Company Quick10K Filing
Quick10K
Intercept Pharmaceuticals
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$83.90 30 $2,500
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-06-20 Shareholder Vote
8-K 2019-05-08 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-04-11 Other Events, Exhibits
8-K 2019-02-19 Other Events, Exhibits
8-K 2019-01-07 Other Events, Exhibits
8-K 2018-10-31 Earnings, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-06-20 Enter Agreement, Shareholder Vote
8-K 2018-05-08 Earnings, Exhibits
8-K 2018-04-24 Officers, Exhibits
8-K 2018-04-04 Enter Agreement, Sale of Shares, Exhibits
8-K 2018-03-26 Other Events
8-K 2018-02-14 Earnings, Exhibits
8-K 2018-02-13 Enter Agreement
8-K 2017-12-31 Enter Agreement, Leave Agreement
CAJ Canon 29,960
CTAS Cintas 23,160
WAL Western Alliance 4,940
ATRI Atrion 1,630
CNXN PC Connection 935
QIWI Qiwi 828
ASMB Assembly Biosciences 414
MTP Midatech Pharma 393
PT Pharol 281
AHPI Allied Healthcare Products 7
ICPT 2019-06-30
Part I
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-10.1 icpt-20190630ex101b605bb.htm
EX-10.2 icpt-20190630ex102c9d31d.htm
EX-31.1 icpt-20190630ex3110d87a3.htm
EX-31.2 icpt-20190630ex31296dd82.htm
EX-32.1 icpt-20190630ex321407796.htm

Intercept Pharmaceuticals Earnings 2019-06-30

ICPT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 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

    

22-3868459

(State or Other Jurisdiction of
Incorporation or Organization)

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

10 Hudson Yards, 37th Floor

New York, NY 10001

(Address of Principal Executive Offices and Zip Code)

(646) 747-1000

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ICPT

Nasdaq Global Select Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of shares of the registrant’s common stock outstanding as of June 30, 2019 was 32,696,384.

Table of Contents

Intercept Pharmaceuticals, Inc.

INDEX

PART I
FINANCIAL INFORMATION

   

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets at June 30, 2019 (Unaudited) and December 31, 2018 (Audited)

6

Condensed Consolidated Statements of Operations for the three and six-month periods ended June 30, 2019 and 2018 (Unaudited)

7

Condensed Consolidated Statements of Comprehensive Loss for the three and six-month periods ended June 30, 2019 and 2018 (Unaudited)

8

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six-month periods ended June 30, 2019 and 2018 (Unaudited)

9

Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2019 and 2018 (Unaudited)

11

Notes to Condensed Consolidated Financial Statements (Unaudited)

12

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

87

Item 6.

Exhibits

87

Exhibit Index

88

Signatures

89

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

2

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, including, but not limited to, statements regarding the progress, timing and results of our clinical trials, including our clinical trials for the treatment of nonalcoholic steatohepatitis (“NASH”), the safety and efficacy of our approved product, Ocaliva (obeticholic acid or “OCA”) for primary biliary cholangitis (“PBC”), and our product development candidates, including OCA for NASH, the timing and acceptance of our potential regulatory filings and potential approval of OCA for 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, objectives of management and expected market growth.

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;
our ability to timely and cost-effectively file for and obtain regulatory approval of our product candidates, including OCA for NASH, in the United States, Europe and our other target markets;
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 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 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 NASH, if approved;

3

Table of Contents

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 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 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
the other risks and uncertainties identified under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q and in our other periodic filings filed with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2018.

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NOTE REGARDING TRADEMARKS

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

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PART I

Item 1. Financial Statements.

INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

June 30, 

December 31, 

2019

2018

    

(Unaudited)

    

(Audited)

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

93,501

$

43,248

Investment debt securities, available-for-sale

 

665,016

 

392,912

Accounts receivable, net

 

36,360

 

25,694

Prepaid expenses and other current assets

 

24,312

 

20,571

Total current assets

 

819,189

 

482,425

Fixed assets, net

 

6,814

 

10,411

Inventory, net

 

7,686

 

7,108

Security deposits

 

8,374

 

9,223

Other assets

 

10,906

 

Total assets

$

852,969

$

509,167

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable, accrued expenses and other liabilities

$

115,562

$

105,109

Short-term interest payable

 

8,050

 

7,475

Short-term portion of deferred revenue

 

1,622

 

1,621

Total current liabilities

 

125,234

 

114,205

Long-term liabilities:

 

  

 

  

Long-term debt

 

545,009

 

371,250

Long-term other liabilities

 

7,523

 

3,771

Long-term portion of deferred revenue

 

 

811

Total liabilities

$

677,766

$

490,037

Commitments and contingencies (Note 15)

Stockholders’ equity:

 

  

 

  

Common stock par value $0.001 per share; 45,000,000 shares authorized; 32,696,384 and 29,693,876 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively

