Intercept Pharmaceuticals (ICPT) Q4 2016 Results - Earnings Call Transcript

This article is now exclusive for PRO subscribers.

Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) Q4 2016 Earnings Call February 23, 2017 8:30 AM ET

Executives

Mark J. Vignola - Intercept Pharmaceuticals, Inc.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Richard Kim - Intercept Pharmaceuticals, Inc.

Lisa Bright - Intercept Pharmaceuticals, Inc.

Sandip Kapadia - Intercept Pharmaceuticals, Inc.

Rachel L. McMinn - Intercept Pharmaceuticals, Inc.

Analysts

Michael Yee - RBC Capital Markets LLC

M. Ian Somaiya - BMO Capital Markets (United States)

Grant Hesser - Credit Suisse Securities

Ritu Baral - Cowen & Co. LLC

Aspen Mori - Bank of America Merrill Lynch

Andrew Scott Berens - Morgan Stanley & Co. LLC

Liisa A. Bayko - JMP Securities LLC

Jeffrey Hung - UBS Securities LLC

Jay Olson - Oppenheimer & Co., Inc.

Joel L. Beatty - Citi

Jim Birchenough - Wells Fargo Securities LLC

Operator

Thank you for joining the Intercept Pharmaceuticals 2016 Full Year Financial Results Conference Call. At this time, all participants are in listen-only mode. Following opening remarks, Intercept management will open the lines for a question-and-answer period. Please be advised that this call is being recorded at the company's request and a webcast of this call will be archived on the company's website for two weeks from today's date.

At this time, I would like to introduce Dr. Mark Vignola, Intercept Director of Investor Relations. Please go ahead.

Mark J. Vignola - Intercept Pharmaceuticals, Inc.

Good morning and thank you for joining us on today's call. Before we begin, please remember we will be making certain forward-looking statements on today's call, including statements and forecasts regarding our future financial and operating performance; anticipated time lines for our development programs for obeticholic acid or OCA; market estimates relating to the indications we are pursuing in our regulatory, clinical and commercial plans, goals and estimates as well as other statements, which relate to future events. These statements are based on beliefs and expectations of management as of today.

Our actual results may differ materially from our expectations. Investors should read carefully the risks and uncertainties described in our reports filed with the SEC, including the Risk Factors section of our most recent Annual Report on Form 10-K and Intercept's other filings with the SEC. We assume no obligation to revise or update forward-looking statements, whether as a result of new information, future events or otherwise.

OCA is an investigational product that has not been approved for use by any regulatory authority in any indication other than primary biliary cholangitis or PBC. No conclusions can be drawn concerning the safety or efficacy of OCA in those indications at this time.

The format of today's call will include remarks from our CEO, Mark Pruzanski; our Senior Vice President and Head of U.S. Commercial, Richard Kim; our President of International, Lisa Bright; and our Chief Financial Officer, Sandip Kapadia. We'll then open up the call to take your questions. Rachel McMinn, our Chief Business and Strategy Officer is also available to answer your questions during the Q&A portion of the call.

We would like to note that we have slides associated with today's call. These can be accessed via the webcast and on the Events section of our IR website.

At this time, I'd like to turn the call over to our CEO, Dr. Mark Pruzanski.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Thank you, Mark. Good morning and thanks for joining us on today's call.

2016 was a truly momentous year for Intercept, marked by the U.S. and European approval of our first-in-class FXR agonist OCALIVA for PBC, a devastating disease with no therapeutic options for patients achieving an inadequate response to standard of care. We successfully transitioned to a commercial organization with our U.S. launch in June 2016 and recorded $18.2 million in net OCALIVA sales for the year, of which $13.4 million was booked in the fourth quarter. We made progress in our pioneering Phase 3 NASH trial, REGENERATE, and laid the groundwork for the regulatory updates we announced a couple of weeks ago. Finally, we completed enrollment in two important ongoing Phase 2 trials for OCA and completed a Phase 1 study for our second product, INT-767.

We believe that 2017 has the potential to be another transformational year for Intercept, and I'd like to highlight three key priorities that we believe will drive our long-term value. First, we will continue to execute against our goal to turn OCALIVA into a sizable opportunity in PBC. We expect the U.S. launch to show steady progress and drive most of our revenues this year. While in Europe, we will be focused on successfully negotiating the complex reimbursement landscape to set the stage for longer-term growth.

Second, we will continue to advance our NASH program, both by completing enrollment of the REGENERATE interim analysis cohort by mid-2017 and by initiating a Phase 3 trial in patients with cirrhosis.

And third, we will further develop our understanding of OCA and NASH and in a new indication, PSC, with data reading out from two ongoing Phase 2 trials, while also initiating a Phase 2 trial with our second product, INT-767 in NASH patients with fibrosis.

Just a couple of weeks ago, we provided you with an important update regarding the Phase 3 REGENERATE trial. I'll provide a quick summary here, and please refer to our February 11 call for additional details. First, we are amending our co-primary endpoint from fibrosis improvement and NASH resolution to fibrosis improvement or NASH resolution. Therefore, we now only need to achieve one of these endpoints for the trial to be deemed successful.

