on the usual quarter days, and a fair and reasonable proportion of any shortfallcalculated pursuant to the terms of the Superior Lease to be paid within 20 Working Days of written demand with any overpayments to beallowed against the next instalment of the Building Service Charge or after the Termination of the Term to be repaid to the Tenant withintwenty (20) Working Days of ascertainment; (e)the Block Service Charge payable within 20 Working Days of written demand; (f)the Estate Service Charge payable within 20 Working Days of written demand; (g)all costs reasonably and properly incurred by the Superior Landlord and payable by the Landlord under the Superior Lease for the SuperiorLandlord providing hot and cold water supplies to the Premises (as measured by the sub-meters installed at the Premises) within 20 WorkingDays of written demand; (h)any other sums falling due under this Lease; and (i)VAT on the rents reserved by this Lease payable at the time such rents are payable. 3TENANT’S COVENANTS The Tenant covenants with the Landlord as set out in this Clause 3 ( Tenant’s covenants ). 9  3.1Pay rents To pay the rents reserved by this Lease on the days and in the manner specified without (subject to any contrary statutory requirement) any deduction orset off (whether legal or equitable) such payment if required by the Landlord to be made by banker’s standing order or credit transfer to such bank andaccount as the Landlord shall from time to time nominate. 3.2Outgoings 3.2.1To pay or indemnify the Landlord against all existing and future rates, (including rates for unoccupied property), taxes, impositions, outgoings andassessments whatsoever (including all charges for gas and electricity consumed on the Premises) which shall during the Term be assessed or imposedon or in respect of the Premises whether assessed or imposed on the Landlord or the Tenant (except tax (other than VAT) payable by the Landlord inrespect of rents payable under this Lease or tax payable as a result of any dealing with any reversion immediately or mediately expectant on the Term)all such sums to be paid within 20 Working Days of written demand for them or in accordance with the terms of the various service providers if suchterms provide for a shorter payment period and only insofar as such sums are not recovered by the Landlord through any service charge. 3.2.2If any such outgoing is assessed on the Building and paid by the Landlord, to repay the Landlord on demand such proportion as the Landlord’sSurveyor reasonably determines to be fairly attributable to the Premises. 3.2.3To pay that part of the Landlord’s Energy Management Costs which the Landlord or the Landlord’s Surveyor reasonably attributes to the Premises. 3.3Costs of consent To pay within 20 Working Days of written demand the Landlord’s and the Superior Landlord’s reasonable fees and expenses (including any stamp dutyon licences and duplicates) properly incurred resulting from all applications by the Tenant for any consent required by this Lease including cases wherethe application is withdrawn or consent is refused save where such consent is proffered subject to an unreasonable or unlawful condition or where acourt determines such consent is unreasonably refused or withdrawn in circumstances where the Landlord and/or the Superior Landlord as applicable isrequired to act reasonably. 3.4Landlord’s expenses To pay to the Landlord and the Superior Landlord within 10 Working Days of written demand all proper costs, charges and expenses (including legalcosts, bailiffs’ fees and fees payable to a surveyor or an architect): (a)resulting from any breach by the Tenant of any of its obligations under this Lease (including without prejudice to the generality of theforegoing) the recovery of arrears of rent; (b)incidental to any contemplated or actual notice or proceedings preparatory to forfeiture of this Lease for breach of its terms notwithstandingforfeiture is avoided otherwise than by relief granted by the court; (c)resulting from the Landlord and/or the Superior Landlord and/or the Head Landlord abating a nuisance caused by the Tenant on the Premisesand executing all such works as may be necessary for abating a nuisance caused by the Tenant on the Premises in obedience to a notice servedby any local or other authority; and 10  (d)incidental to the preparation and service of all notices and schedules relating to wants of repair to the Premises and whether served during theTerm or within four months after the Termination of the Term (but relating in all cases to such wants of repair that accrued not later thanTermination of the Term). 3.5VAT 3.5.1To pay in addition to (and at the same time as) the rents or other sums payable under this Lease any VAT which may from time to time be applicable tothem and where the Tenant is obliged to pay an amount of money such amount shall be regarded as being exclusive of all VAT which may be payableon it and the Landlord agrees to provide a VAT invoice as soon as reasonably practicable following receipt of the same. 3.5.2In every case where the Tenant has agreed to reimburse the Landlord and/or the Superior Landlord in respect of any payment made by the Landlordand/or the Superior Landlord under the terms of this Lease the Tenant shall also at the same time reimburse any VAT paid by the Landlord and/or theSuperior Landlord on such payment (except to the extent that such VAT is recoverable by the Landlord and/or the Superior Landlord and/or HeadLandlord as a deductible input) and the Landlord shall, where the payment is made to the Landlord, issue a VAT invoice as soon as reasonablypracticable following receipt of the same. 3.6Interest on late payment If any sum payable by the Tenant under this Lease shall be due but unpaid for 15 Working Days (in the case of the Principal Rent only whetherformally demanded or not) to pay to the Landlord interest at the Prescribed Rate from time to time (after as well as before any judgment of the courts)on such unpaid sum from the due date until the date of payment in full provided that this Clause shall not prejudice any other right or remedy of theLandlord in respect of such unpaid sum. 3.7Repair 3.7.1To keep the Premises in good and substantial repair and condition and properly cleansed excluding damage by: (a)any Insured Risk except and to the extent that the insurance monies are irrecoverable due to any act or default of the Tenant or any personderiving title under the Tenant or any of their respective agents, employees or licensees or contractors; and (b)an Uninsured Risk but only insofar as damage caused by an Uninsured Risk makes the Premises or a substantial part of them unfit foroccupation or use and only to the extent that the Uninsured Risk shall not have become an Uninsured Risk by any act or default of the Tenantor any person deriving title under the Tenant or any of their respective agents, employees, licensees or contractors, PROVIDED THAT the Tenant shall not be required to put or keep the Premises in any better state of repair and condition than as at the date of thislease as evidenced by the Schedule of Condition. 3.7.2To notify the Landlord in writing as soon as practicable of any material defect or material lack of repair in the Premises of which the Tenant becomesaware. 11  3.8Decoration To paint with two coats of good quality paint all the wood, metal and other parts normally painted of the interior of the Premises in the fifth year of theTerm and in the last year of the Term (however determined, but not more than once in any two year period) and after painting to decorate, grain,varnish, wash or suitably treat all such parts as have previously been so dealt with and to repaper the parts usually papered with suitable paper of a goodquality provided that any change of colour or design shall be previously approved in writing by the Landlord (such approval not to be unreasonablywithheld) PROVIDED THAT the Tenant shall not be required to put the Premises in any better decorative state than as at the date of this lease asevidenced by the Schedule of Condition . 3.9Landlord’s entry and rights 3.9.1To permit the Landlord or its agents and/or the Superior Landlord and/or the Head Landlord with or without workmen and others at all reasonable timesduring the Term at convenient hours in the daytime and (except in the case of emergency when no notice need be given) upon the giving of as muchwritten notice as reasonably practicable, but in any event not to be less than 24 hours, to enter into and on the Premises for the purpose of: (a)viewing the Premises to ensure that nothing has been done that constitutes a breach of any of the covenants in this Lease; (b)viewing and examining the state and condition of the Premises and carrying out environmental surveys; (c)complying with any of its obligations; and (d)exercising the rights excepted and reserved in Schedule 2 ( Rights reserved to the Landlord ) or elsewhere in this Lease, the Superior Lease orthe Headlease, subject in all cases to the person exercising such rights doing so accompanied by a representative of the Tenant (except in case of emergency or wherethe Tenant fails to provide such a representative after reasonable prior notice from the Landlord) and making good all damage caused in the exercise ofsuch rights as soon as reasonably practicable and to the Tenant’s reasonable satisfaction. 3.9.2The Landlord may give the Tenant notice in writing specifying any wants of repair which are the Tenant’s responsibility and/or any other breaches ofcovenant and requiring the Tenant to remedy the same, and the Tenant shall start to comply with such notice within two calendar months of receipt ofthe notice and thereafter diligently proceed with such works (or immediately in an emergency). 3.9.3If the Tenant fails to discharge its obligations under this Clause it shall be lawful for the Landlord, its agents, servants and workmen and/or the SuperiorLandlord and/or the Head Landlord at any time to enter upon the Premises for the purposes of stopping and remedying breaches of covenant and ofexecuting such repairs as may be required to achieve compliance with the Tenant’s covenants in this Lease and the proper cost and expense so incurredtogether with any surveyor’s or other charges or fees incurred in connection with them shall be paid by the Tenant within 5 Working Days of writtendemand. 3.10Cleaning windows and doors To clean the inside of all windows (including the inside of the external windows that are excluded from the Premises) at least once in every month. 12  3.11Not to obstruct Conduits Not to do anything whereby any of the Conduits may become choked, obstructed or damaged or whereby the working of any Conduit may be impairedor adversely affected. 3.12Waste Not to commit any waste whether permissive or voluntary in or upon the Premises. 3.13Floor loading Not to endanger any floor of the Building or any of the gas, electricity, water and other services at any time provided for use in the Building byoverloading them nor to use any part of the Premises or the Conduits in such a manner as to exceed the capacity of them or subject them to any strainbeyond that which they are designed to bear or so as to cause noise or vibration in or to any adjoining or neighbouring premises or land. 3.14Alterations 3.14.1Not to make any alterations or additions to the Premises of a structural or external nature or that may permanently damage or alter the appearance of theexposed concrete soffit. 3.14.2Not without the prior written consent of the Landlord (such consent not to be unreasonably withheld) to make any alteration or addition to any of theConduits or the systems for the supply of heating, air conditioning (if any), lighting, electric power or water installed within or upon the Premisesprovided that the Landlord shall not be considered to be acting unreasonably if such alterations adversely affect the Service Systems. 3.14.3Without prejudice to Clause 3.14.1 and ‎Clause 3.14.2 not without the prior written consent of the Landlord (such consent not to be unreasonablywithheld) to make any other alteration or addition to the Premises. 3.14.4If alterations or additions are made to notify the Landlord in writing immediately following completion of the works for insurance purposes. 3.14.5Subject to Clause 3.14.1 and Clause 3.14.2 and notwithstanding ‎Clause 3.14.3 and Clause 3.14.4 the Tenant may install alter and/or remove internaldemountable partitioning (together with all necessary fastenings and/or cabling provided that such fastenings and/or cabling do not materially adverselyaffect the structure of the Building or the partitioning dividing the Premises from the remainder of the Landlord’s Premises) without the Landlord’sconsent, provided that: (a)the Tenant shall first supply the Landlord with full details and plans of such partitioning or its removal; (b)any partitioning installed in the Premises does not affect the appearance of the external window lines of the Building; (c)any partitioning adjacent to the external elevation of the Building dovetails with the window mullions; (d)such installation or removal does not adversely affect any of the Conduits; and 13  (e)any damage caused to the structure of the Building or to the partitioning dividing the Premises from the remainder of the Landlord’s Premisesis made good to the Landlord’s reasonable satisfaction immediately by the Tenant at its own cost. 3.14.6Not to make any alterations or additions to the Premises which, in the Landlord’s reasonable opinion, have a material adverse effect on the energyefficiency, Operational Rating or Asset Rating of the Premises or the Building. 3.14.7All alterations must be carried out in accordance with the Lessee’s Fit Out Guide. 3.15Yield up At the Termination of the Term to yield up the Premises to the Landlord in such repair and decorative condition as shall accord with full compliance bythe Tenant with the Tenant’s covenants in this Lease having: (a)removed from the Premises all tenant’s fixtures, fittings and other property belonging to the Tenant or any third party; (b)(if and to the extent reasonably required by the Landlord by notice not less than three months before the end of the Term) removed allalterations or additions made during the Term (except for any floor boxes installed by the Tenant with consent) and reinstated the Premises totheir prior state and condition of full open plan accommodation; (c)made good to the reasonable satisfaction of the Landlord any damage to the Premises caused by such removal and reinstatement; and (d)redecorated the Premises having first obtained the Landlord’s approval (such approval not to be unreasonably withheld) of the colours to beused for such redecoration provided that the Tenant shall not be required to replace any carpets at the Premises at the Termination of theTerm. 3.16Restrictions on use Not to use the Premises or any part of them for any sale by auction or for any illegal, immoral or improper purpose. 3.17Permitted user Not to convert or use the Premises or any part of them for any purpose whatsoever other than for the Permitted Use. 3.18Alienation 3.18.1Save as permitted by the following provisions of this Lease not to assign, underlet mortgage, charge or part with the possession or share the occupationof the whole or any part of the Premises nor permit any person deriving title from the Tenant to do so and, notwithstanding the provisions of thisClause 3.18 ( Alienation ), not to grant a licence or to assign this Lease to any of the Specified Companies until the earlier of: (a)the date five years from and including 22 January 2016 ; and (b)17 January 2023. 3.18.2No Underletting 14  Not to underlet the whole or any part of the Premises 3.18.3Assignment Not to assign the whole of the Premises without the prior written consent of the Landlord (such consent not to be unreasonably withheld) Provided That(for the purposes of section 19(1A) of the Landlord and Tenant Act 1927) the Landlord shall be entitled to impose all or any of the matters set out inClause 3.18.5 as a condition of its consent. 3.18.4General saving The proviso to Clause 3.18.3 shall operate without prejudice to the right of the Landlord to withhold such consent on any other grounds where suchwithholding of consent would be reasonable or to impose any further conditions upon the grant of consent where the imposition of such conditionswould be reasonable. 3.18.5Specific conditions which the Landlord may impose The conditions referred to in Clause 3.18.3 (and which are to be fulfilled prior to completion of the proposed assignment) are as follows: (a)the delivery to the Landlord of a deed (being an authorised guarantee agreement within section 16 of the Landlord and Tenant (Covenants)Act 1995 entered into by the Tenant in the form set out in Schedule 7 (Authorised Guarantee Agreement)) or in such other form as theLandlord may from time to time reasonably determine; (b)the payment to the Landlord of all rents and other sums which have fallen due under the Lease prior to the date of the proposed assignment; (c)the giving of any requisite consent of any Superior Landlord or mortgagee and the fulfilment of any lawful condition of such consent; (d)where the Landlord reasonably so requires either the delivery to the Landlord: (i)of a Deed of Guarantee entered into by one or more guarantors reasonably acceptable to the Landlord; or (ii)of a rent deposit deed entered into by the proposed assignee in such form as the Landlord may from time to time reasonably requiretogether with payment to the Landlord by way of cleared funds of such sum as is reasonably required by the Landlord and specifiedin the rent deposit deed; and (e)on an assignment by the Tenant to a company which is another member of the same group of companies, the ultimate holding company(unless it is the assignee, or it would itself be giving an authorised guarantee agreement), enters into a Deed of Guarantee but if the ultimateholding company would otherwise be released from liability, the Landlord may require another substantial member of the group to give theguarantee. 3.18.6Charging Not without the Landlord’s prior written consent (which shall not be unreasonably withheld) to mortgage or charge the Premises as a whole or to allowany person deriving title from the Tenant to mortgage or charge the Premises as a whole. 15  3.19Sharing with a Group Company Nothing in Clause 3.18 ( Alienation ) shall restrict the right of the Tenant to allow any Group Company of the Tenant to occupy or share the occupationof the Premises from time to time provided that: (a)no relationship of Landlord and Tenant shall be created or deemed to exist between the Group Company and the Tenant; (b)the Group Company shall not be permitted to have exclusive occupation of the whole or any part or parts of the Premises; and (c)the relevant company shall vacate the Premises forthwith upon ceasing to be a Group Company. 3.20Registration Within one month after the execution of any assignment, charge, transfer or underlease or upon any transmission by reason of a death or otherwiseaffecting the Premises or any part of them to produce to and leave with the solicitors for the time being of each of the Landlord and Superior Landlord acertified copy of the deed, instrument or other document evidencing or effecting such transmission and on each occasion to pay to such solicitors theirproper registration fee and in addition either to pay or to reimburse the Landlord for the registration fee of the Superior Landlord and/or its solicitor. 