 

33

 

30

Additional paid-in capital

 

2,116,481

 

1,800,144

Accumulated other comprehensive loss, net

 

(836)

 

(2,259)

Accumulated deficit

 

(1,940,475)

 

(1,778,785)

Total stockholders’ equity

 

175,203

 

19,130

Total liabilities and stockholders’ equity

$

852,969

$

509,167

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

Revenue:

  

 

  

 

  

 

  

Product revenue, net

$

65,894

$

43,169

$

117,741

$

78,327

Licensing revenue

 

406

 

406

 

811

 

1,211

Total revenue

 

66,300

 

43,575

 

118,552

 

79,538

Operating expenses:

 

  

 

  

 

  

 

  

Cost of sales

 

677

 

713

 

1,251

 

993

Selling, general and administrative

 

69,683

 

65,224

 

146,910

 

127,691

Research and development

 

59,599

 

47,415

 

117,995

 

96,087

Total operating expenses

 

129,959

 

113,352

 

266,156

 

224,771

Operating loss

 

(63,659)

 

(69,777)

 

(147,604)

 

(145,233)

Other income (expense):

 

  

 

  

 

  

 

  

Interest expense

 

(9,884)

 

(7,589)

 

(17,723)

 

(15,098)

Other income, net

 

2,123

 

2,173

 

3,637

 

3,548

 

(7,761)

 

(5,416)

 

(14,086)

 

(11,550)

Net loss

$

(71,420)

$

(75,193)

$

(161,690)

$

(156,783)

Net loss per common and potential common share:

 

  

 

  

 

  

 

  

Basic and diluted

$

(2.28)

$

(2.58)

$

(5.29)

$

(5.75)

Weighted average common and potential common shares outstanding:

 

  

 

  

 

  

 

  

Basic and diluted

 

31,316

 

29,199

 

30,542

 

27,265

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

Net loss

$

(71,420)

$

(75,193)

$

(161,690)

$

(156,783)

Other comprehensive (loss) income:

 

  

 

  

 

  

 

  

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

Unrealized gains (losses) on investment debt securities

 

392

 

(125)

 

1,195

 

249

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

 

 

 

4

 

Net unrealized gains (losses) on investment debt securities

$

392

$

(125)

$

1,199

$

249

Foreign currency translation gains (losses)

 

(59)

 

(1,559)

 

224

 

(1,042)

Other comprehensive (loss) income

$

333

$

(1,684)

$

1,423

$

(793)

Comprehensive loss

$

(71,087)

$

(76,877)

$

(160,267)

$

(157,576)

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(In thousands)

Three months ended June 30, 2019

Accumulated

Additional

Other

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity (Deficit)

Balance - March 31, 2019

 

29,777

$

30

$

1,815,193

$

(1,169)

$

(1,869,055)

$

(55,001)

Stock-based compensation

 

 

 

14,782

 

 

 

14,782

Recognition of debt discount on 2026 Convertible Notes

59,338

59,338

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

2,880

3

227,177

227,180

Net proceeds from exercise of stock options

39

 

 

795

 

 

 

795

Employee withholding taxes related to stock-based awards

(804)

(804)

Other comprehensive income

 

 

 

 

333

 

 

333

Net loss

 

 

 

 

 

(71,420)

 

(71,420)

Balance - June 30, 2019

 

32,696

$

33

$

2,116,481

$

(836)

$

(1,940,475)

$

175,203

Six months ended June 30, 2019

Accumulated

Additional

Other

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balance - December 31, 2018

29,694

$

30

$

1,800,144

$

(2,259)

$

(1,778,785)

$

19,130

Stock-based compensation

 

 

 

29,679

 

 

 

29,679

Recognition of debt discount on 2026 Convertible Notes

59,338

59,338

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

2,880

3

227,177

227,180

Net proceeds from exercise of stock options

122

 

 

1,738

 

 

 

1,738

Employee withholding taxes related to stock-based awards

(1,595)

(1,595)

Other comprehensive income

 

 

 

 

1,423

 

 

1,423

Net loss

 

 

 

 

 

(161,690)

 

(161,690)

Balance - June 30, 2019

 

32,696

$

33

$

2,116,481

$

(836)

$

(1,940,475)

$

175,203

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Three months ended June 30, 2018

Accumulated

Additional

Other

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity (Deficit)

Balance - March 31, 2018

25,332

$

25

$

1,499,476

$

(643)

$

(1,551,133)

$

(52,275)

Stock-based compensation

 

 

 

14,116

 

 

 

14,116

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

4,258

4

261,357

261,361

Net proceeds from exercise of stock options

 

(25)

 

 

6

 

 

 

6

Other comprehensive loss

 

 

 

 

(1,439)

 

 

(1,439)

Net loss

 

 

 

 