Second, we announced that we have confirmed with FDA that the assessment of NASH resolution and REGENERATE will be based on what we termed, "objective definition". This definition is consistent with that recently endorsed by The Liver Forum and is also being utilized in another ongoing Phase 3 NASH study. We had previously left NASH resolution undefined given that there was no consensus view at the time we designed the study.

In confirming the use of this endpoint, we've been able to reduce the sample size we are targeting for out interim analysis cohort to approximately 750 patients or about 250 patients per arm, while maintaining robust power of greater than 95% for both endpoints. We are reiterating our guidance of completing enrollment of the interim analysis cohort by mid-2017, which puts us on track for data readout in 2019.

Additionally, I want to remind everyone about the two key data readouts planned for this year and the advancement of our pipeline. We expect the results from the Phase 2 CONTROL trial designed to prospectively evaluate the effects of OCA on lipid metabolism and the impact of adding statins. This study should provide an additional dataset to guide future physician decisions on initiating and dose titrating statins in combination with OCA in patients with NASH. Additionally, CONTROL should shed light on OCA's effect on lipid metabolism, which is of potential interest to the scientific community.

We are also expecting data from the Phase 2 AESOP trial in PSC this year. This trial is the first clinical experience we will have with OCA in PSC, a devastating disease with no approved treatment options and with a more complicated course compared to PBC. It is worth noting that PSC is the second cholestatic liver disease in which we are evaluating OCA. Proof-of-concept data in this indication would certainly be encouraging for the view that OCA has potential across various other cholestatic liver indications where high unmet medical need exists.

In addition, after having completed our Phase 1 study of INT-767, we intend to initiate a first Phase 2 trial in NASH patients with fibrosis. As a reminder, INT-767 is an approximately three-fold more potent FXR agonist than OCA and also has some activity on the second bile acid receptor called TGR5, known to regulate GLP-1 secretion in the gut with potential insulin-sensitizing effects. INT-767 has consistently demonstrated superior efficacy to OCA in animal models of liver and other diseases, and we intend to assess its potentially differentiated product profile in patients. Details regarding the design of the Phase 2 trial will be forthcoming at a later date.

Finally, I'm pleased to announce that Jerry Durso has joined the Intercept senior executive team as our Chief Operating Officer, a new role created to augment our capabilities in managing the increasing complexity of our business as we continue to grow in size, geography, and broaden our commercial horizon beyond PBC with a view to NASH and other indications.

Jerry has close to 25 years of experience as a domestic and international business leader in the pharmaceutical industry. In his last formal role, he was Senior Vice President and Chief Commercial Officer of the Global Diabetes franchise at Sanofi. I'm excited to welcome Jerry to the team and look forward to introducing him to you at a future date.

With that, I'd now like to turn the call over to Richard to provide you with an update on the U.S. OCALIVA launch.

Richard Kim - Intercept Pharmaceuticals, Inc.

Good morning. As Mark mentioned, we achieved net OCALIVA sales of $13.4 million for the fourth quarter and $18.2 million for the full year. We are now almost nine months post approval for OCALIVA and I can say that we are very pleased with our initial execution and launch. We're really proud of our work that has supported the increased education and awareness of PBC with physicians, payers and people living with PBC.

Our experiences also continue to support our view that PBC has a potential to develop into a solid long-term market opportunity. However, we know that we are still early in our launch and that there is still a lot of work ahead of us. As you can see, IMS TRx trends have shown steady growth since launch. We've also been encouraged by the demand generation that we monitor through our patient services hub, Interconnect, and other distribution channels.

Additionally, our initial adherence data so far suggests that patients on OCALIVA are staying on therapy, consistent with our pre-launch assumption. However, because of that, majority of patients have not yet titrated from 5 milligram to 10 milligram. We believe it is too early to draw conclusions.

Let me now turn to some more specific insights on OCALIVA. Thus far, physician and patient feedback about the OCALIVA product profile has been positive. Through direct conversations, advisory boards and market research, we hear a few general themes. Awareness of OCALIVA in our target audience is very high. Aided awareness increased to 93% at the end of last year. Although still in early days, OCALIVA's perceived efficacy is rated as effective or somewhat effective by the majority of physicians.

As mentioned earlier, there is still work for us to do. As you can see on the slide, the top reasons we have heard from physicians for not prescribing OCALIVA are: waiting for the next annual visit for the PBC patient to come into the office, not knowing enough about OCALIVA to prescribe it, not having appropriate patients for OCALIVA. Now, in the past, we have been asked about tolerability concerns, and it's worth noting that this was not a key barrier to prescribing in our survey.

We have continued to navigate the managed care environment and are pleased to update that we now have more than 225 million lives covered. Coverage remains consistent with our label.

We've also made progress assisting patients and physicians through the process of obtaining drug. The average time from written scripts to drug in patient's hand has improved to approximately three weeks. This is well within industry standards for obtaining an orphan specialty therapy.

As we make our way through the first quarter, we would like to highlight two general industry headwinds that we expect to affect first quarter OCALIVA sales. One, we expect a higher gross net impact early in the year as patients work through their out-of-pocket exposure. Two, in the first few months of the year, patients had to navigate through the annual change of insurance carriers and benefits, which can cause patients to have their benefits reauthorized and delaying some approval.

