ICPT - Intercept Pharmaceuticals: Management Targets 'Pivot To Profitability' After NASH CRL

2023-06-23 12:03:39 ET

Summary

• The FDA confirmed the news everybody had been expecting yesterday - Intercept's obeticholic acid ("OCA") was rejected for approval in NASH.
• Safety data evaluated by the agency failed to establish a positive risk/benefit profile and the drug was rejected for the second time.
• Intercept says it will now discontinue its NASH program and reduce its work force.
• Obeticholic acid has been approved to treat primary biliary cholangitis and sales have been growing - to >$68m in Q123 - management has promised a "Pivot to Profitability" by 2024.
• ICPT is pushing a new combination therapy in PBC and has one other asset. Downsizing was the right move, but it does not make the bull case - there are many risks to consider discussed in this post.

Investment Overview

The news that Intercept Pharmaceuticals (ICPT) management, shareholders and followers had likely resigned themselves to months ago finally arrived yesterday - lead asset Ocaliva (obeticholic acid or "OCA") has been rejected for approval to treat patients with non-alcoholic steatohepatitis ("NASH").

The news arrived yesterday as expected, based on the PDUFA date set by the FDA. According to a press release issued by Intercept:

The FDA indicated in the CRL that it has completed its review of the NDA and determined that it cannot be approved in its present form. Based on the content of the CRL, any resubmission of an NDA for OCA in NASH would require, at a minimum, successful completion of the long-term outcomes phase of the REGENERATE study.

Intercept indicated it had no intention of continuing to fund studies in NASH in order to obtain that data - which may actually come as a relief to shareholders as the company has probably burned through more than a billion dollars evaluating Ocaliva in NASH without ever looking likely to succeed in this indication. Net losses across the past 5 years are $(175m), $(136m), $(273m), $(345m), and $(309m).

Yesterday's news arrived after market close, Intercept stock having ended the day trading at $11.55, giving the company a market cap of ~$481m. Had the FDA surprised everyone and given Ocaliva the thumbs up, that valuation could have increased by as much as 10x.

Ocaliva has been approved - under the accelerated approval pathway - to treat primary biliary cholangitis ("PBC") in combination with ursodeoxycholic acid ("UDCA") since 2016, earning revenues of $286m, $261m, and $234m in the previous 3 years. The approved doses for PBC, however, are 5mg and 10mg, whilst the proposed dose for NASH was 25mg.

The FDA had already added a new Contraindication warning - its strongest level of warning - to Ocaliva's label in PBD, in 2021, saying it had:

identified 25 cases of serious liver injury leading to liver decompensation or liver failure associated with Ocaliva in PBC patients with cirrhosis, both in those without clinical signs of cirrhosis (compensated) or in those with clinical signs of cirrhosis (decompensated).

Inevitably, safety was the key issue behind yesterday's rejection - in the FDA's briefing documents ahead of the Advisory Committee meeting the agency convened with its Gastrointestinal Drugs Advisory Committee, to discuss Intercept's New Drug Application ("NDA"), it outlined numerous safety issues associated with the drug and the substantially higher dose, at one point listing them as follows:

• Hepatotoxicity: cases adjudicated by drug-induced liver injury (DILI) experts identified a serious signal for DILI in the OCA 25 mg-treated subjects.
• Excess risk of cholecystitis and bile duct stones/sludge and related life-threatening complications and surgical interventions.
• Excess risk of new onset prediabetes/diabetes requiring new treatment or poor glycemic control in diabetic subjects that required additional anti-diabetic therapies.
• Substantial excess risk of dyslipidemia that required new treatment with statins or increased dose/intensification of statins.
• Substantial excess risk of severe pruritus leading to treatment-interruptions, administration of antipruritic agents/bile acid binding agents/corticosteroids, or drug discontinuations.
• Excess risk of developing acute kidney injury.

Compared to the modest improvements in patients conditions the drug was able to show across its studies, the FDA suggested the risk benefit profile did not support approving the drug. The Advisory Committee ("AdComm") sided with the agency - according to an Intercept press release :

12 of 16 voting-eligible advisors vote "no" (with two abstentions) on question, "given the available efficacy and safety data, do the benefits of OCA 25 mg outweigh the risks in NASH patients with stage 2 or 3 fibrosis?"