 

(75,193)

 

(75,193)

Balance - June 30, 2018

 

29,565

$

29

$

1,774,955

$

(2,082)

$

(1,626,326)

$

146,576

Six months ended June 30, 2018

Accumulated

Additional

Other

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balance - December 31, 2017

25,173

$

25

$

1,486,690

$

(786)

$

(1,469,543)

$

16,386

Stock-based compensation

 

 

 

26,421

 

 

 

26,421

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

4,258

4

261,357

261,361

Net proceeds from exercise of stock options

 

134

 

 

487

 

 

 

487

Other comprehensive loss

 

 

 

 

(1,296)

 

 

(1,296)

Net loss

 

 

 

 

 

(156,783)

 

(156,783)

Balance - June 30, 2018

 

29,565

$

29

$

1,774,955

$

(2,082)

$

(1,626,326)

$

146,576

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Six Months Ended June 30, 

    

2019

    

2018

Cash flows from operating activities:

 

  

 

  

Net loss

$

(161,690)

$

(156,783)

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

 

  

 

  

Stock-based compensation

 

29,679

 

26,421

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

 

(570)

 

533

Amortization of deferred financing costs

 

958

 

754

Depreciation and amortization

 

4,610

 

2,428

Gain on lease termination

(1,995)

Loss on the disposal of fixed assets

 

2,682

 

1,331

Accretion of debt discount

 

8,715

 

6,869

Unrealized loss on investments

249

Changes in operating assets:

 

  

 

  

Prepaid expenses and other current assets

 

(3,741)

 

(3,004)

Accounts receivable

 

(10,666)

 

(3,008)

Inventory

 

(578)

 

(2,333)

Security deposits

849

7,468

Other assets

(19,622)

Changes in operating liabilities:

 

  

 

  

Accounts payable, accrued expenses and other current liabilities

 

14,597

 

(15,171)

Operating lease liabilities

(3,359)

Long-term other liabilities

 

10,993

 

(865)

Interest payable

575

Deferred revenue

 

(810)

 

(1,210)

Net cash used in operating activities

 

(129,373)

 

(136,321)

Cash flows from investing activities:

 

  

 

  

Purchases of investment debt securities

 

(451,902)

 

(294,537)

Sales and maturities of investment debt securities

 

181,575

 

178,041

Purchases of equipment, leasehold improvements, and furniture and fixtures

 

(1,024)

 

(45)

Net cash used by investing activities

 

(271,351)

 

(116,541)

Cash flows from financing activities:

 

  

 

  

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

223,424

261,357

Proceeds from issuance of common stock, net of issuance costs

227,180

Proceeds from exercise of options, net

 

1,738

 

486

Payments of employee withholding taxes related to stock-based awards

(1,595)

Net cash provided by financing activities

 

450,747

 

261,843

Effect of exchange rate changes

 

230

 

(1,274)

Net increase in cash and cash equivalents

 

50,253

 

7,707

Cash and cash equivalents – beginning of period

 

43,248

 

70,013

Cash and cash equivalents – end of period

$

93,501

$

77,720

See accompanying notes to the condensed consolidated financial statements.

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INTERCEPT PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.    Overview of Business

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

2.    Basis of Presentation

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation. Certain information that is normally required by U.S. GAAP has been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission (“SEC”). Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2019. In the opinion of management, these unaudited condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim unaudited condensed consolidated financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.

Use of Estimates

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

3.    Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.

Leases

The Company determines if an arrangement is a lease at inception and records right-of-use (“ROU”) assets and lease liabilities on the condensed 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 condensed 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.

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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.

Additional information and disclosures are contained in Note 8 — Operating Leases below.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) established Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), by issuing Accounting Standards Update (“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 ROU 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 income statement. 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 (i) its effective date or (ii) 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. 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 will 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, 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 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

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December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company adopted ASU 2018-07 on January 1, 2019 on a modified retrospective basis through a cumulative-effect adjustment to equity by remeasuring, on that date, the fair value of all outstanding unvested stock options that had been granted to nonemployees. The adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recent Accounting Pronouncements to be Adopted

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 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 is currently evaluating the impact of this standard on its 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 plans to adopt ASU 2018-13 effective January 1, 2020 and does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements and related disclosures.

4.    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 the Sumitomo Amendment, (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 addition, the Company and Sumitomo Dainippon agreed that if certain clinical development milestones in China are not met by December 31, 2020, Sumitomo Dainippon may choose either to make a milestone payment to the Company or terminate the Sumitomo Agreement. Sumitomo Dainippon may also terminate the Sumitomo Agreement in its entirety or on an indication-by-indication basis at any time upon 90 days’ written notice. As of June 30, 2019, the Company had achieved $6.0 million of development milestones under the Sumitomo Agreement. The Company may be eligible to receive additional milestone payments under the Sumitomo Agreement in an aggregate amount of up to approximately $23.0 million based on the occurrence of certain clinical trial and regulatory-related events and tiered royalty payments up to the mid-twenties

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in percentage terms based on net sales of OCA products in China (excluding Taiwan). Sumitomo Dainippon is responsible for the costs of developing and commercializing OCA in its territory.