As we are now fully into our 2017 execution, I'd like to highlight a few key initiatives that we believe will be critical to driving growth. First, enhanced messaging to continue to define and support the appropriate PBC patients for whom OCALIVA should be considered. Second, we will be expanding our call audience by adding additional high-value physician and also leveraging newer digital ways of connecting with a broader physician audience. Finally, we are rolling out enhanced persistency and compliance initiatives for both patients and physicians.

In conclusion, we are very pleased with our initial launch performance and the steady demand for OCALIVA. We know that the PBC market is going to take time to develop, but our goal is for OCALIVA to become the standard of care for patients with an inadequate response to UDCA, and to give hope to people living with PBC who continue to be our inspiration.

Thanks. And now, I'd like to turn the call over to Lisa.

Lisa Bright - Intercept Pharmaceuticals, Inc.

Thanks, Richard. Good morning, everyone.

The conditional EU marketing authorization for OCALIVA at the end of last year has created real excitement amongst the PBC community. Over the last 18 months, we've been focused on establishing our launch readiness across the international region with a focus on ensuring rapid national and local access for patients post regulatory approval. Generally, it can take up to two years to conclude pricing and reimbursement across all markets in Europe.

Our medical and market access teams have been working closely with key opinion leaders, payers and patient groups, and we've made great progress having already submitted pricing and reimbursement dossiers in 13 countries across Europe and Canada.

Payer discussions have been positive so far with broad acceptance of the unmet need. They recognize that PBC is a leading cause of liver transplant amongst women in Europe, and that patients represented in our POISE trial have an unpredictable, but rapidly progressing disease, where up to 30% of patients may progress to cirrhosis in as little as five years.

Ahead of formal pricing and reimbursement, and where local regulations permit, we've established early access program for patients in urgent need with no other treatment option. We've completed recruitment and comprehensive training of a highly experienced sales force in our early launch countries. Most of our team comes to us with significant hepatology experience and we're planning to see 90% of hepatologists and a greater than 20% of gastroenterologists or approximately 7,000 physicians across the region, which between them care for at least 90% of PBC patients.

Whilst early days, initial interest in OCALIVA from physicians has been very positive and we look forward to sharing more about OCALIVA experiences later in the year as the launch progresses.

As a reminder, we expect international OCALIVA sales will contribute modestly to 2017 revenues, largely in the back half of the year, mostly coming from Germany and France where OCALIVA is reimbursed today ahead of final reimbursement negotiations, which are due to be concluded in early 2018.

So in summary, we're well prepared and excited. We have started the year with good momentum towards our goals of accelerating access for patients to OCALIVA. And, of course, we look forward to EASL in April, which will be our first major congress after EU approval.

With that, I'd like to turn the call over to Sandip.

Sandip Kapadia - Intercept Pharmaceuticals, Inc.

Thank you, Lisa, and good morning, everyone. Please refer to our press release issued earlier today for a summary of financial results for the full year ended December 31, 2016.

I would like to take this opportunity to give you a brief overview of three key areas: our fourth quarter and full year results, our cash position and provide financial guidance for 2017.

So let me start with the fourth quarter and full year results. We recognized OCALIVA net sales for the quarter of $13.4 million, which reflects our estimates of filled prescription. For the full year, this represents total OCALIVA net sales of $18.2 million. Please note that until we establish a history of sell-through, we'll be booking OCALIVA sales based on this method. We also recognized $3.9 million of deferred revenues, representing product sold to distributors but not yet shipped to patients.

For the quarter, gross-to-net was better than expected, which drove gross-to-net for the year towards the lower end of our projected range of 10% to 15%. COGS was de minimis for the quarter for 2016 as the cost related to manufacturing was expensed prior to FDA approval of OCALIVA. The company expects COGS to remain negligible until previously expensed supplies of OCA are sold.

Operating expense for the year were $332.4 million, which is in line with our previously issued guidance. We also recognized $7.1 million of interest expense from our outstanding convertible notes in the quarter.

So let me move on to our cash position. We ended the year with $689 million of cash, cash equivalents and investable securities on our balance sheet.

And finally, we're announcing our 2017 financial guidance. We're not providing sales guidance for 2017, but we wanted to provide some commentary on the first quarter.

We continue to expect gross-to-net for the year to be in the 10% to 15% range. However, as Richard noted in his remarks, we expect gross-to-net for our first quarter to be on the high end of this range. Given this effect and then the lower gross-to-net in quarter four, we expect modest sequential sales growth in quarter one. Additionally, please keep in mind we expect international revenues to be heavily weighted to the back half of the year and driven by pricing and reimbursement on a country-by-country basis.

And moving on to expenses, we expect non-GAAP adjusted operating expense for 2017 to be in the range of $380 million to $420 million. The increases anticipated expense versus 2016 is primarily driven by our investments in our commercial and medical activities in connection with our OCALIVA launch, our increase in R&D related for our clinical programs for OCA and NASH as well as post-marketing commitment in PBC, as well as pipeline investment. We expect operating expense to be lighter in the first quarter of 2017 versus the fourth quarter of 2016.

For the full year, we expect interest expense of approximately $30 million, which includes the amortization component from our outstanding convertible note.