15 of 16 voting-eligible advisors vote to "defer approval until clinical outcome data from trial 747-303 are submitted and reviewed, at which time the traditional approval pathway could be considered"

Intercept's REGENERATE study - according to the company's Q123 10Q submission - had shown that:

22.4% of patients using 25mg OCA "met the primary endpoint of achieving at least one stage of fibrosis improvement with no worsening of NASH at month 18 on liver biopsy compared with 9.6% of subjects on placebo (p<0.0001)"

In September last year however Intercept announced that:

REVERSE, a Phase 3 study evaluating the safety and efficacy of OCA in patients with compensated cirrhosis due to NASH, did not meet its primary endpoint of a ? 1-stage histological improvement in fibrosis with no worsening of NASH following up to 18 months of therapy.

The surrogate endpoint (used by the FDA when awarding an accelerated approval) benchmark for accelerated approval in NASH as shared by the FDA in 2018 is as follows:

• Resolution of steatohepatitis on overall histopathological reading and no worsening of liver fibrosis;
• Or
• Improvement in liver fibrosis greater than or equal to one stage and no worsening of steatohepatitis;
• Or
• Both resolution of steatohepatitis and improvement in fibrosis.

To summarize, the FDA's decision yesterday was entirely expected, so much so that Intercept stock is unlikely to slide on the news. Having been first rejected back in 2020 on safety grounds, the FDA decided that all of the new data collected by Intercept and included in its latest NDA simply did not improve its negative assessment of the risk benefit profile.

The key question for Intercept shareholders to now answer is - what happens next?

Intercept's "Pivot to Profitability" - Can It Save The Company?

I have already mentioned the heavy losses made by Intercept over the past several years - admittedly the company did record net income of $222m last year, after the sale of the rights to commercialise Ocaliva for PBC and OCA for NASH outside of the United States to Advanz Pharma, although this is a one-off sale - which ought to be alleviated somewhat by the winding down of the NASH program.

In a press release issued this morning, ahead of market open, Intercept confirmed that it will "discontinue all NASH-related investment", and also reduce its workforce by "approximately one third", in a push to make the company profitable by 2024.

Management also shared updated guidance, for Ocaliva net sales of $310-$340m, and lower adjusted operating expenses of $350 - $370m, inclusive of restructuring costs. In total, Intercept believes it will reduce operating expenses by $140m this year.

Downsizing was probably the only realistic option for management, and the reduction in losses will be welcome. Intercept boasts a healthy cash position - as of Q123 - of $434m, although there is $223m of long-term debt to pay down, and $110m current portion of long term debt.

The restructuring does not completely de-risk Intercept's business model by any means, however. Besides Ocaliva, the company only has one other asset in development, being INT-787, a "next generation" farnesoid X receptor ("FXR") agonist in Phase 2 studies for Severe Alcohol-Associated Hepatitis. In an investor presentation Intercept claims that INT-787 is "16-fold more water soluble than OCA", but its target market is estimated to be worth <$1bn per annum, and it is almost as hard to guide a "next-generation" drug through the approval process as it is the original.

The main hope for Intercept may be an approval for its investigational combination of OCA and bezafibrate - in yet another press release from the company released in the last 48 hours, the company describes its thesis with this combination as follows:

FXR and PPAR are distinct pathways that each play a role in PBC. Simultaneously targeting both pathways may offer the greatest potential to impact bile acid synthesis, metabolism, and clearance that underly cholestatic liver diseases. Published studies establish a clinical proof-of-concept which suggests that the combination of OCA and bezafibrate may provide additive clinical efficacy and tolerability benefits in the treatment of PBC.

Intercept also shared more data - a planned interim analysis - from a Phase 2 study of the combo stating that OCA 5-10 mg + bezafibrate 400 mg "normalised a range of biomarkers of PBC (ALP, total bilirubin, GGT, ALT and AST) in 58% of patients at 12 weeks". Discussing the data, Intercept's Chief Medical Officer Michelle Berrey stated in the release:

We have an opportunity to build on the improved transplant-free survival seen in patients with PBC taking OCA across multiple real-world studies. We are encouraged by the best-in-class potential of our novel combination with rapid biochemical responses that have predicted improved clinical outcomes and believe that a fixed-dose combination of OCA and bezafibrate could reframe the parameters for efficacy in PBC

If Intercept can get this combination over the approval line - and at present, the chances of that happening seem realistic - it may well help the company increase sales - although it will likely impact sales of OCA as a monotherapy - and potentially extend the drug's patent protection.

