Intercept Pharmaceuticals
Annual Report 2019

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-35668 Intercept Pharmaceuticals, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 22-3868459 (I.R.S. Employer Identification No.) 10 Hudson Yards, 37th Floor New York, NY 10001 (Address of Principal Executive Offices and Zip Code) (646) 747-1000 (Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $0.001 per share Trading Symbol(s) ICPT Name of each exchange on which registered Nasdaq Global Select Market Securities 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 ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act: Large accelerated filer Non-accelerated filer ☒ ☐ Accelerated filer Smaller reporting company Emerging growth company ☐ ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes ☐ No ☒ The aggregate market value of the registrant’s common stock held by non-affiliates as of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was $2,027.8 million (computed by reference to the closing price of $79.57 on such date as reported by the Nasdaq Global Select Market). Common stock held by our executive officers, directors and certain stockholders as of such date has been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares of the registrant’s common stock outstanding as of December 31, 2019 was 32,853,066. DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Part III of this Annual Report on Form 10-K is incorporated by reference to the registrant’s definitive proxy statement related to its 2020 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Table of Contents Part I. Intercept Pharmaceuticals, Inc. Annual Report on Form 10-K For the Fiscal Year Ended December 31, 2019 TABLE OF CONTENTS Business Item 1. Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. Mine Safety Disclosures Properties Legal Proceedings Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Item 9. Item 9A. Controls and Procedures Item 9B. Other Information Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Part III. Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services Part IV. Item 15. Exhibits and Financial Statement Schedules Item 16. Form 10-K Summary Signatures Page 1 32 81 81 81 81 82 83 85 98 99 99 99 100 100 100 100 101 101 102 107 108 Unless the context otherwise requires, references in this Annual Report on Form 10-K to “we,” “our,” “us” and the “Company” refer, collectively, to Intercept Pharmaceuticals, Inc., a Delaware corporation, and its consolidated subsidiaries. i Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements, including, but not limited to, statements regarding the progress, timing and results of our clinical trials, including our clinical trials for the treatment of nonalcoholic steatohepatitis (“NASH”), the safety and efficacy of our approved product, Ocaliva (obeticholic acid or “OCA”) for primary biliary cholangitis (“PBC”), and our product candidates, including OCA for liver fibrosis due to NASH, the timing and acceptance of our regulatory filings and the potential approval of OCA for liver fibrosis due to NASH or any other indications in addition to PBC, the timing and potential commercial success of OCA and any other product candidates we may develop and our strategy, future operations, future financial position, future revenue, projected costs, financial guidance, prospects, plans and objectives. These statements constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “possible,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward- looking statements contain these identifying words. Readers are cautioned not to place undue reliance on these forward- looking statements, which speak only as of their dates, and we undertake no obligation to update any forward-looking statement except as required by law. These forward-looking statements are based on estimates and assumptions by our management that, although believed to be reasonable, are inherently uncertain and subject to a number of risks. The following represent some, but not necessarily all, of the factors that could cause actual results to differ materially from historical results or those anticipated or predicted by our forward-looking statements: ● our ability to successfully commercialize Ocaliva for PBC; ● our ability to maintain our regulatory approval of Ocaliva for PBC in the United States, Europe, Canada, Israel, Australia and other jurisdictions in which we have or may receive marketing authorization; ● the initiation, timing, cost, conduct, progress and results of our research and development activities, preclinical studies and clinical trials, including any issues, delays or failures in identifying patients, enrolling patients, treating patients, retaining patients, meeting specific endpoints in the jurisdictions in which we intend to seek approval or completing and timely reporting the results of our NASH or PBC clinical trials; the regulatory approval of our New Drug Application ● our ability to timely and cost-effectively file for and obtain regulatory approval of our product candidates, including for NASH; any advisory committee recommendation that our product candidates, including OCA for liver fibrosis due to NASH, should not be approved or approved only under certain conditions; or any determination that the regulatory applications and subsequent information we submit for our product candidates, including OCA for liver fibrosis due to NASH, do not contain adequate clinical or other data or meet applicable regulatory requirements for approval; ● conditions that may be imposed by regulatory authorities on our marketing approvals for our products and product candidates, such as the need for clinical outcomes data (and not just results based on achievement of a surrogate endpoint), and any related restrictions, limitations and/or warnings contained in the label of any of our products or product candidates; ● any potential side effects associated with Ocaliva for PBC, OCA for liver fibrosis due to NASH or our other product candidates that could delay or prevent approval, require that an approved product be taken off the market, require the inclusion of safety warnings or precautions or otherwise limit the sale of such product or product candidate; ii Table of Contents ● our ability to establish and maintain relationships with, and the performance of, third-party manufacturers, contract research organizations and other vendors upon whom we are substantially dependent for, among other things, the manufacture and supply of our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our clinical trial activities; ● our ability to identify, develop and successfully commercialize our products and product candidates, including our ability to timely and successfully launch OCA for liver fibrosis due to NASH, if approved; ● our ability to obtain and maintain intellectual property protection for our products and product candidates, including our ability to cost-effectively file, prosecute, defend and enforce any patent claims or other intellectual property rights; ● the size and growth of the markets for our products and product candidates and our ability to serve those markets; ● the degree of market acceptance of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH or our other product candidates among physicians, patients and healthcare payors; ● the availability of adequate coverage and reimbursement from governmental and private healthcare payors for our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our ability to obtain adequate pricing for such products; ● our ability to establish and maintain effective sales, marketing and distribution capabilities, either directly or through collaborations with third parties; ● competition from existing drugs or new drugs that become available; ● our ability to prevent system failures, data breaches or violations of data protection laws; ● costs and outcomes relating to any disputes, governmental inquiries or investigations, legal proceedings or litigation, including any securities, intellectual property, employment, product liability or other litigation; ● our collaborators’ election to pursue research, development and commercialization activities; ● our ability to establish and maintain relationships with collaborators with development, regulatory and commercialization expertise; ● our need for and ability to generate or obtain additional financing; ● our estimates regarding future expenses, revenues and capital requirements and the accuracy thereof; ● our use of cash and short-term investments; ● our ability to acquire, license and invest in businesses, technologies, product candidates and products; ● our ability to attract and retain key personnel to manage our business effectively; ● our ability to manage the growth of our operations, infrastructure, personnel, systems and controls; ● our ability to obtain and maintain adequate insurance coverage; iii Table of Contents ● the impact of general U.S. and foreign economic, industry, market, regulatory or political conditions, including the potential impact of Brexit; and ● the other risks and uncertainties identified under the captions “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K and in our other periodic filings filed with the U.S. Securities and Exchange Commission. NOTE REGARDING TRADEMARKS The Intercept Pharmaceuticals® name and logo and the Ocaliva® name and logo are either registered or unregistered trademarks or trade names of the Company in the United States and/or other countries. All other trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Annual Report on Form 10-K may appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights to these trademarks and trade names. iv Table of Contents Item 1. Business Overview PART I We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat progressive non-viral liver diseases with a high unmet medical need utilizing our proprietary bile acid chemistry. Our first marketed product, Ocaliva® (obeticholic acid or “OCA”), is a farnesoid X receptor (“FXR”) agonist approved in the United States, the European Union and several other jurisdictions for the treatment of primary biliary cholangitis (“PBC”) in combination with ursodeoxycholic acid (“UDCA”) in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA. In addition to commercializing OCA for PBC under the Ocaliva brand name, we are currently developing OCA for additional indications, including nonalcoholic steatohepatitis (“NASH”). We are also developing several other product candidates in various stages of clinical and preclinical development. We believe that OCA and our other product candidates have the potential to treat orphan and other more prevalent liver diseases such as NASH for which there are currently limited therapeutic options. Ocaliva was approved for PBC by the U.S. Food and Drug Administration (“FDA”) in May 2016 under the accelerated approval pathway. We commenced sales and marketing of Ocaliva in the United States shortly after receiving approval, and Ocaliva is now available to U.S. patients primarily through a network of specialty pharmacy distributors. Ocaliva received conditional approval for PBC from the European Commission in December 2016 and we commenced our European commercial launch in January 2017. We have submitted dossiers and obtained, or are otherwise pursuing, reimbursement from a number of national authorities in Europe. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia, and we are pursuing marketing approval of Ocaliva for PBC in our other international target markets. Ocaliva received orphan drug designation in both the United States and the European Union for the treatment of PBC. Our lead product candidate is OCA for the potential treatment of NASH. In February 2019, we announced topline results from the planned 18-month interim analysis of our pivotal Phase 3 clinical trial of OCA in patients with liver fibrosis due to NASH, known as the REGENERATE trial. In the primary efficacy analysis, once-daily OCA 25 mg met the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH at the planned 18- month interim analysis. Adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of OCA. The interim analysis results were based on surrogate endpoints and the impact on clinical outcomes has not been confirmed. The REGENERATE trial is ongoing and will continue through clinical outcomes for verification and description of clinical benefit. OCA also achieved the primary endpoint in a Phase 2b clinical trial for the treatment of NASH completed in late July 2014, known as the FLINT trial, which was sponsored by the U.S. National Institute of Diabetes and Digestive and Kidney Diseases, a part of the National Institutes of Health. OCA has received breakthrough therapy designation from the FDA for the treatment of NASH patients with liver fibrosis. In September 2019, we submitted a New Drug Application (“NDA”) to the FDA seeking accelerated approval of OCA for liver fibrosis due to NASH. In November 2019, the FDA accepted our NDA for filing and granted a priority review designation for OCA for liver fibrosis due to NASH. Under the Prescription Drug User Fee Act (“PDUFA”), the FDA has set a target action date of June 26, 2020 for the completion of its review of our NDA, after giving effect to a 90-day extension of its initial target action date. The FDA has also notified us that it has tentatively scheduled an advisory committee meeting relating to our NDA for April 22, 2020. In December 2019, we submitted a Marketing Authorization Application (“MAA”) to the European Medicines Agency (“EMA”) seeking conditional approval of OCA for liver fibrosis due to NASH. In January 2020, the EMA validated our MAA and thereby confirmed that our MAA was sufficiently complete to begin the formal review process. In addition, we are conducting a number of other trials and studies in connection with our NASH development program, including our ongoing Phase 3 trial in NASH patients with compensated cirrhosis, known as the REVERSE trial. In January 2020, we announced that we completed enrollment of the REVERSE trial with over 900 patients randomized. As part of our product development activities, we expect to continue to invest in evaluating the potential of OCA and our other product candidates in progressive non-viral liver diseases such as PBC and NASH. For example, we are studying 1 Table of Contents OCA in combination with bezafibrate, a pan-peroxisome proliferator-activated receptor (“PPAR”) agonist, in patients with PBC and potentially may study such combination in other liver diseases. Liver Function, Bile Acids and Progressive Non-Viral Liver Diseases The liver performs many functions that are vital for maintaining health, including the regulation of bile acid metabolism. Bile acids are natural detergent-like emulsifying agents that are released from the gallbladder into the intestine when food is ingested, and are essential for the absorption of dietary cholesterol and other nutrients. Cholesterol bound by bile acids is taken up by the liver, where the cholesterol is then converted into one of two primary bile acids. The bile acids are then actively secreted into bile ducts, which eventually empty into the gallbladder. This digestive cycle of bile flow from gallbladder to intestine to liver and back is called the enterohepatic recirculation of bile. In addition to facilitating nutrient absorption, bile acids act as important signals that help regulate multiple other biological functions. They are also complex signaling molecules that integrate metabolic and immune pathways involved in the healthy functioning of various tissues and organs. For example, the actions of bile acids in the liver, intestine and kidney regulate repair mechanisms that modulate inflammation and fibrosis (scarring), which can lead to progressive organ damage. The biological effects of bile acids are mediated through dedicated receptors. The best understood receptor is FXR, a nuclear receptor that regulates bile acid synthesis and clearance from the liver, thereby preventing excessive bile acid build- up in the liver, which may be toxic. As such, FXR is a target for the treatment of several liver diseases such as PBC that involve impaired bile flow, a condition called cholestasis. In cholestasis, the liver is typically exposed to higher than normal levels of bile acids, which can cause significant damage over time. In addition, bile acid activation of FXR is believed to induce anti-fibrotic, anti-inflammatory, anti-steatotic and other mechanisms that are necessary for the normal regeneration of the liver. As a result, FXR is also a target for the treatment of more common liver diseases such as NASH and alcoholic hepatitis. Further, based on the discovery of similar FXR-mediated protective mechanisms in other organs exposed to bile acids, we believe that FXR may also be a potential target for the treatment of a number of intestinal, kidney and other diseases. OCA is a bile acid analog, a chemical substance that has a structure based on a naturally occurring human bile acid, that selectively binds to and activates FXR. We believe that OCA has broad liver-protective properties and may effectively counter a variety of chronic insults to the liver that cause fibrosis (scarring), which can eventually lead to cirrhosis, liver transplant and death. Due to OCA’s bile acid-like properties, it circulates enterohepatically and engages FXR in both the liver and intestine. FXR engagement in the liver is believed to be critical to successfully treat pathologic injury due to progressive underlying disease. By virtue of our patent portfolio and the proprietary know-how of our employees and collaboration partners, we believe that we hold a leading position in the fields of bile acid chemistry and therapeutics. Our research and development efforts have resulted in a pipeline of bile acid analogs in addition to OCA and through our on-going work with our collaboration partners such as Professor Roberto Pellicciari, Ph.D., one of our co-founders, and TES Pharma S.r.l., we are continuing our research to rationally design compounds that bind selectively and potently to FXR and other bile acid receptors. Our Strategy Our objective is to develop and commercialize novel therapeutics for the treatment of progressive non-viral liver diseases with high unmet medical need. The key elements of our strategy are to: ● Advance our leading NASH program. We have filed for approval of OCA for liver fibrosis due to NASH in the United States and Europe and will continue to prepare for the potential commercialization of OCA for liver fibrosis due to NASH, if approved. We also expect to continue REGENERATE through clinical outcomes and to progress our Phase 3 REVERSE trial for NASH patients with compensated cirrhosis. We also intend to conduct studies to explore the potential of OCA in combination therapy. 2 Table of Contents ● Expand our global PBC business. We intend to expand access to Ocaliva to eligible patients by increasing Ocaliva’s penetration in the markets where Ocaliva has been approved, pursuing regulatory approval for Ocaliva in our target markets where Ocaliva has not yet been approved and developing additional innovative product candidates, such as OCA in combination with bezafibrate, for PBC. ● Develop and expand our pipeline. We intend to continue to develop OCA and our other product candidates, alone or in combination, for non-viral liver diseases. In addition, we intend to expand our portfolio of clinical and preclinical product candidates by leveraging our and our collaborators’ expertise in bile acid chemistry and opportunistically pursuing business development transactions. ● Expand and protect our intellectual property. We intend to expand and aggressively prosecute our intellectual property in the area of bile acid chemistry and therapeutics with the objective of maintaining a defensible and valuable intellectual property portfolio. History and Development of the Company In September 2002, we were incorporated in Delaware and shortly thereafter began operations in New York. In October 2012, following several rounds of private funding, we completed our initial public offering (the “IPO”) and received net proceeds of approximately $78.7 million therefrom. We used the proceeds from our IPO to fund, among other things, preclinical and clinical development activities, including our Phase 3 POISE trial studying OCA for PBC and work performed in anticipation of our submission of regulatory filings for the approval of OCA for PBC. In addition, between June 2013 and April 2015, we completed four registered public offerings of our common stock and received aggregate net proceeds of approximately $803.4 million therefrom. In March 2014, we announced the results of our Phase 3 POISE trial of OCA for PBC. In November 2014, results from the FLINT Phase 2b clinical trial of OCA for liver fibrosis due to NASH were published in The Lancet. Both of these trials met their primary endpoints. In June 2015, we submitted a NDA to the FDA seeking accelerated approval of OCA for PBC and a MAA to the EMA seeking conditional approval of OCA for PBC. In September 2015, we announced the initiation of our Phase 3 REGENERATE trial of OCA in patients with liver fibrosis due to NASH. In May 2016, Ocaliva was approved for PBC by the FDA. We commenced sales and marketing of Ocaliva in the United States shortly after receiving approval. In July 2016, we issued and sold $460.0 million aggregate principal amount of 3.25% Convertible Senior Notes due 2023 (the “2023 Convertible Notes”) in a registered public offering and received net proceeds of approximately $447.6 million therefrom. In December 2016, Ocaliva received conditional approval for PBC from the European Commission. In January 2017, we commenced our European launch of Ocaliva for PBC. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia, and we are pursuing marketing approval of Ocaliva for PBC in our other international target markets. In July 2017, we announced positive results from our Phase 2 CONTROL trial, the goal of which was to characterize the lipid metabolic effects of OCA and cholesterol management effects of concomitant statin administration in NASH patients, as well as positive top-line results from our Phase 2 AESOP trial of OCA for primary sclerosing cholangitis (“PSC”). In February 2018, we announced our Phase 3 REVERSE trial of OCA for liver fibrosis due to NASH patients with compensated cirrhosis. In April 2018, we issued and sold an aggregate of approximately 4.3 million shares of common stock in a registered public offering and a concurrent private placement (the “Concurrent Private Placement”) exempt from the registration requirements of the Securities Act of 1933, as amended, and received net proceeds of approximately $261.4 million therefrom. In December 2018, we entered into an agreement (the “Aralez Agreement”) with Aralez Pharmaceuticals Canada Inc. (“Aralez”), pursuant to which we acquired (i) Aralez’s license to develop and commercialize bezafibrate in the United States, (ii) Aralez’s investigational new drug application (“IND”) on file with the FDA and other associated regulatory documentation and (iii) a non-exclusive license to certain of Aralez’s intellectual property. We are evaluating the efficacy, safety and tolerability of bezafibrate in combination with OCA in patients with PBC in a Phase 2 3 Table of Contents study, with the longer-term goal of developing and seeking regulatory approval for a fixed dose combination regimen in this indication and potentially other liver diseases. In February 2019, we announced topline results from our pivotal Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH. In the primary efficacy analysis, once-daily OCA 25 mg met the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH at the planned 18-month analysis. Adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of OCA. In May 2019, we issued and sold $230.0 million aggregate principal amount of 2.00% Convertible Senior Notes due 2026 (the “2026 Convertible Notes” and together with the 2023 Convertible Notes, the “Convertible Notes”) in a registered public offering and received net proceeds of approximately $223.4 million therefrom. In May 2019, we issued and sold 2,760,000 shares of common stock in a registered public offering (“the 2019 Public Offering”) and 119,760 shares of common stock in a concurrent private placement of common stock (the “2019 Concurrent Private Placement”) and received net proceeds of approximately $227.3 million. In September 2019, we submitted a NDA to the FDA seeking accelerated approval of OCA for liver fibrosis due to NASH. In November 2019, the FDA accepted our NDA for filing and granted a priority review designation for OCA for liver fibrosis due to NASH. Under PDUFA, the FDA has set a target action date of June 26, 2020 for the completion of its review of our NDA, after giving effect to a 90-day extension of its initial target action date. The FDA has also notified us that it has tentatively scheduled an advisory committee meeting relating to our NDA for April 22, 2020. In December 2019, we submitted a MAA to the EMA seeking conditional approval of OCA for liver fibrosis due to NASH. In January 2020, the EMA validated our MAA and thereby confirmed that our MAA was sufficiently complete to begin the formal review process. For information regarding our financial condition and results of operations, including our revenues, net loss and total assets, see our audited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. Our First Approved Product Ocaliva Ocaliva was approved for PBC by the FDA in May 2016 under the accelerated approval pathway. We commenced sales and marketing of Ocaliva in the United States shortly after receiving approval, and Ocaliva is now available to U.S. patients primarily through a network of specialty pharmacy distributors. Ocaliva received conditional approval for PBC from the European Commission in December 2016 and we commenced our European commercial launch in January 2017. We have submitted dossiers and obtained, or are otherwise pursuing, reimbursement from a number of national authorities in Europe. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia, and we are pursuing marketing approval of Ocaliva for PBC in our other international target markets. Ocaliva received orphan drug designation in both the United States and the European Union for the treatment of PBC. Overview of PBC PBC is a rare liver disease that primarily results from autoimmune destruction of the bile ducts that transport bile acids out of the liver, resulting in cholestasis. The build-up of bile acids in the liver damages liver cells. These damaged liver cells, in turn, release abnormal amounts of serum alkaline phosphatase (“ALP”), a liver enzyme that is a key biomarker of the disease pathology. As shown in numerous clinical trials of treatment with UDCA (available generically as ursodiol), a positive therapeutic response is primarily determined by sustained reduction of ALP levels, along with maintenance of normal bilirubin levels, indicating adequately compensated liver function. This biochemical improvement has been shown to correlate well with improved clinical outcomes such as transplant-free survival. As the disease progresses, it causes progressive liver damage marked by chronic inflammation and fibrosis. Despite its rarity, PBC is the most common cholestatic liver disease and is among the leading indications for liver transplant among women in the United States. 4 Table of Contents Disease progression in PBC varies significantly, with median survival in untreated patients estimated to be 7.5 years if symptomatic at diagnosis and up to 16 years if asymptomatic at diagnosis. PBC patients whose disease is progressing have persistently elevated levels of ALP and other liver enzymes, with abnormal bilirubin levels heralding more advanced disease. Data from published long-term studies demonstrate that a significant portion of such patients with advancing disease progress to liver failure, transplant or death within five to ten years. Based on our analysis of 2016 industry data, there were approximately 290,000 people with PBC at the time of our U.S. launch in the United States, certain European countries, Canada, Australia and New Zealand. An estimated 90% of PBC patients are women, with approximately one in 1,000 women over the age of 40 afflicted by the disease. The mean age of diagnosis is about 40 years old and the typical initial presentation occurs between the ages of 30 and 65 years old. A majority of PBC patients are asymptomatic at the time of initial diagnosis, but most develop symptoms over time. Fatigue and pruritus are the most common symptoms in PBC patients. Less common symptoms include dry eyes and mouth, as well as jaundice, which can be seen in more advanced disease. Based on the guidelines of the American Association for the Study of Liver Disease and the European Association for the Study of the Liver, the clinical diagnosis of PBC is established based on the presence of (i) a positive antimitochondrial antibody (“AMA”), a marker of this autoimmune disease seen in up to 95% of PBC patients and (ii) elevated serum levels of ALP. In the earlier stages of PBC, ALP is often the only abnormally elevated liver enzyme, rising to between two to ten times higher than normal values. Bilirubin is a marker of liver function and is also monitored in PBC to provide an indication of how well the liver is functioning. Liver biopsy can be used to confirm the diagnosis of PBC, but is not required and is becoming less-frequently performed. A number of published clinical studies have demonstrated that lower levels of ALP, both independently or in conjunction with normal bilirubin levels, correlate with a significant reduction in adverse clinical outcomes such as liver transplant and/or death in PBC patients. These studies include the result of meta-analyses of PBC clinical outcomes data of more than 6,000 PBC patients from 15 academic centers in eight countries that have been compiled by the Global PBC Study Group, which we sponsored, as well as a dataset of over 6,000 PBC patients across the United Kingdom compiled by the UK PBC Group. Prior to Ocaliva, the only approved drug indicated for the treatment of PBC was UDCA, which is widely considered the standard first-line therapy for PBC patients. In patients for whom UDCA is effective, the treatment slows the progression of PBC, reducing the likelihood of liver failure and the need for transplant. Phase 3 POISE Trial Ocaliva’s accelerated approval in the United States and conditional approval in the European Union was supported by the results of our Phase 3 POISE trial, which was completed in March 2014. The data from the POISE trial showed that Ocaliva, at both a once-daily 10 mg dose and a once-daily 5 mg dose titrated to 10 mg, met the trial’s primary endpoint of achieving a reduction in ALP to below a threshold of 1.67 times the upper limit of normal (“ULN”), with a minimum of a 15% reduction in ALP level from baseline, and a normal bilirubin level after 12 months of therapy. The percentage of patients meeting the POISE trial’s primary endpoint was 10% in the placebo group, 47% in the 10 mg Ocaliva group and 46% in the Ocaliva titration group (both dose groups p < 0.0001 as compared to placebo) in an intent-to-treat analysis. The placebo group experienced a mean decrease in ALP from baseline of 5%, compared to a mean decrease of 39% in the 10 mg Ocaliva dose group and 33% in the Ocaliva titration group (both dose groups p < 0.0001 as compared to placebo). Pruritus, generally mild to moderate, was the most frequently reported adverse event associated with Ocaliva treatment and was observed in 38% of patients on placebo, 70% of patients in the 10 mg Ocaliva group and 56% of patients in the Ocaliva titration group. Eight patients discontinued due to pruritus, of whom none were in the placebo group, seven (10%) were in the 10 mg Ocaliva group and one (1%) was in the Ocaliva titration group. Decreases in high density lipoprotein (“HDL”) cholesterol were also observed during treatment. Following the completion of the double-blind portion of the POISE trial described above, patients were given the option to enroll in a five-year open-label long-term safety and efficacy extension trial. Patients received Ocaliva at a once-daily 5 mg dose for three months, after which patients were titrated based on tolerability. The data from the open-label extension portion of the trial showed that 46% of patients responded after 12 months of treatment with Ocaliva and 50% to 56% of patients responded after 48 to 72 months of treatment with Ocaliva (based on the same criteria used to define 5 Table of Contents the primary endpoint in the 12 month placebo controlled trial). Reductions in ALP were sustained through the double-blind and extension portions of the trial and total bilirubin levels remained stable and within the normal range for most patients for the duration of the trial (ALP p < 0.0001 for all post-baseline visits; total bilirubin: p-values were not consistently significant throughout the extension portion of the POISE trial). Adverse events were consistent with the safety profile of Ocaliva in patients with PBC. The most commonly reported adverse events were pruritis and fatigue, which were generally mild to moderate in severity. Ongoing Confirmatory Clinical Outcomes Trial and Other Post Marketing Requirements In connection with Ocaliva’s accelerated approval in the United States and conditional approval in the European Union, we committed to conduct a Phase 4 confirmatory outcomes trial of Ocaliva, known as the COBALT trial, and other clinical trials to satisfy post-marketing regulatory requirements. In addition, we have agreed to develop and characterize a lower dose formulation of Ocaliva to allow for once daily dosing in patients with moderate or advanced hepatic impairment. Continued approval of Ocaliva for PBC in the United States, the European Union and other jurisdictions is contingent upon the verification and description of clinical benefit in the COBALT trial and our satisfaction of our other post-marketing regulatory requirements. Any delay or failure by us to satisfy such requirements, including any delay or failure relating to our Phase 4 COBALT trial, may jeopardize the continued approval of Ocaliva for PBC in the United States, European Union and other jurisdictions. The goal of the COBALT trial is to confirm that reduction of ALP based upon Ocaliva treatment is associated with a longer-term benefit on liver-related clinical outcomes. This trial is currently enrolling patients and is expected to be completed on a post-marketing basis. COBALT is designed to assess the effect of a once-daily dose of 5 mg or 10 mg of Ocaliva in approximately 430 PBC patients with an inadequate therapeutic response to UDCA or who are unable to tolerate UDCA. In this trial, eligible patients with PBC continue their UDCA treatment, except for those patients unable to tolerate UDCA, and are being randomized into one of two treatment arms of approximately 215 patients each. Patients are randomized to receive either (i) placebo or (ii) Ocaliva starting at 5 mg and increasing over the course of the trial to 10 mg of Ocaliva based on tolerability. Dosing frequency will be determined by disease stage. The primary endpoint of the trial is based on clinical outcomes as measured by time to first occurrence of any of the following adjudicated events: death (all- cause), liver transplant, Model of End Stage Liver Disease (“MELD”) score greater than 15, uncontrolled ascites or hospitalization due to variceal bleeding, hepatic encephalopathy or spontaneous bacterial peritonitis. The study evaluates subjects across the spectrum of PBC disease, including early and advanced PBC. In addition, we are undertaking a Phase 2 clinical trial of Ocaliva in pediatric patients with biliary atresia, a life- threatening condition in infants in which the bile ducts inside or outside the liver do not have normal openings. This trial, known as the CARE trial, is a part of an EMA-approved Pediatric Investigation Plan (“PIP”) supporting the conditional approval of Ocaliva for PBC in the European Union as PBC is not believed to occur in the pediatric population. The CARE trial is designed to evaluate the effects of 11 weeks of Ocaliva treatment where patients with biliary atresia are randomized to varying doses. The primary endpoint is to evaluate the pharmacokinetics and the safety and tolerability of Ocaliva treatment. In addition, Ocaliva’s effect on hepatobiliary indices and biomarkers will be assessed. This trial is targeted to enroll approximately 60 patients in the United States and Europe. Further, as part of our post-marketing requirements for Ocaliva, we are undertaking a Phase 4 clinical trial of Ocaliva in patients with PBC who have moderate to severe hepatic impairment (Child-Pugh B and C). This double-blind, placebo- controlled study is designed to evaluate the pharmacokinetics of Ocaliva and its conjugates, as well as safety and tolerability. Additional objectives include an evaluation of Ocaliva treatment compared to placebo on liver biochemistry, Child-Pugh scores and non-invasive markers of liver fibrosis and stiffness. This double blind trial is targeted to enroll approximately 50 patients in the United States, Europe and other jurisdictions for 48 weeks. Ocaliva Label Update In the course of our post-marketing pharmacovigilance activities, deaths have been reported in PBC patients with moderate or severe hepatic impairment. In an analysis performed by us and in consultation with the FDA, we concluded that certain of these patients were prescribed once daily doses of Ocaliva, which is seven times higher than the recommended weekly dose in such patients. As a result, in September 2017, we issued a Dear Health Care Provider 6 Table of Contents (“DHCP”) letter, and the FDA also subsequently issued its own drug safety communication to reinforce recommended label dosing. Both communications remind healthcare providers of the importance of the recommended reduced dosing of Ocaliva in PBC patients with moderate or severe hepatic impairment, while reiterating the importance of monitoring PBC patients for progression of their disease and the occurrence of liver-related adverse reactions. In addition to the DHCP letter, we took actions to enhance education about appropriate use of Ocaliva. These initiatives included: reeducating physicians on the label, with a focus on ensuring appropriate dosing for patients with moderate or severe hepatic impairment; enhancing monitoring of patients for liver-related adverse reactions; and adjudicating reported cases of serious liver injury, including in patients with no or mild hepatic impairment. In February 2018, we announced that the Ocaliva label in the United States had been updated by the FDA to include a boxed warning and a dosing table that reinforced the then-existing dosing schedule for patients with Child-Pugh Class B or C or decompensated cirrhosis. In addition, the FDA issued an updated drug safety communication to accompany the revised label. We remain focused on the safety of all of the patients using Ocaliva within and outside of our ongoing clinical studies and have engaged with relevant regulatory authorities to ensure that the Ocaliva label sufficiently reinforces the importance of appropriate dosing in patients with advanced cirrhosis. Our Product Candidates The following summarizes the current status and the anticipated next steps in our development plans for our product candidates. We continually evaluate each product candidate in an effort to efficiently allocate research and development funds to projects we deem to be in our best interests based on, among other factors, the product candidate’s performance in pre-clinical and/or clinical studies, our expectations regarding the potential future regulatory approval of the product candidate and our view of the potential commercial viability of the product candidate in light of market conditions. OCA for liver fibrosis due to NASH Our lead product candidate is OCA for the potential treatment of liver fibrosis due to NASH. In February 2019, we announced topline results from the planned 18-month interim analysis of our pivotal Phase 3 clinical trial of OCA in patients with liver fibrosis due to NASH, known as the REGENERATE trial. In the primary efficacy analysis, once-daily OCA 25 mg met the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH at the planned 18-month interim analysis. Adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of OCA. OCA has received breakthrough therapy designation from the FDA for the treatment of NASH patients with liver fibrosis. In September 2019, we submitted a NDA seeking accelerated approval of OCA for liver fibrosis due to NASH in the United States and, in December 2019, we submitted a MAA seeking conditional approval of OCA for liver fibrosis due to NASH in Europe. The FDA subsequently accepted our NDA for filing and granted a priority review designation for OCA for liver fibrosis due to NASH. The FDA has set a PDUFA target action date of June 26, 2020 for the completion of its review of our NDA and has notified us that it has tentatively scheduled an advisory committee meeting relating to our NDA for April 22, 2020. In January 2020, the EMA validated our MAA and thereby confirmed that our MAA was sufficiently complete to begin the formal review process. In addition, we are conducting a number of other trials and studies in connection with our NASH development program, including our ongoing Phase 3 trial in NASH patients with compensated cirrhosis, known as the REVERSE trial. Overview of NASH NASH is a serious progressive liver disease caused by excessive fat accumulation in the liver (steatosis) that induces chronic inflammation, resulting in progressive fibrosis (scarring) that can lead to cirrhosis, eventual liver failure, cancer and death. More than 20% of patients with NASH are estimated to progress to cirrhosis within a decade of diagnosis and, compared to the general population, have a ten-fold greater risk of liver-related mortality. The proportion of liver transplants attributable to NASH has increased rapidly in recent years and as early as 2020 the disease is projected to become the leading cause of liver transplants in the United States. Additionally, NASH is now considered to be the leading, and a rapidly increasing, cause of hepatocellular carcinoma (primary liver cancer), of which up to 40% of cases in NASH patients develop prior to developing cirrhosis. 7 Table of Contents Although difficult to precisely estimate, epidemiology research estimates that the global prevalence of NASH is approximately 3 – 5% and is expected to increase markedly by 2030. Fibrosis is the most robust predictor of long-term overall mortality, liver transplantation and liver-related events in patients with NASH and advanced fibrosis is associated with a substantially higher risk of liver-related morbidity and mortality in patients with NASH. We believe that a majority of NASH patients diagnosed and under specialist care have fibrosis of stage 2 or greater. Although the prevalence of NASH is lower in children, it has also become a serious disease burden in the pediatric population. Other common co-existing conditions such as obesity and type 2 diabetes, which are present in a majority of NASH patients, raise important risks. NASH has been linked in both developed and developing countries to the adoption of a Western diet, with increased consumption of processed foods containing polyunsaturated fatty acids and fructose. Generally in clinical trials in NASH, a definitive diagnosis requires a histologic assessment of a liver biopsy for several key features associated with NASH, including, but not limited to, steatosis, lobular inflammation and hepatocyte ballooning. However, we believe that the majority of NASH patients currently under treater care have been assessed for liver fibrosis without a liver biopsy. Several imaging and circulating biomarkers are being investigated as non-invasive diagnostic methods, including transient elastography (an ultrasound technology approved in the United States and Europe for the measurement of liver fibrosis), magnetic resonance imaging and serum biomarkers. NASH diagnosis rates in the United States and the EU5 countries are very low, owing to a lack of approved treatment options and a lack of validated non- invasive diagnosis options. We believe the availability of novel therapeutics and non-invasive technologies will be instrumental in improving diagnosis rates. There are currently no medications approved for the treatment of NASH. However, various therapeutics are used “off- label”, such as vitamin E (an antioxidant), insulin sensitizers (e.g., metformin, pioglitazone), antihyperlipidemic agents (e.g., gemfibrozil), pentoxifylline and UDCA. Lifestyle changes, including modification of diet and exercise to reduce body weight, as well as treatment of concomitant diabetes and dyslipidemia, are commonly accepted as the standard of care, but have not conclusively been shown to prevent disease progression. Although some of the off-label treatments described above have been studied as possible treatments for NASH, none has been approved by the FDA or EMA as a treatment for this disease. Currently, treatment options for NASH patients with advanced cirrhosis are limited. Although liver transplant can be life-saving, many patients fail to receive a donor organ in time, and for those who do, 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 novel therapies for NASH, particularly in those patients with advanced fibrosis and cirrhosis and those with a high risk of disease progression due to other co-morbidities such as type 2 diabetes. FXR activation has been shown to play a key role in the regulation of the metabolic pathways relevant to NASH, highlighting FXR as a potential drug target for treatment of the disease. Given the significant unmet medical need of patients with NASH, we believe that the ability of OCA to potently activate FXR has the potential to convey clinical benefit by improving key histologic parameters of the disease. This is supported by our preclinical and clinical results to date, and is being further investigated in our ongoing clinical trial program. Phase 3 REGENERATE Trial We are currently conducting a pivotal Phase 3 clinical trial of OCA in patients with liver fibrosis due to NASH, known as the REGENERATE trial. REGENERATE is a randomized, double-blind, placebo-controlled, multicenter study assessing the safety and efficacy of OCA on liver-related clinical outcomes in patients with liver fibrosis due to NASH. Patients with biopsy proven NASH with fibrosis are randomized 1:1:1 to receive placebo, OCA 10 mg or OCA 25 mg once daily. In August 2019, we announced the completion of the enrollment of the clinical outcomes cohort of REGENERATE, with 2,480 adult NASH patients with fibrosis randomized at over 300 qualified centers worldwide. REGENERATE will continue through clinical outcomes for verification and description of clinical benefit. The end-of-study analysis will evaluate the effect of OCA on all-cause mortality and liver-related clinical outcomes. An 18-month interim analysis was conducted to assess the effect of OCA in liver histology comparing month 18 biopsy with baseline. Patients without a repeat biopsy due to study discontinuation or other reason were treated as non-responders in the primary efficacy analysis and full efficacy analysis (each as described below). A smaller exploratory cohort of patients with stage 1 liver fibrosis and at least one accompanying comorbidity (specified as diabetes, obesity or 8 Table of Contents alanine transaminase (“ALT”) greater than 1.5 times ULN) were also enrolled in REGENERATE, but were not included in the primary efficacy analysis. As described below, these patients were included in the full efficacy analysis and safety analysis. The end-of-study analysis will evaluate the effect of OCA on all-cause mortality and liver-related clinical outcomes. In February 2019, we announced topline results from the REGENERATE trial. In the primary efficacy analysis, once- daily OCA 25 mg met, with statistical significance, the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH (defined as no worsening of hepatocellular ballooning, no worsening of lobular inflammation and no worsening of steatosis) at the planned 18-month analysis and adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of OCA. Although a numerically greater proportion of patients in both OCA treatment arms compared to placebo achieved the primary endpoint of NASH resolution with no worsening of liver fibrosis in the primary efficacy analysis, this result did not reach statistical significance. NASH resolution is defined as the overall histopathologic interpretation of (i) no fatty liver disease or (ii) fatty liver disease (simple or isolated steatosis) without steatohepatitis AND a nonalcoholic fatty liver disease (“NAFLD”) activity score (“NAS”) of 0 for ballooning and 0-1 for inflammation. As agreed with the FDA, in order for the primary objective to be met, the study was required to achieve one of the two primary endpoints. In November 2019, the results of the 18-month interim analysis from the REGENERATE trial were published in The Lancet. The “primary efficacy analysis” (Intent-to-Treat or “ITT”) assessed efficacy at 18 months in 931 patients with stage 2 or 3 liver fibrosis due to NASH. Overall study discontinuations in the primary efficacy analysis population were balanced across treatment arms: 16% in placebo, 17% in OCA 10 mg and 15% in OCA 25 mg. An additional pre-specified “full efficacy analysis” at 18 months added an exploratory cohort of 287 NASH patients with stage 1 liver fibrosis and additional risk factors who were at increased risk of progression to cirrhosis (N = 1,218). Set forth below is a summary of the 18-month primary efficacy analysis and additional full efficacy analysis from the REGENERATE trial. Fibrosis Improvement at Month 18 Primary Efficacy Analysis (ITT population: NASH with stage 2 and 3 liver fibrosis) Fibrosis improvement (≥ 1 stage) with no worsening of NASH* Additional Full Efficacy Analysis (ITT population plus stage 1 liver fibrosis patients) Fibrosis improvement (≥ 1 stage) with no worsening of NASH* Placebo n = 311 11.9% Placebo n=407 10.6% OCA 10 mg n = 312 OCA 25 mg n= 308 17.6% p = 0.0446 OCA 10 mg n = 407 15.7% p = 0.0286 23.1% p = 0.0002** OCA 25 mg n = 404 21.0% p < 0.0001 * Defined as no worsening of hepatocellular ballooning, no worsening of lobular inflammation and no worsening of steatosis. ** Statistically significant in accordance with the statistical analysis plan agreed with the FDA. 9 Table of Contents NASH Resolution at Month 18 Primary Efficacy Analysis (ITT population: NASH with stage 2 and 3 liver fibrosis NASH resolution‡ with no worsening of liver fibrosis stage OCA 25 mg n = 308 11.7% p = 0.1268 OCA 25 mg n = 404 14.9% p = 0.0013 ‡ Defined as the overall histopathologic interpretation of (i) no fatty liver disease or (ii) fatty liver disease (simple or isolated steatosis) without steatohepatitis AND a NAS of 0 for ballooning and 0-1 for inflammation. Additional Full Efficacy Analysis (ITT population plus stage 1 liver fibrosis patients) NASH resolution‡ with no worsening of liver fibrosis stage OCA 10 mg n = 312 11.2% p = 0.1814 OCA 10 mg n = 407 11.3% p = 0.0903 Placebo n = 407 7.9% Placebo n = 311 8.0% The “safety population” in the planned 18-month analysis of REGENERATE included 1,968 randomized patients who received at least one dose of investigational product (OCA or placebo). Adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of OCA. The frequency of serious adverse events was similar across treatment arms (11% in placebo, 11% in OCA 10 mg and 14% in OCA 25 mg) and no serious adverse event occurred in > 1% of patients in any treatment arm. There were 3 deaths (2 in placebo: bone cancer and cardiac arrest, 1 in OCA 25 mg: glioblastoma) and none were considered related to treatment. The most common adverse event reported was dose-related pruritus (19% in placebo, 28% in OCA 10 mg and 51% in OCA 25 mg). The large majority of pruritus events were mild to moderate, with severe pruritus occurring in a small number of patients (< 1% in placebo, < 1% in OCA 10 mg and 5% in OCA 25 mg). A higher incidence of pruritus associated treatment discontinuation was observed for OCA 25 mg (< 1% in placebo, < 1% in OCA 10 mg and 9% in OCA 25 mg). According to the clinical study protocol, investigator assessed severe pruritus mandated treatment discontinuation. Consistent with observations from previous NASH studies, OCA treatment was associated with an increase in low density lipoprotein (“LDL”) cholesterol, with a peak increase of 22.6 mg/dL at four weeks and subsequently reversing and approaching baseline at month 18 (4.0 mg/dL increase from baseline). Statin therapy was initiated in 10% of placebo patients and 24% of each OCA treatment arm. Among OCA patients who initiated statins, LDL cholesterol increases reversed and fell to below baseline levels by month 6. Triglycerides rapidly and continually decreased in the OCA treatment arms through month 18. There were few and varied serious cardiovascular events and incidence was balanced across the three treatment arms (2% in placebo, 1% in OCA 10 mg and 2% in OCA 25 mg). In patients with type 2 diabetes, OCA treatment was associated with an early transient increase in fasting glucose and hemoglobin A1c with return to levels similar to placebo by month 6. No clinically meaningful changes were noted in non- diabetic patients. With respect to hepatobiliary events, more patients (3%) on OCA 25 mg experienced gallstones or cholecystitis compared to < 1% on placebo and 1% on OCA 10 mg. While numerically higher in the OCA 25 mg treatment arm, serious hepatic adverse events were uncommon with < 1% incidence in each of the three treatment arms. Phase 3 REVERSE Trial We are currently conducting a Phase 3 clinical trial in NASH patients with compensated cirrhosis, known as the REVERSE trial. REVERSE is a randomized, double-blind, placebo-controlled, multicenter trial evaluating the safety and efficacy of OCA in NASH patients with compensated cirrhosis. In January 2020, we announced that we completed enrollment of the REVERSE trial with over 900 patients with a biopsy-confirmed diagnosis of cirrhosis due to NASH randomized. 10 Table of Contents The primary endpoint for REVERSE is the percentage of subjects with histological improvement in fibrosis by at least one stage with no worsening of NASH using the NASH Clinical Research Network scoring system after 18 months of treatment. Patients are randomized 1:1:1 into one of three treatment arms receiving a once-daily dose of placebo, OCA 10 mg or OCA 10 mg for the first three months with titration in accordance with the study protocol up to OCA 25 mg for the remaining study period. Patients who successfully complete the double-blind phase of REVERSE will be eligible to enroll in an open-label extension phase for up to 12 additional months. Phase 2 CONTROL Trial In December 2015, we initiated a Phase 2 clinical trial, known as the CONTROL trial, to characterize the lipid metabolic effects of OCA and cholesterol management effects of concomitant statin administration in NASH patients. CONTROL enrolled approximately 80 NASH patients who were naïve to statin therapy or had undergone a statin washout period. Statin- naïve or washout patients were randomized to receive one of three doses of OCA (5 mg, 10 mg or 25 mg) or placebo. The study included a 16-week double-blind phase followed by an optional long-term safety extension (“LTSE”). In July 2017, we announced that CONTROL met its primary objective by showing that newly initiated treatment with atorvastatin rapidly reversed OCA-associated increases in LDL cholesterol to below baseline levels. Most of the effect was observed four weeks after initiation of the lowest available dose of atorvastatin and was sustained throughout the study period. OCA treatment in the absence of statin therapy over the first four weeks resulted in an increase in LDL cholesterol across all OCA treatment groups, while the placebo group was relatively unchanged. Treatment with atorvastatin beginning at week four and continuing through week 16 reversed OCA-related increases in LDL cholesterol to below baseline levels in all OCA treatment groups. Dose-dependent pruritus was the most common adverse event in patients treated with OCA, occurring in 5% of patients on placebo, 5% of patients in the OCA 5 mg group, 10% of patients in the OCA 10 mg group and 55% of patients in the OCA 25 mg group. All adverse events were mild to moderate and two patients discontinued treatment in the OCA 25 mg group due to pruritus. Over 95% of the patients completing the double-blind phase of CONTROL enrolled in the LTSE phase of the trial. During the LTSE phase of CONTROL, there was one patient death, which the principal investigator determined was unlikely related to OCA. Phase 2 Sumitomo Dainippon Trial In October 2015, we announced the results of a 72-week Phase 2 dose ranging trial of OCA in 200 adult patients with NASH in Japan. The trial was conducted by our former collaborator, Sumitomo Dainippon Pharma Co., Ltd. (“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 of these patients (50 per group) initiated treatment for a 72-week double-blind treatment phase, followed by a 24-week off treatment phase. The primary endpoint was histologic improvement defined as at least a two-point improvement in NAS with no worsening of fibrosis. The primary efficacy analysis was conducted on an ITT basis, testing the dose dependent effects of once daily OCA (10 mg, 20 mg and 40 mg) versus placebo on the primary endpoint. The ITT analysis included all randomized patients who received treatment (50 per group), and patients who discontinued or did not have a repeat biopsy were treated as non- responders. A pre-specified completer analysis was conducted on the patients who had biopsies at both baseline and 72 weeks (45, 44, 44 and 37 patients in the placebo, OCA 10 mg, OCA 20 mg and OCA 40 mg groups, respectively). The Sumitomo Dainippon trial did not meet statistical significance for the primary endpoint. The ITT results in the table below show a dose dependent increase in the percentage of OCA-treated patients compared to placebo who achieved the primary endpoint (p = 0.053). Dose-dependent trends not reaching statistical significance were observed for several other pre-specified histologic endpoints, including the percentage of patients with steatosis and inflammation 11 Table of Contents improvement, ballooning resolution and NASH resolution. No difference was seen in fibrosis improvement in the OCA groups compared to placebo. ITT Results NAS improvement > 2 points with no worsening of fibrosis Placebo N = 50 10 (20%) OCA 10 mg N = 50 11 (22%) p = 0.8070** OCA 20 mg N = 50 14 (28%) p = 0.3378** OCA 40 mg N = 50 19 (38%) p = 0.0496** p = 0.053* * Primary efficacy analysis is a stratified Cochran-Armitage test with multiple contrast coefficients. Statistical significance is based on a p-value < 0.05. ** The secondary efficacy analysis is a Cochran-Mantel-Haenszel (“CMH”) test stratified by baseline fibrosis stage for Pairwise comparison 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 OCA 40 mg dose group compared to 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 pruritus associated discontinuations were 0, 0, 2 and 5 patients in the placebo, OCA 10 mg, OCA 20 mg and OCA 40 mg groups, respectively. Changes in lipid parameters, including LDL cholesterol, HDL cholesterol and triglycerides, appeared to be consistent with previously reported lipid changes in Western NASH patients. No other meaningful differences in the rate of adverse events between the OCA and placebo groups were noted. Phase 2b FLINT Trial In November 2014, the results from a Phase 2b clinical trial for the treatment of NASH, known as the FLINT trial, which was sponsored by the NIDDK, a part of the National Institutes of Health, were published in The Lancet. The FLINT trial was a double-blind, placebo-controlled trial of a once-daily dose of OCA 25 mg or placebo given for 72 weeks in 283 patients with biopsy-proven NASH. OCA achieved the primary endpoint in the FLINT trial, which was defined as an improvement of two or more points in NAS with no worsening of liver fibrosis. The percentage of patients meeting the primary histological endpoint, based on liver biopsies, in the FLINT trial was 45% in the OCA treatment group and 21% in the placebo group (p = 0.0002, n = 219). The mean pre-treatment baseline NAS for patients in the OCA treatment group was 5.3 of a total possible score of eight (comprised of a NAS of 0-2 for hepatocellular ballooning, 0-3 for lobular inflammation and 0-3 for steatosis). Subgroup analyses showed significant response rates in the OCA treatment group in patients with risk factors for disease progression, including baseline fibrosis stage, co-morbid type 2 diabetes mellitus, ALT, insulin resistance and severe obesity (each factor p < 0.05 for OCA compared to placebo based on 95% confidence interval of published odds ratios). A significantly greater number of OCA-treated patients also achieved the secondary endpoint of improvement of at least one fibrosis stage (35% versus 19%, p = 0.004), with OCA showing greater response rates as compared to placebo across all stages of fibrosis. Based on our retrospective analyses of the FLINT data, more OCA-treated patients exhibited fibrosis improvement of at least two fibrosis stages (15% versus 6%, not significant) and exhibited fibrosis improvements regardless of baseline fibrosis stage and 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). Retrospective analyses after the unblinding of results can potentially introduce bias and regulatory authorities typically give greatest weight to results from pre-specified analyses as compared to retrospective analyses. The NASH Clinical Research Network fibrosis staging system was used to categorize the pattern of fibrosis and architectural remodeling of the liver: no fibrosis (F0), perisinuoidal or periportal fibrosis (F1), perisinusoidal and periportal fibrosis (F2), bridging fibrosis (F3) and cirrhosis (F4). Fibrosis sub-stages 1a, 1b and 1c were considered F1 for the analysis. The secondary endpoint of NASH resolution, based on a global histological assessment, also showed improvement, although not statistically significant (22% versus 13%, p = 0.0832). A central reading of all baseline and end-of-trial 12 Table of Contents biopsies was performed at the end of the trial, based on which only 80% of patients were confirmed to have definite NASH, while the remaining 20% were diagnosed as borderline NASH (10%) or not-NASH (10%). A retrospective subgroup analysis on the completer population comprised only of definite NASH patients at baseline showed that a significantly greater number of OCA-treated patients achieved NASH resolution compared with placebo-treated patients (19% versus 8%; p = 0.0278). In an additional retrospective analysis of data from the FLINT trial conducted in a REGENERATE-matched patient cohort published in 2018, (i) approximately 40% of OCA-treated patients as compared to approximately 21% of patients on placebo achieved at least a one-stage improvement in liver fibrosis without any worsening of NASH (p = 0.02) and (ii) approximately 20% of OCA-treated patients as compared to approximately 7% of patients on placebo achieved NASH resolution with no worsening of fibrosis (p = 0.03) using the definition we selected for NASH resolution in the REGENERATE trial. In the FLINT trial, more 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 NAS and is typically mild in adult NASH patients. The histological improvements observed in OCA-treated patients versus placebo were accompanied by statistically significant reductions in relevant biochemical parameters, including the serum liver enzymes ALT (p < 0.0001), aspartate aminotransferase (“AST”) (p = 0.0001) and gamma-glutamyl transferase (“GGT”) (p < 0.0001), each of which were above generally accepted normal limits at baseline, and total bilirubin (p = 0.002). A modest but statistically significant increase 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 increases in total cholesterol and LDL cholesterol and a decrease in HDL cholesterol, that developed within 12 weeks of treatment initiation, then reversed through the end of treatment and returned to baseline during the 24-week post-treatment follow-up phase. Based on these observations, lipid management was emphasized partway into the trial, using accepted guidelines. At 72 weeks as compared to baseline, the following effects were observed in the OCA treatment group: an increase in mean total cholesterol (0.16 mmol/L or 6 mg/dL increase OCA versus 0.19 mmol/L or 7mg/dL decrease placebo, p = 0.0009), an increase in mean LDL cholesterol (0.22 mmol/L or 9 mg/dL increase OCA versus 0.22 mmol/L or 8 mg/dL decrease placebo, p < 0.0001), a decrease in mean HDL cholesterol (0.02 mmol/L or 1 mg/dL decrease OCA versus 0.03 mmol/L or 1 mg/dL increase placebo, p = 0.01) and 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). These changes in cholesterol levels, along with the achievement of predefined efficacy criteria, played a role in the decision of the FLINT data and safety monitoring board to terminate the treatment phase of the FLINT trial, and the publication of the FLINT results noted the need for further study of these changes. A post-hoc analysis showed OCA-treated patients who initiated statins during the FLINT trial (n = 26) experienced a rapid reversal of their observed mean LDL cholesterol increase to below baseline levels, with a mean decrease after 72 weeks of treatment of -18.9 mg/dL. In contrast, other OCA-treated patients with no reported initiation or change in statin therapy experienced an increase in LDL cholesterol that peaked at week 12 and was sustained over the 72-week treatment period. Patients treated with statins at baseline who maintained statin treatment over the duration of the study (n = 50) experienced a mean LDL cholesterol increase of 8.7 mg/dL at 72 weeks. Patients not treated with statins during the study (n = 65) experienced a mean LDL cholesterol increase of 16.0 mg/dL. Treatment related LDL cholesterol increases in all groups reversed with treatment discontinuation. This analysis suggests that the OCA-associated LDL cholesterol increase reaches a maximum peak and plateaus soon after initiation of therapy and that concomitant statin use in NASH patients receiving OCA may mitigate treatment-related LDL cholesterol increases. In the FLINT trial, statistically significant weight loss of an average of 2.3 kilograms was observed in OCA patients compared to no weight loss in the placebo group (p = 0.008), and this weight loss reverted towards baseline during the 24- week follow-up phase. A pre-specified sensitivity analysis conducted by the investigators showed that weight loss was not a driver of the primary endpoint. An increase in a marker of hepatic insulin resistance known as homoeostasis model assessment – estimated insulin resistance (“HOMA-IR”) (calculated using the product of fasting plasma insulin and 13 Table of Contents glucose) was observed at 72 weeks in the OCA treatment group (p = 0.01). However, there was an imbalance in baseline plasma insulin levels (201 pmol/L OCA versus 138 pmol/L placebo), and an even larger relative and absolute increase in HOMA-IR was observed in the placebo group at the conclusion of the 24-week follow-up phase. This is potentially attributable to the inherent variability in HOMA-IR measurements, particularly in patients with type 2 diabetes, that have been shown to make single time-point to time-point changes of this magnitude clinically uninterpretable. There were virtually no changes in mean hemoglobin A1c, a measure of average blood sugar control over a period of approximately three months, in either OCA or placebo groups at 72 weeks. In an earlier study of OCA in diabetic NAFLD patients employing the hyperinsulinemic-euglycemic insulin clamp, the gold standard for detecting changes in insulin resistance, OCA improved the glucose disposal rate consistent with reduced insulin resistance. OCA was generally well tolerated in the FLINT trial. Adverse events were generally mild to moderate in severity and the incidence in the OCA and placebo treatment groups was similar for all symptoms except pruritus. Pruritus occurred more frequently in the OCA treatment group than in the placebo treatment group (23% vs. 6%, p < 0.0001) and at a higher grade (predominately moderate pruritus) but resulted in only one patient discontinuation. The incidence of severe or life- threatening events was not different between the two treatment groups and most of the events in both groups were deemed to be unrelated to treatment, including all severe or life-threatening cardiovascular events. There were two patient deaths in the Phase 2b FLINT trial and neither death was considered related to OCA treatment. OCA and Bezafibrate In December 2018, we entered into the Aralez Agreement, pursuant to which we acquired (i) Aralez’s license to develop and commercialize bezafibrate in the United States (as amended and restated in connection therewith, the “Bezafibrate License”), (ii) Aralez’s IND on file with the FDA and other associated regulatory documentation and (iii) a non-exclusive license to certain of Aralez’s intellectual property. Pursuant to the Aralez Agreement, we paid $9.0 million to Aralez in connection with the closing of the transactions in December 2018 and are obligated to make a $2.0 million milestone payment to Aralez based on the occurrence of specified regulatory-related events. Bezafibrate, a PPAR agonist that has been studied in PBC, is not approved in the U.S. for any indication. We are evaluating the efficacy, safety and tolerability of bezafibrate in combination with OCA in patients with PBC in a Phase 2 study, with the longer-term goal of developing and seeking regulatory approval for a fixed dose combination regimen in this indication and potentially may study this combination in other liver diseases. Pursuant to the Bezafibrate License, we are also obligated to make a $2.5 million milestone payment based on the occurrence of specified regulatory-related events with respect to such a combination product, as well as mid-single digit percentage royalty payments based on the net sales of such a combination product. Other Product Candidates The discovery and development of safe and effective new product candidates and the development of additional uses for our existing product candidates and approved products, are important for the continued strength of our business. We, together with our collaborators, have discovered several bile acid chemistry-based compounds that are in the early stages of research and development. Among these compounds is INT-787. INT-787 is an FXR agonist that we are currently evaluating in preclinical studies. INT-787 has distinct pharmacological properties that differ from those of OCA and has shown potential anti-fibrotic and anti-inflammatory effects in animal models. We believe that bile acid analogs may have utility in a broad range of diseases beyond non-viral liver disease and we have in the past, and may in the future, explore the potential application of our development compounds outside of our core areas of focus. The process from discovery to development to regulatory approval of a product candidate can take more than ten years. Product candidates can fail at any stage of the process, and product candidates may not receive regulatory approval even after many years of research and development and significant investment. In addition, we may decide to terminate or deprioritize the development of our product candidates due to a number of factors, including our views of the relevant regulatory development pathway, competitive landscape, commercial viability of the product candidate, or superior alternative uses of capital. For example, we have studied OCA for PSC, a rare, serious, chronic cholestatic liver disease characterized by a progressive, autoimmune-based destruction of bile ducts with eventual onset of cirrhosis. While we believe that the results of our Phase 2 AESOP trial announced in 2017 established a proof of concept of OCA in a second cholestatic liver disease, we have deprioritized development of OCA in PSC based, in part, on the lack of clarity on the 14 Table of Contents regulatory pathway for this rare but serious disease. In addition, we are no longer actively developing INT-767, an orally administered dual FXR and TGR5 agonist derived from the primary human bile acid chenodeoxycholic acid. Sumitomo Dainippon Collaboration In March 2011, we entered into an exclusive license agreement (the “Original Sumitomo Agreement”) with Sumitomo Dainippon, pursuant to which we granted to Sumitomo Dainippon an exclusive license to research, develop and commercialize OCA for the treatment of PBC and NASH in Japan and China (excluding Taiwan) and an option to research, develop and commercialize OCA in certain countries outside of such territories (the “Country Option”). We received an upfront payment from Sumitomo Dainippon of $15.0 million under the terms of the Original Sumitomo Agreement. In May 2014, Sumitomo Dainippon exercised the Country Option in part to add Korea as part of its licensed territories and paid us a $1.0 million upfront fee in connection therewith. In February 2018, we and Sumitomo Dainippon entered into Amendment No. 3 (the “Sumitomo Amendment”) to the Original Sumitomo Agreement (as amended, the “Sumitomo Agreement”), pursuant to which (i) Sumitomo Dainippon agreed to return the rights to develop and commercialize OCA in Japan and Korea and waived its rights to the Country Option, (ii) we agreed to forego any further milestone or royalty payments relating to the development and commercialization of OCA in Japan and Korea and (iii) certain milestone payment obligations with respect to the development and commercialization of OCA were adjusted. In October 2019, we and Sumitomo Dainippon mutually agreed to terminate with immediate effect the Sumitomo Agreement. In connection with the termination of the Sumitomo Agreement, Sumitomo Dainippon agreed to return to us the rights to develop and commercialize OCA in China and we agreed to forego any further milestone or royalty payments relating to the development and commercialization of OCA in China. No payment is due from us to Sumitomo Dainippon as a result of the termination of the Sumitomo Agreement. Competition The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of our competitors have financial, sales and marketing, manufacturing and distribution, legal, regulatory and product development resources substantially greater than ours. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. The ability of Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, and other future approved products, if any, to compete with products sold by other companies will depend on a number of factors, including efficacy, safety and tolerability, reliability, convenience of dosing, price, the level of branded and generic competition and reimbursement. We believe that the competitive environment for Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH is as follows. Ocaliva for PBC Ocaliva competes with UDCA (or ursodiol), a first-line therapy approved for the treatment of PBC that is available generically at a significantly lower cost than Ocaliva. Ocaliva is an FXR agonist and we are aware of several other companies that have FXR agonists in Phase 2 or earlier clinical or preclinical development for the treatment of PBC, including FXR agonists from Novartis AG (tropifexor), Gilead Sciences, Inc. (GS-9674) and Enanta Pharmaceuticals, Inc. (EDP-305). Additional product candidates in Phase 3 or earlier clinical or preclinical development for the treatment of PBC include Genfit SA’s dual PPAR alpha/delta agonist (elafibranor), Arena Pharmaceuticals, Inc.’s S1P receptor modulator (etrasimod), Bristol-Myers Squibb Company’s anti-CTL4 fusion protein (abatacept) and Fast Forward Pharmaceuticals BV’s 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 plc (GSK2330672). 15 Table of Contents Off-label uses of other potential treatments may also compete with Ocaliva for PBC. For example, while fibrates are not approved for use in PBC, off-label use of fibrate drugs has been reported. Bezafibrate, a fibrate that is not approved by the FDA for any indication and is only available outside of the United States, has been studied in PBC. OCA for Liver Fibrosis Due to NASH There are currently no medications approved for the treatment of NASH. However, various therapeutics are used off- label for the treatment of NASH, including vitamin E (an antioxidant), insulin sensitizers (e.g., metformin, pioglitazone), antihyperlipidemic agents (e.g., gemfibrozil), pentoxifylline and UDCA. There are several product candidates in Phase 3 or earlier clinical or preclinical development for the treatment of NASH, including Genfit SA’s PPAR alpha/delta agonist (elafibranor), Gilead Sciences, Inc.’s ASK-1 inhibitor (selonsertib) and Allergan plc’s dual CCR2 and CCR5 inhibitor (cenicriviroc), as well as FXR agonists from Novartis AG (tropifexor), Gilead Sciences, Inc. (cilofexor) and Enanta Pharmaceuticals, Inc. (EDP-305). Additional pharmaceutical and biotechnology companies with product candidates in development for the treatment of NASH include AstraZeneca plc, Boehringer Ingelheim GmbH, Bristol-Myers Squibb Company, Durect Corporation, Galectin Therapeutics Inc., Galmed Pharmaceuticals Ltd., Immuron Ltd., Ionis Pharmaceuticals, Inc., Islet Sciences, Inc., Madrigal Pharmaceuticals, Inc., MediciNova, Inc., MiNA Therapeutics, NGM Biopharmaceuticals, Inc., Novo Nordisk A/S, NuSirt Sciences Inc., Viking Therapeutics, Inc. and Zydus Pharmaceuticals (USA) Inc. NASH is a complex disease and we believe that it is unlikely that any one therapeutic option will be optimal for every NASH patient. In addition, many universities and private and public research institutions may become active in our target disease areas. The results from our clinical trials and the approval of Ocaliva for PBC have brought more attention to our targeted indications and bile acid chemistry. As a result, we believe that additional companies and organizations may seek to compete with us in the future. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly than OCA or any other product candidates that we are currently developing or that we may develop, which could render our products or product candidates obsolete and noncompetitive. Our ability to compete may also be affected because, in many cases, insurers or other third-party payors seek to encourage the use of generic products. Intellectual Property Protecting our intellectual property, such as our patents, is a key part of our strategy. We are the owner of record of numerous issued U.S. and non-U.S. patents with claims directed to pharmaceutical compounds, pharmaceutical compositions, methods of making these compounds and methods of using these compounds in various indications. In addition, we are the owner of record of numerous pending U.S. and non-U.S. patent applications, and regularly pursue additional patent applications in various jurisdictions. We also have numerous trademark and service mark registrations and pending trademark and service mark applications in the United States and abroad. The patent portfolio for OCA contains U.S. and non-U.S. patents and patent applications directed to compositions of matter, methods of use and manufacturing methods. Our primary composition of matter patent for OCA expires in 2022. In light of the U.S. marketing approval of Ocaliva for PBC in May 2016, we have applied for an extension of the patent term for this patent in the United States through 2027. In addition, in connection with the conditional approval of Ocaliva for PBC in the European Union, we have applied for supplementary patent certification (“SPC”) to extend the patent term for this patent in the European Union through 2027. To date, we have received grants of SPC in Austria, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Norway, Portugal, Spain and Sweden and we expect to take similar actions in other jurisdictions and countries where similar regulations exist. The table set forth below summarizes the U.S. patents covering OCA that are listed in the FDA’s Orange Book List of Approved Drug Products With Therapeutic Equivalence Evaluations (the “Orange Book”). The issued composition of matter patents for OCA are expected to expire in 2022 at the earliest and 2036 at the latest if the appropriate maintenance, renewal, annuity, or other government fees are paid. We expect that the other patents in the OCA portfolio that are listed 16 Table of Contents in the Orange Book would expire as set forth below, assuming the appropriate maintenance, renewal, annuity or other governmental fees are paid. Patent No. 7,138,390 8,058,267 8,377,916 9,238,673 10,047,117 10,052,337 10,174,073 Type of Patent(1) Brief Summary of Patent Composition of Matter Claims OCA compound Method of Use Method of Use Claims methods of treating PBC with OCA Claims methods of treating PBC with OCA Composition of Matter Claims OCA active pharmaceutical ingredient (“API”) Method of Use Claims methods of treating FXR mediated diseases with OCA API Composition of Matter Claims OCA finished drug product Composition of Matter Claims OCA API produced by a specified process U.S. Patent Expiration 2022(2) 2022 2022 2033 2033 2036 2033 (1) You should read the risk factors included elsewhere in this Annual Report on Form 10-K for important information about risks posed by the loss of patent protection, in particular the risks described under “Risk Factors — Risks Related to Our Intellectual Property.” (2) In light of the U.S. marketing approval of Ocaliva for PBC in May 2016, we have applied for an extension of the patent term for this patent in the United States through 2027. In addition, we have intellectual property protecting OCA that we would expect to list in the Orange Book if OCA is approved for the treatment of NASH. We may rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. 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 information technology systems. Our commercial success will depend in part on our ability to obtain and maintain patent, trademark and trade secret protection covering our products such as Ocaliva and product candidates, as well as our ability to successfully defend our intellectual property against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products is dependent upon the extent to which we have regulatory exclusivity or intellectual property- based exclusivity rights under valid and enforceable patents or other intellectual property that cover our products. If we fail to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from launching generic versions of our products, from using our proprietary technologies or from marketing products that are very similar or identical to ours. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged to date in the United States or in foreign jurisdictions, and the legal standards relating to the patentability, validity and enforceability of pharmaceutical patents are evolving. Changes in either the patent laws or in interpretations of patent laws in U.S. and foreign jurisdictions may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be enforced in the patents that we currently own or that may issue from the applications we have filed or may file in the future or those that we may license from third parties. Additionally, our currently pending or future patent applications may not result in issued patents, and any term extensions that we seek may not be granted. Further, if any patents we obtain or license are deemed invalid or unenforceable, it could impact our ability to commercialize or license our technology or enable third parties to develop and market products that are similar or identical to ours. Manufacturing and Supply We do not own or operate manufacturing facilities for the production of Ocaliva, OCA or any of our other product candidates, and we do not have any plans to develop our own manufacturing operations in the foreseeable future. We rely 17 Table of Contents on third-party contract manufacturers for all of our required raw materials, API and finished product for our commercial sales and for our clinical trials and preclinical studies. We currently have an agreement with PharmaZell GmbH (“PharmaZell”) for the manufacture and commercial supply of API for use in Ocaliva and, if approved, OCA for liver fibrosis due to NASH. Pursuant to our agreement with PharmaZell, we have purchased quantities of API that we believe will be sufficient to meet our PBC and NASH commercial supply requirements during the initial stages of our NASH launch following the expected approval of OCA for liver fibrosis due to NASH. The initial term of our agreement with PharmaZell expires on December 31, 2020 and thereafter automatically renews for successive two-year periods unless either party provides notice of non-renewal at least 12 months prior to the end of the initial term or then-current renewal term. The agreement is also subject to customary early termination rights. We are not obligated to purchase from PharmaZell a specific percentage of our annual commercial requirements of API for use in Ocaliva and, if approved, OCA for liver fibrosis due to NASH, and expect to shift our longer-term API supply requirements to other suppliers. Accordingly, we have qualified an additional API supplier from which we may currently acquire API on a purchase order basis and continue to engage in activities intended to ensure that our long-term commercial supply requirements are satisfied. In connection with such efforts, we entered into an agreement with a third potential supplier of API for the manufacture of Ocaliva and, if approved, OCA for liver fibrosis due to NASH, under which we may in the future be obligated to purchase a portion of our API requirements in the event of the achievement of agreed regulatory and product development milestones. We do not have long-term supply agreements for any of our product candidates other than OCA, and regularly obtain supplies and services relating to our product candidates from third-party contract manufacturers on a purchase order basis. Contract manufacturers are subject to extensive governmental regulation and we depend on them for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of our finished products, including Ocaliva. We intend to continue to rely on third-party manufacturers for the manufacture of clinical supplies of our product candidates and commercial supplies of our approved products, including Ocaliva and, if approved, OCA for liver fibrosis due to NASH. We believe this manufacturing strategy will enable us to direct financial resources to the development and commercialization of products rather than diverting resources to establishing a manufacturing infrastructure. If PharmaZell and our other current and future suppliers are not able to meet our on-going commercial supply requirements, including those relating to Ocaliva or, if approved, OCA for liver fibrosis due to NASH, on acceptable terms, or at all, our business may be may be materially and adversely affected. See “Risk Factors — Risks Related to the Development and the Regulatory Review and Approval of Our Products and Product Candidates — We rely entirely on third parties for the manufacture of our product requirements for our preclinical studies and clinical trials, as well as our commercial supply of Ocaliva and, if approved, OCA for liver fibrosis due to NASH and our other product candidates, and also depend on third-party vendors and CROs for certain of our clinical trial and product development activities. Our business could be harmed if our third-party manufacturers fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices, or if our third-party vendors or CROs assisting us with our clinical trials and product development activities fail to comply with their contractual commitments or applicable regulatory obligations or if we lose our relationships with our third-party vendors and CROs. Sales and Marketing Ocaliva is our first approved product and the commercial launch of Ocaliva for PBC is our first product launch. We are commercializing Ocaliva for PBC using a combination of our internal commercial organization, a contract sales organization and third-party distributors depending on the jurisdiction. We are developing our commercialization strategy for OCA for liver fibrosis due to NASH, if approved, and have not yet decided on our commercialization strategy for OCA for other indications or for our other product candidates, in each case, if approved. We intend to continue to evaluate how best to commercialize our product candidates, if approved, in the United States and internationally, and may choose to collaborate with third parties that have sales and marketing capabilities and established distribution systems, either to augment our own capabilities or in lieu thereof. 