3.21Encroachments and third party rights 3.21.1Not to stop up, darken or obstruct any windows or lights belonging to the Premises or permit any encroachment or easement to be made or acquired inrelation to the Premises which may cause damage, annoyance or inconvenience to the Landlord the Superior Landlord the Head Landlord or any of itstenants and if any such window, light, opening, doorway, path, passage, drain or other encroachment or easement shall be made or acquired to permitthe Landlord’s Surveyor, servants and agents to enter the Premises at reasonable times (accompanied by a representative of the Tenant save in case ofemergency or where the Tenant fails to provide such a representative after reasonable prior notice from the Landlord) to ascertain the nature of suchencroachment or easement and at the request of the Landlord to adopt at the cost of the Landlord such means as may be reasonably required or deemedproper by the Landlord for preventing any such encroachment or the acquisition of any such easement. 3.21.2Not to give to any third party any acknowledgement that the Tenant enjoys the access or light to any of the windows or openings in the Premises by theconsent of such third party nor to pay to such third party any sum of money nor to enter into any agreement with such third party for the purpose ofinducing or binding such third party to abstain from obstructing the access of light to any of such windows or openings and in the event of any of theowners of adjacent land or buildings doing or threatening to do anything which obstructs the access of light to any of the windows or openings in thePremises to notify the same immediately to the Landlord. 3.22Nuisance Not to do any act, deed or thing in or about or in connection with the Premises (including without limitation the Roof Terrace) which may be or becomea nuisance or which may be or lead to the damage, annoyance, inconvenience or disturbance of the Landlord or the owners, tenants or occupiers of anypremises on the Estate or be injurious to the value, tone, amenity or character of the Building or the Estate. 16  3.23Hazardous goods Not to keep or deposit for sale or otherwise in or on the Premises any goods of a dangerous, hazardous or especially combustible nature except underconditions of storage and use strictly in accordance with the requirements whether statutory or otherwise of the fire or other appropriate authorities andof the Landlord’s insurers and not to keep any materials which may contravene any statute or local regulation or bylaw, but the storage of usual officesupplies and paper transactional records in the ordinary course of business, will not be a breach of this provision. 3.24Contamination 3.24.1Not to cause any contamination or pollution on, in or under the Premises. 3.24.2Not to discharge any contaminative or hazardous substance from the Premises. 3.25Compliance with statutes, etc. 3.25.1To comply with all requirements of all Acts in relation to the Premises and the rights granted to the Tenant under this lease and do all things on or inrespect of the Premises which are required by any Act and to keep indemnified the Landlord against all claims, demands, costs, expenses and liability inrespect of them provided that the Landlord uses reasonable endeavours to mitigate its losses and expenses and does not settle any claim or proceedingsin this respect without first consulting with the Tenant. 3.25.2To comply with all requirements and regulations of the relevant supply authority as to the electrical or other service or utility installations in thePremises. 3.25.3In relation to any work that the Tenant carries out to or upon the Premises to which the Construction (Design and Management) Regulations 2007 orany modification or replacement of the same (the “ CDM Regulations ”) apply the Tenant shall: (a)be the only client for the purposes of the CDM Regulations, in which case the Tenant warrants to the Landlord that it has the competence andresources to comply with those requirements; (b)upon completion of such work, supply to the Landlord (without charge and subject to an irrevocable royalty free licence in favour of theLandlord and/or its agents to use the same for any purpose connected with the Building) a copy of the health and safety file relating to suchwork and any other information relevant to health and safety and make the health and safety file available for inspection as soon as reasonablypracticable after a request from the Landlord; and (c)as soon as reasonably practicable after it becomes aware of any information relevant to health and safety in relation to the Premises, providesuch information to the Landlord. 3.26Planning Acts 3.26.1In relation to the Planning Acts (and without prejudice to the provisions of Clause 3.25.1): (a)so often as occasion shall require at the expense in all respects of the Tenant to obtain from (as the case may be) the local planning authorityor the Secretary of State for the Environment or such other authority as may from time to time be appropriate all consents and permissions (ifany) as may be required for the carrying out of any operations on the Premises or the institution or continuance on the Premises of any activitywhich may constitute development within the meaning of the Planning Acts; and 17  (b)not to make any application for planning permission without the previous written consent of the Landlord (such consent not to beunreasonably withheld). 3.26.2To pay and satisfy any charge that may be imposed under the Planning Acts in respect of the carrying out or maintenance of the operations or theinstitution or continuance of any activity referred to in Clause 3.26.1(a). 3.26.3Notwithstanding any consent which may be granted by the Landlord under this Lease not to carry out or make any alteration or addition to the Premisesor any change of use of the Premises before any requisite planning permission has been produced to the Landlord and acknowledged by it in writing assatisfactory to it and, subject to Clause 3.26.4, such acknowledgement shall not be unreasonably withheld. 3.26.4The Landlord may refuse so to express its satisfaction with any such planning permission on the ground that its period of validity or anything containedin or omitted from it is likely (in the reasonable opinion of the Landlord) to be prejudicial to the Landlord’s interest in the Premises whether during theTerm or following the Termination of the Term. 3.26.5Unless the Landlord shall otherwise direct to carry out before the Termination of the Term any works stipulated to be carried out to the Premises by adate subsequent to the Termination of the Term as a condition of any planning permission which may have been granted to the Tenant and in respect ofwhich implementation has been commenced during the Term. 3.26.6If and when called upon so to do to produce to the Landlord all such plans, documents and other evidence as the Landlord may reasonably require inorder to satisfy itself that the provisions of this covenant have been complied with in all respects. 3.26.7If the Tenant shall receive any compensation with respect to its interest under this Lease because of any restriction placed upon the user of the Premisesunder or by virtue of the Planning Acts then if and when its interest under this Lease is determined by assignment or at the Termination of the Term (ifearlier) immediately to make such provision as is just and equitable for the Landlord to receive its due benefit from such compensation. 3.26.8To comply with such provisions of the Planning Permission and the Planning Agreement as are applicable to an occupational tenant of the Premisesprovided that it is acknowledged that the obligation of the Tenant to comply with the Planning Agreement shall not extend beyond that anticipated byclause 8.3.1(ii) of the Planning Agreement. 3.27Notices 3.27.1To give full particulars (including copies where and when available) to the Landlord within seven days of receipt of any permission, notice, order orproposal for a notice or order relating to the Premises made given or issued to the Tenant or left at the Premises by any government department, local,public or other competent authority and if so required by the Landlord to produce such permission, notice, order or proposal for a notice or order to theLandlord. 18  3.27.2Without delay to take all reasonable but commercially prudent or necessary steps to comply in all respects with any such notice or order so far as itrelates to the Premises and also at the request of the Landlord to make or join with the Landlord, at the Landlord’s cost, in making such objections orrepresentations against or in respect of any such notice, order or proposal as the Landlord shall consider expedient save where such representationswould materially adversely affect the Tenant’s use and occupation of the Premises. 3.28Landlord’s regulations To comply with the Building Regulations, the Accessway Regulations and any reasonable regulations relating to the Estate Common Parts made by theSuperior Landlord and notified to the Tenant in writing from time to time. 3.29Signs 3.29.1Not without the prior consent of the Landlord to affix to or exhibit on any part of the Premises any placard, poster, signboard, nameplate, flag,mechanical, neon or electric sign or advertisement of any description which is visible from the exterior of the Building save that the Tenant may erect asign identifying the Tenant and its business on the tenants' nameboard on the 6 th floor with the Landlord’s consent, not to be unreasonably withheld ordelayed. 3.29.2The Tenant may, subject to the Superior Landlord’s consent, not to be unreasonably withheld or delayed, erect a sign identifying the Tenant and itsbusiness within the main reception area of the Building and the Landlord will at the Tenant’s cost use its reasonable endeavours to procure the SuperiorLandlord’s consent. 3.29.3Any sign exhibited or erected pursuant to 3.29.1 and 3.29.2 above, must be of a reasonable size and have (if necessary) been approved pursuant to thePlanning Acts. 3.30EPCs 3.30.1Not to obtain an EPC for the Premises or the Building without the consent of the Landlord and Superior Landlord (not to be unreasonably withheldwhere an EPC is required by statute). 3.30.2It shall be reasonable for the Landlord and the Superior Landlord to withhold consent pursuant to Clause 3.30.1 if: (a)any Existing EPC remains valid; (b)the Landlord and/or Superior Landlord provide to the Tenant a valid EPC for the Premises; or (c)the Landlord and/or Superior Landlord agree (at the Tenant’s cost) to obtain an EPC for the Premises. 3.30.3If the Tenant requests (and the Landlord and Superior Landlord provide) any information required in order to allow an energy assessor to prepare anEPC then the Tenant shall on demand pay to the Landlord and Superior Landlord the Landlord’s and Superior Landlord’s reasonable costs andexpenses properly incurred in providing such information. 3.30.4If the Tenant obtains an EPC in breach of Clause 3.30.1, not to provide a copy of such EPC to the Landlord and Superior Landlord so as not toinvalidate any EPC that the Landlord or Superior Landlord may already possess. 19  3.30.5Where necessary, to allow the Landlord and Superior Landlord and their employees or its agents to have access to all documentation, data andinformation in the Tenant’s possession or under its control reasonably required by the Landlord or Superior Landlord to enable it to: (a)prepare an EPC and Recommendation Report for the Building; or (b)comply with any duty imposed on the Landlord under the EPC. 3.31Reletting and for sale boards 3.31.1For the period of six months immediately preceding the Termination of the Term or at any time in the case of a proposed sale of the Landlord’s and/orSuperior Landlord’s interest in the Lease and subject to there being no substantial interference with the Tenant’s enjoyment of the Premises or its rightsof access and of light and air to the Premises to permit a sale or letting board to be exhibited on some conspicuous part of the Premises. 3.31.2To permit an inspection by any prospective purchaser or tenant (accompanied by a representative of the Tenant save where the Tenant fails to providesuch a representative after reasonable prior notice) at any reasonable time in the day and upon reasonable notice in writing of not less than 24 hourshaving been given. 3.32Use of Common Parts 3.32.1Not to do or omit to do any act whereby any of the Common Parts or the Estate Common Parts may be damaged or obstructed or whereby the fair useof the Common Parts or by the Estate Common Parts by others may be impeded or obstructed in any manner. 3.32.2To make good immediately any damage done to the Common Parts or the Estate Common Parts by the Tenant or any employee or invitee of the Tenantand not to place or leave anything in the Common Parts or the Estate Common Parts or otherwise obstruct them. 3.33Landlord’s title To observe and perform the covenants and provisions on the part of or binding upon the Landlord in the documents (if any) specified or referred to inSchedule 3 ( Matters to which the Lease is subject ) so far as they relate to the Premises. 3.34To observe Superior Lease To perform and observe the covenants (other than payment of rent) on the part of the tenant contained in the Superior Lease insofar as they relate to thePremises. 3.35Indemnity To indemnify the Landlord against all proper losses, damages, proceedings, actions, claims, demands, costs and expenses incurred or suffered by theLandlord whether before or after Termination of the Term as a result of any breach by the Tenant of any of the Tenant’s obligations contained in thisLease provided that the Landlord uses reasonable endeavours to mitigate its losses and expenses and does not settle any claim or proceedings in thisrespect without first consulting with the Tenant. 4LANDLORD’S COVENANTS The Landlord covenants with the Tenant as set out in this Clause 4 ( Landlord’s covenants ). 20  4.1Quiet enjoyment Subject to the Tenant paying the rents reserved by and performing and observing the covenants and conditions on the part of the Tenant contained inthis Lease the Tenant shall peaceably hold and enjoy the Premises during the Term without interruption from or by the Landlord or by any personlawfully claiming under or in trust for the Landlord or by title paramount. 4.2Services It will (subject as mentioned below) provide the Sixth Floor Services and will use all reasonable endeavours to: (a)procure that the Superior Landlord provides the services mentioned in Schedule 4 of the Superior Lease ( the Building Service Charge ); (b)procure that the Superior Landlord provides hot and cold water supplies to the Premises; and (c)procure that the Superior Landlord procures the provision of the Estate Services and the Block B Services as defined in the Headlease; provided that the Landlord has no liability if the Superior Landlord decides at its reasonable discretion (acting in the interest of the proper managementof the Building) to extend, diminish, remove or otherwise vary the services provided for the Building, so long as such variations do not materiallyadversely affect the Tenant’s use and enjoyment of the Premises. 4.3Covenants in Superior Lease To pay the rent reserved by the Superior Lease and to observe and perform the tenant’s covenants in the Superior Lease (insofar as the same relate tothe Premises and in so far as the Tenant is not liable for such observance and performance under its covenants in this Lease) and to use all reasonable,but commercially prudent endeavours to enforce the covenants on the part of the Superior Landlord contained in the Superior Lease; 4.4Planning Agreement To indemnify the Tenant against all losses, damages, proceedings, actions, claims, demands, costs and expenses arising out of any breach of theprovisions of the Planning Agreement and/or the Planning Permission (save to the extent that any breach is attributable to the failure of the Tenant tocomply with Clause 3.26.8 or to any works or change of use carried out or implemented by the Tenant). 4.5Construction Warranties 4.5.1To use all reasonable endeavours to enforce all available contractual or collateral warranties that the Landlord has the benefit of in relation to the designand construction of the Building or defective materials in the Building and to apply any compensation monies received pursuant to any such claims orenforcement in the making good of such defect in the design and construction of the Building or defective materials to which the relevant warranty orclaim refers. 4.5.2All costs and expenses properly incurred by the Landlord pursuant to the obligation in Clause 4.5.1 (to the extent not actually recovered from therelevant warrantor pursuant to any claim) shall be recoverable as an item of service charge under Schedule 4 ( Sixth Floor Service charge ) 21  5INSURANCE 5.1Landlord’s obligations The Landlord will use all reasonable, but commercially prudent endeavours to procure that the Superior Landlord complies with the covenants imposedon it regarding insurance contained in the Superior Lease save to the extent that the policy of insurance has been vitiated or any insurance proceedswithheld in consequence of any act or omission of the Tenant or its workers, contractors or agents or any person on the Premises with the actual orimplied authority of any of them. Neither the Superior Landlord nor the Landlord shall be obliged to insure any part of the Premises installed by theTenant. 5.2Tenant’s obligations The Tenant will: (a)not do anything which may prejudice or invalidate any policy of insurance effected or procured for the Building or increase the premium forsuch policy and on demand to pay to the Landlord a sum equivalent to any insurance proceeds which are withheld by any insurer as a result ofany act or default on the part of the Tenant; (b)without prejudice to the rights of the Landlord in respect of any breach of Clause 5.2(a) pay to the Landlord within ten (10) Working Days ofwritten demand all sums paid by way of increased premium and all expenses incurred by it in the renewal of any such policy or policiesrendered necessary by a breach of that covenant; (c)not do anything on the Premises or in the Building which might in the reasonable opinion of the Landlord increase the risk of fire or otherdamage occurring to the Premises or to the Building or to any nearby buildings or materials; (d)notify the Landlord immediately in writing of damage to the Premises by any Insured Risk or Uninsured Risk; (e)comply with all requirements and recommendations in respect of the Premises from time to time of any insurer of the Building which arenotified to the Tenant in writing and the appropriate fire authority; (f)supply and maintain in good condition at all times such fire fighting equipment as shall be required by the Fire Officer or other appropriateofficial for the district for the time being and to comply with all regulations imposed in respect of the Premises; (g)within ten Working Days of demand pay to the Landlord a fair proportion as certified by the Landlord’s Surveyor of any insurance excess ordeduction imposed or made by any insurer of the Building in respect of any claim made; and (h)not to insure the Premises against any of the Insured Risks. 