Finally, as a reminder, adjusted operating expense is a non-GAAP financial measure. We anticipate stock-based compensation expense will represent the most significant non-cash item that is excluded in adjusted operating expense as compared to operating expenses under GAAP. Please refer to our press release from earlier today for a reconciliation of our historical non-GAAP adjusted operating expense to GAAP operating expense.

So with that, I'd like to turn it back over to the operator for any questions. Operator?

Question-and-Answer Session

Operator

Thank you. Our first question is from Michael Yee with RBC Capital Markets. You may begin.

Michael Yee - RBC Capital Markets LLC

Hey. Good morning. Thanks, and congrats on the results. Two questions, guys. First on the sales results. Can you talk a little about what specifically you thought drove the performance in the fourth quarter and how important, I guess, switching over from a medical exemption process is? How important is getting formulary access? Has that happened and has that been an important driver? Would you expect that to be actually a positive driver for Q1?

And then, second question is the Phase 3 NASH study you started in fibrosis patients. Just remind what you've disclosed about that. How long of a study? How many patients and specifically, what the endpoint might be? Thanks so much.

Richard Kim - Intercept Pharmaceuticals, Inc.

Hey, Mike. It's Richard Kim here. Thanks for the questions. So as far as the demands – sort of increasing demand for sales, I see couple things. One is it's really driven by the unmet need in the marketplace for PBC. Once again, there's really been nothing new to offer these patients for 20 years. So I think through a good concerted effort to educate about PBC and really the unmet need in this patient segment, I think that's what's really helped foster things in the fourth quarter.

And as far as the switching from medical exception, it absolutely is important for us. It did actually help us with our conversion rate as we have increased formulary prior authorization coverage. As I mentioned, we have about 225 million lives covered.

So, as you know, if patients meet the criteria, generally those will go through their insurers much quicker. Hence, one of the reasons why our average time to fill per prescription went down to about three weeks. So, we do think that's important. We still think there's a lot to navigate going forward, but we're pleased with the progress that we've made at this stage.

And I'll pass it over to Mark for the next set of questions.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Yeah. Thanks, Richard. So, Mike, I think you're asking about the planned Phase 3 cirrhosis study with OCA, right?

Michael Yee - RBC Capital Markets LLC

Yes, yes. That's correct, yes.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Yeah. So, we've been anticipating this study for some time. Just to remind everyone on the call, REGENERATE is focused on pre-cirrhotic patients with advanced fibrosis stage 2 and stage 3. Obviously, an area of high unmet need. Not addressed are cirrhotic patients and we think these will be, along with the advanced fibrosis patients, the focus of reimbursement commercially. So, it's important for us to study this population.

We're not prepared to get into more details today on the study, but will do a little later this year when we're ready to initiate the study.

Michael Yee - RBC Capital Markets LLC

Okay. Thanks.

Sandip Kapadia - Intercept Pharmaceuticals, Inc.

Hi. This is Sandip. I just want to clarify one comment from my prepared remarks. The $332 million operating expense number for 2016 that I referred to is a non-GAAP operating measure. Again, please refer to our press release for a reconciliation to GAAP. I just want to clarify that.

Rachel L. McMinn - Intercept Pharmaceuticals, Inc.

Operator, we will take the next question, please.

Operator

Our next question is from Ian Somaiya with BMO Capital. You may begin.

M. Ian Somaiya - BMO Capital Markets (United States)

Thanks. Just maybe two questions. One, if you could just speak to when you would change your accounting treatment for OCA sales and would that be also accompanied with revenue guidance.

And the second question was just as you think about the PSC study, the Phase 2 study, maybe just review the patient population the trial is on and what we should expect in the Phase 2 result and how that might inform a Phase 3 decision.

Sandip Kapadia - Intercept Pharmaceuticals, Inc.

Hi, Ian. It's Sandip here. I'll just take the question on the sales guidance and the accounting treatment.

Essentially, at this point, I mean we really need to continue to see a few more quarters of actual history, both from a sell-through perspective and also our shipment to our distributors. I mean, we want to make sure that we understand the seasonality patterns that come through. And so, that's pretty much the key things that we're looking for over the next few quarters. I can't really commit at this point as to when we will determine exactly, but certainly we plan to do that at some point.

I think the second point on guidance, somewhat similar reasons. I mean, we need to see how the trends – right now, we're really focused on understanding what's happening in the market, what are the different dynamics, how things are playing out before we start giving guidance. But as you know, we're also providing fairly qualitative measures out there, right?

We have the IMS data, which we're now blocking, so you have access to that. In addition, we're giving qualitative gross-to-net indicators and some qualitative comments to help you at least for the next quarters of how we see it. And then, we'll reevaluate over the next few quarters as we have, let's say, at least a year under our belt.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

And then, Ian, turning to your question about PSC. So, again, just a reminder that this is a cholestatic liver disease, second in size to PBC, but the difference is there are no approved therapeutics out there, so very high unmet medical need.

