ICPT - Intercept Faces Setback On NASH Approval: Unpacking The ADCOM Decision And Its Implications

2023-05-20 02:29:09 ET

Summary

• On Friday, the Gastrointestinal Drugs Advisory Committee voted against the approval of OCA for treating nonalcoholic steatohepatitis (NASH).
• The recommendation to delay approval until additional trial data becomes available was almost universally agreed upon.
• The postponement effectively diminishes OCA's chances of success in treating NASH and could potentially have an impact on Intercept's stock.
• Despite these hurdles, Intercept's Q1 2023 financial results showed resilience, with a rise in net sales and a slightly decreased net loss, showcasing stable financial health.
• A "Sell" recommendation is maintained for ICPT stock, taking into account the uncertain future of OCA's approval for NASH, unless compelling evidence from the upcoming 747-303 trial alters the current safety and efficacy concerns.

Introduction

Intercept Pharmaceuticals ( ICPT ) is a biopharmaceutical company focused on developing and marketing innovative treatments for progressive liver diseases that are not caused by viruses. They have utilized their unique bile acid chemistry to create Ocaliva (obeticholic acid or "OCA"), an FXR agonist approved for the treatment of primary biliary cholangitis [PBC] in adults in multiple countries. Intercept is not only committed to commercializing OCA for PBC but is also actively exploring its potential in other indications, including nonalcoholic steatohepatitis [NASH]. They have a range of product candidates in different stages of development to address various liver diseases, both rare and more common.

In my previous analysis on Intercept, I highlighted the uncertainty surrounding the FDA's decision on OCA for NASH. I estimated a significant possibility (70%-80%) of a negative ADCOM review, which could have adverse effects on Intercept's stock and result in another denial of NASH indication by the FDA. Since my “Sell” recommendation in late April, ICPT stock has plunged by 26%.

Recent events: On Friday, an advisory group to the FDA primarily voted that the potential benefits of Intercept Pharmaceuticals' liver drug, OCA, for NASH don't outweigh the risks . A significant majority also voted for postponing the approval of OCA until additional trial data is examined.

The following article will update investors on OCA’s prospects in NASH following the ADCOM's opinion.

Intercept's Financials

Intercept's Q1 2023 financial results showed $68.0 million in net sales, a rise from $59.2 million in Q1 2022. Operating expenses were $99.6 million, with $93.6 million as non-GAAP adjusted expenses, compared to $85.6 million total and $79.9 million non-GAAP adjusted in Q1 2022. Increased selling, general, and administrative costs, largely due to investment in NASH launch preparation and ANDA litigation costs, were partially offset by reduced R&D expenses. Interest expense decreased to $2.8 million from $6.7 million. The net loss fell slightly from $33.4 million in Q1 2022 to $31.9 million in Q1 2023. As of March 31, 2023, the company had $435.2 million in cash and investment assets, down from $490.9 million at the end of 2022. Intercept has a total debt of $333 million.

GIDAC Votes Against Approval of OCA for NASH, Raising Concerns Over Safety Profile

The results of the Gastrointestinal Drugs Advisory Committee (GIDAC) meeting, where 12 out of 16 members voted against the benefits of OCA outweighing the risks for NASH patients with stage 2 or 3 fibrosis, significantly influences the drug's prospects for approval by the FDA. The decision is a major blow for Intercept, considering that only two committee members supported the drug, with two abstentions. The result likely stems from concerns over the drug's safety profile (e.g. liver injury), considering the severity and chronic nature of NASH, which demands a high bar for approval.

An even more decisive vote, 15 out of 16, to defer approval until further data from the 747-303 trial are available underscores the committee's concerns and the need for more comprehensive data to assess the drug's risk-benefit profile. This unanimous vote suggests the committee is not comfortable approving the drug based on the current data.

The FDA does not always follow the committee's advice, but it usually does, especially when the vote is decisive. The upcoming PDUFA date on June 22, 2023, is, therefore, likely to result in a deferral of approval rather than outright approval or rejection. The FDA will probably wait until the 747-303 trial data are available before making a final decision.

The deferral could impact Intercept's plans for commercialization and possibly affect their stock prices. However, it's also crucial to remember that a deferral is not a rejection. If the 747-303 trial data are favorable, OCA could still receive approval for the treatment of NASH in the future, creating potential upside. The key for Intercept is to ensure that the additional data convincingly address the committee's concerns about OCA's safety and efficacy.

My Analysis & Recommendation

In conclusion, the latest developments surrounding Intercept Pharmaceuticals and their potential NASH treatment, OCA, reaffirm my earlier "Sell" recommendation. Despite the company's accomplishments in developing therapies for non-viral liver diseases and its current approval of OCA for PBC, the trajectory for NASH indication remains on shaky grounds. The GIDAC decisive vote against the benefits of OCA outweighing its risks for NASH, combined with a near-unanimous decision to defer approval pending further trial data, significantly dims the drug's immediate prospects.

The FDA typically heeds the advice of its committees, particularly when the votes lean heavily in one direction as we've seen here. Thus, OCA's chances of gaining a NASH approval seem vanishingly small without overwhelmingly positive data from the 747-303 trial. To reiterate, deferral is not the same as rejection. Nevertheless, investors should take into account the potential financial implications for Intercept, including probable impact on its commercialization plans and stock prices, if approval is delayed.

While a favorable outcome from the 747-303 trial could still position OCA as a NASH treatment, the odds currently appear against it. In light of these circumstances, it's prudent for investors to exercise caution. Unless the trial data comes back extraordinarily positive, OCA should essentially not be considered a NASH candidate. Therefore, the initial "Sell" recommendation remains, underlining the importance of due diligence and thorough analysis in the rapidly evolving biopharmaceutical landscape. Investors should keep an eye on the upcoming trial results and any subsequent decisions by the FDA to fully comprehend the potential ramifications and opportunities for Intercept.

Risks to Thesis

When the facts change, I change my mind.

My sell recommendation on Intercept Pharmaceuticals carries several potential risks and uncertainties, including:

1. Unexpected Positive Results in Upcoming Trial: The upcoming 747-303 trial could yield unexpectedly positive results, showing that the benefits of OCA for NASH clearly outweigh the potential risks. This could result in the FDA approving OCA for NASH treatment, which would likely have a positive impact on Intercept's stock price.

2. Potential in Other Indications: While NASH is a significant potential indication for OCA, it's not the only one. The drug is already approved for PBC, and if Intercept can find success in other indications, it could drive significant revenue, even without NASH approval. If this happens, the stock could perform better than expected.

3. Positive Cash Position and Strong Financial Health: Intercept's strong financial position could allow it to weather this setback without as much damage as anticipated. The company could have the necessary funds to continue its R&D activities, invest in new potential treatments, and possibly acquire other companies or assets that could drive future growth.

4. Acquisition or Partnership: Another pharmaceutical company might see value in Intercept's pipeline, technology, or expertise and decide to acquire or partner with the company, which would likely boost the stock price.

5. Regulatory Environment Change: The regulatory environment can shift quickly and unpredictably. Changes in the FDA's policies or leadership could potentially result in a more favorable outcome for Intercept.

6. Alternative Revenue Streams: Intercept could successfully market OCA for PBC in other countries or obtain approval for other pipeline products, creating new revenue streams and making the company less reliant on OCA for NASH.

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