5.3Rent suspension 5.3.1If the Building or any part of it shall at any time be destroyed or damaged by an Insured Risk so as to render the Premises unfit for occupation or use orinaccessible, then (unless and to the extent that the insurance has been vitiated by reason of the act or default of the Tenant or any person deriving titleunder the Tenant or any of their respective agents, employees or licensees) the Principal Rent and the Sixth Floor Service Charge, Building ServiceCharge, Estate Service Charge and Block Service Charge or a fair proportion (according to the nature and extent of the damage sustained) shall cease tobe payable until the earlier of: 22  (a)the Premises are again rendered fit for occupation or use (excluding fitting out and replacement of contents) and made accessible; or (b)(if earlier) the expiry of five years from the date of damage or destruction. provided that any dispute to the amount of cesser of the Principal Rent and Building Service Charge, Estate Service Charge and Block Service Chargeshall be referred to the decision of a single arbitrator under the Arbitration Act 1996 at the request of the Landlord or the Tenant. 5.3.2If the Principal Rent is suspended in accordance with Clause 5.4.1 before the Rent Commencement Date the number of days of such suspension duringthe period from and including the date of damage or destruction to but excluding the Rent Commencement Date shall be added to the date from whichthe Principal Rent would otherwise be payable pursuant to Clause 5.3.1(a) or Clause 5.3.1(b) and the Principal Rent shall cease to be payable until thisdate. 5.3.3If the obligation to make payments of the Principal Rent and Building Service Charge, Estate Service Charge and Block Service Charge are suspendedunder Clause 5.3.1 then the Landlord will reimburse to the Tenant within 20 Working Days of such damage or destruction the due proportion ofpayments of the Principal Rent and Building Service Charge, Estate Service Charge and Block Service Charge in advance in respect of the period onand from the date of such damage or destruction to the end of the relevant payment period. 5.4Options to terminate following damage by an Insured Risk 5.4.1If the Premises or the Building are destroyed or damaged by an Insured Risk so as to render the Premises unfit for occupation or use or inaccessible,then: (a)if the Superior Landlord terminates the Superior Lease in accordance with Clause 5.4.1 (a) of the Superior Lease then the Landlord shallimmediately serve a copy of such notice on the Tenant; (b)if the Landlord has not notified the Tenant that the Superior Landlord intends to commence works of reinstatement or rebuilding within 12months of the date of damage or destruction then the Tenant may (but not after receiving such notification) terminate this Lease by giving tothe Landlord notice to that effect; and (c)if for any reason rebuilding or reinstatement of the Building in accordance with the Superior Landlord’s obligations in the Superior Lease hasnot been completed by the expiry of five years from the date of damage or destruction then either the Landlord or the Tenant may terminatethis Lease by giving the other party notice to that effect. 5.4.2If notice is given pursuant to Clause 5.4.1, then this Lease shall terminate immediately but such termination shall not affect any liability which hasaccrued at any time before the date of termination. 5.4.3On the termination of this Lease under this Clause 5.4 ( Options to terminate following damage by an Insured Risk ), or if this Lease is otherwiseterminated by the operation of the doctrine of frustration, the Tenant acknowledges that the Superior Landlord is entitled to retain for its exclusivebenefit all proceeds of insurance under the terms of the Superior Lease. 23  5.5Uninsured Risks 5.5.1For the purpose of this Clause 5.5 ( Uninsured Risks ): (a)these provisions shall apply from the date on which any Insured Risk becomes an Uninsured Risk but only in relation to the Uninsured Risk; (b)references to an Insured Risk becoming an Uninsured Risk shall, without limitation, include the application by the Superior Landlord’sinsurers of an exclusion, condition or limitation to an Insured Risk to the extent to which such risk thereby is or becomes an Uninsured Risk;and (c)the Landlord shall notify the Tenant in writing as soon as reasonably practicable after an Insured Risk becomes an Uninsured Risk. 5.5.2If the Building or any part of it shall be damaged or destroyed by an Uninsured Risk so as to make the Premises unfit for occupation or use orinaccessible: (a)the Principal Rent and the Building Service Charge, the Estate Service Charge Block Service Charge and Sixth Floor Service Charge (or a fairproportion according to the nature and extent of the damage sustained) will be suspended from and including the date of such damage ordestruction until: (i)the Premises are again made fit for occupation or use and accessible (excluding fitting out and replacements of contents); or (ifearlier); (ii)the date on which this Lease shall be terminated in accordance with Clause 5.5.2(b) or Clause 5.5.4; and (b)the Superior Landlord may in accordance with the terms of the Superior Lease within one year of the date of such damage or destruction servenotice on the Landlord confirming that it will reinstate the Premises (a “Reinstatement Notice”) so that the Premises shall (subject to theproviso to Clause 5.5.1(a)) be fit for occupation or use or made accessible. The Landlord will notify the Tenant in writing if this occurs. If theSuperior Landlord fails to serve a Reinstatement Notice (or gives written notice that it does not intend to reinstate) within one (1) year of thedate of damage or destruction then either the Landlord or the Tenant may terminate this Lease by serving written notice to that effect on theother party. 5.5.3This Clause 5.5 ( Uninsured Risks ) shall not apply if and to the extent that an Insured Risk shall have become an Uninsured Risk owing to the act ordefault of the Tenant or any person deriving title under the Tenant or their respective agents, employees, licensees or contractors. 5.5.4If the Superior Landlord shall have served a Reinstatement Notice upon the Landlord and such reinstatement has not been completed by the date threeyears from the date of the Reinstatement Notice (“Reinstatement Date”) at any time after the Reinstatement Date then (but not following completion ofsuch reinstatement) the Landlord or the Tenant may terminate this Lease by serving notice on the other stating that it terminates this Lease. 5.5.5Service of a Reinstatement Notice shall not oblige the Landlord to procure the reinstatement of any alterations or additions of which the Tenant fails tonotify the Landlord under Clause 3.14.4 or to replace any tenant’s fitting out or contents. 24  5.6Termination notices under the Superior Lease For the avoidance of doubt, if any notice is served by the Superior Landlord to terminate the Superior Lease following damage by Insured or UninsuredRisks, that notice shall also operate to terminate this Lease and the Landlord shall promptly provide a certified copy of it to the Tenant. 6DISPUTES UNDER SUPERIOR LEASE Notwithstanding the other terms of this Lease, if any dispute, issue, question or matter arising out of or under or relating to the Superior Lease alsoaffects or relates to the provisions of this Lease, the determination of that dispute, issue, question or matter pursuant to the provisions of the SuperiorLease is to be binding on the Tenant as well as the Landlord for the purposes both of the Superior Lease and this Lease provided that this provision isnot to apply to the provisions for the review of rent payable under this Lease. 7PROVISOS The parties agree to the provisos set out in this Clause 7 ( Provisos ). 7.1No warranty 7.1.1The Landlord gives no warranty express or implied relating to the Premises including their suitability for the Tenant’s purposes or any other purposeand the Tenant shall on taking this Lease be deemed to have satisfied itself in every respect in that regard. 7.1.2The Landlord shall not be liable for any loss, injury or damage to any person or property by the state or condition or user of the Premises whetherarising by accident or by reason of any negligence or other acts of the Tenant or of any person or persons employed by it. 7.2Exclusion of liability 7.2.1Subject to Clause 7.2.2 nothing contained in this Lease shall render the Landlord or the Tenant liable in respect of any of the covenants, conditions andprovisions of this Lease if and so far only as the performance or observance of any such covenants, conditions and provisions shall become acontravention of or otherwise impossible or illegal under or by virtue of the Planning Acts or any other Act. 7.2.2The Term and the Principal Rent and other rents payable to the Landlord shall not be determined or suspended by reason only of any changes,modifications or restrictions of user of the Premises or obligations provisions or requirements made or imposed at any time under or by virtue of thePlanning Acts or any other Act. 7.2.3The Landlord shall not be liable to observe or perform any obligation on its part contained in this Lease (and the Tenant hereby releases the Landlordfrom time to time from all liability in respect of any breach or non observance of any such obligation) after it has ceased to be entitled to the immediatereversion expectant upon the Term. 7.3No further rights 7.3.1The demise comprised in this Lease shall not be deemed to include and shall not operate to convey or demise any ways, watercourses, sewers, drains,rights, liberties, privileges, easements, rights or advantages whatsoever in, through, over or upon the Building or the Estate other than any rightsspecifically granted in this Lease. 25  7.3.2The Landlord the Superior Landlord and the Head Landlord shall have power at all times without obtaining any consent from or making anycompensation to the Tenant to deal with or carry out works or permit or suffer the same to be carried out on any part of any land or buildings (whetheror not belonging to the Landlord) or the Estate as the Landlord the Superior Landlord or the Head Landlord may in any such case think fit and to erector permit or suffer to be erected on any part of any such adjoining or neighbouring land any buildings whatsoever, irrespective of any diminution orother adverse effect on the light or air or any other easement or right which may now or at any time during the Term be enjoyed by the Tenant or theother tenants or occupiers of the Premises or any part of them provided that the Tenant’s access to and use and enjoyment of the Premises is notmaterially adversely affected. 7.4Forfeiture Without prejudice to any other provisions contained in this Lease if: (a)the rents reserved by this Lease are unpaid for 21 days after becoming payable (in the case of the Principal Rent only whether formallydemanded or not); (b)the Tenant is in breach of any of its obligations in this Lease; (c)the Tenant (being a company) enters into liquidation whether compulsory or voluntary (other than for the purpose of reconstruction oramalgamation not involving a realisation of assets) or a resolution is passed or a petition is presented for such liquidation and such petition isnot discharged within 10 Working Days; (d)an administrator is appointed in respect of the Tenant pursuant to the Insolvency Act 1986 or the Insolvent Partnerships Order or application ismade for such administration or notice is given under paragraph 15 or 26 of schedule B1 to the Insolvency Act 1986 (as amended); (e)a receiver is appointed in respect of the Tenant or any assets of the Tenant; (f)(where the Tenant comprises or includes one or more individuals) a bankruptcy order is made against any such individual or a petition ispresented for such bankruptcy order and such petition is not discharged within 10 Working Days; (g)the Tenant becomes insolvent or unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 or makes a proposal orenters into any composition with its or his creditors or enters into a voluntary arrangement (within the meaning of section 1 or section 253 ofthe Insolvency Act 1986); (h)distress, sequestration or execution is levied on the Tenant’s goods which is not relieved within 10 Working Days; (i)any of the above events occurs in relation to any Guarantor (excluding for this purpose any person whose liability at the time of such eventderives from an authorised guarantee agreement); or (j)any event analogous to any of the above events occurs in any jurisdiction other than England, 26  then the Landlord may at any time re-enter the Premises or any part of the Premises in the name of the whole and immediately this Lease shallterminate absolutely but without prejudice to any rights of the Landlord in respect of any breach of any of the obligations on the Tenant’s part in thisLease. 7.5Choice of law and jurisdiction 7.5.1This Lease and any non-contractual obligations arising in connection with it (and, unless provided otherwise, any document entered into in connectionwith it) shall be governed by English law. 7.5.2Subject to Clause 7.5.4 the English courts shall have exclusive jurisdiction to determine any dispute arising in connection with this Lease (and, unlessprovided otherwise, any document entered into in connection with it), including disputes relating to any non-contractual obligations. 7.5.3Each party irrevocably waives any objection which it may now or later have to proceedings being brought in the English courts (on the grounds that theEnglish courts are not a convenient forum or otherwise). 7.5.4Nothing in this Lease (or, unless provided otherwise, any document entered into in connection with it) shall prevent a party from applying to the courtsof any other country for injunctive or other interim relief. 7.6Severability If any provision of this Lease or its application to any person or circumstance is void or unenforceable then such provision or its application to suchperson or circumstance shall be severed from this Lease so that the validity of the remainder of this Lease and the application of such provision to otherpersons or circumstances shall not be affected by such severance. 7.7Rights of third parties No person other than a contracting party may enforce any provision of this Lease by virtue of the Contracts (Rights of Third Parties) Act 1999. 7.8Notices The provisions of section 196 of the Law of Property Act 1925 shall apply to any notice required or given under any Clause or covenant or condition inthis Lease. Notice to the Tenant may also be effected by service to the Tenant at the Premises. Service by electronic mail shall not be valid for thepurposes of this Lease. 7.9Failure to provide services The Landlord shall not be responsible to the Tenant or any other person for: (a)any damage, loss or inconvenience caused by or resulting from any defect or failure or interruption in the lighting or water or electricitysupply or drainage system (whether in the Premises or any other part of the Building or elsewhere) provided that the Landlord shall take allreasonable steps within its power to remedy such defect, failure or interruption within a reasonable period of notice from the Tenantspecifying the defect, failure, inability or interruption in question; (b)any defect in or inability to supply or interruption to the services referred to in Clause 4.2 ( Services ) provided that the Landlord shall take allreasonable steps within its power to remedy such defect or interruption within a reasonable period of notice from the Tenant specifying thedefect inability to supply or interruption in question; or 27  (c)anything beyond the Landlord’s control. 7.10Landlord’s and Superior Landlord’s right to alter The Landlord and the Superior Landlord may from time to time make such alterations in any part of the Building (excluding the Premises) as it shallthink fit and (without limitation) any such alterations may be made by closing the present or then current Common Parts and substituting other parts ofthe Building as Common Parts provided that: (a)any substituted works and things shall be substantially no less convenient for the enjoyment of the Premises than those for which they aresubstituted; and (b)the work of substitution shall be carried out in such manner as to minimise (so far as reasonably practicable) any inconvenience to the Tenant. 7.11Tenant’s property at the end of the Term 7.11.1If at the end of the Term any furniture or effects belonging to the Tenant are left in the Premises or the Building for more than 10 Working Days theLandlord shall have power to sell them as agent for and on behalf of the Tenant. 7.11.2The Landlord shall pay or account to the Tenant on demand for the proceeds of such sale (but not any interest on the proceeds) less any costs of storageand sale reasonably incurred by the Landlord and any other sums still remaining due to the Landlord under the terms of this Lease. 7.12New tenancy This Lease constitutes a new tenancy as defined in the Landlord and Tenant (Covenants) Act 1995. 7.13Superior Landlord and Head Landlord 7.13.1Any of the Landlord’s rights in Schedule 2 ( Rights reserved to the Landlord ) are exercisable by any Superior Landlord and the Head Landlord, theiremployees, agents and workpeople to the extent permitted by the Superior Lease and the Headlease. 7.13.2Where the consent or approval of the Landlord is required for any act or matter the consent or approval of the Superior Landlord and Head Landlord isalso required wherever required pursuant to the Superior Lease or the Headlease and the Tenant must indemnify the Landlord against the reasonablecosts properly incurred of obtaining it. 7.13.3Nothing in this Lease implies any obligation upon the Superior Landlord or Head Landlord not unreasonably to withhold any such consent or approval,unless such obligation exists in the Superior Lease or the Headlease. 7.14Landlord’s warranty The Landlord warrants to the Tenant and those deriving title under it that (other than the matters referred to in Schedule 3 ( Matters to which the Lease is subject ))there are no covenants, restrictions, provisions or other title matters contained in the title to the Estate that would prevent, inhibit or prejudice the occupation, useand enjoyment by the Tenant of the Premises and the rights hereby granted in accordance with the terms of this Lease. 28  7.15Delivery This document shall be treated as having been executed and delivered as a deed only upon being dated. 