On the AESOP Phase 2 trial, which is reading out this year, is a placebo-controlled study testing two OCA dose groups. One is a 1.5 milligram titrating to 3 milligram over a period of 24 weeks. And the other is 5 milligrams titrating to 10 milligrams. And primary efficacy readout is on alk phos similar to PBC. And there is evidence in the literature that alk phos does predict the outcomes, although it has to be said that that evidence is not nearly as robust as it is for PBC. And so, we don't expect that alk phos on its own will ultimately be acceptable as a surrogate endpoint for approval.

There was an FDA-hosted PSC endpoints workshop last year that reviewed a number of different possible endpoints, and the general consensus coming out of that meeting was that alk phos was necessary, but insufficient to support eventual approval. And while the regulatory path to approval has not yet been defined, at least not by FDA, we're confident that based on a positive result and a decision to go forward into Phase 3 that we will be able to come to agreement with FDA on such an endpoint, but do want to caution that it would involve more than just alk phos.

Given the more aggressive natural history of the disease and clinical events, we think that that would be a viable path forward in any case.

Operator

Thank you. Our next question comes from Alethia Young with Credit Suisse. You may begin.

Grant Hesser - Credit Suisse Securities

Hi, guys. Thanks for the question. This is Grant on for Alethia. Can you give a bit more color on the nature of discontinuations that you are seeing with OCA? And are those discontinuations within your expectations given the profile of the drug? Thank you very much.

Richard Kim - Intercept Pharmaceuticals, Inc.

Yeah. Sure. So, once again, it's a little bit too early to sort of quantify things as right now the majority of patients have dose titrated up from 5 milligrams to 10 milligrams at a three-month timeframe. So what we can say is compliance overall is consistent with our view of our prelaunch assumptions sort of tracking along with UDCA. So right now, we wouldn't say there's really any surprise that we're seeing in the marketplace so far.

Rachel L. McMinn - Intercept Pharmaceuticals, Inc.

And just a small addendum, I think what Richard meant was the vast majority of patients have not yet titrated up.

Richard Kim - Intercept Pharmaceuticals, Inc.

Yeah, right.

Rachel L. McMinn - Intercept Pharmaceuticals, Inc.

So 5 milligram to 10 milligram. So, as he mentioned on his prepared remark and then to his answer just now, just a little bit too early to provide more granularity.

Grant Hesser - Credit Suisse Securities

Great. Thank you.

Operator

Thank you. Our next question comes from Ritu Baral with Cowen. You may begin.

Ritu Baral - Cowen & Co. LLC

Good morning, everyone. Thanks for taking the question. My first question is on the CONTROL data that we're expecting. I think I asked this last time, and Rachel, you mentioned that obviously the lipid subfractions in small and dense LDL will be a focus. Are there any other biomarkers?

And more specifically, within the subfractions, one KOL mentioned three and – subfractions three and four. When we dig into the subfractions pretty complicated, which ones do you see as sort of the most meaningful? And also, what could CONTROL generate that – what markers would be generated to help you understand this impact on lipid metabolism that you mentioned in your prepared remarks?

Rachel L. McMinn - Intercept Pharmaceuticals, Inc.

Ritu, thanks very much for the questions. So my answer might be a little bit disappointing for you. I mean, I think big picture, we see there's kind of two basic outcomes of the study that we're very focused on. One is just the LDL metric, right? When you give statins and as you dose titrate either OCA and/or statins, what is the effect of that on LDLs? I think that, from a practical perspective, from a physician perspective, that down the line in the future, should OCA be approved for NASH, we would hope this data would be useful for helping physicians make their practical decisions on controlling LDL. So I think that's probably the most important aspect of the study.

On LDL and specifically within metabolism, as you noted, there's going to be a lot of different subfraction data on LDL, HDL and other metrics. I would say there's a lot less consensus even among expert lipidologists on the implications of what those results are. We know based on natural history data that if you have elevated levels of small, dense LDL particles, that's associated with higher rates of atherosclerosis and cardiovascular outcomes. However, those patients also tended to have high levels of triglycerides.

So it – literally, at this point, there's no clear dataset that really implicates one particular particle as being worse than another, especially when it's modulated by a drug. So I think it'll be up for debate. The scientific interest to the community, we'll to pursue it to try to better understand it.

As you know, from healthy human volunteer data, OCA specifically really didn't have an impact on small, dense LDL and the LDL increase associated with the drug use was driven by an increase in large LDL particles. But ultimately, what the significance of that is I think is yet to be determined.

Ritu Baral - Cowen & Co. LLC

Got it. And my follow-up has to do with the launch. Are you finding that the lack of experience with more advanced disease patients is in any way limiting the drug's use from a safety perspective in PBC? And linked to that, could there be any informational cross-talk between the advanced disease population in COBALT and the Phase 3 NASH fibrosis study that you plan on starting later this year? Like could one inform the other in any way?

Richard Kim - Intercept Pharmaceuticals, Inc.

Yeah. It's Richard. So great question as far as more advanced patients. So, we do see patients with compensated cirrhosis that are being treated with OCALIVA, but we're not really seeing major differences as far as the treatment approach to these patients

Obviously, on label, if patients have very advanced disease (32:02), there are more limitations as far as starting with your dosing. But in general, it's a relatively small patient population. It's not one that we've seen a huge impact to. And I would say generally, people are becoming better experienced in how to manage these patients in the marketplace as well.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

And Ritu...

