Intercept Pharmaceuticals And PSC: Primed To Profit

Summary

  • Ocaliva, a metabolism modulator, is a FXR agonist that is being clinically evaluated for therapeutic efficacy in Phase 3 NASH along with Phase 2 PSC.
  • PSC is caused by characterized by dysregulation of bile homeostasis that leads to cholestasis (i.e. slowing of bile flow) with liver inflammation, injury and fibrosis of bile ducts.
  • Presently, PSC has no FDA approved therapeutic options or viable alternatives except surgical interventions.
  • My analysis suggests that the addressable market for PSC could be larger than initially anticipated due to its association with IBD.
  • I expect ocaliva to capture a significant share of the anti-PSC drugs market.

Any man or institution that tries to rob me of my dignity will lose.
—Nelson Mandela

A brief overview of the clinical dilemma faced by all hepatologists and PSC patients will be given prior to detailed analysis of the addressable market.

More than a decade of heightened scientific and clinical interests in understanding the pharmacological activities of the nuclear receptor, Farnesoid X receptor (FXR), in regulating bile and lipid homeostasis resulted in the clinical development of the FXR agonist and bile acid ligand, obeticholic acid (ocaliva) by Intercept Pharmaceuticals (NASDAQ:ICPT).

To the delight of the scientific community and financial investors, ocaliva was approved by the FDA in 2016 as a breakthrough therapy for the orphan cholestatic liver disease, primary biliary cholangitis (PBC). Notwithstanding its adverse events of pruritus and dyslipidemia, ocaliva is increasingly gaining clinical approval as reflected in progressive increases in global sales revenue with a 41% increase of $43.2M in Q2/2018 compared to $30.4M in Q2/2017.

Similar to PBC, primary sclerosing cholangitis (PSC) is a rare cholestatic liver disease. Unlike PBC, the clinical outlook for PSC patients is dire due to severe morbidity and high mortality. Tragically, patients with PSC have no FDA approved therapeutic options or viable alternatives except surgical interventions such as liver transplantation.

It is estimated that >50% patients ultimately will need liver transplantation due to end-stage liver disease. The 1-year survival rate for PSC patients after liver transplantation is approximately 85% and the 5-year survival rate is about 72%. Furthermore, life expectancy estimates of 9 to 18 years if the patient does not undergo liver transplantation.

Addressable Market: The Urgent Need for Anti-PSC Therapeutics

Regardless of how I look at the data, my analysis of the research reveals that the addressable market for PSC will grow for the following reasons:

First and foremost: The overall addressable market for PSC currently estimated at 60,000 in US and Europe is expected to be significantly higher in future years due to increased awareness and diagnosis in Asia.

Second: The recurrence of PSC in~ 25% of patients after liver transplantation will mean these patients requiring pharmacotherapeutic treatment. Furthermore, liver transplantation is not available on demand due to organ shortage and clinical compatibility issues.

Finally: There is an established association of PSC with inflammatory bowel diseases (IBD) with 70-80% of PSC patients having IBD. Conversely, PSC will develop in 2-8% of patients who have IBD. According to the CDC, ~ $3.1M individuals in the US have IBD with ~ 70,000 new cases of IBD reported in the US annually.

Estimated Market Size: The Math

Drugs for orphan diseases such as PSC are typically associated with high pricing power. For the orphan cholestatic liver disease, PBC, ocaliva was priced at ~$70,000/year. It is anticipated that any future drug approval for PSC will also be similarly priced as ocaliva or higher due to their orphan drug status. I estimate a market potential of $4.2B annually for the 60,000 PSC addressable market in US/Europe at $70,000.

As I alluded to previously, the CDC estimates ~ $3.1M individuals in the US have IBD, a disease with drugs market estimated to reach $US14.83B by the end of 2025. There is no way to accurately discern the exact nature of the PSC-IBD relationship or to determine how many more IBD patients will be diagnosed with PSC. However, it is understood that 2% to 8.1% of patients with IBD have PSC although rates could reach 14%.