8GUARANTOR’S COVENANT 8.1The Guarantor hereby covenants with and guarantees to the Landlord as principal debtor that: (a)the Tenant will pay the Principal Rent, Insurance Rent, Sixth Floor Service Charge, Building Service Charge, Block Service Charge andEstate Service Charge all other rents and monies payable under this Lease at the respective times and in the manner appointed above forpayment and will fully observe and perform the covenants, agreements and stipulations on the part of the Tenant contained in this Lease; and (b)the Guarantor will pay and indemnify the Landlord against all proper losses and costs and expenses sustained by the Landlord as a result ofany default in respect of the matters mentioned in this Clause 8 ( Guarantor’s covenant ). 8.2The Guarantor hereby further covenants and guarantees that the Tenant will observe and perform its obligations under any authorised guaranteeagreement entered into by the Tenant pursuant to the terms of this Lease. 8.3The Guarantor’s obligations and liabilities under Clause 8.1 and ‎ Clause 8.2 shall extend to any claims arising prior to any forfeiture of this Lease evenif they have not been made or quantified until after forfeiture of this Lease. 8.4It is hereby agreed that the Guarantor’s liability shall not be discharged, lessened or in any way affected by any neglect or forbearance of the Landlordin endeavouring to obtain payment of the Principal Rent, Sixth Floor Service Charge, Building Service Charge, Block Service Charge, Estate ServiceCharge, Insurance Rent and/or any other rents or sums payable under this Lease as and when the same become due or by any delay in taking steps toenforce performance or observance of the covenants, agreements and stipulations on the part of the Tenant or by any time, indulgence or otherconcession which may be given by the Landlord to the Tenant or (subject to section 18 Landlord and Tenant (Covenants) Act 1995) by any variation ofthe terms of this Lease or by any disclaimer of this Lease or by any other act or thing whereby (but for this Clause) the Guarantor’s liability may havebeen discharged, lessened or otherwise affected. 8.5The Guarantor hereby further covenants with the Landlord that if this Lease is disclaimed or forfeited then the Landlord may within 6 months followingthe disclaimer or forfeiture (as the case may be) by notice in writing require the Guarantor to accept a new lease of the Premises in their then actualstate and condition (and subject to any subsisting underlease or tenancy or other interest for the time being affecting the same) for a term equivalent tothe residue which if there had been no disclaimer or forfeiture would have remained of the Term at the rents last payable under this Lease and subject tothe same covenants agreements and stipulations provided that: (a)the new lease and the rights and liabilities under it are to take effect as from the date of such disclaimer or forfeiture (as the case may be); and (b)the Guarantor shall pay the Landlord’s reasonable costs (including solicitors’ charges and disbursements) properly incurred in the preparationand granting of such new lease and shall accept the new lease and will execute and deliver to the Landlord a counterpart of it. 29  8.6It is hereby agreed that if any payment is made under the terms of this guarantee and the Guarantor is thereupon subrogated to all the Landlord’s rightsof recovery in relation thereto then the Guarantor shall not exercise any such rights against the Tenant. 8.7It is further agreed as follows: (a)the obligations of the Guarantor shall take effect on the grant or (as appropriate) the assignment of this Lease to the Tenant and are to remainin force so long as and to the extent that the Tenant is not released by law from liability for the matters referred to in this Clause 8 (Guarantor’s covenant ) (but without prejudice to Clause 8.2 and Clause 8.3); (b)for the purposes of this Clause 8 ( Guarantor’s covenant ) the expression “Tenant” shall mean the Tenant in relation to whom the Guarantor’sguarantee and obligations under this Clause 8 ( Guarantor’s covenant ) are entered into but not any lawful assignee of such Tenant; and (c)in this document, references to this Lease being disclaimed shall, for the avoidance of doubt, include any action which has the effect ofterminating or otherwise curtailing the Tenant’s obligations under this Lease, whether arising from the action of an insolvency office holder orany other person lawfully empowered to take such action or pursuant to any order of a court (whether in England and Wales or in any otherjurisdiction). 9EXCLUSION OF SECTIONS 24 – 28 OF THE LANDLORD AND TENANT ACT 1954 9.1The parties confirm that: (a)the Landlord served a notice on the Tenant, as required by section 38A(3)(a) of the Landlord and Tenant Act 1954, applying to the tenancycreated by this lease before the Agreement to Lease was entered into; and (b)Frances Shipsey who was duly authorised by the Tenant to do so made a declaration or statutory declaration dated 21 January 2016 inaccordance with the requirements of section 38A(3)(b) of the Landlord and Tenant Act 1954. (c)the Landlord served a notice on the Guarantor, as required by section 38A(3)(a) of the Landlord and Tenant Act 1954, applying to the tenancycreated by this lease before the Agreement to Lease was entered into; and (d)Frances Shipsey who was duly authorised by the Guarantor to do so made a declaration or statutory declaration dated 21 January 2016 inaccordance with the requirements of section 38A(3)(b) of the Landlord and Tenant Act 1954. 10.2The parties agree that the provisions of section 24 – 28 of the Landlord and Tenant Act 1954 are excluded in relation to the tenancy created by this lease. 10REGISTRATION OF THIS LEASE If this Lease should be registered at the Land Registry the Tenant shall: 30  (a)take all steps necessary to procure that the Tenant is registered at the Land Registry as proprietor of this Lease as soon as reasonably possibleafter the date of this Lease; (b)deliver to the Landlord within 10 Working Days of registration, official copy entries of the registered title evidencing that the Tenant is theregistered proprietor of this Lease. Delivered as a deed on the date of this document. 31  Schedule 1Rights granted to the Tenant 1The right at all times for the Tenant and all persons deriving title under or through the Tenant and their or its servants, agents and licensees (in commonwith the Landlord, the Superior Landlord, the Head Landlord and all other persons having the same right) to use the Common Parts (excluding the RoofTerrace) and the Sixth Floor Common Parts for access to and from the Premises and for such other purposes as may be reasonably necessary for the useand occupation of the Premises in accordance with this Lease provided that in the exercise of this right: (a)the Common Parts and Sixth Floor Common Parts shall be kept clear and unobstructed at all times; (b)no damage shall be caused to the Common Parts and/or the Sixth Floor Common Parts; (c)the Common Parts and Sixth Floor Common Parts may (after reasonable notice of intention has been given, except in an emergency) be closedas often as may be necessary for repairs or alterations or for obtaining access to any services or Conduits through or under them or for anyother purpose relating to the proper operation or management of the Building or of the Landlord’s Premises but not (except in an emergency)in any manner as to interfere substantially with the conduct of the Tenant’s business; (d)if at any time during the Term and in its reasonable discretion in the interests of good estate management of the Building the Landlord orSuperior Landlord shall desire to alter, stop up, reduce or divert any of the Sixth Floor Common Parts or Common Parts (as applicable)(including the Conduits under the Common Parts and Sixth Floor Common Parts) the Landlord and/or Superior Landlord shall have full rightand liberty so to do but at its own expense (as applicable) and subject to the Landlord and/or Superior Landlord (as applicable) leavingavailable for use by the Tenant reasonable means of access to and from the Premises and subject also to the right of free passage and runningof services referred to in paragraph 3 applying to any substituted or diverted Conduits; and (e)the Tenant will at all times comply with the Accessway Regulations. 2At all times for the Tenant and all persons deriving title under or through the Tenant and/or their servants, agents and licensees such rights as aregranted to the Landlord from time to time under the Headlease over the Estate Common Parts and the Block B Common Parts (as such terms aredefined in the Headlease and as may be varied from time to time pursuant to the Headlease) to the extent such rights are necessary for the Tenant’s useand enjoyment of the Premises. 3The full, free and uninterrupted passage and running of water, soil, steam, air, oil, gas and electricity, telephone and all other services or supplies fromand to the Premises through the Conduits in, on or under the Building (other than Conduits which exclusively serve other parts of the Building). 4The right (subject to all rights reserved to the Landlord, the Superior Landlord and the Head Landlord in this Lease) to subjacent and lateral support andshelter for the Premises from other parts of the Building. 32  Schedule 1 : Rights granted to the Tenant 5The rights subject to obtaining the prior written consent of the Landlord (such consent not to be unreasonably withheld): (a)to install for the benefit of the Premises through the ducts comprised within the Conduits (to the extent that they have capacity) new pipes,cables or wires for the supply of any service media or information technology systems to or from the Premises or for the purposes ofconnecting the Premises with any other premises in the Building in which the Tenant has an interest and to make connections with anyexisting apparatus; (b)to enter onto the Common Parts for the purposes of cleaning, repairing, maintaining and renewing Conduits which exclusively serve thePremises. 6The right to install a sign on the tenant’s name board for the Building and any such tenant’s name board as may be installed in the Sixth Floor CommonParts subject to obtaining the prior written consent of the Superior Landlord, such consent not to be unreasonably withheld 7The rights exercisable by this paragraph 6 are subject to the Tenant: (a)obtaining all statutory and planning approvals; (b)making good all damage caused in the exercise of such rights and causing as little inconvenience to the other occupiers of the Building; (c)indemnifying the Landlord against all claims, costs, demands, losses and expenses which the Landlord may suffer or incur in the exercise ofsuch rights; and (d)removing all permitted works at the Termination of the Term and reinstating to the reasonable satisfaction of the Landlord. 8The right to use the loading bay provided from time to time by the Landlord and/or the Superior Landlord and/or the Head Landlord for the purpose ofdeliveries to and collections from the Premises. 9The right to use the refuse storage/collection facilities within the Building for the purposes of refuse disposal only. 10The right to use the showers in the basement of the Building in common with the other tenants of the Building. 11The right to use the Roof Terrace during such periods as the Landlord may in writing notify the Tenant from time to time subject to complying with theLandlord’s and Superior Landlord’s reasonable rules and regulations as to use of the Roof Terrace save that the Landlord and/or Superior Landlord mayclose the Roof Terrace for such periods as they see fit for the purposes of cleaning and maintaining the Roof Terrace and for any private events theLandlord, Superior Landlord or those authorised by them wish to hold on the Roof Terrace. 33  Schedule 2 : Rights reserved to the Landlord Schedule 2Rights reserved to the Landlord In favour of the Landlord any Superior Landlord and their lessees, tenants and licensees and all other persons authorised by or who are granted similar rights by theLandlord: 1All subsisting easements and quasi-easements, rights and other privileges including (but without limitation) the full, free and uninterrupted passage andrunning of water and soil, gas, oil, electricity, telephone and all other services and supplies of whatever nature to and from other parts of the Buildingthrough the Conduits which are at any time in, on, over or under the Premises. 2The full and free right and liberty to enter (after giving not less than 24 hours’ prior notice, except in an emergency when no notice need be given) uponthe Premises at all reasonable times for all or any of the following purposes: (a)carrying out the services described in Schedule 4 ( The Sixth Floor Service Charge ) and for the Building Services as defined in the SuperiorLease and for the Block B Services and the Estate Services as defined in the Headlease; (b)connecting, laying, inspecting, repairing, cleansing, maintaining, amending, altering, replacing, relaying or renewing any Conduit; (c)erecting, constructing or laying in, under, over or across the Premises any Conduit or any poles, structures, fixtures or other works for thedrainage of or for the supply of water, gas, electricity, telephone, heating, steam and other services to other parts of the Building; (d)inspecting, repairing, maintaining, renewing or decorating any other parts of the Building; (e)exercising the rights of entry reserved under the terms of this Lease and/or the Superior Lease and/or the Headlease; (f)in order to build on or into any boundary or party walls of the Premises or the Building; (g)for any other reasonable purpose connected with the management of and/or the carrying out of works in connection with the Building and/orthe Estate; (h)doing anything the Landlord and/or the Superior Landlord and/or the Head Landlord reasonably considers desirable for the performance of itscovenants in this Lease the Superior Lease or the Headlease or to third parties; and (i)for any other reasonable purpose, provided that the person or persons exercising such right shall do so accompanied by a representative of the Tenant (except in case of emergency orwhere the Tenant fails to provide such a representative after reasonable prior notice from the Landlord) and shall cause as little inconvenience asreasonably possible and make good in a reasonable manner all damage to the Premises caused in the exercise of such right. 34  Schedule 2 : Rights reserved to the Landlord 3The full right and liberty to build, rebuild, redevelop or execute alterations, decoration, repairs and other works upon or to any other part of the Buildingor any Adjoining Premises in such manner as the Landlord the Superior Landlord or the Head Landlord or the person or persons exercising such rightmay think fit irrespective of any diminution or other adverse effect on the light or air which may now or at any time during the Term be enjoyed by theTenant or the other tenants or occupiers of the Premises or any part of them and whether or not the same may temporarily interfere with the use oroccupation of the Premises. 4The right at any time to open or authorise the opening of windows in any adjoining or neighbouring premises overlooking the Premises. 5In connection with the exercise of any of the rights in this Schedule 2 ( Rights reserved to the Landlord ) to erect and use scaffolding upon the outsideof the Premises or the Building provided that any such scaffolding that is positioned outside of the Premises itself shall at all times be secured andalarmed against intruders and shall be removed from the Buildings as soon as reasonably possible. 6The full and free right of support, shelter and protection and all other easements and rights at any time belonging to or enjoyed by other parts of theBuilding or any Adjoining Premises and the right to deal as the Landlord or the Superior Landlord and the Head Landlord thinks fit with all rights oflight and air and drainage and covenants of which the Building has the benefit. 7All rights of light and air and drainage and all other easements and rights now or at any time belonging to or enjoyed by the Premises from or over otherparts of the Building or any Adjoining Premises and the right to deal as the Landlord thinks fit with all rights of light and air and drainage andcovenants of which the Building has the benefit. 8The right (in case of fire or other emergency only) to pass through the Premises. 9Full right and liberty in the event of an emergency (and the Landlord shall be the sole arbiter as to whether an emergency has arisen and as to itsduration) to require the Tenant to remove any vehicle belonging to it or which is under its control from the Premises, the Common Parts, or any otherpart of the Estate in such manner as the Landlord the Superior Landlord the Head Landlord or its agents shall direct. 10The right for the Landlord and the Superior Landlord and the Head Landlord and all electricity companies and other utility companies and/or theowners or occupiers of any transformer chamber or similar facility in the Building and their respective servants, agents and workmen to have access tothe Premises at all reasonable times and (except in an emergency) upon giving reasonable notice with or without any necessary materials, appliancesand equipment in connection with the management and maintenance of the Building, and/or of such transformer chamber or similar facility. 11The full right to deviate, alter, close or stop up any part of the Common Parts in accordance with the provisions of Clause 7.11 ( Landlord’s a ndSuperior Landlord’s rights to alter) and Schedule 1 ( Rights granted to the Tenant ) paragraph 1(c) and paragraph 1(d) and/or of the Estate CommonParts in accordance with the provisions of the Headlease. 12The grant of this Lease does not include any liberties, privileges, easements, rights or advantages over any part of the Building or any AdjoiningPremises unless these are expressly included in this Schedule 2 ( Rights reserved to the Landlord ). 35  Schedule 3 : Matters to which the Lease is subject Schedule 3Matters to which the Lease is subject 1The matters referred to in the property and charges registers of the registered title to title number NGL943676 except for entries securing the repaymentof monies. 2The following deeds and documents: (a)the Headlease; (b)the Superior Lease; and (c)the Planning Agreement. 