MDGL - Navigating The NASH Storm: Intercept Pharmaceuticals' Uncertain Voyage

2023-04-25 13:50:22 ET

Summary

• Obeticholic acid (OCA) has shown potential for treating NASH with fibrosis, demonstrating improvements in liver histology, inflammation, and steatosis.
• Safety concerns, including liver injury and worsening cardiometabolic risk factors, raise doubts about OCA's suitability for NASH treatment.
• OCA has been associated with pruritus, which could negatively affect patients' quality of life and treatment adherence.
• The competitive NASH market, alternative treatments, and cost-effectiveness may impact OCA's market prospects if approved for the condition.
• Although Intercept does not appear grossly overvalued, a "Sell" recommendation is warranted due to the uncertainties and risks surrounding OCA's potential NASH indication.

Introduction

Intercept Pharmaceuticals ( ICPT ) is a commercial-stage biopharmaceutical company dedicated to creating and marketing innovative therapies for progressive non-viral liver diseases with significant unmet medical needs. Their proprietary bile acid chemistry has led to the development of Ocaliva (obeticholic acid or "OCA"), a farnesoid X receptor [FXR] agonist approved in multiple jurisdictions, including the US, UK, and EU, for treating primary biliary cholangitis [PCB] in adults. In addition to commercializing OCA for PBC under the Ocaliva brand, Intercept is actively developing OCA for further indications, such as NASH, and has various product candidates in different phases of clinical and preclinical development to address both orphan and more prevalent liver diseases.

In June 2019, I highlighted that a primary concern regarding OCA as a NASH therapy is its potential to heighten the risk of heart attack and stroke in patients already vulnerable to such incidents. OCA has been linked to a deterioration of cardiometabolic risk factors, which appears counterproductive for treating a prevalent and chronic condition like NASH. The drug might only be appropriate for high-risk patients with advanced NASH; however, this demographic, in my view, was not adequately evaluated in the Phase 3 trial. Furthermore, the NASH treatment market figures to be intensely competitive, creating substantial obstacles for OCA's success in this field.

Intercept's stock has declined by over 70% since my "Sell" recommendation. This article seeks to offer further analysis in light of subsequent developments.

Recent events: The FDA issued a Complete Response Letter [CRL] in June 2020, rejecting Intercept's NDA for OCA as a treatment for NASH due to inadequate "risk-benefit assessment". Following discussions with the FDA, Intercept conducted a New Interim Analysis, which reported topline results in July 2022 demonstrating significant improvement in fibrosis. Consequently, they resubmitted their NDA in December 2022, for the treatment of pre-cirrhotic liver fibrosis caused by NASH. In January 2023, the FDA approved Intercept's NDA for OCA and set a PDUFA target action date of June 22, 2023. In March 2023, the FDA disclosed that its advisory committee (ADCOM) will examine the marketing application for OCA on May 19.

Financials

Before we go any further, let's review Intercept's most recent financial report . Intercept's Q4 2022 net sales increased to $77.2 million compared to Q4 2021 net sales of $68.7 million. For the year 2022, Intercept recorded a total of $285.7 million in U.S. net sales compared to $260.8 million in 2021. Total operating expenses for Q4 2022 were $96.1 million, which includes non-GAAP adjusted operating expenses of $90.9 million. For the year 2022, total operating expenses were $353.9 million, with non-GAAP adjusted operating expenses of $355.2 million. The company's net loss for Q4 2022 was $20.8 million, compared to a net loss of $36.3 million in Q4 2021, and net income for the full year 2022 was $221.8 million, an increase from a net loss of $91.4 million in 2021. As of December 31, 2022, Intercept had cash, cash equivalents, restricted cash, and investment debt securities available for sale of $490.9 million. Intercept has $340 million in debt obligations. Intercept's 2023 financial guidance includes Ocaliva net sales guidance of $310 million to $340 million and non-GAAP adjusted operating expense guidance of $360 million to $390 million.

Understanding Non-Alcoholic Steatohepatitis ((NASH)): Causes, Symptoms, and Treatment Options

NASH , or non-alcoholic steatohepatitis, is a medical condition characterized by the accumulation of fat in the liver, liver cell inflammation, and damage. Unlike other liver diseases linked to alcohol consumption, NASH can affect individuals who consume little or no alcohol. NASH is closely associated with obesity, insulin resistance, and metabolic disorders, which can eventually lead to liver failure, cirrhosis, and liver cancer. NASH is prevalent worldwide and is estimated to affect around 3-5% of the population. Despite extensive research into NASH, no FDA-approved treatments are available at present. However, numerous drugs are currently in development in the hope of slowing, halting, or even reversing the progression of the disease.

