TERN - A Perfect Storm In Pharmacotherapy: The Opportunity To Invest In NASH

2023-03-29 23:40:24 ET

Summary

• NASH, or nonalcoholic steatohepatitis, is a liver inflammatory disease that can progress to fibrosis and cirrhosis.
• NASH is now the second leading cause of liver transplantation, and the US patient population is forecast to increase from 16 million in 2015 to 27 million in 2030.
• Contributing comorbidities include dyslipidemia, obesity, and Type 2 diabetes.
• Use of the GLP-1R agonists, like those from Novo and Lilly, should become more prescribed as they cause weight loss, and they stimulate the body to produce more insulin, thereby lowering blood glucose levels.

NASH represents a significant medical problem and its incidence is increasing dramatically . Associated comorbidities include obesity and Type 2 diabetes. In the US, it is estimated that 42% of adults are obese , and the obesity rate has increased by 26% since 2008. Thirty five million Americans are estimated to have Type 2 diabetes mellitus, and 96 million have prediabetes, in which glucose levels are higher than normal. In 1980, 108 million people worldwide had diabetes. By 2014, according to the WHO (World Health Organization), the number had risen to 422 million. The International Diabetes Federation in 2020 forecast an increase to 700 million adults by 2045 . The prevalence of NASH among Americans with Type 2 DM is 37%. Looking at the figures another way, 71% of NASH patients have metabolic syndrome, 83% have dyslipidemia, 80% are obese, and 54% have Type 2 DM.

NASH is an inflammatory liver condition that begins with fat deposition and progresses to lipotoxicity, inflammation, fibrosis, and cirrhosis. With increased fibrosis, the risk of liver-related mortality rises dramatically. The fibrosis scale goes from F0 (no fibrosis) to F4 (cirrhosis). The most likely to benefit from NASH pharmacotherapy are those classified as F2 or F3, which makes up 32% of the total.

At the current time, there is no approved pharmacotherapy for NASH, and physicians have encouraged lifestyle modification, as weight loss in excess of 10% can lead to improved NASH outcomes and may reverse early stage fibrosis in some patients. However, this could change soon, as two drugs may be considered by the FDA for approval this year, OCA, an FXR agonist, from Intercept Pharmaceuticals ( ICPT ) and Resmetirom from Madrigal Pharmaceuticals ( MDGL ). As shown below, several other drugs are in late stage clinical trials.

Perhaps more interesting is the use of GLP-1R agonists in this setting. These drugs are commonly used to treat Type 2 DM and have demonstrated significant weight loss, with minimal untoward side effects (unlike prior weight loss drugs). I project this class, either as a single agent or as a monotherapy in combination with a GIP and/or a glucagon agonist to become the largest pharmaceutical class ever. In fact, Pfizer's ( PFE ) CEO sees this becoming a $90 billion drug class versus $12 billion today. The leaders are Novo Nordisk ( NVO ) and Eli Lilly ( LLY ), and it is critical to appreciate that both companies are conducting studies in NASH. Furthermore, they are pursuing next generation molecules, CagriSema for Novo, and an oral GLP-1, orforglipron, for Lilly. The ability to control weight, thereby limiting liver fat deposition, could reduce the incidence of NASH and the long term sequelae. Furthermore, these drugs could improve health outcomes overall. Broad acceptance by insurers for the obesity indication will necessitate favorable cardiovascular outcomes studies, and these are being done.

From an investment standpoint, I continue to strongly recommend the GLP-1 companies Novo and Lilly. I also note that Pfizer has an oral GLP-1, danuglipron in clinical studies, and other companies, including Viking Therapeutics ( VKTX ), are in early stage clinical trials. The confluence of obesity, Type 2 DM and NASH position this class to become very widely used over the next decade. I forecast Lilly to achieve earnings per share in excess of $20 in 2026.

As for NASH-specific medications, I am most interested in the thyroid hormone receptor-beta class, being pursued by Madrigal, Viking and Terns Pharmaceuticals ( TERN ) and the FGF-21 mimetics, as represented by Akero Therapeutics ( AKRO ) and 89bio ( ETNB ), but I expect the cornerstone of therapy to be the GLP-1 drugs.

In conclusion, very effective pharmacotherapies to treat obesity and NASH are available or soon to be commercial, and the interest level is high given the demand for Wegovy . Both of these diseases are widely prevalent, as is also the case for Type 2 DM. Furthermore, the cost of these diseases is extremely high, with the estimate being that obesity costs the US healthcare system $260 billion annually . Furthermore, chronic disease costs due to obesity and overweight are $480 billion . The direct medical cost for Type 2 DM is estimated at $327 billion, and for NASH, $100 billion . There is some overlap to these numbers, but it is critical to realize that these are only the direct healthcare costs and do not include indirect costs such as lost work.

The investment opportunity presented is quite unique in that several diseases that are becoming more common will benefit from one class of medications. Furthermore, they may be combined, in the case of NASH, with anti-fibrotics in order to reduce the progression rate to cirrhosis and the potential need for a costly liver transplant. I believe that the GLP-1 class will prove to be cost effective as data is generated from outcomes studies. I view this as being more valuable to the healthcare system than the emergence of the statin class over 25 years ago.

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