36  Schedule 4 : The Sixth Floor Service Charge Schedule 4The Sixth Floor Service Charge 1The Sixth Floor Service Charge shall be a fair and reasonable proportion properly attributable to the Premises of the cost to the Landlord of thefollowing (such proportion (which if appropriate may be the whole) to be determined by the Landlord’s Surveyor (acting fairly and reasonably) butwhose decision save in the case of manifest error or injustice shall be final): (a)keeping the Sixth Floor Common Parts and the carpets and other fixtures and fittings in them clean and in good and substantial repair anddecorative order and (where appropriate) lit (which shall include when reasonably necessary the cost of renewal and replacement); (b)providing, operating, repairing, maintaining, cleansing and decorating and renewing: (i)all electrical, mechanical, security and other equipment the use of which is common to the Sixth Floor or which is used in commonby the Tenant and at least one other occupier of the Sixth Floor; (ii)the fire fighting equipment, fire sprinkler systems and fire detection or alarm systems, air conditioning, heating, ventilation, hot andcold water systems, Conduits, electricity generating equipment, lifts, plant and lighting equipment serving the Sixth Floor CommonParts but which do not form part of the Building Service Charge (including the cost of periodical inspection and all maintenancecontracts); and (iii)the WC facilities in the Sixth Floor Common Parts (including the provision of usual toilet supplies and sanitary services includingthe collection of hygiene refuse) (c)providing, repairing, maintaining, insuring and renewing: (i)all materials and equipment used to service and clean the Sixth Floor Common Parts (including but without limitation the WCfacilities, lamps, lights, closed circuit television cameras, public address systems and signs); and (ii)all floor coverings, furnishings and other similar items in the Sixth Floor Common Parts; (d)reasonable fees and expenses properly and reasonably incurred by the Landlord in respect of the management and supervision of the SixthFloor Common Parts and the provision of the Sixth Floor Services and the costs of procuring, administering and collecting the Sixth FloorService Charge. This shall include any fees incurred for the certification, determination or auditing of the Sixth Floor Service Charge and theequivalent fees which would have been incurred in respect of any management services actually performed by the Landlord or an associatedcompany of the Landlord, had such services been performed by an independent firm of surveyors or other third party; 37  Schedule 4 : The Sixth Floor Service Charge (e)the cost of issuing security cards and access passes to the Tenant its staff and visitors (the costs for which are, notwithstanding the remainderof this Schedule 4, payable by the Tenant on demand upon the issue of such passes and cards); (f)any rates, taxes, assessments or other outgoings payable by the Landlord in respect of the Sixth Floor Common Parts; (g)any sums payable in respect of the water supply to, and the sewerage of, the Sixth Floor Common Parts; (h)providing such further services, plant, machinery, equipment or facilities as may be required by (or the cost of otherwise complying with) anystatute, order, regulation or direction for the time being in force affecting the Sixth Floor Common Parts or the use or occupation of them, orthe requirements of all competent authorities and of the insurers, or any statutory notice served in relation to the Sixth Floor Common Parts; (i)making such representations against or otherwise contesting in such manner as the Landlord in its reasonable discretion considers appropriatethe incidence of any Act relating to the whole or any part of the Landlord’s Premises; (j)where the Landlord (acting fairly and reasonably) considers the same to be appropriate, providing a contingency fund in each year of areasonable sum to cover the prospective and contingent costs of carrying out the repair, renewal, decoration, cleansing, replacement and othermatters mentioned in this Schedule 4 with a view to procuring that the Sixth Floor Service Charge shall be progressive rather than irregularand that tenants for the time being of the Landlord’s Premises shall bear a proper share of accumulating liabilities; (k)the costs and fees of obtaining an EPC for the Landlord’s Premises or any part of the Landlord’s Premises except that the Landlord will onlyobtain such an EPC as is required by law; (l)such further services and equipment serving the Sixth Floor Common Parts as the Landlord may in its reasonable discretion and in accordancewith the principles of good estate management determine; (m)all VAT which may be applicable to any of the foregoing services or items; and (n)all costs properly incurred pursuant to Clause 4.5 in each case only insofar as each cost is not included within the Building Service Charge, Block Service Charge or Estate Service Charge. 2The Sixth Floor Service Charge shall be paid each year on a provisional basis by quarterly instalments in advance on the usual quarter days accordingto a proper and reasonable estimate made by the Landlord and delivered to the Tenant (so far as reasonably practicable not less than one month prior tothe start of each Service Charge Period) of the likely the Sixth Floor Service Charge for the current Service Charge Period but shall be subject toadjustment under paragraph 4. 3The first payment of the Sixth Floor Service Charge in respect of the period from the date of this Lease until the day before the next following quarterday (both dates inclusive) is to be paid on or before the date of this Lease. 38  Schedule 4 : The Sixth Floor Service Charge 4The Landlord shall as soon as reasonably practicable and not later than six months after the end of each Service Charge Period submit to the Tenant astatement giving full details of the Sixth Floor Service Charge for the immediately preceding Service Charge Period. If the Sixth Floor Service Chargepayable by the Tenant shall be more or less than the total of the provisional instalments (or the grossed-up yearly equivalent of such payments if madefor any period of less than one year) actually paid during the immediately preceding Service Charge Period, then any sum due to or payable by theLandlord by way of adjustment in respect of the Sixth Floor Service Charge shall be paid or allowed as the case may be by means of a single paymentwith a reduction from the payment by the Tenant of the Sixth Floor Service Charge instalment on the quarter day next following the date of thesubmission of the statement provided that at the Termination of the Term: (a)the provisions of this paragraph 4 shall continue to apply in respect of any Sixth Floor Service Charge relating to any period down to theTermination of the Term; and (b)any net overpayment by the Tenant shall be reimbursed to the Tenant by the Landlord within 10 Working Days of its ascertainment. 5The Sixth Floor Service Charge is to be treated as accruing on a day to day basis in order to ascertain yearly rates and for the purposes of apportionmentin relation to any periods other than of one year. 6If the Landlord shall during any Service Charge Period deem it necessary or desirable to incur unforeseen or exceptional expenditure which forms partof the Sixth Floor Service Charge but was not provided for in the Landlord’s estimate for the current Service Charge Period and which exceeds thecontingency sum in paragraph 1(n) above the Landlord shall be entitled to recover from the Tenant the portion of the Sixth Floor Service Chargerepresenting the whole of that expenditure with the collection of the next Sixth Floor Service Charge instalment on the quarter day next following thedate of such expenditure. 7If funds collected by way of advance payments of Sixth Floor Service Charge prove insufficient to meet an immediate liability (and there is no reservefund available for the purpose), then the Landlord may borrow money for the purpose from reputable banks at commercially competitive rates ofinterest, and such interest shall be recoverable as an item of the Sixth Floor Service Charge . 8In no event shall the Sixth Floor Service Charge payable by the Tenant be increased or altered by reason only that any part of the Landlord’s Premisesintended for letting remains unlet during the relevant Service Charge Period or the tenants of such areas do not comply with their obligations in relationto payment of Service Charge. 9Any dispute between the Landlord and the Tenant as to the amount of the final Sixth Floor Service Charge for any Service Charge Period shall bereferred to an expert for determination in accordance with paragraph 12 but the Tenant shall not be entitled to object to the Sixth Floor Service Chargeor any item comprised in it on any of the following grounds: (a)the inclusion in a subsequent Service Charge Period of any item of expenditure or liability omitted from the Sixth Floor Service Charge forany period preceding Service Charge Period; (b)an item of Sixth Floor Service Charge included at a proper cost might have been provided or performed at a lower cost; or 39  Schedule 4 : The Sixth Floor Service Charge (c)disagreement with any estimate of future expenditure for which the Landlord requires to make provision, or the manner in which the Landlordexercises its discretion in providing services, so long as the Landlord has acted reasonably and in good faith and in accordance with theprinciples of good estate management. 10There shall be credited to the Sixth Floor Service Charge all sums received in respect of Sixth Floor Service Charge by the Landlord in respect of anypolicy of insurance maintained by the Landlord. 11There shall be excluded from the items comprising the Sixth Floor Service Charge: (a)all costs (including professional fees of whatsoever description) incurred by or on behalf of the Landlord or any Superior Landlord inconnection with the original construction of and equipping and fitting out of the Landlord’s Premises or any parts thereof or the originalinstallation of anything within it including all sums payable or expenditure incurred or to be incurred pursuant to the Planning Agreement; and (b)any costs or liabilities attributable to the advertising marketing or letting of the Landlord’s Premises . 12Any dispute referred to in paragraph 9 shall be determined by an independent person who has been professionally qualified in respect of the subjectmatter of the dispute or difference for not less than ten years and who is a specialist in relation to such subject matter and such independent person shallbe referred to in this paragraph as the “ Expert ”. The Expert shall be agreed between the parties or failing such agreement be nominated by the president or vice-president or other duly authorisedofficer of the Royal Institution of Chartered Surveyors on the application of either party at any time and the following provisions shall apply to hisappointment: (a)the Expert shall act as expert and not as an arbitrator and his decision shall be final and binding upon the parties hereto; (b)the Expert shall consider ( inter alia ) any written representations on behalf of any party (if made within 10 Working Days of receipt ofnotification of the appointment of the Expert) and counter-representations with such timescale as the Expert shall reasonably specify but shallnot be bound thereby; (c)the parties shall use all reasonable endeavours to procure that the Expert gives his decision as speedily as possible but in any event within 20Working Days of his appointment; (d)the costs of appointing the Expert and his costs and disbursements in connection with his duties under this Agreement shall be shared betweenthe parties in such proportions as the Expert shall determine or in the absence of such determination equally between them; and (e)if the Expert becomes unable or unwilling to act then the procedure hereinbefore contained for appointment of an Expert shall be repeated asoften as necessary. 13The Landlord shall not be entitled to include within the Sixth Floor Service Charge any costs which the Landlord incurs in reinstating any damage ordestruction caused by an Uninsured Risk save to the extent that: (a)such damage or destruction does not make the whole or any part of the Premises or the Building unfit for occupation or use or inaccessible; or (b)the Insured Risk shall have become an Uninsured Risk owing to the act or default of the Tenant of any person deriving title under the Tenantor their respective agents, employees, licensees or contractors. 40  Schedule 4 : The Sixth Floor Service Charge 14The Landlord’s Surveyor in exercising its discretion under Schedule 4 ( The Sixth Floor Service Charge ) shall have reasonable regard to the RICSCode of Practice for Service Charges in Commercial Property from time to time. 41  Schedule 5 : Building Regulations and Accessway Regulations Schedule 5Building Regulations and Accessway Regulations Part 1Building Regulations 1Loading, unloading delivery and dispatch of goods is to be carried out only in the areas and by means of the entrances reasonably designated for suchpurposes and at the time reasonably stipulated by the Landlord. 2No unnecessary obstruction shall be caused in any part of the Common Parts. 3Refuse is to be properly packaged and placed in the refuse containers provided by the Landlord. 4No sound amplification equipment shall be used in a manner which is audible outside the Premises. 5No property of the Tenant shall be left or stored outside the Premises. 6Not to Smoke in the Premises or the Building. Part 2Accessway Regulations 1Not to deposit or permit to be deposited any waste, rubbish or refuse on the Accessway. 2Not to obstruct any part of the Accessway. 3Not to use the Accessway for loading, unloading delivery or dispatch of goods. 4Not to ride bicycles on the Accessway. 42  Schedule 6 : Review of Principal Rent Schedule 6Review of Principal Rent 1In this Schedule 6 ( Review of Principal Rent ): “ open market rent ” means the amount agreed between the Landlord and the Tenant or determined by the arbitrator as being the yearly rent at whichthe Premises could reasonably be let as a whole: (a)with vacant possession; (b)at the relevant Review Date; (c)by a willing landlord to a willing tenant in the open market; (d)without either party taking a fine or premium; (e)on the basis that the willing tenant has received as a term of the letting such rent free or concessionary rental period or other inducement ofeither a capital or revenue nature as the willing landlord would negotiate with the willing tenant for the purposes of fitting out and the rate ofthe yearly rent aforesaid payable by the Tenant from the Review Date would be such as the willing tenant would pay at the expiry of such rentfree or concessionary rent period or following the receipt of the inducement; (f)for a term of ten years commencing on the Review Date and with rent reviews at the same intervals as in this Lease; and (g)subject to and with the benefit of all other terms of this Lease apart from the amount of the rent payable (but including these provisions forrent review) and on the assumption that: (h)the Premises are fit and ready for immediate occupation and use by the willing tenant; (i)the provisions of this Lease have been fully complied with, save in respect of the Landlord’s obligations where the Landlord has been inmaterial and persistent breach; (j)if the Premises have been damaged or destroyed they have been fully restored; (k)the Premises can lawfully be used by the willing tenant for any of the purposes permitted by this Lease; (l)no work has been carried out to the Premises which has diminished the rental value of the Premises; (m)there is not in operation any statute, order or instrument which has the effect of regulating or restricting the amount of rent which mightotherwise be payable but disregarding any effect on rental value attributable to any such matter; (n)the willing tenant is not in occupation of any part of the Building 43  Schedule 6 : Review of Principal Rent but disregarding: (o)any works or alterations to the Premises carried out by or on behalf of the Tenant or any permitted occupier of the Premises either before orafter the date of this Lease with the consent of the Landlord save (in the case of improvements) to the extent that the same were carried out atthe Landlord’s expense or in pursuance of any obligation to the Landlord whether under the provisions of this Lease or otherwise; (p)any tenant’s fixtures and fittings in the Premises; (q)any goodwill attaching to the Premises by reason of the business carried on there by the Tenant or any permitted occupier; and (r)the previous occupation of the Premises by the Tenant or any permitted occupier. “ Review Date ” means the Review Date specified as such in Clause 1.1 2The Landlord and the Tenant are to endeavour to agree the market rent at any time not being earlier than 12 months before the Review Date, but if theyhave not agreed the market rent three months before the Review Date the amount of the market rent shall at the request of either the Landlord or theTenant be determined an arbitrator. 3The arbitrator shall be nominated by the Landlord and the Tenant jointly but in default of agreement between the Landlord and the Tenant by thepresident for the time being of the Royal Institution of Chartered Surveyors on the application of either the Landlord or the Tenant. 4The reference to and award of the arbitrator shall be governed by the Arbitration Act 1996. 5The arbitrator nominated is to be an independent surveyor being a partner in or a director of a leading London firm or company of chartered surveyorswho is experienced in the rental valuation of office premises in London. 6If the arbitrator shall die or be unable or unwilling to accept his appointment or to carry out his functions then either the Landlord or the Tenant mayapply for a replacement to be appointed in his stead, and this procedure may be repeated as often as necessary. 7Time is not of the essence in relation to any matter contained in this Schedule 6 ( Review of Principal Rent ). 8From and including the Review Date the Principal Rent shall be whichever is the higher of: (a)the Principal Rent which was reserved immediately before the relevant Review Date (the “ Old Rent ”); and (b)the open market rent of the Premises as at the relevant Review Date (the “ Revised Rent ”). 9If the Revised Rent has not been ascertained by the relevant Review Date, then the Old Rent shall be payable until such time as the Revised Rent hasbeen ascertained. 44  Schedule 6 : Review of Principal Rent 10Once the Revised Rent has been ascertained, the Tenant shall within 10 Working Days of written demand pay the Landlord a sum equal to the amount(if any) by which the Revised Rent exceeds the Old Rent for the period from the relevant Review Date until the next quarter day following the date ofsuch demand together with interest on each quarterly shortfall calculated on a daily basis from the date upon which each instalment of the shortfallwould have been payable if the Revised Rent had then been ascertained at the rate of 4% per annum below the Prescribed Rate until 10 Working Daysafter the date of such demand, and thereafter together with interest calculated on a daily basis at the Prescribed Rate. 11The Landlord and the Tenant may at any time settle the Revised Rent in more than one amount and agree to reserve such amounts increasing in stepsuntil the next Review Date or, if none, until the Termination of the Term, or as they may otherwise agree. 12The parties will procure that a memorandum of the Revised Rent signed by the Landlord and Tenant shall be endorsed on or annexed to this Lease andits counterpart, with each party bearing its own costs in so doing. 45  Schedule 7 : Authorised Guarantee Agreement Schedule 7Authorised Guarantee Agreement DATED [●] PARTIES (1)[●] [of] [(company no [●]) whose registered office is at] [●] (the “ Tenant ”) (2)[●] [of] [(company no [●] whose registered office is at] [●] (the “ Landlord ”) OPERATIVE PROVISIONS 1In this Deed: “ Assignee ” means [ identify the proposed assignee ]. “ Landlord ” includes any other person or persons for the time being entitled to the reversion immediately expectant on the Term. “ Lease ” means the lease dated 22 January 2016 and made between Performing Right Society, Limited (1) Intercept Pharma Europe Limited (2) andIntercept Pharmaceuticals, Inc (3) in respect of premises at part 6 th Floor 2 Pancras Square, Kings Cross London N1C 4AG. “ Lease monies ” means the rents and all other monies payable by the Assignee under the Lease. “ Term ” means the term granted by the Lease. 