Intercept Pharmaceuticals: Strong Biopharmaceutical IPO

Intercept Pharmaceuticals (NASDAQ:ICPT) made its public debut on Thursday. Shares of the biopharmaceutical company focused on novel therapeutics treating chronic liver diseases, ended their first day up 29.3% to $19.40 per share.

The Public Offering

Incercept Pharmaceuticals is a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat chronic liver disease using the company's expertise in bile acid chemistry. The company had a lead product candidate "OCA" which has the potential to treat orphan and more prevalent liver diseases for which there are currently few options.

OCA is currently in a Phase 3 clinical trial, which will serve as the basis for seeking regulatory approval in the US and Europe, if the trial passes. The results are expected to be available by mid-2014.

The company sold 5.0 million shares for $15 a piece. Intercept raised $75 million in gross proceeds in the offering process. Based on the offer price of $15, the firm is valued at $235 million. Originally the firm planned to sell 4.3 million shares, but given the strong demand the size got upped to 5.0 million shares.

The offering is quite a success. The offer price was set at the high end of the preliminary $13-$15 price range set by the firm and its bankers. All of the shares were sold by the firm, with none being offered by selling shareholders. In total, 32% of the company's shares were offered. At Friday's closing price of $19.05 per share, the firm is valued at $299 million.

Major banks which brought the company public were Bank of America/Merrill Lynch, Needham & Company, BMO Capital Markets and Wedbush, among others.


Intercept Pharmaceuticals believes that there are approximately 300,000 people with primary biliary cirrhosis, "PBC", in developed countries. Intercept believes there are some 30,000 PBC patients which are eligible for treatment with OCA.

For the full year of its annual 2011, Intercept generated a mere $1.8 million in licensing revenues. The company reported a net loss of $12.7 million. For the first six months of 2012, licensing revenues came in at $1.5 million, up from $0.4 million in 2011. Net losses came in at $7.8 million.

Intercept gave a detailed outlook on the usage of the offering proceeds. Approximately $17 million will be used to fund the clinical development for the FDA and EMA filings for OCA as a treatment for PBC. Some $13 million will be used to fund POISE clinical trials and Phase 3 clinical outcomes anticipated after the FDA and EMA filings. The remainder of the funds will be used to fund pre-commercialization activities of OCA, among others.

In total, the clinical development, studies and work required for FDA and EMA filings for the approval of OCA will require approximately $40 million.

Excluding the offering proceeds, the company operates with roughly $10 million in cash and equivalents. The company operates without any debt. Adding $75 million in gross proceeds, the firm operates with a net cash position of roughly $75 million.

As such, the valuation of Intercept Pharmaceutical's operating assets comes in around $225 million. The company hardly generated revenues and incurs annual losses of $15 million. Based on the estimated costs of $40 million for the approval trajectory of OCA, the firm has sufficient cash to finance its operations. In case of successful trial outcomes, a new round of financing for the commercialization of OCA is most likely required.

Investment Thesis

The offering of Intercept Pharmaceuticals is a great success. Shares were offered at the high end of the initial guided price range of $13-$15 per share. Shares rose their first day to $19.40 per share, and fell back slightly to $19.05 per share on Friday.

As such shares are trading some 36% above the midpoint of the initially guided range. The lack of significant revenues or actual products, does not seem to deter investors. Furthermore Intercept states that it only expects to receive the results from Phase III clinical trials by mid-2014. The company has received an orphan status in the US and Europe.

Investors are very enthusiastic about Intercept's prospects, sending shares much higher in the first days of trading. I remain on the sidelines. The company is essentially a one-trick pony focused on the development of its "OCA" candidate, for which the first trial reports are only expected to come in by mid-2014.

I remain on the sidelines. I do not have any insights about the probabilities of a successful outcome of the Trial-III clinical phase.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.