18 Table of Contents Customers We commenced our commercial launch of Ocaliva for the treatment of PBC in the United States in June 2016. In December 2016, the European Commission granted conditional approval for Ocaliva for the treatment of PBC and we commenced our European commercial launch in January 2017. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia. We recognized net product sales of Ocaliva of $249.6 million, $177.8 million and $129.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. We sell Ocaliva to a limited number of specialty pharmacies which dispense the product directly to patients. The specialty pharmacies are referred to as our customers. For a discussion of our customer concentration, see Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Government Regulation and Product Approval Government authorities in the United States, at the federal, state and local level, and analogous authorities in other countries extensively regulate, among other things, the research, development, testing, manufacture, recordkeeping, approval, labeling, packaging, promotion, storage, advertising, distribution, marketing, sampling, post-approval monitoring and reporting and export and import of products such as Ocaliva and those we are developing. Our product candidates must be approved by the FDA through the NDA process before they may be legally marketed in the United States and by the European Commission following a favorable assessment provided by the EMA through the MAA process for a product falling within the scope of the Centralized procedure or a national MAA process (albeit through the process of Mutual Recognition or Decentralized procedure) before they may be legally marketed in the European Union. Our product candidates will be subject to similar requirements in other countries prior to marketing in those countries. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. United States Government Regulation NDA Approval Processes In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, as amended (the “FDCA”) and implementing regulations. An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following: ● completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice regulations; ● submission to the FDA of an IND, which must take effect before human clinical testing may begin; ● approval by an independent institutional review board (“IRB”), representing each clinical site before each clinical trial may be initiated; ● performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (“GCP”) to establish the safety and efficacy of the new drug product for each indication for which FDA approval is sought; ● preparation and submission to the FDA of a NDA; ● review of the new drug product by an FDA advisory committee, where appropriate or if applicable, although the FDA is not bound by the recommendation of an advisory committee; ● satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the new drug product, or components thereof, are produced to assess compliance with current Good Manufacturing 19 Table of Contents Practices (“cGMP”) requirements and to assure that the facilities, methods and controls are adequate to preserve the new drug product’s identity, strength, quality and purity; ● satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCP and the integrity of the clinical data; ● payment of user fees and procurement of FDA approval of the NDA; and ● compliance with any post-approval requirements, including, as applicable, Risk Evaluation and Mitigation Strategies (“REMS”) and post-approval studies required by the FDA. Preclinical and Clinical Studies Once a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit 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 order to conduct clinical research, an IND sponsor must submit an IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, or any time thereafter, places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin or continue. A clinical hold may affect one or more specific studies or 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. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must timely report to the FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug. An IRB at each institution must, among other things, review and approve the protocol before a clinical trial commences at such institution, and approve the consent form that must be provided to each research subject or the subject’s legal representative, monitor the study until completed and otherwise comply with regulations applicable to the IRB. Human clinical trials are typically conducted in three sequential phases, although the phases may overlap or be combined: ● Phase 1. The drug is initially introduced into healthy human subjects and tested to assess pharmacological actions, safety, dosage tolerance, absorption, metabolism, distribution and elimination and, in some cases, early evidence of effectiveness. In the case of some products intended for the treatment of 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 testing is often conducted in patients. ● Phase 2. Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. ● Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population generally at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product labeling, should it ultimately be approved for marketing. In most cases the FDA requires two adequate and well-controlled Phase 3 clinical trials with statistically significant results to demonstrate the efficacy of the drug. A single Phase 3 clinical trial with other confirmatory evidence may be sufficient in certain instances. 20 Table of Contents Human clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In some cases, clinical trials are overseen by an independent group of qualified experts organized by the trial sponsor, or the clinical monitoring board or data safety monitoring board (“DSMB”). This group provides authorization for whether or not a trial may move forward at designated check points. These decisions are based on the DSMB’s independent review of data from the ongoing trial. Sponsors of clinical trials of certain FDA-regulated products, including prescription drugs, are required to register and disclose clinical trial information related to the product, patient population, phase of investigation, clinical trial sites and investigator, and other aspects of the clinical trial on a public website maintained by the U.S. National Institutes of Health. Sponsors are also obligated to disclose the results of these clinical trials after completion. For a new product or a new indication for a previously approved product, sponsors can delay submission of clinical study results for up to two years until the product has been approved or approved for the new use. Competitors and others may use this publicly-available information to gain knowledge regarding the design and progress of our development programs. During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points, including prior to the submission of an IND, at the end of Phase 2 and before a NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice and feedback on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial(s) that they believe will support the approval of the new 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 to request a special protocol assessment (“SPA”), the purpose of which is to reach agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy claim. According to published guidance on the SPA process, a sponsor which meets the prerequisites may make a specific request for an SPA and provide information regarding the design and size of the proposed clinical trial. The FDA is supposed to evaluate the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and a request for additional information. An SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the record. The agreement is generally expected to be binding on the FDA, in that the critical design elements agreed to as part of an SPA agreement may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or efficacy of the drug was identified after the testing began. The presence of an SPA agreement does not guarantee that a marketing application will be filed or approved, even if the trial is conducted in accordance with the protocol and achieves the specified endpoints. In rare cases, the FDA may rescind an SPA agreement. Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing commercial quantities of the product in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug and the manufacturer must develop methods for testing the quality, purity and potency of the drug prior to release. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not 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 a NDA requesting approval to market the product. The submission of a NDA is subject to the payment of user fees, but a waiver of such fees may be obtained under specified circumstances. Currently, the application fee is approximately $2.9 million for NDAs with clinical data and approximately $1.5 million for NDAs without clinical data. The sponsor under an approved NDA is also subject to annual program user fees, currently 21 Table of Contents approximately $325,000. Program fees are assessed for each approved prescription drug product identified in an approved application, up to five program fees per application. These fees are typically modified annually. The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. It may request additional information rather than accept a NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the NDA is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or, as discussed more fully below, priority review. The FDA may refuse to approve a NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA reviews a NDA to determine, among other things, whether a product is safe, effective, and can be properly manufactured for its intended use or uses. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee. Before approving a NDA, the FDA will inspect the facility or facilities where the product is manufactured and tested to ensure compliance with cGMPs. An approval letter from the FDA authorizes commercial marketing of the product and specifies the prescribing information for the approved indication(s). Fast Track, Breakthrough Therapy, Priority Review and Accelerated Approval The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs include fast track designation, breakthrough therapy designation 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 or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track designated products, sponsors may have a higher number of interactions with the FDA and the 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 other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner. The FDA may also designate a product for priority review if it would provide a significant improvement in the safety or effectiveness of the treatment, diagnosis or prevention of a serious condition. Certain other applications may also qualify for priority review. The FDA determines, on a case-by-case basis, whether the proposed drug represents a significant improvement when compared with other available therapies. A priority designation by the FDA is intended to direct the agency’s attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application 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 meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, 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. Drugs granted 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. Unless otherwise informed by the FDA, an 22 Table of Contents applicant must submit to the FDA for consideration during the preapproval review period copies of all promotional materials, including promotional labeling as well as advertisements, intended for dissemination or publication within 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 or initial publication of the advertisement. As a condition of a grant of accelerated approval, the FDA may require that the sponsor perform one or more controlled post-marketing clinical trials. Approval of a drug may be withdrawn if these trials fail to verify clinical benefit or do not demonstrate sufficient clinical benefit to justify the risks associated with the drug (e.g., show a significantly smaller magnitude or duration of benefit than was anticipated based on the observed effect on the surrogate). Ocaliva was granted fast track designation by the FDA for the treatment of patients with PBC who have an inadequate response to or are intolerant of UDCA. In August 2015, the FDA accepted for review our NDA and granted priority review for Ocaliva in PBC. On May 27, 2016, Ocaliva was approved under the accelerated approval pathway in the United States for PBC in combination with UDCA in adults with an inadequate response to UDCA, or as monotherapy in adults unable to tolerate UDCA. In January 2015, OCA for liver fibrosis due to NASH was granted breakthrough therapy designation by the FDA for the treatment of patients with NASH with liver fibrosis. In November 2019, the FDA accepted for review our NDA and granted priority review for OCA for liver fibrosis due to NASH. Post-approval Requirements Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA post-approval, 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 withdraw the approval if compliance with regulatory requirements is not maintained or if safety or other problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in new labeling information (e.g., warnings), customer training and/or education requirements, restrictions on the product or even complete withdrawal of 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 may require studies, trials, analyses, and surveillance programs to monitor or evaluate the effect of approved products that have been commercialized, and the FDA has the power to limit further marketing of a product, or seek withdrawal of approval, based on the results of these post-marketing programs. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMP and other laws. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control 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 judicial, regulatory or statutory 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; 23 Table of Contents ● imposition of a clinical hold; ● warning or untitled letters; ● product recalls; ● product seizures; ● total or partial suspension of production or distribution; and ● injunctions, fines, disgorgement, civil penalties and criminal prosecution. The FDA and other U.S. state and federal authorities regulate marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in a manner otherwise consistent with the provisions of the approved label and FDA regulations. The FDA and other authorities actively enforce the laws and regulations prohibiting false, misleading, deceptive, or off-label promotional practices; violations of these prohibitions can lead to significant liability. Additional regulations apply for advertising and promotion of products approved under the accelerated approval pathway. For example, unless otherwise informed by the FDA, an applicant must submit to the FDA for consideration during the preapproval review period copies of all promotional materials, including promotional labeling as well as advertisements, intended for dissemination or publication within 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 or initial publication of the advertisement. 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 disrupt production or distribution, or require substantial resources to correct. From time to time, legislation is introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be. In accordance with the applicable requirements under the accelerated approval pathway, we initiated our Phase 4 COBALT clinical outcomes confirmatory trial for Ocaliva in PBC in December 2014, following discussions with the FDA. COBALT is expected to be completed on a post-marketing basis. The study evaluates subjects across the spectrum of PBC disease, including early and advanced PBC. We have also agreed to evaluate the safety and efficacy of Ocaliva in patients with moderate to severe hepatic impairment and as monotherapy in patients with PBC. In addition, we have agreed to develop and characterize a lower dose formulation of Ocaliva to allow for once daily dosing in patients with moderate or advanced hepatic impairment. Risk Evaluation and Mitigation Strategy The Food and Drug Administration Amendments Act of 2007 created a new section of the FDCA which authorizes the FDA to require a REMS as a condition of NDA approval, or based upon new safety information regarding an approved drug, when the FDA determines a REMS is necessary to ensure that the benefits of a drug outweigh the potential risks. Under a REMS, the FDA may require various measures to address serious risks, such as medication guides, communication plans, training or registries, as well as steps to monitor and assess the effectiveness of those measures. Such requirements may impose significant burdens on prescribers, pharmacists or patients. The requirement for a REMS may materially affect the potential market and profitability of the drug. We do not have a REMS for Ocaliva for the treatment of PBC. 24 Table of Contents Patent Term Extension and Data Exclusivity Depending upon the timing, duration and specifics of FDA approval of the use of our drug candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, (the “Hatch-Waxman Act”). The Hatch-Waxman Act permits an extension of a patent term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, the extension of patent term cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term extension period is generally one-half the time between the effective date of an IND, and the submission date of a NDA, plus the time between the submission date of a NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for extension must be made prior to expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. Our primary composition of matter patent for OCA expires in 2022. In light of the U.S. marketing approval of Ocaliva for PBC in May 2016, we have applied for an extension of the patent term for this patent in the United States through 2027. In addition, in connection with the conditional approval of Ocaliva for PBC in the European Union, we have applied for SPC to extend the patent term for this patent in the European Union through 2027. To date, we have received grants of SPC in Austria, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Norway, Portugal, Spain and Sweden and we expect to take similar actions in other jurisdictions and countries where similar regulations exist. Data exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of a NDA for a new chemical entity. A drug is considered a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance as further defined in FDA regulations. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (“ANDA”) or a 505(b)(2) NDA for a drug with the same active moiety. However, an application may be submitted four years from the NDA approval date if it contains a paragraph IV certification that a reference product patent is invalid or not infringed by the ANDA or 505(b)(2) product. The FDCA also provides three years of marketing exclusivity for a NDA, 505(b)(2) NDA or supplement to an approved NDA if new clinical investigations, other than bioavailability studies, 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 conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the original active moiety for other conditions of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA may be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well- controlled clinical trials necessary to demonstrate safety and effectiveness. Pediatric Exclusivity and Pediatric Use Under the Best Pharmaceuticals for Children Act, sponsors may obtain a six month extension of unexpired regulatory exclusivities and terms of unexpired Orange Book-listed patents relating to their drug, if pediatric studies substantially complying with a written request are completed and submitted by the sponsor to the FDA within the statutory time frame. We have not received such a written request from the FDA for such pediatric studies, although we may ask the FDA to issue a written request for such studies in the future. In addition, under the Pediatric Research Equity Act (the “PREA”), a NDA or supplement to a NDA for certain drugs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective, unless the sponsor receives a deferral or waiver. However, the FDA has recently issued guidance limiting a sponsor’s ability to waive the PREA study requirements. Orphan Drug Designation Under 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 25 Table of Contents more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting a NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage 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 such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any applications from any other party to market the same drug for the same indication for seven years, except in very limited circumstances such as where there is a demonstration of clinical superiority. Orphan drug exclusivity, however, could also work to block the approval of one of our product candidates for seven years if a competitor develops the same drug as one of our product candidates and obtains approval and orphan exclusivity for the same indication or disease for which our product candidate is being developed. Orphan drug exclusivity would not block approval of the same drug developed by a competitor for a use different from our orphan-protected approved use. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to orphan exclusivity for the full scope of its approved use. As in the United States, we may apply for designation of a product as an orphan drug for the treatment of a specific indication in the European Union before the application for marketing authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication. The market exclusivity period for the authorized therapeutic indication may be reduced to six years if, at the end of the fifth year, it is established that the orphan designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition, a competing similar medicinal product may in limited circumstances be authorized prior to the expiration of the 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. In the United States, Ocaliva has also received orphan exclusivity for its approved PBC indication that runs until May 27, 2023. Regulation Outside of the United States In addition to regulations in the United States, we are subject to regulations of other countries governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products 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 FDA approval. Under European Union regulatory systems, a company may submit marketing authorization applications under the centralized, decentralized or mutual recognition marketing authorization procedure. The centralized procedure provides for the grant of a single marketing authorization for a medicinal product by the European Commission on the basis of an opinion provided by the EMA’s Committee for Medicinal Products for Human Use (the “CHMP”). A centralized marketing authorization is valid for all European Union member states and the European Economic Area States (Iceland, Liechtenstein and Norway). The decentralized marketing authorization procedure involves the submission of an application for marketing authorization to the competent authorities in each of the European Union member states chosen by the applicant in which the product is to be marketed. One national competent authority, selected by the applicant (Reference Member State) leads the assessment of the application for marketing authorization. The competent authorities of the other chosen European Union member states concerned by the procedure (Concerned Member States) are subsequently required to review the initial evaluation and, if the assessment is positive and all issues are resolved, grant marketing authorization for their territory on the basis of the assessment, except where grounds of potential serious risk to public health require the application for authorization to be refused. The mutual recognition procedure provides for mutual 26 Table of Contents recognition of a marketing authorization which has already been granted by the national competent authority of a European Union member state by the competent authorities of the other European Union member states where further marketing authorizations are progressively sought. The holder of a national marketing authorization may submit an application to the competent authority of a European Union member state requesting the recognition of the marketing authorization granted by the competent authority of another European Union member state. Prior to obtaining a marketing authorization in the European Union submitted as a full stand-alone dossier, applicants have to demonstrate compliance with all measures included in an EMA-approved PIP covering all subsets of the pediatric population, unless the EMA has 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. In the case of orphan medicinal products, completion of an approved PIP can result in an extension of the aforementioned market exclusivity period from ten to twelve years. It is also possible that a centralized marketing authorization could be conditional on post-approval studies and not considered a full approval, but subject to annual renewal until comprehensive data are provided to confirm the benefit/risk assessment. A manufacturer’s ability to obtain and maintain conditional marketing authorization in the European Union will be limited to specific circumstances and subject to several conditions and obligations, if obtained at all. Conditional marketing authorizations can be granted, based on a clinical dataset that is not comprehensive. Granting of such an authorization may be granted for a limited number of medicinal products for human use referenced in the applicable European Union law governing conditional marketing authorization, including products designated as orphan medicinal products under European Union law, if (1) the risk-benefit balance of the product is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) unmet medical needs will be fulfilled and (4) the benefit to public health of the immediate availability on the market of the medicinal product outweighs the risk inherent in the fact that additional data are still required. Specific obligations, including with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data, may be specified in the conditional marketing authorization. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions. Similarly to the United States, both marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA and the competent authorities of the individual European Union member states both before and after grant of the manufacturing and marketing authorizations. This includes European Union cGMP rules, which govern quality control of the manufacturing process and require documentation policies and procedures. We and our third-party manufacturers are required to ensure that all of our processes, methods, and equipment are compliant with cGMP. Failure by us or by any of our third-party partners, including suppliers, manufacturers, and distributors to comply with European Union 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 manufacturing and marketing of such products, both before and after grant of marketing authorization, may result in administrative, civil or criminal penalties. These penalties could include delays in or refusals to authorize the conduct of clinical trials or the grant of marketing authorizations, product withdrawals and recalls, product seizures, suspensions, withdrawals, or variations of previously granted marketing authorizations, total or partial suspensions of production, distribution, manufacturing, or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties. In October 2016, the CHMP of the EMA adopted a positive opinion recommending the granting of a conditional marketing authorization of Ocaliva in PBC. Based on the CHMP’s positive recommendation, the European Commission granted a conditional marketing authorization of Ocaliva in PBC in December 2016. Although we have successfully renewed our conditional marketing authorization in the European Union in the past, there can be no assurance that we will be able to continue to do so in the future. Failure to renew our conditional marketing authorization would prevent us from continuing to market Ocaliva for PBC in Europe. PBC is not believed to occur in the pediatric population. Therefore, in accordance with applicable regulations, the PBC marketing authorization required demonstration of compliance with all measures included in an EMA-approved Pediatric Investigation Plan for OCA for the treatment of biliary atresia, a pediatric cholestatic disease. 27 Table of Contents Pricing and Reimbursement Sales 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 healthcare programs, commercial insurance plans and managed healthcare organizations. These third-party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become a priority for federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of new or more restrictive price controls and cost-containment measures in the jurisdictions in which we operate could materially and adversely impact our net sales and financial results. Third-party payers are responsible for managing overall pharmaceutical drug spending for their client membership. Third-party payers continue to scrutinize and manage the prices charged for pharmaceutical products and services, and many also limit reimbursement for newly-approved or innovating products and indications. If these third-party payors do not consider our products to be cost-effective compared to other therapies, they may (i) not cover our approved products as part of their plans’ benefits, (ii) apply utilization management restrictions or high patient cost-sharing obligations or (iii) restrict the level of reimbursement for our approved products and any such actions may affect our ability to sell our approved products on a profitable basis or at all. Medicare is a U.S. federal healthcare program that provides coverage for certain healthcare items and services to individuals aged 65 years or older, as well as individuals of any age with certain disabilities and illnesses. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D of the MMA, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which provide coverage for outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as part of Medicare Advantage plans. Unlike Medicare Part A and B, Part D prescription drug plan sponsors are not required to pay for all outpatient drugs, and each Part D plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D plan drug formularies must include at least two drugs within each therapeutic category and class of Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutics committee. Part D plan coverage and reimbursement may increase demand for our products for which we receive marketing approval in the United States. Moreover, while Part D provides prescription drug benefits only to Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in reimbursement by Medicare may result in a similar reduction in payments from non-governmental payors. Medicare Part D may affect reimbursement of our products upon approval. Medicaid is a U.S. healthcare program that provides coverage for certain healthcare items and services to low-income children, families, pregnant women and people with disabilities. It is jointly funded by the federal and state governments, and it is administered by individual states within parameters established by the federal government. Therefore, coverage and reimbursement for drugs may vary by state Medicaid program. A manufacturer must enter into a Medicaid Drug Rebate Agreement to have its products covered by Medicaid. Under the Medicaid program, and per the Medicaid Drug Rebate Agreement, manufacturers agree to report certain prices to the government and pay rebates to state Medicaid programs based on Medicaid utilization of the manufacturer’s covered drugs. In addition to the Medicaid Drug Rebate Program, federal law requires companies to participate in the Public Health Service’s 340B Drug Pricing Program in order to have the manufacturer’s drugs covered under Medicaid. The 340B Drug Pricing Program requires participating manufacturers to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “ACA”), extended eligibility to participate in the 340B program to certain additional types of hospitals (including critical access hospitals, sole community hospitals, rural referral centers and freestanding cancer hospitals). For purposes of these newly eligible covered entities, the ACA specifically excluded from the definition of “covered outpatient drugs” certain drugs designated as “orphan drugs” under section 526 of the FDCA. We are also required as a condition of Medicaid participation to discount 28 Table of Contents our products to authorized users of the Federal Supply Schedule of the General Services Administration, including the TRICARE retail pharmacy program, under which additional laws and requirements apply. These programs require submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, and the guidance governing such calculations is not always clear. Compliance with such requirements can require significant investment in personnel, systems and resources, but failure to properly calculate prices, or offer required discounts or rebates can subject manufacturers to substantial penalties. In 2010, the ACA was enacted to, among other things, expand access and increase consumer insurance protections while reducing the cost of health care for consumers. The law substantially changed the way health care is financed by both governmental and private insurers in the United States. The ACA requires manufacturers to provide discounts on the prices of brand named drugs in the coverage gap under Medicare Part D and increased the rebates paid by pharmaceutical companies on drugs covered by Medicaid. The ACA also imposes an annual fee, which increases each year, on sales by branded pharmaceutical manufacturers. Since its enactment, there have been a number of judicial, executive and legislative challenges to the ACA, including tax legislation that removed the financial penalties for people who do not carry health insurance (known as the “individual mandate”) and an Executive Order signed in October 2017 by President Trump directing federal agencies to modify how the ACA is implemented. Congress may continue to consider legislation to repeal and replace some or all elements of the ACA. Further, in December 2018, a federal district court in Texas ruled that the entire ACA was unconstitutional because it could not be considered an exercise of Congressional taxing authority following the repeal of the individual mandate penalties. In December 2019, a federal court of appeals upheld the district court's decision that the ACA individual mandate was unconstitutional absent financial penalties, but remanded the case back to the district court to determine whether the remaining provisions of the ACA were nonetheless valid. Pending appeals, which could take some time, the ACA is still operational in all respects. We cannot predict the outcome of this litigation, including a possible decision by the United States Supreme Court, and there is still uncertainty whether the ACA will undergo additional revisions. We cannot predict the impact of any future modifications. There has been particular and increasing legislative and enforcement interest in the United States with respect to drug pricing practices, particularly with respect to drugs that have been subject to relatively large price increases over relatively short time periods. At the federal level, there have been several U.S. Congressional inquiries, proposed bills, and proposed administrative rules designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. The outcome and potential effects of these proposals is unclear, but Congress and the Trump administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, to encourage importation from other countries and bulk purchasing. In addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before its cost may be funded within the respective national healthcare systems. The requirements governing drug pricing vary widely from country to country. For example, European Union member states can restrict the range of medicinal products for which their national health insurance systems provide reimbursement and may control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profits the medicinal product generates for the company placing it on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products on cost-effectiveness grounds. Historically, products launched in countries in the European Union do not follow price structures of the United States and generally their prices tend to be significantly lower. U.S. Fraud and Abuse Laws Interactions and arrangements with third-party payors, healthcare providers and professionals and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations that may restrict certain marketing and contracting practices. These laws include, federal and state anti-kickback and false claims statutes as well as other 29 Table of Contents statutes and regulations pertaining to healthcare fraud and abuse. Other pharmaceutical companies have settled alleged or admitted violations of these fraud and abuse laws with state and federal authorities in recent years and in some cases these settlements have amounted to hundreds of millions, or even billions, of dollars in damages, fines, and penalties, as well as the imposition of compliance program obligations through Corporate Integrity Agreements and other means. Lawsuits, or enforcement actions brought under fraud and abuse laws, can be extremely costly to defend, even if a company has strong defenses and ultimately succeeds in getting the allegations or enforcement action dismissed. The federal Anti-Kickback Statute (42 U.S.C. §1320a-7b(b)) prohibits, among other things, knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for any good or service, for which payment may be made under federal and state healthcare programs such as Medicare, Medicaid or other federally financed healthcare programs. Remuneration is not defined in the federal Anti-Kickback Statute and has been broadly interpreted by regulators to include for example, cash payments, gifts, discounts, coupons, and the furnishing of free or discounted services or supplies, and other items or services of value to the recipient. This statute has been broadly interpreted to apply to manufacturer arrangements with prescribers, purchasers, formulary managers and patients, among others. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for such exceptions or safe harbors. The federal False Claims Act imposes civil penalties, including treble damages and significant per-claim penalties, which may be pursued through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. The government and qui tam relators have brought False Claims Act actions against pharmaceutical companies on the theory that their practices have caused false claims to be presented to the government. There is also a separate false claims provision imposing criminal penalties. Other federal healthcare fraud-related laws also impose criminal liability for violations. The Criminal Healthcare Fraud statute (18 U.S.C. §1347) prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payers. Federal criminal law also prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A number of states also have statutes or regulations similar to the federal Anti-Kickback Statute and False Claims Act that apply to items and services reimbursed under Medicaid and other state programs. Some state anti-kickback statutes apply not just to government payors, but to all payors, including commercial payors and patients. Other Laws The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (collectively, “HIPAA”), imposes obligations, on “covered entities,” including health plans and healthcare providers, and their business associates with respect to safeguarding the privacy, security and transmission of individually identifiable health information. Although drug manufacturers are not directly subject to HIPAA, we could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a HIPAA- covered entity in a manner that is not authorized or permitted by HIPAA. We are also subject to state, federal and international privacy and security laws governing the processing and security of personal identifiable information. The federal Physician Payments Sunshine Act requirements under the ACA, and its implementing regulations, require manufacturers of drugs, devices, biologics and medical supplies to report to the U.S. Department of Health and Human Services information related to certain direct and indirect payments and other transfers of value made to covered recipients, such as physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Payments made to physicians and research institutions for clinical trials are included within 30 Table of Contents the ambit of this law. We are also subject to similar laws in several states and various European Union countries where we have operations. Some of these state and EU laws are broader in scope than federal laws. In addition, several states now require prescription drug companies to report expenses relating to the marketing and promotion of drug products. Several states prohibit providing certain payments or items of value to healthcare providers or other enumerated individuals or entities, as well as various other marketing-related activities. Certain states require the posting of information relating to clinical studies and their outcomes. In addition, California, Connecticut, Nevada and Massachusetts require pharmaceutical companies to implement compliance programs and marketing codes. Several additional states are considering similar proposals. Some of the state laws are broader in scope than federal laws. Compliance with these laws is challenging and requires significant time and resources, and any failure to comply with such laws could result in significant civil penalties and other adverse consequences. Employees As of December 31, 2019, we had 583 employees, of which 429 were based in the United States and 154 were based outside the United States. None of our employees are represented by a labor union and we consider our employee relations to be good. Corporate and Available Information We were incorporated in Delaware in September 2002. Our principal executive offices are located at 10 Hudson Yards, 37th Floor, New York, NY 10001 and our telephone number is (646) 747-1000. We have several additional offices, including those in San Diego, California and London, United Kingdom. Our corporate website address is www.interceptpharma.com. We make available on our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) , as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Our SEC reports can be accessed through the Investors & Media section of our internet website. The references to www.interceptpharma.com herein are inactive textual references only, and the information found on our internet website is not incorporated by reference into this Annual Report on Form 10-K or any other report we file with or furnish to the SEC. The SEC maintains an internet website that contains reports, proxy and information statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is http://www.sec.gov. 31 Table of Contents Item 1A. Risk Factors Investing in our securities involves a high degree of risk. The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered before deciding whether to invest in our securities. The risks and uncertainties described below and in our other filings are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks, or such unknown risks, occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In that case, the market price of our securities could decline, and you may lose all or part of your investment. Risks Related to Our Financial Position and Need for Additional Capital We are currently dependent on the successful commercialization of Ocaliva for PBC. To the extent Ocaliva is not commercially successful, our business, financial condition and results of operations may be materially and adversely affected and the price of our common stock may decline. Ocaliva is our only drug that has been approved for sale and it has only been approved for the treatment of PBC in combination with UDCA in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA. Our ability to generate profits from operations and become profitable currently depends on the commercial success of Ocaliva for PBC. However, the successful commercialization of Ocaliva for PBC is subject to many risks. We have not launched or commercialized a drug before, and there is no guarantee that we will be able to do so successfully. There are numerous examples of unsuccessful product launches and commercial efforts, as well as failures to meet expectations of market potential, including by pharmaceutical companies with greater experience and resources than us. The commercial success of Ocaliva for PBC depends on the extent to which patients, physicians and payers accept and adopt Ocaliva as a treatment for PBC, and we do not know whether our or others’ estimates in this regard will be accurate. As such, there is significant uncertainty in the degree of market acceptance that Ocaliva will have for PBC. For example, if the patient population suffering from PBC is smaller than we estimate, or even if the patient population matches our estimates but Ocaliva is not widely accepted as a treatment for PBC, the commercial potential of Ocaliva for PBC will be limited. Physicians may not prescribe Ocaliva and patients may be unwilling to use Ocaliva if coverage is not provided or reimbursement is inadequate to cover a significant portion of the cost. Additionally, the use of Ocaliva in a non-trial setting may result in the occurrence of unexpected or a greater incidence of side effects, adverse reactions or misuse that may negatively affect the commercial prospects of Ocaliva for PBC. Furthermore, any negative development in any other development program for OCA or our failure to satisfy the post-marketing regulatory commitments and requirements to which we are or may become subject, including the completion of our Phase 4 COBALT trial, may materially and adversely impact the commercial results and potential of Ocaliva for PBC. See “—Risks Related to the Development and the Regulatory Review and Approval of Our Products and Product Candidates” and “—Risks Related to the Commercialization of Our Products” below. As a result, it is uncertain whether Ocaliva net sales for PBC will sustain our operations and it may take a significant amount of time before Ocaliva net sales for PBC sustain our operations. Furthermore, Ocaliva may not receive regulatory approval for PBC in jurisdictions beyond those in which it is currently approved, which may also limit our prospects. If the commercialization of Ocaliva for PBC is unsuccessful or perceived to be unsuccessful, the long-term prospects of Ocaliva for PBC, as well as the long-term prospects of our company, may be materially and adversely affected. We have never been profitable. We expect to incur losses for the foreseeable future, and we may never achieve or sustain profitability. We have never been profitable and do not expect to be profitable in the foreseeable future. We incurred net losses of $344.7 million, $309.2 million and $360.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. To date, we have financed our operations primarily through public offerings and private placements of our securities, sales 32 Table of Contents of product and payments received under our licensing and collaboration agreements. At December 31, 2019, we had $657.4 million in cash, cash equivalents, restricted cash and investment debt securities. We have devoted substantially all of our resources to the development of our product candidates, including the conduct of our clinical trials, the launch and commercialization of Ocaliva for PBC, preparation for the potential launch of OCA for liver fibrosis due to NASH and general and administrative operations, including the protection of our intellectual property. We expect to continue to incur losses for the foreseeable future, and we expect these losses to be significant as we, among other things, continue to commercialize Ocaliva for PBC, develop and seek and maintain regulatory approvals for OCA for liver fibrosis due to NASH and other indications, and build out the infrastructure in the United States and internationally necessary to support our product development and commercialization efforts. We believe our prospects and ability to significantly grow revenues will be dependent on our ability to successfully develop and commercialize OCA for indications other than PBC, such as NASH. As a result, we expect a significant amount of resources to continue to be devoted to our development programs for OCA. As part of our product development activities, we anticipate that we will continue our Phase 4 COBALT trial of Ocaliva for PBC. We also expect to continue our Phase 3 clinical program of OCA for liver fibrosis due to NASH, including our Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH through clinical outcomes for verification and description of clinical benefit and our Phase 3 REVERSE trial for NASH patients with compensated cirrhosis. We intend to evaluate the efficacy, safety and tolerability of bezafibrate in combination with OCA in patients with PBC in a Phase 2 study and to continue to develop OCA and our other existing product candidates, alone or in combination, for non-viral liver diseases. Our overall development program for OCA for liver fibrosis due to NASH is expected to include a number of trials, including clinical trials required to file for approval of OCA for liver fibrosis due to NASH and to confirm clinical benefit. Our expenses could increase if we are required by the FDA or the EMA to perform studies or trials in addition to those currently expected, if our current trials are modified for any reason, or if there are any delays in completing our clinical trials or the development of any of our product candidates. If OCA or any of our other product candidates fails in clinical trials or does not gain or maintain regulatory approval, or if OCA or any of our other product candidates does not achieve market acceptance, we may never become profitable. Our net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, we are unable to predict with certainty the timing or amount of our expenses, whether such expenses may increase, or when, or if, we will be able to achieve profitability. The amount of our future net losses will depend, in part, on our future expenses, whether and by how much such expenses increase and our ability to generate revenues. We will require substantial additional funding, which may not be available to us on acceptable terms, if at all. If adequate funds are not available to us, we may be required to delay, limit, reduce or cease our operations. We are currently advancing OCA through clinical development for multiple indications, including NASH, and other product candidates through various stages of clinical and preclinical development. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. If, for example, the FDA, EMA or other regulatory authorities require that we perform additional studies beyond those that we currently expect, our expenses could increase materially beyond what we currently anticipate, and the timing of any potential product approval may be delayed. In addition, we have incurred and anticipate that we will continue to incur significant research and development, product sales, marketing, manufacturing and distribution expenses relating to the commercialization of Ocaliva for PBC and OCA for liver fibrosis due to NASH, if approved. As part of our longer-term strategy, we anticipate that we will incur significant expenses in connection with our research and development efforts, the commercialization of our approved products other than Ocaliva for PBC and OCA for liver fibrosis due to NASH, if approved, and the build-out of our general and administrative infrastructure in the United States and abroad. We may also engage in business development activities 33 Table of Contents that involve potential in- or out-licensing of products or technologies or acquisitions of other products, technologies or businesses. As of December 31, 2019, we had $657.4 million in cash, cash equivalents, restricted cash and investment debt securities. We currently expect to continue to incur significant operating expenses in the fiscal year ending December 31, 2020. These expenses are planned to support, among other initiatives, the continued commercialization of Ocaliva for PBC in the United States and our other markets, launch preparation and commercialization activities associated with the potential approval and commercialization of OCA for liver fibrosis due to NASH, our continued clinical development of OCA for PBC and NASH and our other earlier stage research programs. Although we believe that our existing capital resources, together with our net sales of Ocaliva for PBC, will be sufficient to fund our anticipated operating requirements for the next twelve months and the initial phase of the anticipated U.S. launch of OCA for liver fibrosis due to NASH, we may need to raise additional capital to fund our operating requirements beyond that period. Furthermore, in light of the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, any delays in, or unanticipated costs associated with, our development, regulatory or commercialization efforts could significantly increase the amount of capital required by us to fund our operating requirements. Accordingly, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our forecast regarding the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results, including the costs to maintain our currently planned operations, could vary materially. Our forecasts regarding the period of time that our existing capital resources will be sufficient to meet our operating requirements and the timing of our future funding requirements, both near and long-term, will depend on a variety of factors, many of which are outside of our control. Such factors include, but are not limited to: ● our ability to successfully commercialize Ocaliva for PBC; ● our ability to maintain our regulatory approval of Ocaliva for PBC in the United States, Europe, Canada, Israel, Australia and other jurisdictions in which we have or may receive marketing authorization; ● the initiation, timing, cost, conduct, progress and results of our research and development activities, preclinical studies and clinical trials, including any issues, delays or failures in identifying patients, enrolling patients, treating patients, retaining patients, meeting specific endpoints in the jurisdictions in which we intend to seek approval or completing and timely reporting the results of our NASH or PBC clinical trials; ● our ability to timely and cost-effectively file for and obtain regulatory approval of our product candidates, including the regulatory approval of our NDA for NASH; any advisory committee recommendation that our product candidates, including OCA for liver fibrosis due to NASH, should not be approved or approved only under certain conditions; or any determination that the regulatory applications and subsequent information we submit for our product candidates, including OCA for liver fibrosis due to NASH, do not contain adequate clinical or other data or meet applicable regulatory requirements for approval; ● conditions that may be imposed by regulatory authorities on our marketing approvals for our products and product candidates, such as the need for clinical outcomes data (and not just results based on achievement of a surrogate endpoint), and any related restrictions, limitations and/or warnings contained in the label of any of our products or product candidates; ● any potential side effects associated with Ocaliva for PBC, OCA for liver fibrosis due to NASH or our other product candidates that could delay or prevent approval, require that an approved product be taken off the market, require the inclusion of safety warnings or precautions or otherwise limit the sale of such product or product candidate; ● our ability to establish and maintain relationships with, and the performance of, third-party manufacturers, contract research organizations and other vendors upon whom we are substantially dependent for, among 34 Table of Contents other things, the manufacture and supply of our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our clinical trial activities; ● our ability to identify, develop and successfully commercialize our products and product candidates, including our ability to timely and successfully launch OCA for liver fibrosis due to NASH, if approved; ● our ability to obtain and maintain intellectual property protection for our products and product candidates, including our ability to cost-effectively file, prosecute, defend and enforce any patent claims or other intellectual property rights; ● the size and growth of the markets for our products and product candidates and our ability to serve those markets; ● the degree of market acceptance of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH or our other product candidates among physicians, patients and healthcare payors; ● the availability of adequate coverage and reimbursement from governmental and private healthcare payors for our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our ability to obtain adequate pricing for such products; ● our ability to establish and maintain effective sales, marketing and distribution capabilities, either directly or through collaborations with third parties; ● competition from existing drugs or new drugs that become available; ● our ability to prevent system failures, data breaches or violations of data protection laws; ● costs and outcomes relating to any disputes, governmental inquiries or investigations, legal proceedings or litigation, including any securities, intellectual property, employment, product liability or other litigation; ● our collaborators’ election to pursue research, development and commercialization activities; ● our ability to establish and maintain relationships with collaborators with development, regulatory and commercialization expertise; ● our need for and ability to generate or obtain additional financing; ● our estimates regarding future expenses, revenues and capital requirements and the accuracy thereof; ● our use of cash and short-term investments; ● our ability to acquire, license and invest in businesses, technologies, product candidates and products; ● our ability to attract and retain key personnel to manage our business effectively; ● our ability to manage the growth of our operations, infrastructure, personnel, systems and controls; ● our ability to obtain and maintain adequate insurance coverage; ● the impact of general U.S. and foreign economic, industry, market, regulatory or political conditions, including the potential impact of Brexit; and 35 Table of Contents ● the other risks and uncertainties identified under the captions “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K and in our other periodic filings filed with the SEC. We have no committed external sources of funding and additional funds may not be available when we need them on terms that are acceptable to us, or at all. In addition, our restated certificate of incorporation authorizes us to issue 45 million shares of common stock. Following the 2019 Public Offering and the 2019 Concurrent Private Placement, and after taking into account shares of common stock reserved for issuance upon the exercise of outstanding stock options, the vesting of outstanding restricted stock units (including performance restricted stock units) and the conversion of the Convertible Notes, together with shares of common stock available for future grants under our equity incentive plan, we have a limited number of remaining unreserved and authorized shares available for issuance, which could impact our ability to raise additional funds in the future. If adequate funds are not available to us, we may not be able to make scheduled debt payments on a timely basis, or at all, and may be required to delay, limit, reduce or cease our operations. Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates. Unless and until we generate sufficient cash flow from sales of our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, we expect to finance our future cash needs through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances and licensing arrangements, or a combination of these sources. Additional funding may not be available to us on acceptable terms, if at all. The terms of any future financing may adversely affect the interests of our existing securityholders. For example, to the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. We also could be required to seek funds through arrangements with licensing or collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We have a limited operating history as a commercial organization, which may make it difficult to predict our future performance, and we expect to continue to face a number of factors that may cause operating results to fluctuate. We are a biopharmaceutical company with a limited operating history as a commercial organization. Prior to the launch and commercialization of Ocaliva for PBC, our operations were limited to developing our technology, undertaking preclinical studies and clinical trials of our product candidates and preparing for the commercial launch of Ocaliva for PBC. Other than Ocaliva for PBC, none of our other product candidates have received regulatory approval. Consequently, any predictions regarding our future success or viability may not be as accurate as they could be if we had a longer operating history or greater experience commercializing approved products. The commercialization of Ocaliva for PBC has been and will continue to be, and, if approved, the commercialization of OCA for liver fibrosis due to NASH will be, expensive and time-consuming, and we cannot be certain that we will be able to generate sufficient revenues from sales of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH in our target markets to offset such costs. Furthermore, our financial condition and operating results have varied significantly in the past and are expected to continue to significantly fluctuate from quarter-to-quarter and year-to-year due to a variety of factors, many of which are outside of our control. Such factors include, but are not limited to: ● our ability to successfully commercialize Ocaliva for PBC; 36 Table of Contents ● our ability to maintain our regulatory approval of Ocaliva for PBC in the United States, Europe, Canada, Israel, Australia and other jurisdictions in which we have or may receive marketing authorization; ● the initiation, timing, cost, conduct, progress and results of our research and development activities, preclinical studies and clinical trials, including any issues, delays or failures in identifying patients, enrolling patients, treating patients, retaining patients, meeting specific endpoints in the jurisdictions in which we intend to seek approval or completing and timely reporting the results of our NASH or PBC clinical trials; ● our ability to timely and cost-effectively file for and obtain regulatory approval of our product candidates, including the regulatory approval of our NDA for NASH; any advisory committee recommendation that our product candidates, including OCA for liver fibrosis due to NASH, should not be approved or approved only under certain conditions; any determination that the regulatory applications and subsequent information we submit for our product candidates, including OCA for liver fibrosis due to NASH, do not contain adequate clinical or other data or meet applicable regulatory requirements for approval; ● conditions that may be imposed by regulatory authorities on our marketing approvals for our products and product candidates, such as the need for clinical outcomes data (and not just results based on achievement of a surrogate endpoint), and any related restrictions, limitations and/or warnings contained in the label of any of our products or product candidates; ● any potential side effects associated with Ocaliva for PBC, OCA for liver fibrosis due to NASH or our other product candidates that could delay or prevent approval, require that an approved product be taken off the market, require the inclusion of safety warnings or precautions or otherwise limit the sale of such product or product candidate; ● our ability to establish and maintain relationships with, and the performance of, third-party manufacturers, contract research organizations and other vendors upon whom we are substantially dependent for, among other things, the manufacture and supply of our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our clinical trial activities; ● our ability to identify, develop and successfully commercialize our products and product candidates, including our ability to timely and successfully launch OCA for liver fibrosis due to NASH, if approved; ● our ability to obtain and maintain intellectual property protection for our products and product candidates, including our ability to cost-effectively file, prosecute, defend and enforce any patent claims or other intellectual property rights; ● the size and growth of the markets for our products and product candidates and our ability to serve those markets; ● the degree of market acceptance of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH or our other product candidates among physicians, patients and healthcare payors; ● the availability of adequate coverage and reimbursement from governmental and private healthcare payors for our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our ability to obtain adequate pricing for such products; ● our ability to establish and maintain effective sales, marketing and distribution capabilities, either directly or through collaborations with third parties; ● competition from existing drugs or new drugs that become available; ● our ability to prevent system failures, data breaches or violations of data protection laws; 37 Table of Contents ● costs and outcomes relating to any disputes, governmental inquiries or investigations, legal proceedings or litigation, including any securities, intellectual property, employment, product liability or other litigation; ● our collaborators’ election to pursue research, development and commercialization activities; ● our ability to establish and maintain relationships with collaborators with development, regulatory and commercialization expertise; ● our need for and ability to generate or obtain additional financing; ● our estimates regarding future expenses, revenues and capital requirements and the accuracy thereof; ● our use of cash and short-term investments; ● our ability to acquire, license and invest in businesses, technologies, product candidates and products; ● our ability to attract and retain key personnel to manage our business effectively; ● our ability to manage the growth of our operations, infrastructure, personnel, systems and controls; ● our ability to obtain and maintain adequate insurance coverage; ● the impact of general U.S. and foreign economic, industry, market, regulatory or political conditions, including the potential impact of Brexit; and ● the other risks and uncertainties identified under the captions “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K and in our other periodic filings filed with the SEC. Risks Related to the Development and the Regulatory Review and Approval of Our Products and Product Candidates We cannot be certain whether Ocaliva will receive full approval for PBC in jurisdictions where it has previously received accelerated or conditional approval, or that Ocaliva will be approved for PBC in any jurisdictions beyond those in which it is currently approved. Furthermore, OCA may not be approved for NASH or any other indication beyond PBC and we may not receive regulatory approval for any other product candidate. Without regulatory approval, we will not be able to market and commercialize our product candidates. The development, testing, manufacture, packaging, labeling, storage, approval, promotion, advertising, distribution, marketing and export and import, among other things, of our products and product candidates are subject to extensive regulation by the FDA in the United States, the EMA in Europe and various regulatory authorities in other countries, with regulations differing from country to country. We are not permitted to market our product candidates in the United States or Europe until we receive approval of a NDA, from the FDA, or a MAA, from the EMA, respectively. Currently, our ability to generate product sales depends on the successful marketing of Ocaliva for PBC in the jurisdictions in which it has received regulatory approval. In the future, our ability to generate product sales in addition to those of Ocaliva for PBC will depend on whether we are successful in obtaining regulatory approval of our other product candidates, including OCA for liver fibrosis due to NASH. Ocaliva is our only drug that has been approved for sale and it has only been approved for the treatment of PBC in combination with UDCA in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA. In the United States, Ocaliva was approved for PBC under the accelerated approval pathway. Accelerated approval was granted for Ocaliva for PBC based on a reduction in ALP; however, an improvement in survival or disease-related symptoms has not yet been established. Continued approval of Ocaliva for PBC in the United States is contingent upon 38 Table of Contents the verification and description of clinical benefit in confirmatory trials and our satisfaction of our other post-marketing regulatory requirements. Our Phase 4 COBALT confirmatory outcomes trial may fail to show a clinical benefit for Ocaliva for PBC or may not satisfy applicable regulatory requirements for other reasons. As specified by the applicable post- marketing requirements, our COBALT trial includes subjects across the spectrum of PBC disease, including early and advanced PBC. We have agreed to evaluate the safety and efficacy of Ocaliva in patients with moderate to severe hepatic impairment and as a monotherapy in patients with PBC. In addition, we have agreed to develop and characterize a lower dose formulation of Ocaliva to allow for once daily dosing in patients with moderate or advanced hepatic impairment. We commenced our commercial launch of Ocaliva for PBC in certain European countries in 2017 following the European Commission’s grant of conditional approval in December 2016. Our marketing authorization in the European Union is conditioned on the completion of the COBALT trial and a trial evaluating the safety and efficacy of Ocaliva in patients with moderate to severe hepatic impairment. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia, and we are pursuing marketing approval of Ocaliva for PBC in our other international target markets. If obtained, continued approval of Ocaliva for PBC in such jurisdictions may be contingent upon the verification and description of clinical benefit in confirmatory trials. Any delay or failure in satisfying the post-marketing regulatory commitments and requirements to which we are or may become subject, including our Phase 4 COBALT trial, may jeopardize the continued approval of Ocaliva for PBC in the United States, European Union and other jurisdictions. Ocaliva is not approved for any indication other than PBC. We currently have no other products approved for sale and we cannot guarantee that we will ever have additional marketable products or that OCA will be approved for use in additional indications such as NASH. NDAs and MAAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of a NDA or a MAA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA and the EMA review processes can take years to complete and approval is not guaranteed. Even after the submission of a NDA, the FDA may decide not to accept the submission for filing and review. Similarly, there may be delays in the EMA’s review process following the submission of a MAA, or the EMA may determine that the submission does not support approval. In addition, in June 2016, eligible members of the electorate in the United Kingdom decided by referendum to leave the European Union, in what is often referred to as “Brexit”. Because a significant proportion of the regulatory framework in the United Kingdom is derived from European Union directives and regulations, Brexit could materially change the regulatory regime applicable to our operations, including with respect to Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH and our other product candidates. As is the case with the approval of Ocaliva for PBC, any future approvals or potential future approvals may also be conditional upon the completion of one or more clinical trials. In addition, delays in approvals or rejections of marketing applications in the United States, Europe or other countries may be based upon many factors, including, for example, regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory endpoint requirements, regulatory questions regarding safety or risk-benefit profile, different interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding our product candidates or approved products. Initial and continued regulatory approval is also dependent on successfully passing regulatory inspection requirements applicable to us, our clinical sites and our key vendors, including requirements that we and such parties comply with applicable good clinical, pharmacovigilance, laboratory and manufacturing practices regulations. Critical findings could jeopardize or delay the approval of our NDAs or MAAs or impair our ability to maintain our marketing approvals. Prior to receiving regulatory approval, we must finalize the product label for each of our product candidates in each jurisdiction in which we seek regulatory approval. Even if our product is approved, the FDA, EMA or other applicable regulatory authority may limit the indications or uses for which our product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials, risk mitigation programs such as a REMS, monitoring or reporting as a condition of approval. Also, regulatory approval for our approved products may be withdrawn. 39 Table of Contents In addition, obtaining regulatory approval for the marketing of our product in one country does not ensure that we will be able to obtain regulatory approval for such product in any other country. In order to obtain regulatory approval for OCA for indications other than PBC, we will need to complete a number of additional clinical trials and studies. For example, in connection with our Phase 3 clinical program of OCA for liver fibrosis due to NASH, we are currently conducting our Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH through clinical outcomes for verification and description of clinical benefit and our Phase 3 REVERSE trial for NASH patients with compensated cirrhosis. Our ability to obtain and maintain the regulatory approvals necessary to commercialize OCA for indications other than PBC, including NASH, will depend on our ability to successfully design, conduct and complete these trials, the efficacy, safety and risk-benefit profile of OCA demonstrated by such trials and our ability to prepare and submit complex regulatory filings in accordance with applicable regulatory requirements. There can be no assurance that OCA will receive marketing approval for PBC in jurisdictions where it has not yet been approved or for NASH in any jurisdiction, or that any of our other product candidates will receive marketing approval for any indication in any jurisdiction. We cannot predict whether our clinical trials and studies for our product candidates, including OCA for PBC, NASH or any other indication, will be successful, whether regulatory authorities will agree with our conclusions relating to the clinical trials and studies we conduct, or whether such regulatory authorities will require us to conduct additional clinical trials or studies. For example, while OCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis and we filed a NDA in the United States and a MAA in Europe based on the results from the 18-month analysis of our Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH, we do not know if one pivotal clinical trial will be sufficient for marketing approval or if regulatory authorities in the United States, Europe or our other target markets will approve OCA for liver fibrosis due to NASH on an accelerated or conditional basis, or at all. Our Phase 3 REGENERATE trial remains blinded after the interim analysis and will continue to follow patients until the occurrence of a pre-specified number of adverse clinical outcomes, including progression to cirrhosis, for verification and description of clinical benefit on a post-marketing basis, if approved. If we are unable to obtain regulatory approval for OCA for PBC in the jurisdictions in which it is not currently approved or obtain regulatory approval in the United States, European Union and other jurisdictions for OCA for other indications, such as NASH, or for our other product candidates, we may not be able to generate sufficient revenue to become profitable or to continue our operations. We are developing product candidates for the treatment of rare diseases or diseases for which there are no or limited therapies, such as PBC and NASH, and for some of which there is little clinical experience, and our development approach involves new endpoints and methodologies. As a result, there is a heightened risk that we will not be able to gain agreement with regulatory authorities regarding an acceptable development plan, that the outcome of our clinical trials will not be favorable or that, even if favorable, regulatory authorities may not find the results of our clinical trials to be sufficient for marketing approval. We are focused on developing therapeutics for the treatment of rare diseases and diseases for which there are no or limited treatments. As a result, the design and conduct of our clinical trials for these indications is subject to heightened risk. In the United States, the FDA generally requires two adequate and well-controlled pivotal clinical trials to approve a NDA. Furthermore, for full approval of a NDA, the FDA requires a demonstration of efficacy based on a clinical benefit endpoint. The FDA may grant accelerated approval based on a surrogate endpoint reasonably likely to predict clinical benefit. Even though our pivotal clinical trials for a specific indication, such as our Phase 3 REGENERATE trial of OCA in patients with liver fibrosis due to NASH and our Phase 3 REVERSE trial for NASH patients with compensated cirrhosis, may achieve their primary endpoints and are reasonably believed by us to be likely to predict clinical benefit, the FDA may not accept the results of such trials or approve our product candidate on an accelerated basis, or at all. It is also possible that the FDA may refuse to accept for filing and review any regulatory application we submit for regulatory approval in the United States. Even if our regulatory application is accepted for review, such as the NDA we submitted for liver fibrosis due to NASH that was accepted for review by the FDA in November 2019, there may be delays in the FDA’s review process and the FDA may determine that such regulatory application does not contain adequate clinical or other data or support the approval of the product candidate. In such a case, the FDA may issue a complete response letter that may 40 Table of Contents require that we conduct and/or complete additional clinical trials and preclinical studies or provide additional information or data before it will reconsider our application for approval. Any such requirements may be substantial, expensive and time- consuming, and there is no guarantee that we will continue to pursue such application or that the FDA will ultimately decide that any such application supports the approval of the product candidate. The FDA may also refer any regulatory application, and has referred our NDA for OCA for liver fibrosis due to NASH, to an advisory committee for review and recommendation as to whether, and under what conditions, the application should be approved. While the FDA is not bound by the recommendation of an advisory committee, it considers such recommendations carefully when making decisions. Even if we receive accelerated approval for any of our product candidates, we may be required to conduct or complete a post-approval clinical outcomes trial to confirm the clinical benefit of such product candidates by demonstrating the correlation of the surrogate endpoint therapeutic response in patients with a significant reduction in adverse clinical outcomes over time. For example, interim analysis results at 18 months in our Phase 3 REGENERATE trial were based on surrogate endpoints and the impact on clinical outcomes has not been confirmed. The REGENERATE trial is ongoing for verification and description of clinical benefit of OCA for liver fibrosis due to NASH. There can be no assurance that the clinical outcomes portion of our REGENERATE trial will confirm that the surrogate endpoint used as the basis of the regulatory submissions we have made or expect to make seeking approval of OCA for liver fibrosis due to NASH will eventually show an adequate correlation with clinical outcomes. In addition, as a condition of the accelerated approval of Ocaliva for PBC in the United States, we are required to conduct a clinical outcomes study with respect to Ocaliva for PBC. Following discussions with regulatory authorities, we initiated our COBALT clinical outcomes confirmatory trial for PBC in December 2014 prior to the approval of Ocaliva for PBC. The COBALT trial includes subjects across the spectrum of PBC disease, including early and advanced PBC. We have agreed to evaluate the safety and efficacy of Ocaliva in patients with moderate to severe hepatic impairment and as a monotherapy in patients with PBC. There can be no assurance that our COBALT trial conducted as part of our post-marketing obligations will confirm that the surrogate endpoint used for accelerated approval of Ocaliva for PBC will eventually show an adequate correlation with clinical outcomes or that our clinical trial in PBC patients with moderate to severe hepatic impairment will be successful. If any such trial is delayed or fails, we may not be able to maintain our previously granted marketing approval of Ocaliva for PBC. Similarly, if approved based on a surrogate endpoint, continued approval of OCA for other indications, or of any of our other product candidates, may be contingent upon the verification and description of clinical benefit in confirmatory trials. Our marketing authorization in the European Union for Ocaliva for the treatment of PBC is not a full approval. Instead, it is conditional on the conduct of certain post-approval studies. Our ability to maintain conditional marketing authorization of Ocaliva for PBC in the European Union is limited to specific circumstances and subject to several conditions and obligations that we may be unable to satisfy in whole or at all, including the completion of one or more clinical outcomes trials to confirm the clinical benefit of Ocaliva for PBC. Conditional marketing authorizations 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 (i) the risk-benefit balance of the product is positive, (ii) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (iii) unmet medical needs will be fulfilled and (iv) the benefit to public health of the immediate availability on the market of the medicinal product outweighs the risk inherent in the fact that additional data are still required. Specific obligations, including obligations relating to the timely and successful completion of ongoing or new studies and the collection of pharmacovigilance data, may be specified in the conditional marketing authorization. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions. Although we have successfully renewed our conditional marketing authorization in the European Union in the past, there can be no assurance that we will be able to continue to do so in the future. Failure to renew our conditional marketing authorization would prevent us from continuing to market Ocaliva for PBC in Europe. Our ongoing Phase 3 REGENERATE trial of OCA in patients with liver fibrosis due to NASH incorporates an interim primary surrogate endpoint that may serve as the basis for accelerated approval in the United States and as the basis for a conditional approval in Europe. Accelerated approval in the United States and conditional approval in the European Union for OCA for liver fibrosis due to NASH are subject to similar risks as discussed above in relation to OCA for PBC. In the REGENERATE primary efficacy analysis, once-daily OCA 25 mg met, with statistical significance, the primary endpoint 41 Table of Contents agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH (defined as no worsening of hepatocellular ballooning, no worsening of lobular inflammation and no worsening of steatosis) at the planned 18-month analysis. Although a numerically greater proportion of patients in both OCA treatment groups compared to placebo achieved the primary endpoint of NASH resolution with no worsening of liver fibrosis in the primary efficacy analysis, this result did not reach statistical significance. As agreed with the FDA, in order for the primary objective to be met, the study was required to achieve one of the two primary endpoints. In November 2018, the EMA issued draft regulatory guidance in which it presented its preliminary views with respect to various NASH clinical development matters, including with respect to potential surrogate endpoints, and requested comments thereon by August 2019. Although we did not reach agreement with the EMA on the definition and analysis of a surrogate endpoint prior to the readout of the 18-month analysis of the REGENERATE trial, we believe that the totality of the REGENERATE interim analysis data supports the MAA we filed with the EMA. However, the data that we have submitted to the EMA may not ultimately be found by the EMA to be sufficient for marketing approval. In June 2019, the FDA issued new draft guidance on the development of drugs for the treatment of NASH patients with compensated cirrhosis. Although we believe that, if successful, our Phase 3 REVERSE trial will support a regulatory submission seeking accelerated approval of OCA for liver fibrosis due to NASH with compensated cirrhosis in the U.S., we do not know if achievement of the primary endpoint will ultimately be found sufficient by the FDA for approval. While OCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis and we have filed a NDA in the United States and a MAA in Europe for approval of OCA for liver fibrosis due to NASH based on the results from the 18-month interim analysis of our Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH, we do not know if one pivotal clinical trial will be sufficient for marketing approval or if regulatory authorities in the United States, Europe or our other target markets will approve OCA for liver fibrosis due to NASH patients with liver fibrosis on an accelerated or conditional basis, or at all. In addition, although our NDA has been accepted by the FDA for review, there may be delays in the FDA’s review process or the FDA may determine that our submission does not support the approval of OCA for the treatment of NASH. Similarly, there may be delays in the EMA’s review process or the EMA may determine that our submission does not support the approval of OCA for the treatment of NASH. Before granting approval, the FDA and/or the EMA may also require that we continue our Phase 3 REGENERATE trial until completion to assess the potential benefits of OCA treatment on liver-related and other clinical outcomes. Our regulatory pathway for OCA for the treatment of NASH will depend upon our discussions with the FDA and the EMA. As a result, we may face difficulty in establishing an acceptable registration strategy with respect to our Phase 3 REGENERATE and REVERSE trials, as well as other trials we may conduct in other subpopulations of NASH patients. If we continue the development of OCA for PSC, we may seek marketing approval based on a surrogate endpoint. While the EMA issued draft regulatory guidance in November 2018, the FDA has not issued formal guidance regarding a validated surrogate endpoint as a basis for seeking approval in PSC. Identifying an acceptable surrogate endpoint may take longer than we expect and any surrogate endpoint we select may ultimately not be accepted by the FDA, EMA or other applicable regulatory authorities. Prior to any approval of OCA for liver fibrosis due to NASH or OCA for PBC in jurisdictions in which it is not currently approved or the approval of our other product candidates, the FDA, EMA or other applicable regulatory authorities may require additional preclinical studies and/or clinical trials, which may be expensive and time consuming to conduct and complete. Consequently, any such requirement that we conduct additional preclinical studies or clinical trials could materially and adversely affect our business, financial condition and results of operations. Furthermore, even if we receive such approval, the relevant labeling may include restrictions, limitations and/or warnings that could impact the commercial success of OCA or our other product candidates in the applicable markets. Delays or difficulties in the commencement, enrollment and completion of our clinical trials and studies could increase our product development costs and delay, limit or prevent us from obtaining regulatory approval for OCA and our other product candidates. Delays or difficulties in the commencement, enrollment and completion of our clinical trials and studies could increase our product development costs and limit or prevent us from obtaining or maintaining regulatory approval for OCA and our other product candidates. We are currently conducting a number of clinical trials, including our Phase 4 COBALT 42 Table of Contents clinical outcomes confirmatory trial of Ocaliva for PBC, our Phase 3 REGENERATE trial of OCA in patients with liver fibrosis due to NASH through clinical outcomes in order to confirm clinical benefit and our Phase 3 REVERSE trial of OCA for NASH patients with compensated cirrhosis. We are also conducting our CARE trial of OCA in pediatric patients with biliary atresia as a part of an EMA-approved PIP supporting the conditional approval of Ocaliva for PBC. The results from these clinical trials and our other clinical trials and studies may not be available when we anticipate and we may be required to conduct additional clinical trials or studies not currently planned in order for our product candidates, including OCA for PBC and NASH, to be approved or to maintain approvals in the U.S., Europe or the other jurisdictions in which our products are approved. In addition, our clinical programs are subject to a number of risks and uncertainties, such as the results of other trials, patient enrollment, safety issues or regulatory interactions that could result in a change of trial design or timing. Consequently, we do not know whether our current or future clinical trials or studies of OCA or our other product candidates will begin or be completed on schedule, if at all. The commencement, enrollment and completion of our clinical trials and studies may be delayed, suspended or otherwise adversely affected for a variety of reasons, including: ● our inability to obtain sufficient funds to complete or continue our clinical trials; ● our inability to reach agreements on acceptable terms with prospective contract research organizations (“CROs”) and trial sites, the terms of which may be subject to extensive negotiation and may vary significantly among our various CROs and trial sites; ● clinical holds, other regulatory objections to our commencing or continuing a clinical trial or our inability to obtain regulatory approval to commence clinical trials in countries that require such approvals; ● our discussions with the FDA, EMA or other regulatory authorities prior to, or following, the initiation of our clinical trials, regarding, among other matters, the scope or design of our clinical trials, including trial endpoints, protocols and statistical analysis plans, and any modifications thereto; ● our inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indications targeted by our product candidates; ● any delay in receiving results from, or failure to achieve the necessary results in, our clinical trials; ● our inability to obtain approval from institutional review boards or independent ethics committees to conduct our clinical trials at their respective sites; ● any data monitoring committee recommendation that our clinical trials be modified, suspended or terminated due to safety, lack of efficacy or other reasons; ● severe or unexpected drug-related adverse events experienced by patients or any determination that a clinical trial presents unacceptable health risks; ● any breach of the terms of any relevant agreement by us, our current or future collaborators that have responsibility for the clinical development of any of our product candidates or investigators conducting clinical trials on our product candidates; ● our inability to timely manufacture, or obtain from our contract manufacturers, sufficient quantities of our product candidate required for our clinical trials; and ● any difficulty recruiting, enrolling or retaining patients in our clinical trials based on, among other factors, the enrollment criteria for our clinical trials, the rarity of the disease, the characteristics of the population being studied, the risks of the procedures that may be required as part of the clinical trials, such as a liver 43 Table of Contents biopsy, the availability of our products to patients generally following the approval of such products or competition from other clinical trial programs recruiting patients for the same indications as our product candidates. For example, our Phase 3 REGENERATE trial is a large and complicated clinical trial in a disease without any approved therapies and involves serial liver biopsies over many years. While we announced topline results from the 18-month analysis of our pivotal Phase 3 REGENERATE trial in February 2019, REGENERATE is planned to continue through clinical outcomes in order to confirm clinical benefit and there can be no assurance that we will retain a sufficient number of patients in the full study cohort or complete the clinical outcomes trial in accordance with the study protocol or on a timely basis, if at all. Similarly, our COBALT clinical outcomes confirmatory trial for PBC includes subjects across the spectrum of PBC disease, including early and advanced PBC, and there can be no assurance that we will enroll and retain a sufficient number of patients in the full study or complete the clinical outcomes trial in accordance with the study protocol or on a timely basis, if at all. As we engage in other large and complicated trials and trials in advanced disease populations, we may experience a number of challenges that may negatively affect or delay our plans and development programs. Additionally, we have in the past occasionally experienced difficulties enrolling and retaining patients enrolled in our clinical trials. Difficulties in enrolling and retaining patients may delay our clinical trials or result in negative or inconclusive outcomes, and we or our collaborators may decide, or regulatory authorities may require us, to conduct additional clinical trials or additional analyses of existing clinical trials. Any delay or compromises with respect to the validity of our clinical trials may have a material adverse effect on our business or decrease our competitive position relative to other biotechnology or pharmaceutical companies with whom we compete. In addition, if we or any of our collaborators are required to conduct additional preclinical or clinical studies or other development work on our product candidates beyond that contemplated, our ability to obtain regulatory approval of these product candidates and generate revenue 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 of future results and any product candidate we or our collaborators advance through clinical trials, including OCA, may not have favorable results in later clinical trials or receive or maintain regulatory approval. Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to demonstrate the efficacy and safety of our product candidates. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in Phase 3 clinical trials and at other stages of clinical development, even after seeing promising results in earlier clinical trials. In addition, the design of clinical trials, including trial endpoints, protocols and statistical analysis plans, can determine whether such trials will support product approvals, and flaws in the design of such trials may not become apparent until such trials are well-advanced. We may be unable to design and execute clinical trials to support regulatory approval. Further, clinical trials of product candidates often reveal that it is not practical or feasible to continue development efforts. If OCA or our other product candidates are found to be unsafe or lack efficacy for any indication, we will not be able to obtain or maintain regulatory approval for them, and our prospects and business may be materially and adversely affected. There may be significant variability in the safety and/or efficacy results we see in different trials studying OCA or our other product candidates due to numerous factors, including differences in the underlying disease being studied, changes or differences in trial protocols or statistical analysis plans, differences in the composition of the patient populations or clinical trial sites, differences in adherence to the dosing regimen and other aspects of the trial protocols and differences in the rate of dropouts among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials we or any of our collaborators may conduct on our product candidates will demonstrate consistent or adequate 44 Table of Contents efficacy and safety or result in the approval of our product candidates by regulatory authorities. If we are unable to bring any of our current or future product candidates to market, acquire any previously approved products or maintain approval for our approved products, our ability to create long-term stockholder value will be limited. Although Ocaliva for PBC has received accelerated approval in the United States and conditional approval in the European Union, its full approval depends on the timely completion and results of post-marketing clinical trials, including our Phase 4 COBALT trial. We cannot assure you that these trials will demonstrate a correlation of the surrogate endpoint therapeutic response in patients taking Ocaliva for PBC with a significant reduction in adverse clinical outcomes over time. In December 2014, we received comprehensive datasets from the Phase 2b FLINT trial for the treatment of NASH, which met its primary endpoint with statistical significance. In October 2015, we announced that the Phase 2 dose ranging trial of OCA in 200 adult NASH patients in Japan conducted by our former collaborator, Sumitomo Dainippon, did not meet its primary endpoint with statistical significance. In the Sumitomo Dainippon trial, there was a dose dependent, although not statistically significant, increase in the percentage of OCA-treated patients compared to placebo who achieved the primary endpoint (p = 0.053). In addition, no difference was seen in fibrosis improvement in the OCA groups compared to placebo. The Sumitomo Dainippon Phase 2 trial involved different doses of OCA being administered to the trial subjects than those utilized in the Phase 2b FLINT trial. Furthermore, the baseline characteristics between the patients in the Japanese Phase 2 dose ranging trial conducted by Sumitomo Dainippon were distinct in a number of ways from those of the Western patients included in the Phase 2b FLINT trial. In February 2019, we announced topline results from the 18-month analysis of our pivotal Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH. In the primary efficacy analysis, once-daily OCA 25 mg met, with statistical significance, the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH (defined as no worsening of hepatocellular ballooning, no worsening of lobular inflammation and no worsening of steatosis) at the planned 18-month analysis. Although a numerically greater proportion of patients in both OCA treatment groups compared to placebo achieved the primary endpoint of NASH resolution with no worsening of liver fibrosis in the primary efficacy analysis, this result did not reach statistical significance. As agreed with the FDA, in order for the primary objective to be met, the study was required to achieve one of the two primary endpoints. While OCA received breakthrough therapy designation from the FDA in January 2015 for the treatment of NASH patients with liver fibrosis and we have filed a NDA in the United States and a MAA in Europe for approval of OCA for liver fibrosis due to NASH based on the results from the 18-month analysis of our Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH, we do not know if one pivotal clinical trial will be sufficient for marketing approval or if regulatory authorities in the United States, Europe or our other target markets will approve OCA for liver fibrosis due to NASH patients with liver fibrosis on an accelerated or conditional basis, or at all. Additionally, interim analysis results at 18 months were based on surrogate endpoints and the impact on clinical outcomes has not been confirmed. Our Phase 3 REGENERATE trial is ongoing through clinical outcomes for verification and description of clinical benefit of OCA for liver fibrosis due to NASH. Our product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require that our products be taken off the market or include new or additional safety warnings. Any such events may limit our existing and future product sales and materially and adversely affect our business, financial condition and results of operations. OCA has been shown to be a potent FXR agonist. With the exception of the endogenous human bile acid chenodeoxycholic acid and cholic acid, there are no approved FXR agonists and the adverse effects from long-term exposure to this drug class are unknown. Unforeseen side effects from any of our product candidates, including OCA, could arise either during clinical development or, if approved, after the approved product has been marketed. Serious adverse events, including deaths, in patients taking OCA have occurred in clinical trials and in the post-marketing setting, and we cannot assure you that additional serious adverse events in patients taking OCA in clinical trials or in the post-marketing setting will not occur. The most common side effects observed in clinical trials of OCA for PBC were pruritus, fatigue, headaches, nausea, constipation and diarrhea. In our Phase 3 POISE trial, pruritus, generally mild to moderate, was the most frequently 45 Table of Contents reported adverse event associated with OCA treatment for PBC and was observed in 38% of patients on placebo, 70% of patients in the OCA 10 mg group and 56% of patients in the OCA titration group (5 mg to 10 mg). Eight patients discontinued due to pruritus, of whom none were in the placebo group, seven (10%) were in the OCA 10 mg group and one (1%) was in the OCA titration group. Pruritus also has been observed in other clinical trials of OCA. Decreases in high density lipoprotein HDL cholesterol were also observed during treatment in our Phase 3 POISE trial. In our Phase 2 trials for OCA for PBC, a dose-response relationship was observed in the occurrence of liver-related adverse reactions, including jaundice, ascites and primary biliary cholangitis flare with dosages of OCA of 10 mg once daily to 50 mg once daily (up to 5- times the highest recommended dosage), as early as one month after starting treatment with OCA. The European label for Ocaliva also notes that elevations in alanine amino transferase and aspartate aminotransferase were observed in patients treated with OCA. In the course of our post-marketing pharmacovigilance activities, deaths have been reported in PBC patients with moderate or severe hepatic impairment. In an analysis performed by us and in consultation with the FDA, we concluded that certain of these patients were prescribed once daily doses of Ocaliva, which is seven times higher than the recommended weekly dose in such patients. As a result, in September 2017, we issued a Dear Health Care Provider (“DHCP”) letter, and the FDA also subsequently issued its own drug safety communication to reinforce recommended label dosing. Both communications remind healthcare providers of the importance of the recommended reduced dosing of Ocaliva in PBC patients with moderate or severe hepatic impairment, while reiterating the importance of monitoring PBC patients for progression of their disease and the occurrence of liver-related adverse reactions. In addition to the DHCP letter, we took actions to enhance education about appropriate use of Ocaliva. These initiatives included: reeducating physicians on the label, with a focus on ensuring appropriate dosing for patients with moderate or severe hepatic impairment; enhancing monitoring of patients for liver-related adverse reactions; and adjudicating reported cases of serious liver injury, including in patients with no or mild hepatic impairment. In February 2018, we announced that the Ocaliva label in the United States had been updated by the FDA to include a boxed warning and a dosing table that reinforced the then-existing dosing schedule for patients with Child-Pugh Class B or C or decompensated cirrhosis. In addition, the FDA issued an updated drug safety communication to accompany the revised label. We remain focused on the safety of all of the patients using Ocaliva within and outside of our ongoing clinical studies and have engaged with relevant regulatory authorities to ensure that the Ocaliva label sufficiently reinforces the importance of appropriate dosing in patients with advanced cirrhosis. These events and any safety concerns associated with Ocaliva, perceived or real, may adversely affect the successful development and commercialization of our product candidates and lead to a loss of revenues. Ocaliva is contraindicated for PBC patients with complete biliary obstruction in the United States and the European Union. For PBC patients with HDL reductions and no response to Ocaliva after one year at the maximum tolerated dose, the U.S. label asks prescribing physicians to weigh the risks against the benefits of continuing treatment. In the 18-month analysis of our pivotal Phase 3 REGENERATE trial in patients with liver fibrosis due to NASH, the safety population included 1,968 randomized patients who received at least one dose of investigational product (OCA or placebo) with exposures up to 37 months. Adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of OCA. The frequency of serious adverse events was similar across treatment groups (11% in placebo, 11% in OCA 10 mg and 14% in OCA 25 mg), and no serious adverse event occurred in > 1% of patients in any treatment group. There were 3 deaths in the study (2 in placebo: bone cancer and cardiac arrest and 1 in OCA 25 mg: glioblastoma) and none were considered related to treatment. The most common adverse event reported was dose-related pruritus (19% in placebo, 28% in OCA 10 mg and 51% in OCA 25 mg). The incidence of pruritus across all three treatment groups was highest in the first three months and decreased thereafter. The large majority of pruritus events were mild to moderate, with severe pruritus occurring in a small number of patients (< 1% in placebo, < 1% in OCA 10 mg and 5% in OCA 25 mg). A higher incidence of pruritus-associated treatment discontinuation was observed for OCA 25 mg (< 1% in placebo, < 1% in OCA 10 mg and 9% in OCA 25 mg). According to the clinical study protocol, investigator assessed severe pruritus mandated treatment discontinuation. Consistent with observations from previous NASH studies, OCA treatment was associated with an increase in low density lipoprotein (“LDL”) cholesterol, with a peak increase of 22.6 mg/dL at 4 weeks and subsequently reversing and approaching baseline at month 18 (4.0 mg/dL increase from baseline). Triglycerides rapidly and continually decreased in the OCA treatment groups through month 18. There were few and varied serious cardiovascular events and incidence was balanced across the three treatment groups (2% in placebo, 1% in OCA 10 mg and 2% in OCA 25 mg). In patients with type 2 diabetes, OCA treatment was 46 Table of Contents associated with an early transient increase in fasting glucose and hemoglobin A1c with return to levels similar to placebo by month 6. No clinically meaningful changes were noted in non-diabetic patients. With respect to hepatobiliary events, more patients (3%) on OCA 25 mg experienced gallstones or cholecystitis compared to < 1% on placebo and 1% on OCA 10 mg. While hepatic serious adverse events were rare (< 1% incidence in each of the three treatment groups), more occurred in the OCA 25 mg group with no pattern attributable to OCA. In the Phase 2b FLINT trial, pruritus occurred more frequently in the OCA treatment group than in the placebo treatment group (23% vs. 6%, p < 0.0001) and at a higher grade (predominately moderate pruritus). OCA treatment was also associated with changes in serum lipid levels, including increases in total cholesterol and LDL cholesterol and a decrease in HDL cholesterol, that were observed within 12 weeks of initiating treatment, peaked and then decreased in magnitude while on treatment, and reversed further during the 24-week post-treatment period. These changes in cholesterol levels, along with the achievement of pre-defined efficacy criteria, played a role in the decision of the FLINT data and safety monitoring board to terminate the treatment phase of the Phase 2b FLINT trial, and the publication of the FLINT results noted the need for further study of these changes. There were two patient deaths in the Phase 2b FLINT trial, and neither death was considered related to OCA treatment. Furthermore, the Phase 2 dose ranging trial of OCA in 200 adult NASH patients in Japan conducted by our former collaborator, Sumitomo Dainippon, did not meet statistical significance for the primary endpoint. The primary endpoint in the Sumitomo Dainippon trial was histologic improvement defined as at least a two-point improvement in the nonalcoholic fatty liver disease activity score with no worsening of fibrosis. In this trial, there was a dose dependent, although not statistically significant, increase in the percentage of OCA-treated patients compared to placebo who achieved the primary endpoint (p = 0.053). In addition, no difference was seen in fibrosis improvement in the OCA groups compared to placebo. In December 2015, we initiated a Phase 2 clinical trial, known as the CONTROL trial, to characterize the lipid metabolic effects of OCA and cholesterol management effects of concomitant statin administration in NASH patients. CONTROL enrolled 80 NASH patients who were naïve to statin therapy or had undergone a statin washout period. The study included a 16-week double-blind phase followed by an optional long-term safety extension (“LTSE”) phase of the trial. OCA treatment in the absence of statin therapy over the first four weeks resulted in an increase in LDL across all OCA treatment groups, while the placebo group was relatively unchanged. Treatment with atorvastatin beginning at week four and continuing through week 16 reversed OCA-related increases in LDL to below baseline levels in all OCA treatment groups. Dose-dependent pruritus was the most common adverse event in patients treated with OCA, occurring in 5% of patients on placebo, 5% of patients in the OCA 5 mg group, 10% of patients in the OCA 10 mg group and 55% of patients in the OCA 25 mg group. All adverse events were mild to moderate and two patients discontinued treatment in the OCA 25 mg group due to pruritus. Over 95% of the patients completing the double-blind phase of CONTROL enrolled in the LTSE phase of the trial. During the LTSE phase of CONTROL, there was one patient death. This patient was a 64 year-old male with a history of NASH associated liver cirrhosis, morbid obesity (BMI >40) and type 2 diabetes. At baseline, this patient had blood tests consistent with impaired liver function (e.g., low LDL and low platelets). The patient was randomized to placebo for the double-blind phase of the study. Early in the double-blind phase, the patient had serum biochemistry changes consistent with worsening hepatic impairment (e.g., albumin decline and bilirubin was increasing). Atorvastatin was started per protocol and then stopped early due to the patient’s persistently low LDL levels. The patient later enrolled in the LTSE phase and began receiving OCA 25 mg treatment. Over the following four months, the patient’s serum biochemistry remained consistent with ongoing hepatic impairment. Approximately five months after starting the LTSE phase, the patient developed severe protracted diarrhea, which resulted in weight loss of 30 pounds over the ensuing one-month period. Both an infectious cause and possible inflammatory bowel disease were suspected, and the patient subsequently was started on broad spectrum antibiotics and steroid therapy. Due to the diarrhea, the principal investigator stopped treatment with OCA and discontinued the patient from the study. Concurrently, the patient reported jaundice and was found to have significantly elevated serum bilirubin and ALP, while other liver enzymes remained relatively stable. Over the ensuing two-week period, various diagnostic tests and procedures were performed (e.g., magnetic resonance cholangiopancreatography to investigate possible gallstone bile duct obstruction) and the patient continued receiving a number of other medications, including the ongoing course of steroid therapy. During this time, the patient continued to 47 Table of Contents deteriorate and was hospitalized with acute renal and liver failure, complicated by severe metabolic acidosis. The patient rapidly progressed to multi-organ system failure, sepsis and death. The principal investigator determined that the events leading to the patient’s death were unlikely related to OCA. Despite the numerous confounding factors in this case, given the contemporaneous administration of OCA during the patient’s ongoing deterioration, we determined that it could not be ruled out that these events were possibly related to treatment. Subsequent to our determination, the independent data safety monitoring committee separately evaluated the case and determined that the events leading to the patient’s death were unlikely related to OCA. Additional or unforeseen side effects relating to OCA or any of our other product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. With the approval of Ocaliva for PBC in the United States, Europe and certain of our other target markets, OCA is currently used in an environment that is less rigorously controlled than in clinical studies. If new side effects are found, if known side effects are shown to be more severe than previously observed or if OCA is shown to have other unexpected characteristics, we may need to abandon our development of OCA for PBC, NASH and other potential indications. Furthermore, our commercial sales of Ocaliva for PBC may be materially and adversely affected. The range and potential severity of possible side effects from systemic therapies is significant. The results of our current or future clinical trials may show that our product candidates, including OCA, cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, result in a delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings or result in the withdrawal of previously granted marketing approvals. In addition, our product candidates are being developed as potential treatments for severe, life threatening diseases and, as a result, our trials will necessarily be conducted in patient populations that will be more prone than the general population to exhibit certain disease states or adverse events. For example, our Phase 3 REVERSE trial in NASH patients with compensated cirrhosis has expanded our NASH development program into a more advanced NASH patient population and accordingly imposes certain eligibility requirements for uptitration, as well as certain monitoring requirements thereafter. Ocaliva is prescribed in patients suffering from various stages of PBC, which can be life threatening, and patients may suffer from other concomitant illnesses that may increase the likelihood of certain adverse events. It may be difficult to discern whether certain events or symptoms observed during our clinical trials or by patients using our approved products are related to our product candidates or approved products or some other factor. As a result, we and our development programs may be negatively affected even if such events or symptoms are ultimately determined to be unlikely related to our product candidates or approved products. We cannot assure you that additional or more severe adverse side effects related to OCA or our other product candidates will not be observed in our clinical trials or in the commercial setting. If observed, such adverse side effects could delay or preclude regulatory approval of OCA, limit commercial use or result in the withdrawal of previously granted marketing approvals. If we or others identify undesirable or unacceptable side effects caused by our product candidates or products: ● we may be required to modify, suspend or terminate our clinical trials; ● we may be required to modify or include additional dosage and administration instructions, warnings and precautions, contraindications, boxed warnings, limitations, restrictions or other statements in the product label for our approved products, or issue field alerts to physicians and pharmacies or implement other risk mitigation programs; ● we may be required to conduct costly additional clinical trials; ● we may be subject to limitations on how we may promote our approved products; ● sales of our approved products may decrease significantly; 48 Table of Contents ● regulatory authorities may require us to take our approved products off the market; ● we may be subject to regulatory investigations, government enforcement actions, litigation or product liability claims; and ● our products may become less competitive or our reputation may suffer. Breakthrough therapy designation for OCA may not lead to faster development or regulatory processes or increase the likelihood that the FDA will approve OCA for the treatment of NASH patients with fibrosis. If a drug is intended for the treatment of a serious or life-threatening condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development, the FDA may grant a breakthrough therapy designation. Breakthrough therapy designation is intended to facilitate the development, and expedite the review, of such drugs, but the breakthrough therapy designation does not assure marketing approval by the FDA. In January 2015, we received breakthrough therapy designation for OCA for the treatment of NASH patients with fibrosis. However, there is no guarantee that the receipt of breakthrough therapy designation will result in a faster development process, review or approval of OCA for liver fibrosis due to NASH or increase the likelihood that OCA will be granted marketing approval for NASH patients with fibrosis. Similarly, any future breakthrough therapy designation relating to any other potential indication of OCA or our other product candidates will neither guarantee a faster development process, review or approval nor improve the likelihood of the grant of marketing approval by the FDA compared to conventional FDA procedures. In addition, the FDA may withdraw any breakthrough therapy designation at any time. While we may seek breakthrough therapy designation for one or more of our product candidates in the future, we can give no assurance that the FDA will grant such status. We may not be able to obtain or, if approved, maintain orphan drug exclusivity for our approved products or product candidates, which could cause our revenues to suffer. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs and biologics for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug or biologic intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States. OCA has received orphan drug designation in the United States and the European Union for the treatment of PBC and PSC. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for the same product during the exclusivity period. The applicable exclusivity period is seven years in the United States and ten years in Europe. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure a sufficient quantity of the product to meet the needs of patients with the rare disease or condition. In addition, the European exclusivity period can be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation because, for example, the product is sufficiently profitable not to justify maintenance of market exclusivity. Any failure to maintain orphan drug status may subject us to mandatory price discounts in Europe and result in the loss of other benefits, such as tax exemptions for sales. As such, the loss of orphan drug status may have a negative effect on our ability to successfully commercialize our products, earn revenues and achieve profitability. Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. Even after an orphan drug is approved, the FDA or EMA may subsequently approve another product for the same condition if the FDA or EMA concludes that the later product is clinically superior (i.e., it is shown to be safer, more effective or makes a major contribution to patient 49 Table of Contents care). Any inability to secure or maintain orphan drug status or the exclusivity benefits of this status could have a material adverse impact on our ability to develop and commercialize our product candidates and approved products. We rely entirely on third parties for the manufacture of our product requirements for our preclinical studies and clinical trials, as well as our commercial supply of Ocaliva and, if approved, OCA for liver fibrosis due to NASH and our other product candidates, and also depend on third-party vendors and CROs for certain of our clinical trial and product development activities. Our business could be harmed if our third-party manufacturers fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices, or if our third-party vendors or CROs assisting us with our clinical trials and product development activities fail to comply with their contractual commitments or applicable regulatory obligations or if we lose our relationships with our third-party vendors and CROs. We do not manufacture the pharmaceutical products that we sell or the product candidates that we are developing. We rely on third-party contract manufacturers for all of our required raw materials, active pharmaceutical ingredient and finished product for our commercial sales and for our existing and anticipated clinical trials and preclinical studies. Any inability by our contract manufacturers to continue to provide services to us for any reason could adversely affect our commercialization efforts and clinical development program, and we may be unable to identify, qualify and engage replacement suppliers on terms that are favorable to us on a timely basis, if at all. We currently have an agreement with PharmaZell GmbH for the manufacture and commercial supply of API for use in Ocaliva and, if approved, OCA for liver fibrosis due to NASH, but expect to shift our longer-term API supply requirements to other suppliers. While we have procured supplies of API for the commercialization of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH that we believe will be sufficient to meet our requirements during the initial stages of the NASH launch following the expected approval, we may not be able to procure sufficient supplies of API on an ongoing basis. To address this concern, we have qualified an additional API supplier from which we may currently acquire API on a purchase order basis and continue to engage in activities intended to ensure that our long-term commercial supply requirements are satisfied. Despite these efforts, we may not be able to meet our long-term commercial supply requirements of API for the manufacture of Ocaliva or, if approved, OCA for liver fibrosis due to NASH or other indications on acceptable terms, or at all. We do not have agreements for long-term supplies of any of our product candidates other than OCA. We currently obtain supplies and services relating to our other product candidates from our third-party contract manufacturers on a purchase order basis. The facilities used by any contract manufacturer to manufacture OCA or any of our other product candidates are subject to inspection by the FDA and regulators in other jurisdictions. We are completely dependent on these third-party manufacturers for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of our finished products, including Ocaliva. If our manufacturers are unable to meet our requirements in accordance with our product specifications and applicable current Good Manufacturing Practices (“cGMP”) requirements, our products or product candidates will not be approved or, if already approved, may be subject to recall. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured our product candidates and products ourselves, including: ● the possibility that we are unable to enter into or renew our manufacturing agreements with third parties on acceptable terms, or at all; ● the possible termination, breach or non-performance by our third-party manufacturers of our manufacturing agreements based on factors beyond our control; and ● our inability to timely identify and qualify a replacement for any of our third-party manufacturers in the event any such third-party manufacturer fails to meet our product requirements or following the termination, expiration or nonrenewal of our agreements with such third-party manufacturer. Any of these factors could disrupt the supply of our product candidates or approved products, cause us to incur higher costs, delay the approval of our product candidates or prevent or disrupt the commercialization of our approved products. Furthermore, if any of our product candidates, including OCA for liver fibrosis due to NASH, are approved and our 50 Table of Contents contract manufacturers fail to deliver the required commercial quantities of API or finished product on a timely basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for such product candidate following its approval and could lose potential revenue. It may take several years to establish an alternative long-term source of supply and to have any such new source approved by the regulatory authorities that regulate our products in the United States, Europe and our other target markets. We depend on third-party vendors and CROs for certain of our clinical trial and product development activities. If any of these providers fail to comply with their contractual commitments or applicable regulatory obligations, our business could be materially and adversely affected. In addition, if we are unable to maintain our relationship with any one or more of these providers, we could experience a significant delay in both identifying another comparable provider and then contracting for its services, which could materially and adversely affect our clinical trial and product development efforts. We may be unable to retain an alternative provider on reasonable terms, or at all. Even if we locate an alternative provider, it is likely that such a provider will need additional time to respond to our needs and may not provide the same type or level of services as the original provider. Any third-party vendors and CROs that we retain are subject to the FDA’s regulatory requirements and similar foreign standards and we do not have control over compliance with these regulations by these providers. The FDA and other regulatory authorities enforce these regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If these regulations are not adhered to by these providers, or if such providers fail to timely correct any non-compliance, the commercialization and development of our product candidates or approved products could be delayed, which could materially and adversely harm our business and financial condition. Even though we have received conditional approval of Ocaliva for PBC, we and our contract manufacturers are still subject to strict, ongoing regulatory requirements. Even though we have received conditional approval of Ocaliva for the treatment of PBC in combination with UDCA in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA, we and our contract manufacturers are subject to ongoing regulatory requirements relating to, among other things, Ocaliva’s manufacturing, packaging, labeling and storage. In addition, we and our contract manufacturers and our contract manufacturers’ facilities are required to comply with extensive FDA and EMA requirements and the requirements of other similar regulatory authorities, including requirements that quality control and manufacturing procedures conform to current cGMPs. As such, we and our contract manufacturers are subject to periodic cGMP inspections and other inspections and audits required by law or industry standard and must continue to expend time, money and effort to ensure compliance with applicable manufacturing, production and quality control requirements. We are also required to report certain adverse reactions and production problems, if any, to the FDA, EMA and other similar regulatory authorities and to comply with certain requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and generally must be consistent with the information in the product’s approved label. If a regulatory authority such as the FDA discovers previously unknown problems with one of our products, such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of one of our products, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market. In addition, if we or our contract manufacturers, other third- party vendors or collaborators fail to comply with applicable regulatory requirements, a regulatory agency may, among other things: ● issue Form 483 notices or Warning Letters, in the case of the FDA, or similar notices, in the case of other regulatory agencies; ● mandate modifications to our 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 may include the imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance; 51 Table of Contents ● recall our products; ● suspend any of our ongoing clinical studies; ● impose administrative, civil or criminal penalties; ● withdraw regulatory approval or require changes to our product label, including the inclusion of additional warnings or changes to the approved indication; ● refuse to approve pending applications or supplements to approved applications filed by us or our collaborators; ● impose restrictions on our operations or those of our contract manufacturers, including costly new manufacturing requirements; or ● seize or detain products. We must comply with environmental, health and safety laws and regulations. Our activities involve the controlled storage, use and disposal of hazardous materials. We are subject to federal, state, city and local laws and regulations, in and outside the United States, governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe that the safety procedures we use for handling and disposing of these materials comply with the standards prescribed by applicable laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, regulatory authorities may curtail the use of these materials and interrupt our business operations. We do not currently maintain hazardous materials insurance coverage. Risks Related to the Commercialization of Our Products Sales of Ocaliva may be adversely affected by safety and labeling changes required by the FDA. In the course of our post-marketing pharmacovigilance activities, deaths have been reported in PBC patients with moderate or severe hepatic impairment. In an analysis performed by us and in consultation with the FDA, we concluded that certain of these patients were prescribed once daily doses of Ocaliva, which is seven times higher than the recommended weekly dose in such patients. As a result, in September 2017, we issued a DHCP letter and the FDA also subsequently issued its own drug safety communication to reinforce recommended label dosing. Both communications remind healthcare providers of the importance of the recommended reduced dosing of Ocaliva in PBC patients with moderate or severe hepatic impairment, while reiterating the importance of monitoring PBC patients for progression of their disease and the occurrence of liver-related adverse reactions. In February 2018, we announced that the Ocaliva label in the United States had been updated by the FDA to include a boxed warning and a dosing table that reinforced the then-existing dosing schedule for patients with Child-Pugh Class B or C or decompensated cirrhosis. In addition, the FDA issued an updated drug safety communication to accompany the revised label. We remain focused on the safety of all of the patients using Ocaliva within and outside of our ongoing clinical studies and have engaged with relevant regulatory authorities to ensure that the Ocaliva label sufficiently reinforces the importance of appropriate dosing in patients with advanced cirrhosis. These events, the revised label, any future label changes that may be required by the FDA or other relevant regulatory authorities and any safety concerns associated with Ocaliva, perceived or real, may materially and adversely affect our Ocaliva commercialization efforts and, consequently, our financial condition and results of operations. 52 Table of Contents We are subject to uncertainty relating to pricing and reimbursement. Failure to obtain or maintain adequate coverage, pricing and reimbursement for Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, or our other future approved products, if any, could have a material adverse impact on our ability to commercialize such products. The availability and extent of coverage and reimbursement from governmental and private healthcare payors for our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our ability to obtain adequate pricing for such products are key factors that will affect our future commercial prospects. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish payment levels. Sales of our products depend and will depend substantially, both domestically and internationally, on the extent to which their cost will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. Accordingly, the coverage and reimbursement decisions of such governmental and private healthcare payors could reduce the demand for, or the price paid for, our products. If these payors do not consider our products to be cost-effective alone, or relative to other approved therapies, they may not cover our products or, if they do, they may apply utilization management restrictions, high patient cost-sharing obligations, or restrict the level of reimbursement. Third-party payors are increasingly challenging the prices charged for pharmaceuticals products, and many also limit reimbursement for newly-approved products and indications. Third-party payors often attempt to contain healthcare costs by demanding price discounts or rebates and limiting both the types and variety of drugs that they will cover and the amounts that they will pay for drugs. As a result, they may not provide adequate payment for our products. Similarly, the containment of healthcare costs has become a priority for federal and state governments and the pricing of pharmaceutical products has been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, 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 adversely affect our ability to successfully commercialize our products. In addition, we may be required to conduct post-marketing studies in order to demonstrate the cost- effectiveness of our products to payors’ satisfaction. Such studies might require us to commit a significant amount of management’s time and our financial and other resources and our products might not ultimately be considered cost-effective. We do not know if Ocaliva for PBC will obtain and maintain broad acceptance from third-party payors in the jurisdictions in which it is, or may in the future be, approved. In addition, we do not know if OCA for liver fibrosis due to NASH will obtain and maintain broad acceptance from third-party payors, if approved. The coverage determination process is a time-consuming and costly process that requires us to provide scientific and clinical support for the use of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH to each payor separately, with no assurance that coverage will be obtained or maintained. The market for a drug depends significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. Third-party payors may refuse to include a particular drug in their formularies or restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available, even if not approved for the indication for which the branded drug is approved. Due to there being no uniform policy of coverage and reimbursement in the United States among commercial payors, coverage and reimbursement for pharmaceutical products may differ significantly from payor to payor. If we are unable to obtain and maintain adequate coverage from third-party payors, the adoption of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH by physicians and patients may be limited. This in turn could affect our ability to successfully commercialize Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH and have a material adverse impact our profitability, results of operations, financial condition and future success. We cannot be certain that we will be able to obtain and maintain adequate coverage, pricing and reimbursement for our products, including Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, or our other future approved products, if any. If coverage or reimbursement is not available or is available on a limited basis, or if we are unable to obtain and maintain adequate pricing, we may not be able to successfully commercialize Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, or our other future approved products, if any. 53 Table of Contents Legislative healthcare reform may adversely affect our business. In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”) changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. Any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “ACA”), became law in the United States. Among other things, the purpose of the ACA was to reduce the cost of healthcare and substantially change the way healthcare is financed by both governmental and private insurers. The ACA requires discounts under the Medicare drug benefit program and increased the rebates paid by pharmaceutical companies on drugs covered by Medicaid. The ACA also imposes an annual fee, which increases each year, on sales by branded pharmaceutical manufacturers. Since its enactment, there have been a number of judicial, executive and legislative challenges to the ACA, including recent tax legislation that removed the financial penalties for people who do not carry health insurance and an Executive Order signed in October 2017 by President Trump directing federal agencies to modify how the ACA is implemented. There is still uncertainty whether the ACA will undergo additional revisions, and we cannot predict the impact of any future modifications. Further, in December 2018, a federal district court in Texas ruled that the entire ACA was unconstitutional because it could not be considered an exercise of Congressional taxing authority following the repeal of the individual mandate penalties. In December 2019, a federal court of appeals upheld the district court's decision that the ACA individual mandate was unconstitutional absent financial penalties, but remanded the case back to the district court to determine whether the remaining provisions of the ACA were nonetheless valid. We cannot predict the outcome of this, or any other, litigation regarding the ACA or the impact it may have on our business. Reimbursement in the European Union and many other territories must be negotiated on a country-by-country basis and in many countries a product cannot be commercially launched until reimbursement is approved. The timing to complete the negotiation process in each country is highly uncertain. Even after a price is negotiated, countries frequently request or require adjustments to the price and other concessions over time or require approvals regionally. Reimbursement agencies in Europe are often more conservative than those in the United States and the reimbursement process is often slower since reimbursement decisions are made on a country-by-country basis. Prices for drugs in Europe are generally lower than in the United States and tend to decrease over time. The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change their healthcare systems in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale of Ocaliva and our other future approved products, if any, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. Pricing pressures recently experienced by the pharmaceutical industry may be further exacerbated by legislative and policy changes considered by the Trump administration and the United States Congress. There have also been recent state legislative efforts to address drug costs, which have generally focused on increasing transparency around drug costs or limiting drug prices. We cannot predict the success or impact of any such current or future federal or state legislative efforts. 54 Table of Contents Ocaliva and our other future approved products, if any, may not achieve broad market acceptance among physicians, patients and healthcare payors, and revenues generated from their sales may be limited as a result. The commercial success of Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, and our other future approved products, if any, will depend upon their acceptance among the medical community, including physicians, healthcare payors and patients. In order for Ocaliva to be commercially successful for PBC, we need to demonstrate its utility as a cost- effective treatment for PBC patients who have an inadequate response to UDCA or who are unable to tolerate UDCA. Ocaliva also must be shown to be a safe and tolerable treatment in a commercial use setting as it is intended to be a lifetime therapy for patients eligible for treatment. We cannot be certain that Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, or our other future approved products, if any, will achieve an adequate level of acceptance among the medical community, including physicians, healthcare payors and patients. The degree of market acceptance of our approved products depends on a number of factors, including: ● limitations, warnings, precautions, boxed warnings, contraindications, restrictions or other statements contained in the product label approved by the FDA, EMA or other relevant regulatory authorities; ● changes in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for any of our products, such as UDCA for the treatment of PBC; ● limitations in the approved indications for our products; ● demonstrated and perceived clinical safety and efficacy compared to competitive products; ● a lack of adverse side effects, including deaths and other serious adverse events; ● sales, marketing and distribution support; ● the availability of reimbursement from managed care plans and other third-party payors; ● the timing of the market introduction of competitive products; ● the degree of cost-effectiveness; ● availability of alternative therapies at similar or lower cost, including generic and over-the-counter products; ● the extent to which our products are approved for inclusion on formularies of hospitals and managed care organizations; ● whether and to what extent our products are recommended under physician treatment guidelines for the treatment of the indications for which we have received regulatory approval; ● adverse publicity concerning our products or favorable publicity concerning competitive products; ● the convenience and ease of administration of our products; and ● potential product liability claims. In addition, the potential market opportunity for Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, and our other future approved products, if any, is difficult to precisely estimate. For example, our estimates of the potential market opportunity for Ocaliva for PBC include a number of key assumptions related to prevalence rates, patients’ access to healthcare, diagnosis rates and patients’ response to or tolerance of Ocaliva, which are based on available literature and epidemiology research in PBC, our industry knowledge gained through market research and other methods, industry 55 Table of Contents publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions. If any of these assumptions prove to be inaccurate, then the actual market for Ocaliva for PBC could be smaller than our estimates of our potential market opportunity. If the actual market opportunity for Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, or our other future approved products, if any, is smaller than we expect, our product revenue may be limited and our financial condition and results of operations may be materially and adversely affected. If Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, or our other future approved products, if any, do not achieve an adequate level of acceptance among the medical community, including physicians, healthcare payors and patients, sufficient revenue may not be generated from these products and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of Ocaliva for PBC, OCA for liver fibrosis due to NASH, if approved, and our other future approved products, if any, may require significant resources and may never be successful. We have limited sales, marketing and distribution experience and we will need to continue to invest in significant additional resources to develop those capabilities or enter into acceptable third-party sales and marketing arrangements. We have limited sales, marketing and distribution experience as a commercial organization. Ocaliva is our first approved product and the commercial launch of Ocaliva for PBC is our first product launch. We are commercializing Ocaliva for PBC using a combination of our internal commercial organization, a contract sales organization and third-party distributors depending on the jurisdiction. We are developing our commercialization strategy for OCA for liver fibrosis due to NASH, if approved, and have not yet decided on our commercialization strategy for OCA for other indications or for our other product candidates, in each case, if approved. To develop internal sales, distribution and marketing capabilities, we have invested and expect to continue to invest significant additional amounts of financial and management resources. Recruiting and training a commercial organization is expensive, time-consuming and could delay any product launch. If the commercial launch of an approved product for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment could be lost if we cannot retain or reposition our sales and marketing personnel. For approved products where we decide to perform sales, marketing and distribution functions ourselves or through third parties, we could face a number of additional risks, including: ● we or our third-party sales collaborators may not be able to attract and build, or retain, an effective marketing or sales force; ● the cost of securing or establishing a marketing or sales force may exceed the revenues generated by our products; and ● our sales and marketing efforts may not be successful. We may utilize the services of third-party collaborators in certain jurisdictions. We may have limited or no control over the sales, marketing and distribution activities of these third parties, and our future revenues may depend heavily on their success. We could incur significant liability if it is determined that we have improperly promoted or are improperly promoting Ocaliva for PBC or any of our product candidates prior to their approval. Physicians are permitted to prescribe drug products for uses that are not described in the product’s labeling and that differ from those approved by the FDA or other applicable regulatory agencies. Off-label uses are common across medical specialties. Although the FDA and other regulatory agencies do not regulate a physician’s choice of treatments, the FDA 56 Table of Contents and other regulatory agencies do restrict communications on the subject of off-label use. Companies are not permitted to promote drugs in a manner inconsistent with applicable regulatory guidance. The FDA, the U.S. Department of Justice (“DOJ”) and other regulatory and enforcement authorities actively enforce laws and regulations prohibiting the improper promotion of approved products, as well as the promotion of products for which marketing approval has not been obtained. A company that is found to have improperly promoted off-label uses will be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. A significant number of pharmaceutical companies have received inquiries or been the subject of investigations by various governmental authorities in the United States and abroad. Both federal and state governments have levied large civil and criminal fines against companies for alleged improper off-label promotion, as well as promotion that is determined to be false or misleading, even if related to approved indications. While we have implemented a corporate compliance program based on what we believe are current best practices, we cannot provide any assurance that governmental authorities, including the DOJ, SEC or FDA, will find that our business practices comply with all current or future administrative or judicial interpretations of potentially applicable laws and regulations. In addition, government and regulatory agencies may hold us responsible for any actions by our sales representatives or sales organizations, including our contract sales organization, to the extent that they do not comply with applicable laws and regulations. If we or our contract sales organization fail to comply with any of these laws and regulations, we could be subject to a range of penalties, including the issuance of an untitled letter, a warning letter, injunction, seizure, criminal and significant civil penalties, fines, damages, disgorgement, curtailment or restructuring of our operations, exclusion, disqualification or debarment from participation in federally- or state-funded healthcare programs or other sanctions or litigation, any of which could have a material adverse impact on our business, financial condition and results of operations. If we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting or physician payment disclosure laws, we may be subject to civil or criminal penalties. In addition to FDA restrictions on the marketing of pharmaceutical products, several other types of state and federal healthcare laws, commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. Other jurisdictions including Europe have similar laws and are enacting more stringent regulations. These laws include false claims and anti-kickback statutes. If we market our products and our products are paid for by governmental programs, it is possible that some of our business activities could be subject to challenge under one or more of these laws. Federal false claims laws generally prohibit anyone from knowingly and willingly presenting, or causing to be presented, any claims for the payment for goods (including drugs) or services to third-party payers (including Medicare and Medicaid) that are false or fraudulent. The federal civil monetary penalties statute, likewise, imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to generate business, including the purchase or prescription of a particular product covered by Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. In addition, such exemptions and safe harbors are subject to change from time to time. The Health Insurance Portability and Accountability Act of 1996 (as amended by the Health Information Technology for Economic and Clinical Health Act, “HIPAA”) created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or obtain, by means of false or fraudulent pretenses, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false 57 Table of Contents statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. HIPAA also imposes significant requirements on the receipt and transfer of protected health information. In addition, the federal transparency requirements under the Physician Payments Sunshine Act require certain manufacturers of drugs, including us, for which payment is available under certain federal healthcare programs annually to report information related to payments and other transfers of value to physicians and teaching hospitals, and physician ownership and investment interests. Finally, we must offer discounted pricing or rebates on Ocaliva and our future approved products, if any, under various federal and state healthcare programs, and report specific prices to government agencies under healthcare programs. The calculations necessary to determine the prices reported are complex and the failure to report prices accurately may expose us to significant penalties. There are foreign and state law equivalents of these laws and regulations, such as anti-kickback, false claims, transparency and data privacy and security laws, to which we are currently and/or may in the future be subject. We may also be subject to foreign and state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Many of these laws differ from each other in significant ways, thus increasing the cost and complexity of our compliance efforts. A number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, including providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in improper promotional activities; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil penalties, damages, fines, imprisonment, exclusion of products from reimbursement under United States federal or state healthcare programs, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially and adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with these laws may prove costly. We may not be successful in establishing, implementing and maintaining development and commercialization collaborations, which could adversely affect our ability to develop certain of our product candidates and our financial condition and operating results. If any strategic collaborator fails to perform its obligations under, or terminates, its agreement with us, our business could be substantially harmed. Developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, expanding manufacturing capabilities and marketing approved products are expensive, complex and time-consuming undertakings. As a result, we have in the past entered into, and may in the future seek to enter into, collaborations with third parties upon whom we may rely for financial resources and for development, regulatory and commercialization expertise for selected products or product candidates and in selected jurisdictions. We may establish collaborations with respect to the development and commercialization of OCA in various jurisdictions and for our other product candidates. Additionally, we may enter into sales and marketing arrangements with third parties with respect to our approved products in all or certain jurisdictions. Our collaborators may fail to develop our product candidates or effectively commercialize our products for a variety of reasons, including a lack of sufficient resources, a decision not to devote the necessary resources due to internal constraints, such as limited cash or human resources, a change in strategic focus or a failure to obtain the necessary regulatory approvals. 58 Table of Contents If we are unable to enter into new arrangements or maintain such arrangements on acceptable terms, or at all, we may be unable to effectively market and sell our products in certain of our target markets. We expect to face competition in seeking appropriate collaborators. Moreover, collaboration and similar arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements for the development of our product candidates. When we collaborate with a third party for development and commercialization of a product candidate or approved product, we expect to relinquish some or all of the control over the future success of that product candidate or approved product to the third party. Our collaboration partner may not devote sufficient resources to development or commercialization or may otherwise fail in their development or commercialization. The terms of any collaboration or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into may be unsuccessful. In some cases, we may be responsible for continuing preclinical and initial clinical development of a partnered product candidate or research program, and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development. If we are unable to reach agreements with suitable collaborators, we may incur increased costs and we may be forced to limit the number of products or product candidates we can commercially develop or the territories in which we can commercialize them. If we fail to achieve successful collaborations, our operating results and financial condition could be materially and adversely affected. If we fail to develop OCA for additional indications such as NASH, our commercial opportunity will be limited. To date, we have focused the majority of our development efforts on the development of OCA. One of our strategies is to pursue clinical development of OCA for liver fibrosis due to NASH and other progressive non-viral liver diseases, to the extent that we have sufficient funding to do so. PBC is an orphan disease and the potential market size for Ocaliva for PBC is relatively limited. Furthermore, because a significant proportion of PBC patients do not exhibit any symptoms at the time of diagnosis, PBC may be left undiagnosed for a significant period of time. Due to these factors, our ability to grow revenues will be dependent on our ability to increase market share and successfully develop and commercialize OCA for the treatment of additional indications. In particular, we believe that our future success will depend in large part on the results of our development of OCA for the treatment of NASH. Although NASH is believed to be one of the most prevalent chronic liver diseases worldwide, NASH may be left undiagnosed in patients for a long period of time and a definitive diagnosis of NASH is often 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 marketing approval of OCA for the treatment of NASH, we may not be commercially successful. The completion of development, securing of approval and commercialization of OCA for additional indications such as liver fibrosis due to NASH will require substantial additional funding, is subject to numerous risks and we may not be successful. We cannot provide you any assurance that we will be able to successfully advance any of these indications through the development process. Even if we receive regulatory approval to market OCA for the treatment of liver fibrosis due to NASH or any other additional indications, we cannot assure you that any such additional indications will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize OCA for liver fibrosis due to NASH or other additional indications, our commercial opportunity will be limited and our business prospects will suffer. Risks Related to Our Business and Strategy We depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively as if we performed these functions ourselves. We outsource and plan to continue to outsource substantial portions of our operations to third-party service providers, including CROs for certain of our clinical trial and product development activities, contract manufacturers for the production of API and finished drug product for our commercial sales and for our clinical trials and preclinical studies and a contract sales organization for the commercialization of Ocaliva in certain jurisdictions. We will likely also use the services of third- party vendors in connection with our future commercialization activities, including product sales, marketing and distribution. Our agreements with third-party service providers are typically on a study-by-study and/or 59 Table of Contents project-by-project basis. Typically, we may terminate these agreements with notice and are responsible for the supplier’s previously incurred costs. In addition, a number of third-party service providers that we retain will be subject to the FDA’s and EMA’s regulatory requirements and similar standards outside of the United States and Europe and we do not have control over compliance with these regulations by these providers. If these providers do not adhere to applicable governing practices and standards, the commercialization of Ocaliva and our other approved products, if any, and the development of OCA and our other 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. Outsourcing these functions involves the risk that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. There are a limited number of third-party service providers that have the specialized expertise required to achieve our business objectives. Identifying, qualifying and managing the performance of third-party service providers can be difficult, time-consuming and cause delays in our development programs. Despite our growth, we have limited internal resources available to identify and monitor third-party service providers. To the extent we are unable to identify, retain and successfully manage the performance of third-party service providers, our business may be materially and adversely affected. We may further be subject to the imposition of civil or criminal penalties if their conduct violates applicable law. Our third-party service providers generally are not prohibited from providing their services to other biopharmaceutical companies, including companies that currently or may in the future compete with us. For example, certain of our third-party service providers and consultants may be able to develop intellectual property to which we do not have rights under our agreements and that may eventually be used to develop products that compete with our products. Although we generally have confidentiality and non-disclosure agreements in place with our third-party service providers and consultants, such third parties may be able to provide services to other companies without violating the terms of our agreements. In addition, although we may seek to enter into non-compete arrangements with our key third-party service providers, such arrangements are difficult to negotiate and we may be unable to successfully enter into or enforce such arrangements. We face rapid technological change and competition from other biotechnology and pharmaceutical companies. Our operating results will suffer if we fail to compete effectively. The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of our competitors have financial, sales and marketing, manufacturing and distribution, legal, regulatory and product development resources substantially greater than ours. Large pharmaceutical companies, in particular, have extensive experience in research, clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater sales and marketing capabilities and often have collaborative arrangements in our target markets. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our products or product candidates obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or FDA, EMA or other regulatory approval or discovering, developing and commercializing drugs for the diseases that we are targeting before we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Some of the pharmaceutical and biotechnology companies that we may compete with include 3-V Biosciences, Inc., 89bio, Inc., Allergan plc, Acorda Therapeutics, Inc., Affimune Limited, Akcea Therapeutics, Inc., Akero Therapeutics, Inc., Arrowhead Pharmaceuticals, Inc., AstraZeneca plc, Boehringer Ingelheim GmbH, Bristol-Myers Squibb Company, Can-Fite BioPharma Ltd., Celgene Corporation, Cirius Therapeutics, Inc., Corcept Therapeutics Incorporated, Dr. Falk Pharma GmbH, Durect Corporation, Eli Lilly and Company, Enanta Pharmaceuticals, Inc., Forma Therapeutics, Inc. Galectin Therapeutics Inc., Galecto Biotech AB, Galmed Pharmaceuticals Ltd., Genfit SA, Genkyotex, Gilead Sciences, Inc., GlaxoSmithKline plc, GRI Bio, Inc., Hanmi Pharmaceutical Co., Ltd., HighTide Therapeutics Inc., Immuron Limited, 60 Table of Contents Inventiva, Ionis Pharmaceuticals, Inc., Kowa Company, Ltd., Lipocine Inc., Madrigal Pharmaceuticals, Inc., MediciNova, Inc., Metacrine, Inc., Mitsubishi Tanabe Pharma Corporation, Nash Pharmaceuticals Inc., NGM Biopharmaceuticals, Inc., Novartis AG, Novo Nordisk A/S, NuSirt Biopharma, Inc., Oramed Pharmaceuticals Inc., Pfizer Inc., Poxel SA, Second Genome, Inc., Sinew Pharma Inc., Theratechnologies, Inc., Viking Therapeutics, Inc., Yagrit International Ltd and Zydus Pharmaceuticals (USA) Inc. Ocaliva competes with UDCA (or ursodiol), a first-line therapy approved for the treatment of PBC that is available generically at a significantly lower cost than Ocaliva. Although we have a license to develop and commercialize bezafibrate in the United States, bezafibrate has been studied in multiple clinical trials for the treatment of liver diseases including PBC and NASH outside of the United States. Genfit SA has an ongoing Phase 3 clinical trial of elafibranor, a dual PPAR alpha/delta agonist, in NASH. Genfit is also studying elafibranor for the treatment of PBC. Gilead Sciences, Inc. is studying firsocostat, a small molecule allosteric inhibitor that acts at the protein-protein homodimer interface of acetyl-CoA carboxylases and cilofexor, an FXR agonist, in NASH patients. Gilead Sciences, Inc. is also studying a number of compounds in other liver diseases including PBC. Allergan plc has an ongoing Phase 3 clinical trial of cenicriviroc, a dual CCR2 and CCR5 inhibitor, for the treatment of NASH. In addition, many universities and private and public research institutions may become active in our target disease areas. The results from our clinical trials and the approval of Ocaliva for PBC have brought more attention to our targeted indications and bile acid chemistry. As a result, we believe that additional companies and organizations may seek to compete with us in the future. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly than OCA or any other product candidates that we are currently developing or that we may develop, which could render our products or product candidates obsolete and noncompetitive. Our ability to compete may also be affected because, in many cases, insurers or other third-party payors seek to encourage the use of generic products. Off-label uses of other potential treatments may limit the commercial potential of our products and product candidates, especially given the pricing of Ocaliva and the anticipated pricing for our product candidates. For example, while fibrates are not approved for use in PBC, off-label use of fibrate drugs has been reported. In NASH, a number of treatments, including vitamin E (an antioxidant), insulin sensitizers (e.g., metformin, pioglitazone), antihyperlipidemic agents (e.g., gemfibrozil), pentoxifylline and UDCA, are used off-label. Although none of these treatments have been clearly shown in clinical trials to alter the course of the disease, in a previous study conducted by the NASH Clinical Research Network, improvements in certain histological measures of NASH were reported with vitamin E and pioglitazone. 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, enroll and retain patients for our clinical trials; ● the efficacy, safety and tolerability of Ocaliva, OCA for liver fibrosis due to NASH, if approved, and our other future approved products, if any; ● the speed at which we develop our product candidates; ● our ability to design and successfully execute appropriate clinical trials; ● our ability to maintain productive relationships with regulatory authorities; ● the timing and scope of regulatory approvals, if any; ● our ability to commercialize and market Ocaliva, OCA for liver fibrosis due to NASH, if approved, and our other future approved products, if any; ● the price of our products; 61 Table of Contents ● our ability to obtain adequate levels of reimbursement under private and governmental health insurance plans, including Medicare; ● our ability to protect our intellectual property rights related to our products; ● our ability to manufacture and sell commercial quantities of Ocaliva, OCA for liver fibrosis due to NASH, if approved, and our other future approved products, if any, to the market; and ● the acceptance of our products by physicians and other healthcare providers. If our competitors market products that are more effective or safe or less expensive than our products or that reach the market sooner than our products, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological change. Because our research approach integrates many technologies, it may be difficult for us to stay abreast of the rapid changes in other technologies. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies, products or product candidates obsolete, less competitive or not economical. A variety of risks associated with our international business operations and our planned international business relationships could materially and adversely affect our business. We have formed a number of subsidiaries in jurisdictions outside of the United States in connection with or in anticipation of our commercial or other business activities in those jurisdictions. We are commercializing Ocaliva for PBC using a combination of our internal commercial organization, a contract sales organization and third-party distributors depending on the jurisdiction. Our international operations and business relationships subject us to additional risks that may materially and adversely affect our business and ability to attain or sustain profitability, including: ● the far-reaching anti-bribery and anti-corruption legislation in the United Kingdom, including the U.K. Bribery Act, and elsewhere and escalation of investigations and prosecutions pursuant to such laws; ● compliance with complex import and export control laws; ● restrictions on direct investments by foreign entities and trade restrictions; ● differing regulatory requirements for drug approvals internationally and the inability to obtain necessary foreign regulatory, pricing or reimbursement approvals for our products in a timely manner, or at all; ● uncertainty regarding the collectability of accounts receivable; ● difficulties in staffing and managing international operations; ● potentially reduced protection for our 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 opts to import goods from another jurisdiction with relatively low prices, rather than buying them locally; ● unexpected changes in tariffs, trade barriers and regulatory requirements and the imposition of governmental controls; ● economic weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including countries in Europe; 62 Table of Contents ● compliance with tax, employment, immigration and labor laws applicable to our employees working or traveling abroad; ● taxes in other countries; ● foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other transactional risks incident to doing business in foreign countries; ● 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; ● business interruptions resulting from geo-political actions, including war and terrorism, global health emergencies, such as the recent coronavirus outbreak, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires; and ● increasingly complex standards for complying with foreign laws and regulations that may differ substantially from country to country and may conflict with corresponding U.S. laws and regulations. In June 2016, eligible members of the electorate in the United Kingdom decided by referendum to leave the European Union, in what is often referred to as Brexit. Negotiations for Brexit have caused political and economic uncertainty, including in the regulatory framework applicable to the operations of biotechnology and pharmaceutical companies, and this uncertainty may persist for years. Brexit could, among other outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union, result in changes to, and uncertainty regarding the application and interpretation of, national and international laws and regulations and introduce other legal and regulatory complexities. For example, because a significant proportion of the regulatory framework in the United Kingdom is derived from European Union directives and regulations, Brexit could materially change the regulatory regime applicable to our operations, including with respect to Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH and our other product candidates. Such outcomes could make it more difficult and expensive for us to do business in Europe, complicate our clinical, manufacturing and regulatory strategies and impair our ability to obtain and maintain regulatory approval for, and, if approved, commercialize, our products and product candidates in Europe. In addition, our ability to continue to conduct our international operations out of the United Kingdom, where the headquarters for our international operations is located, may be materially and adversely affected. While we have undertaken a number of Brexit-related contingency planning initiatives, the full potential financial, legal, regulatory and other implications of Brexit are uncertain and we cannot make any assurances regarding the extent to which our business may be adversely affected thereby. In addition, we are subject to the anti-bribery and anticorruption laws of the United States, as well as of foreign jurisdictions where we operate, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Generally, these laws prohibit paying or offering anything of value to a foreign government official for the purpose of obtaining or retaining business. U.S. and foreign regulators have increased their enforcement of anti-bribery and anticorruption laws in recent years, and failure to comply with these laws could result in various adverse consequences, including: ● the possible delay in approval or refusal to approve our product candidates; ● recalls, seizures or withdrawal from the market of an approved product; ● disruption in the supply or availability of our products or suspension of export or import privileges; ● the imposition of civil or criminal sanctions; ● the prosecution of executives overseeing our international operations; and 63 Table of Contents ● damage to our reputation. Any significant impairment of our ability to develop our product candidates or sell our approved products outside of the United States could adversely impact our business and financial results. Our business and operations would suffer in the event of system failures, data breaches or violations of data protection laws. We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, process, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personally identifiable information. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. The size and complexity of our information technology systems, and those of third-party vendors with whom we contract, and the volume of data we retain, make such systems potentially vulnerable to breakdown, malicious intrusion, security breaches and other cyber-attacks. Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. Our information security systems and those of our third party vendors are subject to laws and regulations, or may become subject to new laws and regulations, requiring that we enact certain measures to protect the privacy and security of certain information we collect or use in our business. A security breach or privacy violation that leads to disclosure or modification of, or prevents access to, personally identifiable information or other protected information, whether caused by internal or external parties, could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to notification requirements under certain agreements with third parties, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal information, resulting in increased costs or loss of revenue. Similarly, the loss of clinical trial data from completed or ongoing or planned clinical trials could prevent us from obtaining regulatory approval or delay our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and be subject to regulatory fines and penalties. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. While we have implemented security measures to protect our data security and information technology systems, such measures may not prevent such events. Significant disruptions of our information technology systems or breaches of data security could have a material adverse effect on our business, financial condition and results of operations. In the United States, numerous federal and state laws, including, without limitation, HIPAA state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and storage of personal information as well as consumer rights with regard to such information. For example, California recently passed the California Consumer Privacy Act of 2018, which became effective on January 1, 2020. Various foreign countries where we may process personal information also have, or are developing, privacy and data protection laws. Various foreign countries where we may process personal information also have, or are developing, laws governing the collection, use, disclosure and storage of personal information. In July 2016, U.S. and European Commission officials adopted a new framework called the European Union-U.S. Privacy Shield to govern cross-border flows of personal information. We adopted the European Union-U.S. Privacy Shield and have certified to its requirements since October 2016. In May 2018, the General Data Protection Regulation (the “GDPR”) took effect in the European Union. The GDPR imposes more stringent data protection requirements, and provides for greater penalties for noncompliance, than previous European Union data protection legislation. The GDPR implemented a number of changes, including more onerous requirements on companies that process personal data of European Economic Area individuals. In addition, we do not know the extent of the impact that Brexit may have on our ability to transfer personal information between European Union member states and the United Kingdom and we may 64 Table of Contents need to develop new mechanisms to permit for the transfer of this data. Implementation of the GDPR and other changes in privacy and data protection laws or regulations could require changes to certain of our business practices, thereby increasing our costs. While we are actively employing the European Union-U.S. Privacy Shield and the Swiss-U.S. Privacy Shield as a means to legitimize the transfer of personal information from the European Union and Switzerland to the United States, and are engaging in activities to comply with the GDPR requirements, we may be unsuccessful in these efforts. In addition, if currently available mechanisms utilized for the transfer of personal information, such as the European Union-U.S. Privacy Shield and the Swiss-U.S. Privacy Shield, are invalidated in litigation or otherwise, we may not be able to employ suitable mechanisms to continue such transfers and our ability to conduct our business may be materially impacted. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues that may affect our business. -There is a degree of uncertainty associated with the legal and regulatory environment around privacy and data protection laws, which continue to develop in ways we cannot predict, including with respect to evolving technologies, such as cloud computing. Privacy and data protection laws may be interpreted and applied inconsistently from country to country and impose inconsistent or conflicting requirements. As a result, our practices may not comply in the future with all such privacy and data protection laws. Varying jurisdictional requirements could increase the costs and complexity of compliance or require us to change our business practices in a manner adverse to our business. A determination that we have violated any privacy or data protection laws could result in significant damage awards, fines and other penalties that could, individually or in the aggregate, materially harm our business and reputation. For example, administrative fines of up to the greater of €20 million and 4% of our global turnover may be imposed for breaches of the GDPR; we may also be liable should any individual who has suffered financial or non-financial damage arising our from our infringement of the GDPR exercise their right to receive compensation against us. In addition, our marketing activities and the marketing activities of any third parties on which we rely are subject to various regulations, including privacy and data protection laws, consumer protection laws and competition laws. Such laws may impair our ability, or the ability of third parties on which we rely, to collect information. Such regulations may have a negative effect on businesses and may increase the potential civil liability and cost of operating our business. We have significantly expanded our operations and plan to continue our expansion to support our future development strategy for OCA for indications other than PBC, including NASH. We may experience difficulties in managing our significant growth. We have significantly expanded our operations, including the size of our employee base, and expect to continue to grow as we pursue our future development and commercialization strategy. As we advance our preclinical and clinical development programs for OCA and our other product candidates, seek regulatory approval in the United States and elsewhere and pursue our commercialization strategy, we may need to increase our product development, scientific, commercial and administrative headcount. Such an evolution may impact our strategic focus and our deployment and allocation of resources. Our management, personnel and systems may experience difficulty in adjusting to our growth and strategic focus. In addition, in order to continue to meet our obligations as a public company and to support our anticipated longer-term growth, we will need to increase our general and administrative capabilities. We have also expanded our operations geographically and formed a number of subsidiaries outside of the United States. In addition to our U.S. offices, we have an office in London, which serves as the headquarters for our international operations, and regional offices in a number of other countries, and we may further expand our geographical footprint. Our management, personnel and systems may not be adequate to support this future growth. Furthermore, we may face a number of complexities, such as being subject to national collective bargaining agreements for employees, in some of the countries in which we operate. Our need to effectively manage our operations, growth and various projects requires that we: ● successfully attract and recruit new employees or consultants with the expertise and experience we require in the United States, Europe and other jurisdictions; 65 Table of Contents ● develop and expand our commercial infrastructure; ● manage our clinical programs effectively, which are often conducted at numerous domestic and international clinical sites, and advance our other development efforts; and ● continue to improve our operational, financial and management controls, reporting systems and procedures. If we are unable to successfully manage our growth and the increased complexity of our operations, our business may be materially and adversely affected. We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants. We may not be able to attract or retain qualified personnel and consultants due to the intense competition for such individuals among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development and commercial objectives, our ability to raise additional capital and our ability to implement our business strategy. Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development, regulatory, commercialization and business development expertise of Dr. Mark Pruzanski, our co- founder, president and chief executive officer, and the other members of our executive team, as well as other key employees and consultants. If we lose one or more of our executive officers or other key employees or consultants, our ability to implement our business strategy successfully could be seriously harmed. Any of our executive officers or other key employees or consultants may terminate their employment at any time and replacing such individuals may be difficult and time-consuming because of the limited number of individuals in our industry with the necessary breadth of skills and experience. 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 such individuals. We also have key advisors and consultants who assist us in operating our business. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us and such individuals typically will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, our advisors may assist other companies that compete with us. Failure to establish and maintain adequate financial infrastructure and accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies. As a public company, we operate in a demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act of 2002 and related rules and regulations, expanded disclosure requirements, accelerated reporting requirements and complex accounting rules. Responsibilities imposed by the Sarbanes-Oxley Act include establishing and maintaining corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. In particular, our compliance with Section 404 of the Sarbanes-Oxley Act has required and will continue to require that we incur substantial accounting-related expenses and expend significant management efforts. Our testing, or the testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls that we would be required to remediate in a timely manner. If we are not able to comply with the requirements of the Sarbanes-Oxley Act, we could be subject to sanctions or investigations by the SEC, the Nasdaq Global Select Market or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our securities. Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results of operations would likely be materially and adversely affected. 66 Table of Contents Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business. We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA, the SEC or other domestic or foreign regulators, provide accurate information to the FDA, the SEC or other domestic or foreign regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive regulation in the United States and abroad intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. Such laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Misconduct and misappropriation of confidential information by our employees or third parties may also include improper trading in our securities, which may harm our reputation and result in enforcement actions against us. We have adopted a global code of business conduct and implemented a corporate compliance program, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental inquires, investigations or other actions or lawsuits stemming from a failure to comply with applicable laws or regulations. The outcome of any such inquiry, investigation, action or lawsuit could have a significant negative impact on our business, including as a result of the imposition of significant fines or other sanctions. In addition, the institution of any such inquiry, investigation, action or lawsuit could negatively impact the market price of our securities. We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for our products or product candidates and may have to limit or suspend their use. The use of our product candidates in clinical trials and the sale of any products for which we have obtained or may obtain marketing approval, such as Ocaliva for PBC, expose us to the risk of product liability claims. Product liability claims may be brought against us or our collaborators by participants enrolled in our clinical trials, patients, healthcare providers or others. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of their merit or eventual outcome, product liability claims may result in: ● withdrawal of clinical trial participants; ● termination of clinical trial sites or entire clinical trial programs; ● costs of related litigation; ● substantial monetary awards to patients or other claimants; ● decreased demand for our products and loss of revenues; ● impairment of our business reputation; ● diversion of management and scientific resources from our business operations; and ● the inability to develop and commercialize our products and product candidates or the withdrawal of our products from the market. We have obtained limited product liability insurance coverage. Our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. Large judgments have been awarded in class action lawsuits based on the unanticipated side effects of drug products. A successful product liability claim or series of claims 67 Table of Contents brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash resources and adversely affect our business. Our insurance policies are expensive and only protect us from some business risks, which leave us exposed to significant uninsured liabilities. We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, if our current levels of coverage are adequate or if we will be able to obtain insurance with adequate levels of coverage in the future, if at all. Any significant uninsured liability may require us to pay substantial amounts, which could materially and adversely affect our financial position and results of operations. Furthermore, any increase in the volatility of our stock price, among other factors, may result in us being required to pay substantially higher premiums for our directors’ and officers’ insurance, and may make it difficult for us to obtain adequate coverage on reasonable terms, if at all. If we engage in an in-license transaction, acquisition, reorganization or business combination, we will face a variety of risks that could adversely affect our business operations and our securityholders. From time to time, we have considered, and we will continue to consider in the future, strategic business initiatives intended to further the expansion and development of our business. These initiatives may include in-licensing or acquiring products, technologies or businesses or entering into a business combination with another company. If we pursue such a strategy, we could, among other things: ● issue equity securities that would dilute our current stockholders’ ownership; ● incur substantial debt that may place strains on our operations; ● be required to dedicate substantial operational, financial and management resources to integrate new products, technologies or businesses; ● assume substantial actual or contingent liabilities; ● impair our ability to make payments of interest and principal on our outstanding debt, including the Convertible Notes; ● reprioritize our development programs or cease development and commercialization activities with respect to certain of our product candidates or approved products; or ● merge or otherwise enter into a business combination with another company, which may result in our stockholders receiving cash and/or securities of the other company on terms that certain of our stockholders may not deem desirable. We may use our limited financial and human resources to pursue a particular research program or product candidate that is ultimately unsuccessful or less successful than other programs or product candidates that we may have forgone or delayed. Because we have limited resources, we may forego or delay the development of certain programs or product candidates that later prove to have greater commercial potential than the programs or product candidates that we do pursue. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs for product candidates may not yield any commercially viable products. If we fail to accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other arrangements or we may allocate our limited internal resources to that product candidate when it would 68 Table of Contents have been more advantageous to enter into such an arrangement. Any such failure could have a material adverse effect on our business, financial condition or results of operations. Changes in our effective income tax rate could adversely affect our results of operations. We are subject to income taxes in the United States and various foreign jurisdictions. Various factors may have favorable or unfavorable effects on our effective income tax rate. These factors include, but are not limited to, interpretations of existing tax laws, changes in tax laws and rates, the accounting for stock options and other stock-based compensation, changes in accounting standards, future levels of research and development spending, changes in the mix and level of pre-tax earnings in different jurisdictions, the outcome of audits or other examinations by the U.S. Internal Revenue Service (the “IRS”) and tax regulators in other jurisdictions, the accuracy of our estimates for unrecognized tax benefits, the realization of deferred tax assets and changes to our ownership or capital structure. In late 2017, the United States enacted the Tax Cuts and Jobs Act of 2017 (the “TCJA”), which significantly changed U.S. Federal income tax law, including by implementing a reduction in the Federal corporate income tax rate to 21%, moving from a worldwide tax system towards a territorial system and imposing additional limitations on the deductibility of interest expense and executive compensation. The U.S. Treasury Department, the IRS, and other standard-setting bodies have been interpreting and issuing, and are expected to continue to interpret and issue guidance on how provisions of the TCJA will be applied or otherwise administered. As additional interpretation and guidance is issued, we may make adjustments to amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made. The impact on our effective income tax rate resulting from the above-mentioned factors and others may be significant and could adversely affect our results of operations. Risks Related to Our Intellectual Property It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does not adequately protect our products such as Ocaliva and product candidates such as OCA for liver fibrosis due to NASH, others may compete against us more directly, which could harm our business, possibly materially. Our commercial success will depend in part on our ability to obtain and maintain patent, trademark and trade secret protection covering Ocaliva, OCA for liver fibrosis due to NASH, if approved, and our other product candidates, as well as our ability to successfully defend our intellectual property against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products is dependent upon the extent to which we have regulatory exclusivity or intellectual property-based exclusivity rights under valid and enforceable patents or other intellectual property that cover our products. If we fail to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from launching generic versions of our products, from using our proprietary technologies or from marketing products that are very similar or identical to ours. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged to date in the United States or in foreign jurisdictions, and the legal standards relating to the patentability, validity and enforceability of pharmaceutical patents are evolving. Changes in either the patent laws or in interpretations of patent laws in U.S. and foreign jurisdictions may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be enforced in the patents that we currently own or that may issue from the applications we have filed or may file in the future or those that we may license from third parties. Additionally, our currently pending or future patent applications may not result in issued patents, and any term extensions or reissues that we seek may not be granted. Further, if any patents we obtain or license are deemed invalid or unenforceable, it could impact our ability to commercialize or license our technology or we may not be able to prevent third parties from launching generic versions of our products, or from developing or marketing products that are similar or identical to ours. 69 Table of Contents There have been numerous changes to the patent laws that may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. In September 2011, the America Invents Act was signed into law. The final substantive provisions of the America Invents Act became effective in March 2013. The America Invents Act included a number of significant changes to U.S. patent law that affect the way patent applications are filed, prosecuted and litigated, including, among other things, changing from a “first to invent” to a “first inventor to file” system and creating processes, such as Inter Partes Review (“IPR”) and other post-grant review processes, that permit third parties to challenge the patentability of granted patents before the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office (the “USPTO”). The IPR process, for example, permits any person to challenge the validity of a patent on the grounds that it was anticipated or made obvious by prior art. The America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Others have filed, and in the future, are likely to file, patent applications covering products and technologies that are similar or competitive to ours, or may be important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed or in-licensed by us, or that we or our licensors will not be involved in infringement, interference, derivation, opposition, nullity, invalidity or other similar 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 may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example: ● others may be able to make compounds that are similar to our products or product candidates but that are not covered by the claims of our patents; ● we might not have been the first to make the inventions covered by our patents or pending patent applications; ● we might not have been the first to file patent applications for these inventions; ● others may independently develop similar or alternative technologies, or may duplicate any of our technologies; ● any patents that we obtain may not provide us with any competitive advantages or exclusivity in a particular product area or indication or for the length of time we have anticipated; ● we may not develop additional proprietary technologies that are patentable; or ● the patents of others may have an adverse effect on our business. We are the owner of record of numerous issued U.S. and non-U.S. patents with claims directed to pharmaceutical compounds, pharmaceutical compositions, methods of making these compounds and methods of using these compounds in various indications. In addition, we are the owner of record of numerous pending U.S. and non-U.S. patent applications, and regularly pursue additional patent applications in various jurisdictions. The issued composition of matter patents for OCA are expected to expire in 2022 at the earliest and 2036 at the latest if the appropriate maintenance, renewal, annuity, or other government fees are paid. Without patent protection, including patent protection covering the composition of matter of our products and product candidates, our ability to stop others from using or selling our products and product candidates may be limited. Due to the patent laws of a country, the decisions of a patent examiner in a country or our own filing strategies, we may not obtain patent coverage for all of our products and product candidates or methods involving these candidates in the parent patent application. While we plan to pursue divisional patent applications or continuation patent applications in the United States and other countries to obtain claim coverage for inventions which were disclosed but not claimed in the 70 Table of Contents parent patent application, we cannot be certain that such patents will be granted or that the scope of any patent granted will prevent third parties from selling the same or similar products. If we do not obtain protection under the Hatch-Waxman Act and similar legislation outside of the United States by extending the patent terms and obtaining data exclusivity for our products and product candidates, our business may be materially harmed. Depending upon the timing, duration and specifics of FDA marketing approval of our products, U.S. patents may be eligible for a limited extension of patent term under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”). The Hatch-Waxman Act permits an extension of patent term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, an extension may not be granted because of, for example, failure to apply within applicable deadlines, failure to apply prior to expiration of relevant patents or failure to satisfy applicable requirements. Moreover, the applicable time period or scope of patent protection afforded could be less than what is requested. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened, our competitors may obtain approval of competing products following our patent expiration and our revenue could be reduced, possibly materially. Our primary composition of matter patent for OCA expires in 2022. In light of the U.S. marketing approval of Ocaliva for PBC in May 2016, we applied for an extension of the patent term for this patent in the United States through 2027. In addition, in connection with the conditional approval of Ocaliva for PBC in the European Union, we applied for supplementary patent certification (“SPC”) to extend the patent term for this patent in the European Union through 2027. To date, we have received grants of SPC in Austria, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Norway, Portugal, Spain and Sweden. We have also taken similar actions in other jurisdictions and countries where regulations providing for patent term extension exist. The issued composition of matter patents for OCA are expected to expire in 2022 at the earliest and 2036 at the latest if the appropriate maintenance, renewal, annuity, or other government fees are paid. We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, and such litigation may divert the attention of our management and scientific personnel and adversely affect our development and commercialization efforts. If we choose to go to court or engage in other adversarial proceedings to stop another party from using the inventions claimed in any of our current or future patents, that individual or company has the right to ask the court or adjudicating body to rule that such patents are invalid, not infringed or should not be enforced against that third party. These lawsuits and proceedings are expensive and would consume time and resources and divert the attention of management and scientific personnel even if we are successful in defending our rights. In addition, there is a risk that such court or adjudicating body will decide that such patents are invalid, unenforceable or not infringed, and that we do not have the right to stop the other party from using the inventions. In addition, the U.S. Supreme Court has modified some tests utilized by the USPTO in granting patents over the past 20 years, which may decrease the likelihood that we will be able to obtain patents and increase the likelihood of challenges to our patents or the patents we license. We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and/or delay, halt or increase the costs of our commercialization efforts. Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We cannot guarantee that our products, or the manufacture or use of our product candidates, will not infringe third-party patents. Furthermore, a third party may claim that we or our manufacturing or commercialization partners are using inventions covered by the third party’s patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our products and product candidates. The defense of these lawsuits is often costly and could affect our results of operations and divert the attention of our management and scientific personnel. There is also a risk that a court could decide that we or our manufacturing or commercialization partners are infringing the third party’s patents and order us or our partners to stop the activities covered by the patents. In that event, we or our partners may be required to halt or delay commercialization or development of the relevant product or product candidate. In 71 Table of Contents addition, there is a risk that a court could order us or our partners to pay the other party damages for having violated the other party’s patents, and we may be subject to indemnification obligations with respect to any such payments made by our partners. The pharmaceutical and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products, product candidates or methods of use. The coverage of patents is subject to interpretation by the courts, and such interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products, product candidates or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in such proceedings, we may incur substantial costs and divert our management’s time and attention, which could have a material adverse effect on our business. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we fail to obtain a license, develop or obtain non-infringing technology, defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in the commercialization of our products and product candidates and be precluded from manufacturing or selling our products and product candidates. We cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that we were the first to invent or file with respect to a technology, because: ● some patent applications in the United States may be unpublished or otherwise maintained in secrecy until the patents are issued; ● patent applications in the United States are typically not published until 18 months after the priority date; and ● publications in the scientific literature often lag behind actual discoveries. Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference, derivation or other similar 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, resulting in a loss of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications, and such patent applications may be entitled to priority over our applications in such jurisdictions. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater financial and other resources. In addition, uncertainties resulting from the initiation and continuation of any such litigation could have a material adverse effect on the market price of our securities and 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, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated as a result of non-compliance with these requirements. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on our patents and patent applications are required to be paid to the USPTO and foreign patent offices in several stages over the lifetime of such patents and patent applications. In addition, the USPTO and foreign patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We have implemented systems and engaged reputable third-party service providers to help ensure that we comply with such requirements on a timely basis, but inadvertent lapses may occur and there are situations in which noncompliance can 72 Table of Contents result in abandonment or lapse of the relevant patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Any such event may impair our competitive position in the relevant jurisdiction and have a material adverse effect on our financial condition or results of operations. We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology, products and product candidates could be significantly diminished. As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims, which could result in substantial costs and be a distraction to our management even if we are successful. We may rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect, and may not prevent others from independently and lawfully developing similar or identical products that circumvent our intellectual property. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Third parties, including competitors of ours, may also independently discover our trade secrets or other proprietary information. In addition, we may be required under U.S. or foreign transparency initiatives or other regulations to publicly disclose or otherwise make available certain information that we consider to be proprietary, including pre-clinical and clinical research data. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets or other proprietary information is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside of the United States are sometimes reluctant to protect trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets and other proprietary information could adversely affect our competitive business position. We have not yet registered all of our trademarks and failure to secure such registrations could adversely affect our business. We have numerous trademark and service mark registrations and pending trademark and service mark applications in the United States and abroad. Our trademark applications may not be allowed for registration and our registered trademarks may not be maintained or enforced. During prosecution of applications for trademark registration, we may receive rejections or refusals. Although we are given an opportunity to respond, we may be unable to overcome such rejections. In addition, the USPTO and comparable agencies in many other jurisdictions provide third parties with an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings have been filed and may in the future be filed against certain of our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would. Trademark protection varies in accordance with local laws. Trademarks remain in force in some countries as long as the trademark is used and in other countries as long as the trademark is registered. Trademark registrations generally are for fixed but renewable terms. We cannot provide any assurances that any trademarks or service marks will be sufficient to prevent competitors from adopting similar names. The adoption of similar names by competitors could impede our ability to build brand identity and may lead to customer confusion, which could adversely affect our sales or profitability. 73 Table of Contents Risks Related to Our Indebtedness Servicing our debt will require significant amounts of cash, and we may not have sufficient cash flow from our business to pay our debt. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance the $460.0 million aggregate principal amount of 2023 Convertible Notes that we issued in July 2016 and/or the $230.0 million aggregate principal amount of 2026 Convertible Notes that we issued in May 2019 or any other indebtedness we or our subsidiaries may incur in the future depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt, including the Convertible Notes. If we are unable to generate cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be unfavorable to us or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time we seek to refinance such indebtedness. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. We may incur substantially more debt or take other actions that would affect our ability to pay the principal of and interest on our debt. We and our subsidiaries may be able to incur substantial additional debt in the future, some of which may be secured debt. We and our subsidiaries are not restricted under the terms of the indentures governing the Convertible Notes or otherwise from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking other actions that could have the effect of diminishing our ability to service our debt when due. The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes, could have a material effect on our reported financial results. Under Accounting Standards Codification Subtopic 470-20, “Debt with Conversion and Other Options” (“ASC 470- 20”), an entity must separately account for the liability and equity components of convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Convertible Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheets, and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the Convertible Notes. As a result, we are required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of the Convertible Notes to their face amount over the term of the Convertible Notes. Because ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, we report lower net income in our financial results, which could adversely affect the market price of our common stock and the market price of the Convertible Notes. In addition, under certain circumstances, convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Convertible Notes will not be included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Convertible Notes, then our diluted earnings per share would be adversely affected. 74 Table of Contents Risks Related to Ownership of Our Common Stock Ownership in our common stock is highly concentrated and your ability to influence corporate matters may be limited as a result. Our executive officers, directors and stockholders who own more than 5% of our outstanding common stock together beneficially own a significant percentage of our common stock based on reports filed with the SEC. If these stockholders were to choose to act together, they would be able to significantly influence matters submitted to our stockholders for approval, including the election of directors and approval of any merger, consolidation, sale of all or substantially all of our assets or other business combination or reorganization, as well as our management and affairs. This concentration of voting power could delay or prevent an acquisition of us on terms that other securityholders may desire. The interests of this group of stockholders may not always coincide with your interests or the interests of other securityholders and they may act in a manner that advances their best interests and not necessarily those of other securityholders, including seeking a premium value for their common stock, and might affect the market price of our common stock and the Convertible Notes. We have a significant stockholder, which will limit your ability to influence corporate matters, may give rise to conflicts of interest and could result in future substantial sales of shares of our common stock into the market. Genextra S.p.A. (“Genextra”) is our largest stockholder and owns a significant minority percentage of our outstanding common stock. Accordingly, Genextra exerts and will continue to exert significant influence over us and any action requiring the approval of the holders of our common stock, including the election of directors and amendments to our organizational documents, such as increases in our authorized shares of common stock and approval of significant corporate transactions. This concentration of voting power makes it less likely that any other holder of common stock will be able to affect the way we are managed and could delay or prevent an acquisition of us on terms that other securityholders may desire. Furthermore, the interests of Genextra may not always coincide with the interests of other securityholders, and Genextra may act in a manner that advances its best interests and not necessarily those of other securityholders, including seeking a premium value for its common stock, and might affect the market price of our common stock and the Convertible Notes. Our board of directors, which consists of ten directors, including one associated with Genextra, has the power to set the number of directors on our board from time to time. Genextra also may sell shares of our common stock into the market from time to time, and we cannot predict the effect, if any, that future sales by Genextra may have on the market price of our common stock or the Convertible Notes. In addition, Genextra has informed us that it has pledged shares of our common stock that it holds as collateral in connection with a margin loan. Enforcement against such collateral could materially and adversely affect the price of our common stock or the Convertible Notes. An active trading market in our common stock may not be maintained. The trading market in our common stock has been extremely volatile. The quotation of our common stock on the Nasdaq Global Select Market does not assure that a meaningful, consistent and liquid trading market will exist. We cannot predict whether an active market for our common stock will be maintained in the future. An absence of an active trading market could adversely affect your ability to sell our common stock at current market prices in short time periods, or possibly at all. Additionally, market visibility for our common stock may be limited and such lack of visibility may have a depressive effect on the market price for our common stock. We have previously been, and are currently, subject to securities class action litigation and may be subject to similar or other litigation in the future. Such matters can be expensive, time-consuming and have a material adverse effect on our business, results of operations and financial condition. We have previously been subject to securities class action lawsuits. In February 2014, two purported securities class actions were filed against us and certain of our officers, which were eventually consolidated. In May 2016, the defendants 75 Table of Contents reached an agreement with the lead plaintiff to seek court approval of a proposed resolution and the settlement was ultimately granted final approval by the court in September 2016. While the final judgment and order of the court included a dismissal of the action with prejudice against all defendants and the defendants did not admit any liability as part of the settlement, the total payment aggregated to $55.0 million, of which $10.0 million was paid by our insurers. In September 2017, a lawsuit and, in January 2018, a follow-on lawsuit were filed alleging that we and certain of our officers made material misrepresentations and/or omissions of material fact regarding Ocaliva dosing, use and pharmacovigilance-related matters, as well as our operations, financial performance and prospects. The plaintiffs seek unspecified monetary damages on behalf of the putative class, an award of costs and expenses, including attorney’s fees, and rescissory damages. While we believe that we have a number of valid defenses to the claims described above and intend to vigorously defend ourselves, the matters are in the early stages of litigation and no assessment can be made as to the likely outcome of the matters or whether they will be material to us. We may be subject to additional suits or proceedings brought in the future and, as has been the case with many companies in our industry, we may from time to time receive inquiries and subpoenas and other types of information requests from government authorities and others. While the ultimate outcome of any such investigations, inquiries, information requests and legal proceedings is difficult to predict, adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices, product recalls, significant costs, payments, damages or fines or other administrative, civil or criminal remedies, liabilities or penalties, which may have a material adverse effect on our business, results of operations and financial condition. In addition, monitoring and defending against legal actions, whether or not meritorious, and responding to investigations, inquiries and information requests is expensive, time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities, and we cannot predict how long it may take to resolve such matters. Although we may receive insurance coverage for certain adversarial proceedings, coverage could be denied or prove to be insufficient. It is possible that we could, in the future, incur a judgment or enter into settlement of claims for monetary damages. A decision adverse to our interests could result in the payment of substantial damages and could have a material adverse effect on our business, results of operations and financial condition. Our stock price has been and may in the future be volatile, which could cause holders of our common stock to incur substantial losses. The market price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Since our initial public offering in October 2012, the price of our common stock on the Nasdaq Global Select Market has ranged from $17.96 per share to $497.00 per share. In addition to the other factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, the factors that may result in wide fluctuations in the price of our common stock include any: ● receipt of additional marketing authorizations for Ocaliva in our target markets or for our product candidates, including OCA for liver fibrosis due to NASH; ● failure to successfully commercialize Ocaliva for PBC or our other approved products in the United States, Europe and our other target markets in which we have or may receive marketing authorization or our inability to maintain regulatory approval for Ocaliva or our other approved products in such markets; ● issues, delays or failures in identifying patients, enrolling patients, treating patients, retaining patients, meeting specific endpoints in the jurisdictions in which we intend to seek approval or completing and timely reporting the results of our NASH or PBC clinical trials; ● inability to obtain additional funding; ● delay in filing an investigational new drug application, NDA, MAA or comparable submission for any of our product candidates, and any adverse development or perceived adverse development with respect to the regulatory review of any such submission; 76 Table of Contents ● failure to successfully develop, obtain regulatory approval of and, if approved, commercialize OCA for indications other than PBC, such as liver fibrosis due to NASH, or any of our other product candidates; ● potential side effects associated with Ocaliva for PBC, OCA for liver fibrosis due to NASH or our other product candidates; ● inability to obtain adequate product supply of Ocaliva, OCA for liver fibrosis due to NASH or any of our other product candidates or the inability to do so at acceptable prices; ● results of clinical trials of our competitors’ products and product candidates; ● regulatory actions with respect to our products or product candidates or our competitors’ products or product candidates; ● changes in laws or regulations applicable to our products or product candidates; ● failure to meet or exceed financial projections or guidance we may provide to the public; ● failure to meet or exceed the estimates and projections of the investment community; ● actual or anticipated fluctuations in our financial condition and operating results; ● actual or anticipated changes in our growth rate relative to our competitors; ● actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate; ● competition from existing products or new products that may emerge; ● announcements by us, our collaborators or our competitors of significant acquisitions, strategic collaborations, joint ventures, collaborations or capital commitments; ● issuance of new or updated research or reports by securities analysts; ● fluctuations in the valuation of companies perceived by investors to be comparable to us; ● share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; ● additions or departures of key management or scientific personnel; ● disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; ● announcement or expectation of additional financing efforts; ● disputes, governmental inquiries or investigations, legal proceedings or litigation, including any securities, intellectual property, employment, product liability or other litigation; ● sales of our common stock by us, our insiders or our other stockholders; ● failure to adopt appropriate information security systems, including any systems that may be required to support our growing and changing business requirements, or prevent system failures, data breaches or violations of data protection laws; ● market conditions for biopharmaceutical stocks in general; and ● general economic, industry and market conditions. Any of these factors could also affect the trading price of the Convertible Notes. 77 Table of Contents Furthermore, stock markets in general and the market for biotechnology companies in particular have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations may negatively impact the market price of our securities, regardless of our actual operating performance. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We have been in the past, and are currently subject to this type of litigation, which could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. As a result of this volatility, you could incur substantial losses. If our stockholders sell substantial amounts of our common stock, the market price of our common stock or the Convertible Notes may decline even if our business is doing well. A significant number of shares of our common stock are held by a small number of stockholders, including Genextra. Sales of a significant number of shares of our common stock, or the expectation that such sales may occur, could significantly reduce the market price of our common stock or the Convertible Notes. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate. We have also registered the offer and sale of the shares of common stock that we may issue under our equity compensation plans, including upon the exercise of stock options. These shares may be freely sold in the public market upon issuance. Additionally, sales of our common stock by our executive officers or directors, even when done during an open trading window under our policies with respect to insider sales or done under a trading plan adopted in accordance with the guidelines set forth by Rule 10b5-1, may adversely impact the market price of our common stock or the Convertible Notes. Although we do not expect that the relatively small volume of such sales would itself significantly impact the market price of our common stock or the Convertible Notes, the market could react negatively to the announcement of such sales, which could in turn affect the market price of our common stock and the Convertible Notes. Furthermore, Genextra has informed us that it has pledged shares of our common stock that it holds as collateral in connection with a margin loan. Enforcement against such collateral could materially and adversely affect the price of our common stock and the Convertible Notes. Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. We are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosure due to error or fraud may occur and not be detected. You may experience future dilution as a result of future equity offerings or strategic transactions. We may raise additional funds through the issuance and sale of additional shares of our common stock or other securities convertible into or exchangeable for our common stock. For example, in May 2019, we issued and sold an aggregate of 2,879,760 shares of common stock and $230.0 million aggregate principal amount of the 2026 Convertible Notes, in April 2018, we issued and sold an aggregate of 4,257,813 shares of common stock and in July 2016, we issued and sold $460.0 million aggregate principal amount of the 2023 Convertible Notes. Conversions of the Convertible Notes will dilute the ownership interests of existing shareholders to the extent that we elect to deliver shares of our common 78 Table of Contents stock (or a combination of cash and shares of our common stock) in connection therewith. In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could depress the price of our common stock. We may also issue shares of common stock, stock options, restricted stock, restricted stock units or other stock-based awards under our existing or future equity incentive plans or other employee or director compensation plans. The issuance of additional shares of common stock (including pursuant to conversions of the Convertible Notes) or other securities convertible into or exchangeable for our common stock, or the perception that such issuances may occur, may materially and adversely affect the price of our common stock and the Convertible Notes. If securities or industry analysts cease publishing research or reports about us, our business or our market, or if they publish inaccurate or unfavorable reports about us or our securities, the price of our securities and trading volume in our securities could decline. The market for our common stock and the Convertible Notes depends in part on the research and reports that securities or industry analysts publish about our company. We do not have any control over these analysts, and there can be no assurance that analysts will continue to cover us or provide favorable coverage. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our stock price and the price of the Convertible Notes may decline. If one or more of the analysts covering us fail to regularly publish reports on us, demand for our common stock and the Convertible Notes may decline, which could cause our stock price and the price of the Convertible Notes and trading volume to decline. Anti-takeover provisions in our restated certificate of incorporation and our restated bylaws, as well as provisions of Delaware law and certain provisions of the Convertible Notes, might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our common stock or the Convertible Notes. Provisions in our restated certificate of incorporation and restated bylaws, as well as provisions of Delaware law, may discourage, delay or prevent a merger, acquisition or other change in control that our securityholders consider favorable, including transactions in which securityholders might otherwise receive a premium for their securities. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Our corporate governance documents include provisions: ● authorizing the issuance of “blank check” convertible preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; ● prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders, to the extent that no stockholder, together with its affiliates, holds more than 50% of our voting stock; ● eliminating the ability of stockholders to call a special meeting of stockholders; ● permitting our board of directors to accelerate the vesting of outstanding equity awards upon certain transactions that result in a change of control; and ● establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings. In addition, as a Delaware corporation, we are subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law (the “DGCL”), which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock. Any provision of our restated certificate of incorporation or restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our securityholders to receive a premium for their securities, and could also affect the price that some investors are willing to pay for our common stock or the Convertible Notes. 79 Table of Contents Certain provisions of the Convertible Notes could also make it more difficult or more expensive for a third party to acquire us. For example, if an acquisition event constitutes a “fundamental change” under the terms of the Convertible Notes, holders of the Convertible Notes will have the right to require us to purchase their Convertible Notes for cash. Similarly, if an acquisition event constitutes a “make-whole fundamental change” under the terms of the Convertible Notes, we may be required to increase the conversion rate for holders who convert their Convertible Notes in connection with such make-whole fundamental change. The existence of the foregoing provisions and anti-takeover measures may also frustrate or prevent any attempts by our stockholders to replace or remove our current management or members of our board of directors and could limit the price that investors might be willing to pay in the future for shares of our common stock or the Convertible Notes. They could also deter potential acquirers of our company, thereby reducing the likelihood that our securityholders could receive a premium for their securities in an acquisition. Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against us and may reduce the amount of money available to us. As permitted by Section 102(b)(7) of the DGCL, our restated certificate of incorporation limits the liability of our directors to the fullest extent permitted by law. In addition, as permitted by Section 145 of the DGCL, our restated certificate of incorporation and restated bylaws provide that we shall indemnify, to the fullest extent authorized by the DGCL, each person who is involved in any litigation or other proceeding because such person is or was a director or officer of our company, or is or was serving as an officer or director of another entity at our request, against all expense, loss or liability reasonably incurred or suffered in connection therewith. Our restated certificate of incorporation provides that the right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition, subject to certain conditions. The rights conferred in the restated certificate of incorporation and the restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons. The above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers for monetary damages for breach of their fiduciary duty by shifting the burden of such losses and expenses to us. Although we carry directors’ and officers’ liability insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely harm our business and financial condition and limit the funds available to securityholders who may choose to bring a claim against our company. We do not intend to pay dividends in the foreseeable future. We do not anticipate paying cash dividends in the future. As a result, only appreciation of the price of shares of our common stock will provide a return to stockholders, which may not occur. Investors seeking cash dividends should not invest in our common stock. You may not realize any return on your investment in our common stock and may lose some or all of your investment. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. We have significant net operating loss carryforwards (“NOLs”) for U.S. Federal, state and foreign income tax purposes. The enactment of the TCJA modified the ability of companies to utilize U.S. Federal NOLs arising in tax years beginning on or after January 1, 2018, by providing that such NOLs may be carried-forward indefinitely and used to offset up to 80 percent of taxable income in any given future year. Existing NOLs that arose in tax years beginning prior to January 1, 2018, were not affected by the TCJA and are generally eligible to be carried-forward for up to 20 years and used to fully offset taxable income in future years. If not utilized, our pre-2018 NOLs will expire for U.S. Federal income tax purposes between 2024 and 2037. We also have certain state and foreign NOLs in varying amounts depending on the different state and foreign tax laws. 80 Table of Contents In addition, our ability to utilize our NOLs may be limited under Section 382 of the Internal Revenue Code or applicable state and foreign tax law. The Section 382 limitations apply if an “ownership change” occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). We have evaluated whether one or more ownership changes under Section 382 have occurred since our inception and have determined that there have been at least two such changes. Although we believe that these ownership changes have not resulted in material limitations on our ability to use these NOLs, our ability to utilize these NOLs may be limited due to future ownership changes or for other reasons. As a result, we may not be able to take full advantage of our NOL carryforwards for U.S. Federal, state, and foreign income tax purposes. Item 1B. Unresolved Staff Comments None. Item 2. Properties Our corporate headquarters are located at 10 Hudson Yards in New York, New York, where we lease and occupy an aggregate of approximately 45,600 square feet of office space. The lease covering this property is currently scheduled to expire in March 2022. Our research and development operations are based in San Diego, California, where we lease and occupy an aggregate of approximately 47,000 square feet of space. The lease covering this property is currently scheduled to expire in July 2020. We will lease and occupy approximately 34,000 square feet of office space in San Diego under a separate lease that is expected to commence in August 2020 and scheduled to expire 60 months from the commencement date. We also lease and occupy approximately 8,600 square feet of office space in London, United Kingdom, which serves as the headquarters for our international operations. The lease covering this property is currently scheduled to expire in May 2024. We believe that our existing facilities are adequate for our immediate needs and that, should it be needed, additional space can be leased to accommodate any future growth. Item 3. Legal Proceedings For a description of our significant legal proceedings, see Note 16 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K and incorporated by reference herein. Item 4. Mine Safety Disclosures Not applicable. 81 Table of Contents PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Stockholders Our common stock trades on the Nasdaq Global Select Market under the symbol “ICPT”. As of December 31, 2019, there were 32,853,066 shares of our common stock issued and outstanding and approximately 256 stockholders of record. A significantly larger number of stockholders may hold their shares in “street name” through banks, brokers and other nominees. The number of stockholders of record does not include stockholders who hold their shares in “street name.” Stock Price Performance Graph The following graph compares the cumulative total stockholder return for our common stock to the cumulative total stockholder return for the Nasdaq Composite Index and the Nasdaq Biotechnology Index, in each case, for the period from December 31, 2014 through December 31, 2019. The graph assumes an initial investment of $100 in our common stock at the closing price of $156.00 on December 31, 2014 and in the Nasdaq Composite Index and the Nasdaq Biotechnology Index on December 31, 2014 and the reinvestment of dividends. The stock performance shown below is not intended to forecast or be indicative of the possible future performance of our common stock, and we do not make or endorse any predications as to future stockholder returns. The following stock performance information shall not be deemed to be “soliciting material,” “filed” with the U.S. Securities and Exchange Commission (the “SEC”), incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act. Among Intercept Pharmaceuticals, Inc., the Nasdaq Composite Index and Comparison of Cumulative Total Return the Nasdaq Biotechnology Index 82 Table of Contents $100 investment in stock or index Intercept Pharmaceuticals, Inc. Nasdaq Composite Index Nasdaq Biotechnology Index Dividend Policy 2014 2015 2016 2017 2018 2019 December 31, $ 100.00 $ 100.00 $ 100.00 $ 95.74 $ 106.96 $ 111.77 $ 69.65 $ 116.45 $ 87.91 $ 37.45 $ 150.96 $ 106.92 $ 64.61 $ 146.67 $ 97.45 $ 79.44 $ 200.49 $ 121.91 We have never declared or paid any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. Recent Sales of Unregistered Securities Not applicable. Issuer Purchases of Equity Securities The following table provides certain information with respect to purchases of our common stock during the three months ended December 31, 2019. Period Total Number of Shares Purchased (1) Total Number of Shares Purchased as Part of Publicly Average Price Paid Announced Plans or per Share Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2019 through October 31, 2019 November 1, 2019 through November 30, 2019 December 1, 2019 through December 31, 2019 Total 2,689 1,656 80 4,425 $ 65.87 $ 90.65 $ 114.16 $ 76.02 — — — — — — — — (1) Represents shares of common stock withheld to satisfy taxes associated with the vesting of restricted stock awards. Item 6. Selected Financial Data The selected consolidated financial data set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data in this section are not intended to replace our audited consolidated financial statements and accompanying notes. Our historical results are not necessarily indicative of our future results. The selected consolidated statements of operations data for the years ended December 31, 2019, 2018 and 2017 and the selected consolidated balance sheet data as of December 31, 2019 and 2018 have been derived from our audited consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. The selected consolidated statements of operations data for the years ended December 31, 2016 and 2015 and the selected 83 Table of Contents consolidated balance sheet data as of December 31, 2017, 2016 and 2015 have been derived from our audited consolidated financial statements and accompanying notes that are not included in this Annual Report on Form 10-K. 2019 2018 Years Ended December 31, 2017 (in thousands, except per share data) 2016 2015 Consolidated Statement of Operations Data: Revenue: Product revenue, net Licensing revenue Total revenues Operating expenses: Cost of sales Selling, general and administrative Research and development Total operating expenses Operating loss Total other income (expense), net Net loss Net loss per common and potential common share, basic and diluted Weighted average common and potential common shares outstanding, basic and diluted $ 249,570 2,432 252,002 $ 177,782 2,022 179,804 $ 129,175 1,781 130,956 $ 18,169 6,782 24,951 $ — 2,782 2,782 — 4,212 317,418 242,799 564,429 (312,427) (32,254) — 1,371 119,242 273,698 112,696 191,499 231,938 466,568 (229,156) (335,612) 2,727 (24,755) $ (344,681) $ (309,242) $ (360,367) $ (412,830) $ (226,429) 2,519 255,474 207,301 465,294 (285,490) (23,752) 273,596 153,893 427,489 (402,538) (10,292) $ (10.89) $ (10.86) $ (14.38) $ (16.74) $ (9.56) 31,654 28,464 25,054 24,663 23,694 2019 2018 December 31, 2017 (in thousands) 2016 2015 Consolidated Balance Sheet Data: Cash, cash equivalents, restricted cash and investment debt securities Total assets Accounts payable, accrued expenses and other liabilities Long-term debt (1) Accumulated deficit Total stockholders’ equity $ 657,347 754,886 $ 436,160 509,167 $ 414,917 484,347 $ 689,385 739,253 $ 628,055 655,758 153,968 532,078 (2,123,466) 51,556 105,109 371,250 (1,778,785) 19,130 94,777 355,677 (1,469,543) 16,386 65,551 341,356 (1,108,460) 314,932 45,591 — (695,630) 602,149 (1) Reflects $690.0 million aggregate principal amount of Convertible Notes, less unamortized debt discounts and unamortized debt issuance costs as of December 31, 2019 and $460.0 million aggregate principal amount of 2023 Convertible Notes as of December 31, 2018, 2017 and 2016. See Note 9 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information regarding the Convertible Notes. 84 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis together with our audited consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward- looking statements, which involve risks and uncertainties. As a result of many factors, such as those described under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. Overview We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat progressive non-viral liver diseases with high unmet medical need utilizing our proprietary bile acid chemistry. Our first marketed product, Ocaliva® (obeticholic acid or “OCA”), is a farnesoid X receptor (“FXR”) agonist approved in the United States, the European Union and several other jurisdictions for the treatment of primary biliary cholangitis (“PBC”) in combination with ursodeoxycholic acid (“UDCA”) in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA. In addition to commercializing OCA for PBC under the Ocaliva brand name, we are currently developing OCA for additional indications, including nonalcoholic steatohepatitis (“NASH”). We are also developing several other product candidates in various stages of clinical and preclinical development. We believe that OCA and our other product candidates have the potential to treat orphan and other more prevalent liver diseases such as NASH for which there are currently limited therapeutic options. Ocaliva was approved for PBC by the U.S. Food and Drug Administration (“FDA”) in May 2016 under the accelerated approval pathway. We commenced sales and marketing of Ocaliva in the United States shortly after receiving approval, and Ocaliva is now available to U.S. patients primarily through a network of specialty pharmacy distributors. Ocaliva received conditional approval for PBC from the European Commission in December 2016 and we commenced our European commercial launch in January 2017. We have submitted dossiers and obtained, or are otherwise pursuing, reimbursement from a number of national authorities in Europe. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia, and we are pursuing marketing approval of Ocaliva for PBC in our other international target markets. Ocaliva received orphan drug designation in both the United States and the European Union for the treatment of PBC. Our lead product candidate is OCA for the potential treatment of NASH. In February 2019, we announced topline results from the planned 18-month interim analysis of our pivotal Phase 3 clinical trial of OCA in patients with liver fibrosis due to NASH, known as the REGENERATE trial. In the primary efficacy analysis, once-daily OCA 25 mg met the primary endpoint agreed with the FDA of fibrosis improvement by at least one stage with no worsening of NASH at the planned 18- month interim analysis and adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of OCA. Interim analysis results at 18 months were based on surrogate endpoints and the impact on clinical outcomes has not been confirmed. The REGENERATE trial is ongoing and will continue through clinical outcomes for verification and description of the clinical benefit of OCA. OCA also achieved the primary endpoint in a Phase 2b clinical trial for the treatment of NASH completed in late July 2014, known as the FLINT trial, which was sponsored by the U.S. National Institute of Diabetes and Digestive and Kidney Diseases, a part of the National Institutes of Health. OCA has received breakthrough therapy designation from the FDA for the treatment of NASH patients with liver fibrosis. In September 2019, we submitted a New Drug Application (“NDA”) to the FDA seeking accelerated approval of OCA for liver fibrosis due to NASH. In November 2019, the FDA accepted our NDA for filing and granted a priority review designation of OCA for liver fibrosis due to NASH. Under the Prescription Drug User Fee Act (“PDUFA”), the FDA has set a target action date of June 26, 2020 for the completion of its review of our NDA, after giving effect to a 90 day extension of its initial target action date. The FDA has also notified us that it has tentatively scheduled an advisory committee meeting relating to our NDA for April 22, 2020. In December 2019, we submitted a Marketing Authorization Application (“MAA”) to the European Medicines Agency (“EMA”) seeking conditional approval of OCA for liver fibrosis due to NASH. In January 2020, the EMA validated our MAA and thereby confirmed that our MAA was sufficiently complete to begin the formal review process. In addition, we are conducting a number of other trials and studies in connection with our NASH development program, including our ongoing Phase 3 trial in NASH patients with compensated cirrhosis, known as the REVERSE trial. In January 2020, we announced that we completed enrollment of the REVERSE trial with over 900 patients randomized. 85 Table of Contents As part of our product development activities, we expect to continue to invest in evaluating the potential of OCA in other progressive non-viral liver diseases. We are studying OCA in combination with bezafibrate, a pan-peroxisome proliferator-activated receptor (“PPAR”) agonist, in patients with PBC and potentially may study such combination in other liver diseases. In addition, we have other compounds in early stages of research and development in our pipeline. Capital Markets Activities During the Periods Under Review In May 2019, we issued and sold (i) 2,760,000 shares of common stock in a registered public offering (including 360,000 shares issued and sold upon the exercise in full of the underwriters’ option to purchase additional shares), at a price to the public of $83.50 per share (the “2019 Public Offering”) and (ii) 119,760 shares of common stock (the “2019 Private Placement Shares”) in a concurrent private placement of common stock (the “2019 Concurrent Private Placement”) exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), at a purchase price per share equivalent to the price to the public set in the 2019 Public Offering and pursuant to a securities purchase agreement (the “2019 Securities Purchase Agreement”) that the Company entered into with Samsara BioCapital, L.P. (“Samsara”), one of our existing stockholders. Pursuant to the 2019 Securities Purchase Agreement, we granted to Samsara certain registration rights requiring us, upon request of Samsara on or after July 9, 2019 and subject to certain terms and conditions, to register the resale by Samsara of its 2019 Private Placement Shares. Such registration rights expire upon the earlier of (i) May 8, 2020 and (ii) the date that all of the 2019 Private Placement Shares have been sold or can be sold publicly under Rule 144 of the Securities Act on a single day. We received net proceeds from the 2019 Public Offering and the 2019 Concurrent Private Placement of approximately $227.3 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $13.9 million. In May 2019, we also issued and sold $230.0 million aggregate principal amount of 2.00% Convertible Senior Notes due 2026 (the “2026 Convertible Notes”). We received net proceeds from the sale of the 2026 Convertible Notes of $223.4 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $6.6 million. In April 2018, we issued and sold (i) 2,695,313 shares of common stock in a registered public offering (including 351,563 shares issued and sold upon the exercise in full of the underwriters’ option to purchase additional shares), at a price to the public of $64.00 per share (the “2018 Public Offering”) and (ii) 1,562,500 shares of common stock (the “2018 Private Placement Shares”) in a concurrent private placement (the “2018 Concurrent Private Placement”) exempt from the registration requirements of the Securities Act, at a purchase price per share equivalent to the price to the public set in the 2018 Public Offering and pursuant to a securities purchase agreement (the “2018 Securities Purchase Agreement”) that we entered into with the purchasers in the 2018 Concurrent Private Placement (the “2018 Private Placement Purchasers”). Pursuant to the 2018 Securities Purchase Agreement, we granted to the 2018 Private Placement Purchasers certain registration rights which expired on April 4, 2019. We received net proceeds from the 2018 Public Offering and the 2018 Concurrent Private Placement of approximately $261.4 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $11.1 million. Financial Overview Revenue We commenced our commercial launch of Ocaliva for the treatment of PBC in the United States in June 2016. In December 2016, the European Commission granted conditional approval for Ocaliva for the treatment of PBC and we commenced our European commercial launch in January 2017. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia. We sell Ocaliva to a limited number of specialty pharmacies which dispense the product directly to patients. The specialty pharmacies are referred to as our customers. Effective January 1, 2018, we began recognizing revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the 86 Table of Contents consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the company satisfies a performance obligation Product Revenue, Net We provide the right of return to our customers for unopened product for a limited time before and after its expiration date. Prior to July 2017, given our limited sales history for Ocaliva and the inherent uncertainties in estimating product returns, we determined that the shipments of Ocaliva made to our customers did not meet the criteria for revenue recognition at the time of shipment. Accordingly, we recognized revenue when the product was sold through by our customers, provided all other revenue recognition criteria were met. We invoiced our customers upon shipment of Ocaliva to them and recorded accounts receivable, with a corresponding liability for deferred revenue equal to the gross invoice price. We then recognized revenue when Ocaliva was sold through as specialty pharmacies dispensed product directly to the patients (sell-through basis). We re-evaluated our revenue recognition policy in the third quarter of 2017, which included the accumulation and review of customer-related transactions since our commercial launch in the second quarter of 2016. We concluded we had accumulated sufficient data to reasonably estimate product returns and, therefore, began to recognize revenue at the time of shipment to our customers (sell-in basis). Under ASC 606, we have written contracts with each of our customers that have a single performance obligation — to deliver products upon receipt of a customer order — and these obligations are satisfied when delivery occurs and the customer receives Ocaliva. We evaluate the creditworthiness of each of our customers to determine whether collection is reasonably assured. We estimate variable revenue by calculating gross product revenues based on the wholesale acquisition cost that we charge our customers for Ocaliva, and then estimating our net product revenues by deducting (i) trade allowances, such as invoice discounts for prompt payment and customer fees, (ii) estimated government rebates and discounts related to Medicare, Medicaid and other government programs, and (iii) estimated costs of incentives offered to certain indirect customers including patients. We recognized net sales of Ocaliva of $249.6 million, $177.8 and $129.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. Licensing Revenue In March 2011, we entered into an exclusive license agreement (the “Original Sumitomo Agreement”) with Sumitomo Dainippon Pharma Co., Ltd. (“Sumitomo Dainippon”), pursuant to which we granted to Sumitomo Dainippon an exclusive license to research, develop and commercialize OCA for the treatment of PBC and NASH in Japan and China (excluding Taiwan) and an option to research, develop and commercialize OCA in certain countries outside of such territories (the “Country Option”). We received an upfront payment from Sumitomo Dainippon of $15.0 million under the terms of the Original Sumitomo Agreement. In May 2014, Sumitomo Dainippon exercised the Country Option in part to add Korea as part of its licensed territories and paid us a $1.0 million upfront fee in connection therewith. In February 2018, we and Sumitomo Dainippon entered into Amendment No. 3 (the “Sumitomo Amendment”) to the Original Sumitomo Agreement (as amended, the “Sumitomo Agreement”), pursuant to which (i) Sumitomo Dainippon agreed to return the rights to develop and commercialize OCA in Japan and Korea and waived its rights to the Country Option, (ii) we agreed to forego any further milestone or royalty payments relating to the development and commercialization of OCA in Japan and Korea and (iii) certain milestone payment obligations with respect to the development and commercialization of OCA were adjusted. In October 2019, we and Sumitomo Dainippon mutually agreed to terminate with immediate effect the Sumitomo Agreement. In connection with the termination of the Sumitomo Agreement, Sumitomo Dainippon agreed to return to us the rights to develop and commercialize OCA in China and we agreed to forego any further milestone or royalty payments relating to the development and commercialization of OCA in China. No payment is due from us to Sumitomo Dainippon as a result of the termination of the Sumitomo Agreement. 