2The Tenant hereby covenants with and guarantees to the Landlord as principal debtor that: (a)the Assignee will pay the Lease monies at the respective times and in manner appointed for payment in the Lease and will fullyobserve and perform the covenants, agreements and stipulations contained in the Lease; and (b)the Tenant will pay and make good to the Landlord all losses and costs and expenses sustained by the Landlord as a result of anydefault in respect of the matters mentioned in Clause 2(a). 3It is hereby agreed that the Tenant’s liability shall not be discharged, lessened or in any way affected by any neglect or forbearance of the Landlord inendeavouring to obtain payment of the Lease monies as and when the same become due or by any delay in taking steps to enforce performance orobservance of the said covenants, agreements and stipulations on the part of the Assignee or by any time, indulgence or other concession which may begiven by the Landlord to the Assignee or (subject to section 18 of the Landlord and Tenant (Covenants) Act 1995) by any variation of the terms of theLease or by any disclaimer of the Lease or by any other act or thing whereby (but for this Clause 3) the Tenant’s liability may have been discharged,lessened or otherwise affected. 46  Schedule 7 : Authorised Guarantee Agreement 4The Tenant hereby further covenants with the Landlord that if (prior to any lawful assignment by the Assignee of the Lease) the Lease is disclaimed,then the Landlord may within 6 months after any such disclaimer by notice in writing require the Tenant to accept a new lease of the demised premisesfor a term equivalent to the residue which if there had been no disclaimer would have remained of the Term granted at the same rent and subject to thelike covenants and conditions as are reserved and contained in the Lease (the said new lease and the rights and liabilities under it to take effect as fromthe date of such disclaimer) and in such case the Tenant shall pay the Landlord’s reasonable costs properly incurred in the preparation and granting ofsuch new lease and shall accept such new lease accordingly and will execute and deliver to the Landlord a counterpart of it. 5It is hereby agreed that if any payment is made under the terms of this guarantee and the Tenant is thereupon subrogated to all the Landlord’s rights ofrecovery in relation thereto then the Tenant shall not exercise any such rights against the Assignee. 6Notwithstanding any of the foregoing provisions, the Tenant: (a)shall not be required to guarantee in any way the liability for the covenants and other terms of the Lease of any person other than theAssignee; and (b)shall not be subject to any liability, restriction or other requirement (of whatever nature) in relation to any time after the Assignee isby law released from the covenants and other terms of the Lease. 7If any provision of this Deed or its application to any person or circumstance is void or unenforceable then such provision or its application to suchperson or circumstance shall be severed from this Deed so that the validity of the remainder of this Lease and the application of such provision to thepersons or circumstances shall not be affected by such severance. 8No person other than a contracting party may enforce any provision of this Deed by virtue of the Contracts (Rights of Third Parties) Act 1999. 9This Deed shall be governed by and interpreted in accordance with English Law, and the parties hereto irrevocably submit to the jurisdiction of theEnglish courts. 10In this document, references to the Lease being disclaimed shall, for the avoidance of doubt, include any action which has the effect of terminating orotherwise curtailing the Assignee’s obligations under the Lease, whether arising from the action of an insolvency office holder or any other personlawfully empowered to take such action or pursuant to any order of a court (whether in England and Wales or in any other jurisdiction). 11This document shall be treated as having been executed and delivered as a deed only upon being dated. Delivered as a deed on the date of this document. 47  Schedule 7 : Authorised Guarantee Agreement EXECUTION PAGE Executed as a deed by)/s/ Guy FletcherPERFORMING RIGHT) SOCIETY, LIMITED) acting by: Guy Fletcher, Director In the presence of: Witness Name: Michael Higgin Witness Signature: /s/ Michael Higgin Witness Address:Field Seymour Parkes Solicitors NO 1 London Street, Reading Berkshire, RG1 4QW Witness Occupation: Solicitor 48  Schedule 7 : Authorised Guarantee Agreement EXECUTION PAGE Executed as a deed by)/s/ Mark PruzanskiINTERCEPT PHARMA) EUROPE LTD) acting by: Mark Pruzanski, Director In the presence of: Witness Name: Deborah Moss Witness Signature: /s/ Deborah Moss Witness Address: 212 E 47 th St, Apt 27C, New York, NY 10017 Witness Occupation: Manager, Administrators Executed as a deed on behalf of INTERCEPT )PHARMACEUTICALS, INC a company incorporated in Delaware USA )by Barbara Duncan, Chief Financial Officer ) authorised signatory being a person who, in accordance with the laws of that territory, is acting under the authority of the company /s/ Barbara Duncan Authorised Signatory Exhibit 10.13 OFFICE SUBLEASE THIS SUBLEASE is made and entered into as of the 23 rd day of February, 2016 (the “ Effective Date ”), by and between Restoration Hardware, Inc. ,a Delaware corporation (the “ Sublandlord ”) and Intercept Pharmaceuticals, Inc. , a Delaware corporation (the “ Subtenant ”). WITNESSETH : WHEREAS, Sublandlord leases the land and the building located at 437 West 16th Street, New York, New York 10011 (the “ Building ”) pursuant to thatcertain Net Lease (the “ Master Lease ”) dated April 12, 2013, between Henya Realty, LLC and Salmir Realty, LLC (together, “ Master Landlord ”) [assuccessors-in-interest to 437 West 16th Street LLC], and Sublandlord, a copy of which Lease is attached hereto as Exhibit A and is made a part hereof. Allcapitalized terms not otherwise defined herein shall retain that meaning ascribed to them in the Lease; and WHEREAS, Subtenant desires to sublease from Sublandlord a portion of the Building consisting of the entire 4th Floor (5,382 rentable square feet) andthe entire 5th Floor (5,403 rental square feet) (together, the 4th Floor and the 5th Floor are referred to herein as the “ Subleased Premises ”); and WHEREAS, the parties desire to enter into this Sublease defining their respective rights, duties, and liabilities relating to the Subleased Premises; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, Sublandlord and Subtenant hereby agree as follows: 1. Recitals . The recitals above and exhibits attached hereto are all hereby incorporated into the body of this Sublease as if fully set forth herein. 2. Term . Sublandlord, for and in consideration of the payment of the rent and the performance of the covenants hereinafter mentioned, does hereby demise,lease and assign unto Subtenant the Subleased Premises, on the terms and conditions set forth herein, commencing as of the date that exclusive broom-cleanpossession of the Subleased Premises is delivered to Subtenant in the Delivery Condition, as such term is hereinafter defined (the “ Sublease CommencementDate ”) and ending at 11:59 p.m. on the last day of the calendar month in which the fifth (5th) anniversary of the Sublease Rent Commencement Date (as definedbelow) occurs (the “ Sublease Expiration Date ”). The time period between the Sublease Commencement Date and the Sublease Expiration Date is hereinafterreferred to as the “ Sublease Term ”). Notwithstanding anything to the contrary contained herein, in no event shall the Sublease Term extend beyond the“Expiration of the Term” of the Master Lease. 3. Subtenant Termination Right . Provided that Subtenant is not then in default, Subtenant shall have the one-time right to terminate this Sublease effectiveas of the third (3rd) anniversary of the Sublease Rent Commencement Date (as defined below). Such early termination right shall only be exercised, if at all, by (i)providing Sublandlord advance irrevocable written notice of such exercise no later than the second (2nd) anniversary of the Sublease Rent Commencement Date,and (ii) simultaneous with delivery of such notice (and as a condition precedent to the effectiveness of such notice), paying to Sublandlord an amount equal to thesum of (A) all of the unamortized transaction costs (including, without limitation: (w) brokerage commissions actually paid by Sublandlord (up to a customary andcommercially reasonable amount), (x) an amount equal to the Base Rent abated between the Commencement Date and the Rent Commencement Date, (y) anamount equal to the TI Work Allowance, and (z) all reasonable out-of-pocket legal fees incurred by Sublandlord in pursuing this Sublease) multiplied by 1.08%,plus (B) $167,167.50 (i.e., an amount equal to two months’ Base Rent). For purposes of the foregoing calculation, “transactions costs” shall be amortized on astraight-line basis over the original Term of the Sublease.  4. Rent . a.“ Base Rent ” for the Subleased Premises is One Million Three Thousand Five Dollars ($1,003,005) per year. The Base Rent will be paid bySubtenant to Sublandlord in equal monthly installments, in advance, with the “ First Payment ” due upon execution of this Sublease. The FirstPayment shall be equal to $83,583.75 (and such payment shall be allocable to, and actually applied against, the fifth (5th) full month of theSublease Term), plus a prorated amount payable for the period of time from the Sublease Commencement Date through the last day of thecalendar month in which the Sublease Commencement Date occurs. The parties acknowledge that, unless the Sublease Expiration Date occurson the last day of a calendar month, the final month’s Base Rent payment shall likewise be prorated. So long as Subtenant shall not then be in default under this Sublease after notice and the expiration of any applicable cure periods, Base Rentshall be abated in full for the first four (4) full calendar months following the Sublease Commencement Date. The first day of the fifth (5th) fullcalendar month following the Sublease Commencement Date is the “ Sublease Rent Commencement Date ”. However, as noted above, BaseRent for the fifth (5th) full calendar month is included in the First Payment, thus, Subtenant will resume regular Base Rent payments as of thesixth (6th) full calendar month following the Sublease Commencement Date. b.Subtenant acknowledges that the Subleased Premises is submetered for electricity, and Subtenant agrees to pay Sublandlord for such amountsactually consumed by Subtenant within twenty (20) business days following Sublandlord’s written request therefore, accompanied by a copy ofthe electric bill. Or, at Sublandlord’s election, provided Sublandlord has arranged for the direct metering of electricity at Sublandlord’s sole costand expense, Sublandlord may direct Subtenant to pay the electric provider directly. For purposes of computing Subtenant’s submeteredconsumption of electricity, the cost of electricity shall be computed utilizing the average kilowatt per hour rate charged to Sublandlord under theLease. c.All amounts due hereunder from Subtenant, including Base Rent, shall be referred to herein as “ Rent ”. Subtenant shall pay Rent without anydemand, setoff or deduction of any kind, except as herein or in the incorporated provisions of the Master Lease to the extent applicable to thisSublease. In the event any installment of Rent is not paid by the fifth (5 th ) day of each month, a late charge of three (3%) percent of thedelinquent installment shall be due and payable; provided, however, that the first such late charge in any twelve (12) month period shall beforgiven so long as Subtenant pays the delinquent installment no later than the fifth (5th) business day following Sublandlord’s notice of suchdelinquency). All payments of Rent shall be by good and sufficient check or by other means (such as automatic debit or electronic transfer)acceptable to Sublandlord. Sublandlord’s acceptance of less than the correct amount of Rent shall be considered a payment on account of theearliest Rent due. No endorsement or statement on a check or letter accompanying a check or payment shall be considered an accord andsatisfaction, and either party may accept such check or payment without such acceptance being considered a waiver of any rights such party mayhave under this Sublease or applicable law. Subtenant’s covenant to pay Rent is independent of every other covenant in this Sublease. 5. Operating Expenses . Notwithstanding anything in the Master Lease to the contrary, commencing upon written request from Sublandlord, accompanied bya copy of the invoice, any time from and after the January 2017 Base Rent payment, Subtenant shall pay to Sublandlord, within thirty (30) days following writtenrequest therefore, 33.83% (representing Subtenant’s proportionate share) of increases in Operating Expenses over a calendar 2016 base year. As used herein, “Operating Expenses ” shall mean those expenses set forth in Exhibit “B” attached hereto. Notwithstanding the foregoing, it is agreed that base building HVACshall be provided at no additional cost to Subtenant during normal Building hours; however, all distribution within the Subleased Premises shall be the soleresponsibility of Subtenant (and at its expense); provided, however, that Subtenant may reuse any HVAC distribution system and components presently installed inthe Subleased Premises. Further, Subtenant shall be solely responsible for cleaning the Subleased Premises, including depositing any rubbish from the SubleasedPremises in the designated area within the Building; provided, however, that Sublandlord, at its sole cost and expense, will be responsible for rubbish removal fromthe designated area within the Building. Subject to Section 8 herein, Subtenant shall keep neat and clean and maintain in first class order, condition and repair, theSubleased Premises and every part thereof, including, without limitation, the exterior and interior portions of all doors, windows, plate glass, all plumbing andsewage facilities within the Subleased Premises, fixtures and interior walls, floors, ceilings, signs (including exterior signs where permitted), and all wiring,electrical systems, and any distribution of the HVAC system.  6. Real Estate Taxes . Notwithstanding anything in the Master Lease to the contrary, commencing upon written request from Sublandlord any time from andafter the July 2017 Base Rent payment, Subtenant shall pay to Sublandlord, within thirty (30) days following written request therefore, 33.83% representingSubtenant’s proportionate share of increases in Real Estate Taxes over the average of the 2015 / 2016 and 2016 / 2017 fiscal base years. As used herein, “ RealEstate Taxes ” shall mean real estate taxes and any other taxes, charges and assessments which are levied with respect to the Building or the land appurtenant tothe Building, or with respect to any improvements, fixtures and equipment or other property of Sublandlord, real or personal, located in the Building and used inconnection with the operation of the Building and said land, any payments to any ground lessor in reimbursement of tax payments made by such lessor; and allreasonable fees, expenses and costs incurred by Landlord in investigating, protesting, contesting or in any way seeking to reduce or avoid increase in anyassessments, levies or the tax rate pertaining to any Real Estate Taxes to be paid by Sublandlord. Real Estate Taxes shall not include any corporate franchise, orestate, inheritance or net income tax, or tax imposed upon any transfer by Landlord of its interest in this Lease or the Building. 7. Furniture & Equipment . Subtenant may use any existing pantry appliances and security cameras within the Subleased Premises. Sublandlord makes norepresentation or warranty as to the condition of such appliances or cameras and has no obligations to maintain, repair or replace such items. Sublandlord willdisconnect service to the cameras by the Commencement Date, and Subtenant, at its sole cost and expense, shall pay for any costs related to the cameras shouldSubtenant choose to utilize them. 8. Subordinate to Master Lease . This Sublease is expressly made subject and subordinate to the terms and conditions of the Master Lease, and Subtenanthereby represents and warrants that (a) it is not a debtor nor a debtor-in-possession in any voluntary or involuntary bankruptcy proceeding, and (b) it is incompliance with, agrees to, and confirms the requirements, terms and conditions set forth in Section 7.1(k) of the Master Lease as if the same were reprinted in fullherein. With regard to the Subleased Premises, Sublandlord shall have all the rights of “Landlord” under the Master Lease and Subtenant shall assume all theobligations of “Tenant” under the Master Lease as if Sublandlord had been named “Landlord” and Subtenant had been named “Tenant” thereunder, except asexpressly modified herein. Subtenant shall have no obligation to (x) perform any structural repair or, subject to the provisions of Section 5 herein, perform anymaintenance or repair of the working systems of the Building, except and to the extent the necessity of such repair or maintenance was caused by the negligence orwillful misconduct of Subtenant, its employees, agents, contractors, or invitees, and (y) cure any violation or illegal condition existing on the SubleaseCommencement Date. Unless otherwise expressly provided in this Sublease, all such terms and conditions of the Master Lease are hereby incorporated herein byreference as though fully set forth herein at length, except (a) the Rent shall be as herein expressly provided and shall be paid to Sublandlord (instead of theLandlord as provided in the Master Lease), and (b) the time limits contained in the Master Lease for the giving of notices, making of demands or performing of anyact, condition or covenant on the part of the “Tenant” thereunder, or for the exercise of the “Tenant” thereunder of any right, remedy or option, are changed byshortening the same in each instance by three business (3) days, so that in each instance Subtenant shall have three (3) business days’ less time to observe orperform hereunder than Sublandlord has as the “Tenant” under the Master Lease (provided, however, that in no event shall any notice or cure period be reducedbelow three (3) days); and provided further that the following provisions of the Master Lease shall be deleted or modified as follows for purposes of incorporationby reference in this Sublease: Sections 1.2, 1.3, 1.4, 1.5, 28.2, Articles 2, 5 and 30, Exhibit C and Exhibit G of the Master Lease shall be deemed deleted; Article 3of the Master Lease shall be amended as provided in Section 6 of this Sublease; Article 9 of the Master