FDA Draft Guidance for NASH Drug Development: Recommendations for Clinical Trials and Safety

The FDA's draft guidance for NASH development recommends that sponsors should:

1. Evaluate drugs in double-blind, placebo-controlled clinical trials of adequate duration and size.
2. Aim to slow, halt, or reverse disease progression and improve clinical outcomes.
3. Consider liver histological improvements as endpoints to support accelerated approval.
4. Propose and justify specific degrees of histological improvement based on the drug's mechanism of action.
5. Initiate randomized, double-blind, placebo-controlled clinical trials to verify clinical benefit for drugs approved under the accelerated approval pathway, using a composite endpoint including progression to cirrhosis, reduction in hepatic decompensation events, change in MELD score, liver transplant, and all-cause mortality.
6. Identify biochemical or noninvasive imaging biomarkers to potentially replace liver biopsies.
7. Discuss phase 3 and postapproval confirmatory clinical trial designs with the FDA before initiating trials.

For safety considerations, the FDA recommends:

1. An individualized approach for the number of patients in each drug development program, which should be discussed with the FDA.
2. Developing a specific approach for liver monitoring in patients with abnormal liver function at baseline, including criteria for drug discontinuation and trial stopping rules.
3. Establishing an expert committee to adjudicate cases of hepatic decompensation events and possible drug-induced liver injury.
4. Adequately monitoring cardiovascular safety in clinical trials and establishing an expert committee to adjudicate cases of major adverse cardiac events.

Obeticholic Acid for NASH Treatment: Efficacy and Safety Considerations

Obeticholic acid ((OCA)), a farnesoid X receptor ((FXR)) agonist, has shown promise in the treatment of non-alcoholic steatohepatitis ((NASH)) with fibrosis. OCA has exhibited enhancements in liver histology, inflammation, and steatosis, all crucial elements in the fight against NASH. In a phase 3 clinical trial ( REGENERATE ), after 18 months of examination, the drug at 25 mg achieved the desired result of reducing fibrosis by at least one stage without exacerbating NASH. However, it did not reach the objective of fully resolving NASH. OCA has also been associated with a deterioration of cardiometabolic risk factors, including elevated total cholesterol, LDL cholesterol, alkaline phosphatase, HOMA-IR, and reduced HDL cholesterol. Additionally, OCA is known to cause dose-dependent pruritus. In an attempt to improve tolerability while maintaining efficacy, Intercept also examined OCA at 10 mg. However, the results showed that OCA at this lower dosage did not meet the efficacy endpoints.

The FDA issued a warning in 2017, updated in 2018, reporting 19 cases of death and 11 cases of serious liver injury in patients treated with OCA for primary biliary cholangitis. Most cases were due to excessive dosing, but some occurred in patients with mild disease receiving the correct dose.

Potential and Concerns of Intercept's OCA for NASH Treatment: Insights from FDA's Draft Guidance

In light of the FDA's draft guidance, Intercept's OCA shows some potential for treating NASH with fibrosis, as it has demonstrated improvements in liver histology, inflammation, and steatosis. These factors align with the FDA's recommendations for evaluating drugs for NASH treatment.

However, there are also concerns about the drug's potential impact on cardiometabolic risk factors, as it has been linked to increased total cholesterol, LDL cholesterol, alkaline phosphatase, HOMA-IR, and decreased HDL cholesterol. This is particularly worrying for NASH patients, who often have comorbidities like obesity, type 2 diabetes, and dyslipidemia, which could exacerbate existing conditions and elevate the risk of cardiovascular diseases - a leading cause of morbidity and mortality in NASH patients.

Furthermore, OCA has been associated with pruritus, which could negatively affect patients' quality of life and reduce adherence to treatment. In the context of NASH treatment, long-term therapy is often necessary to manage the disease effectively, and a drug with lower tolerability may hinder its success in the market.

Lastly, the FDA has issued a warning about OCA's safety profile, particularly in patients with primary biliary cholangitis. Reported cases of death and serious liver injury, even in patients with mild disease who were receiving the correct dose, raise concerns about the drug's overall safety and tolerability in the patient population it is intended to treat. As NASH is a liver disease, any drug intended for its treatment should ideally have minimal impact on liver function or risk of liver injury, which may hinder OCA's potential for approval in the NASH indication. The FDA places a strong emphasis on ensuring the safety and efficacy of treatments for chronic liver diseases.