87 Table of Contents As of December 31, 2019, we had achieved $6.0 million of development milestones under the Sumitomo Agreement. For accounting purposes, the upfront payments were recorded as deferred revenue and amortized over time and milestone payments are recognized once earned. For the years ended December 31, 2019, 2018 and 2017, we recognized $2.4 million, $2.0 million and $1.8 million, respectively, in licensing revenue related to the amortization of the upfront payments under the Sumitomo Agreement. Included in licensing revenue for the year ended December 31, 2019 is $1.2 million related to the accelerated recognition of deferred revenue as a result of the agreement termination. Included in licensing revenue for the year ended December 31, 2018 is $0.4 million related to the accelerated recognition, as a result of the Sumitomo Amendment, of the remaining portion of deferred revenue associated with the $1.0 million upfront payment that we received under the Original Sumitomo Agreement in connection with Sumitomo Dainippon’s exercise of the Country Option with respect to Korea. Selling, General and Administrative Expenses We have incurred and expect to continue to incur significant selling, general and administrative expenses as a result of, among other initiatives, the launch and commercialization of Ocaliva for PBC in the United States, Europe and our other target markets, the preparation for the potential commercialization of OCA for liver fibrosis due to NASH, if approved, and our other future approved products, if any, and the build-out of our general and administrative infrastructure in the United States and abroad. Research and Development Expenses Since our inception, we have focused significant resources on our research and development activities, including conducting preclinical studies and clinical trials, pursuing regulatory approvals and engaging in other product development activities. We recognize research and development expenses as they are incurred. We have incurred and expect to continue to incur significant research and development expenses as a result of, among other initiatives, our clinical development programs for OCA for PBC and NASH, our other earlier stage research programs and our regulatory approval efforts. Results of Operations Comparison of the Years Ended December 31, 2019 and 2018 The following table summarizes our results of operations for the years ended December 31, 2019 and 2018: Revenue: Product revenue, net Licensing revenue Total revenue Operating expenses: Cost of sales Selling, general and administrative Research and development Total operating expenses Other income (expense): Interest expense Other income, net Net loss 88 Years Ended December 31, 2019 2018 (in thousands) $ 249,570 2,432 252,002 $ 177,782 2,022 179,804 4,212 317,418 242,799 564,429 2,519 255,474 207,301 465,294 (41,144) 8,890 (32,254) $ (344,681) (30,523) 6,771 (23,752) $ (309,242) Table of Contents Revenues Product revenue, net was $249.6 million and $177.8 million for the years ended December 31, 2019 and 2018, respectively. For the years ended December 31, 2019 and 2018, product revenue, net was comprised of U.S. Ocaliva net sales of $187.5 million and $140.8 million, respectively, and ex-U.S. Ocaliva net sales of $62.1 million and $37.0 million, respectively. We commenced our commercial launch of Ocaliva for the treatment of PBC in the United States and certain European countries in June 2016 and January 2017, respectively. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia. For the years ended December 31, 2019 and 2018, licensing revenue was $2.4 million and $2.0 million, respectively, in each case, related to the amortization of upfront payments under the Sumitomo Agreement. Cost of sales Cost of sales was $4.2 million and $2.5 million for the years ended December 31, 2019 and 2018, respectively. Our cost of sales for the years ended December 31, 2019 and 2018 consisted primarily of packaging, labeling, materials and related expenses. Selling, general and administrative expenses Selling, general and administrative expenses were $317.4 million and $255.5 million for the years ended December 31, 2019 and 2018, respectively. The $61.9 million net increase between periods was primarily driven by increases in expenses relating to our launch preparation activities associated with the potential approval and commercialization of OCA for liver fibrosis due to NASH. Research and development expenses Research and development expenses were $242.8 million and $207.3 million for the years ended December 31, 2019 and 2018, respectively. The $35.5 million net increase between periods was primarily driven by increases in OCA for liver fibrosis due to NASH development program expenses and costs associated with the preparation of the NASH NDA submission. Interest expense Interest expense was $41.1 million and $30.5 million for the years ended December 31, 2019 and 2018, respectively. For the year ended December 31, 2019, interest expense related to the 2026 Convertible Notes that we issued in May 2019 and the $460.0 million aggregate principal amount of 3.25% Convertible Senior Notes due 2023 (the “2023 Convertible Notes” and together with the 2026 Convertible Notes, the “Convertible Notes”) that we issued in July 2016. For the year ended December 31, 2018, interest expense related only to the 2023 Convertible Notes. Other income, net Other income, net was $8.9 million and $6.8 million for the years ended December 31, 2019 and 2018, respectively. Such income is primarily attributable to interest income earned on cash, cash equivalents and investment debt securities. Income taxes For the years ended December 31, 2019 and 2018, no income tax expense or benefit was recognized. Our deferred tax assets are comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our inception. 89 Table of Contents Comparison of the Years Ended December 31, 2018 and 2017 The following table summarizes our results of operations for the years ended December 31, 2018 and 2017: Revenue: Product revenue, net Licensing revenue Total revenue Operating expenses: Cost of sales Selling, general and administrative Research and development Total operating expenses Other income (expense): Interest expense Other income, net Net loss Revenues Years Ended December 31, 2018 2017 (in thousands) $ 177,782 $ 129,175 1,781 130,956 2,022 179,804 2,519 255,474 207,301 465,294 1,371 273,698 191,499 466,568 (30,523) 6,771 (23,752) $ (309,242) (29,271) 4,516 (24,755) $ (360,367) Product revenue, net was $177.8 million and $129.2 million for the years ended December 31, 2018 and 2017, respectively. For the years ended December 31, 2018 and 2017, product revenue, net was comprised of U.S. Ocaliva net sales of $140.8 million and $115.8 million, respectively, and ex-U.S. Ocaliva net sales of $37.0 million and $13.4 million, respectively. We commenced our commercial launch of Ocaliva for the treatment of PBC in the United States and certain European countries in June 2016 and January 2017, respectively. Since January 2017, Ocaliva has also received regulatory approval in several of our target markets outside the United States and Europe, including Canada, Israel and Australia. Included in product revenue, net for the year ended December 31, 2017 is $4.1 million of previously deferred revenue recognized in connection with our adoption of a sell-in basis revenue recognition policy in the third quarter of 2017. For the years ended December 31, 2018 and 2017, licensing revenue was $2.0 million and $1.8 million, respectively, in each case, related to the amortization of upfront payments under the Sumitomo Agreement. Cost of sales Cost of sales was $2.5 million and $1.4 million for the years ended December 31, 2018 and 2017, respectively. Prior to the FDA’s approval of Ocaliva in May 2016, we expensed costs related to the manufacturing and buildup of our Ocaliva commercial launch supplies as research and development expenses. As a result, our cost of sales for the years ended December 31, 2018 and 2017 consisted primarily of packaging and labeling expenses. Selling, general and administrative expenses Selling, general and administrative expenses were $255.5 million and $273.7 million for the years ended December 31, 2018 and 2017, respectively. The $18.2 million net decrease between periods primarily reflects the inclusion in selling, general and administrative expenses for the year ended December 31, 2017 of $9.8 million of expenses incurred in connection with our termination in December 2017 of a lease agreement relating to office space at 55 Hudson Yards and $3.9 million of restructuring related charges. 90 Table of Contents Research and development expenses Research and development expenses were $207.3 million and $191.5 million for the years ended December 31, 2018 and 2017, respectively, representing a net increase of $15.8 million. The net increase in research and development expenses primarily reflects $9.0 million that we paid to Aralez in December 2018 pursuant to the Aralez Agreement, as well as an increase in OCA research and development activities of approximately $16.8 million, partially offset by a decrease of approximately $12.1 million in compensation-related costs, which includes $1.3 million of restructuring-related charges incurred in the year ended December 31, 2017. Interest expense Interest expense was $30.5 million and $29.3 million for the years ended December 31, 2018 and 2017, respectively, in each case, related to the 2023 Convertible Notes issued in July 2016. Other income, net Other income, net was $6.8 million and $4.5 million for the years ended December 31, 2018 and 2017, respectively. Such income is primarily attributable to interest income earned on cash, cash equivalents and investment debt securities. Income Taxes For the years ended December 31, 2018 and 2017, no income tax expense or benefit was recognized. Our deferred tax assets are comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our inception. Liquidity and Capital Resources Cash Flows The following table sets forth the significant sources and uses of cash for the periods indicated: 2019 Years Ended December 31, 2018 (in thousands) 2017 Net cash provided by (used in): Operating activities Investing activities Financing activities Effect of exchange rate changes Net increase/(decrease) in cash, cash equivalents and restricted cash $ (236,613) $ (240,714) $ (265,402) 287,775 (188,988) 2,838 457,519 1,127 (386) 26,338 31,532 (48,070) 263,545 (1,526) $ (26,765) $ $ Operating Activities. Net cash used in operating activities of $236.6 million during the year ended December 31, 2019 was primarily a result of our $344.7 million net loss and a gain on lease termination of $2.0 million, partially offset by $56.0 million in stock-based compensation, a net increase in operating assets and liabilities of $19.3 million, $15.3 million for accretion of the discount on the 2023 Convertible Notes, $5.9 million for accretion of the discount on the 2026 Convertible Notes, $5.4 million for non-cash operating lease costs, $3.7 million of depreciation and $2.7 million for loss on the disposal of fixed assets. Net cash used in operating activities of $240.7 million during the year ended December 31, 2018 was primarily a result of our $309.2 million net loss and a net decrease in operating assets and liabilities of $2.8 million, partially offset by $49.9 million in stock-based compensation, $14.0 million for accretion of the discount on the 2023 Convertible Notes, and $4.6 million of depreciation. 91 Table of Contents Net cash used in operating activities of $265.4 million during the year ended December 31, 2017 was primarily a result of our $360.4 million net loss, partially offset by a net increase in operating assets and liabilities of $14.6 million, $57.0 million in stock-based compensation, $12.9 million for accretion of the discount on the 2023 Convertible Notes, $4.6 million of depreciation and $3.4 million for amortization of investment premium. Investing Activities. For the year ended December 31, 2019, net cash used in investing activities primarily reflects the purchases of investment debt securities of $603.0 million, partially offset by the sales of investment debt securities of $415.2 million. For the year ended December 31, 2018, net cash used in investing activities primarily reflects the purchase of investment debt securities of $436.1 million, partially offset by the sale of investment debt securities of $388.2 million. For the year ended December 31, 2017, net cash provided by investing activities primarily reflects the sale of investment debt securities of $529.3 million, partially offset by the purchase of investment debt securities of $231.1 million and $10.4 million of capital expenditures primarily related to our offices. Financing Activities. Net cash provided by financing activities in the year ended December 31, 2019 consisted primarily of net proceeds received from the 2019 Public Offering and 2019 Concurrent Private Placement in May 2019 of $227.3 million and net proceeds from the issuance of the 2026 Convertible Notes of $223.4 million. Net cash provided by financing activities in the year ended December 31, 2018 consisted primarily of net proceeds of approximately $261.4 million from the 2018 Public Offering and 2018 Concurrent Private Placement in April 2018 and $2.2 million from the exercise of options to purchase common stock net of payments of employee withholding taxes related to stock-based awards. Net cash provided by financing activities in the year ended December 31, 2017 consisted primarily of $2.8 million from the exercise of options to purchase common stock. 2019 Public Offerings and 2019 Concurrent Private Placement In May 2019, we issued and sold an aggregate of 2,879,760 shares of common stock in the 2019 Public Offering and 2019 Concurrent Private Placement. We received net proceeds from the 2019 Public Offering and the 2019 Concurrent Private Placement of approximately $227.3 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $13.9 million. 2026 Convertible Notes In May 2019, we issued and sold $230.0 million aggregate principal amount of 2.00% Convertible Senior Notes due 2026 (the “2026 Convertible Notes”). We received net proceeds from the sale of the 2026 Convertible Notes of $223.4 million, after deducting underwriter discounts, commissions, and estimated offering expenses of approximately $6.6 million. The 2026 Convertible Notes were issued pursuant to a Second Supplemental Indenture, dated as of May 14, 2019 (the “Second Supplemental Indenture”), which supplements the Indenture (the “Base Indenture”), as supplemented by a First Supplemental Indenture (the “First Supplemental Indenture” and collectively with the Base Indenture and the Second Supplemental Indenture, the “Indenture”), each dated as of July 6, 2016, by and between us and U.S. Bank National Association, as trustee. The 2026 Convertible Notes are senior unsecured obligations of ours, bear interest at a fixed rate of 2.00% per annum (payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2019) and will mature on May 15, 2026, unless earlier repurchased, redeemed or converted. The 2026 Convertible Notes are convertible at the option of holders, under certain circumstances and during certain periods, into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate of the 2026 Convertible Notes is 9.2123 shares of our common stock per $1,000 principal amount of 2026 Convertible Notes, which is equivalent to an initial conversion price of approximately $108.55 per share of our common stock. The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, 92 Table of Contents following certain corporate events that occur prior to the maturity date, we will increase the conversion rate for a holder who elects to convert its 2026 Convertible Notes in connection with such a corporate event in certain circumstances. If we undergo a fundamental change (as defined in the Indenture), holders may require us to repurchase for cash all or any portion of their 2026 Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if certain make-whole fundamental changes occur, we will, in certain circumstances, increase the conversion rate for any 2026 Convertible Notes converted in connection with such make-whole fundamental change. We may not redeem the 2026 Convertible Notes prior to May 20, 2023. We may redeem for cash all or any portion of the 2026 Convertible Notes, at our option, on or after May 20, 2023, under certain circumstances at a redemption price equal to 100% or the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The Indenture provides for customary events of default. 2018 Public Offering and 2018 Concurrent Private Placement In April 2018, we issued and sold an aggregate of 4,257,813 shares of common stock in the 2018 Public Offering and 2018 Concurrent Private Placement. We received net proceeds from the 2018 Public Offering and the 2018 Concurrent Private Placement of approximately $261.4 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $11.1 million. Future Funding Requirements As of December 31, 2019, we had $657.4 million in cash, cash equivalents, restricted cash and investment debt securities. We currently expect to continue to incur significant operating expenses in the fiscal year ending December 31, 2020. These expenses are planned to support, among other initiatives, the continued commercialization of Ocaliva for PBC in the United States and our other markets, launch preparation activities associated with the potential approval and commercialization of OCA for liver fibrosis due to NASH, our clinical development and pipeline programs and our other operating activities. Although we believe that our existing capital resources, together with our net sales will be sufficient to fund our anticipated operating requirements for the next twelve months and the initial phase of the anticipated U.S. launch of OCA for liver fibrosis due to NASH, we may need to raise additional capital to fund our operating requirements beyond that period. Furthermore, in light of the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, any delays in, or unanticipated costs associated with, our development, regulatory or commercialization efforts could significantly increase the amount of capital required by us to fund our operating requirements. Accordingly, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our forecast regarding the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results, including the costs to maintain our currently planned operations, could vary materially. Our forecasts regarding the period of time that our existing capital resources will be sufficient to meet our operating requirements and the timing of our future funding requirements, both near and long-term, will depend on a variety of factors, many of which are outside of our control. Such factors include, but are not limited to: ● our ability to successfully commercialize Ocaliva for PBC; ● our ability to maintain our regulatory approval of Ocaliva for PBC in the United States, Europe, Canada, Israel, Australia and other jurisdictions in which we have or may receive marketing authorization; ● the initiation, timing, cost, conduct, progress and results of our research and development activities, preclinical studies and clinical trials, including any issues, delays or failures in identifying patients, enrolling patients, treating patients, retaining patients, meeting specific endpoints in the jurisdictions in which we intend to seek approval or completing and timely reporting the results of our NASH or PBC clinical trials; ● our ability to timely and cost-effectively file for and obtain regulatory approval of our product candidates, including the regulatory approval of our NDA for NASH; any advisory committee recommendation that our 93 Table of Contents product candidates, including OCA for liver fibrosis due to NASH, should not be approved or approved only under certain conditions; or any determination that the regulatory applications and subsequent information we submit for our product candidates, including OCA for liver fibrosis due to NASH, do not contain adequate clinical or other data or meet applicable regulatory requirements for approval; ● conditions that may be imposed by regulatory authorities on our marketing approvals for our products and product candidates, such as the need for clinical outcomes data (and not just results based on achievement of a surrogate endpoint), and any related restrictions, limitations and/or warnings contained in the label of any of our products or product candidates; ● any potential side effects associated with Ocaliva for PBC, OCA for liver fibrosis due to NASH or our other product candidates that could delay or prevent approval, require that an approved product be taken off the market, require the inclusion of safety warnings or precautions or otherwise limit the sale of such product or product candidate; ● our ability to establish and maintain relationships with, and the performance of, third-party manufacturers, contract research organizations and other vendors upon whom we are substantially dependent for, among other things, the manufacture and supply of our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our clinical trial activities; ● our ability to identify, develop and successfully commercialize our products and product candidates, including our ability to timely and successfully launch OCA for liver fibrosis due to NASH, if approved; ● our ability to obtain and maintain intellectual property protection for our products and product candidates, including our ability to cost-effectively file, prosecute, defend and enforce any patent claims or other intellectual property rights; ● the size and growth of the markets for our products and product candidates and our ability to serve those markets; ● the degree of market acceptance of Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH or our other product candidates among physicians, patients and healthcare payors; ● the availability of adequate coverage and reimbursement from governmental and private healthcare payors for our products, including Ocaliva for PBC and, if approved, OCA for liver fibrosis due to NASH, and our ability to obtain adequate pricing for such products; ● our ability to establish and maintain effective sales, marketing and distribution capabilities, either directly or through collaborations with third parties; ● competition from existing drugs or new drugs that become available; ● our ability to prevent system failures, data breaches or violations of data protection laws; ● costs and outcomes relating to any disputes, governmental inquiries or investigations, legal proceedings or litigation, including any securities, intellectual property, employment, product liability or other litigation; ● our collaborators’ election to pursue research, development and commercialization activities; ● our ability to establish and maintain relationships with collaborators with development, regulatory and commercialization expertise; ● our need for and ability to generate or obtain additional financing; 94 Table of Contents ● our estimates regarding future expenses, revenues and capital requirements and the accuracy thereof; ● our use of cash and short-term investments; ● our ability to acquire, license and invest in businesses, technologies, product candidates and products; ● our ability to attract and retain key personnel to manage our business effectively; ● our ability to manage the growth of our operations, infrastructure, personnel, systems and controls; ● our ability to obtain and maintain adequate insurance coverage; ● the impact of general U.S. and foreign economic, industry, market, regulatory or political conditions, including the potential impact of Brexit; and ● the other risks and uncertainties identified under the captions “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K and in our other periodic filings filed with the SEC. We have no committed external sources of funding and additional funds may not be available when we need them on terms that are acceptable to us, or at all. In addition, our restated certificate of incorporation authorizes us to issue 45 million shares of common stock. Following the 2019 Public Offering and the 2019 Concurrent Private Placement, and after taking into account shares of common stock reserved for issuance upon the exercise of outstanding stock options, the vesting of outstanding restricted stock units (including performance restricted stock units) and the conversion of the Convertible Notes, together with shares of common stock available for future grants under our equity incentive plan, we have a limited number of remaining unreserved and authorized shares available for issuance, which could impact our ability to raise additional funds in the future. If adequate funds are not available to us, we may not be able to make scheduled debt payments on a timely basis, or at all, and may be required to delay, limit, reduce or cease our operations. Contractual Obligations Our contractual obligations as of December 31, 2019 consisted primarily of obligations under the Convertible Notes, purchase obligations entered into in the normal course of business and lease agreements. The following table summarizes our material contractual obligations as of December 31, 2019 and the effect such obligations are expected to have on our liquidity and cash flows in future years: Contractual Obligations: Operating leases (1) Convertible Notes (2) Purchase obligations (3) Total Payments Due By Period Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years (in thousands) $ 24,062 $ 786,600 — $ 810,662 $ 8,489 $ 11,119 $ 3,731 $ 19,550 39,100 491,625 — 723 236,325 — 28,039 $ 50,219 $ 495,356 $ 237,048 — — (1) For a description of our material operating leases, see “Properties” above. The obligations represent payments for all operating leases, including short-term operating leases exempt under ASC Topic 842, Leases (“ASC 842”) and leases that have yet to commence. Operating expenses associated with our leased office buildings are not included in the table above. (2) Represents 2023 Convertible Notes and 2026 Convertible Notes (including future interest payments at a fixed rate of 3.25% and 2.00% per year, respectively). (3) We enter into contracts in the normal course of business with contract research organizations for our clinical trials, contract manufacturing organizations for the manufacture and supply of our clinical and commercial product needs and other vendors for other research and development and commercial activities, as well as services and products for 95 Table of Contents operating purposes. Our agreements generally provide for termination with notice. Such agreements are cancelable contracts and are not included as purchase commitments. Off-Balance Sheet Arrangements As of December 31, 2019, we did not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our audited consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results could differ from these estimates. While our significant accounting policies are more fully described in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations. Revenue Recognition Effective January 1, 2018, we began recognizing revenue under ASC 606 using the modified retrospective approach. The core principle of this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when the company satisfies a performance obligation. Product Revenue, Net Under ASC 606, we have written contracts with each of our customers that have a single performance obligation — to deliver products upon receipt of a customer order — and these obligations are satisfied when delivery occurs and the customer receives Ocaliva. We evaluate the creditworthiness of each of our customers to determine whether collection is reasonably assured. We estimate variable revenue by calculating gross product revenues based on the wholesale acquisition cost that we charge our customers for Ocaliva, and then estimating our net product revenues by deducting (i) trade allowances, such as invoice discounts for prompt payment and customer fees, (ii) estimated government rebates and discounts related to Medicare, Medicaid and other government programs, and (iii) estimated costs of incentives offered to certain indirect customers including patients. Trade Allowances We provide invoice discounts on Ocaliva sales to certain of our customers for prompt payment and record these discounts as a reduction to gross product revenues. These discounts are based on contractual terms. Reserves for prompt payment discounts are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. 96 Table of Contents Rebates and Discounts We contract with the Centers for Medicare & Medicaid Services and other government agencies to make Ocaliva available to eligible patients. As a result, we estimate any rebates and discounts and deduct these estimated amounts from our gross product revenues at the time the revenues are recognized. Our estimates of rebates and discounts are based on the government mandated discounts, which are statutorily-defined and applicable to these government funded programs. These estimates are recorded in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets. Other Incentives Other incentives that we offer to indirect customers include co-pay assistance cards provided by us for PBC patients who reside in states that permit co-pay assistance programs. Our co-pay assistance program is intended to reduce each participating patient’s portion of the financial responsibility for Ocaliva purchase price to a specified dollar amount. We estimate the amount of co-pay assistance provided to eligible patients based on the terms of the program when product is dispensed by the specialty pharmacies to the patients. These estimates are based on redemption information provided by third-party claims processing organizations and are recorded in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets. Valuation of Stock-Based Compensation We account for stock-based compensation in accordance with ASC Topic 718, Compensation — Stock Compensation. We estimate the fair value of stock option awards using the Black-Scholes option pricing model on the date of the grant. The Black-Scholes option pricing model requires the use of assumptions, including with respect to stock price volatility, assumed dividend yield, the expected term of options and the risk-free interest rate, as described below: • The expected volatility is estimated based on actual historical volatility information of our own ordinary shares. • The assumed dividend yield is based on our expectation of not paying dividends for the foreseeable future. • The expected term of options granted represents the period of time the options are expected to be outstanding and is based on the simplified method. • The risk-free interest rate was based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected term of the award at the grant date. Restricted stock unit awards and restricted stock awards without a market condition are valued based on the closing price of our common stock on the date of the grant. The fair value of time-based equity awards is recognized and amortized on a straight-line basis over the requisite service period of the award. We recognize stock-based compensation expense for options and other stock-based awards with performance conditions ratably over the performance period once the pre-defined performance-based criteria for vesting becomes probable. At the probable date, we record a cumulative expense catch-up, with remaining expense amortized over the remaining service period. Throughout the performance period, we re-assess the estimated performance and update the numbers of performance-based awards that we believe will ultimately vest. The performance level is measured to determine the ultimate level of shares that will vest upon the conclusion of the performance period. The fair value of awards with market conditions is estimated using the Monte Carlo simulation method and expense is recognized on a straight-line basis over the requisite service period of the award. The Company accounts for all forfeitures when they occur. Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest and are not forfeited. We expect to continue to grant stock options and other stock-based awards and the impact of stock-based compensation may fluctuate in future periods due to changes in the value of our common stock, changes to our headcount and the number and value of awards granted. 97 Table of Contents Convertible Senior Notes The Convertible Notes are accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options. ASC Subtopic 470-20 requires the issuer of convertible debt that may be settled in shares or cash upon conversion at the issuer’s option, such as the Convertible Notes, to account for the liability (debt) and equity (conversion option) components separately. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion option. The amount of the equity component (and resulting debt discount) is calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument. The resulting debt discount is amortized as additional non-cash interest expense over the expected life of the notes utilizing the effective interest method. For additional information, see Note 9 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Income Taxes We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. We determine the need for a valuation allowance by assessing the probability of realizing deferred tax assets, taking into consideration all available positive and negative evidence, including historical operating results, expectations of future taxable income, carryforward periods available, various income tax strategies and other relevant factors. Significant judgment is required in making this assessment and to the extent future expectations change, we would have to assess the recoverability of our deferred assets at that time. At December 31, 2019 and 2018, we maintained a full valuation allowance on our deferred tax assets. At any one time our tax returns for numerous tax years are subject to examination by U.S. Federal, state, and foreign taxing jurisdictions. The impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in our financial statements at the largest amount that is more likely than not to be sustained. An uncertain income tax position will not be recognized in our financial statements unless it is more likely than not to be sustained. At December 31, 2019 and 2018, we had no reserves for unrecognized tax benefits. Recent Accounting Pronouncements See Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects, if any, on our results of operations and financial condition. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. We currently do not hedge interest rate exposure. Because of the short-term maturities of our cash equivalents and investment debt securities, we do not believe that an increase in market rates would have any significant impact on the realized value of our investment debt securities. If a 10% change in interest rates were to have occurred on December 31, 2019, this change would not have had a material effect on the fair value of our investment portfolio as of that date. We do not believe that our cash, cash equivalents and investment debt securities have significant risk of default or illiquidity. While we believe our cash, cash equivalents and investment debt securities do not contain excessive risk, we cannot provide absolute assurance that, in the future, our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. We contract with CROs, investigational sites, suppliers, facilities, marketing firms and other vendors and suppliers in Europe and internationally. We are therefore subject to fluctuations in foreign currency rates in connection with these agreements. We do not hedge our foreign currency exchange rate risk. 98 Table of Contents Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during 2019, 2018 or 2017. Item 8. Financial Statements and Supplementary Data The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K and incorporated by reference herein. An index of those financial statements is set forth under Item 15. “Exhibits and Financial Statement Schedules”. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d- 15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’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 reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our company’s assets that could have a material effect on the financial statements. All internal controls, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation. 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 of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 99 Table of Contents Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2019, based on criteria established in the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2019. Attestation Report of Independent Registered Public Accounting Firm The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report included elsewhere in this Annual Report on Form 10-K. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Not applicable. Item 10. Directors, Executive Officers and Corporate Governance PART III We have adopted a Global Code of Business Conduct as our “code of ethics,” as defined by regulations promulgated under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, which applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Global Code of Business Conduct is available on our website at www.interceptpharma.com in the Investors & Media section under “Corporate Governance.” We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any future amendment to, or waiver from, a provision of the Global Code of Business Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions by posting such information on our website at www.interceptpharma.com in the Investors & Media section under “Corporate Governance.” The references to www.interceptpharma.com herein are inactive textual references only, and the information found on our internet website is not incorporated by reference into this Annual Report on Form 10-K or any other report we file with or furnish to the SEC. The remainder of the information required by this item is incorporated by reference to our definitive proxy statement related to our 2020 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Item 11. Executive Compensation The information required by this item is incorporated by reference to our definitive proxy statement related to our 2020 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference to our definitive proxy statement related to our 2020 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. 100 Table of Contents Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated by reference to our definitive proxy statement related to our 2020 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Item 14. Principal Accounting Fees and Services The information required by this item is incorporated by reference to our definitive proxy statement related to our 2020 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. 101 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Loss Consolidated Statements of Changes in Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 2. Index to Consolidated Financial Statements F-2 F-5 F-6 F-7 F-8 F-9 F-10 Financial statement schedules have been omitted from this Annual Report on Form 10-K because they are not applicable, not required or the information required is set forth in the audited consolidated financial statements or accompanying notes. 3. Exhibits The exhibits filed or furnished as part of this Annual Report on Form 10-K are set forth in the Exhibit Index below, which is incorporated herein by reference. 102 Table of Contents Exhibit Index Exhibit Number 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 Restated Certificate of Incorporation, as amended Exhibit Description Restated Bylaws Form of Common Stock Certificate Indenture, dated as of July 6, 2016, between the Registrant and U.S. Bank National Association, as trustee First Supplemental Indenture (including the Form of Note), dated as of July 6, 2016, between the Registrant and U.S. Bank National Association, as trustee Form of Senior Indenture Form of Subordinated Indenture Form of Senior Note Form of Subordinated Note Securities Purchase Agreement, dated April 4, 2018, between the Registrant and the purchasers named therein Securities Purchase Agreement, dated May 8, 2019, between the Registrant and the purchasers named therein 4.10 Second Supplemental Indenture (including the Form of Note), dated as of May 14, 2019, between the Registrant and U.S. Bank National Association, as trustee 4.11* Description of Securities of the Registrant Incorporated herein by reference Form† Form 10-Q Form 8-K Form S-8(1) Form 8-K Exhibit 3.1 3.1 4.3 4.1 Filing Date August 9, 2016 February 17, 2016 November 7, 2012 July 6, 2016 Form 8-K 4.2 July 6, 2016 Form S-3(2) Form S-3(2) Form S-3(2) Form S-3(2) 4.1 4.2 4.3 4.4 May 10, 2017 May 10, 2017 May 10, 2017 May 10, 2017 Form 8-K 10.1 April 10, 2018 Form 8-K 10.1 May 14, 2019 Form 8-K 4.2 May 14, 2019 10.1# 10.2# 10.3* 10.4# Intercept Pharmaceuticals, Inc. 2012 Equity Incentive Plan Form S-1/A(3) 10.2.1 September 27, 2012 Form of Stock Option Grant Notice and Agreement for Directors Form S-1/A(3) 10.2.2 September 27, 2012 Form of Stock Option Grant Notice and Agreement for Employees and Consultants Form of Restricted Stock Unit Award Grant Notice and Agreement for Directors Form S-1/A(3) 10.2.4 September 27, 2012 103 Table of Contents 10.5* 10.6# 10.7# 10.8* 10.9# Form of Restricted Stock Unit Award Grant Notice and Agreement for Employees and Consultants Form of Restricted Stock Award Grant Notice and Agreement for Directors Form of Restricted Stock Award Grant Notice and Agreement for Employees and Consultants Form of Performance Stock Unit Grant Notice and Agreement Form of Performance Share Grant Notice and Agreement 10.10# Amended and Restated Employment Agreement, effective May 14, 2013, between the Registrant and Mark Pruzanski Form 10-Q 10.3 May 9, 2014 Form 10-Q 10.4 May 9, 2014 Form 10-Q 10.6 May 10, 2018 Form 10-Q 10.5 May 14, 2013 10.11# Employment Agreement, effective May 3, 2016, between the Registrant and Sandip S. Kapadia Form 10-Q 10.1.1 August 9, 2016 10.12# Employment Agreement, effective February 15, 2017, between the Registrant and Jerome B. Durso Form 10-Q 10.1 May 10, 2017 10.13# Employment Agreement, effective April 14, 2017, between the Registrant and David Ford Form 10-Q 10.1 August 3, 2017 10.14# Amended and Restated Employment Agreement, effective as of November 27, 2017, between the Registrant and David Shapiro Form 8-K 10.2 December 1, 2017 10.15# Employment Agreement, effective January 22, 2018, between the Registrant and Ryan Sullivan Form 10-Q 10.1 August 8, 2019 10.16# Employment Agreement, effective February 6, 2018, between the Registrant and Gail Cawkwell Form 10-Q 10.2 August 8, 2019 10.17* Employment Agreement, effective November 19, 2019, between the Registrant and Jason Campagna 10.18# Form of Indemnification Agreement for directors and executive officers of the Registrant Form S-1(3) 10.7 September 4, 2012 10.19 10.20 10.21 Base Call Option Confirmation, dated June 30, 2016, between the Registrant and Royal Bank of Canada Form 8-K 10.1 July 6, 2016 Base Call Option Confirmation, dated June 30, 2016, between the Registrant and UBS AG, London Branch Form 8-K 10.3 July 6, 2016 Base Call Option Confirmation, dated June 30, 2016, between the Registrant and Credit Suisse Capital LLC Form 8-K 10.5 July 6, 2016 104 Table of Contents 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33 10.34 Additional Call Option Confirmation, dated July 1, 2016, between the Registrant and Royal Bank of Canada Additional Call Option Confirmation, dated July 1, 2016, between the Registrant and UBS AG, London Branch Additional Call Option Confirmation, dated July 1, 2016, between the Registrant and Credit Suisse Capital LLC Form 8-K 10.2 July 6, 2016 Form 8-K 10.4 July 6, 2016 Form 8-K 10.6 July 6, 2016 Lease Agreement between The Irvine Company LLC and the Registrant, dated May 1, 2014 Form 8-K 10.1 May 7, 2014 Second Amendment to Lease, dated as of July 19, 2016, between the Registrant and Irvine Eastgate Office II LLC Third Amendment to Lease, dated as of June 21, 2018, between the Registrant and Irvine Eastgate Office II LLC Fourth Amendment to Lease, dated as of October 30, 2018, between the Registrant and Irvine Eastgate Office II LLC Underlease between the Registrant, Intercept Pharma Europe Ltd. and Performing Right Society, Ltd., dated January 22, 2016 Form 10-Q 10.7 November 9, 2016 Form 10-Q 10.1 August 7, 2018 Form 10-Q 10.1 November 1, 2018 Form 10-K 10.12 February 29, 2016 Lease Agreement, dated December 7, 2016, between the Registrant and Legacy Yards Tenant LP Form 10-K 10.17 March 1, 2017 First Amendment to Lease Agreement, dated June 27, 2017, between the Registrant and Legacy Yards Tenant LP Form 10-Q 10.1 November 6, 2017 Second Amendment to Lease, dated June 22, 2018, between the Registrant and Legacy Yards Tenant LP Form 10-Q 10.2 August 7, 2018 Third Amendment to Lease, dated November 1, 2019, between the Registrant and Legacy Yards Tenant LP Termination of Lease, dated December 31, 2017, between the Registrant and One Hudson Yards Owner LLC Form 10-Q 10.1 November 5, 2019 Form 10-K 10.21 February 28, 2018 10.35+ Commercial Manufacturing and Supply Agreement, dated August 12, 2016, between the Registrant and PharmaZell GMBH Form 10-Q 10.8 November 9, 2016 105 Form 10-K 10.2.1 February 28, 2018 Form S-1/A(3) 10.10 September 27, 2012 Form 10-Q 10.1 May 10, 2018 Form 10-Q 10.2 May 10, 2018 Form 10-Q 10.3 May 10, 2018 Table of Contents 10.36+ 10.37+ 10.38 10.39 10.40+ Amendment #1 to Manufacturing and Supply Agreement, dated December 12, 2017, between the Registrant and PharmaZell GMBH Sumitomo Agreement, dated March 29, 2011, between the Registrant and Sumitomo Dainippon Pharma Co., Ltd. Amendment No. 1, dated June 8, 2011, to that certain Sumitomo Agreement, dated March 29, 2011, between the Registrant and Sumitomo Dainippon Pharma Co., Ltd. Amendment No. 2, dated September 16, 2011, to that certain Sumitomo Agreement, dated March 29, 2011, between the Registrant and Sumitomo Dainippon Pharma Co., Ltd. Amendment No. 3, dated February 13, 2018, to that certain Sumitomo Agreement, dated March 29, 2011, between the Registrant and Sumitomo Dainippon Pharma Co., Ltd. 10.41* Letter Agreement, dated October 25, 2019, between the Registrant and Sumitomo Dainippon Pharma Co., Ltd. 21.1* Subsidiaries of the Registrant 23.1* 24.1* 31.1* 31.2* 32*(4) Consent of Independent Registered Public Accounting Firm Power of Attorney (included in signature page to this Annual Report on Form 10-K) Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) Certifications required by Rule 13a-14(b) or Rule 15d- 14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) 106 Table of Contents 101* The following materials from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2019 and 2018, (ii) Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017, (iii) Consolidated Statement of Comprehensive Loss for the Years Ended December 31, 2019, 2018 and 2017, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017, (v) Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 and (vi) Notes to Consolidated Financial Statements 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Filed herewith. + Confidential treatment has been received with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission (“SEC”). # Indicates a management contract or compensatory plan or arrangement. † Unless otherwise specified, the File No. is 001-35668. (1) Registration Statement on Form S-8 filed by the Registrant, Registration No. 333-184810. (2) Registration Statement on Form S-1 filed by the Registrant, Registration No. 333-217861. (3) Registration Statement on Form S-1 filed by the Registrant, Registration No. 333-183706. (4) This certification “accompanies” the Annual Report on Form 10-K to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, (whether made before or after the date of the Annual Report on Form 10-K), irrespective of any general incorporation language contained in such filing. Item 16. Form 10-K Summary None. 107 Table of Contents Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Date: February 25, 2020 By:/s/ Mark Pruzanski, M.D. INTERCEPT PHARMACEUTICALS, INC. Mark Pruzanski, M.D. President and Chief Executive Officer (Principal Executive Officer) Date: February 25, 2020 By:/s/ Sandip Kapadia Sandip Kapadia Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Mark Pruzanski, M.D. and Sandip Kapadia, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her, and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing required or necessary to be done in and about the premises, as fully and to all intents and purposes as the undersigned could do in person, and hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 25, 2020. Signature /s/ Mark Pruzanski, M.D. Mark Pruzanski, M.D. /s/ Sandip Kapadia Sandip Kapadia /s/ Paolo Fundarò Paolo Fundarò /s/ Srinivas Akkaraju, M.D., Ph.D. Srinivas Akkaraju, M.D., Ph.D. /s/ Luca Benatti, Ph.D. Luca Benatti, Ph.D. /s/ Daniel Bradbury Daniel Bradbury Title President, Chief Executive Officer and Director (Principal Executive Officer) Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) Chairman of the Board of Directors Director Director Director 108 Table of Contents /s/ Keith Gottesdiener, M.D. Keith Gottesdiener, M.D. /s/ Nancy Miller-Rich Nancy Miller-Rich /s/ Gino Santini Gino Santini /s/ Glenn Sblendorio Glenn Sblendorio /s/ Daniel Welch Daniel Welch Director Director Director Director Director 109 Table of Contents INTERCEPT PHARMACEUTICALS, INC. Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2019 and 2018 Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2019, 2018 and 2017 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017 Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 Notes to Consolidated Financial Statements F-2 F-5 F-6 F-7 F-8 F-9 F-10 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Intercept Pharmaceuticals, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Intercept Pharmaceuticals, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control –Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of certain assumptions impacting rebates and discounts, and other incentives accruals As described in Notes 2 and 8 to the consolidated financial statements, the Company records net product revenue by deducting various rebates and discounts, and other incentives. The rebates and discounts are related to contracts with the Center for Medicare & Medicaid Services and other government programs, and other incentives are offers to certain indirect customers that include co-pay assistant cards provided by the Company for patients who reside in states that permit co-pay assistance programs. The rebates and discounts, and other incentives are estimated and accrued with a corresponding reduction of gross product revenues when revenue is recognized. As of December 31, 2019, the Company had a $22.0 million balance in rebates and discounts, and other incentives accruals, which are recorded in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet. We identified the evaluation of the rebates and discounts, and other incentives accruals, as a critical audit matter because evaluating the Company’s assumptions involved especially challenging auditor judgment. Rebates and discounts are based on assumptions developed using historical experience including actual payments and redemptions, regulations, specific terms in individual agreements, product pricing, channels, and pipeline units. For other incentives, a key assumption is the estimation of co-pay assistance provided to eligible patients based on redemption information provided by third-party claims processing organizations. F-2 Table of Contents The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s rebates and discounts, and other incentives accrual process, including controls related to the key assumptions used in the Company’s estimation of its rebates and discounts, and other incentives. We evaluated the Company’s ability to estimate rebates and discounts, and other incentives by comparing the previously recorded accruals to the actual amounts that were settled and ultimately paid by the Company. We compared the Company’s key assumptions to the Company’s internal accruals using historical experience including actual payments and redemptions, regulations, specific terms in individual agreements, product pricing, channels, and pipeline units. We performed a sensitivity analysis using independently-developed assumptions utilizing third-party information and the historical trend of actual rebate claims paid and compared them to the Company’s accruals. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2008. New York, New York February 25, 2020 F-3 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Intercept Pharmaceuticals, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Intercept Pharmaceuticals, Inc.’s and subsidiaries (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control –Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control –Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the “consolidated financial statements”), and our report dated February 25, 2020 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted 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 the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material 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 of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP New York, New York February 25, 2020 F-4 Table of Contents INTERCEPT PHARMACEUTICALS, INC. Consolidated Balance Sheets Assets Current assets: Cash and cash equivalents Restricted cash Investment debt securities, available-for-sale Accounts receivable Prepaid expenses and other current assets Total current assets Fixed assets, net Inventory Security deposits Other assets Total assets Current liabilities: Liabilities and Stockholders’ Equity Accounts payable, accrued expenses and other liabilities Short-term interest payable Short-term portion of deferred revenue Total current liabilities Long-term liabilities: Long-term debt Long-term other liabilities Long-term portion of deferred revenue Total liabilities Commitments and contingencies (Note 16) Stockholders’ equity: Common stock par value $0.001 per share; 45,000,000 shares authorized; 32,853,066 and 29,693,876 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively Additional paid-in capital Accumulated other comprehensive loss, net Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity December 31, 2019 2018 (in thousands, except share and per share data) $ $ $ $ $ 70,055 4,725 582,567 38,044 25,924 721,315 5,202 8,462 6,661 13,246 754,886 153,968 8,037 $ $ $ — 162,005 532,078 9,247 — $ 703,330 43,248 — 392,912 25,694 20,571 482,425 10,411 7,108 9,223 — 509,167 105,109 7,475 1,621 114,205 371,250 3,771 811 490,037 33 2,176,133 (1,144) (2,123,466) 51,556 754,886 $ 30 1,800,144 (2,259) (1,778,785) 19,130 509,167 See accompanying notes to consolidated financial statements. F-5 Table of Contents Revenue: Product revenue, net Licensing revenue Total revenue Operating expenses: Cost of sales Selling, general and administrative Research and development Total operating expenses Operating loss Other income (expense): Interest expense Other income, net INTERCEPT PHARMACEUTICALS, INC. Consolidated Statements of Operations 2019 Years Ended December 31, 2018 (in thousands, except per share data) 2017 $ $ 249,570 2,432 252,002 $ 177,782 2,022 179,804 129,175 1,781 130,956 4,212 317,418 242,799 564,429 (312,427) (41,144) 8,890 (32,254) (344,681) (10.89) $ $ 2,519 255,474 207,301 465,294 (285,490) (30,523) 6,771 (23,752) (309,242) (10.86) $ $ 1,371 273,698 191,499 466,568 (335,612) (29,271) 4,516 (24,755) (360,367) (14.38) $ $ Net loss Net loss per common and potential common share: Basic and diluted Weighted average common and potential common shares outstanding: Basic and diluted 31,654 28,464 25,054 See accompanying notes to consolidated financial statements. F-6 Table of Contents INTERCEPT PHARMACEUTICALS, INC. Consolidated Statements of Comprehensive Loss Net loss Other comprehensive income (loss): Net changes related to available-for-sale investment debt securities: Unrealized gains on investment debt securities Reclassification adjustment for realized gains on investment debt securities included in other income, net Net unrealized gains on investment debt securities Foreign currency translation gains (losses) Other comprehensive income (loss) Comprehensive loss 2019 Years Ended December 31, 2018 (in thousands) $ (344,681) $ (309,242) $ (360,367) 2017 1,509 88 791 $ $ (8) 1,501 (379) 1,122 — 791 1,225 2,016 $ (343,559) $ (310,715) $ (358,351) (8) 80 (1,553) (1,473) $ See accompanying notes to consolidated financial statements. F-7 Table of Contents INTERCEPT PHARMACEUTICALS, INC. Consolidated Statements of Changes in Stockholders’ Equity For the Years Ended December 31, 2019, 2018 and 2017 (in thousands) Common Stock Paid-in Comprehensive Accumulated Stockholders’ Additional Other Total Accumulated Balance - December 31, 2016 Stock-based compensation Net proceeds from exercise of stock options Other comprehensive income Net loss Balance - December 31, 2017 Stock-based compensation Issuance of common stock from public and private placement offerings, net of underwriting fees and issuance costs Net proceeds from exercise of stock options Employee withholding taxes related to stock-based awards Other comprehensive loss Net loss Balance - December 31, 2018 Stock-based compensation Recognition of debt discount on 2026 Convertible Notes Issuance of common stock from public and private placement offerings, net of underwriting fees and issuance costs Net proceeds from exercise of stock options Employee withholding taxes related to stock-based awards Other comprehensive income Net loss Balance - December 31, 2019 Shares Amount $ 24,820 25 — — Capital $ 1,426,168 56,968 $ Loss Deficit Equity (2,801) $ (1,108,460) $ 314,932 56,968 — — — 353 — — — — 2,838 716 — $ $ 1,486,690 49,914 — 2,015 — — (716) (360,367) (786) $ (1,469,543) $ — — — — — — — (1,473) — — — (309,242) $ (2,259) $ (1,778,785) $ — — — — — — — — 261,357 4,363 (2,180) — — $ 1,800,144 55,982 85,915 227,257 8,993 (2,158) — — $ 2,176,133 — 1,115 — — — (344,681) $ (1,144) $ (2,123,466) $ 2,838 2,015 (360,367) 16,386 49,914 261,362 4,363 (2,180) (1,473) (309,242) 19,130 55,982 85,915 227,260 8,993 (2,158) 1,115 (344,681) 51,556 $ 25,173 — 4,258 263 — — — 29,694 — — 2,880 279 — — — 32,853 $ $ 25 — 5 — — — — 30 — — 3 — — — — 33 See accompanying notes to consolidated financial statements. F-8 Table of Contents INTERCEPT PHARMACEUTICALS, INC. Consolidated Statements of Cash Flows Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation (Accretion) amortization of (discount) premium on investment debt securities Amortization of deferred financing costs Realized loss on investments Depreciation Non-cash operating lease cost Gain on lease termination Loss on the disposal of fixed assets Accretion of debt discount Changes in operating assets: Accounts receivable Prepaid expenses and other current assets Inventory Security deposits Other assets Changes in operating liabilities: Accounts payable, accrued expenses and other current liabilities Operating lease liabilities Interest payable Deferred revenue Long-term other liabilities Net cash used in operating activities Cash flows from investing activities: 2019 Years Ended December 31, 2018 (in thousands) 2017 $ (344,681) $ (309,242) $ (360,367) 55,982 (302) 2,130 — 3,663 5,388 (1,995) 2,682 21,189 (12,350) (5,353) (1,354) 2,562 (24,665) 49,914 (33) 1,542 8 4,582 — — 1,331 14,031 (9,193) (3,682) (3,628) 7,153 — 56,411 (6,767) 562 (2,432) 12,717 (236,613) 10,332 — — (2,022) (1,807) (240,714) 56,968 3,429 1,417 — 4,601 — — 1,000 12,904 (7,375) (7,535) (1,201) 1,438 — 29,226 — 208 (5,693) 5,578 (265,402) (231,107) 529,274 (10,392) 287,775 Purchases of investment debt securities Sales and maturities of investment debt securities Purchases of equipment, leasehold improvements, and furniture and fixtures Net cash (used in) provided by investing activities (603,014) 415,162 (1,136) (188,988) (436,071) 388,168 (167) (48,070) Cash flows from financing activities: Proceeds from issuance of 2026 Convertible Notes, net of issuance costs Proceeds from issuance of common stock, net of issuance costs Proceeds from exercise of options, net Payments of employee withholding taxes related to stock-based awards Net cash provided by financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of period Cash, cash equivalents and restricted cash at end of period Reconciliation of cash, cash equivalents and restricted cash included in the consolidated balance sheets: Cash and cash equivalents Restricted cash Total cash, cash equivalents and restricted cash 223,424 227,260 8,993 (2,158) 457,519 (386) 31,532 43,248 74,780 70,055 4,725 74,780 — 261,362 4,363 (2,180) 263,545 (1,526) (26,765) 70,013 43,248 43,248 — 43,248 $ $ $ $ $ $ $ $ $ — — 2,838 — 2,838 1,127 26,338 43,675 70,013 70,013 — 70,013 See accompanying notes to consolidated financial statements F-9 Table of Contents 1. Overview of Business INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intercept Pharmaceuticals, Inc. (the “Company”) is a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat progressive non-viral liver diseases, including primary biliary cholangitis (“PBC”) and nonalcoholic steatohepatitis (“NASH”). The Company currently has one marketed product, Ocaliva (obeticholic acid or “OCA”). Founded in 2002 in New York, the Company has operations in the United States, Europe and Canada. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method. Use of Estimates The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Foreign Currency The Company’s functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. The resulting monetary assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the subsequent balance sheet date. Revenue and expense components are translated to U.S. dollars at weighted-average exchange rates in effect during the period. Foreign currency transaction gains and losses resulting from remeasurement are recognized in Other income, net within the consolidated statements of operations. Gains and losses as a result of foreign currency translation adjustments are recorded as a component of Accumulated other comprehensive loss, net in the equity section of our consolidated balance sheets and as Foreign currency translation gains (losses) within the accompanying consolidated statements of comprehensive loss. Cash and Cash Equivalents The Company considers all highly liquid securities with an original or remaining maturity of three months or less at acquisition to be cash equivalents. Restricted Cash Restricted cash consists of short-term bank guarantees held by our financial institutions to maintain operations of the Company’s subsidiaries in their respective countries. Investment Debt Securities, Available-for-Sale Investment debt securities are considered to be available-for-sale and are carried at fair market value. The estimated fair value of the available-for-sale investment debt securities is determined based on quoted market prices or rates for similar instruments. Unrealized gains and losses, if any, are reported in accumulated other comprehensive income (loss). F-10 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The cost of investment debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included in Other income, net. Realized gains and losses, and declines in value judged to be other-than-temporary, if any, are also included in Other income, net. Interest and dividends on available-for-sale securities are included in Other income, net. Fair Value of Financial Instruments The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other liabilities approximate fair value due to their short-term maturities. Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash, cash equivalents, accounts receivables from customers and investment debt securities. The Company currently invests its excess cash primarily in money market funds, U.S. Treasury notes, and high quality, marketable debt instruments of corporations, financial institutions and government sponsored enterprises. The Company has adopted an investment policy that includes guidelines relative to credit quality, diversification and maturities to preserve principal and liquidity. On a consolidated basis, for the year ended December 31, 2019, the Company’s three largest customers (as discussed in more detail below under “Revenue Recognition”) accounted for 32%, 31% and 15%, of the Company’s net product sales, respectively. On a consolidated basis, for the year ended December 31, 2018, the Company’s three largest customers (as discussed in more detail below under “Revenue Recognition”) accounted for 38%, 28% and 16%, of the Company’s net product sales, respectively. On a consolidated basis, the Company’s three largest customers accounted for 27%, 28% and 7% of the December 31, 2019 accounts receivable balance, respectively. On a consolidated basis, the Company’s three largest customers accounted for 22%, 29% and 6% of the December 31, 2018 accounts receivable balance, respectively. We monitor our customers’ financial credit worthiness in order to assess and respond to any changes in their credit profile. Accounts Receivable The Company extends credit to customers based on its evaluation of the customer’s financial condition. The Company records receivables for all billings when amounts are due under standard terms. Accounts receivable are stated at amounts due net of applicable prompt pay discounts and other contractual adjustments as well as an allowance for doubtful accounts. The Company assesses the need for an allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the customer’s ability to pay its obligation and the condition of the general economy and the industry as a whole. The Company will write off accounts receivable when the Company determines that they are uncollectible. The Company has recorded $38.0 million and $25.7 million of accounts receivable as of December 31, 2019 and 2018, respectively, and has not recorded an allowance for any doubtful accounts as of December 31, 2019 and 2018. Fixed Assets Fixed assets are stated at cost, and depreciated over the estimated useful life of the assets. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets, generally three to seven years. Leasehold improvements are amortized over the shorter of the asset’s useful life or the life of the lease term. Expenditures for maintenance and repairs are charged to expense as incurred. Upon sale or retirement of assets, the cost of the assets F-11 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS disposed of and the related accumulated depreciation are removed from the balance sheets and any related gains or losses are reflected in the consolidated statements of operations. Impairment of Long-Lived Assets Long-lived assets consist of fixed assets and right-of-use assets. The Company evaluates long-lived assets for impairment when events and circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. If indicators of impairment exist, the Company assesses the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If the carrying amount is not recoverable, the Company measures the amount of any impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset. There have been no impairments of any long-lived assets in the periods presented. Inventory Inventories are stated at the lower of cost or estimated realizable value. The Company determines the cost of inventory using the first-in, first-out (or FIFO) method. The Company capitalizes inventory costs associated with the Company's product after regulatory approval when, based on management's judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and writes-down such inventories as appropriate. In addition, the Company's product is subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to cost of sales to write down such unmarketable inventory to zero. No such charges were recorded in the years ended December 31, 2019, 2018 or 2017. Leases Upon adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), the Company determines if an arrangement is a lease at inception and records right-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheets at lease commencement based on the present value of remaining lease payments over the lease term. The Company only considers payments that are fixed and determinable at the time of commencement. Operating leases are included in other assets, accounts payable, accrued expenses and other liabilities and long-term other liabilities on the consolidated balance sheets. Operating lease liabilities are recognized based on the present value of the future minimum lease payments discounted by the Company’s incremental borrowing rate. The Company measures ROU assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) tenant incentives under the lease. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For short-term leases, the Company records rent expense in its consolidated statements of operations on a straight- line basis over the lease term and records variable lease payments as incurred. Convertible Debt The Company accounts for convertible debt in accordance with Financial Accounting Standards Board (“FASB”) ASC Subtopic 470-20. The Company separately accounts for the liability (debt) and equity (conversion option) components of convertible debt instruments by allocating the proceeds from the issuance. The value assigned to the debt F-12 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS component is the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion option. The amount of the equity component (and resulting debt discount) is calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument. The resulting debt discount is amortized as additional non-cash interest expense over the expected life of the notes utilizing the effective interest method. For additional information, see Note 9 — Long-Term Debt. Revenue Recognition Product Revenue, Net The Company commenced its commercial launch of Ocaliva for the treatment of PBC in the United States in June 2016. In December 2016, the European Commission granted conditional approval for Ocaliva for the treatment of PBC and the Company commenced its European commercial launch in January 2017. Since January 2017, Ocaliva has also received regulatory approval in several of the Company’s target markets outside the United States and Europe, including Canada, Israel and Australia. The Company sells Ocaliva to a limited number of specialty pharmacies which dispense the product directly to patients. The specialty pharmacies are referred to as the Company’s customers. The Company provides the right of return to its customers for unopened product for a limited time before and after its expiration date. Prior to July 2017, given the Company’s limited sales history for Ocaliva and the inherent uncertainties in estimating product returns, the Company determined that the shipments of Ocaliva made to its customers did not meet the criteria for revenue recognition at the time of shipment. Accordingly, the Company recognized revenue when the product was sold through by its customers, provided all other revenue recognition criteria were met. The Company invoiced its customers upon shipment of Ocaliva to them and recorded accounts receivable, with a corresponding liability for deferred revenue equal to the gross invoice price. The Company then recognized revenue when Ocaliva was sold through as specialty pharmacies dispensed product directly to the patients (sell-through basis). The Company re-evaluated its revenue recognition policy in the third quarter of 2017, which included the accumulation and review of customer-related transactions since the Company’s commercial launch in the second quarter of 2016. The Company concluded it had accumulated sufficient data to reasonably estimate product returns and, therefore, began to recognize revenue at the time of shipment to its customers (sell-in basis). During the third quarter of 2017, the Company recorded an adjustment related to this change in estimate to recognize previously deferred revenue. The net effect was an increase in net sales of Ocaliva of $4.1 million for the year ended December 31, 2017. The Company also established a new reserve of $0.7 million during 2017 related to future returns from its customers. Effective January 1, 2018, the Company began recognizing revenue under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the company satisfies a performance obligation F-13 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: ● The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct). ● The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract). If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate. Under ASC 606, the Company has written contracts with each of its customers that have a single performance obligation — to deliver products upon receipt of a customer order — and these obligations are satisfied when delivery occurs and the customer receives Ocaliva. The Company evaluates the creditworthiness of each of its customers to determine whether collection is reasonably assured. The Company estimates variable revenue by calculating gross product revenues based on the wholesale acquisition cost that the Company charges its customers for Ocaliva, and then estimating its net product revenues by deducting (i) trade allowances, such as invoice discounts for prompt payment and customer fees, (ii) estimated government rebates and discounts related to Medicare, Medicaid and other government programs, and (iii) estimated costs of incentives offered to certain indirect customers including patients. Trade Allowances The Company provides invoice discounts on Ocaliva sales to certain of its customers for prompt payment and records these discounts as a reduction to gross product revenues. These discounts are based on contractual terms. Rebates and Discounts The Company contracts with the Centers for Medicare & Medicaid Services and other government agencies to make Ocaliva available to eligible patients. As a result, the Company estimates any rebates and discounts and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company’s estimates of rebates and discounts are based on the government mandated discounts, which are statutorily-defined and applicable to these government funded programs and assumptions developed using historical experience along with actual payments and redemptions, government regulations, specific terms in individual agreements, product pricing, channels, and pipeline units. The Company recorded $20.3 million and $10.8 million in such estimates as of December 31, 2019 and December 31, 2018, respectively, in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. F-14 Table of Contents Other Incentives INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other incentives that the Company offers to indirect customers include co-pay assistance cards provided by the Company for PBC patients who reside in states that permit co-pay assistance programs. The Company’s co-pay assistance program is intended to reduce each participating patient’s portion of the financial responsibility for Ocaliva purchase price to a specified dollar amount. The Company estimates the amount of co-pay assistance provided to eligible patients based on the terms of the program when product is dispensed by the specialty pharmacies to the patients. These estimates are based on redemption information provided by third-party claims processing organizations. The Company recorded $1.2 million and $0.9 million in such estimates as of December 31, 2019 and December 31, 2018, respectively, in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. Because the Company changed its revenue recognition polices to the sell-in basis during the year ended December 31, 2017, the adoption of ASC 606, via a modified retrospective approach applied to all contracts not completed at January 1, 2018, did not result in an adjustment to amounts previously recognized as revenue under ASC Topic 605, Revenue Recognition (“ASC 605”). Licensing Revenue The Company accounts for the development, regulatory and sales milestones within an arrangement as variable consideration that is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Because the achievement of the milestones triggering these payments is highly susceptible to factors outside the entity’s influence, and the uncertainty about the amount of consideration for some of the milestones is not expected to be resolved for a long period of time, the Company does not expect to record the associated revenue until achievement of each milestone is imminent or has already occurred. Adoption of ASC 606 did not result in any adjustment to licensing revenue previously recognized. Research and Development Expenses Research and development costs that do not have alternative future use are charged to expense as incurred. This includes the cost of conducting clinical trials, compensation and related overhead for employees and consultants involved in research and development and the cost of the Company’s manufacturing activities to supply ongoing and future clinical trials and preclinical studies as well as preparations for commercialization of OCA. The cost of a compound that is acquired prior to regulatory approval, does not constitute a business and has no alternative future use is charged to expense as incurred. For periods prior to commercial launch, all manufacturing costs for OCA were expensed as research and development expenses. The Company will continue to incur manufacturing costs for OCA for other indications such as NASH prior to their approval. Stock-based Compensation The Company accounts for stock-based compensation to employees, non-employee directors and non-employees granted share-based payments for services in accordance with ASC Topic 718, Compensation — Stock Compensation (“ASC 718”). The Company estimates the fair value of stock option awards using the Black-Scholes option pricing model on the date of the grant. Restricted stock unit awards (“RSUs”) and restricted stock awards (“RSAs”) without a market condition are valued based on the closing price of the Company’s common stock on the date of the grant. The fair value of time-based equity awards is recognized and amortized on a straight-line basis over the requisite service period of the award. Stock options granted to employees generally fully vest over four years and have a term of ten years. The Company recognizes stock-based compensation expense for options and other stock-based awards with performance conditions ratably over the performance period once the pre-defined performance-based criteria for vesting becomes probable. The fair value of awards with market conditions is estimated using the Monte Carlo simulation method and expense is F-15 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS recognized on a straight-line basis over the requisite service period of the award. The Company accounts for all forfeitures when they occur. Net Loss Per Share Basic loss per share is computed by dividing net loss attributable to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Potential common shares include the shares of common stock issuable upon the exercise of outstanding stock options and vesting of restricted stock units. The Company accounts for the effect of the Convertible Notes on diluted net earnings per share using the if-converted method as they may be settled in cash or shares at the Company’s option. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given our net losses. Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. The Company establishes 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, taking into consideration all available positive and negative evidence, including historical operating results, expectations of future taxable income, carryforward periods available, various income tax strategies and other relevant factors. Significant judgment is required in making this assessment and to the extent future expectations change, the Company would have to assess the recoverability of its deferred assets at that time. At any one time the Company’s tax returns for numerous tax years are subject to examination by U.S. Federal, state, and foreign taxing jurisdictions. The impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more likely than not to be sustained. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not to be sustained. Segments The Company operates in one segment focused on the development and commercialization of novel therapeutics to treat progressive non-viral liver diseases. Recently Adopted Accounting Pronouncements In February 2016, the FASB established ASC 842, by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. ASC 842 was subsequently amended by ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”; ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”; and ASU No. 2018-11, “Targeted Improvements”. The new standard establishes a right-of-use model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statements of operations. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on January 1, 2019 using the effective date as the date of initial application. Consequently, financial information was not updated and the disclosures required under the new F-16 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS standard was not provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company did not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of the Company’s leases. Upon adoption at January 1, 2019, the Company recognized additional operating liabilities of $25.4 million, with corresponding ROU assets of $19.6 million based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 was subsequently updated by ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, to clarify that entities should include recoveries when estimating the allowance for credit losses. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments. Credit losses relating to available-for-sale investment debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and must be adopted using a modified retrospective approach, with certain exceptions. The Company adopted ASU 2016-13 on January 1, 2020 and its adoption will not have any material impact on the Company’s consolidated financial statements and related disclosures. In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017- 11”). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating ASC Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted ASU 2017-11 on January 1, 2019 and its adoption did not have any impact on the Company’s consolidated financial statements and related disclosures. In June 2018, the FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The changes take effect for public companies for fiscal years starting after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC 606. The Company F-17 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS adopted ASU 2018-07 on January 1, 2019 and its adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The Company adopted ASU 2018-13 on January 1, 2020 and its adoption did not have any impact on the Company’s consolidated financial statements and related disclosures. Recent Accounting Pronouncements to be Adopted In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. 3. Significant Agreements Sumitomo Dainippon Pharma Co., Ltd. In March 2011, the Company entered into an exclusive license agreement (the “Original Sumitomo Agreement”) with Sumitomo Dainippon Pharma Co., Ltd. (“Sumitomo Dainippon”), pursuant to which the Company granted to Sumitomo Dainippon an exclusive license to research, develop and commercialize OCA for the treatment of PBC and NASH in Japan and China (excluding Taiwan) and an option to research, develop and commercialize OCA in certain countries outside of such territories (the “Country Option”). The Company received an upfront payment from Sumitomo Dainippon of $15.0 million under the terms of the Original Sumitomo Agreement. In May 2014, Sumitomo Dainippon exercised the Country Option in part to add Korea as part of its licensed territories and paid the Company a $1.0 million upfront fee in connection therewith. In February 2018, the Company and Sumitomo Dainippon entered into Amendment No. 3 (the “Sumitomo Amendment”) to the Original Sumitomo Agreement (as amended, the “Sumitomo Agreement”), pursuant to which (i) Sumitomo Dainippon agreed to return the rights to develop and commercialize OCA in Japan and Korea and waived its rights to the Country Option, (ii) the Company agreed to forego any further milestone or royalty payments relating to the development and commercialization of OCA in Japan and Korea and (iii) certain milestone payment obligations with respect to the development and commercialization of OCA were adjusted. In October 2019, the Company and Sumitomo Dainippon mutually agreed to terminate with immediate effect the Sumitomo Agreement. In connection with the termination of the Sumitomo Agreement, Sumitomo Dainippon agreed to return to the Company the rights to develop and commercialize OCA in China and the Company agreed to forego any further milestone or royalty payments relating to the development and commercialization of OCA in China. No payment is due from the Company to Sumitomo Dainippon as a result of the termination of the Sumitomo Agreement. The Company has concluded that Sumitomo Dainippon does not represent a customer of the Company, and therefore the Sumitomo Agreement is outside of the scope of ASC 606. The Company has accounted for this agreement under the legacy accounting guidance. Under ASC 605, the Company evaluated this agreement and determined that it is a revenue arrangement with multiple deliverables, or performance obligations. The Company’s substantive performance obligations under this agreement include an exclusive license to its technology, technical and scientific support to the development plan and participation on a joint steering committee. The Company determined that these performance obligations represent a single unit of accounting, since, initially, the license does not have stand-alone value to Sumitomo Dainippon F-18 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS without the Company’s technical expertise and steering committee participation during the development of OCA. During the years ended December 31, 2019, 2018 and 2017, the Company recorded licensing revenue of approximately $2.4 million, $2.0 million and $1.8 million, respectively, under this agreement. Included in licensing revenue for the year ended December 31, 2019 is $1.2 million related to the accelerated recognition as a result of the termination of the Sumitomo Agreement. Included in licensing revenue for the year ended December 31, 2018 is $0.4 million related to the accelerated recognition, as a result of the Sumitomo Amendment, of the remaining portion of deferred revenue associated with the $1.0 million upfront payment that the Company received under the Original Sumitomo Agreement in connection with Sumitomo Dainippon’s exercise of the Country Option with respect to Korea. The Company recognizes milestone payments when the associated milestones are achieved. As of December 31, 2019, and 2018, the Company had recorded deferred revenues of $0 and $2.4 million, respectively, under this agreement. 