Lease shall be amended as provided in Sections 5 and 8 ofthis Sublease; Article 10 of the Master Lease shall be amended as provided in Sections 4(b) and 5 of this Sublease; Article 12 of the Master Lease shall beamended as provided in Section 14 of this Sublease; Article 15 of the Master Lease shall be amended as provided in Sections 8 and 9 of this Sublease; Article 16 ofthe Master Lease shall be amended so that the addresses for notices set forth therein shall be deemed to refer to the addresses for notices provided in this Sublease;Article 19 of the Master Lease shall be deemed amended as provided in Section 13 of this Sublease; and Section 24.1 shall be deemed amended as provided inSection 19 of this Sublease. Subtenant agrees to comply with and abide by all the terms, provisions, covenants and conditions of the Master Lease, and anyviolation of the same by Subtenant shall constitute a default under this Sublease. A default by Sublandlord under the Master Lease shall constitute a default underthis Sublease to the extent such default under the Master Lease materially adversely affects Subtenant’s use or occupancy of the Subleased Premises. The partiesacknowledge and agree that this Sublease is not a “Major Sublease” as defined in the Master Lease, and thus does not require the consent of the Master Landlord.Nevertheless, the parties agree that Sublandlord may, at its option, provide a copy of this Sublease to Master Landlord as a courtesy. Sublandlord shall notify theMaster Landlord within five (5) business days after Subtenant notifies Sublandlord of a breach of the Master Lease by the Master Landlord, to the extent suchbreach materially adversely affects the Subleased Premises; and if the Master Landlord does not cure such breach within the cure periods provided under theMaster Lease (or if no cure periods are provided, within a reasonable period under the circumstances) Sublandlord shall use commercially reasonable efforts tocompel Master Landlord to comply with its obligations under the Master Lease (which efforts may include instituting an action or court proceeding against theMaster Landlord), provided that Subtenant indemnifies Sublandlord against all losses, damages, costs and expenses paid or incurred by Sublandlord (includingreasonable attorneys’ fees and charges through all appeals) as a result of any such action or proceeding. Additionally, if and to the extent Sublandlord receives arent abatement or reduction from the Master Landlord under the Master Lease on account of a failure to provide any services or comply with any obligations underthe Master Lease which failure or noncompliance materially adversely affects Subtenant’s use or occupancy of the Subleased Premises, Subtenant shall be entitledto 33.83% representing Subtenant’s share of such abatement or reduction after deduction for Sublandlord's reasonable out-of-pocket costs, if any, in obtaining suchrent abatement or reduction.  9. Default . Upon default by Subtenant in the payment of Rent or any other payment required to be made by it or in the performance of any of its obligationshereunder, Sublandlord shall have the same rights and remedies against Subtenant as are afforded Master Landlord against Sublandlord in the event ofSublandlord’s default under the terms of the Master Lease. 10. Assignment / Subletting . Subtenant shall not sub-sublease or sub-assign all or any portion of the Subleased Premises without Sublandlord’s writtenconsent (not to be unreasonably withheld, conditioned or delayed), and, in all cases, any such sub-sublease or sub-assignment must be in strict compliance with theterms and conditions of the Master Lease. To the extent permitted by the Master Lease, Sublandlord and Subtenant shall split any such profits 50/50. As used inthis section, “profits” means the base rental payments received under any such sub-sublease or sub-assignment (if any) in excess of the Base Rent receivedhereunder after first deducting (i) reasonable expenses incurred by the Subtenant (e.g., lease procurement costs, TI allowance, free rent, brokerage commissions,advertising, etc., but all such expenses shall be limited to commercially reasonable amounts as would be incurred in subleasing or assigning similar-situated space)and (ii) any profit paid to Master Landlord pursuant to the Master Lease. Notwithstanding the foregoing and subject to the terms of the Master Lease, Subtenant may assign, encumber or transfer its interest in this Sublease to its parentcompany or a corporation or other entity under common control with Subtenant or a subsidiary or affiliate of it or its parent company, or to a corporation or otherentity in which it is merged, consolidated or acquired by, or to which all or substantially all of its assets are sold. Additionally, a transfer of stock or otherbeneficial interests in Subtenant (i) among the existing shareholders or beneficial interest holders, or (ii) the issuance of stock or other beneficial ownershipinterests in Subtenant for the purpose of obtaining equity financing, or (iii) transfers of stock or other beneficial interests in Subtenant for estate planning purposes,shall not require Sublandlord’s consent as long as it is for a good business purpose and not for the principal purpose of transferring Subtenant’s interest in thisSublease. 11. Delivery Condition / Sublandlord’s Representations . To the best of Sublandlord’s actual knowledge and belief, the following representations are (or willbe, as applicable) true as they relate to the Subleased Premises: a. As of the Sublease Commencement Date, the Subleased Premises will be vacant and in broom clean condition. b. As of the Effective Date, the building systems (including, but not limited to, the existing fire protection infrastructure) serving the SubleasedPremises are in good operating condition. Further, the existing sprinkler loop on each floor of the Subleased Premises will remain in place.  c. As of the Effective Date, Sublandlord has received no notice of violation of any applicable codes, laws and/or regulations, whether pertaining tohazardous substances, fire and safety systems, or otherwise, which have not been cured or are not in the process of being cured Copies of Sublandlord’sfiled ACP-5 Certificates for the Subleased Premises shall be delivered to Subtenant on or before the Effective Date. d. As of the Effective Date, Sublandlord has not received actual notice of any outstanding construction liens and/or violations with the Departmentof Buildings, Environmental Control Board, and/or the Fire Marshall, which have not been cured or are not in the process of being cured. e. As of the Effective Date, Sublandlord has a valid and subsisting leasehold estate under the Master Lease, the Master Lease is in full force andeffect, Sublandlord has not delivered or received written notice of default under the Master Lease which remains uncured. Except as expressly provided otherwise herein, Subtenant accepts the Subleased Premises in its current condition “as-is”, “where-is”, and “with all faults”. In thisSublease, the term “Delivery Condition” shall mean that condition of the Subleased Premises in respect of which all of the representations set forth in clauses a. –e. of this Paragraph 11 shall be true in all material respects. 12. Subtenant’s Improvements . Subject to strict compliance by Subtenant with all terms and conditions of Article 6 of the Master Lease, Subtenant maycomplete Subtenant’s Improvements using architects, engineers, contractors, and subcontractors selected by Subtenant and approved by Sublandlord (whichapproval shall not be unreasonably withheld, conditioned or delayed). As used herein, “ Subtenant’s Improvements ” means the interior fit-out of the SubleasedPremises, the plans for which are subject to Sublandlord’s prior approval (which approval shall not be unreasonably withheld, conditioned or delayed). So long as Subtenant shall not then be in default under this Sublease (including, by extension, the incorporated provisions of the Master Lease), after notice and theexpiration of any applicable cure periods, Sublandlord will contribute up to Three Hundred Twenty-Three Thousand Five Hundred Fifty Dollars ($323,550) [i.e.,$30.00 per rentable square foot] towards Subtenant’s actual, reasonable costs for Subtenant’s Improvements (the “ Subtenant Improvement Allowance ”). Nomore than ten percent (10%) of the foregoing Subtenant Improvement Allowance may be utilized for soft costs (including, without limitation, architect fees,engineering fees, and permitting fees). Sublandlord will pay the Subtenant Improvement Allowance to Subtenant within thirty (30) days following receipt ofwritten request from Subtenant, which written request must include the following: (i) documents evidencing Subtenant’s architect’s self-certification ofSubtenant’s Improvements, or a letter of completion from the City of New York Department of Buildings and all associated permit sign-offs for the Subtenant’sImprovements and the Subleased Premises, (ii) written certification from Subtenant that it has completed the Subtenant’s Improvements in their entirety and takenoccupancy of the Subleased Premises (i.e., there shall be no “progress payments”), (iii) proof of final cost (e.g., AIA G702 or similar) from its general contractor orconstruction consultant, (iv) unconditional lien waivers from all contractors and subcontractors who rendered services or materials in connection with Subtenant’sImprovements, and (v) written certification from Subtenant that it is full compliance with this Sublease. So long as Subtenant shall not then be in default under this Sublease (including, by extension, the incorporated provisions of the Master Lease), after notice and theexpiration of any applicable cure periods, Sublandlord agrees to make an additional contribution of up to Sixty-Four Thousand Seven Hundred Ten Dollars($64,710) [i.e., $6 per rentable square foot] towards the actual, reasonable costs of upgrading the HVAC distribution within the Subleased Premises (the “Supplemental Subtenant Improvement Allowance ”). Such HVAC upgrades shall be considered part of Subtenant’s Improvements and the SupplementalSubtenant Improvement Allowance shall be payable, if at all, pursuant to the same terms, conditions and requirements as the Subtenant Improvement Allowanceset forth in the immediately preceding paragraph. In no event shall the Subtenant Improvement Allowance or the Supplemental Subtenant Improvement Allowance paid exceed the actual costs incurred bySubtenant in connection with such work.  13. Use & Indemnification . Subtenant shall use the Subleased Premises only for the Permitted Uses as provided in the Master Lease (and Sublandlordrepresents to Subtenant that the Subleased Premises may be used for executive and general offices and uses ancillary thereto). Subtenant shall be fully responsibleand liable (Master Landlord and Sublandlord being indemnified) for the operation of its business in the Subleased Premises in compliance with all applicable lawsand regulations from and after the Sublease Commencement Date. Subtenant shall indemnify, defend and hold Sublandlord and Master Landlord, andSublandlord’s and Master Landlord’s officers, agents, and employees (collectively, the “ Master Landlord and Sublandlord Indemnitees ”) harmless from andagainst all liabilities, obligations, damages, judgments, penalties, claims, costs, charges and expenses, including, without limitation, reasonable attorneys’ fees,which may be imposed upon, incurred by, or asserted against any of the Master Landlord and Sublandlord Indemnities and arising, directly or indirectly, out of orin connection with (a) Subtenant’s breach of its obligations under this Sublease (including, by extension, the Master Lease), (b) the negligence or willful acts ofSubtenant, its agents, contractors, and employees, and (c) any work or thing done in, on or about the Subleased Premises or any part thereof, by Subtenant or itsagents, contractors, and employees, including, without limitation, any Subtenant’s Improvements. In no event shall Subtenant dispose, store, or otherwise utilizehazardous materials within the Subleased Premises except in full compliance with the Master Lease and all applicable law. Sublandlord shall indemnify, defend and hold harmless Subtenant from and against any loss, cost, damage or expense (including reasonable attorneys’ fees), or anyclaim therefor, arising out of (i) any negligence by Sublandlord; (ii) any accident, injury or damage whatsoever caused to any person, or to the property of anyperson, occurring outside of Subleased Premises but within or about the Building, where such accident, damage or injury results or is claimed to have resulted froman act or omission on the part of the Sublandlord and not from the negligence or willful misconduct of Subtenant, or (iii) any failure by Sublandlord to observe orperform any of the terms, covenants or conditions of (A) the applicable terms of the Master Lease (to the extent such failure materially adversely affectsSubtenant’s use or occupancy of the Subleased Premises) or (B) this Sublease to the extent required to be observed or performed by Sublandlord, including anyloss, cost, damage or expense any default under or termination of the Master Lease arising by reason of any such failure. It is the intent of the parties that Subtenant have access to the Subleased Premises on a 24/7/365 basis, including use of the Building elevator(s) on a 24/7/365 basis,at no cost or expense to Subtenant. The parties acknowledge that there is no freight elevator for the Building. 14. Insurance . Subtenant shall at all times during the term hereof keep in force at its own expense all insurance coverages required to be maintained bySublandlord under the Master Lease that are applicable to Subtenant’s use of the Subleased Premises; subject, however, to certain adjustments in such insurancecoverages as reflected on an insurance certificate provided by Tenant and approved by Sublandlord and Master Landlord pursuant to a separate letter or emailtransmittal. Except as aforesaid, all such insurance shall conform to the requirements for Sublandlord’s insurance policies under the Master Lease. As soon asreasonably practicable, Subtenant shall deliver to Sublandlord an insurance certificate and required endorsements evidencing the insurance coverages requiredunder this Sublease. 15. Security Deposit / Letter of Credit Security . On execution of this Sublease, Subtenant shall deliver to Sublandlord an irrevocable letter of credit (the“Letter of Credit”) in the amount of Two Hundred Fifty Thousand Seven Hundred Fifty-One and 25/100ths Dollars ($250,751.25) issued in favor of Sublandlord insuch amount, as security for the full and faithful performance of Subtenant’s obligations under this Sublease. The Letter of Credit shall be an irrevocable,unconditional letter of credit with an initial term of not less than one (1) year from the Commencement Date of this Lease. Without further act or instrumentrequired by Sublandlord, the Letter of Credit shall be automatically renewed for successive one (1) year periods throughout the remainder of the Term unless, notless than forty-five (45) days prior to the then current expiration date of the Letter of Credit, the issuing bank notifies Sublandlord of its intention not to renew theLetter of Credit. The Letter of Credit (or any renewal, extension or replacement thereof) shall continue in full force and effect and shall be maintained in its fullface amount for thirty (30) days beyond the later of (x) expiration of the Term of this Sublease, and (y) the date Subtenant vacates and surrenders possession of theSubleased Premises to Sublandlord. The Letter of Credit shall (i) be negotiable and freely transferable in connection with a sale or transfer by Sublandlord ashereinafter described; (ii) be issued or confirmed by a banking institution reasonably acceptable to Sublandlord; (iii) provide for payment of all or any portion ofthe face amount of the Letter of Credit to Sublandlord upon the receipt by the issuing bank of a sight draft presented to the issuing bank by a representative ofSublandlord; and (iv) be otherwise in form and substance reasonably satisfactory to Sublandlord. Sublandlord's receipt of notice from the issuing bank of itsintention not to renew the Letter of Credit or Subtenant's failure to deliver a renewal or replacement letter of credit shall entitle Sublandlord to draw the full faceamount of the Letter of Credit and retain such sum as security hereunder in lieu of the Letter of Credit. Subtenant's failure to maintain the Letter of Credit shallconstitute a default under this Sublease. If Subtenant defaults in its obligations under this Sublease beyond any applicable notice and cure period, Sublandlord maydraw upon the Letter of Credit to the extent required for the payment of any sum as to which Subtenant is in default or for any sum which Sublandlord may haveexpended or may be required to expend by reason of Subtenant’s default. In the event Sublandlord draws upon the Letter of Credit and applies or retains anyportion or all of the sum received upon such draw, Subtenant shall forthwith take such action as is necessary to restore the face amount of the Letter of Credit sothat at all times the amount of the Letter of Credit shall be equal to Two Hundred Fifty Thousand Seven Hundred Fifty-One and 25/100ths Dollars ($250,751.25).Upon expiration of the Sublease Term or earlier termination of this Sublease, and after Subtenant has delivered possession of the Subleased Premises in thecondition required by this Sublease and otherwise fully performed its covenants and obligations hereunder, Sublandlord shall promptly return the Letter of Creditto Subtenant.  Notwithstanding the foregoing provisions of this Sublease, Subtenant may deposit with Sublandlord the sum of $75,000.00 (the "Temporary Security Deposit ")upon Tenant's execution and submission of the Lease; provided, however, that Subtenant agrees that it shall, on or before the forty-fifth (45th) day next followingthe date that this Sublease has been fully executed and delivered, deliver the Letter of Credit, as hereinabove defined, in the form required under this Section 15 toSublandlord, whereupon Sublandlord shall promptly return the Temporary Security Deposit to Subtenant. Sublandlord shall deposit the Temporary SecurityDeposit in its general bank account and will have no obligation to accrue or pay to Subtenant interest on such Temporary Security Deposit. The TemporarySecurity Deposit is security for performance of Subtenant’s obligations under this Sublease. If Subtenant defaults with respect to any provision of this Sublease,including but not limited to the provisions relating to the payment of Rent, and such default continues after any applicable notice and cure period under thisSublease, Sublandlord, without prejudice to any other right or remedy it may have, may use, apply or retain all or any part of the Temporary Security Deposit forthe payment of any rent or additional rent, or the cure of any such default. If Subtenant fails for any reason to deliver to Landlord the Letter of Credit by the forty-fifth (45th) day next following the date that this Sublease has been fully executed and delivered, Subtenant's failure to deliver the Letter of Credit by such date shallconstitute an event of default under this Sublease, notwithstanding that no other default on the part of Subtenant may then exist under this Sublease; andSublandlord shall be entitled to exercise all rights and remedies available to Sublandlord under this Sublease on account of such event of default. 