Ritu Baral - Cowen & Co. LLC

And there's been no safety pushback or any concerns that you've heard of?

Richard Kim - Intercept Pharmaceuticals, Inc.

I'd say generally not more. I mean, we do obviously have reports that are reported in, but generally we're not hearing a lot more issues out there. I think it's been well communicated on how to properly manage those patients. It's well documented within our labels. So we're very careful to make sure people understand how to actually start, initiate and manage with patients with hepatic impairment.

Ritu Baral - Cowen & Co. LLC

Understood.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

And then, Ritu, the second part of your question was whether there could be sort of read-through or cross-talk between COBALT and Phase 3 cirrhosis in NASH and the answer, we believe, is no.

Just recall last year, we put together some slides showing the profound difference in effective exposure in the liver of patients with advanced cholestasis as opposed to patients with advanced fibrosis/cirrhosis with other non-cholestatic disease etiologies. And you get a real difference simply because of the impairment of bile flow in the effective exposure of our drug. And not to mention just very different diseases.

But I'm glad you highlight COBALT because sort of going along in the background, it is our very large Phase 4 study that is being expanded for the PMRs with FDA. And that will generate a readout in patients across spectrum, including patients with hepatic impairment.

Ritu Baral - Cowen & Co. LLC

Great. Thanks for taking the questions, everyone.

Operator

Thank you. Our next question comes from Ying Huang with Bank of America Merrill Lynch. You may begin.

Aspen Mori - Bank of America Merrill Lynch

Hi. This is Aspen on for Ying. Thanks for taking our questions. Could you talk more about how the EU reimbursement discussions are going, and when we might see the launch into German and French markets? And then, is the modest contribution you expect from the EU markets modest compared to 2016 sales, or what you think OCALIVA might do in 2017? Thanks.

Lisa Bright - Intercept Pharmaceuticals, Inc.

Okay. Thanks very much for the questions. So, as you probably know, it takes around – well, up to about two years to really conclude pricing and reimbursement across all of Europe. And as I said before, we're making really good progress with that. We've already filed dossiers in around 13 countries, but we don't really have any final negotiated dossiers or prices available right now.

The discussion with payers, however, has been I think very constructive. There's real recognition of the significant unmet needs for PBC patients across Europe and it's widely recognized that PBC is one of the leading, if not the leading in some countries cause of liver transplant. So, we do expect that Germany and France will be our two major countries this year, but the revenues that we expect in 2017 will be pretty modest and they'll certainly be coming towards the back end of this year.

Rachel L. McMinn - Intercept Pharmaceuticals, Inc.

And just to clarify the last part of your question, we're not going to be providing specific metrics of comparing it to 2016 versus 2017. So just to be really clear, as Lisa said, we're expecting the vast majority of European revenues in the back half of 2017 and EU will be a modest contribution relative to what the 2017 total revenue base is. So we're not going to get into how it would compare to 2016.

Aspen Mori - Bank of America Merrill Lynch

Okay. Thank you.

Operator

Thank you. Our next question comes from Andrew Berens with Morgan Stanley. You may begin.

Andrew Scott Berens - Morgan Stanley & Co. LLC

Hi. Good morning. I just had two questions. One, I was hoping you could give us some color on the unique prescriber dynamics you're seeing. Are most of the scripts that are coming out from the same physicians that have been prescribing the drug? Or are you seeing mainly new prescriptions coming from new physicians that haven't prescribed before?

Richard Kim - Intercept Pharmaceuticals, Inc.

Yeah. Hey, Andrew. Great questions. So, as far as the prescriber base is concerned, we have seen a steady growth of new prescribers. We have commented before about sort of our lead target audience around 600 to 700 physicians and we've had a little over 50% of those physicians already prescribe OCALIVA, so we're really pleased with that. But at the same time, we're seeing new treaters and prescribers coming beyond that target group as well. So we've seen a pretty steady growth of both existing treaters who are repeating and also new treaters that are coming into treater base as well.

Andrew Scott Berens - Morgan Stanley & Co. LLC

Okay. And then a medical question on PSC versus PBC. In terms of the course of the disease, liver-related comorbidities and cirrhosis, do you expect to get more patients in the PSC trial with advanced liver-related comorbidities than you saw in the PBC trial?

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Good question, Andy. No, we have pretty rigorous inclusion/exclusion criteria here. We are studying patients initially with compensated liver disease, i.e., without cirrhosis or other complications.

That said, over time, one would expect in the population of PSC patients to see more adverse complications, adverse outcomes. These patients are very much at risk of developing HCC – hepatocellular carcinoma and cholangiocarcinoma, and they develop acute biliary strictures, et cetera. So, more variable and complicated course than you see in PBC. But the AESOP population is a compensated liver disease population.

Andrew Scott Berens - Morgan Stanley & Co. LLC

Okay. Thanks a lot, guys. Appreciate it.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Thanks, Andy.

Operator

Thank you. Our next question comes from Liisa Bayko with JMP Securities. You may begin.

