Intercept Stock: FDA Accepts Application For Ocaliva In NASH

Intercept (NASDAQ:ICPT) just announced that the FDA has set an action date of June 22nd, 2023 for its second review of Ocaliva in NASH. This prompted me to look at Intercept again. I wrote about ICPT a couple of years back, after FDA’s Complete Response Letter for Ocaliva in NASH. In the current article, I bring readers up to speed on recent developments and discuss some considerations about the potential for Ocaliva’s approval in NASH.

Primary Biliary Cholangitis

Starting with the base business, Ocaliva’s growth rate in Primary Biliary Cholangitis (PBC) is slowing. With expected sales in 2022 of ~$285 million, according to Intercept’s presentation at the J.P. Morgan HealthCare Conference, the ~10% growth rate is substantially lower than it was in the past: ~40% revenue growth for Ocaliva (2019 vs 2018 revenues), ~25% (2020 vs 2019), ~16% (2021 vs 2020), as per SEC filings.

Management appears confident that Ocaliva’s growth prospects remain solid and indicate that 60% of eligible patients still remain untreated.

Management also appears confident that recent studies demonstrate long-term clinical benefits of Ocaliva (or OCA) in PBC [1],[2]. These real-world evidence studies show significant effectiveness in clinically relevant outcomes with Ocaliva. However, from the regulatory standpoint, the story is more complex. Ocaliva was approved in 2016 under Accelerated Approval based on a controlled clinical trial with 216 participants. In this study, Ocaliva met its primary endpoint of reducing alkaline phosphatase (ALP). As part of the commitment stemming from accelerated approval, Intercept initiated the COBALT study, which was designed to determine rates of clinical events in patients with advanced PBC. In 2022, Intercept announced that the COBALT study was terminated early due to feasibility issues. Intercept therefore still needs to provide additional evidence for Ocaliva in PBC, hence the additional real-world evidence studies. These studies [1],[2] look robust to me, but of course, they are not randomized controlled clinical trials. Whether the totality of the evidence meets the FDA’s standard of substantial evidence to obtain standard approval for Ocaliva in PBC is unknown to me.

This brings me to the point I wanted to make. The approval of Ocaliva in NASH would be the second approval using the accelerated approval pathway for this product – unless the FDA reverts to a standard approval in PBC soon – at a time in which this particular pathway is under a lot of scrutiny.

Non-alcoholic Steatohepatitis

Management communicated this past December that the NDA application for Ocaliva in NASH was resubmitted to FDA, and now the agency has set an action date of June 22nd.

The basis for the resubmission is the additional safety data and the re-analyses of the Regenerate study. Ocaliva did not show improvement in the Reverse trial in patients with compensated cirrhosis due to NASH.

Most recent analyses from the Regenerate study have been presented at AASLD 2022. These analyses showed that the results of the primary endpoint in Regenerate are very consistent, whether using a central pathologist read, or with a Consensus panel read, as was requested by the FDA. This is important, but I don’t think this was the main driver behind the prior FDA decision. It is valuable, however, to remove this hurdle out of the way.

As it relates to safety, the safety database has increased significantly with 8,000+ total patient-years of exposure and more than 1,000 subjects exposed for equal or more than 4 years. It is impossible for me to make a determination of safety for this product by looking at a few slides, but no new safety concerns seem to have been identified.

So, what is the bottom line for Ocaliva in NASH?

On the positive side, as mentioned, the reanalysis of Regenerate and, more importantly, the expanded safety database are important and encouraging milestones.

This needs to be balanced against the fact that Ocaliva has only hit one of the FDA-approvable endpoints in only one phase 3 study. The negative results of Regenerate obviously cannot support the application. Admittedly, improving fibrosis in a cirrhotic population may be too high of a bar not only for Ocaliva but for other compounds as well. A positive read-out in Regenerate would have increased, in my view, the chances of approval substantially, even if of course we are talking about two different patient populations. But we are not in that scenario. The other critical point is safety. The product safety profile is complex, to say the least, as it is clear from its current label in PBC. Lastly, this would be the second accelerated approval for Ocaliva in an environment of heightened scrutiny of this pathway, and in a large patient population potentially. I think this is a subtle point, but not to be neglected.

Over the long run, many things need to go well on many fronts for the investment thesis to play out. Continued execution in PBC and re-ignition of sales growth are urgently needed. If Ocaliva is finally approved in NASH, commercial performance is all but guaranteed, given the product’s profile and the stiff competition expected in the space in the future. In the long run, I believe there are certainly better places to put your retirement savings.

In the short term, FDA’s approval in NASH may not be the base case, but chances of approval are not zero. With the benefit of hindsight, it was easier for FDA to reject the previous application than it is today. Now, Intercept has a more robust assessment of the histological improvement in fibrosis, and it has meaningfully expanded Ocaliva’s safety database in NASH. Enterprise Value [EV] according to SA stands at $500, which is 1.75 times 2022 Ocaliva’s sales. For comparison, Madrigal (MDGL) had a valuation of ~1 billion with no product approved prior to the positive readout of the phase 3 Maestro-NASH study back in December.

A likely outcome is an advisory committee in the May time frame. We obviously cannot predict the outcome of the FDA review, nor the outcome of the advisory committee. I do think, however, that although we would see volatility in the stock with a negative FDA decision, lack of approval is largely priced into the stock. A quick trade banking on a non-consensus FDA approval, the lack of which is largely priced in, does not sound crazy to me for those who love these risky “binaries” with potential upsized rewards. After all, Ocaliva could still be the first product approved for patients with NASH and liver fibrosis.

Do not bet money you cannot afford to lose.

References:

1. Murillo Perez et al. Greater Transplant-Free Survival in Patients Receiving Obeticholic Acid for Primary Biliary Cholangitis in a Clinical Trial Setting Compared to Real-World External Controls. Gastroenterology 2022;163:1630-1642.

2. Brookhart, et al. Results of the heroes study: treatment efficacy of obeticholic acid on hepatic real-world outcomes in patients with primary biliary cholangitis. AASLD The Liver meeting Nov 4-8th, 2022