Some of Intercept's patents for Ocaliva expired in 2022 , whilst other could extend protection well into the next decade, but Interceptreveals in its Q321 10Q that:

The Company has received paragraph IV certification notice letters from seven generic drug manufacturers indicating that each such manufacturer submitted to the FDA an Abbreviated New Drug Application ("ANDA") seeking approval to manufacture and sell a generic version of the Company's 5 mg and 10 mg dosage strengths of Ocaliva® (obeticholic acid) for PBC prior to the expiration of certain patents listed for Ocaliva in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (the "Orange Book").

Most of these ANDAs have been rejected but Intercept has had to take companies to court to agree settlements, and has described the proceedings as "costly and time-consuming". It was not just funding NASH studies that has been consuming the company's cash.

Furthermore, Intercept faces competition from rival biotechs developing drugs for PBC - in its 2022 10K (annual report), the company discusses the competition as follows:

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), CymaBay's PPAR delta agonist (seladelpar), Calliditas Therapeutics' NOX 1/4 inhibitor (setanaxib), Zydus' dual PPAR ?/? agonist (saroglitizar), Genkyotex's NOX1/NOX4 inhibitor (setanaxib), Mirum Pharmaceuticals' IBAT inhibitor (volixibat), and Cour Pharmaceuticals' and Ironwood Pharmaceuticals' PDC-E2 candidate (CNP104). 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).

Although many of these companies are smaller biotechs like Intercept, the entry of a giant like GSK ( GSK ) into the arena could spell trouble for Intercept, especially given the safety warnings attached to Ocaliva's label.

Concluding Thoughts - Intercept's "Pivot To Profitability" Is A Positive Response To A Major Setback - But Only A Start

Many market watchers may be wondering why Intercept persisted with OCA in NASH after the drug was initially rejected in 2020, given what has followed has ultimately been an unnecessary drain on company finances.

It could even be argued that management knew the NASH opportunity was propping up the company valuation and persisted with studies despite fearing the worst. With that said, drug development is not an easy business, and a drug that looks down and out one day can deliver a set of unexpectedly good data the next. Intercept has at least made a contribution to the overall body of work around NASH.

The "next cab off the rank" in terms of a NASH approval is Madrigal Pharmaceuticals ( MDGL ) and its drug Resmetirom, which has performed better in trials than OCA has, and has a superior safety profile based on available evidence. After that, Viking Therapeutics ( VKTX ) has a drug slightly further behind in the development race than Resmetirom - Madrigal hopes to submit an NDA for its drug in the next few months - but with a similar mechanism of action, being a once daily, oral, thyroid hormone receptor ((THR)) ?-selective agonist, whilst 89bio ( ETNB ) and Akero Therapeutics ( AKRO ) both have fibroblast growth factor 21 -targeting drugs in development that have shown promise in treating NASH.

These companies are likely more investable than Intercept at the present time, although the so-called "NASH Dash" has felt more like wading through treacle in recent years, with studies taking an age to complete, and the FDA's strict approval criteria resulting in multiple failed attempts. The rewards on offer may be rapidly diminishing, too - Novo Nordisk's ( NVO ) semaglutide, and Eli Lilly's ( LLY ) Tirzperatide - which are expected to dominate the weight loss and diabetes industries for decades to come and becoming all-time best-selling drugs, are both pushing for approvals in NASH.

To return to Intercept, the company may need to diversify away from Ocaliva if it wants to be sure of its long-term survival. With that said, with a market cap that is no more than 1.5x forward sales, if the company does deliver profitability in 2024, there is a reasonable case to be made for some share price growth, at least over a 2-3 year period.

I would not go so far as to hand the company a "BUY" rating, but pulling out of the NASH Dash might not feel like such a blow for management, so long as the company is prepared to try to find new drugs and indications to target.

A final concern? Ocaliva itself is still not fully approved - the company hopes to submit its supplemental-NDA for a full approval this year. If that full approval were refused, the company would be in real trouble. Another reason why anyone interested in investing in a biotech may want to steer clear of this "opportunity".

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