Liisa A. Bayko - JMP Securities LLC

Hi. Thanks for taking my questions. Just to ask the question on PSC a different way, do you feel that you need to see a change of alk phos to really commit to Phase 3? If you don't see a change there, given that we don't really know specifically how to measure efficacy, might there be other paths to approval? Just curious about how important that is to your commitment to the space.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Yeah. And the short answer is yes, Liisa. It is the primary efficacy readout. We do hope to see a reduction in alk phos and that will be gating on our decision to proceed.

And I think one thing I could preview just given my answer to Andy's question and the variability, of course, is that if you have a PSC patient who has an acute episode, an acute biliary stricture, their liver enzymes go through the roof during that episode. So, there might be – there's not as much "homogeneity" in this population as compared to PBC population, so we might see more variability. But yes, overall, we want to see reduced alk phos.

Liisa A. Bayko - JMP Securities LLC

And then just with respect to the development of non-invasive methods, is it – maybe you can just give us some highlights of (39:39) expected to see this year in the field as we start thinking more about accessing patients for NASH.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

I'll defer to Rachel on this one.

Rachel L. McMinn - Intercept Pharmaceuticals, Inc.

I don't think that there's a magic silver bullet that's going to come out this year per se, Liisa. I think you're going to continue to see study investment by us as well as other industry partners. The Liver Forum is very actively involved here, academics, thought leaders as well.

I think what the field is sorely lacking right now is just big, giant datasets and a lot of those, you can see. We're committed to them in our clinical programs as well as supporting registries. Other companies are starting to support registries as well.

So I think once that data becomes available, you'll have a lot more information on which to gauge. So stay tuned, obviously, for – there'll be some interesting data at EASL. I'm sure there'll be more later in the year, but this is – we're not looking for kind of a step function difference this year versus last year, but clearly a lot of investment to generate those large datasets.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

The only...

Liisa A. Bayko - JMP Securities LLC

And then just final last question – I'm sorry.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

No, Liisa. The only thing I would add is that, to Rachel's point, there is gathering literature particularly, I would say, with respect to imaging modalities like FibroScan and MRE – MR MultiScan (41:13), PDFF and you've seen studies read out using these imaging modalities and some pretty intriguing advancement there. So stay tuned for more on imaging specifically.

Liisa A. Bayko - JMP Securities LLC

And I know abstracts aren't out yet, but could you just give us some highlights of what you might be presenting at EASL? And that's my last question. Thank you.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Sorry, our announced facts?

Rachel L. McMinn - Intercept Pharmaceuticals, Inc.

Yeah.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Yeah. So...

Liisa A. Bayko - JMP Securities LLC

What you might be presenting at EASL.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Yeah. I mean, so titles just came out. So you can refer to them. There are some interesting abstracts certainly.

From us, I'll just highlight a couple of preclinical ones. One, basically highlights what we've been saying for some time, which is our belief that FXR, our target engagement in the liver, is absolutely necessary to see the kind of efficacy that we've observed with OCA.

And second that engagement – activation of FXRs inexplicably linked to lipid metabolism and particularly the LDL effects. And there's an abstract looking at our compound at OCA compared to other non-biological FXR agonists showing very similar profile. So, that's what I would highlight for EASL.

Liisa A. Bayko - JMP Securities LLC

Thank you.

Operator

Thank you. Our next question comes from Jeff Hung with UBS. You may begin.

Jeffrey Hung - UBS Securities LLC

Thanks for taking the question. For the commercial launch supplies of OCA, could you remind us when you think that previously expensed supplies would run out? Is that likely or not likely to happen in 2017?

Richard Kim - Intercept Pharmaceuticals, Inc.

Sure. Yeah, I think we haven't – that's a good question. And right now, we expect it to be de minimis as we've said previously. Right now, it's really for the foreseeable future and we'll provide updates on future calls at this point. But we did – as I mentioned earlier, the material was expensed right before our launch.

Jeffrey Hung - UBS Securities LLC

Thanks. And then for the updated primary endpoint for REGENERATE, can you talk about how the office spend is allocated? How should we be thinking about what the bar is for significant that come up (43:37) in your discussion with regulatory agencies?

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Yeah. Thanks for your question. So, obviously, the entire trial were looking at a P-value of 0.05. That is split between the interim and the outcomes.

I'm not prepared – we're not going to get into more specific detail on our statistical analysis plan just given competitive dynamics. There are other studies like just announced that are very similar, sort of interim analysis with outcomes in them. But suffice it to say, as I mentioned on our call a couple of weeks ago when we detailed the update, we are very robustly powered on both endpoints in the study.

Jeffrey Hung - UBS Securities LLC

Okay. Thank you.

Operator

Thank you. Our next question comes from Jay Olson with Oppenheimer. You may begin.

Jay Olson - Oppenheimer & Co., Inc.

Good morning. Thank you for taking my questions. Your press release and prepared remarks references launch of OCALIVA in other target international markets outside of Europe. Can you identify what some of those key markets are and where they stand in the regulatory process?

Lisa Bright - Intercept Pharmaceuticals, Inc.

Yeah. Thanks, Jay. So, I mean our focus right now is obviously on our European launches, and that's where we expect to be our most significant contributor for growth outside the U.S. We have filed in Canada and we would expect to see approval in Q2.

Jay Olson - Oppenheimer & Co., Inc.