16. Brokers . Each party represents that no real estate broker, salesman, or agent other than JLL (“ Sublandlord’s Broker ) and Newmark Grubb KnightFrank (“ Subtenant’s Broker ”) were instrumental in procuring this Sublease. Each party will indemnify the other against any claim or commission brought by aparty other than the Sublandlord’s Broker and the Subtenant’s Broker. If and only if this Sublease is fully executed, Sublandlord shall pay a commission toSublandlord’s Broker and/or Subtenant’s Broker pursuant to one or more separate agreements with the brokers. 17. Notice . It is expressly agreed that any notice required or desired to be sent shall be delivered to the following addresses and shall be deemed given (i)three (3) business days after deposited in the US mail and sent by United States Certified and/or Registered Mail, postage prepaid, return receipt requested, or (ii)on the day delivered if by hand, or (iii) when delivered if by overnight delivery by a professional delivery service: If to Sublandlord:If to Subtenant: Restoration Hardware, Inc.At the Subleased PremisesAttn: Eugene Chang VP & Senior Counsel15 Koch Road | Corte Madera, CA 94925Direct: 415.945.5996 | echang@rh.comWith a copy to: Mario J. Suarez, Esq.Thompson Hine LLP335 Madison Avenue (12th Floor)New York, New York 10017 Additionally, Subtenant acknowledges that the address to which all payments of Rent due the Sublandlord should be sent is to the Sublandlord at theaforementioned Sublandlord address.  18. Attorneys’ Fees . If either party institutes a suit against the other for violation of or to enforce any covenant or condition of this Sublease, or if either partyintervenes in any suit in which the other is a party to enforce or protect its interest or rights, the prevailing party shall be entitled to all of its actual out-of-pocketcosts and expenses, including reasonable attorneys’ fees actually incurred. 19. Return of Sublease Premises . At the end of the Term, Subtenant shall remove its personal property, equipment and trade fixtures from the SubleasedPremises, and shall remove any Specialty Improvements installed by Subtenant and repair any damage caused by such removal, all in accordance with the terms ofthe Master Lease. Sublandlord shall advise Subtenant at the time Sublandlord provides its approval to Subtenant’s improvements as provided in Section 12 hereinwhich Specialty Improvements, if any, shall be removed upon expiration or earlier termination of the Sublease. In this Sublease, the term “SpecialtyImprovements” shall mean any alterations or improvements that are not “typical” office improvements or which would not be conducive for use by subsequentoffice occupants, and will also include any alterations that (i) perforate, penetrate or require reinforcement of a floor slab (including, without limitation, interiorstairwells or high-density filing or racking systems), (ii) consist of the installation of a raised flooring system, (iii) consist of the installation of a vault or othersimilar device or system intended to secure the Sublease Premises or a portion thereof in a manner that exceeds the level of security necessary for ordinary officespace, and (iv) involve material plumbing connections (such as, for example but not by way of limitation, kitchens, saunas, showers, and executive bathroomsoutside of the Building core and/or special fire safety systems). 20. Early Termination of the Master Lease . If the Master Lease should terminate prior to the Expiration of the Term, through no fault of Sublandlord,Sublandlord shall have no liability to Subtenant. Where the Master Lease grants Sublandlord any discretionary right to terminate the Master Lease as to all or anyportion of the Master Lease Premises, whether due to casualty, condemnation, or otherwise, Sublandlord shall be entitled to exercise or not exercise such right inits sole and absolute discretion, but only after notice to Subtenant. 21. Signage . Subject to the consent of Sublandlord, which consent shall not be unreasonably withheld, and the consent of the landlord under the MasterLandlord, Subtenant, at Subtenant’s sole cost and expense, may maintain signs in the elevator lobbies of each floor that the Subleased Premises is located on; and asign in the Building lobby as approved in a separate sketch initialed by Sublandlord; and a proportionate share of the listings in the Building’s directory. 22. Exclusive License to Use Roof Deck . Subject to applicable laws, governmental codes, regulations and requirements and ordinances (collectively, “ Law”) and the applicable provisions of the Master Lease, Subtenant and its employees and invitees shall have an exclusive license to use the Building’s rooftop deckduring the Term of this Sublease in accordance with the following terms and conditions: a. Subtenants use or occupancy of the rooftop deck shall be in accordance with and subject to the applicable provisions of the Sublease and Master Lease,as if the rooftop deck were a part of the Subleased Premises, except that (1) the rooftop deck shall not be included in the calculation of Subtenant’s proportionateshare of Operating Expenses and Real Estate Taxes and no additional Base Rent is due for Subtenant’s use or occupancy of the rooftop deck, and (2) nothingcontained herein shall be deemed to grant Subtenant (or any person claiming by, through or under Subtenant), a leasehold interest in the rooftop deck. Subtenant’slicense to the use of the rooftop deck is limited to the existing rooftop deck, but not the underlying components comprising the roof or the parapets, copings andrailings enclosing the roof or the areas housing equipment located on the roof. Subtenant’s access to the rooftop deck is not assignable or transferable except inconnection with an assignment of this Sublease or a subletting of the Subleased Premises in accordance with, or otherwise permitted pursuant to, the terms andconditions of Section 10 of this Sublease. Subtenant’s use or occupancy of the rooftop desk shall be subject to inspection, maintenance, repair, alteration, additions,improvements and other uses of Sublandlord or Master Landlord, and Subtenant shall not use or occupy, or suffer any use or occupancy of, the rooftop deck in amanner that impairs, infringes or interferes with such rights of Sublandlord or Master Landlord or any equipment now or hereafter housed on the rooftop.Subtenant acknowledges that the Building has an alarm system, and Subtenant shall (i) reasonably cooperate with Sublandlord to coordinate the alarm system withSubtenant’s use or occupancy of the rooftop deck, and (ii) be solely responsible for any costs associated with any alterations, modifications, changes or additions tothe alarm system to accommodate Subtenant’s use or occupancy of the rooftop deck.  b. Subtenant’s use and occupancy of the rooftop deck shall be limited to Subtenant’s employees and invitees for only passive purposes like eating orlounging, and in no event shall any general public access be allowed on the rooftop deck. Subtenant shall not (1) store or keep any equipment, supplies, refuse ormerchandise on the rooftop deck, except Subtenant may place outdoor furniture and plants on the rooftop deck, (2) use the rooftop deck for lodging; (3) placeanything on the parapets, ledges or railings on the perimeter of the rooftop deck, (4) overload the rooftop deck, or (5) make any improvements, additions orinstallations to or on, or otherwise penetrate, the rooftop deck. c. Sublandlord (1) makes no representation or warranty whatsoever with respect to the permitted use or occupancy of the rooftop deck or access thereto,or the condition of the rooftop deck, or the legality of its use or occupancy, nor its fitness for a particular purpose, and (2) shall have no obligation whatsoever toSubtenant to make any improvements, modifications or alterations or to perform any maintenance, repair or other work with respect to the rooftop deck or accessthereto and shall bear no cost with respect to the rooftop deck or access thereto. In no event shall Subtenant have any manner of recourse against Sublandlord, norany right to abate or set-off against Base Rent or any other amounts owed under the Sublease, if Subtenant’s use or occupancy of the rooftop deck or access theretoviolates the Law or the Master Lease or is interrupted in connection with the maintenance, repair, restoration, or alteration thereon or therein. d. Subtenant acknowledges and expressly agrees that any use and occupancy of the rooftop deck by Subtenant, its employees, invitees, agents, or anyoneunder Subtenant’s direction or control (collectively “ Subtenant Parties ”) shall be at Subtenant’s sole risk and expense. SUBTENANT FURTHER AGREES TODEFEND, INDEMNIFY AND HOLD HARMLESS SUBLANDLORD AND THE MASTER LANDLORD FROM AND AGAINST ANY AND ALL LOSS,LIABILITY, DEMANDS, JUDGMENTS, AWARDS, EXPENSES (INCLUDING REASONABLE ATTORNEYS’ FEES), GOVERNMENTAL FINES,PENALTIES AND IMPOSITIONS, CLAIMS, PROCEEDINGS AND ACTIONS (COLLECTIVELY, “CLAIMS”) WHICH ARISE OR RESULT FROM ORRELATE TO SUBTENANT PARTIES’ USE OR OCCUPANCY OF, OR ACCESS TO, OR ENTRY ONTO THE ROOFTOP DECK INCLUDING, WITHOUTLIMITATION, DAMAGE TO PROPERTY OR HARM, INJURY (INCLUDING DEATH), OR ILLNESS TO PERSONS, OR VIOLATIONS OF LAW OR THEMASTER LEASE. THE INDEMNIFICATION PROVISIONS OF THIS SECTION 21 ARE IN ADDITION TO THE INDEMNIFICATION PROVISIONS OFSECTION 13 IN THIS SUBLEASE. TO THE FULLEST EXTENT ALLOWED BY LAW, SUBTENANT HEREBY IRREVOCABLY WAIVES ANDUNCONDITIONALLY RELEASES AND FOREVER DISCHARGES SUBLANDLORD AND MASTER LANDLORD AND THEIR RESPECTIVE AGENTS,PARTNERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AND PRINCIPALS CLAIMS ARISING OUT OF SUBTENANT PARTIES’ ACCESS TOAND/OR USE OR OCCUPANCY OF THE ROOFTOP DECK. The provisions of this paragraph shall survive the expiration or termination of this Sublease. e. Subtenant will cause its insurance (as required hereunder) to include Subtenant’s use and occupancy of the rooftop deck. f. If (1) Subtenant’s use or occupancy of the rooftop deck constitutes a default or breach under the Master Lease, or (2) a governmental violation is issued(or threatened) against the Building relating to Subtenant’s use or occupancy, or manner of use or occupancy, of the rooftop deck, Subtenant must eitherimmediately cease and desist its use and occupancy of the rooftop deck or cure any such default, breach or violation, as applicable, and provide Sublandlord withevidence of such curing and discharge. 23. Miscellaneous . This Sublease shall be construed and interpreted in accordance with the laws of the State of New York. All obligations under thisSublease are performable in the county or other jurisdiction where the Subleased Premises is located, which shall be venue for all legal actions. If any term orprovision of this Sublease shall be invalid or unenforceable, then such term or provision shall be automatically reformed to the extent necessary to render such termor provision enforceable, without the necessity of execution of any amendment or new document. The remainder of this Sublease shall not be affected, and eachremaining and reformed provision of this Sublease shall be valid and enforced to the fullest extent permitted by law. The headings and titles to the Sections of thisSublease are for convenience only and shall have no effect on the interpretation of any part of this Sublease. The words “include”, “including” and similar wordswill not be construed restrictively to limit or exclude other items not listed. All of the covenants and agreements herein contained shall be binding upon and shallinure to the benefit of the parties hereto and their respective heirs, representatives, successors and permitted assigns. All understandings, discussions, andagreements previously made between the parties, written or oral, are superseded by this Sublease, and neither party is relying upon any warranty, statement orrepresentation not contained in this Sublease. This Sublease may be modified only by a written agreement signed by Sublandlord and Subtenant. Both partiescovenant and agree to keep the financial terms of this Sublease confidential, disclosing them only to their accountants, consultants, shareholders, and legal advisorsas may be reasonably necessary. [SIGNATURES APPEAR ON THE FOLLOWING PAGE]  IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the date first written above, intending to be bound hereby. SUBLANDLORD: Restoration Hardware, Inc., a Delaware corporation By:/s/ Karen Boone Name:Karen Boone Title:CFO SUBTENANT: Intercept Pharmaceuticals, Inc., a Delaware corporation By:/ s/ Mark Pruzanski Name:Mark Pruzanski Title:CEO  EXHIBIT A Master Lease INTENTIONALLY OMITTED  EXHIBIT B Definition of Operating Expenses All costs of operation, maintenance, repair, replacement and management of the Building (including the amount of any credits which Sublandlord may grant toparticular subtenants of the Building in lieu of providing any standard services or paying any standard costs described in this definition for similar tenants), asdetermined in accordance with generally accepted accounting principles, including the following costs by way of illustration, but not limitation: water and sewercharges; insurance charges of or relating to all insurance policies and endorsements deemed by Sublandlord to be reasonably necessary or desirable and relating inany manner to the protection, preservation, or operation of the Building or any part thereof; utility costs, including, but not limited to, the cost of heat, light, power,steam, gas; waste disposal; the cost of janitorial services; the cost of security and alarm services (including any central station signaling system); costs of cleaning,repairing, replacing and maintaining the common areas, including parking and landscaping, window cleaning costs; labor costs; costs and expenses of managingthe Building including management fees; air conditioning maintenance costs; elevator maintenance fees and supplies; material costs; equipment costs including thecost of maintenance, repair and service agreements and rental and leasing costs; purchase costs of equipment; current rental and leasing costs of items which wouldbe capital items if purchased; tool costs; licenses, permits and inspection fees; wages and salaries; employee benefits and payroll taxes; accounting and legal fees;any sales, use or service taxes incurred in connection therewith. In addition, Sublandlord shall be entitled to recover, as additional rent (which, along with any othercapital expenditures constituting Operating Expenses, Sublandlord may either include in Operating Expenses or cause to be billed to Subtenant along withOperating Expenses and Real Estate Taxes but as a separate item), Subtenant’s proportionate share of: (i) an allocable portion of the cost of capital improvementitems which are reasonably calculated to reduce operating expenses; (ii) the cost of fire sprinklers and suppression systems and other life safety systems; and (iii)other capital expenses which are required under any governmental laws, regulations or ordinances which were not applicable to the Building at the time it wasconstructed; but the costs described in this sentence shall be amortized over the reasonable life of such expenditures in accordance with such reasonable life andamortization schedules as shall be determined by Sublandlord in accordance with generally accepted accounting principles, with interest on the unamortizedamount at one percent (1%) in excess of the Wall Street Journal prime lending rate announced from time to time. Expenses shall not include depreciation oramortization of the Building or equipment in the Building except as provided herein, loan principal payments, costs of alterations of tenants’ premises, leasingcommissions, interest expenses on long-term borrowings or advertising costs. Exhibit 21.1SUBSIDIARIES OF INTERCEPT PHARMACEUTICALS, INC.Intercept Italia S.r.l, an Italian entity Intercept Pharma Europe Ltd., a United Kingdom entity Intercept Pharma Canada, Inc., a Canadian entity Intercept Pharma Switzerland GmbH, a Swiss entity Intercept Pharma Deutschland GmbH, a German entity Intercept Pharma France SAS, a French entity Intercept Pharma Austria GmbH, an Austrian entity Intercept Pharma Spain, S.L.U., a Spanish entity Intercept Pharma Portugal Unipessoal Lda., a Portuguese entity Intercept Pharma Danmark ApS, a Danish entity Intercept Pharma Nederland B.V., a Dutch entityExhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of Directors Intercept Pharmaceuticals, Inc.:We consent to the incorporation by reference in the registration statements on Form S-8 (No. 333-184810, No. 333-188064, andNo. 333-206247) and Form S-3 (No. 333-194974) of our report dated February 29, 2016, with respect to the consolidated balancesheets of Intercept Pharmaceuticals, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statementsof operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period endedDecember 31, 2015, and the effectiveness of internal control over financial reporting as of December 31, 2015, which reports appear inthe December 31, 2015 annual report on Form 10-K of Intercept Pharmaceuticals, Inc./s/ KPMG LLP New York, New York February 29, 2016Exhibit 31.1CERTIFICATIONS UNDER SECTION 302I, Mark Pruzanski, M.D., certify that:1.I have reviewed this Annual Report on Form 10-K of Intercept Pharmaceuticals, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; andb)any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: February 29, 2016/s/ Mark Pruzanski Mark Pruzanski, M.D. President and Chief Executive Officer (Principal Executive Officer)Exhibit 31.2CERTIFICATIONS UNDER SECTION 302I, Barbara G. Duncan, certify that:1.I have reviewed this Annual Report on Form 10-K of Intercept Pharmaceuticals, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; andb)any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: February 29, 2016/s/ Barbara Duncan Barbara G. Duncan Chief Financial Officer (Principal Financial Officer)Exhibit 32CERTIFICATIONS UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, UnitedStates Code), each of the undersigned officers of Intercept Pharmaceuticals, Inc., a Delaware corporation (the “Company”), doeshereby certify, to such officer’s knowledge, that:The Annual Report for the year ended December 31, 2015 (the “Form 10-K”) of the Company fully complies with therequirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairlypresents, in all material respects, the financial condition and results of operations of the Company. Dated: February 29, 2016 /s/ Mark Pruzanski Mark Pruzanski, M.D. President and Chief Executive Officer (Principal Executive Officer)Dated: February 29, 2016 /s/ Barbara Duncan Barbara G. Duncan Chief Financial Officer (Principal Financial Officer)

Continue reading text version or see original annual report in PDF format above