4. Cash, Cash Equivalents and Investments The following table summarizes the Company’s cash, cash equivalents and investments as of December 31, 2019 and December 31, 2018: Cash and cash equivalents: Cash and money market funds Commercial paper Total cash and cash equivalents Investment debt securities: Commercial paper Corporate debt securities Total investment debt securities Total cash, cash equivalents and investment debt securities Cash and cash equivalents: Cash and money market funds Investment debt securities: Commercial paper Corporate debt securities U.S. government and agency securities Total investment debt securities Amortized Cost As of December 31, 2019 Gross Gross Unrealized Unrealized Losses Gains (in thousands) Fair Value $ $ 62,557 7,498 70,055 — $ — — — $ — — 62,557 7,498 70,055 42,806 538,965 581,771 43 835 878 (1) (81) (82) 42,848 539,719 582,567 $ 651,826 $ 878 $ (82) $ 652,622 Amortized Cost As of December 31, 2018 Gross Gross Unrealized Unrealized Losses Gains (in thousands) Fair Value $ 43,248 $ — $ — $ 43,248 34,353 349,854 9,410 393,617 — 27 5 32 (26) (704) (7) (737) 34,327 349,177 9,408 392,912 Total cash, cash equivalents and investment debt securities $ 436,865 $ 32 $ (737) $ 436,160 F-19 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company held zero and twenty-four positions that were in a continuous unrealized loss position for twelve months or longer as of December 31, 2019 and 2018, respectively. The Company believes that the unrealized losses generally are caused by increases in the risk premiums required by market participants rather than an adverse change in cash flows or a fundamental weakness in the credit quality of the issuer or underlying assets. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, it did not consider the investments to be other-than-temporarily impaired at December 31, 2018. The fair value for the Company’s available-for-sale investment debt securities that have been in an unrealized loss position for less than twelve months or twelve months or longer is as follows: Commercial paper Corporate debt securities Total Less than 12 months Gross Unrealized As of December 31, 2019 12 months or longer (in thousands) Gross Unrealized Total Gross Unrealized Fair Value Losses Fair Value Losses Fair Value Losses $ 50,346 539,719 $ 590,065 $ $ (1) $ — $ — (81) (82) $ — $ — $ 50,346 — 539,719 — $ 590,065 $ $ (1) (81) (82) Less than 12 months Gross Unrealized Fair Value Losses As of December 31, 2018 12 months or longer (in thousands) Gross Unrealized Fair Value Losses — $ Total Gross Unrealized Fair Value Losses (26) $ (443) 56,626 1,991 (469) $ 58,617 — $ (261) (7) — $ 34,327 317,173 1,991 (268) $ 353,491 $ $ (26) (704) (7) (737) Commercial paper Corporate debt securities U.S. government and agency securities Total $ 34,327 260,547 $ — $ $ 294,874 5. Fixed Assets, Net Fixed assets are stated at cost and depreciated or amortized using the straight-line method based on useful lives as follows: Office equipment and software Leasehold improvements Furniture and fixtures Subtotal Less: accumulated depreciation Fixed assets, net Useful lives (Years) 3 Shorter of remaining lease term or useful life 7 December 31, 2019 2018 (in thousands) $ 4,386 10,489 4,032 18,907 (13,705) 5,202 $ $ 3,986 14,464 3,907 22,357 (11,946) $ 10,411 Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was approximately $3.7 million, $4.6 million and $4.6 million, respectively. F-20 Table of Contents 6. Inventory INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Inventories are stated at the lower of cost or market. Inventories consisted of the following: Work-in-process Finished goods Inventory 7. Leases December 31, 2019 2018 (in thousands) 8,302 160 8,462 $ $ 7,019 89 7,108 $ $ The Company leases various office spaces under non-cancelable operating leases with original lease periods expiring between the third quarter in 2020 and 2024. The Company subleases one of its office spaces to a third party. The Company also enters into leases for equipment. A number of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term. The exercise of lease renewal options is typically at the sole discretion of the Company; therefore, all renewals to extend the lease terms are not included in the ROU assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, includes the renewal period in the lease term. These operating leases do not contain material variable rent payments, residual value guarantees, covenants, or other restrictions. The Company has elected the practical expedient to exclude short-term leases from its ROU assets and lease liabilities; therefore leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company elected the practical expedient not to separate non-lease components from all leases. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company’s incremental borrowing rate is the estimated rate that would be required to pay for a collateralized borrowing equal to the total lease payment over the lease term. The Company estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own. Operating lease assets and liabilities are classified on the consolidated balance sheet as follows: Leases Assets Operating lease assets Total leased assets Liabilities Current Operating lease liabilities Noncurrent Operating lease liabilities Total lease liabilities Classification Other assets Accounts payable, accrued expenses and other liabilities Long-term other liabilities F-21 December 31, 2019 (in thousands) $ $ $ $ 13,246 13,246 6,456 9,222 15,678 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Operating lease costs for the year ended December 31, 2019 are as follows: Lease Cost Classification Operating lease cost Short-term lease cost Variable lease cost Sublease income Net lease cost Selling, general and administrative expenses Selling, general and administrative expenses Selling, general and administrative expenses Other income, net $ $ Year Ended December 31, 2019 (in thousands) 6,176 2,203 829 (788) 8,420 The weighted-average remaining term of the Company’s operating leases was 2.7 years and the weighted-average discount rate used to measure the present value of the Company’s operating lease liabilities was 4.0% as of December 31, 2019. Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of December 31, 2019 are as follows: Maturity of Lease Liabilities 2020 2021 2022 2023 2024 Thereafter Total lease payments Less: Present value discount Total operating lease liabilities Operating leases (in thousands) 6,949 5,978 2,269 965 402 — 16,563 (885) 15,678 $ $ Cash payments included in the measurement of the Company’s lease liabilities were $7.5 million for the year ended December 31, 2019. 8. Accounts Payable, Accrued Expenses and Other Liabilities Accounts payable, accrued expenses and other liabilities consisted of the following: 2019 December 31, (in thousands) 2018 Accounts payable Accrued employee compensation Accrued contracted services Accrued rebates, discounts and other incentives Operating lease liabilities Other liabilities Accounts payable, accrued expenses and other liabilities $ $ 18,975 26,483 74,486 21,529 6,456 6,039 153,968 $ $ 11,765 20,335 54,681 11,673 — 6,655 105,109 F-22 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Research & Development Tax Credit The Company benefits from the U.K. Small and Medium-sized Enterprise R&D Tax Credit scheme, or the SME scheme, under which it can obtain a refundable credit of up to 33.4% of eligible research and development expenses incurred by the Company in the U.K.. Eligible expenses generally include employment costs for research staff, consumables, software and certain internal overhead costs incurred as part of research projects. The Company submitted a claim seeking to obtain tax credits for qualifying R&D expenses incurred in the years ended December 31, 2015 and 2016. In September 2019, the Company received a partial payment of $10.5 million from Her Majesty’s Revenue and Customs, the U.K.’s government tax authority. Given the claim review has not been finalized, the credit received is recorded as a deferred liability within accounts payable, accrued expenses and other liabilities. 9. Long-Term Debt Debt, net of discounts and deferred financing costs, consisted of the following: 2023 Convertible Notes 2026 Convertible Notes Long-term debt, gross Less: Unamortized debt discounts and fees Long-term debt, net 2019 Offering December 31, 2019 2018 (in thousands) $ $ 460,000 230,000 690,000 (157,922) 532,078 $ $ 460,000 — 460,000 (88,750) 371,250 On May 14, 2019, the Company issued and sold $230.0 million aggregate principal amount of 2.00% Convertible Senior Notes due 2026 (the “2026 Convertible Notes”). The Company received net proceeds from the sale of the 2026 Convertible Notes of $223.4 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $6.6 million. The 2026 Convertible Notes were issued pursuant to a Second Supplemental Indenture, dated as of May 14, 2019 (the “Second Supplemental Indenture”), which supplements the Indenture (the “Base Indenture”), as supplemented by a First Supplemental Indenture (the “First Supplemental Indenture” and collectively with the Base Indenture and the Second Supplemental Indenture, the “Indenture”), each dated as of July 6, 2016, by and between the Company and U.S. Bank National Association, as trustee. The 2026 Convertible Notes are senior unsecured obligations of the Company, bear interest at a fixed rate of 2.00% per annum (payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2019) and will mature on May 15, 2026, unless earlier repurchased, redeemed or converted. Holders may convert their 2026 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 15, 2026 only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ended on September 30, 2019, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period in which the trading price (as defined in the Indenture) per $1,000 principal amount of 2026 Convertible Notes for each trading day of such five consecutive trading day period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the 2026 Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate F-23 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS events. On or after February 15, 2026 until the close of business on the business day immediately preceding the maturity date, holders may convert their 2026 Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion of the 2026 Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock (and cash in lieu of any fractional shares) or a combination of cash and shares of the Company’s common stock, at the Company’s election. The initial conversion rate of the 2026 Convertible Notes is 9.2123 shares of the Company’s common stock per $1,000 principal amount of 2026 Convertible Notes, which is equivalent to an initial conversion price of approximately $108.55 per share of the Company’s common stock. The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2026 Convertible Notes in connection with such a corporate event in certain circumstances. The Company may not redeem the 2026 Convertible Notes prior to May 20, 2023. The Company may redeem for cash all or any portion of the 2026 Convertible Notes, at the Company’s option, on or after May 20, 2023, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2026 Convertible Notes. If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their 2026 Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Indenture provides for customary events of default. In accordance with ASC Subtopic 470-20, “Debt with Conversion and Other Options” (“ASC 470-20”), the Company used an effective interest rate of 9.9% to determine the liability component of the 2026 Convertible Notes. This resulted in the recognition of $137.5 million as the liability component of the 2026 Convertible Notes and the recognition of the residual $85.9 million as the debt discount with a corresponding increase to additional paid-in capital for the equity component of the 2026 Convertible Notes. The underwriting discount and estimated offering expenses totaling $6.6 million were allocated between the debt and equity issuance costs in proportion to the allocation of the liability and equity components of the 2026 Convertible Notes. Accordingly, equity issuance costs of $2.5 million were recorded as an offset to additional paid-in capital and total debt issuance costs of $4.1 million were recorded on the issuance date and are reflected in the consolidated balance sheet as a direct deduction from the carrying value of the associated debt liability. The debt discount and debt issuance costs will be amortized as non-cash interest expense through May 15, 2026. The fair value of the 2026 Convertible Notes was approximately $294.9 million at December 31, 2019 and was determined using Level 2 inputs based on quoted market values. 2016 Offerings On July 6, 2016, the Company issued and sold $460.0 million aggregate principal amount of 3.25% Convertible Senior Notes due 2023 (the “2023 Convertible Notes”, and together with the 2026 Convertible Notes, the “Convertible Notes”). The Company received net proceeds from the sale of the 2023 Convertible Notes of $447.6 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $12.4 million. The Company used approximately $38.4 million of such net proceeds to fund the cost of the Capped Call Transactions (as defined below) that were entered into in connection with the issuance of the 2023 Convertible Notes. The 2023 Convertible Notes were issued pursuant to the Base Indenture, as supplemented by the First Supplemental Indenture. The 2023 Convertible Notes are senior unsecured obligations of the Company, bear interest at a fixed rate of 3.25% per year (payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2017) and will mature on July 1, 2023, unless earlier repurchased, redeemed or converted. Holders may convert their 2023 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding F-24 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 1, 2023 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ended on September 30, 2016, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period in which the trading price (as defined in the Indenture) per $1,000 principal amount of 2023 Convertible Notes for each trading day of such five consecutive trading day period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the 2023 Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events. On or after January 1, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2023 Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion of the 2023 Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock (and cash in lieu of any fractional shares) or a combination of cash and shares of the Company’s common stock, at the Company’s election. The initial conversion rate of the 2023 Convertible Notes is 5.0358 shares of the Company’s common stock per $1,000 principal amount of 2023 Convertible Notes, which is equivalent to an initial conversion price of approximately $198.58 per share of the Company’s common stock. The conversion rate is subject to adjustment upon the occurrence of certain events but will not be adjusted for any accrued and unpaid interest. If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their 2023 Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2023 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if certain make-whole fundamental changes occur, the Company will, in certain circumstances, increase the conversion rate for any 2023 Convertible Notes converted in connection with such make-whole fundamental change. The Company may not redeem the 2023 Convertible Notes prior to July 6, 2021. The Company may redeem for cash all or part of the 2023 Convertible Notes, at its option, on or after July 6, 2021, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2023 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The Indenture provides for customary events of default. On June 30, 2016, in connection with the pricing of the 2023 Convertible Notes, the Company entered into privately- negotiated capped call transactions (the “Base Capped Call Transactions”) with each of Royal Bank of Canada, UBS AG, London Branch, and Credit Suisse Capital LLC (the “Option Counterparties”). On July 1, 2016, in connection with the underwriters’ exercise of their over-allotment option in full, the Company entered into additional capped call transactions (the “Additional Capped Call Transactions” and, together with the Base Capped Call Transactions, the “Capped Call Transactions”) with the Option Counterparties. The Capped Call Transactions are expected generally to reduce the potential dilution with respect to the Company’s common stock and/or offset the cash payments the Company would be required to make in excess of the principal amount of converted 2023 Convertible Notes, as the case may be, upon conversion of the 2023 Convertible Notes in the event that the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions, which initially corresponds to the conversion price of the 2023 Convertible Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the 2023 Convertible Notes. The cap price of the Capped Call Transactions is initially $262.2725 per share, and is subject to certain adjustments under the terms of the Capped Call Transactions. If, however, the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, upon conversion of the Convertible Notes to the extent that such market price exceeds the cap price of the Capped Call Transactions. F-25 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In accordance with ASC 470-20, the Company used an effective interest rate of 8.4% to determine the liability component of the 2023 Convertible Notes. This resulted in the recognition of $334.4 million as the liability component of the 2023 Convertible Notes and the recognition of the residual $113.1 million as the debt discount with a corresponding increase to additional paid-in capital for the equity component of the 2023 Convertible Notes. The fair value of the 2023 Convertible Notes was approximately $463.5 million and $410.9 million at December 31, 2019 and December 31, 2018, respectively, and was determined using Level 2 inputs based on quoted market values. Interest Expense on Convertible Notes Interest expense was $41.1 million, $30.5 million, and $29.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to the Convertible Notes. Accrued interest on the Convertible Notes was approximately $8.1 million and $7.5 million as of December 31, 2019 and December 31, 2018, respectively. The Company recorded debt issuance costs of $19.0 million, which are being amortized using the effective interest method. As of December 31, 2019 and 2018, $13.2 million and $8.8 million, respectively, of debt issuance costs are recorded on the consolidated balance sheets in Long-term debt, in accordance with ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” As of December 31, 2019, $230.0 million aggregate principal amount of the 2026 Convertible Notes and $460.0 million aggregate principal amount of the 2023 Convertible Notes was outstanding, for a total of $690.0 million aggregate principal amount outstanding. 10. Product Revenue, Net The Company recognized net sales of Ocaliva of $249.6 million, $177.8 million and $129.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. The table below summarizes consolidated product revenue, net by region: Product revenue, net: U.S. ex-U.S. Total product revenue, net 11. Fair Value Measurements 2019 Years Ended December 31, 2018 (in thousands) 2017 $ $ 187,436 62,134 249,570 $ $ 140,822 36,960 177,782 $ $ 115,807 13,368 129,175 The carrying amounts of the Company’s receivables and payables approximate their fair value due to their short maturities. Accounting principles provide guidance for using fair value to measure assets and liabilities. The guidance includes a three-level hierarchy of valuation techniques used to measure fair value, defined as follows: ● Unadjusted Quoted Prices — The fair value of an asset or liability is based on unadjusted quoted prices in active markets for identical assets or liabilities (Level 1). ● Pricing Models with Significant Observable Inputs — The fair value of an asset or liability is based on information derived from either an active market quoted price, which may require further adjustment based on the attributes of the financial asset or liability being measured, or an inactive market transaction (Level 2). F-26 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ● Pricing Models with Significant Unobservable Inputs — The fair value of an asset or liability is primarily based on internally derived assumptions surrounding the timing and amount of expected cash flows for the financial instrument. Therefore, these assumptions are unobservable in either an active or inactive market (Level 3). The Company considers an active market as one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Conversely, the Company views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, non-performance risk, or that of a counterparty, is considered in determining the fair values of liabilities and assets, respectively. The Company’s cash deposits and money market funds are classified within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted market prices. Investments are classified as Level 2 instruments based on market pricing and other observable inputs. Financial assets carried at fair value are classified in the tables below in one of the three categories described above: December 31, 2019 Assets Cash and cash equivalents: Money market funds Commercial paper Available-for-sale investment debt securities: Commercial paper Corporate debt securities Total financial assets December 31, 2018 Assets Money market funds (included in cash and cash equivalents) Available-for-sale investment debt securities: Commercial paper Corporate debt securities U.S. government and agency securities Total financial assets Total Level 1 Level 2 Level 3 Fair Value Measurements Using (in thousands) $ 19,376 7,498 $ 19,376 — $ — $ 7,498 42,848 539,719 $ 609,441 42,848 — — 539,719 $ 590,065 $ 19,376 $ $ 11,647 $ 11,647 $ — $ 34,327 349,177 9,408 $ 404,559 — 34,327 — 349,177 9,408 — $ 392,912 $ 11,647 $ — — — — — — — — — — The gross realized gains and losses on sales of available-for-sale investment debt securities were immaterial for the fiscal years ended December 31, 2019, 2018, and 2017. F-27 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated fair value of marketable debt securities (commercial paper, corporate debt securities and U.S. government and agency securities) as of December 31, 2019 and 2018, respectively, by contractual maturity, are as follows: Due in one year or less Due after one year through two years Total investments in debt securities Fair Value as of December 31, 2019 2018 (in thousands) $ $ 473,602 116,463 590,065 $ $ 319,717 73,195 392,912 Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties. 12. Stockholders’ Equity and Preferred Stock 2019 Public Offering and Concurrent Private Placement On May 14, 2019, the Company issued and sold (i) 2,760,000 shares of common stock in a registered public offering (including 360,000 shares issued and sold upon the exercise in full of the underwriters’ option to purchase additional shares), at a price to the public of $83.50 per share (the “2019 Public Offering”) and (ii) 119,760 shares of common stock (the “2019 Private Placement Shares”) in a concurrent private placement of common stock (the “2019 Concurrent Private Placement”) exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), at a purchase price per share equivalent to the price to the public set in the 2019 Public Offering and pursuant to a securities purchase agreement (the “2019 Securities Purchase Agreement”) that the Company entered into with Samsara BioCapital, L.P. (“Samsara”), one of the Company’s existing stockholders. Pursuant to the 2019 Securities Purchase Agreement, the Company granted to Samsara certain registration rights requiring the Company, upon request of Samsara on or after July 9, 2019 and subject to certain terms and conditions, to register the resale by Samsara of its 2019 Private Placement Shares. Such registration rights expire upon the earlier of (i) May 8, 2020 and (ii) the date that all of the 2019 Private Placement Shares have been sold or can be sold publicly under Rule 144 of the Securities Act on a single day. As of the date of this Annual Report on Form 10-K, Samsara has not exercised any such registration rights. The net proceeds to the Company from the 2019 Public Offering and the 2019 Concurrent Private Placement were approximately $227.3 million, after deducting underwriting discounts, commissions and estimated offering expenses of approximately $13.9 million. 2018 Public Offering and Concurrent Private Placement On April 9, 2018, the Company issued and sold (i) 2,695,313 shares of common stock in a registered public offering (including 351,563 shares issued and sold upon the exercise in full of the underwriters’ option to purchase additional shares), at a price to the public of $64.00 per share (the “2018 Public Offering”) and (ii) 1,562,500 shares of common stock (the “2018 Private Placement Shares”) in a concurrent private placement (the “2018 Concurrent Private Placement”) exempt from the registration requirements of the Securities Act, at a purchase price per share equivalent to the price to the public set in the 2018 Public Offering and pursuant to a securities purchase agreement (the “2018 Securities Purchase Agreement”) that the Company entered into with the purchasers in the 2018 Concurrent Private Placement (the “Private Placement Purchasers”). Pursuant to the 2018 Securities Purchase Agreement, the Company granted to the Private Placement Purchasers certain registration rights which expired on April 4, 2019. F-28 Table of Contents Common Stock INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2019 and 2018, the Company had 45,000,000 authorized shares of common stock, par value $0.001 per share. Dividends Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Company’s board of directors out of funds legally available for dividend payments. The Company has never declared or paid any cash dividends on its common stock, and does not anticipate paying any cash dividends on its common stock in the foreseeable future. The Company intends to retain all available funds and any future earnings to fund the development and expansion of its business. Any future determination to pay dividends will be at the discretion of the board of directors and will depend upon a number of factors, including the results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the board of directors deems relevant. Voting Holders of common stock are entitled to one vote for each share held with respect to all matters submitted to a vote of the stockholders and do not have cumulative voting rights. Preferred Stock As of December 31, 2019 and 2018, the Company had 5,000,000 authorized shares of preferred stock, par value $0.001 per share, of which none are issued. 13. Stock Compensation The Company’s 2012 Equity Incentive Plan (“2012 Plan”) became effective upon the pricing of its initial public offering in October 2012 (the “IPO”). At the same time, the Company’s 2003 Stock Incentive Plan (“2003 Plan”) was terminated and 555,843 shares available under the 2003 Plan were added to the 2012 Plan. On January 1, 2019 and 2018, the number of shares available for issuance under the 2012 Plan increased by 1,187,599 and 1,010,693 shares, respectively, as a result of the automatic increase provisions thereof. The estimated fair value of the stock options granted in the year ended December 31, 2019 was determined utilizing a Black-Scholes option-pricing model at the date of grant. The fair value of the restricted stock units (“RSUs”) granted in the year ended December 31, 2019 was determined utilizing the closing price of the Company’s common stock on the date of grant. The fair value of the performance restricted stock units (“PRSUs”) granted in the year ended December 31, 2019 was determined utilizing the Monte Carlo simulation method. There were approximately 2.8 million and 2.2 million shares available for grant remaining under the 2012 Plan at December 31, 2019 and 2018, respectively. F-29 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock Options and Performance-Based Stock Options The Company’s combined outstanding employee and non-employee option activity for the period from December 31, 2018 through December 31, 2019 is summarized as follows: Outstanding at December 31, 2018 Granted Exercised Cancelled/forfeited Expired Outstanding at December 31, 2019 Expected to vest Exercisable Number of Options (in thousands) Weighted Average Exercise Price 1,874 551 (179) (176) (89) 1,981 885 1,096 $ $ $ $ $ $ $ $ 97.64 101.85 37.82 92.35 156.71 99.87 89.24 108.45 Weighted Average Remaining Contractual Term (years) 7.5 $ — $ — $ — $ — $ $ 7.4 $ 8.5 $ 6.5 Aggregate Intrinsic Value (in thousands) 45,381 — — — — 65,662 32,201 33,460 The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the deemed fair value of the Company’s common stock for those options that had exercise prices lower than the deemed fair value of the Company’s common stock. The weighted-average grant date fair value of options granted in the years ended December 31, 2019, 2018 and 2017 was $74.78, $41.18 and $63.65 per option, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2019, 2018 and 2017 was $10.2 million, $14.1 million and $9.4 million, respectively. As of December 31, 2019, the total compensation cost related to non-vested option awards not yet recognized is approximately $51.3 million with a weighted average remaining vesting period of 1.26 years. The Company estimated the fair value of stock options granted in the periods presented utilizing a Black-Scholes option- pricing model utilizing the following assumptions: Years Ended December 31, Volatility Expected term (in years) Risk-free rate Expected dividend yield 2017 2019 2018 86.9 - 89.9 % 62 - 73 % 61- 65 % 5.5 - 6.0 6.0 1.4 - 2.9 % 1.8 - 3.0 % 1.8 - 2.4 % % — % — % 6.0 - 9.9 — Effective January 1, 2019, the Company changed its expected volatility assumption to be determined based on the actual historical stock price volatility of the Company over the expected term given the availability of sufficient historical trading data. In prior years, the expected volatility was estimated based on historical volatility information of publicly-traded peer companies. The Company has in the past, and may in the future, grant performance-based stock option awards with vesting terms based on the achievement of specified goals. To the extent such awards do not contain a market condition, the Company recognizes no expense until achievement of the performance requirement is deemed probable. In April 2014, the Company issued 57,063 performance-based options to certain employees that will vest upon the achievement of certain regulatory milestones related to OCA at future dates. In November 2014, the Company issued an additional 10,839 performance-based options that will vest upon the achievement of the same regulatory milestones. As F-30 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of both December 31, 2019 and 2018, the achievement of such milestones was not deemed to be probable and no stock-based compensation expense was recognized for these performance-based options. Restricted Stock Units and Awards & Performance-Based Restricted Stock Units and Awards The following table summarizes the aggregate RSU, RSA, PRSU and performance restricted share award (“PRSA”) activity for the year ended December 31, 2019: Non-vested awards at December 31, 2018 Granted Vested Forfeited Non-vested awards at December 31, 2019 Number of Awards (in thousands) Weighted Average Grant Date Fair Value $ 773 395 $ (358) $ (101) $ 709 $ 76.10 107.29 83.45 85.74 88.39 For the years ended December 31, 2019, 2018 and 2017, the weighted-average grant date fair value of RSUs, RSAs, PRSUs and PRSAs granted was $107.29, $65.28 and $102.35, respectively. The total fair value of RSUs, RSAs, PRSUs and PRSAs that vested during the years ended December 31, 2019, 2018 and 2017 was $29.8 million, $24.0 million and $16.7 million, respectively. As of December 31, 2019, there was $48.3 million of unrecognized compensation expense related to unvested RSUs, RSAs, PRSUs, and PRSAs, which is expected to be recognized over a weighted average period of 1.33 years. During the years ended December 31, 2019 and 2018, the Company granted a total of 57,800 and 51,200 PRSUs to certain of the Company’s executive officers. During the year ended December 31, 2018, the Company granted a total of 4,300 PRSAs to certain of the Company’s executive officers. The performance criterion for such PRSUs and PRSAs is based on the Total Shareholder Return (“TSR”) of the Company’s common stock relative to the TSR of the companies comprising the S&P Biotechnology Select Industry Index (the “TSR Peer Group”) over a 3-year performance period and is accounted for as a market condition under ASC 718. The TSR for the Company or a member of the TSR Peer Group is calculated by dividing (a) the difference of the ending average stock price minus the beginning average stock price by (b) the beginning average stock price. The beginning average stock price equals the average closing stock price over the one calendar month period prior to the beginning of the performance period, after adjusting for dividends, as applicable. The ending average stock price equals the average closing price over the one calendar month period ending on the last day of the performance period, after adjusting for dividends, as applicable. The Company’s relative TSR is then used to calculate the payout percentage, which may range from zero percent (0%) to one hundred and fifty percent (150%) of the target award. The Company utilized a Monte Carlo Simulation to determine the grant date fair value of such PRSUs and PRSAs. The Company recorded approximately $4.0 million and $1.3 million of stock-based compensation related to such PRSUs and PRSAs during the years ended December 31, 2019 and 2018, respectively. The Company accounts for all forfeitures when they occur. Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest and are not forfeited. The Company has in the past, and may in the future, grant performance-based awards with vesting terms based on the achievement of specified goals. To the extent such awards do not contain a market condition, the Company recognizes no expense until achievement of the performance requirement is deemed probable. F-31 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-based compensation expense has been reported in the Company’s statements of operations as follows: Selling, general and administrative Research and development Total stock-based compensation 14. Employee Benefit Plans $ $ 2019 Years Ended December 31, 2018 (In thousands) 38,361 $ 11,553 49,914 $ $ $ 43,170 12,812 55,982 2017 40,004 16,964 56,968 The Company maintains a defined contribution plan, which is qualified under section 401(k) of the Internal Revenue Code for U.S. employees. Employees may make contributions by withholding a percentage of their salary up to the Internal Revenue Service annual limit of $19,000 and $25,000 in 2019 for employees under 50 years old and employees 50 years old or over, respectively. The Company’s matching contribution vests over four years from the start of employment. The Company made approximately $1.4 million, $1.9 million and $2.7 million in matching contributions for the years ended December 31, 2019, 2018 and 2017, respectively. 15. Income Taxes The components of loss before income taxes for the years ended December 31, 2019, 2018 and 2017 includes the following: United States Foreign Total 2019 Years Ended December 31, 2018 (in thousands) $ (95,708) $ (72,655) $ (102,586) (248,973) (257,781) (236,587) $ (344,681) $ (309,242) $ (360,367) 2017 Income tax expense (benefit) differed from the amounts computed by applying the statutory U.S. Federal income tax rate of 21% (21% for 2018 and 34% for 2017) to loss before income taxes as a result of the following: Computed "expected" tax benefit State taxes, net of U.S. Federal benefit U.S. Federal rate reduction U.S. Federal valuation allowance Stock-based compensation Officer compensation Foreign valuation allowance Foreign tax rate differences Other Total F-32 2017 2019 — — — — Years Ended December 31, 2018 (in thousands) $ (72,383) $ (64,941) $ (122,525) — 84,787 282 (49,391) 26 52,521 35,125 (825) — 14,786 4,609 508 19,349 32,936 195 — $ 9,352 6,423 22 44,896 4,787 (539) — $ $ Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2019 and 2018 are presented below: Deferred tax assets: U.S. and state net operating loss and other carryforwards Foreign net operating loss and other carryforwards Stock compensation Deferred revenue Accrued compensation Accrued expense Intangible property Interest limitation Other Deferred tax assets before valuation allowance Valuation allowance Total deferred tax assets Deferred tax liabilities: Convertible Notes Total deferred tax liabilities Net deferred tax asset (liability) Effects of the Tax Cuts and Jobs Act December 31, 2019 2018 (in thousands) $ $ 160,079 195,590 13,626 — 4,997 1,750 2,088 5,183 1,406 384,719 (353,677) 31,042 (31,042) (31,042) $ — $ 151,416 177,672 13,228 620 3,431 2,340 — 2,913 1,021 352,641 (338,852) 13,789 (13,789) (13,789) — In late 2017, the United States enacted the TCJA, which significantly changed U.S. Federal income tax law by implementing a reduction in the Federal corporate income tax rate to 21%, moving from a worldwide tax system towards a territorial system and imposing new or additional limitations on the deductibility of interest expense and executive compensation. Given the significance of the legislation, the staff of the U.S. Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allowed registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. For the year ended December 31, 2017, amounts recorded principally related to the reduction in the U.S. corporate income tax rate to 21%, which resulted in the Company reducing its net deferred tax asset and associated valuation allowance. At December 31, 2018, the Company completed its accounting of SAB 118 for all of the enactment-date income tax effects of the TCJA. The Company did not make any measurement-period adjustments and there were no additional material adjustments related to the TCJA. Net Operating Loss and other carryforwards As of December 31, 2019, and 2018, the Company had net operating loss carryforwards (“NOLs”) for U.S. Federal income tax purposes of $693.3 million and $658.4 million, respectively, and other carryforwards of $0.5 million. The enactment of the TCJA modified the ability of companies to utilize NOLs arising in tax years beginning on or after January 1, 2018 by providing that such NOLs may be carried-forward indefinitely and used to offset up to 80 percent of taxable income in any given future year. Existing NOLs that arose in tax years beginning prior to January 1, 2018 were not affected by the TCJA and are generally eligible to be carried-forward for up to 20 years and used to fully offset taxable income in future years. If not utilized, the Company’s pre-2018 NOLs and other carryforwards will expire for U.S. Federal income F-33 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS tax purposes between 2024 and 2037. The Company also has certain state NOLs in varying amounts depending on the different state tax laws. As of December 31, 2019, and 2018, the Company had NOLs for foreign income tax purposes of $1.1 billion and $870.3 million, respectively. Of our $1.1 billion of foreign tax loss carryforwards, approximately $1.0 billion may be carried forward indefinitely and the remainder will expire during the next 18 years. In addition, the Company’s ability to utilize its NOLs may be limited under Section 382 of the Internal Revenue Code or applicable state and foreign tax law. The Section 382 limitations apply if an “ownership change” occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). The Company has evaluated whether one or more ownership changes under Section 382 have occurred since its inception and has determined that there have been at least two such changes. Although the Company believes that these ownership changes have not resulted in material limitations on its ability to use these NOLs, its ability to utilize these NOLs may be limited due to future ownership changes or for other reasons. As a result, the Company may not be able to take full advantage of its carryforwards for U.S. Federal, state, and foreign tax purposes. Valuation Allowance At December 31, 2019 and 2018, the Company maintained a full valuation allowance on its deferred tax assets since it has not yet achieved sustained profitable operations. As a result, the Company has not recorded any income tax benefit since its inception. In 2019, the valuation allowance for deferred tax assets increased by approximately $14.8 million. This includes an increase of $14.8 million, $2.6 million and $19.3 million for U.S. Federal, state and foreign tax, respectively, partially offset by a decrease of $21.9 million to equity. The decrease to equity primarily related to the U.S. Federal and state impact of the equity component associated with the 2026 Convertible Notes. In 2018, the valuation allowance for deferred tax assets increased by approximately $56.1 million. This includes an increase of $9.4 million, $1.9 million and $44.9 million for U.S. Federal, state and foreign tax, respectively, partially offset by a decrease of $0.1 million to equity. Unrecognized Tax Benefits At December 31, 2019 and 2018, the Company had no reserves for unrecognized tax benefits. The Company and its subsidiaries are subject to taxation in the United States and various foreign jurisdictions. Of the major jurisdictions, the Company is subject to examination in: the United States for U.S. Federal purposes for 2016 and forward and generally for state purposes for 2015 and forward; and the United Kingdom for 2017 and forward. However, NOLs are subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin. 16. Commitments and Contingencies Facility Leases In May 2014, the Company entered into a lease agreement with respect to office space in San Diego, California. The Company leases approximately 47,000 square feet. The lease covering this property is scheduled to expire in July 2020. The Company will lease and occupy approximately 34,000 square feet of office space in San Diego under a separate lease that is expected to commence in August 2020 and scheduled to expire 60 months from the commencement date. In January 2016, Intercept Pharma Europe Ltd. (“IPEL”), a wholly owned subsidiary of the Company, entered into an underlease with respect to office space in London, United Kingdom. The Company is the guarantor to the underlease. IPEL leases approximately 8,600 square feet. The lease covering this property is scheduled to expire in May 2024. F-34 Table of Contents INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In November 2019, the Company entered into an amendment to the lease agreement with respect to office space at 10 Hudson Yards in New York, New York, where the Company’s corporate headquarters are located. The Company leases an aggregate of approximately 45,600 square feet of office space at this property. The lease covering this property is scheduled to expire in March 2022. The Company also leases office space in several other locations. Licenses The Company acquired a license from a third party to support the portfolio of product candidates. Under the license agreement with Aralez Pharmaceuticals Canada Inc. (“Aralez”) the Company has rights to develop and commercialize bezafibrate in the United States. The Company may pay up to $4.5 million upon the achievement of certain milestones, none of which is owed as of December 31, 2019. The Company is obligated to pay royalties to at a mid-single digit percentage of net product sales. Legal Proceedings The Company is involved in various disputes, governmental inquiries and investigations, legal proceedings and litigation in the course of its business, including the matters described below and, from time to time, intellectual property, employment and other litigation. These matters, which could result in damages, fines or other administrative, civil or criminal remedies, liabilities or penalties, are often complex and the outcome of such matters is often uncertain. The Company may from time to time enter into settlements to resolve such matters. On September 27, 2017, a purported shareholder class action, initially styled DeSmet v. Intercept Pharmaceuticals, Inc., et al, was filed in the United States District Court for the Southern District of New York, naming the Company and certain of its officers as defendants. The Court appointed lead plaintiffs in the lawsuit on June 1, 2018, and the lead plaintiffs filed an amended complaint on July 31, 2018, captioned Hou Liu and Amy Fu v. Intercept Pharmaceuticals, Inc., et al., naming the Company and certain of its current and former officers as defendants. The lead plaintiffs claim to be suing on behalf of anyone who purchased or otherwise acquired the Company’s common stock between June 9, 2016 and September 20, 2017. This lawsuit alleges that material misrepresentations and/or omissions of material fact were made in the Company’s public disclosures during the period from June 9, 2016 to September 20, 2017, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. The alleged improper disclosures relate to statements regarding Ocaliva dosing, use and pharmacovigilance-related matters, as well as the Company’s operations, financial performance and prospects. The plaintiffs seek unspecified monetary damages on behalf of the putative class, an award of costs and expenses, including attorney’s fees, and rescissory damages. On September 14, 2018, the Company filed a motion to dismiss the amended complaint. Separately, on January 5, 2018, a follow-on derivative suit, styled Davis v. Pruzanski et al., was filed in New York state court by shareholder Gregg Davis based on substantially the same allegations as those set forth in the securities case. On December 1, 2017, a purported shareholder demand was made on the Company based on substantially the same allegations as those set forth in the securities case. While the Company believes that it has a number of valid defenses to the claims described above and intends to vigorously defend itself, the matters are in the early stages of litigation and no assessment can be made as to the likely outcome of the matters or whether they will be material to the Company. Accordingly, an estimate of the potential loss, or range of loss, if any, to the Company relating to the matters is not possible at this time. In May 2018, the Company received a subpoena from the SEC requesting information in connection with the Company’s patient assistance program and certain of the Company’s commercial activities. The Company cooperated fully with the SEC in this matter and in late 2019 the SEC staff informed the Company that they had concluded the investigation and did not intend to recommend an enforcement action against the Company. F-35 Table of Contents 17. Net Loss Per Share INTERCEPT PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Basic loss per share is computed by dividing net loss attributable to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. For the years ended December 31, 2019, 2018 and 2017, as the Company was in a net loss position, the diluted loss per share computations for such periods did not assume the exercise of stock options or vesting of RSUs as they would have had an anti-dilutive effect on loss per share. The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as of December 31, 2019, 2018 and 2017 as the inclusion thereof would have been anti-dilutive: Shares issuable upon conversion of Conversion Notes Options Unvested restricted stock units Total 18. Quarterly Financial Data (unaudited) 2019 4,435 1,981 556 6,972 December 31, 2018 (in thousands) 2,316 1,874 441 4,631 2017 — 1,808 493 2,301 The following table summarizes the unaudited quarterly financial data for the years ended December 31, 2019 and 2018: March 31, June 30, September 30, December 31, Total (in thousands, except for per share amounts) Quarters Ended 2019 Total revenue Operating loss Net loss Net loss per common share - basic and diluted 2018 Total revenue Operating loss Net loss Net loss per common share - basic and diluted 19. Restructuring Charges $ 52,252 (83,945) (90,270) $ $ 35,963 (75,456) (81,590) $ $ $ 66,300 (63,659) (71,420) $ 61,950 (75,533) (84,833) (3.03) $ (2.28) $ (2.59) $ $ $ 43,575 (69,777) (75,193) $ 46,986 (58,286) (64,454) (3.22) $ (2.58) $ (2.18) $ 71,500 (89,290) (98,158) (2.99) 53,280 (81,971) (88,005) (2.97) $ 252,002 (312,427) (344,681) $ 179,804 (285,490) (309,242) In December 2017, the Company initiated a 15% reduction in the workforce and concurrently notified the affected employees. The reduction in force supports the Company’s strategy to fund its development organization with strategic collaborations and to focus the Company’s resources to progress its development and commercialization initiatives. The actions associated with the reductions were substantially completed during the fourth quarter of 2017 and, as a result of the reductions, the Company recorded a one-time restructuring charge of $5.2 million for termination benefits in the same period. Of this charge, $3.9 million was recorded in selling, general and administrative expense and $1.3 million was recorded in research and development expense. The restructuring charge associated with cash payments of $5.2 million were paid out in the first quarter of 2018. No restructuring charges were incurred for the years ended December 31, 2019 and 2018. F-36 Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 Description of the Registrant's Common Stock References to “Intercept," "our" and the “Company” herein are, unless the context otherwise indicates, only to Intercept Pharmaceuticals, Inc. and not to any of its subsidiaries. Exhibit 4.11 Description of Common Stock General The following is a summary of information concerning Intercept's common stock, par value $0.001 per share ("Common Stock"). The summaries and descriptions below do not purport to be complete statements of the relevant provisions of our restated certificate of incorporation and restated bylaws and are entirely qualified by, and should be read in conjunction with, these documents, each of which is filed as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.11 is a part. Common Stock Authorized Capital Stock and Shares Outstanding. Our authorized capital stock consists of 45,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2019, 32,853,066 shares of Common Stock were outstanding, and no shares of preferred stock were outstanding. All of the outstanding shares of our Common Stock are fully paid and nonassessable. Annual Meeting. Annual meetings of our stockholders are held on the date designated in accordance with our restated bylaws. Written notice must be mailed to each stockholder entitled to vote not less than ten nor more than 60 days before the date of the meeting. The presence in person or by proxy of the holders of record of a majority of our issued and outstanding shares entitled to vote at such meeting constitutes a quorum for the transaction of business at meetings of the stockholders. Special meetings of the stockholders may be called for any purpose only by our board of directors pursuant to a resolution adopted by a majority of the total number of directors. Except as may be otherwise provided by applicable law, our restated certificate of incorporation or our restated bylaws, all elections shall be decided by a plurality, and all other questions shall be decided by a majority, of the votes cast by stockholders entitled to vote thereon at a duly held meeting of stockholders at which a quorum is present. Voting Rights. Holders of our Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders and do not have cumulative voting rights. Dividends. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our board of directors out of funds legally available for dividend payments. Liquidation and Dissolution. In the event of any liquidation, dissolution or winding-up of our affairs, holders of Common Stock will be entitled to share ratably in any of our assets remaining after payment or provision for payment of all of our debts and obligations and after liquidation payments to holders of outstanding shares of preferred stock, if any. Other Rights. The holders of Common Stock have no preferences or rights of conversion, exchange, preemptive or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. Transfer Agent and Registrar. VStock Transfer, LLC is transfer agent and registrar for the Common Stock. NASDAQ Global Select Market. Our Common Stock is listed on The Nasdaq Global Select Market under the symbol “ICPT.” Anti-takeover Effects of Our Restated Certificate of Incorporation, Restated Bylaws and Delaware Law The provisions of Delaware law and our restated certificate of incorporation and restated bylaws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of our control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. Such provisions also may have the effect of preventing changes in our management. Delaware Business Combination Statute. We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which we refer to as the DGCL. With some exception, Section 203 of the DGCL prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is, or the transaction in which the person became an interested stockholder was, approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock of the corporation. The shares held by the interested stockholder are not counted as outstanding when calculating the two-thirds of the outstanding voting stock needed for approval. For purposes of Section 203 of the DGCL, a “business combination” is defined broadly to include a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and, subject to certain exceptions, an “interested stockholder” is a person who, together with his or her affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation’s outstanding voting stock. Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations of Directors. Our restated bylaws provide that, for nominations to the board of directors or for other business to be properly brought by a stockholder before a meeting of stockholders, a stockholder must first have given timely notice of the proposal in writing to our secretary. For an annual meeting, a stockholder’s notice generally must be delivered not less than 90 days nor more than 120 days prior to the first anniversary of the previous year’s annual meeting date; provided, that if the date of the annual meeting is more than 30 days before or more than 30 days after the anniversary of the previous year’s annual meeting date, such stockholder’s notice must be delivered not earlier than the close of business on the 120 day prior to such annual meeting and not later than the close of business on the later of the 90 day prior to such annual meeting or the close of business on the 10 day following the day on which public announcement of the date of such meeting is first made by us. For a special meeting, the notice must generally be delivered not earlier than the 90 day prior to the meeting and not later than the later of (1) the 60 day prior to the meeting or (2) the 10 day following the day on which public announcement of the meeting is first made. Detailed requirements as to the form of the notice and information required in the notice are specified in the restated bylaws. If it is determined that business was not properly brought before a meeting in accordance with our bylaws provisions, such business will not be conducted at the meeting. Special Meetings of Stockholders. Special meetings of the stockholders may be called only by our board of directors pursuant to a resolution adopted by a majority of the total number of directors. No Stockholder Action by Written Consent. Any action to be effected by our stockholders must be effected at a duly called annual or special meeting of the stockholders provided, however, our restated certificate of incorporation provides that if any one stockholder, together with its affiliates, collectively holds a majority of the voting power of the then-outstanding shares of our capital stock, action may be taken without a meeting and vote, through the written consent of holders of the requisite number of votes necessary to authorize or take such action at a meeting. Board of Directors. We do not have a classified board of directors. All of our directors are elected annually. The number of directors comprising our board of directors is fixed from time to time by the board of directors. Removal of Directors by Stockholders. Our restated bylaws provide that our directors may be removed with or without cause by the affirmative vote of the holders of a majority of the votes that all our stockholders would be entitled to cast in an annual election of directors, and our restated certificate of incorporation and restated bylaws provide that any vacancy on our board of directors, including a vacancy resulting from an increase in the size of our board of directors, may be filled only by vote of a majority of our directors then in office. Super Majority Stockholder Vote Required for Certain Actions. The DGCL provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless the corporation’s certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Our restated certificate of incorporation requires the affirmative vote of the holders of at least 80% of our outstanding voting stock to amend or repeal any of the provisions discussed in this section of this Exhibit entitled “Anti- takeover Effects of Our Restated Certificate of Incorporation, Restated Bylaws and Delaware Law.” This 80% stockholder vote would be in addition to any separate class vote that might in the future be required pursuant to the terms of any preferred stock that might then be outstanding. The affirmative vote of at least 80% of our outstanding voting stock is also required for any amendment to, or repeal of, our restated bylaws by the stockholders. Our restated bylaws may be amended or repealed by a simple majority vote of the board of directors. Exhibit 10.3 Option No.________ INTERCEPT PHARMACEUTICALS, INC. 2012 EQUITY INCENTIVE PLAN STOCK OPTION GRANT Stock Option Grant Notice (Employees and Consultants) Intercept Pharmaceuticals, Inc. (the “Company”) hereby grants to the participant named below (the “Participant”) an option of the type specified below (this “Option”) to purchase up to the number of shares of the Company’s common stock, par value $0.001 per share (the “Shares”), set forth below at the exercise price set forth below. This Option is subject to all of the terms and conditions set forth in this Stock Option Grant Notice (this “Grant Notice”), the Intercept Pharmaceuticals, Inc. 2012 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement attached hereto (the “Agreement”). Capitalized terms not defined in this Grant Notice but defined in the Agreement or the Plan will have the meanings assigned to such terms in the Agreement or the Plan, as applicable. Except as expressly provided in the Agreement, in the event of any conflict between the provisions of this Grant Notice or the Agreement and those of the Plan, the provisions of the Plan will control. 1. Name and Address of Participant: 2. 3. 4. 5. 6. 7. Date of Grant: Type of Option: Number of Shares Underlying Option: Exercise Price Per Share: Option Expiration Date: Vesting Commencement Date: 8. Vesting Schedule: This Option shall become exercisable (and the Shares issued upon exercise shall be vested) as follows provided the Participant is an Employee, director or Consultant of the Company or an Affiliate on the applicable vesting date (see vesting schedule below): [INSERT VESTING SCHEDULE] See Section 1(b) of the Agreement for vesting in the event of a Change of Control (as defined in the Agreement). The foregoing vesting provisions are cumulative and are subject to the other terms and conditions of the Agreement and the Plan. By accepting this Option, whether electronically or otherwise, the Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Agreement and the Plan. Unless otherwise specified in a written agreement between the Company and the Participant, this Grant Notice, the Agreement and the Plan set forth the entire understanding between the Participant and the Company regarding this Option and supersede all prior oral and written agreements on the terms of this Option. INTERCEPT PHARMACEUTICALS, INC. 2012 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT Pursuant to the Stock Option Grant Notice to which this agreement is attached (the “Grant Notice”) and this Stock Option Agreement (this “Agreement”), Intercept Pharmaceuticals, Inc. (the “Company”) has granted to the participant named in the Grant Notice (the “Participant”) an option of the type specified in the Grant Notice (this “Option”), under and for the purposes set forth in the Intercept Pharmaceuticals, Inc. 2012 Equity Incentive Plan (the “Plan”), to purchase up to the number of shares of the Company’s common stock, par value $0.001 per share (the “Shares”), indicated in the Grant Notice at the exercise price indicated in the Grant Notice (as may be adjusted from time to time in accordance with this Agreement and the Plan, the “Exercise Price”). Capitalized terms not defined in this Agreement or in the Grant Notice but defined in the Plan will have the meanings assigned to such terms in the Plan. The terms and conditions of this Option, in addition to those set forth in the Grant Notice and the Plan, are as follows: 1. EXERCISABILITY OF OPTION. (a) Subject to the terms and conditions set forth in this Agreement and the Plan, this Option shall become vested and exercisable as set forth in the Grant Notice. This Option shall continue to vest and become exercisable in accordance with its terms for so long as the Participant is an Employee, director or Consultant of the Company or an Affiliate. (b) Notwithstanding the foregoing, except to the extent specifically provided to the contrary in any employment agreement between the Participant and the Company or an Affiliate, in the event of (i) a Change of Control (as defined below) and the Participant’s service with the Company, the acquiring or succeeding corporation or any Affiliate of any of the foregoing is terminated by such entity for any reason other than for Cause within 12 months of the Change of Control, then, immediately prior to such termination, this Option, to the extent then-outstanding, shall become fully vested and exercisable, or (ii) a Corporate Transaction (as defined in Section 24(b) of the Plan) that is a Change of Control in which the acquiring entity does not assume this Option, then, immediately prior to the Change of Control, this Option, to the extent then-outstanding, shall become fully vested and exercisable. For purposes of this Agreement, “Change of Control” means the occurrence of any of the following events: (i) Ownership. Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then-outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates or any employee benefit plan of the Company); or (ii) Merger/Sale of Assets. (A) A merger or consolidation of the Company whether or not approved by the Board of Directors, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) more than 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (B) the sale or disposition by the Company of all or substantially all of the Company’s assets in a transaction requiring stockholder approval; or (iii) Change in Board Composition. A change in the composition of the Board of Directors, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date of grant, or (B) are elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company). 2. TERM OF OPTION. This Option shall terminate on the Option Expiration Date specified in the Grant Notice (provided, that if this Option is designated in the Grant Notice as an ISO and the Participant owns as of the date of grant of this Option more than 10% of the total combined voting power of all classes of capital stock of the Company or an Affiliate, such date may not be more than five years from the date of grant of this Option), but shall be subject to earlier termination as provided herein or in the Plan. If the Participant ceases to be an Employee, director or Consultant of the Company or an Affiliate for any reason other than the termination of the Participant for Cause (the date of such cessation of service, the “Termination Date”), this Option, to the extent then vested and exercisable, and not previously terminated in accordance with this Agreement, may be exercised by the Participant or, as applicable, the Participant’s Survivors on or prior to the earliest of the following: (i) in the event that the Participant ceases to be an Employee, director or Consultant of the Company or an Affiliate other than for Cause or due to the Disability or death of the Participant, the date that is three (3) months after the Termination Date; provided, that the commencement of such three-month period shall be tolled (subject to clause (iii) below) for so long as the sale of any Shares received upon exercise of this Option on or after the Termination Date (including in connection with a broker-assisted cashless exercise) would result in (a) short swing profit liability for the Participant under Section 16(b) of the Exchange Act or (b) a violation of the Company’s insider trading policy; provided, further, that, in the event of the Participant’s Disability or death within such period, the Participant or, as applicable, the Participant’s Survivors may exercise this Option on or prior to the date that is one (1) year after the Termination Date; (ii) in the event that the Participant ceases to be an Employee, director or Consultant of the Company or an Affiliate due to the Disability or death of the Participant, the date that is one (1) year after the Termination Date; or (iii) the Option Expiration Date specified in the Grant Notice. The unvested portion of this Option shall not be exercisable and shall expire and be cancelled on the Termination Date; provided, that, in the event that the Participant ceases to be an Employee, director or Consultant of the Company or an Affiliate due to the Disability or death of the Participant, and rights to exercise this Option accrue periodically, a pro rata portion of any additional vesting rights that would have accrued on the next vesting date had the Participant not become Disabled or died shall vest and become exercisable as of the Termination Date. Such proration shall be based upon the number of days accrued in the current vesting period prior to the date of the Participant’s termination of service due to Disability or death. If the Participant ceases to be an Employee of the Company or an Affiliate but continues after termination of employment to provide services to the Company or an Affiliate as a director or Consultant, this Option shall continue to vest and become exercisable until the Participant is no longer providing services to the Company or an Affiliate as set forth above; provided, that if this Option is designated in the Grant Notice as an ISO, it shall automatically convert and be deemed a Non-Qualified Option as of the date that is three months from termination of the Participant’s employment. In the event the Participant’s service is terminated by the Company or an Affiliate for Cause, the Participant’s right to exercise any unexercised portion of this Option (even if vested) shall cease immediately as of the time the Participant is notified his or her service is terminated for Cause, and this Option shall thereupon terminate. Notwithstanding anything herein to the contrary, if subsequent to the Participant’s termination, but prior to the exercise of this Option, the Administrator determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute Cause, then the Participant shall immediately cease to have any right to exercise this Option and this Option shall thereupon terminate. 3. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this Agreement, this Option may be exercised by written notice to the Company or its designee (in a form designated by the Company, which may include electronic notice) stating the number of Shares with respect to which this Option is being exercised. Payment of the Exercise Price for such Shares shall be made in accordance with Paragraph 9 of the Plan. The Company shall deliver such Shares as soon as practicable after the notice shall be received, provided, however, that the Company may delay issuance of such Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including, without limitation, state securities or “blue sky” laws). The Shares as to which this Option shall have been so exercised shall be registered in the Company’s share register in the name of the person so exercising this Option (or, if this Option shall be exercised by the Participant and if the Participant shall so request in the notice exercising this Option, shall be registered in the Company’s share register in the name of the Participant and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person exercising this Option. In the event this Option shall be exercised, pursuant to Section 2 hereof, by any person other than the Participant, such notice shall be accompanied by appropriate proof of the right of such person to exercise this Option. All Shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and nonassessable. 4. PARTIAL EXERCISE. Exercise of this Option to the extent above stated may be made in part at any time and from time to time within the above limits, except that no fractional share shall be issued pursuant to this Option. 5. PROHIBITIONS ON TRANSFER. This Option shall not be transferable by the Participant otherwise than by will or by the laws of descent and distribution. If this Option is a Non-Qualified Option then it may also be transferred pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder. Except as provided above in this Section 5, this Option shall be exercisable during the Participant’s lifetime only by the Participant (or, in the event of legal incapacity or incompetency, by the Participant’s guardian or representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of this Option or of any rights granted hereunder contrary to the provisions of this Section 5, or the levy of any attachment or similar process upon this Option shall be null and void. 6. NO RIGHTS AS STOCKHOLDER. The Participant shall have no rights as a stockholder with respect to Shares subject to this Option until registration of the Shares in the Company’s share register in the name of the Participant. Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date of such registration. 7. ADJUSTMENTS. This Option, including the number of Shares subject to this Option and the Exercise Price, shall be subject to adjustment from time to time as provided for in the Plan upon the occurrence of certain events described therein. 8. TAXES. The Participant acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares issuable pursuant to this Option shall be the Participant’s responsibility. The Participant acknowledges and agrees that (i) the Participant was free to use professional advisors of his or her choice in connection with his or her acceptance of this Option, has received advice from his or her professional advisors in connection with his or her acceptance of this Option, understands its meaning and import, and has accepted this Option freely and without coercion or duress; (ii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of this Option, the Shares subject to this Option or other matters contemplated hereby; and (iii) neither the Administrator, the Company, its Affiliates, nor any of its or their officers or directors, shall be held liable for any applicable costs, taxes, or penalties associated with this Option if, in fact, the Internal Revenue Service were to determine that this Option constitutes deferred compensation under Section 409A of the Code. The Participant agrees that the Company may withhold from the Participant’s remuneration, if any, the amount of federal, state and local withholding taxes attributable to such amount that is considered compensation includable in such person’s gross income in connection with the exercise of this Option and, as a condition to the exercise of this Option, the Participant shall make arrangements satisfactory to the Company to enable it to satisfy all such withholding requirements. Without limiting the generality of the foregoing, at the Company’s discretion, the amount required to be withheld may be withheld in cash from such remuneration, or in kind from the Shares otherwise deliverable to the Participant on exercise of this Option. The Participant further agrees that, to the extent the Company does not withhold an amount from the Participant’s remuneration sufficient to satisfy the Company’s income tax withholding obligation, the Participant will reimburse the Company on demand, in cash, for the amount under-withheld. 9. SECURITIES LAWS COMPLIANCE. The Participant specifically acknowledges and agrees that this Option and any delivery of Shares hereunder shall be subject to compliance with the requirements of the Securities Act and other applicable securities laws, rules or regulations. In addition, applicable securities laws, rules or regulations may restrict the ability of the Participant to resell Shares delivered hereunder, including due to the Participant’s affiliation with the Company. The Company shall not be obligated to issue the Shares if such issuance would violate any applicable securities law, rule or regulation. 10. NO OBLIGATION TO MAINTAIN RELATIONSHIP. The Participant acknowledges that: (i) the Company is not by the Plan or this Option obligated to continue the Participant as an Employee, director or Consultant of the Company or an Affiliate; (ii) the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (iii) the grant of this Option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options; (iv) all determinations with respect to future grants, if any, will be at the sole discretion of the Company; (v) the Participant’s participation in the Plan is voluntary; (vi) the value of this Option is an extraordinary item of compensation which is outside the scope of the Participant’s employment or consulting contract, if any; and (vii) this Option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments. 11. IF OPTION IS INTENDED TO BE AN ISO. If this Option is designated in the Grant Notice as an ISO, the Participant (or the Participant’s Survivors) may qualify for the favorable tax treatment provided to holders of options that meet the standards of Section 422 of the Code and any provision of this Option or the Plan which conflicts with the Code such that this Option would not be deemed an ISO shall be null and void, and any ambiguities shall be resolved so that this Option qualifies as an ISO. The Participant should consult with the Participant’s own tax advisors regarding the tax effects of this Option and the requirements necessary to obtain favorable tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. Notwithstanding the foregoing, to the extent that this Option is designated in the Grant Notice as an ISO, but would be deemed not to be an ISO pursuant to Section 422(d) of the Code because the Fair Market Value (determined as of the date of grant of this Option) of Shares with respect to which this Option becomes exercisable for the first time during any calendar year, when aggregated with the Fair Market Values (determined as of the respective dates of grant of such ISOs) of Shares with respect to which all other ISOs granted to the Participant become exercisable for the first time during such calendar year, exceeds $100,000, the portion of this Option representing such excess value shall be treated as a Non-Qualified Option (applied pro-rata over all vesting tranches of this Option in the applicable calendar year) and upon exercise the Participant shall have taxable income measured by the difference between the then Fair Market Value of the Shares received upon exercise and the price paid for such Shares pursuant to this Option. Neither the Company nor any Affiliate shall have any liability to the Participant, or any other party, if this Option (or any part thereof) is intended to be an ISO but is deemed not to be an ISO or for any action taken by the Administrator, including without limitation the conversion of an ISO to a Non-Qualified Option. 12. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION OF AN ISO. If this Option is designated in the Grant Notice as an ISO, the Participant agrees to notify the Company in writing immediately after the Participant makes a Disqualifying Disposition of any of the Shares acquired pursuant to the exercise of this Option. A “Disqualifying Disposition” is defined in Section 424(c) of the Code and includes any disposition (including any sale) of such Shares before the later of (a) two years after the date the Participant was granted the ISO or (b) one year after the date the Participant acquired Shares by exercising the ISO, except as otherwise provided in Section 424(c) of the Code. If the Participant has died before the Shares are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter. 13. NOTICES. Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, registered or certified mail, return receipt requested, addressed as follows: If to the Company: Intercept Pharmaceuticals, Inc. 10 Hudson Yards, 37 Floor New York, NY 10001 th Attention: General Counsel If to the Participant at the address set forth on the Grant Notice or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given upon the earlier of receipt, one business day following delivery to a recognized courier service or three business days following mailing by registered or certified mail. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this Option by electronic means. By accepting this Option, whether electronically or otherwise, the Participant consents to receive such documents by electronic delivery and to participate in the Plan through an online or electronic system established and maintained by the Company or another third party designated by the Company. 14. GOVERNING LAW. The Grant Notice and this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof. For the purpose of litigating any dispute that arises under the Grant Notice, this Agreement or the Plan, each of the Company and, by accepting this Option, whether electronically or otherwise, the Participant hereby consents to exclusive jurisdiction in New York and agrees that such litigation shall be conducted in the state courts of New York County, New York or the federal courts of the United States for the District of the Southern District of New York. 15. BENEFIT OF AGREEMENT. Subject to the provisions of the Plan and the other provisions hereof, the Grant Notice and this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 16. ENTIRE AGREEMENT. The Grant Notice and this Agreement, together with the Plan, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth in the Grant Notice or this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of the Grant Notice or this Agreement; provided, however, in any event, the Grant Notice and this Agreement shall be subject to and governed by the Plan. This Option is subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. In addition, this Option (and any compensation paid or shares issued pursuant to this Option) is subject to recoupment in accordance with The Dodd-Frank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. 17. MODIFICATIONS AND AMENDMENTS. The terms and provisions of the Grant Notice and this Agreement may be modified or amended as provided in the Plan. 18. WAIVERS AND CONSENTS. Except as provided in the Plan, the terms and provisions of the Grant Notice and this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of the Grant Notice or this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent. 19. DATA PRIVACY. By accepting this Option, whether electronically or otherwise, the Participant: (i) authorizes the Company and each Affiliate, and any agent of the Company or any Affiliate administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its Affiliates such information and data as the Company or any such Affiliate shall request in order to facilitate the grant of options and the administration of the Plan; (ii) waives any data privacy rights he or she may have with respect to such information or the sharing of such information; and (iii) authorizes the Company and each Affiliate to store and transmit such information in electronic form for the purposes set forth in the Grant Notice and this Agreement. 20. SEVERABILITY. If all or any part of the Grant Notice, this Award Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of the Grant Notice, this Award Agreement or the Plan not declared to be unlawful or invalid. Any section of the Grant Notice, this Award Agreement or the Plan (or part of such a section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such section or part of a section to the fullest extent possible while remaining lawful and valid. 21. NON-U.S. PARTICIPANTS. If the Participant works and/or resides outside of the United States, the applicable terms and conditions set forth in Appendix A shall apply to this Option. In addition, the Company reserves the right to impose other requirements on the Participant to the extent the Company determines that such requirements are necessary or advisable in order to comply with local law or facilitate the administration of the Plan and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. INTERCEPT PHARMACEUTICALS, INC. 2012 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT TERMS AND CONDITIONS FOR NON-U.S. PARTICIPANTS APPENDIX A This Appendix includes additional or different terms and conditions that govern this Option if the Participant works and/or resides outside of the United States. This Appendix forms part of the Stock Option Agreement to which it is attached (the “Agreement”). Capitalized terms not defined in this Appendix but defined in the Agreement or the Plan will have the meanings assigned to such terms in the Agreement or the Plan, as applicable. References within this Appendix to “you” refer to the Participant. These terms are general in nature, may not apply to your particular situation and are based on securities, tax and other laws that are often complex and subject to frequent change. As such, the Company strongly recommends that you do not rely on this summary as your only source of information relating to the consequences of your Option and participation in the Plan and further that you consult your personal tax or legal advisors for advice as to how the laws in your country apply to your situation. Note that if you are a citizen or resident of a country other than the one in which you are working, additional requirements, other than those described herein, may be applicable to you. 1. TAXES (REPLACING SECTION 8 OF THE AGREEMENT) ALL NON-U.S. PARTICIPANTS The Participant acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares issuable pursuant to this Option shall be the Participant’s responsibility. The Participant acknowledges and agrees that (i) the Participant was free to use professional advisors of his or her choice in connection with his or her acceptance of this Option, has received advice from his or her professional advisors in connection with his or her acceptance of this Option, understands its meaning and import, and has accepted this Option freely and without coercion or duress; and (ii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of this Option, the Shares subject to this Option or other matters contemplated hereby. The Participant agrees that the Company may withhold from the Participant’s remuneration, if any, the statutory or contractual amount of any federal, provincial, state, local and personal income taxes, wage tax and social security contributions (including, as applicable, UK National Insurance Contributions of any kind and Canada Pension Plan contributions) required by law or contract to be withheld or that the Participant has elected to bear (including, as applicable, employer National Insurance Contributions) in relation to the grant or exercise of this Option (“Participant Tax Liability”) and, as a condition to the grant or exercise of this Option (as applicable), the Participant shall make arrangements satisfactory to the Company to enable it to satisfy all such withholding requirements. Without limiting the generality of the foregoing, at the Company’s discretion, the amount required to be withheld may be withheld in cash from such remuneration. The Participant further agrees that, to the extent the Company does not withhold an amount from the Participant’s remuneration sufficient to satisfy the Company’s income or wage tax and social security withholding obligation, the Participant will reimburse the Company on demand, in cash, for the amount under-withheld. 