Okay. And then I had a question on INT-767. Can you, I guess, share some color on when we should expect to see Phase 1 data, maybe some more detail on when Phase 2 might be initiated? And what is your target profile for that drug, especially with regards to any potential comparative advantages versus OCA?

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Thanks for the question, Jay. We haven't determined if and when we'll present the Phase 1 data. If we do, it'll be at a appropriate scientific meeting. And frankly, what we've been saying for some time is that while Phase 1 data are certainly interesting in gating for advancement to Phase 2, until you have Phase 2 data in a relevant patient population, you can't really conclude anything about your drug.

What I mentioned in my prepared remarks is that INT-767 has consistently been shown to be superior in efficacy to OCA in direct comparison to OCA in a number of different animal models, and that includes liver and non-liver disease models. And so, what we're hoping to be able to show in Phase 2 study is a differentiated effect.

I think that one thing to look for is a signal on fibrosis, right? We've been saying for a long time that in NASH, and frankly, in other liver diseases, it's fibrosis that drives to cirrhosis and outcomes as a very important readout as a surrogate. This point, we will be coming back to you a little later this year with more details on the proposed study and I'm not prepared at this point to say exactly when we're going to be initiating it.

Jay Olson - Oppenheimer & Co., Inc.

Great. Thank you very much.

Operator

Thank you. Our next question comes from Joel Beatty with Citi. You may begin.

Joel L. Beatty - Citi

Hi. Good morning and thanks for taking the questions. Question is on the Phase 3 NASH cirrhosis trial that's planned to start later this year. Are you identifying patients in REGENERATE that fail the screening there because they have cirrhosis, but they could be eligible to enroll in the NASH cirrhosis trial? And if so, could biopsies overtaken for REGENRATE be used for the NASH cirrhosis trial or will those patients need new biopsies?

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Yes. A good question. The short answer is yes, we are seeing patients screen fail in REGENERATE because they have cirrhosis. As to whether we'll be able to enroll these patients in our upcoming Phase 3 cirrhosis trial, that'll obviously depend on when we get to the sites, where such patients have been identified and what the amount of time that's gone by.

If you call, in REGENERATE, we have a pretty strict rule that baseline biopsy has to have been conducted within six months of randomization in the study. I'm not going to sort of preview details of the cirrhosis study, but we will have a cut-off on there as well, and the simple reason is simply the rate of progression in these patients is fast enough in the population that you want to make sure that you've got as accurate as possible baseline read on the status of the patient.

Joel L. Beatty - Citi

Okay. Great. And then one more question on SG&A. It was up to $74 million in this quarter compared to $44 million in the previous quarter. Can you tell us a little bit about what led to that increase?

Sandip Kapadia - Intercept Pharmaceuticals, Inc.

Yeah, hi. It's Sandip here. Thanks for the question. I mean, essentially, a lot of it is we're starting to commercialize. This is the first full year in the U.S. in terms of commercialization. We're building also ex-U.S. for Europe in preparation for us. So those are really – the SG&A cost increases are primarily driven based on that for the quarter.

Joel L. Beatty - Citi

Sure. Thank you.

Rachel L. McMinn - Intercept Pharmaceuticals, Inc.

We'll take one more question, operator.

Operator

Our last question is from Jim Birchenough with Wells Fargo. You may begin.

Jim Birchenough - Wells Fargo Securities LLC

Oh. Hi, guys. Thanks for fitting me in. A couple of questions. II might have missed it earlier, but on OCALIVA for PBC, can you speak to persistent rates, what you're seeing in the real world maybe over a 6-month period or 12-month period rates of maintaining on therapy?

And then on NASH, obviously, a lot of interest in combination therapies as the deal devolves. Are you looking at assets outside of FXR agonists? And is there an opportunity to do your own combo studies with OCALIVA as a backdrop?

Richard Kim - Intercept Pharmaceuticals, Inc.

Yeah. Hey, Jim. It's Richard Kim. So, yes. As far as the persistency for OCALIVA thus far in PBC, it's a little bit early to make that call. I associated in my prepared remarks that it is early, and right now, only about 15% of patients have titrated up to 10 milligrams at the three-month period of time. But what we can say is persistency is consistent with our pre-launch assumptions that we've made so far, but we'll be able to provide some updates on future calls.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

And, Jim, with respect to your question on NASH, the answer is yes. We are quite interested in the potential of combination therapy. Of course, we've said it again and again, we believe that FXR is the only validated target at this stage and that we are well positioned to turn OCA on approval into standard of care backbone therapy in this disease. But along the way, we definitely are committed to studying potential combinations of interest.

That said, I think our focus will be primarily on non-exclusive collaborations where we can relatively rapidly get proof-of-concept studies done with other assets of interest.

Jim Birchenough - Wells Fargo Securities LLC

Great. Thanks for taking the questions.

Operator

Thank you. I'd now like to turn the call back over to Mark Pruzanski for closing remarks.

Mark E. Pruzanski - Intercept Pharmaceuticals, Inc.

Thanks, operator, and thank you everyone for listening in to our year-end earnings call. Obviously, a momentous year as I mentioned in my remarks. Very pleased with our progress on the launch of OCALIVA in the U.S. and now in Europe, and our progress as well in the NASH program. And looking forward to a great 2017. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!