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, and continues to account, for the Sumitomo Agreement under the legacy accounting guidance. 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 without the Company’s technical expertise and steering committee participation during the development of OCA. The development period is currently estimated as continuing through June 2020 and, as such, the $15.0 million upfront payment is being recognized ratably over this period. The Company recognized licensing revenue of $0.4 million and $0.4 million for the three months ended June 30, 2019 and 2018, respectively, and $0.8 million and $1.2 million for the six months ended June 30, 2019 and 2018, respectively, under the Sumitomo Agreement. Included in licensing revenue for the six months ended June 30, 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 June 30, 2019, and December 31, 2018, the Company had recorded deferred revenues of $1.6 million and $2.4 million, respectively, under this agreement.

5.    Cash, Cash Equivalents and Investment Debt Securities

The following table summarizes the Company’s cash, cash equivalents and investment debt securities as of June 30, 2019 and December 31, 2018:

As of June 30, 2019

Gross

Gross

Unrealized

Unrealized

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

(in thousands)

Cash and cash equivalents:

 

  

 

  

 

  

 

  

Cash and money market funds

$

53,917

$

$

$

53,917

Commercial paper

35,598

(9)

35,589

Corporate debt securities

3,995

3,995

Total cash and cash equivalents

93,510

(9)

93,501

Investment debt securities:

 

  

 

  

 

  

 

  

Commercial paper

 

60,776

 

40

 

(9)

 

60,807

Corporate debt securities

 

596,272

 

668

 

(210)

 

596,730

U.S. government and agency securities

 

7,465

 

14

 

 

7,479

Total investment debt securities

 

664,513

 

722

 

(219)

 

665,016

Total cash, cash equivalents and investment debt securities

$

758,023

$

722

$

(228)

$

758,517

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As of December 31, 2018

Gross

Gross

Unrealized

Unrealized

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

(in thousands)

Cash and cash equivalents:

 

  

 

  

 

  

 

  

Cash and money market funds

$

43,248

$

$

$

43,248

Investment debt securities:

 

  

 

  

 

  

 

  

Commercial paper

 

34,353

 

 

(26)

 

34,327

Corporate debt securities

 

349,854

 

27

 

(704)

 

349,177

U.S. government and agency securities

 

9,410

 

5

 

(7)

 

9,408

Total investment debt securities

 

393,617

 

32

 

(737)

 

392,912

Total cash, cash equivalents and investment debt securities

$

436,865

$

32

$

(737)

$

436,160

As of June 30, 2019, the Company held a total of twelve positions that were in a continuous unrealized loss position for twelve months or longer. The Company has determined that the unrealized losses are deemed to be temporary impairments as of June 30, 2019. 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 does not consider the investments to be other-than-temporarily impaired at June 30, 2019.

6.    Fixed Assets, Net

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

Useful lives

    

(Years)

    

June 30, 2019

    

December 31, 2018

(in thousands)

Office equipment and software

 

3

$

4,298

$

3,986

Leasehold improvements

 

Over life of lease

 

10,429

 

14,464

Furniture and fixtures

 

7

 

3,999

 

3,907

Subtotal

 

18,726

 

22,357

Less: accumulated depreciation

 

(11,912)

 

(11,946)

Fixed assets, net

$

6,814

$

10,411

7.    Inventory, Net

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

June 30, 2019

    

December 31, 2018

(in thousands)

Work-in-process

$

7,577

$

7,019

Finished goods

 

109

 

89

Inventory, net

$

7,686

$

7,108

8. Operating Leases

The Company leases various office spaces under non-cancelable operating leases with original lease periods expiring between the fourth quarter of 2019 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

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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 condensed consolidated balance sheet as follows:

Leases

Classification

June 30, 2019

Assets

(in thousands)

Operating lease assets

Other assets

$

10,906

Total leased assets

$

10,906

Liabilities

Current

Operating lease liabilities

Accounts payable, accrued expenses and other liabilities

$

6,561

Noncurrent

Operating lease liabilities

Long-term other liabilities

7,512

Total lease liabilities

$

14,073

Operating lease costs for the three and six-month periods ended June 30, 2019 are as follows:

Three Months Ended

Six Months Ended

Lease Cost

Classification

June 30, 2019

June 30, 2019

(in thousands)

(in thousands)

Operating lease cost

Selling, general and administrative expenses

$

1,469

$

3,147

Short-term lease cost

Selling, general and administrative expenses

528

1,354

Variable lease cost

Selling, general and administrative expenses

172