2. WAIVER OF RIGHTS ON TERMINATION (EXCEPT FRANCE, PORTUGAL, SPAIN AND DENMARK) The Participant hereby waives all and any rights to compensation or damages in consequence of the termination of his or her office or employment with the Company or his or her employing entity for any reasons whatsoever (whether lawful or unlawful and including, without prejudice to the generality of the foregoing, in circumstances giving rise to a claim for wrongful dismissal) insofar as those rights arise or may arise from his or her ceasing to have rights under or being entitled to exercise this Option as a result of such termination, or from the loss or diminution in value of any rights or entitlements in connection with the Plan. The Plan and this Option do not form part of the Participant’s contract of employment. If the Participant ceases to be employed or engaged by the Company or any Affiliate for any reason (including as a result of a repudiatory breach of contract by the Company or its Affiliate), the Participant shall not be entitled, and by participating in the Plan the Participant shall be deemed irrevocably to have waived any entitlement, by way of compensation for loss of employment, breach of contract or otherwise, to any sum or other benefit to compensate the Participant for any rights or prospective rights under the Plan. This exclusion applies equally (and without limitation) to any loss arising from the way in which the discretion is (or is not) exercised under any provision of the Plan even if the exercise (or non-exercise) of such discretion is, or appears to be, irrational or perverse and/or breaches, or is claimed to breach any implied term of the Plan or any other contract between the Participant and the Participant’s employer. Participation in the Plan and any benefits provided under it shall not be pensionable nor will they count as pay or remuneration when calculating salary related benefits (including, but not limited to, pension). 3. DATA PRIVACY (IN ADDITION TO SECTION 19 OF THE AGREEMENT) (EXCEPT ITALY, PORTUGAL AND SPAIN) (a) The Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in the Agreement by and among, as applicable, his or her employing entity or contracting party and the Company for the exclusive purpose of implementing, administering and managing his or her participation in the Plan. (b) The Participant acknowledges the following: (i) the Company holds certain personal information about the Participant, including, but not limited to, his or her name, home address and telephone number, work location and phone number, date of birth, hire date, bank and payroll details, social security numbers, details of all awards or any other entitlement to shares awarded, cancelled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Personal Data”); (ii) providing or transferring Personal Data to the Company is necessary and essential to the Participant’s participation in the Plan and that the Participant’s refusal to provide Personal Data or withdrawal of consent to the collection, storage or transfer of Personal Data may affect the Participant’s ability to participate in the Plan since it would be impossible for the Company to comply with its contractual obligations under the Plan; (iii) the Participant’s Personal Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Participant’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country; (iv) the Participant has been informed that the Company shall not transfer Personal Data from the Participant’s country without requiring the recipient to comply with the requirements of the General Data Protection Regulation (as applicable) and applicable data protection laws, and that the Participant may request a list with the names and addresses of any potential recipients of the Personal Data by contacting his or her local human resources representative; (v) Personal Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan and any potential claim made by the Participant in relation to any award; and (vi) the Participant may, at any time, exercise the right of access, rectification and cancelation of the Participant’s personal data, oppose, request additional information about the storage and processing of Personal Data or refuse to the further processing of the Personal Data by contacting in writing the Participant’s local human resources representative (who can be identified on the Company’s intranet). ADDITIONAL COUNTRY-SPECIFIC PROVISIONS AUSTRALIA Financial product advice: The Participant acknowledges and agrees that advice provided by the Company (if any) in relation to this Option is of a general nature only and does not take into account the objectives, financial situation or needs of the Participant. The Participant should consider obtaining advice from a person who is licensed by the Australian Securities and Investments Commission to give such advice. The Company is not licensed to provide financial product advice in Australia in relation to options and there is no cooling-off regime in Australia that applies in respect of the grant of options. Risk of acquiring and holding Common Stock: The Participant acknowledges that there are risks of acquiring and holding Common Stock. Before accepting or exercising this Option, or acquiring the underlying Shares, the Participant should satisfy himself or herself that he or she has a sufficient understanding of these matters and should consider whether Common Stock is a suitable investment for the Participant, having regard to the investment objectives, financial circumstances and taxation position of the Participant. (a) The price at which Common Stock is quoted on the Nasdaq Global Select Market may decrease, even to the extent that the price is less than the price or prices paid for the Shares by the Participant. (b) There is no guarantee that an active market in Common Stock will continue. The number of potential buyers or sellers of Common Stock on the Nasdaq Global Select Market may vary at any time. This may increase the volatility of the market price of Common Stock. (c) The Company may not pay dividends on Common Stock at any particular level or at all. If the Company has paid dividends on Common Stock, it may cease to pay such dividends. (d) Holding Common Stock may have tax implications for the Participant and the tax regime applying to the Participant may change. Market price of Common Stock: The Participant could, from time to time, ascertain the market price of Common Stock in Australian Dollars by obtaining the market price from the Nasdaq Global Select Market website, the Company’s website or applicable U.S. publication, and multiplying that market price by a published exchange rate to convert U.S. Dollars into Australian Dollars. BELGIUM Timing and calculation basis of taxation. You are required to accept the offer of this Option in writing. If this Option is accepted by you on or prior to the 60th day following the offer, you will recognize taxable income on the 60th day following the date of the offer (date of grant), and you will be required to include the taxable income within your yearly income tax return covering the financial year during which occurred the date of grant. You will not be subject to income tax upon exercise of this Option. The amount of the taxable income is calculated as a certain percentage of the fair market value of the underlying shares at the date of the offer. The income will be taxed as compensation income and subject to income tax and social security contributions. If this Option is only accepted by you after the 60th day following the date of the offer, you will not recognize taxable income on the date of grant but upon exercise, and you will be required to include the taxable income within your yearly income tax return covering the financial year during which occurred the exercise of this Option. The amount of taxable income will then be calculated on the basis of the fair market value of the stock acquired. The income will be taxed as compensation income and subject to income tax and social security contributions. Capital gains on sale. The capital gains on the sale of the stock are not taxable to the extent you qualify as a Belgian tax resident. CANADA Term of Option. For purposes of Section 2 of the Agreement, “Termination Date” means the later of: (i) the date that is the last day of any statutory notice period applicable to the Participant pursuant to applicable employment standards legislation; and (ii) the date that is designated by the Company or Affiliate to which the Participant provides services as the last day of the Participant’s employment, term of office or engagement with the Company or Affiliate (as applicable); provided, that in the case of termination of employment by voluntary resignation by the Participant, such date shall not be earlier than the date notice of resignation was given. For certainty, except only as expressly required by applicable employment standards legislation, as amended or replaced, or agreed by the Company, no portion of this Option shall vest following the Participant’s Termination Date and no period of notice or payment in lieu of notice in respect of a termination of an office or employment without Cause shall extend such Termination Date. Method of Exercising Option. Payment of the Exercise Price for the Shares with respect to which this Option is exercised may not be made in either of the forms described in clause (b) or clause (c) of Paragraph 9 of the Plan. DENMARK Danish Stock Option Act. In accepting this Option, you acknowledge that you have received an Employer Statement translated into Danish, which is being provided to comply with the Danish Stock Option Act and which sets out the main terms of the Plan applying to you. To the extent more favorable to you and required to comply with the Stock Option Act, the terms set forth in the Employer Statement, including terms regarding vesting and forfeiture in connection with termination of your employment will apply to your participation in the Plan. Exchange Control Notification. If you establish an account holding Shares or cash outside Denmark, you must report the account to the Danish Tax Administration. The form which should be used in this respect can be obtained from a local bank. (Please note that these obligations are separate from and in addition to the obligations described below.) Securities and Tax Reporting Notification. You may hold Shares acquired under the Plan in a safety-deposit account (e.g., a brokerage account) with either a Danish bank or with an approved foreign broker or bank. If the Shares are held with a foreign broker or bank, you are required to inform the Danish Tax Administration about the safety-deposit account. For this purpose, you must file a Form V (Erklaering V) with the Danish Tax Administration. Both you and the broker or bank must sign the Form V. By signing the Form V, the broker or bank undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the Shares in the safety-deposit account. In the event that the applicable broker or bank with which the account is held does not wish to, or pursuant to the laws of the country in question, is not allowed to assume such obligation to report, you will be solely responsible for providing certain details regarding the foreign brokerage or bank account and any Shares acquired in connection with the Plan and held in such account to the Danish Tax Administration as part of your annual income tax return. By signing the Form V, you authorize the Danish Tax Administration to examine the account. A sample of the Form V can be found at the following website: www.skat.dk. In addition, if you open a brokerage account or a bank account with a U.S. bank, the account will be treated as a deposit account because cash can be held in the account. Therefore, you must also file a Form K (Erklaering K) with the Danish Tax Administration. Both you and the broker must sign the Form K. By signing the Form K, the broker or bank, as applicable, undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the content of the deposit account. In the event that the applicable financial institution (broker or bank) with which the account is held does not wish to, or pursuant to the laws of the country in question, is not allowed to assume such obligation to report, you will be solely responsible for providing certain details regarding the foreign brokerage or bank account to the Danish Tax Administration as part of your annual income tax return. By signing the Form K, you authorize the Danish Tax Administration to examine the account. A sample of Declaration K can be found at the following website: www.skat.dk. FRANCE Language Consent. By accepting the grant, you confirm that you have read and understood the documents relating to the grant (the Plan, the Grant Notice and the Agreement, including this Appendix) which were provided in the English language. You confirm that you are fluent in English, written and spoken. You accept the terms of these documents accordingly. Consentement Relatif à la Langue Utilisée. En acceptant l’attribution, vous confirmez avoir lu et compris les documents relatifs à l’attribution (le Plan, l’Avis et le Contrat, y compris cette Annexe) qui ont été communiqués en langue anglaise. Vous acceptez les termes de ces documents en connaissance de cause. Tax Notification. This Option is not intended to qualify for favorable tax or social security treatment in France. Exchange Control Notification. If you hold Shares outside of France or maintain a foreign bank account, you are required to report such to the French tax authorities when filing your annual tax return. GERMANY Taxes. The following provision supplements Section 1 of this Appendix A: For the avoidance of doubt, under Section 1 of this Appendix A (which replaces Section 8 of the Agreement), the Company, inter alia, has the authority to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy applicable taxes (including wage taxes (Lohnsteuern), solidarity surcharges (Solidaritätszuschläge), church taxes (Kirchensteuern) and social security contributions (Sozialversicherungsbeiträge)) arising from or relating to the (i) the grant, vesting or exercise of this Option or (ii) the delivery of the Shares. For the avoidance of doubt, Section 1 of this Appendix A shall remain unaffected. ITALY Data Privacy. The following provision replaces Section 3 of this Appendix A: You understand that the Company and/or any Affiliate may hold certain personal information about you, including, without limitation, your name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company or an Affiliate, details of all options, or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the exclusive purpose of implementing, managing, and administering the Plan (“Data”) and in compliance with applicable laws and regulations. You also understand that providing the Company with Data is necessary for the performance of the Plan and that your refusal to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect your ability to participate in the Plan. The Controller of personal data processing is Intercept Pharmaceuticals, Inc., 10 Hudson Yards, 37th Floor, New York, NY 10001 and pursuant to Art. 6 let. b) and c) of the General Data Protection Regulation (“GDPR”) and Legislative Decree no. 196/2003, its representative in Italy. You understand that Data will not be publicized, but it may be transferred to the Company’s designated broker/third party administrator for the Plan or such other stock plan service provider as may be selected by the Company in the future (any such entity, “Broker”), or other third parties involved in the management and administration of the Plan. You understand that Data may also be transferred to the independent registered public accounting firm engaged by the Company. You further understand that the Company and its Affiliates will transfer Data amongst themselves as necessary for the purposes of implementing, administering and managing your participation in the Plan, and that the Company and/or any Affiliate may each further transfer Data to third parties assisting the Company in the implementation, administration and management of the Plan, including any requisite transfer of Data to the Broker or other third party with whom you may elect to deposit any Shares acquired under the Plan. Such recipients may receive, possess, use, retain, and transfer Data in electronic or other form, for the purposes of implementing, administering, and managing your participation in the Plan. You understand that these recipients may be located in or outside the European Economic Area, such as in the United States or elsewhere, and in locations that might not provide the same level of protection as intended under Italian data privacy laws. In such case, the Company undertakes to comply with the applicable privacy law in order to ensure that the recipient meets the same standards provided by the European Union legislation, implementing appropriate and suitable safeguards, such as using standard clauses or equivalent safeguard measures as provided for by Art. 46 of the GDPR and paragraph 7 of Legislative Decree no. 196/2003. Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Plan, it will delete Data as soon as it has completed all the necessary legal obligations connected with the management and administration of the Plan. You understand that Data processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Data is collected and with confidentiality and security provisions, as set forth by applicable laws and regulations, with specific reference to Art. 6 let. b) and c) of the GDPR and Legislative Decree no. 196/2003. The processing activity, including communication, the transfer of Data abroad, including outside of the European Economic Area, as herein specified and pursuant to applicable laws and regulations, does not require your consent thereto, as the processing is necessary to performance of contractual obligations related to implementation, administration, and management of the Plan. You understand that, pursuant to Art. 15 of the GDPR and paragraph 7 of Legislative Decree no. 196/2003, you have the right to, without limitation, access, delete, update, correct, or terminate, for legitimate reason, the Data processing. Additionally, you understand that you may exercise the right to portability, within the limits set forth by Art. 20 of the GDPR. Furthermore, you are aware that Data will not be used for direct-marketing purposes. In addition, Data provided can be reviewed and questions or complaints can be addressed by contacting your local human resources representative. Grant Document Acknowledgment. In accepting the grant of this Option, you acknowledge that you have received a copy of the Plan, the Grant Notice and the Agreement, including this Appendix, and have reviewed the Plan, the Grant Notice and the Agreement, including this Appendix, in their entirety and fully understand and accepts all provisions thereof. Foreign Asset Reporting Notification. If you are an Italian resident and, during any fiscal year, hold investments or financial assets outside of Italy (e.g., cash, Shares) which may generate income taxable in Italy (or if you are the beneficial owner of such an investment or asset even if you do not directly hold the investment or asset), you are required to report such investments or assets on your annual tax return for such fiscal year (on UNICO Form, RW Schedule, or on a special form if you are not required to file a tax return). NORWAY Securities and Tax Reporting Notification. You may hold Shares acquired under the Plan in a safety-deposit account (e.g., a brokerage account) with either a Norwegian bank or with an approved foreign broker or bank. If the Shares are held with a foreign broker or bank, you are required to inform the Norwegian Tax Administration about the safety-deposit account. You do this on forms RF-1088 and RF-1059 in connection with filing your annual tax return (“selvangivelse”). Shares held with a Norwegian bank will be reported automatically. PORTUGAL Language Consent. By accepting the grant of this Option, you confirm that you have read and understood the documents relating to the grant (the Plan, the Grant Notice and the Agreement, including this Appendix) which were provided to you in English language. You confirm that you are fluent in English, written and spoken. You accept the terms of these documents accordingly. Grant Document Acknowledgment. In accepting the grant of this Option, you acknowledge that you have received a copy of the Plan, the Grant Notice and the Agreement, including this Appendix, and have reviewed the Plan, the Grant Notice and the Agreement, including this Appendix, in their entirety and fully understand and accept all provisions thereof. Tax Reporting Obligation. If the Shares acquired under the Plan are held with a foreign broker or bank, you are required to inform the Portuguese Tax Authorities about the existence of such account. For this purpose, within the annual submission of your personal income tax return you must file Annex J with the Portuguese Tax Administration, identifying the account by reference to the applicable IBAN – International Bank Account Number and BIC - Bank Identifier Code. Income arising out of the Plan and/or derived from the Shares is subject to reporting to the Portuguese Tax Authorities. Data Privacy. The following provision replaces Section 3 of this Appendix A: You understand that the Company holds certain personal information about you, including, but not limited to, your name, home address and telephone number, work location and phone number, date of birth, hire date, details of all awards or any other entitlement to shares awarded, cancelled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Personal Data”). You understand that the providing or transferring of Personal Data to the Company is necessary and essential to your participation in the Plan and that your refusal to provide Personal Data or withdrawal of consent to the collection, storage or transfer of Personal Data may affect your ability to participate in the Plan since it would be impossible for the Company to comply with its contractual obligations under the Plan. You understand that your Personal Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Participant’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country. You were informed that the personal data communicated outside of Portugal will be protected identically as provided for in Law No. 67/98, of 26 October, and that you may request a list with the names and addresses of any potential recipients of the Personal Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Personal Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan. You understand that Personal Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan and any potential claim of the Participant. You understand that you may, at any time, exercise of the right of access, rectification and cancelation of your personal data, oppose, request additional information about the storage and processing of Personal Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative (who can be identified on the Company’s intranet). SPAIN Taxes. The following provision supplements Section 1 of this Appendix A: Pursuant to Royal Decree-Law 13/2011 of 16 September (as amended), wealth tax (Impuesto sobre el Patrimonio) has been temporarily restored in Spain. If the Participant’s only foreign assets are the Shares and the value of the Shares on 31 December exceeds the specified threshold the Participant will be required to make a declaration to the Spanish tax authorities between 1 January and 31 March of the immediately following year. The Participant much declare foreign rights and assets including (i) ISIN code of Shares; (ii) the name and corporate domicile of the issuing company; and (iii) the number, class, and value of the Shares held as of 31 December. Exchange Controls. The Participant is responsible for complying with exchange control regulations in Spain. Declaration of the acquisition of Shares for statistical purposes to the Dirección General de Comercio e Inversiones (DGCI) of Ministerio de Economía is compulsory (i) if the purchase price exceeds the specified threshold; (ii) if the investor holds a stake of at least 10 percent in the Company; or (iii) if the investor belongs to the Company’ s board of directors. If Participants purchase any Shares through the use of a Spanish financial institution, the institution will automatically make the declaration to the DGCI; otherwise the Participant must make the declaration by filing the appropriate form with the DGCI. The Participant must also declare ownership of Shares with the DGCI in January of each year. Data Privacy. The following provisions replace Section 3 of this Appendix A: The Participant’s personal data will be processed by Intercept Pharmaceuticals, Inc. (the “Data Controller”) with a corporate domicile at 10 Hudson Yards, 37th Floor, New York, NY 10001. The purpose of the processing is to implement the Grant Notice and the Agreement under the Plan, verify eligibility conditions and develop and perform the contractual and legal obligations arising thereof. The processing of the Participant’s personal data is necessary for such purposes and its legal basis are the execution and development of the contractual relationship and, if applicable, the compliance with legal duties applicable to the Data Controller. Personal data will be processed whilst the Participant holds the relevant awards and, after this, for six years, or, exceptionally, for the period during which any kind of liability may arise from a legal or contractual obligation applicable to the Data Controller. The Participant’s personal data will be transferred outside the European Economic Area, to the United States, where Intercept Pharmaceuticals, Inc. is located. A copy of the relevant appropriate safeguards subscribed in order to carry out such international data transfer can be requested from human resources. Additionally, the Participant’s personal data may be disclosed only to those group companies which may have a legal basis for processing this personal data. The Participant may exercise his/her right of access, rights to rectification, erasure, objection, data portability, restriction of processing and any other right recognized by the applicable regulations from time to time, by sending a request to human resources. The Participant may also file any claim or request related to his or her data protection rights with the relevant supervisory authority. The personal data processed for the purposes described above derives from the execution of the Participant’s employment agreement or, in case that the Participant is an independent professional, the relevant services agreement. UNITED KINGDOM NIC Joint Election. Unless the Company permits otherwise, this Option may not be exercised unless and until the Company (or the employing entity) has received from the Participant a duly completed joint election with the Company and his or her employing entity (in the form prescribed by the Company from time to time) to the effect that the Participant will become liable, so far as permissible by law, for the whole of employer national insurance contributions which may arise in connection with this Option and the Shares which may be or are acquired on the exercise of this Option. Taxes. The following provision supplements Section 1 of this Appendix A: The amount of the Participant Tax Liability may be withheld in cash from such remuneration. The Participant further agrees that, if the Company does not withhold an amount from the Participant’s remuneration sufficient to satisfy the Participant Tax Liability, the Participant will reimburse the Company on demand, in cash, for the amount under-withheld. Without limiting the foregoing, the Participant agrees (i) that the Participant shall, promptly upon being requested to do so by the Company, the Participant’s employer or former employer (as appropriate), elect (using a form approved by HM Revenue & Customs) that the whole or any part of the liability for employer National Insurance Contributions shall be transferred to the Participant; and (ii) to enter into a joint election, under section 431(1) or 431(2) of the Income Tax (Earnings & Pensions) Act 2003, in respect of the Shares delivered pursuant to the award, if required to do so by the Company, the Participant’s employer or former employer, before, on or within 14 days after any date of delivery of such Shares. Exhibit 10.5 Restricted Stock Unit No.________ INTERCEPT PHARMACEUTICALS, INC. 2012 EQUITY INCENTIVE PLAN RESTRICTED STOCK UNIT GRANT Restricted Stock Unit Grant Notice (Employees and Consultants) Intercept Pharmaceuticals, Inc. (the “Company”) hereby grants to the participant named below (the “Participant”) the number of restricted stock units (“RSUs”) set forth below (this “Award”). This Award is subject to all of the terms and conditions set forth in this Restricted Stock Unit Grant Notice (this “Grant Notice”), the Intercept Pharmaceuticals, Inc. 2012 Equity Incentive Plan (the “Plan”) and the Restricted Stock Unit Agreement attached hereto (the “Agreement”). Capitalized terms not defined in this Grant Notice but defined in the Agreement or the Plan will have the meanings assigned to such terms in the Agreement or the Plan, as applicable. Except as expressly provided in the Agreement, in the event of any conflict between the provisions of this Grant Notice or the Agreement and those of the Plan, the provisions of the Plan will control. 1. Name and Address of Participant: 2. 3. 4. Date of Grant: Number of RSUs: Vesting Commencement Date: 5. Vesting Schedule: This Award shall vest as follows provided the Participant is an Employee, director or Consultant of the Company or an Affiliate on the applicable vesting date (see vesting schedule below): [INSERT VESTING SCHEDULE] See Section 2(c) of the Agreement for vesting in the event of a Change of Control (as defined in the Agreement). By accepting this Award, whether electronically or otherwise, the Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Agreement and the Plan. Unless otherwise specified in a written agreement between the Company and the Participant, this Grant Notice, the Agreement and the Plan set forth the entire understanding between the Participant and the Company regarding this Award and supersede all prior oral and written agreements on the terms of this Award. INTERCEPT PHARMACEUTICALS, INC. 2012 EQUITY INCENTIVE PLAN RESTRICTED STOCK UNIT AGREEMENT Pursuant to the Restricted Stock Unit Grant Notice to which this agreement is attached (the “Grant Notice”) and this Restricted Stock Unit Agreement (this “Agreement”), Intercept Pharmaceuticals, Inc. (the “Company”) has granted to the participant named in the Grant Notice (the “Participant”) a Restricted Stock Unit Award (this “Award”), under and for the purposes set forth in the Intercept Pharmaceuticals, Inc. 2012 Equity Incentive Plan (the “Plan”), for the number of Restricted Stock Units (“RSUs”) indicated in the Grant Notice. Capitalized terms not defined in this Agreement or in the Grant Notice but defined in the Plan will have the meanings assigned to such terms in the Plan. The terms and conditions of this Award, in addition to those set forth in the Grant Notice and the Plan, are as follows: 1. GRANT OF AWARD. This Award represents the Participant’s right to receive one share of the Company’s common stock, par value $0.001 per share (the “Shares”), for each RSU that vests. Such Shares shall be delivered by the Company to the Participant within five days of the applicable vesting date and in accordance with this Agreement and the Plan. Except as otherwise provided herein, the Participant will not be required to make any payment to the Company (other than past and future services to the Company) with respect to the Participant’s receipt of this Award, the vesting of the RSUs or the delivery of the Shares to be issued in respect of this Award. 2. VESTING OF AWARD. (a) Subject to the terms and conditions set forth in this Agreement and the Plan, this Award shall vest as set forth in the Grant Notice. This Award shall continue to vest in accordance with its terms for so long as the Participant is an Employee, director or Consultant of the Company or an Affiliate. (b) Except as otherwise set forth in this Agreement, if the Participant ceases to be an Employee, director or Consultant of the Company or of an Affiliate for any reason other than the termination of the Participant for Cause (the date of such cessation of service, the “Termination Date”), then as of the Termination Date, all unvested RSUs shall immediately be forfeited at no cost to the Company and this Agreement shall terminate and be of no further force or effect; provided, however, that, in the event that this Award vests in equal annual installments and, following the first anniversary of the Vesting Commencement Date specified in the Grant Notice, the Participant’s employment with the Company or an Affiliate terminates by reason of death or Disability or, other than in the circumstances described in Section 2(c) below, an involuntary termination of employment without Cause, then (i) if the Termination Date is three (3) months or less before the next scheduled vesting date, 75% of the RSUs that were otherwise eligible to vest on such vesting date shall become fully vested as of the Termination Date, (ii) if the Termination Date is more than three (3) months but no more than six (6) months before the next scheduled vesting date, 50% of the RSUs that were otherwise eligible to vest on such vesting date shall become fully vested as of the Termination Date, (iii) if the Termination Date is more than six (6) months but no more than nine (9) months before the next scheduled vesting date, 25% of the RSUs that were otherwise eligible to vest on such vesting date shall become fully vested as of the Termination Date or (iv) if the Termination Date is more than nine (9) months before the next scheduled vesting date, none of such RSUs shall vest and, in each case, any outstanding RSUs that do not vest in accordance with this Section 2(b) shall be forfeited at no cost to the Company as of the Termination Date. In the event the Participant’s service is terminated by the Company or an Affiliate for Cause, then as of the time the Participant is notified his or her service is terminated for Cause, all unvested RSUs shall immediately be forfeited at no cost to the Company and this Agreement shall terminate and be of no further force or effect. (c) Notwithstanding the foregoing, except to the extent specifically provided to the contrary in any employment agreement between the Participant and the Company or an Affiliate, in the event of (i) a Change of Control (as defined below) and the Participant’s service with the Company, the acquiring or succeeding corporation or any Affiliate of any of the foregoing is terminated by such entity for any reason other than for Cause within 12 months of the Change of Control, then, immediately prior to such termination, all of the RSUs subject to this Award that are then unvested shall become fully vested, or (ii) a Corporate Transaction (as defined in Section 24(b) of the Plan) that is a Change of Control in which the acquiring entity does not assume this Award, then, immediately prior to the Change of Control, all of the RSUs subject to this Award that are then unvested shall become fully vested. For purposes of this Agreement, “Change of Control” means the occurrence of any of the following events: (i) Ownership. Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then-outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates or any employee benefit plan of the Company); or (ii) Merger/Sale of Assets. (A) A merger or consolidation of the Company whether or not approved by the Board of Directors, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) more than 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (B) the sale or disposition by the Company of all or substantially all of the Company’s assets in a transaction requiring stockholder approval; or (iii) Change in Board Composition. A change in the composition of the Board of Directors, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date of grant, or (B) are elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company). (iv) “Change of Control” shall be interpreted, if applicable, in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences under Section 409A of the Code. 3. PROHIBITIONS ON TRANSFER. This Award (including any additional RSUs received by the Participant as a result of stock dividends, stock splits or any other similar transaction affecting the Company’s securities without receipt of consideration) shall not be transferable by the Participant otherwise than (i) by will or by the laws of descent and distribution, or (ii) pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder. Except as provided above in this Section 3, the Shares to be issued pursuant to this Award shall be issued during the Participant’s lifetime only to the Participant (or, in the event of legal incapacity or incompetency, to the Participant’s guardian or representative). This Award shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of this Award or of any rights granted hereunder contrary to the provisions of this Section 3, or the levy of any attachment or similar process upon this Award shall be null and void. 4. NO RIGHTS AS STOCKHOLDER. Subject to Section 5 below, the Participant shall have no rights as a stockholder with respect to the Shares to be issued pursuant to this Award until registration of the Shares in the Company’s share register in the name of the Participant. 5. ADJUSTMENTS AND CASH DIVIDENDS. (a) This Award, including the number of RSUs subject to this Award, shall be subject to adjustment from time to time as provided for in the Plan upon the occurrence of certain events described therein. (b) To the extent that the Company declares and pays any cash dividend on its Common Stock while any RSUs subject to this Award are unvested, the Participant shall be eligible to receive upon vesting of such RSUs an amount equal to the amount of such dividend that the Participant would have received had the Shares underlying such RSUs been issued and held by the Participant at the time at which such dividend was declared; it being understood that no such amount shall be payable with respect to any RSUs that are forfeited. 6. TAXES. The Participant acknowledges that any income or other taxes due from him or her with respect to this Award or the Shares issuable pursuant to this Award shall be the Participant’s responsibility. The Participant acknowledges and agrees that (i) the Participant was free to use professional advisors of his or her choice in connection with his or her acceptance of this Award, has received advice from his or her professional advisors in connection with his or her acceptance of this Award, understands its meaning and import, and has accepted this Award freely and without coercion or duress; and (ii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of this Award, the Shares issuable pursuant to this Award or other matters contemplated hereby. Without limiting the foregoing, the Participant agrees that if under applicable law the Participant will owe taxes upon the vesting of RSUs subject to this Award, the Company shall be entitled to immediate payment from the Participant of the amount of any tax required to be withheld by the Company. Any taxes due shall be paid, at the option of the Company, as follows (or utilizing such other arrangement as may be specified by the Company): (a) through reducing the number of Shares otherwise entitled to be issued to the Participant on the applicable vesting date in an amount equal to the amount of withholding tax due and payable by the Company; (b) requiring the Participant to deposit with the Company an amount of cash equal to the amount determined by the Company to be required with respect to the Participant’s estimated total federal, state and local tax obligations or otherwise withholding from the Participant’s remuneration an amount equal to the withholding tax due and payable; or (c) requiring the Participant to make an automatic sale, effected by a broker-dealer designated by the Company, of a portion of the Shares issued to the Participant on the applicable vesting date sufficient to cover the applicable tax withholding obligation arising upon such vesting, with the proceeds thereof to be remitted to the Company to satisfy such tax withholding obligation. To the extent that the proceeds of such sale exceed the Company’s tax withholding obligation, such excess cash shall be paid to the Participant as soon as practicable. In addition, if such sale is not sufficient to pay the Company’s tax withholding obligation, the Participant agrees to pay to the Company as soon as practicable, including through additional payroll withholding, the amount of any tax withholding obligation that is not satisfied by the sale of Shares. The Participant agrees to hold the Company and the broker-dealer harmless from all costs, damages or expenses relating to any such sale. The Participant acknowledges that the Company and the broker- dealer are under no obligation to arrange for such sale at any particular price. In connection with such sale of Shares, the Participant shall execute any such documents requested by the broker-dealer in order to effectuate the sale of Shares and payment of the proceeds to the Company. The Company shall not deliver any Shares to the Participant until it is satisfied that all required withholdings have been made. 7. SECURITIES LAWS COMPLIANCE. The Participant specifically acknowledges and agrees that this Award and any delivery of Shares hereunder shall be subject to compliance with the requirements of the Securities Act and other applicable securities laws, rules or regulations. In addition, applicable securities laws, rules or regulations may restrict the ability of the Participant to resell Shares delivered hereunder, including due to the Participant’s affiliation with the Company. The Company shall not be obligated to issue the Shares if such issuance would violate any applicable securities law, rule or regulation. 8. NO OBLIGATION TO MAINTAIN RELATIONSHIP. The Participant acknowledges that: (i) the Company is not by the Plan or this Award obligated to continue the Participant as an Employee, director or Consultant of the Company or an Affiliate; (ii) the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (iii) the grant of this Award is a one-time benefit which does not create any contractual or other right to receive future grants of awards, or benefits in lieu of awards; (iv) all determinations with respect to future grants, if any, will be at the sole discretion of the Company; (v) the Participant’s participation in the Plan is voluntary; (vi) the value of this Award is an extraordinary item of compensation which is outside the scope of the Participant’s employment or consulting contract, if any; and (vii) this Award is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments. 9. NOTICES. Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, registered or certified mail, return receipt requested, addressed as follows: If to the Company: Intercept Pharmaceuticals, Inc. 10 Hudson Yards, 37 Floor New York, NY 10001 th Attention: General Counsel If to the Participant at the address set forth on the Grant Notice or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given upon the earlier of receipt, one business day following delivery to a recognized courier service or three business days following mailing by registered or certified mail. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this Award by electronic means. By accepting this Award, whether electronically or otherwise, the Participant consents to receive such documents by electronic delivery and to participate in the Plan through an online or electronic system established and maintained by the Company or another third party designated by the Company. 10. GOVERNING LAW. The Grant Notice and this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof. For the purpose of litigating any dispute that arises under the Grant Notice, this Agreement or the Plan, each of the Company and, by accepting this Award, whether electronically or otherwise, the Participant hereby consents to exclusive jurisdiction in New York and agrees that such litigation shall be conducted in the state courts of New York County, New York or the federal courts of the United States for the District of the Southern District of New York. 11. BENEFIT OF AGREEMENT. Subject to the provisions of the Plan and the other provisions hereof, the Grant Notice and this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 12. ENTIRE AGREEMENT. The Grant Notice and this Agreement, together with the Plan, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth in the Grant Notice or this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of the Grant Notice or this Agreement; provided, however, in any event, the Grant Notice and this Agreement shall be subject to and governed by the Plan. This Award is subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. In addition, this Award (and any compensation paid or shares issued pursuant to this Award) is subject to recoupment in accordance with The Dodd-Frank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. 13. MODIFICATIONS AND AMENDMENTS. The terms and provisions of the Grant Notice and this Agreement may be modified or amended as provided in the Plan. 14. WAIVERS AND CONSENTS. Except as provided in the Plan, the terms and provisions of the Grant Notice and this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of the Grant Notice or this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent. 15. DATA PRIVACY. By accepting this Award, whether electronically or otherwise, the Participant: (i) authorizes the Company and each Affiliate, and any agent of the Company or any Affiliate administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its Affiliates such information and data as the Company or any such Affiliate shall request in order to facilitate the grant of awards and the administration of the Plan; (ii) waives any data privacy rights he or she may have with respect to such information or the sharing of such information; and (iii) authorizes the Company and each Affiliate to store and transmit such information in electronic form for the purposes set forth in the Grant Notice and this Agreement. 16. SEVERABILITY. If all or any part of the Grant Notice, this Award Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of the Grant Notice, this Award Agreement or the Plan not declared to be unlawful or invalid. Any section of the Grant Notice, this Award Agreement or the Plan (or part of such a section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such section or part of a section to the fullest extent possible while remaining lawful and valid. 17. SECTION 409A. This Award is intended to be exempt from the nonqualified deferred compensation rules of Section 409A of the Code as a “short term deferral” (as that term is used in the final regulations and other guidance issued under Section 409A of the Code, including Treasury Regulation Section 1.409A-1(b)(4)(i)), and shall be construed accordingly. 18. NON-U.S. PARTICIPANTS. If the Participant works and/or resides outside of the United States, the applicable terms and conditions set forth in Appendix A shall apply to this Award. In addition, the Company reserves the right to impose other requirements on the Participant to the extent the Company determines that such requirements are necessary or advisable in order to comply with local law or facilitate the administration of the Plan and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. INTERCEPT PHARMACEUTICALS, INC. 2012 EQUITY INCENTIVE PLAN RESTRICTED STOCK UNIT AGREEMENT TERMS AND CONDITIONS FOR NON-U.S. PARTICIPANTS APPENDIX A This Appendix includes additional or different terms and conditions that govern this Award if the Participant works and/or resides outside of the United States. This Appendix forms part of the Restricted Stock Unit Agreement to which it is attached (the “Agreement”). Capitalized terms not defined in this Appendix but defined in the Agreement or the Plan will have the meanings assigned to such terms in the Agreement or the Plan, as applicable. References within this Appendix to “you” refer to the Participant. These terms are general in nature, may not apply to your particular situation and are based on securities, tax and other laws that are often complex and subject to frequent change. As such, the Company strongly recommends that you do not rely on this summary as your only source of information relating to the consequences of your Award and participation in the Plan and further that you consult your personal tax or legal advisors for advice as to how the laws in your country apply to your situation. Note that if you are a citizen or resident of a country other than the one in which you are working, additional requirements, other than those described herein, may be applicable to you. 1. TAXES (REPLACING SECTION 6 OF THE AGREEMENT) ALL NON-U.S. PARTICIPANTS The Participant acknowledges that any income or other taxes due from him or her with respect to this Award or the Shares issuable pursuant to this Award, as well as any amounts in respect of taxes or social security contributions (including, as applicable, employer National Insurance Contributions) that the Participant has elected to bear, shall be the Participant’s responsibility. The Participant acknowledges and agrees that (i) the Participant was free to use professional advisors of his or her choice in connection with his or her acceptance of this Award, has received advice from his or her professional advisors in connection with his or her acceptance of this Award, understands its meaning and import, and has accepted this Award freely and without coercion or duress; and (ii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of this Award, the Shares issuable pursuant to this Award or other matters contemplated hereby. Without limiting the foregoing, the Participant agrees that if under applicable law the Participant will owe taxes and social security contributions upon the vesting of RSUs subject to this Award, the Company shall be entitled to immediate payment from the Participant of the amount of any federal, provincial, state, local and personal income taxes, wage tax and social security contributions (including, as applicable, Canada Pension Plan) required by law to be withheld by the Company. Any such taxes and social security contributions due shall be paid, at the option of the Company, as follows (or utilizing such other arrangement as may be specified by the Company): (a) withholding from the Participant’s paycheck an amount equal to the federal, provincial, state, local and personal income taxes, wage tax and social security contributions required by law or contract to be withheld; or (b) requiring the Participant to make an automatic sale, effected by a broker-dealer designated by the Company, of a portion of the Shares issued to the Participant on the applicable vesting date sufficient to cover the applicable tax or social security withholding obligation arising upon such vesting, with the proceeds thereof to be remitted to the Company to satisfy such tax or social security withholding obligation. To the extent that the proceeds of such sale exceed the Company’s tax or social security withholding obligation, such excess cash shall be paid to the Participant as soon as practicable. In addition, if such sale is not sufficient to pay the Company’s tax or social security withholding obligation, the Participant agrees to pay to the Company as soon as practicable, including through additional payroll withholding, the amount of any tax or social security withholding obligation that is not satisfied by the sale of Shares. The Participant agrees to hold the Company and the broker-dealer harmless from all costs, damages or expenses relating to any such sale. The Participant acknowledges that the Company and the broker-dealer are under no obligation to arrange for such sale at any particular price. In connection with such sale of Shares, the Participant shall execute any such documents requested by the broker-dealer in order to effectuate the sale of Shares and payment of the proceeds to the Company. The Company shall not deliver any Shares to the Participant until it is satisfied that all required withholdings have been made. 2. WAIVER OF RIGHTS ON TERMINATION (EXCEPT FRANCE, PORTUGAL, SPAIN AND DENMARK) The Participant hereby waives all and any rights to compensation or damages in consequence of the termination of his or her office or employment with the Company or his or her employing entity for any reasons whatsoever (whether lawful or unlawful and including, without prejudice to the generality of the foregoing, in circumstances giving rise to a claim for wrongful dismissal) insofar as those rights arise or may arise from his or her ceasing to have rights under or being entitled to be issued shares of Common Stock on vesting of the RSUs as a result of such termination, or from the loss or diminution in value of any rights or entitlements in connection with the Plan. The Plan and this Award do not form part of the Participant’s contract of employment. If the Participant ceases to be employed or engaged by the Company or any Affiliate for any reason (including as a result of a repudiatory breach of contract by the Company or its Affiliate), the Participant shall not be entitled, and by participating in the Plan the Participant shall be deemed irrevocably to have waived any entitlement, by way of compensation for loss of employment, breach of contract or otherwise to any sum or other benefit to compensate the Participant for any rights or prospective rights under the Plan. This exclusion applies equally (and without limitation) to any loss arising from the way in which the discretion is (or is not) exercised under any provision of the Plan even if the exercise (or non-exercise) of such discretion is, or appears to be, irrational or perverse and/or breaches, or is claimed to breach any implied term of the Plan or any other contract between the Participant and the Participant’s employer. Participation in the Plan and any benefits provided under it shall not be pensionable nor will they count as pay or remuneration when calculating salary related benefits (including, but not limited to, pension). 3. DATA PRIVACY (IN ADDITION TO SECTION 15 OF THE AGREEMENT) (EXCEPT ITALY, PORTUGAL AND SPAIN) (1) The Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in the Agreement by and among, as applicable, his or her employing entity or contracting party and the Company for the exclusive purpose of implementing, administering and managing his or her participation in the Plan. (2) The Participant acknowledges the following: (i) the Company holds certain personal information about the Participant, including, but not limited to, his or her name, home address and telephone number, work location and phone number, date of birth, hire date, bank and payroll details, social security numbers, details of all awards or any other entitlement to shares awarded, cancelled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Personal Data”); (ii) providing or transferring Personal Data to the Company is necessary and essential to the Participant’s participation in the Plan and that the Participant’s refusal to provide Personal Data or withdrawal of consent to the collection, storage or transfer of Personal Data may affect the Participant’s ability to participate in the Plan since it would be impossible for the Company to comply with its contractual obligations under the Plan; (iii) the Participant’s Personal Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Participant’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country; (iv) the Participant has been informed that the Company shall not transfer Personal Data from the Participant’s country without requiring the recipient to comply with the requirements of the General Data Protection Regulation (as applicable) and applicable data protection laws, and that the Participant may request a list with the names and addresses of any potential recipients of the Personal Data by contacting his or her local human resources representative; (v) Personal Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan and any potential claim made by the Participant in relation to any award; and (vi) the Participant may, at any time, exercise the right of access, rectification and cancelation of the Participant’s personal data, oppose, request additional information about the storage and processing of Personal Data or refuse to the further processing of the Personal Data by contacting in writing the Participant’s local human resources representative (who can be identified on the Company’s intranet). ADDITIONAL COUNTRY-SPECIFIC PROVISIONS AUSTRALIA Financial product advice: The Participant acknowledges and agrees that advice provided by the Company (if any) in relation to this Award is of a general nature only and does not take into account the objectives, financial situation or needs of the Participant. The Participant should consider obtaining advice from a person who is licensed by the Australian Securities and Investments Commission to give such advice. The Company is not licensed to provide financial product advice in Australia in relation to restricted stock units and there is no cooling-off regime in Australia that applies in respect of the grant of restricted stock units. Risk of acquiring and holding Common Stock: The Participant acknowledges that there are risks of acquiring and holding Common Stock. Before accepting this Award, or acquiring the underlying Shares, the Participant should satisfy himself or herself that he or she has a sufficient understanding of these matters and should consider whether Common Stock is a suitable investment for the Participant, having regard to the investment objectives, financial circumstances and taxation position of the Participant. (a) The price at which Common Stock is quoted on the Nasdaq Global Select Market may decrease, even to the extent that the price is less than the price or prices paid for the Shares by the Participant. (b) There is no guarantee that an active market in Common Stock will continue. The number of potential buyers or sellers of Common Stock on the Nasdaq Global Select Market may vary at any time. This may increase the volatility of the market price of Common Stock. (c) The Company may not pay dividends on Common Stock at any particular level or at all. If the Company has paid dividends on Common Stock, it may cease to pay such dividends. (d) Holding Common Stock may have tax implications for the Participant and the tax regime applying to the Participant may change. Market price of Common Stock: The Participant could, from time to time, ascertain the market price of Common Stock in Australian Dollars by obtaining the market price from the Nasdaq Global Select Market website, the Company’s website or applicable U.S. publication, and multiplying that market price by a published exchange rate to convert U.S. Dollars into Australian Dollars. BELGIUM Timing and calculation basis of taxation. You will recognize taxable income upon vesting of the RSUs, and you will be required to include the taxable income within your yearly income tax return covering the financial year during which vesting occurs. The amount of the taxable income is calculated on the basis of the fair market value of the Shares at the time of vesting. To the extent you are explicitly required to hold the Shares for at least an additional 2 years beyond the date of vesting, then the taxable income may be limited to the difference between 100/120th of the fair market value of the Shares acquired and the price you paid. The income will be taxed as compensation income and subject to income tax and social security contributions. Capital gains on sale. The capital gains on the sale of the Shares acquired upon vesting are not taxable to the extent you qualify as a Belgian tax resident. CANADA Vesting of Award. For purposes of Section 2 of the Agreement, the Participant’s “Termination Date” means the later of: (i) the date that is the last day of any statutory notice period applicable to the Participant pursuant to applicable employment standards legislation; and (ii) the date that is designated by the Company or Affiliate to which the Participant provides services as the last day of the Participant’s employment, term of office or engagement with the Company or Affiliate (as applicable); provided, that in the case of termination of employment by voluntary resignation by the Participant, such date shall not be earlier than the date notice of resignation was given. For certainty, except only as expressly required by applicable employment standards legislation, as amended or replaced, or agreed by the Company, no portion of this Award shall vest following the Participant’s Termination Date and no period of notice or payment in lieu of notice in respect of a termination of an office or employment without Cause shall extend such Termination Date. Dividends. To the extent that the Company declares and pays any cash dividend on its Common Stock while any RSUs subject to this Award are unvested, the Participant shall be eligible to receive upon vesting of such RSUs an amount equal to the amount of such dividend that the Participant would have received had the Shares underlying such RSUs been issued and held by the Participant at the time at which such dividend was declared; it being understood that no such amount shall be payable with respect to any RSUs that are forfeited. DENMARK Danish Stock Option Act. In accepting this Award, you acknowledge that you have received an Employer Statement translated into Danish, which is being provided to comply with the Danish Stock Option Act and which sets out the main terms of the Plan applying to you. To the extent more favorable to you and required to comply with the Stock Option Act, the terms set forth in the Employer Statement, including terms regarding vesting and forfeiture in connection with termination of your employment will apply to your participation in the Plan. Exchange Control Notification. If you establish an account holding Shares or cash outside Denmark, you must report the account to the Danish Tax Administration. The form which should be used in this respect can be obtained from a local bank. (Please note that these obligations are separate from and in addition to the obligations described below.) Securities and Tax Reporting Notification. You may hold Shares acquired under the Plan in a safety-deposit account (e.g., a brokerage account) with either a Danish bank or with an approved foreign broker or bank. If the Shares are held with a foreign broker or bank, you are required to inform the Danish Tax Administration about the safety-deposit account. For this purpose, you must file a Form V (Erklaering V) with the Danish Tax Administration. Both you and the broker or bank must sign the Form V. By signing the Form V, the broker or bank undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the Shares in the safety-deposit account. In the event that the applicable broker or bank with which the account is held does not wish to, or pursuant to the laws of the country in question, is not allowed to assume such obligation to report, you will be solely responsible for providing certain details regarding the foreign brokerage or bank account and any Shares acquired in connection with the Plan and held in such account to the Danish Tax Administration as part of your annual income tax return. By signing the Form V, you authorize the Danish Tax Administration to examine the account. A sample of the Form V can be found at the following website: www.skat.dk. In addition, if you open a brokerage account or a bank account with a U.S. bank, the account will be treated as a deposit account because cash can be held in the account. Therefore, you must also file a Form K (Erklaering K) with the Danish Tax Administration. Both you and the broker must sign the Form K. By signing the Form K, the broker or bank, as applicable, undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the content of the deposit account. In the event that the applicable financial institution (broker or bank) with which the account is held does not wish to, or pursuant to the laws of the country in question, is not allowed to assume such obligation to report, you will be solely responsible for providing certain details regarding the foreign brokerage or bank account to the Danish Tax Administration as part of your annual income tax return. By signing the Form K, you authorize the Danish Tax Administration to examine the account. A sample of Declaration K can be found at the following website: www.skat.dk. FRANCE Language Consent. By accepting the grant, you confirm that you have read and understood the documents relating to the grant (the Plan, the Grant Notice and the Agreement, including this Appendix) which were provided in the English language. You confirm that you are fluent in English, written and spoken. You accept the terms of these documents accordingly. Consentement Relatif à la Langue Utilisée. En acceptant l’attribution, vous confirmez avoir lu et compris les documents relatifs à l’attribution (le Plan, l’Avis et le Contrat, y compris cette Annexe) qui ont été communiqués en langue anglaise. Vous acceptez les termes de ces documents en connaissance de cause. Tax Notification. This Award is not intended to qualify for favorable tax or social security treatment in France. Exchange Control Notification. If you hold Shares outside of France or maintain a foreign bank account, you are required to report such to the French tax authorities when filing your annual tax return. Dividends. To the extent that the Company declares and pays any cash dividend on its Common Stock while any RSUs subject to this Award are unvested, the Participant shall be eligible to receive upon vesting of such RSUs an amount equal to the amount of such dividend that the Participant would have received had the Shares underlying such RSUs been issued and held by the Participant at the time at which such dividend was declared; it being understood that no such amount shall be payable with respect to any RSUs that are forfeited. GERMANY Taxes. The following provision replaces Section 1 of this Appendix A: The Participant acknowledges that any income or other taxes (including solidarity surcharges, social security contributions and church taxes) due from him or her with respect to this Award or the Shares issuable pursuant to this Award shall be the Participant’s responsibility. The Participant acknowledges and agrees that (i) the Participant was free to use professional advisors of his or her choice in connection with his or her acceptance of this Award, has received advice from his or her professional advisors in connection with his or her acceptance of this Award, understands its meaning and import, and has accepted this Award freely and without coercion or duress; and (ii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of this Award, the Shares issuable pursuant to this Award or other matters contemplated hereby. Without limiting the foregoing, the Participant agrees that if under applicable law, income by the Participant arising from or in relation to (i) the granting or vesting of this Award or (ii) the delivery of the Shares, is subject to taxes (including solidarity surcharges and church taxes) or social security contributions, the Company shall be entitled to immediate payment from the Participant of the amount of any federal, provincial, state, local and personal income taxes, wage tax (including solidarity surcharges and church taxes) and social security contributions required by law to be withheld by the Company. Any such taxes (including solidarity surcharges and church taxes) and social security contributions due shall be paid to the competent tax or other public authority, at the option of the Company, as follows (or utilizing such other arrangement as may be specified by the Company): (a) deduction or withholding from the Participant’s remuneration, or requiring the Participant to remit to the Company, an amount equal to the statutory or contractual amount of any federal, provincial, state, local and personal income taxes, wage tax (including solidarity surcharge and church tax) and social security contributions required by law or contract to be withheld arising from or in relation to (i) the granting or vesting of this Award or (ii) the delivery of the Shares; or (b) requiring the Participant to make an automatic sale, effected by a broker-dealer designated by the Company, of a portion of the Shares issued to the Participant on the applicable vesting date sufficient to cover the applicable tax (including solidarity surcharge and church tax) or social security withholding obligation, with the proceeds thereof to be remitted to the Company to satisfy such tax (including solidarity surcharge and church tax) or social security withholding obligation. To the extent that the proceeds of such sale exceed the Company’s tax (including solidarity surcharge and church tax) or social security withholding obligation, such excess cash shall be paid to the Participant as soon as practicable. In addition, if such sale is not sufficient to pay the Company’s tax (including solidarity surcharge and church tax) or social security withholding obligation, the Participant agrees to pay to the Company as soon as practicable, including through additional payroll withholding, the amount of any tax or social security withholding obligation that is not satisfied by the sale of Shares. The Participant agrees to hold the Company and the broker-dealer harmless from all costs, damages or expenses relating to any such sale. The Participant acknowledges that the Company and the broker-dealer are under no obligation to arrange for such sale at any particular price. In connection with such sale of Shares, the Participant shall execute any such documents requested by the broker-dealer in order to effectuate the sale of Shares and payment of the proceeds to the Company. The Company shall not deliver any Shares to the Participant until it is satisfied that all required withholdings have been made. The Participant further agrees that, if the Company does not withhold an amount from the Participant’s remuneration sufficient to satisfy the Company’s income or wage tax (including solidarity surcharge and church tax) and social security withholding obligation, the Participant will reimburse the Company on demand, in cash, for the amount under-withheld. For the avoidance of doubt, the Company, inter alia, has the authority to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy applicable taxes (including wage taxes (Lohnsteuern), solidarity surcharges (Solidaritätszuschläge), church taxes (Kirchensteuern) and social security contributions (Sozialversicherungsbeiträge)) arising from or relating to the (i) the granting or vesting of this Award or (ii) the delivery of the Shares. Dividends. To the extent that the Company declares and pays any cash dividend on its Common Stock while any RSUs subject to this Award are unvested, the Participant shall be eligible to receive upon vesting of such RSUs an amount equal to the amount of such dividend that the Participant would have received had the Shares underlying such RSUs been issued and held by the Participant at the time at which such dividend was declared; it being understood that no such amount shall be payable with respect to any RSUs that are forfeited. ITALY Data Privacy. The following provision replaces Section 3 of this Appendix A: You understand that the Company and/or any Affiliate may hold certain personal information about you, including, without limitation, your name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company or an Affiliate, details of all restricted stock units, or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the exclusive purpose of implementing, managing, and administering the Plan (“Data”) and in compliance with applicable laws and regulations. You also understand that providing the Company with Data is necessary for the performance of the Plan and that your refusal to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect your ability to participate in the Plan. The Controller of personal data processing is Intercept Pharmaceuticals, Inc., 10 Hudson Yards, 37th Floor, New York, NY 10001 and pursuant to Art. 6 let. b) and c) of the General Data Protection Regulation (“GDPR”) and Legislative Decree no. 196/2003, its representative in Italy. You understand that Data will not be publicized, but it may be transferred to the Company’s designated broker/third party administrator for the Plan or such other stock plan service provider as may be selected by the Company in the future (any such entity, “Broker”), or other third parties involved in the management and administration of the Plan. You understand that Data may also be transferred to the independent registered public accounting firm engaged by the Company. You further understand that the Company and its Affiliates will transfer Data amongst themselves as necessary for the purposes of implementing, administering and managing your participation in the Plan, and that the Company and/or Affiliate may each further transfer Data to third parties assisting the Company in the implementation, administration and management of the Plan, including any requisite transfer of Data to the Broker or other third party with whom you may elect to deposit any Shares acquired under the Plan. Such recipients may receive, possess, use, retain, and transfer Data in electronic or other form, for the purposes of implementing, administering, and managing your participation in the Plan. You understand that these recipients may be located in or outside the European Economic Area, such as in the United States or elsewhere, and in locations that might not provide the same level of protection as intended under Italian data privacy laws. In such case, the Company undertakes to comply with the applicable privacy law in order to ensure that the recipient meets the same standards provided by the European Union legislation, implementing appropriate and suitable safeguards, such as using standard clauses or equivalent safeguard measures as provided for by Art. 46 of the GDPR and paragraph 7 of Legislative Decree no. 196/2003. Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Plan, it will delete Data as soon as it has completed all the necessary legal obligations connected with the management and administration of the Plan. You understand that Data processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Data is collected and with confidentiality and security provisions, as set forth by applicable laws and regulations, with specific reference to Art. 6 let. b) and c) of the GDPR and Legislative Decree no. 196/2003. The processing activity, including communication, the transfer of Data abroad, including outside of the European Economic Area, as herein specified and pursuant to applicable laws and regulations, does not require your consent thereto, as the processing is necessary to performance of contractual obligations related to implementation, administration, and management of the Plan. You understand that, pursuant to Art. 15 of the GDPR and paragraph 7 of Legislative Decree no. 196/2003, you have the right to, without limitation, access, delete, update, correct, or terminate, for legitimate reason, the Data processing. Additionally, you understand that you may exercise the right to portability, within the limits set forth by Art. 20 of the GDPR. Furthermore, you are aware that Data will not be used for direct-marketing purposes. In addition, Data provided can be reviewed and questions or complaints can be addressed by contacting your local human resources representative. Grant Document Acknowledgment. In accepting the grant of this Award, you acknowledge that you have received a copy of the Plan, the Grant Notice and the Agreement, including this Appendix, and have reviewed the Plan, the Grant Notice and the Agreement, including this Appendix, in their entirety and fully understand and accepts all provisions thereof. Foreign Asset Reporting Notification. If you are an Italian resident and, during any fiscal year, hold investments or financial assets outside of Italy (e.g., cash, Shares) which may generate income taxable in Italy (or if you are the beneficial owner of such an investment or asset even if you do not directly hold the investment or asset), you are required to report such investments or assets on your annual tax return for such fiscal year (on UNICO Form, RW Schedule, or on a special form if you are not required to file a tax return). NORWAY Securities and Tax Reporting Notification. You may hold Shares acquired under the Plan in a safety-deposit account (e.g., a brokerage account) with either a Norwegian bank or with an approved foreign broker or bank. If the Shares are held with a foreign broker or bank, you are required to inform the Norwegian Tax Administration about the safety-deposit account. You do this on forms RF-1088 and RF-1059 in connection with filing your annual tax return (“selvangivelse”). Shares held with a Norwegian bank will be reported automatically. PORTUGAL Language Consent. By accepting the grant of this Award, you confirm that you have read and understood the documents relating to the grant (the Plan, the Grant Notice and the Agreement, including this Appendix) which were provided to you in English language. You confirm that you are fluent in English, written and spoken. You accept the terms of these documents accordingly. Grant Document Acknowledgment. In accepting the grant of the this Award, you acknowledge that you have received a copy of the Plan, the Grant Notice and the Agreement, including this Appendix, and have reviewed the Plan, the Grant Notice and the Agreement, including this Appendix, in their entirety and fully understand and accept all provisions thereof. Tax Reporting Obligation. If the Shares acquired under the Plan are held with a foreign broker or bank, you are required to inform the Portuguese Tax Authorities about the existence of such account. For this purpose, within the annual submission of your personal income tax return you must file Annex J with the Portuguese Tax Administration, identifying the account by reference to the applicable IBAN – International Bank Account Number and BIC - Bank Identifier Code. Income arising out of the Plan and/or derived from the Shares is subject to reporting to the Portuguese Tax Authorities. Data Privacy. The following provision replaces Section 3 of this Appendix A: You understand that the Company holds certain personal information about you, including, but not limited to, your name, home address and telephone number, work location and phone number, date of birth, hire date, details of all awards or any other entitlement to shares awarded, cancelled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Personal Data”). You understand that the providing or transferring of Personal Data to the Company is necessary and essential to your participation in the Plan and that your refusal to provide Personal Data or withdrawal of consent to the collection, storage or transfer of Personal Data may affect your ability to participate in the Plan since it would be impossible for the Company to comply with its contractual obligations under the Plan. You understand that your Personal Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Participant’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country. You were informed that the personal data communicated outside of Portugal will be protected identically as provided for in Law No. 67/98, of 26 October, and that you may request a list with the names and addresses of any potential recipients of the Personal Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Personal Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan. You understand that Personal Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan and any potential claim of the Participant. You understand that you may, at any time, exercise of the right of access, rectification and cancelation of your personal data, oppose, request additional information about the storage and processing of Personal Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative (who can be identified on the Company’s intranet). SPAIN Taxes. The following provision supplements Section 1 of this Appendix A: Pursuant to Royal Decree-Law 13/2011 of 16 September (as amended), wealth tax (Impuesto sobre el Patrimonio) has been temporarily restored in Spain. If the Participant’s only foreign assets are the Shares and the value of the Shares on 31 December exceeds the specified threshold the Participant will be required to make a declaration to the Spanish tax authorities between 1 January and 31 March of the immediately following year. The Participant much declare foreign rights and assets including (i) ISIN code of Shares; (ii) the name and corporate domicile of the issuing company; and (iii) the number, class, and value of the Shares held as of 31 December. Exchange Controls. The Participant is responsible for complying with exchange control regulations in Spain. Declaration of the acquisition of Shares for statistical purposes to the Dirección General de Comercio e Inversiones (DGCI) of Ministerio de Economía is compulsory (i) if the purchase price exceeds the specified threshold; (ii) if the investor holds a stake of at least 10 percent in the Company; or (iii) if the investor belongs to the Company’ s board of directors. If Participants purchase any Shares through the use of a Spanish financial institution, the institution will automatically make the declaration to the DGCI; otherwise the Participant must make the declaration by filing the appropriate form with the DGCI. The Participant must also declare ownership of Shares with the DGCI in January of each year. Data Privacy. The following provisions replace Section 3 of this Appendix A: The Participant’s personal data will be processed by Intercept Pharmaceuticals, Inc. (the “Data Controller”) with a corporate domicile at 10 Hudson Yards, 37th Floor, New York, NY 10001. The purpose of the processing is to implement the Grant Notice and the Agreement under the Plan, verify eligibility conditions and develop and perform the contractual and legal obligations arising thereof. The processing of the Participant’s personal data is necessary for such purposes and its legal basis are the execution and development of the contractual relationship and, if applicable, the compliance with legal duties applicable to the Data Controller. Personal data will be processed whilst the Participant holds the relevant awards and, after this, for six years, or, exceptionally, for the period during which any kind of liability may arise from a legal or contractual obligation applicable to the Data Controller. The Participant’s personal data will be transferred outside the European Economic Area, to the United States, where Intercept Pharmaceuticals, Inc. is located. A copy of the relevant appropriate safeguards subscribed in order to carry out such international data transfer can be requested from human resources. Additionally, the Participant’s personal data may be disclosed only to those group companies which may have a legal basis for processing this personal data. The Participant may exercise his/her right of access, rights to rectification, erasure, objection, data portability, restriction of processing and any other right recognized by the applicable regulations from time to time, by sending a request to human resources. The Participant may also file any claim or request related to his or her data protection rights with the relevant supervisory authority. The personal data processed for the purposes described above derives from the execution of the Participant’s employment agreement or, in case that the Participant is an independent professional, the relevant services agreement. Dividends. To the extent that the Company declares and pays any cash dividend on its Common Stock while any RSUs subject to this Award are unvested, the Participant shall be eligible to receive upon vesting of such RSUs an amount equal to the amount of such dividend that the Participant would have received had the Shares underlying such RSUs been issued and held by the Participant at the time at which such dividend was declared; it being understood that no such amount shall be payable with respect to any RSUs that are forfeited. UNITED KINGDOM Taxes. The following provision replaces Section 1 of this Appendix A: The Participant acknowledges that any income or other taxes and social security contributions due from him or her in connection with this Award or the Shares to be issued pursuant to this Award, as well as any amounts in respect of taxes or social security contributions (including employer National Insurance Contributions) that the Participant has elected to bear, shall be the Participant’s responsibility (“Participant Tax Liability”). The Participant acknowledges and agrees that (i) the Participant was free to use professional advisors of his or her choice in connection with his or her acceptance of this Award, has received advice from his or her professional advisors in connection with his or her acceptance of this Award, understands its meaning and import, and has accepted this Award freely and without coercion or duress; and (ii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of this Award, the Shares issuable pursuant to this Award or other matters contemplated hereby. Without limiting the foregoing, the Participant agrees (i) that the Participant shall pay to the Company, the Participant’s employer or former employer (as appropriate) the amount of any Participant Tax Liability; (ii) that the Company, the Participant’s employer or former employer (as appropriate) may, if it so elects by written notice to the Participant, recover the whole or any part of any employer National Insurance Contributions from the Participant; (iii) that the Participant shall, promptly upon being requested to do so by the Company, the Participant’s employer or former employer (as appropriate), elect (using a form approved by HM Revenue & Customs) that the whole or any part of the liability for employer National Insurance Contributions shall be transferred to the Participant; and (iv) to enter into a joint election, under section 431(1) or 431(2) of the Income Tax (Earnings & Pensions) Act 2003, in respect of the Shares delivered pursuant to this Award, if required to do so by the Company, the Participant’s employer or former employer, before, on or within 14 days after any date of delivery of such Shares. Any such Participant Tax Liability due shall be paid, at the option of the Company, as follows (or utilizing such other arrangement as may be specified by the Company): (a) through reducing the number of Shares otherwise entitled to be issued to the Participant on the applicable vesting date in an amount equal to the amount of withholding tax due and payable by the Company; or (b) withholding from the Participant’s paycheck an amount equal to the Participant Tax Liability. Exhibit 10.8 Performance Stock Unit No.