Assessing the Suitability of OCA for NASH Treatment: Potential Market Prospects and Limitations

While OCA has demonstrated effectiveness for the rare disorder primary biliary cholangitis ((PBC)), its suitability for a chronic and common condition like NASH is less certain. There are several reasons why OCA may not be appropriate for NASH, which could impact its market prospects even if it achieves an indication for the condition.

1. Safety concerns: As mentioned previously, the FDA warning related to OCA for PBC treatment raises concerns about its safety profile, particularly regarding liver injury. Since NASH is a liver disease, introducing a drug with potential liver-related complications may not be ideal for the target patient population. This could limit OCA's use in NASH treatment and negatively affect its market prospects.

2. Worsening cardiometabolic risk factors: OCA has been linked to worsening cardiometabolic risk factors, such as increased total cholesterol, LDL cholesterol, and HOMA-IR, and decreased HDL cholesterol. NASH is often associated with metabolic syndrome, which increases the risk of cardiovascular diseases. A treatment that exacerbates these risk factors may not be well-received by healthcare providers and patients, limiting its market potential.

3. Chronic vs. rare conditions: PBC is a rare disorder, and the risk-benefit profile of OCA for PBC treatment might be more favorable, given the limited treatment options available. In contrast, NASH is a common and chronic condition, requiring long-term management. The risk-benefit profile for OCA in NASH may not be as favorable as in PBC, given the potential for long-term side effects and safety concerns.

4. Alternative treatments and competition: The NASH market is highly competitive, with multiple pharmaceutical companies developing novel therapies targeting different aspects of the disease. If other treatments with better safety profiles and fewer side effects become available, OCA's market prospects could be further diminished.

5. Reimbursement and cost-effectiveness: OCA's price point may be justifiable for a rare disorder like PBC, where treatment options are scarce. However, NASH is a widespread condition, and payers may be more critical of the cost-effectiveness of a drug with safety concerns and potential side effects. This could impact OCA's market access and limit its adoption in the NASH treatment landscape.

My Analysis & Recommendation

In summary, the suitability of Intercept Pharmaceuticals' OCA for treating NASH, a common and persistent liver disease, is uncertain. Concerns about the drug's safety, particularly the potential for liver damage and its effects on cardiometabolic risk factors, may limit its use in treating NASH and negatively impact its market potential. Furthermore, the presence of other pharmaceutical companies developing novel therapies for NASH poses a challenge to OCA's success in the market.

Considering the FDA's emphasis on safety and efficacy for chronic liver diseases, there is uncertainty about whether OCA will receive a favorable review by ADCOM. However, in my opinion, there is a high probability (70%-80%) of an unfavorable review, which could exert downward pressure on Intercept's stock and prompt the FDA to deny OCA a NASH indication for a second time. Even if OCA attains approval for treating NASH, it may not be widely embraced by medical professionals and patients, particularly considering the assumed availability of alternative medications such as Madrigal's ( MDGL ) resmetirom.

Therefore, investing in Intercept Pharmaceuticals at this time may carry significant risks, and potential investors should closely monitor ADCOM's review and FDA's decision on OCA for NASH before making an investment decision. Despite having a preexisting indication for PBC and a potential NASH indication, Intercept's enterprise value is only $650 million, suggesting that investors may already be discounting the stock for OCA's poor prospects in NASH. Consequently, Intercept is currently a "Sell," but not a "Strong Sell" due to its reasonable valuation.

Risks to Thesis

When the facts change, I change my mind.

Some risks to my pessimistic outlook include:

1. Regulatory approval: If the FDA approves OCA for NASH treatment, it could significantly boost Intercept's market potential and its stock value.

2. Improved safety profile: If Intercept manages to address the safety concerns and improve OCA's safety profile for NASH patients, it could enhance its market prospects.

3. Positive long-term data: If further clinical data or real-world evidence demonstrate long-term benefits and improved tolerability of OCA in NASH patients, it may change the overall perception of the drug and enhance its market potential.

4. Strategic partnerships: Intercept could form partnerships with other pharmaceutical companies to develop combination therapies or complementary treatments, which could improve OCA's efficacy and safety profile in NASH treatment, and in turn, boost the company's prospects.

5. Market demand: The current lack of approved treatments for NASH could create a strong market demand for OCA, which may offset some of the concerns about its safety profile and side effects.

6. Potential for additional indications: If Intercept successfully develops OCA for other liver diseases or indications, it could increase the company's overall market potential and revenues, potentially offsetting any negative impact from the NASH market.

7. Underestimation of market potential: It is possible that the market potential for OCA in NASH treatment is underestimated, and if the drug gains traction in the market, it could exceed expectations and positively impact Intercept's stock value.

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