________ INTERCEPT PHARMACEUTICALS, INC. 2012 EQUITY INCENTIVE PLAN PERFORMANCE STOCK UNIT GRANT Performance Stock Unit Grant Notice Intercept Pharmaceuticals, Inc. (the “Company”) hereby grants to the participant named below (the “Participant”) the number of performance stock units (“PSUs”) set forth below (this “Award”). This Award is subject to all of the terms and conditions set forth in this Performance Stock Unit Grant Notice (this “Grant Notice”), the Intercept Pharmaceuticals, Inc. 2012 Equity Incentive Plan (the “Plan”) and the Performance Stock Unit Agreement attached hereto (the “Agreement”). Capitalized terms not defined in this Grant Notice but defined in the Agreement or the Plan will have the meanings assigned to such terms in the Agreement or the Plan, as applicable. Except as expressly provided in the Agreement, in the event of any conflict between the provisions of this Grant Notice or the Agreement and those of the Plan, the provisions of the Plan will control. 1. Name and Address of Participant: 2. 3. Date of Grant: Number of PSUs (the “Target Award Amount”): 4. Vesting of Award: Following the Performance Period, the Participant shall receive the number of shares of the Company’s common stock, par value $0.001 per share (the “Shares”), equal to the Payout Percentage (as calculated below); provided, however, that, except as otherwise set forth in the Agreement, no portion of this Award shall vest unless (i) the Participant is an Employee, director or Consultant of the Company or an Affiliate on the last day of the Performance Period and (ii) the Company has attained a TSR during the Performance Period that places the Company in the 25th percentile or higher of the Peer Group (as such terms are defined below). The following definitions shall apply for purposes of this Grant Notice and the Agreement: The “Beginning Stock Price” for the Company and each member of the Peer Group shall equal the average closing price for such company’s common equity on the principal exchange on which such equity is traded for each of the trading days in December 2019, after adjusting for the Dividend Value, as applicable. The “Ending Stock Price” for the Company and each member of the Peer Group shall equal the average closing price for such company’s common equity on the principal exchange on which such equity is traded for each of the trading days in December 2022, after adjusting for the Dividend Value, as applicable. The “Dividend Value” shall mean the value of any dividends paid on a share in December 2019 or during the Performance Period, with the payment date deemed to have occurred on the ex-dividend date for such dividend and the amount of such dividend deemed reinvested in shares of the applicable issuer as of the ex-dividend date (based on the closing price of such shares on such date). The “Performance Period” shall mean the three-year period commencing on January 1, 2020 and ending on December 31, 2022. The “Peer Group” shall consist of the companies that comprised the S&P Biotechnology Select Industry Index as of January 1, 2020; provided, however, that any company included in the Peer Group that (i) ceases to be publicly traded during the Performance Period shall be removed from the Peer Group or (ii) subsequently reorganizes under the United States Bankruptcy Code (or any successor or comparable law) shall remain in the Peer Group and all such companies (if any) shall be deemed to be ranked below all other companies in the Peer Group. “TSR” shall mean the percent return of an applicable share of common equity of the Company or a member of the Peer Group, determined using the following calculation: TSR = Ending Stock Price - Beginning Stock Price Beginning Stock Price Except as otherwise set forth in the Agreement, following the completion of the Performance Period, the vesting of this Award shall be determined by (i) calculating the TSR of the Company and each member of the Peer Group for the Performance Period and (ii) determining the Company’s ranking within the Peer Group based on its TSR for the Performance Period. The Company’s Percentile Rank within the Peer Group shall be calculated using the formula below, where “N” is the total companies in the Peer Group including the Company and “R” is the Company’s ranking within the Peer Group: Percentile Rank = N - R N - 1 Payment of this Award shall be made as specified in the following chart: th Percentile Rank 75 Percentile and Above 50 Percentile 25 Percentile Below 25 Percentile th th th Payout Percentage (number of Shares as a percentage of Target Award Amount) 150% 100% 50% 0% There shall be straight line interpolation to determine the Payout Percentage earned for results falling in between the quartiles specified in the above chart. Notwithstanding the above, in the event that the Company’s TSR for the Performance Period is negative, the maximum Payout Percentage for this Award shall be the Target Award Amount. By accepting this Award, whether electronically or otherwise, the Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Agreement and the Plan. Unless otherwise specified in a written agreement between the Company and the Participant, this Grant Notice, the Agreement and the Plan set forth the entire understanding between the Participant and the Company regarding this Award and supersede all prior oral and written agreements on the terms of this Award. INTERCEPT PHARMACEUTICALS, INC. 2012 EQUITY INCENTIVE PLAN PERFORMANCE STOCK UNIT AGREEMENT Pursuant to the Performance Stock Unit Grant Notice to which this agreement is attached (the “Grant Notice”) and this Performance Stock Unit Agreement (this “Agreement”), Intercept Pharmaceuticals, Inc. (the “Company”) has granted to the participant named in the Grant Notice (the “Participant”) a Performance Stock Unit Award (this “Award”), under and for the purposes set forth in the Intercept Pharmaceuticals, Inc. 2012 Equity Incentive Plan (the “Plan”), for the number of Performance Stock Units (“PSUs”) indicated in the Grant Notice. Capitalized terms not defined in this Agreement or in the Grant Notice but defined in the Plan will have the meanings assigned to such terms in the Plan. The terms and conditions of this Award, in addition to those set forth in the Grant Notice and the Plan, are as follows: 1. GRANT OF AWARD. This Award represents the Participant’s right to receive the number of shares of the Company’s common stock, par value $0.001 per share (the “Shares”), as calculated pursuant to the Grant Notice. Such Shares shall be delivered by the Company to the Participant on or prior to the date that is 60 days following the end of the Performance Period (as defined in the Grant Notice) and in accordance with this Agreement and the Plan. Except as otherwise provided herein, the Participant will not be required to make any payment to the Company (other than past and future services to the Company) with respect to the Participant’s receipt of this Award, the vesting of the PSUs or the delivery of the Shares to be issued in respect of this Award. 2. VESTING OF AWARD. (a) Subject to the terms and conditions set forth in this Agreement and the Plan, this Award shall vest as set forth in the Grant Notice. This Award shall continue to vest in accordance with its terms for so long as the Participant is an Employee, director or Consultant of the Company or an Affiliate. (b) Except as otherwise set forth in this Agreement, if the Participant ceases to be an Employee, director or Consultant of the Company or of an Affiliate for any reason (the date of such cessation of service, the “Termination Date”), then as of the Termination Date, all unvested PSUs shall immediately be forfeited at no cost to the Company and this Agreement shall terminate and be of no further force or effect; provided, however, that, in the event that the Participant ceases to be an Employee, director or Consultant of the Company or an Affiliate due to the death or Disability of the Participant, then the Participant shall become vested in a number of PSUs equal to the Target Award Amount, pro-rated for the portion of the Performance Period that has elapsed as of the Termination Date (and the delivery of Shares in respect thereof shall occur within 60 days of such Termination Date). (c) Notwithstanding the foregoing, except to the extent specifically provided to the contrary in any employment agreement between the Participant and the Company or an Affiliate, in the event of a Change of Control (as defined below), the Performance Period shall end and amounts payable pursuant to this Award shall be determined based on an Ending Stock Price for the Company and each member of the Peer Group equal to the average closing price for such company’s common equity on the principal exchange on which such equity is traded for each of the trading days in last full calendar month prior to the month in which the Change in Control occurs (without any subsequent pro-ration) and payment shall be made with respect to this Award within 5 business days following the occurrence of the Change in Control. For purposes of this Agreement, “Change of Control” means the occurrence of any of the following events: (i) Ownership. Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then-outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates or any employee benefit plan of the Company); or (ii) Merger/Sale of Assets. (A) A merger or consolidation of the Company whether or not approved by the Board of Directors, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) more than 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (B) the sale or disposition by the Company of all or substantially all of the Company’s assets in a transaction requiring stockholder approval; or (iii) Change in Board Composition. A change in the composition of the Board of Directors, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date of grant, or (B) are elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company). (iv) “Change of Control” shall be interpreted, if applicable, in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences under Section 409A of the Code. 3. PROHIBITIONS ON TRANSFER. This Award (including any additional PSUs received by the Participant as a result of stock dividends, stock splits or any other similar transaction affecting the Company’s securities without receipt of consideration) shall not be transferable by the Participant otherwise than (i) by will or by the laws of descent and distribution, or (ii) pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder. Except as provided above in this Section 3, the Shares to be issued pursuant to this Award shall be issued during the Participant’s lifetime only to the Participant (or, in the event of legal incapacity or incompetency, to the Participant’s guardian or representative). This Award shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of this Award or of any rights granted hereunder contrary to the provisions of this Section 3, or the levy of any attachment or similar process upon this Award shall be null and void. 4. NO RIGHTS AS STOCKHOLDER. Subject to Section 5 below, the Participant shall have no rights as a stockholder with respect to the Shares to be issued pursuant to this Award until registration of the Shares in the Company’s share register in the name of the Participant. 5. ADJUSTMENTS AND CASH DIVIDENDS. (a) This Award, including the number of PSUs subject to this Award, shall be subject to adjustment from time to time as provided for in the Plan upon the occurrence of certain events described therein. (b) To the extent that the Company declares and pays any cash dividend on its Common Stock while any PSUs subject to this Award are unvested, the Participant shall be eligible to receive upon vesting of such PSUs an amount equal to the amount of such dividend that the Participant would have received had the Shares underlying such PSUs been issued and held by the Participant at the time at which such dividend was declared; it being understood that no such amount shall be payable with respect to any PSUs that are forfeited. 6. TAXES. The Participant acknowledges that any income or other taxes due from him or her with respect to this Award or the Shares issuable pursuant to this Award shall be the Participant’s responsibility. The Participant acknowledges and agrees that (i) the Participant was free to use professional advisors of his or her choice in connection with his or her acceptance of this Award, has received advice from his or her professional advisors in connection with his or her acceptance of this Award, understands its meaning and import, and has accepted this Award freely and without coercion or duress; and (ii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of this Award, the Shares issuable pursuant to this Award or other matters contemplated hereby. Without limiting the foregoing, the Participant agrees that if under applicable law the Participant will owe taxes upon the vesting of PSUs subject to this Award, the Company shall be entitled to immediate payment from the Participant of the amount of any tax required to be withheld by the Company. Any taxes due shall be paid, at the option of the Company, as follows (or utilizing such other arrangement as may be specified by the Company): (a) through reducing the number of Shares otherwise entitled to be issued to the Participant on the applicable vesting date in an amount equal to the amount of withholding tax due and payable by the Company; (b) requiring the Participant to deposit with the Company an amount of cash equal to the amount determined by the Company to be required with respect to the Participant’s estimated total federal, state and local tax obligations or otherwise withholding from the Participant’s remuneration an amount equal to the withholding tax due and payable; or (c) requiring the Participant to make an automatic sale, effected by a broker-dealer designated by the Company, of a portion of the Shares issued to the Participant on the applicable vesting date sufficient to cover the applicable tax withholding obligation arising upon such vesting, with the proceeds thereof to be remitted to the Company to satisfy such tax withholding obligation. To the extent that the proceeds of such sale exceed the Company’s tax withholding obligation, such excess cash shall be paid to the Participant as soon as practicable. In addition, if such sale is not sufficient to pay the Company’s tax withholding obligation, the Participant agrees to pay to the Company as soon as practicable, including through additional payroll withholding, the amount of any tax withholding obligation that is not satisfied by the sale of Shares. The Participant agrees to hold the Company and the broker-dealer harmless from all costs, damages or expenses relating to any such sale. The Participant acknowledges that the Company and the broker-dealer are under no obligation to arrange for such sale at any particular price. In connection with such sale of Shares, the Participant shall execute any such documents requested by the broker-dealer in order to effectuate the sale of Shares and payment of the proceeds to the Company. The Company shall not deliver any Shares to the Participant until it is satisfied that all required withholdings have been made. 7. SECURITIES LAWS COMPLIANCE. The Participant specifically acknowledges and agrees that this Award and any delivery of Shares hereunder shall be subject to compliance with the requirements of the Securities Act and other applicable securities laws, rules or regulations. In addition, applicable securities laws, rules or regulations may restrict the ability of the Participant to resell Shares delivered hereunder, including due to the Participant’s affiliation with the Company. The Company shall not be obligated to issue the Shares if such issuance would violate any applicable securities law, rule or regulation. 8. NO OBLIGATION TO MAINTAIN RELATIONSHIP. The Participant acknowledges that: (i) the Company is not by the Plan or this Award obligated to continue the Participant as an Employee, director or Consultant of the Company or an Affiliate; (ii) the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (iii) the grant of this Award is a one-time benefit which does not create any contractual or other right to receive future grants of awards, or benefits in lieu of awards; (iv) all determinations with respect to future grants, if any, will be at the sole discretion of the Company; (v) the Participant’s participation in the Plan is voluntary; (vi) the value of this Award is an extraordinary item of compensation which is outside the scope of the Participant’s employment or consulting contract, if any; and (vii) this Award is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments. 9. NOTICES. Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, registered or certified mail, return receipt requested, addressed as follows: If to the Company: Intercept Pharmaceuticals, Inc. 10 Hudson Yards, 37 Floor New York, NY 10001 Attention: General Counsel th If to the Participant at the address set forth on the Grant Notice or to such other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given upon the earlier of receipt, one business day following delivery to a recognized courier service or three business days following mailing by registered or certified mail. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this Award by electronic means. By accepting this Award, whether electronically or otherwise, the Participant consents to receive such documents by electronic delivery and to participate in the Plan through an online or electronic system established and maintained by the Company or another third party designated by the Company. 10. GOVERNING LAW. The Grant Notice and this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof. For the purpose of litigating any dispute that arises under the Grant Notice, this Agreement or the Plan, each of the Company and, by accepting this Award, whether electronically or otherwise, the Participant hereby consents to exclusive jurisdiction in New York and agrees that such litigation shall be conducted in the state courts of New York County, New York or the federal courts of the United States for the District of the Southern District of New York. 11. BENEFIT OF AGREEMENT. Subject to the provisions of the Plan and the other provisions hereof, the Grant Notice and this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 12. ENTIRE AGREEMENT. The Grant Notice and this Agreement, together with the Plan, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth in the Grant Notice or this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of the Grant Notice or this Agreement; provided, however, in any event, the Grant Notice and this Agreement shall be subject to and governed by the Plan. This Award is subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. In addition, this Award (and any compensation paid or shares issued pursuant to this Award) is subject to recoupment in accordance with The Dodd-Frank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. 13. MODIFICATIONS AND AMENDMENTS. The terms and provisions of the Grant Notice and this Agreement may be modified or amended as provided in the Plan. 14. WAIVERS AND CONSENTS. Except as provided in the Plan, the terms and provisions of the Grant Notice and this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of the Grant Notice or this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent. 15. DATA PRIVACY. By accepting this Award, whether electronically or otherwise, the Participant: (i) authorizes the Company and each Affiliate, and any agent of the Company or any Affiliate administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its Affiliates such information and data as the Company or any such Affiliate shall request in order to facilitate the grant of awards and the administration of the Plan; (ii) waives any data privacy rights he or she may have with respect to such information or the sharing of such information; and (iii) authorizes the Company and each Affiliate to store and transmit such information in electronic form for the purposes set forth in the Grant Notice and this Agreement. 16. SEVERABILITY. If all or any part of the Grant Notice, this Award Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of the Grant Notice, this Award Agreement or the Plan not declared to be unlawful or invalid. Any section of the Grant Notice, this Award Agreement or the Plan (or part of such a section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such section or part of a section to the fullest extent possible while remaining lawful and valid. 17. SECTION 409A. This Award is intended to be exempt from the nonqualified deferred compensation rules of Section 409A of the Code as a “short term deferral” (as that term is used in the final regulations and other guidance issued under Section 409A of the Code, including Treasury Regulation Section 1.409A-1(b)(4)(i)), and shall be construed accordingly. 18. NON-U.S. PARTICIPANTS. If the Participant works and/or resides outside of the United States, the applicable terms and conditions set forth in Appendix A shall apply to this Award. In addition, the Company reserves the right to impose other requirements on the Participant to the extent the Company determines that such requirements are necessary or advisable in order to comply with local law or facilitate the administration of the Plan and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. INTERCEPT PHARMACEUTICALS, INC. 2012 EQUITY INCENTIVE PLAN PERFORMANCE STOCK UNIT AGREEMENT TERMS AND CONDITIONS FOR NON-U.S. PARTICIPANTS APPENDIX A This Appendix includes additional or different terms and conditions that govern this Award if the Participant works and/or resides outside of the United States. This Appendix forms part of the Performance Stock Unit Agreement to which it is attached (the “Agreement”). Capitalized terms not defined in this Appendix but defined in the Agreement or the Plan will have the meanings assigned to such terms in the Agreement or the Plan, as applicable. References within this Appendix to “you” refer to the Participant. These terms are general in nature, may not apply to your particular situation and are based on securities, tax and other laws that are often complex and subject to frequent change. As such, the Company strongly recommends that you do not rely on this summary as your only source of information relating to the consequences of your Award and participation in the Plan and further that you consult your personal tax or legal advisors for advice as to how the laws in your country apply to your situation. Note that if you are a citizen or resident of a country other than the one in which you are working, additional requirements, other than those described herein, may be applicable to you. COUNTRY-SPECIFIC PROVISIONS UNITED KINGDOM Taxes. The following provision replaces Section 6 of the Agreement: The Participant acknowledges that any income or other taxes and social security contributions due from him or her in connection with this Award or the Shares to be issued pursuant to this Award, as well as any amounts in respect of taxes or social security contributions (including employer National Insurance Contributions) that the Participant has elected to bear, shall be the Participant’s responsibility (“Participant Tax Liability”). The Participant acknowledges and agrees that (i) the Participant was free to use professional advisors of his or her choice in connection with his or her acceptance of this Award, has received advice from his or her professional advisors in connection with his or her acceptance of this Award, understands its meaning and import, and has accepted this Award freely and without coercion or duress; and (ii) the Participant has not received and is not relying upon any advice, representations or assurances made by or on behalf of the Company or any Affiliate or any employee of or counsel to the Company or any Affiliate regarding any tax or other effects or implications of this Award, the Shares issuable pursuant to this Award or other matters contemplated hereby. Without limiting the foregoing, the Participant agrees (i) that the Participant shall pay to the Company, the Participant’s employer or former employer (as appropriate) the amount of any Participant Tax Liability; (ii) that the Company, the Participant’s employer or former employer (as appropriate) may, if it so elects by written notice to the Participant, recover the whole or any part of any employer National Insurance Contributions from the Participant; (iii) that the Participant shall, promptly upon being requested to do so by the Company, the Participant’s employer or former employer (as appropriate), elect (using a form approved by HM Revenue & Customs) that the whole or any part of the liability for employer National Insurance Contributions shall be transferred to the Participant; and (iv) to enter into a joint election, under section 431(1) or 431(2) of the Income Tax (Earnings & Pensions) Act 2003, in respect of the Shares delivered pursuant to this Award, if required to do so by the Company, the Participant’s employer or former employer, before, on or within 14 days after any date of delivery of such Shares. Any such Participant Tax Liability due shall be paid, at the option of the Company, as follows (or utilizing such other arrangement as may be specified by the Company): (a) through reducing the number of Shares otherwise entitled to be issued to the Participant on the applicable vesting date in an amount equal to the amount of withholding tax due and payable by the Company; or (b) withholding from the Participant’s paycheck an amount equal to the Participant Tax Liability. EMPLOYMENT AGREEMENT Exhibit 10.17 THIS EMPLOYMENT AGREEMENT (this “Agreement”), made effective as of November 19, 2019, is entered into by Intercept Pharmaceuticals, Inc. (the “Company”) and Jason Campagna (“Executive”). WHEREAS, Executive has been employed by the Company pursuant to that certain employment agreement, made effective as July 22, 2016, by the Company and Executive (the “Prior Agreement”); WHEREAS, the Company now desires to employ Executive, and Executive now desires to be employed by the Company, on the terms set forth in this Agreement; and WHEREAS, Executive has also entered into an Invention, Non-Disclosure, and Non-Solicitation Agreement as of even date herewith. NOW THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties to this Agreement, the parties agree as follows: 1. Term of Employment. The Company hereby agrees to employ Executive, and Executive hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on December 1, 2019 or such date as may be otherwise agreed upon with the Company (the “Commencement Date”) and ending on the one year anniversary thereof, unless sooner terminated in accordance with the provisions of Section 4 (such period, the “Initial Term”); provided, however, that on each anniversary of the Commencement Date, the term of employment under this Agreement shall be automatically extended for an additional one-year period (each such period, a “Subsequent Term”) unless terminated sooner pursuant to Section 4 or if, at least thirty (30) days prior to the applicable anniversary date, either Executive or the Company provides written notice to the other party electing not to extend. The Initial Term together with each Subsequent Term, if any, are referred to hereinafter as the “Agreement Term.” 2. Title; Capacity. During the Agreement Term, the Company will employ Executive as its Chief Medical Officer to perform the duties and responsibilities inherent in such position and such other duties and responsibilities consistent with such position as the Chief Executive Officer of the Company (the “CEO”) shall from time to time reasonably assign to him. On an annual basis, the Company’s Board of Directors (the “Board”) in consultation with Executive and the CEO, will set reasonably attainable, specific goals pursuant to the objectives of the Company as in effect from time to time. Executive shall report directly to the CEO and shall be subject to the supervision of, and shall have such authority as is delegated to Executive by, the CEO, which authority shall be sufficient to perform Executive’s duties hereunder. Executive will be based in Massachusetts. Subject to Section 4.3 below, the location of Executive’s employment is subject to change during the course of the Agreement Term as determined by the CEO in consultation with the Executive. Executive hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such position and such other duties as may be reasonably assigned to Executive. Executive shall devote substantially all of his business time, energies and attention in the performance of the foregoing services. Notwithstanding the foregoing, nothing herein shall preclude Executive from (i) performing services for such other companies as the Company may designate or permit, (ii) serving, with the prior written consent of the Board, which consent shall not be unreasonably withheld, as an officer or member of the boards of directors or advisory boards (or their equivalents in the case of a non-corporate entity) of non-competing businesses, (iii) serving as an officer or a member of charitable, educational or civic organizations, (iv) engaging in charitable activities and community affairs, and (v) managing Executive's personal investments and affairs; provided, however, that the activities set out in clauses (i) – (v) shall be limited by Executive so as not to materially interfere, individually or in the aggregate, with the performance of Executive's duties and responsibilities hereunder. 3. Compensation and Benefits. payable in accordance with the Company’s regular payroll practices. Such base salary shall be subject 3.1 Salary. The Company shall pay Executive an initial annualized base salary of $465,000.00, to annual review and increase (but not decrease) as may be determined and approved by the Board or the Company’s Compensation Committee in its sole discretion. 3.2 Bonuses. (a) Annual Bonus. At the end of a given fiscal year, Executive will be eligible to receive a bonus based on a target equal to 50% of his base salary in effect at the end of such fiscal year. Executive’s annual bonus for the fiscal year in which the Commencement Date occurs shall be based upon his annualized base salary and shall not be prorated. The amount of any such bonus shall be based on factors including, but not limited to, Executive’s achievement, as determined by the Board or the Compensation Committee in its sole discretion, of reasonable goals and milestones established in advance by the Board or the Compensation Committee in consultation with the CEO and Executive. The period for calculation of the bonus shall be consistent with the Company’s fiscal year. Such bonus, if any, will be paid to Executive on or after January 1 and in any case no later than March 15 of the immediately succeeding fiscal year. The bonus shall be paid in cash; provided that, if requested by Executive and approved by the Board, some or all of the bonus may be paid in equity under the Company’s stockholder approved stock plan then in effect (valued at the fair market value thereof), or any combination of the foregoing. To the extent that the Company is required pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to develop and implement a policy (the “Policy”) providing for the recovery from the Executive of any payment of incentive-based compensation paid to the Executive that was based upon erroneous data contained in an accounting statement, this Agreement shall be deemed amended and the Policy incorporated herein by reference as of the date that the Company takes all necessary corporate action to adopt the Policy, without requiring any further action of the Company or the Executive, provided that any such Policy shall only be binding on the Executive if the same Policy applies to the Company's other executive officers. 3.3 Equity Awards. At the sole discretion of the Board or the Company’s Compensation Committee, stock options or other equity-based awards may be granted to Executive from time to time under the Company’s 2012 Equity Incentive Plan (the “2012 Plan”). 3.4 Fringe Benefits. Executive shall be entitled to participate in all bonus and benefit programs that the Company establishes and makes available to its U.S.-based executives and/or employees from time to time, including, but not limited to, health care plans, dental care plans, vision care plans, supplemental retirement plans, life insurance plans, disability insurance plans and incentive compensation plans, to the extent that Executive is eligible under, and subject to the terms and conditions of, the applicable plan documents governing such programs. The Company shall pay 100% of the premium cost for health insurance coverage for Executive, his spouse and children, provided that his spouse and dependents are not covered by an equivalent health insurance plan provided by his spouse’s employer. Executive shall be eligible to accrue up to four (4) weeks of paid vacation each calendar year (to be taken at such times and in such number of days as Executive shall determine in consultation with the CEO and in a manner so as not to impair or otherwise interfere with Executive’s ability to perform his duties and responsibilities hereunder). The vacation days for which Executive is eligible shall accrue at the rate of 1.67 days per month that Executive is employed during such calendar year. Vacation accrual will be capped at 1.75 times Executive’s annual vacation accrual. When Executive’s accrued vacation reaches the cap, he will not accrue additional vacation time until some of the previously accrued vacation is used and the accrued amount falls below the cap, unless the Company is acquired by another business venture, in which case none of the previous year’s accrued vacation will be subject to a cap. Executive shall also be eligible for paid holidays and paid sick days annually, in accordance with the Company’s policies for its senior executives as in effect from time to time. At the end of each calendar year, all unused sick days shall be forfeited. 3.5 Reimbursement of Expenses. The Company shall reimburse Executive for reasonable travel, entertainment and other expenses incurred or paid in connection with, or related to the performance of Executive’s duties, responsibilities or services under this Agreement, upon presentation by Executive of documentation, expense statements, vouchers and/or such other supporting information as the Company may request. Executive must submit proper documentation for each such expense within sixty (60) days after the later of (i) his incurrence of such expense or (ii) his receipt of the invoice for such expense. The Company will reimburse Executive for that expense within thirty (30) days after receipt of the documentation. and local taxes and withholdings, if any. 3.6 Withholdings. Payments made under this Section 3 shall be subject to applicable federal, state 4. Termination of Employment Period. The Agreement Term shall terminate upon the occurrence of any of the following: Term; provided, that notice is given in accordance with Section 1 of this Agreement. 4.1 Expiration of the Agreement Term. This Agreement shall expire at the end of the Agreement 4.2 Termination by the Company for Cause. At the election of the Company, the Executive may be terminated by the Company for Cause (as defined below), immediately following written notice by the Company to Executive, which notice shall identify in reasonable detail the Cause upon which termination is based, except that for reason 4.2(a)(iv) below, termination may not occur prior to the expiration of the thirty (30) day period to cure. For the purposes of this Agreement, “Cause” for termination shall be deemed to exist upon: (a) a good faith finding by the Company that (i) Executive has engaged in material dishonesty, willful misconduct or gross negligence in connection with the performance of his duties; (ii) Executive has committed any act of fraud or embezzlement with respect to the Company or any of its affiliates; (iii) Executive has breached or has threatened to breach his Invention, Non-Disclosure, and Non-Solicitation Agreement; or (iv) Executive has materially breached this Agreement, and Executive has failed to cure such conduct or breach within thirty (30) days after his receipt of written notice from the Company of such breach; or moral turpitude, fraud or embezzlement, or any felony. (b) Executive’s conviction, guilty plea, or entry of nolo contendere to any crime involving 4.3 Termination By Executive with Good Reason. Executive may terminate the Agreement Term with Good Reason. For purposes of this Agreement, “Good Reason” means the occurrence, without Executive’s written consent, of any of the events or circumstances set forth in clauses (a) through (c) below. In addition, notwithstanding the occurrence of any of the events enumerated in clauses (a) through (c), such occurrence shall not be deemed to constitute Good Reason if, within thirty (30) days after the Company’s receipt of written notice from Executive of the occurrence or existence of an event or circumstance enumerated in clauses (a) through (c), such event or circumstance has been remedied by the Company. Executive shall not be deemed to have terminated his employment with Good Reason unless Executive first delivers a written notice of termination to the Company identifying in reasonable detail the acts or omissions constituting Good Reason within ninety (90) days after their occurrence and the provision of this Agreement relied upon, such acts or omissions are not cured by the Company within thirty (30) days of the receipt of such notice, and Executive actually ends his employment within one-hundred and twenty (120) days after the Company’s failure to cure. (a) the assignment to Executive of duties inconsistent in any material respect with Executive’s position as Chief Medical Officer (including status, offices, titles, authority, or responsibilities) or any other action or omission by the Company which results in a material diminution in Executive’s position, status, offices, titles, authority, responsibilities, or reporting requirements; (b) a change by the Company in the location at which Executive performs his principal duties for the Company to a different location that is outside a radius of fifty (50) miles from (i) Executive’s principal residence immediately prior to the date on which such change occurs and (ii) the location at which Executive performed his principal duties for the Company immediately prior to the date on which such change occurs; or between the Company and Executive. (c) any material breach by the Company of this Agreement or any other material agreement 4.4 Death or Disability. This Agreement shall terminate upon Executive’s death or disability. As used in this Agreement, the determination of “disability” shall occur when Executive, due to a physical or mental disability, for a period of 60 consecutive days, or 120 days in the aggregate whether or not consecutive, during any 360-day period, is unable to perform the services contemplated under this Agreement. A determination of disability shall be made by a physician satisfactory to both Executive and the Company; provided, that, if Executive and the Company do not agree on a physician, Executive and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties. 4.5 Termination by Executive Without Good Reason or Termination by the Company Without Cause. At the election of Executive without Good Reason or by the Company without Cause, upon not less than thirty (30) days’ prior written notice to the other party. 5. Effect of Termination. 5.1 Payments Upon Termination for Any Reason. In the event Executive’s employment terminates pursuant to Section 4, the Company shall pay to Executive (or Executive’s estate or legal representative, if applicable), on the date of Executive’s termination of employment with the Company (or as soon thereafter as is practicable, consistent with applicable law and the terms of any deferred compensation plan or agreement), the compensation and benefits under Sections 3.1, 3.4 and 3.5 that are accrued and unpaid through such termination date (including, without limitation, an amount equal to all accrued but unused vacation pay and unreimbursed expenses). In the event of termination of Executive’s employment by Executive by reason of non-renewal of the Agreement Term pursuant to Sections 1 and 4.1, the Company for Cause pursuant to Section 4.2, by reason of Executive’s death or disability pursuant to Section 4.4, or by Executive without Good Reason pursuant to Section 4.5, Executive shall not receive any compensation or benefits other than as expressly stated in this Section 5.1 and as otherwise required by law. 5.2 Termination by the Company Without Cause, by the Company by Reason of Non-Renewal of Agreement Term, or by Executive for Good Reason. Subject to Section 5.3 below, in addition to the payments and provisions under Section 5.1, in the event of termination of Executive’s employment by the Company by reason of non- renewal of the Agreement Term pursuant to Sections 1 and 4.1, by Executive for Good Reason pursuant to Section 4.3, or by the Company without Cause pursuant to Section 4.5, provided that Executive executes a release of claims substantially in the form attached hereto as Exhibit A (the “Release”), which Release must be effective and irrevocable prior to the sixtieth (60 ) day following the termination of the Executive's employment (the “Review Period”), the Company shall provide Executive with the following: th (a) twelve (12) months of Executive’s base salary in effect at the time of termination of employment, payable according to the Company’s payroll commencing on the first payroll date following the date the Release is effective and irrevocable (the “Payment Date”), subject to compliance with Sections 5.5 and 12.6; and (b) the Company will, for a period of twelve (12) months following Executive’s termination from employment, continue Executive’s participation in the Company’s group health plan and dental plan and shall pay that portion of the premiums that the Company paid on behalf of Executive and his dependents during Executive’s employment, provided, however, that if the Company’s health insurance plan and/or dental plan does not permit such continued participation in such plan after Executive’s termination of employment, then the Company shall pay that portion of the premiums associated with COBRA continuation coverage that the Company paid on behalf of Executive and his dependents during Executive’s employment, including any administrative fee, on Executive’s behalf for such twelve-month period; and provided, further, that if Executive becomes employed with another employer during the period in which continued health insurance and/or dental insurance is being provided pursuant to this Section, the Company shall not be required to continue such health and dental benefits, or if applicable, to pay the costs of COBRA, if Executive becomes covered under a health insurance plan of the new employer. (For purposes of this Section 5.2(b), the term “Executive” shall include, to the extent applicable, Executive’s spouse and any of Executive’s dependents covered under the Company’s group health plan and/or dental plan prior to his termination of employment.) 5.3 Termination in the Event of a Change in Control. (a) In addition to the payments and provisions under Section 5.1 but in lieu of, and not in addition to, the payments required pursuant to Section 5.2 above, in the event Executive’s employment with the Company is terminated by the Company by reason of non-renewal of the Agreement Term pursuant to Sections 1 and 4.1, by Executive for Good Reason pursuant to Section 4.3, or by the Company without Cause pursuant to Section 4.5, in any such case, in anticipation of and/or within twelve (12) months following a Change in Control (as defined below) provided that such Change in Control also qualifies as a “change in control event” within the meaning of Treasury Regulation Section 1.409A- 3(i)(5)(i) (where required to avoid the imposition of penalty taxes under Section 409A) and provided that Executive (or Executive’s legal representative, if applicable) executes a Release and the Release becomes effective and irrevocable prior to the end of the Review Period, Executive shall be entitled to the following: (i) a lump sum cash amount equal to twelve (12) months of Executive’s base salary in effect at the time of Executive’s termination, such payment to be made on the Payment Date, subject to compliance with Sections 5.5 and 12.6; (ii) for up to twelve (12) months after Executive’s date of termination, the Company shall continue Executive’s participation in the Company’s group health and dental plan and shall pay that portion of the premiums that the Company paid on behalf of Executive and his dependents during Executive’s employment; provided, however, that if the Company’s health insurance plan and/or dental insurance plan does not permit Executive’s continued participation in such plan after his termination of employment, then the Company shall pay that portion of the premiums associated with COBRA continuation coverage that the Company paid on behalf of Executive and his dependents during Executive’s employment, including administrative fees, on Executive’s behalf for so long as COBRA continuation coverage is available, up to twelve (12) months; and provided, further, that if Executive becomes employed with another employer during the period in which continued health insurance and/or dental insurance is being provided pursuant to this Section, the Company shall not be required to continue the relevant benefits, or if applicable, to pay the relevant costs of COBRA, if Executive becomes covered under a health insurance plan and/or dental plan of the new employer. (For purposes of this Section 5.3(a)(ii), the term “Executive” shall include, to the extent applicable, Executive’s spouse and any of Executive’s dependents covered under the Company’s group health plan and/or dental plan prior to his termination of employment.) following events occur: (b) As used herein, “Change in Control” shall occur or be deemed to occur if any of the transactions) of all or substantially all of the assets of the Company; or (i) any sale, lease, exchange or other transfer (in one transaction or a series of (ii) any consolidation or merger of the Company (including, without limitation, a triangular merger) where the shareholders of the Company immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own, directly or indirectly, shares representing in the aggregate more than fifty percent (50%) of the combined voting power of all the outstanding securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any); or (iii) a third person, including a “person” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (but other than (x) the Company, (y) any employee benefit plan of the Company, or (z) investors purchasing equity securities of the Company pursuant to a financing or a series of financings approved by the Board of Directors of the Company) becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of Controlling Securities (as defined below). “Controlling Securities” shall mean securities representing 25% or more of the total number of votes that may be cast for the election of the directors of the Company. 5.4 Effect of Termination on Stock Options and Other Equity Compensation. (a) In the event of Executive’s termination by Executive by reason of non-renewal of the Agreement Term pursuant to Sections 1 and 4.1, by the Company for Cause pursuant to Section 4.2, or by Executive without Good Reason pursuant to Section 4.5, all unvested stock options and other equity-based awards granted to Executive before and after the date of this Agreement shall be immediately forfeited upon the effective date of such termination of employment or as otherwise provided in the award agreement; provided, that, Executive shall have until the earlier of the expiration date of the option or ninety (90) days from the date of termination of Executive to exercise all vested options unless the stock plan pursuant to which the option is granted requires earlier termination in connection with a liquidation or sale of the Company. (b) In the event of Executive’s termination by the Company by reason of non-renewal of the Agreement Term pursuant to Sections 1 and 4.1, by Executive for Good Reason pursuant to Section 4.3, or by the Company without Cause pursuant to Section 4.5, and provided that Executive (or Executive’s legal representative, if applicable) executes a Release and the Release becomes effective and irrevocable prior to the end of the Review Period, that number of Executive’s unvested stock options and other equity-based awards that would otherwise have vested from the effective date of Executive’s termination to the first anniversary of such date shall vest as of the date the Release is effective and irrevocable and Executive (or Executive’s estate or legal representative, if applicable) shall have until the earlier of the expiration date of the option or one (1) year from the date of termination of Executive’s employment to exercise all vested options unless the stock plan pursuant to which the option is granted requires earlier termination in connection with a liquidation or sale of the Company. (c) In the event Executive’s employment with the Company is terminated by the Company by reason of non-renewal of the Agreement Term pursuant to Sections 1 and 4.1, by Executive for Good Reason pursuant to Section 4.3, or by the Company without Cause pursuant to Section 4.5, in any such case, in anticipation of and/or within twelve (12) months following a Change in Control, in lieu of the acceleration provided for pursuant to Section 5.4(b) above, provided that Executive (or Executive’s legal representative, if applicable) executes a Release and the Release becomes effective and irrevocable prior to the end of the Review Period, to the extent vesting and acceleration will not result in a violation of Section 409A, all of Executive’s unvested stock options and other equity-based awards then in effect shall vest as of the date the Release is effective and irrevocable and Executive (or Executive’s estate or legal representative, if applicable) shall have until the earlier of the expiration date of the option or one (1) year from the date of termination of Executive’s employment to exercise all vested options unless the stock plan pursuant to which the option is granted requires earlier termination in connection with a liquidation or sale of the Company. (d) In the event Executive’s employment with the Company is terminated by reason of disability pursuant to Section 4.4, all unvested stock and stock options granted to Executive before and after the date of this Agreement shall be immediately forfeited upon the effective date of such termination of employment or as otherwise provided in the option agreement; provided, that, Executive shall have until the earlier of the expiration date of the option or one (1) year from the date of termination of Executive’s employment to exercise all vested options unless the stock plan pursuant to which the option is granted requires earlier termination in connection with a liquidation or sale of the Company. 5.5 Review Period. In the event that the Review Period begins in one taxable year of the Executive and ends in a later taxable year, any payments contingent upon Executive’s execution without revocation of the Release prior to the end of the Review Period will commence to be paid (or as applicable, made in full) on the first payroll date in the later taxable year. In no event will any payments be made or commence to be paid later than the ninetieth (90th) day following the Executive’s date of termination, subject to compliance with Section 12.6 herein. 5.6 Limitation on Benefits. The Company will make the payments under this Agreement without regard to whether the deductibility of such payments (or any other payments or benefits) would be limited or precluded by Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and without regard to whether such payments would subject Executive to the federal excise tax levied on certain “excess parachute payments” under Section 4999 of the Code (the “Excise Tax”); provided, however, that if the Total After-Tax Payments (as defined below) would be increased by the reduction or elimination of any payment and/or other benefit (including the vesting of the equity awards) under this Agreement, then the amounts payable under this Agreement will be reduced or eliminated as follows, if possible: (i) first, by reducing or eliminating any cash payments or other benefits (other than the vesting of the equity awards) and (ii) second, by reducing or eliminating the vesting of those equity awards that occur as a result of such Change in Control (as provided above), to the extent necessary to maximize the Total After-Tax Payments. The Company’s independent, certified public accounting firm (the “Accounting Firm”) will determine whether and to what extent payments or vesting under this agreement are required to be reduced in accordance with the preceding sentence. For purposes of this Agreement, “Total After-Tax Payments” means the total of all “parachute payments” (as that term is defined in Section 280G(b)(2) of the Code) made to or for the benefit of Executive (whether made under the Agreement or otherwise) by the Company or any of its affiliates, after reduction for all applicable federal, state and local income taxes, employment, social security and Medicare taxes, the imposition of the Excise Tax and all other taxes, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied (or is likely to apply) to the Executive’s taxable income for the tax year in which the transaction which causes the application of Section 280G of the Code occurs, or such other rate(s) as the Accounting Firm determines to be likely to apply to the Executive in the relevant tax year(s) in which any of the parachute payments are expected to be made. The Company agrees to pay for all costs associated with the Accounting Firm and the determination of the payments or vesting required to be reduced and for the avoidance of doubt, shall not be required to pay any taxes, penalties, interest or other expenses to which Executive may be subject. If it is ultimately determined (by IRS private letter ruling or closing agreement, court decision or otherwise) that Executive’s parachute payments were reduced by too much or by too little in order to accomplish the purpose of this Section 5.6, the Executive and the Company shall promptly cooperate to correct such underpayment or overpayment in a manner consistent with the purpose of this Section 5.6. 5.7 Withholdings. Payments made under this Section 5 shall be subject to applicable federal, state and local taxes and withholdings. If the payment of any COBRA or health insurance premiums would otherwise violate the nondiscrimination rules or cause the reimbursement of claims to be taxable under the Patient Protection and Affordable Care Act of 2010, together with the Health Care and Education Reconciliation Act of 2010 (collectively, the “Act”) or Section 105(h) of the Code, the Company paid premiums shall be treated as taxable payments and be subject to imputed income tax treatment to the extent necessary to eliminate any discriminatory treatment or taxation under the Act or Section 105(h) of the Code. 6. Notices. All notices, requests, consents and other communications hereunder will be in writing, will be addressed, if to the Company, at its principal corporate offices to the attention of the Legal Department, and if to Executive, at his address set forth on the signature page hereto or in the personnel records of the Company (as applicable), or in either case, such other address as a party may designate by notice hereunder, and will be either (i) delivered by hand, (ii) sent by overnight courier, or (iii) sent by registered or certified mail, return receipt requested, postage prepaid. All notices, requests, consents and other communications hereunder will be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (iii) if sent by registered or certified mail, on the fifth business day following the day such mailing is made. 7. Absence of Restrictions. Executive represents and warrants that Executive is not bound by any employment contracts, restrictive covenants or other restrictions that prevent him from entering into employment with, or carrying out his responsibilities for, the Company, or which are in any way inconsistent with any of the terms of this Agreement. Executive further represents that, except as Executive has previously disclosed or described to the Company, Executive is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company, to refrain from competing, directly or indirectly, with the business of such previous employer or any other party, or to refrain from soliciting employees, customers or suppliers of such previous employer or other party. Executive further represents that he will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others. 8. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes and replaces all prior agreements and understandings, whether written or oral relating to the subject matter of this Agreement (including, from and after the Commencement Date, the Prior Agreement), with the exception of any Invention, Non- Disclosure, Non-Competition and Non-Solicitation Agreement by and between the Company and Executive. Notwithstanding the foregoing, the parties to this Agreement acknowledge that stock options and other equity awards may be granted by the Company to Executive under and pursuant to the 2012 Plan and any amendments thereto, as well as any additional plans, and the award agreements related to such plans. 9. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and Executive. 10. Governing Law; Consent to Jurisdiction. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of New York without regard to conflict of law principles. Any action, suit or other legal proceeding arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of New York (or, if appropriate, a federal court located within the State of New York), and the Company and Executive each consents to the jurisdiction of such a court. THE COMPANY AND EXECUTIVE EACH HEREBY IRREVOCABLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING ARISING UNDER OR RELATING TO ANY PROVISION OF THIS AGREEMENT. 11. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation or other entity with which, or into which, the Company may be merged or which may succeed to the Company’s assets or business, provided, however, that the obligations of Executive are personal and shall not be assigned by him. Notwithstanding the foregoing, if Executive dies the compensation and benefits stated in this Agreement will be paid to his beneficiary or his estate if no beneficiary. 12. Miscellaneous. 12.1 No Waiver. No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 12.2 Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 12.3 Severability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. 12.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. This Agreement may be delivered by facsimile, and facsimile signatures shall be treated as original signatures for all applicable purposes. 12.5 Blue Penciling. To the extent that any provision herein or in any plan of nonqualified deferred compensation that this document is a part of contravenes the requirements of Code Section 409A (or the regulations thereunder), such provision shall be appropriately modified in accordance with available IRS guidance (including without limitation IRS Notice 2010-6 and related guidance) so that Executive is not subject to the adverse effects of Code Section 409A but will nevertheless retain, to the extent possible, the economic benefit of the provision. 12.6 Section 409A; Withholding. 12.6.1 The payments under this Agreement are intended either to be exempt from Section 409A of the Code under the short-term deferral, separation pay, or other applicable exception, or to otherwise comply with Section 409A. The parties agree that this Agreement shall be administered in a manner consistent with such intent. For purposes of Section 409A, all payments under this Agreement shall be considered separate payments. If any amount or benefit payable to the Executive under this Agreement upon a “termination of employment” is determined by the Company to constitute a “deferral of compensation” for purposes of Section 409A (after taking into account any applicable exceptions), such amount or benefit shall not be paid or provided until the Executive has also experienced a “separation from service” from the Company within the meaning of Section 409A. Notwithstanding any provision to the contrary, to the extent Executive is considered a specified employee under Section 409A and would be entitled during the six-month period beginning on Executive’s separation from service to a payment that is not otherwise excluded under Section 409A, such payment will not be made until the earlier of the six- month anniversary of Executive’s separation from service or death; provided that the first payment made after the delay shall include all amounts that would have been paid earlier but for such six (6) month delay. At the request of the Executive, the Company shall set aside those payments that would otherwise be made in such six-month period in a trust is in compliance with Rev. Proc. 92-64. 12.6.2 If an expense reimbursement or provision of in-kind benefit provided to the Executive under this Agreement is not exempt from Section 409A of the Code, the following rules apply: (i) in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred; (ii) the amount of reimbursable expenses incurred or provision of in-kind benefits in one tax year shall not affect the expenses eligible for reimbursement or the provision of in-kind benefits in any other tax year; and (iii) the right to reimbursement for expenses or provision of in-kind benefits is not subject to liquidation or exchange for any other benefit. 12.6.3 If an expense reimbursement or provision of in-kind benefit provided to the Executive under this Agreement is not exempt from Section 409A of the Code, the following rules apply: (i) in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred; (ii) the amount of reimbursable expenses incurred or provision of in-kind benefits in one tax year shall not affect the expenses eligible for reimbursement or the provision of in-kind benefits in any other tax year; and (iii) the right to reimbursement for expenses or provision of in-kind benefits is not subject to liquidation or exchange for any other benefit. 12.6.4 All compensatory payments under this Agreement are subject to any required tax or other withholdings. 12.7 Interpretation. References to decisions by the Company will be made by the Board or the applicable Board committee. [signature page follows] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set first forth above. THE COMPANY: INTERCEPT PHARMACEUTICALS, INC. By: /s/ Mark Pruzanski Name: Mark E. Pruzanski, MD Title: President and Chief Executive Officer EXECUTIVE: By: /s/ Jason Campagna Name: Jason Campagna Address for Notice Purposes: [Last address in books and records of the Company] Exhibit A RELEASE OF CLAIMS 1 FOR AND IN CONSIDERATION OF the payments and benefits (the “Separation Benefits”) to be provided to me in connection with the separation of my employment, in accordance with the Employment Agreement between Intercept Pharmaceuticals, Inc. (the “Company”) and me dated [(cid:0)], 2019 (the “Agreement”), which Separation Benefits are conditioned on my signing this Release of Claims (“Release”) and which I will forfeit unless I execute and do not revoke this Release of Claims, I, on my own behalf and on behalf of my heirs and estate, voluntarily, knowingly and willingly release and forever discharge the Company, its subsidiaries, affiliates, parents, and, in their capacities as such, stockholders, together with each of those entities’ respective officers, directors, stockholders, employees, agents, fiduciaries and administrators, each in their capacities as such (collectively, the “Releasees”) from any and all claims and rights of any nature whatsoever which I now have or in the future may have against them up to the date I execute this Release, whether known or unknown, suspected or unsuspected. This Release includes, but is not limited to, any rights or claims relating in any way to my employment relationship with the Company or any of the other Releasees or the termination thereof, any contract claims (express or implied, written or oral), including, but not limited to, the Agreement, or any rights or claims under any statute, including, without limitation, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Older Workers’ Benefit Protection Act, the Rehabilitation Act of 1973 (including Section 504 thereof), Title VII of the 1964 Civil Rights Act, the Civil Rights Act of 1866 (42 U.S.C. § 1981), the Civil Rights Act of 1991, the Equal Pay Act, the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Family Medical Leave Act, the Lilly Ledbetter Fair Pay Act, the Genetic Information Non-Discrimination Act, the New York State Human Rights Law, the New York City Human Rights Law, and the Employee Retirement Income Security Act of 1974, all as amended, and any other federal, state or local law. This Release specifically includes, but is not limited to, any claims based upon the right to the payment of wages, incentive and performance compensation, bonuses, equity grants, vacation, pension benefits, 401(k) Plan benefits, stock benefits or any other employee benefits, or any other rights arising under federal, state or local laws prohibiting discrimination and/or harassment on the basis of race, color, age, religion, sexual orientation, religious creed, sex, national origin, ancestry, alienage, citizenship, nationality, mental or physical disability, denial of family and medical care leave, medical condition (including cancer and genetic characteristics), marital status, military status, gender identity, harassment or any other basis prohibited by law. As a condition of the Company entering into this Release, I further represent that I have not filed against the Company or any of the other Releasees, any complaints, claims or lawsuits with any arbitral tribunal, administrative agency, or court prior to the date hereof, and that I have not transferred to any other person any such complaints, claims or lawsuits. I understand that by signing this Release, I waive my right to any monetary recovery in connection with a local, state or federal governmental agency proceeding and I waive my right to file a claim seeking monetary damages in any arbitral tribunal, administrative agency, or court. This Release does not: (i) prohibit or restrict me from communicating, providing relevant information to or otherwise cooperating with the U.S. Equal Employment Opportunity Commission or any other governmental authority with responsibility for the administration of fair employment practices laws (including with respect to SEC Whistleblowing) regarding a possible violation of such laws or responding to any inquiry from such authority, including an inquiry about the existence of this Release or its underlying facts, or (ii) require me to notify the Company of such communications or inquiry. Furthermore, notwithstanding the foregoing, this Release does not include and will not preclude: (a) rights or claims to vested benefits under any applicable retirement and/or pension plans; (b) rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”); (c) claims for unemployment compensation; (d) rights to defense and indemnification or under the Company’s directors’ and officers’ liability insurance, if any, from the Company for actions or inactions taken by me in the course and scope of my employment with the Company and its parents, subsidiaries and/or affiliates; (e) any rights I may have to obtain contribution as permitted by law in the event of entry of judgment against the Company as a result of any act or failure to act for which I and the Company are held jointly 1 The Executive agrees that the Company may revise this release to satisfy the purpose of providing as full a release of claims (subject to payment of any benefits provided on the applicable termination of employment) as may be legally permissible. The Company may revise it to reflect changes in law for releases and may add language for ADEA compliance. liable; (f) any rights to vested equity that vested prior to or because of the termination of my employment and rights as a stockholder; and/or (g) any actions to enforce the Agreement. I acknowledge that, in signing this Release, I have not relied on any promises or representations, express or implied, other than those that are set forth expressly herein or in the Agreement and that are intended to survive separation from employment, in accordance with the terms of the Agreement. Nondisclosure; Continuing Obligations - I understand and agree that, to the extent permitted by law, the terms and contents of this Release (as modified before signature) and the contents of the negotiations and discussions resulting in this Release shall be maintained as confidential by me and must not be disclosed to anyone other than a member of my immediate family, my attorney, accountant or other advisor (and, even as to such a person, only if the person agrees to honor this confidentiality requirement) except to the extent required by federal or state law or as otherwise agreed to in writing by the Company. I acknowledge and reaffirm my obligation to keep confidential and not disclose any and all non- public information concerning the Company that I acquired during the course of my employment or other relationship with the Company, including any non-public information concerning the Company’s business affairs, business prospects and financial condition, as is stated more fully in any Invention, Non-Disclosure, Non-Competition and Non-Solicitation Agreement and that I will comply with such agreement in all other respects. The Company understands and agrees that the contents of the negotiations and discussions resulting in this Release shall be maintained as confidential and shall not be disclosed to any third parties, except to the extent required by federal or state law or as otherwise agreed to in writing with you. Mutual Non-Disparagement – I understand and agree that I shall not make any false, disparaging or derogatory statements to any person or entity, including any media outlet, industry group or financial institution, regarding the Company, or any of the other Releasees or about the Company’s business affairs and financial condition. The Company confirms that it has instructed the members of its Board of Directors and its current executive officers to not make any false, disparaging or derogatory statements to any person or entity, including any media outlet, industry group or financial institution, regarding me, my employment with the Company, or my departure from the Company. Notwithstanding the foregoing, nothing herein prevents either the Releasees or me from making truthful disclosures to any governmental entity or to enforce the Agreement or this Release. For the avoidance of doubt, nothing in this Release prohibits me from communicating with a government agency, regulator or legal authority concerning any possible violations of federal or state law or regulation. Nothing in this Release, however, authorizes the disclosure of information I obtained through a communication that was subject to the attorney-client privilege, unless disclosure of the information would otherwise be permitted by an applicable law or rule. Return of Company Property - I confirm that I have returned to the Company in good working order all Company-owned keys, files, records (and copies thereof), equipment (including computer hardware, software and printers, wireless handheld devices, cellular phones, tablets, smartphones, etc.), Company identification, the Company proprietary and confidential information, and any other Company-owned property in my possession or control and I have left intact with, or delivered intact to, the Company all electronic Company documents and internal and external websites, including those that I developed or helped to develop during my employment, and that I have thereafter deleted, and destroyed any hard copies of, all electronic files relating to the Company that are in my possession or control, including any that are located on any of my personal computers or external or cloud storage. I further confirm that I have cancelled all accounts for my benefit, if any, in the Company’s name including, but not limited to, credit cards, telephone charge cards, cellular phone and/or wireless data accounts and computer accounts. Notwithstanding the foregoing, I understand that I shall be permitted to retain my contacts and calendars and personal correspondence and any documents or data related to my compensation or reasonably needed for tax preparation purposes. Final Compensation – I acknowledge that I have received payment in full for all services rendered in conjunction with my employment by the Company, including payment for all wages, bonuses, and equity for any period before the date of this Release (other than any current salary and benefits due in the ordinary course in a final paycheck or thereafter), and that no other compensation is owed to me, except as provided in the applicable provisions of Section 5 of the Agreement; provided that nothing herein shall affect any claims of entitlement I may have to vested benefits under any 401(k) plan or other ERISA-covered benefit plan (excluding severance) provided by the Company. Cooperation – I agree to cooperate with, provide assistance to, and make myself reasonably available to the Company and its legal counsel in connection with any litigation (including arbitration or administrative hearings) or investigation or examination relating to the Company or any of its current or former employees, in which, in the reasonable judgment of the Company or its counsel, my assistance or cooperation is needed due to my personal involvement in or knowledge about the circumstances to which the litigation or investigation relates. I will, when the Company or its counsel requests, provide testimony, be available for interviews or other assistance and travel at the Company’s reasonable request in order to fulfill this obligation. In connection with such litigation or investigation, the Company will use its best efforts to accommodate my schedule, will provide me with as much notice as possible in advance of the times during which my cooperation or assistance is needed, and will reimburse me for any reasonable travel and lodging expenses incurred in connection with such matters (at a level of travel consistent with my travel while employed by the Company) and the reasonable fees of any independent counsel retained by me if I reasonably believe separate counsel to be appropriate. I agree not to assist or provide information to any adverse party in any litigation against the Company or any of its current or former employees, except as required under law or formal legal process, unless I provide advance notice to the Company at least 10 days before such assistance or provision of information (or, if I am so required to assist or provide such information within less than 10 days of receipt of such requirement, after I provide timely advance notice to the Company) to allow the Company to take legal action with respect to the matter. Finally, I will undertake to satisfy requests for information from the Company with respect to the above undertaking. Nothing in this Release is intended to restrict or preclude me from, or otherwise influence me in, testifying fully and truthfully in legal, administrative, or any other proceedings involving the Company, as required by law or formal legal process. Tax Provision – I acknowledge that I am not relying upon advice or representation of the Company with respect to the tax treatment of any of the payments or benefits provided by the Company. The benefits provided to me are intended to be exempt from or compliant with Section 409A of the Internal Revenue Code of 1986. The Company makes no representation or warranty and shall have no liability to me or to any other person if any of the provisions of the Agreement or this Release are determined to constitute deferred compensation subject to Section 409A but not to satisfy an exemption for, or the conditions of, that section. All payments stated will be reduced by all applicable taxes and withholdings. constitute an admission of liability or wrongdoing on the part of the Company. Nature of Agreement – I understand and agree that this Release is a severance agreement and does not Voluntary Assent – I affirm that no other promises or agreements of any kind have been made to or with me by any person or entity whatsoever to cause me to sign this Release, other than as reflected in the Agreement and that I fully understand the meaning and intent of the Release. I acknowledge that, in signing this Release, I have not relied on any promises or representations, express or implied, other than those that are set forth expressly herein or in the Agreement and that are intended to survive separation from employment, in accordance with the terms of the Agreement. I further state and represent that I have carefully read this Release, understand the contents herein, freely and voluntarily assent to all of the terms and conditions hereof, and sign my name of my own free act. Validity – Should any provision of this Release be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release. I further acknowledge that: (1) I first received this Release on the date of the Agreement to which it is attached as Exhibit A; (2) I understand that, in order for this Release to be effective, I may not sign it prior to the date of my separation of employment with the Company but that if I wish to receive the Separation Benefits, I must sign and return this Release prior to the sixtieth (60 ) day following my separation of employment; th (3) I have carefully read and understand this Release; (4) The Company advised me to consult with an attorney and/or any other advisors of my choice before signing this Release; (5) I understand that this Release is LEGALLY BINDING and by signing it I give up certain rights; (6) I have voluntarily chosen to enter into this Release and have not been forced or pressured in any way to sign it; (7) I acknowledge and agree that the Separation Benefits are contingent on execution of this Release, which releases all of my claims against the Company and the Releasees, and I KNOWINGLY AND VOLUNTARILY AGREE TO RELEASE the Company and the Releasees from any and all claims I may have, known or unknown, in exchange for the benefits I have obtained by signing, and that these benefits are in addition to any benefit I would have otherwise received if I did not sign this Release; (8) I have seven (7) days after I sign this Release to revoke it by notifying the Company in writing. The Release will not become effective or enforceable until the seven (7) day revocation period has expired; (9) This Release includes a WAIVER OF ALL RIGHTS AND CLAIMS I may have under the Age Discrimination in Employment Act of 1967 (29 U.S.C. §621 et seq.); and (10) This Release does not waive any rights or claims that may arise after this Release becomes effective, which is seven (7) days after I sign it, provided that I do not exercise my right to revoke this Release. Intending to be legally bound, I have signed this Release as of the date written below. Signature: Jason Campagna Date signed Exhibit 10.41 Sumitomo Dainippon Pharma Co., Ltd. 13-1, Kyobashi 1-chome, Chuo-ku, Tokyo 104-8356, Japan Phone: (81) 3 (5159) 2510 Telefax: (81) 3 (5159) 3004 October 25, 2019 Via Facsimile (with copy by email) Mark Pruzanski, M.D. President and Chief Executive Officer Intercept Pharmaceuticals, Inc. Fax: +1-646-747-1001 Re: Termination of License Agreement Dear Dr. Pruzanski: Reference is made to that certain LICENSE AGREEMENT between Intercept Pharmaceuticals, Inc. (“Intercept”) and Sumitomo Dainippon Pharma Co., Ltd. (“Sumitomo”) dated as of March 29 , 2011 regarding INT-747, as amended (the “License Agreement”). th Sumitomo and Intercept hereby mutually agree to terminate the License Agreement in its entirety with immediate effect as of the date first written above (the “Termination Date”). Further, the parties hereby agree that the provisions of Section 15.4.2 of the License Agreement shall apply upon such termination (and, for clarity, that the provisions of Section 15.4.1 shall not apply) and that, in accordance therewith, among other things, all licenses and sublicenses granted by Intercept to Sumitomo under the License Agreement shall revert in full to Intercept as of the Termination Date. Without limiting the foregoing, the parties hereby agree that the review period provided under Section 11.2 and associated rights and obligations of the parties thereunder will survive for a period of twenty-eight (28) days following the Termination Date solely with respect to that certain proposed publication tentatively titled “A phase 2, randomized, double-blind, placebo-controlled multicenter study of obeticholic acid in Japanese patients with nonalcoholic steatohepatitis” and tentatively forthcoming in the Journal of Gastroenterology. For the avoidance of doubt, Section 15.4.5 (and the provisions set forth therein) shall survive termination of the License Agreement. Nothing contained in this letter shall be construed as a waiver of any rights, remedies or claims of either party or, except to the extent expressly provided in this letter, a limitation, modification or restriction of either party’s rights or remedies under the License Agreement and any related agreements, all of which are expressly reserved. This letter may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [Continues on Next Page] Please confirm lntercept's agreement to the foregoing by signing where indicated below and providing us with a signed copy of this letter for our records. Kind regards, Sumitomo Dainippon Pharma Co., Ltd. /s/ Shigeyuki Nishinaka By: Name: Shigeyuki Nishinaka Title: Executive Officer, Senior Director, Global Business Development Accepted and agreed: Intercept Pharmaceuticals, Inc. /s/ David Chung By: Name: David Chung Title: Vice President, Business Development SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 Name Jurisdiction of Incorporation or Organization Intercept Pharma International Limited Intercept Pharmaceuticals, LLC Intercept Italia S.r.l. Intercept Pharma Europe Ltd. Intercept Pharma UK & Ireland Ltd Intercept Pharma Ltd Intercept Pharma Canada Inc. Intercept Pharma Switzerland GmbH Intercept Pharma Deutschland GmbH Intercept Pharma France SAS Intercept Pharma Austria GmbH Intercept Pharma Spain, S.L.U. Intercept Pharma Portugal Unipessoal Lda Intercept Pharma Danmark ApS Intercept Pharma Nederland B.V. Republic of Ireland Delaware Italy England and Wales England and Wales England and Wales British Columbia Switzerland Germany France Austria Spain Portugal Denmark The Netherlands Consent of Independent Registered Public Accounting Firm Exhibit 23.1 The Board of Directors Intercept Pharmaceuticals, Inc.: We consent to the incorporation by reference in the registration statements (No. 333-184810, No. 333-188064, No. 333- 206247, No. 333-217863, No. 333-226405, and No. 333-233248) on Form S-8 and (No. 333-194974 and No. 333-217861) on Form S-3 of Intercept Pharmaceuticals, Inc. of our reports dated February 25, 2020, with respect to the consolidated balance sheets of Intercept Pharmaceuticals, Inc. as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and the effectiveness of internal control over financial reporting as of December 31, 2019, which reports appear the December 31, 2019 annual report on Form 10-K of Intercept Pharmaceuticals, Inc. in /s/ KPMG LLP New York, New York February 25, 2020 I, Mark Pruzanski, M.D., certify that: CERTIFICATION Exhibit 31.1 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 fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with 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 all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined 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 under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made 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 be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation 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 our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 25, 2020 /s/ Mark Pruzanski, M.D. Mark Pruzanski, M.D. President and Chief Executive Officer (Principal Executive Officer) I, Sandip Kapadia, certify that: CERTIFICATION Exhibit 31.2 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 fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with 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 all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined 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 under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made 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 be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation 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 our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 25, 2020 /s/ Sandip Kapadia Sandip Kapadia Chief Financial Officer and Treasurer (Principal Financial Officer) CERTIFICATION Exhibit 32.1 Pursuant to the requirement set forth in Rule Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Mark Pruzanski, M.D., President and Chief Executive Officer of Intercept Pharmaceuticals, Inc. (the “Company”), and Sandip Kapadia, Chief Financial Officer and Treasurer of the Company, each hereby certifies that, to the best of his knowledge: (1) The Company’s Annual Report on Form 10-K for the year ended December 31, 2019 to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and (2) The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: February 25, 2020 Dated: February 25, 2020 /s/ Mark Pruzanski, M.D. Mark Pruzanski, M.D. President and Chief Executive Officer (Principal Executive Officer) /s/ Sandip Kapadia Sandip Kapadia Chief Financial Officer and Treasurer (Principal Financial Officer) A signed original of this written statement required by Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350) has been provided to Intercept Pharmaceuticals, Inc. and will be retained by Intercept Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Annual Report on Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Intercept Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Annual Report on Form 10-K), irrespective of any general incorporation language contained in such filing. 

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