Conservatively, I estimate the minimum number of IBD patients with PSC to be 62,000 based on 2% of 3.1M IBD patients. This gives a market drug potential in US of $4.34B annually at $70,000.

Taken as a whole, the combined market potential for PSC drugs market is estimated at $8.5B annually. However, I expect this number to be significantly higher when you include Asia.

The Clinical Data

Preliminary evidence from a Phase 2b proof of concept clinical trial demonstrated the therapeutic benefits of ocaliva in PSC as demonstrated by statistically significant reductions in alkaline phosphatase (AP) levels, a surrogate marker of PSC progression.

The AESOP trial was a 24-week, double-blind, placebo-controlled trial including 77 patients with PSC who received either 1.5 mg to 3 mg of ocaliva, 5 mg to 10 mg of ocaliva, or placebo. Compared with a 1% increase AP levels in the control group, both groups who received ocaliva treatment had a mean reduction of 22% (P<0.05).

Patients receiving ocaliva monotherapy had greater reductions in AP levels at week 12 and week 24 as compared to patients who received ocaliva in addition to UDCA. Mild to moderate pruritus which occurred in all three arms, was the most common adverse event. The incidence and severity of pruritus increased with ocaliva treatment in a dose-dependent manner. A two-year open-label extension of AESOP is ongoing.

It is my supposition that the convincingly promising results will be confirmed in a larger population setting in the planned pivotal registration trial. A positive clinical efficacy for ocaliva in PSC matters for a number of reasons. In the absence of novel pharmacotherapeutics, liver transplantation is the only intervention known to extend survival of patients with PSC. Liver transplantation is costly and invasive, and recurrent PSC affects approximately 25% of liver transplantation recipients. Moreover, liver transplantation is rarely available on demand due to organ shortage. Therefore, in the absence of liver transplantation, the prognosis is death.

Investment Outlook And Risks

My perception is that ocaliva should be considered a contender for the anti-PSC drug market. I concur that the clinical adverse events could be problematic for some patients. Intercept as always has taken clinical precautionary measures to limit anti-pruritogenic effects associated with ocaliva therapy.

It is my assessment that the ongoing PSC extension study will provide more clinical evidence on the medical benefits of ocaliva in halting or reversing the progression of biliary fibrosis, a histopathological feature that could lead to cirrhosis and cholangiocarcinoma. I surmise by saying that ocaliva will be one of the anti-PSC drug candidates in clinical demand for PSC therapeutic relief, an addressable market that could grow due to its association with IBD. Current price is a good entry point.

All clinical trials are associated with significant risks including serious life-ending adverse events, negative clinical outcomes. If Intercept does not achieve its clinical goal of ultimately gaining regulatory approval for ocaliva in PSC its long-term valuation will not be hugely impacted. Intercept would definitely be strongly impacted by any potential clinical setback in the NASH trial. This is because the addressable market for NASH is huge and ocaliva is considered one of the front-runners in anti-NASH therapeutics. Its long-term valuation will be determined by the results of the Phase 3 NASH trial with forthcoming catalyst in H1/2019. Furthermore, Ocaliva is currently its only lead drug candidate.

Financials And Risks

Intercept Pharmaceuticals is a mid-cap ($2.72B) and one of the most recognized liver therapeutics biopharma that is establishing a name for itself in adult hepatology with the development of novel FXR agonists including ocaliva for chronic liver diseases, PBC, PSC and NASH.

Intercept has multiple shots on goal. Intercept reported a 41% increase in global Ocaliva sales revenue of $43.2M in Q2/2018 compared to $30.4M Q2/2017. Cash, cash equivalents and marketable securities were $538.3M on Q2/2018 compared to $326.1M in Q1/2018. Intercept generated total revenues of $43.6M in Q2/2018 compared to $30.9M in Q2/2017. Net loss of $75.2M in Q2/2018, was down from a net loss of $86.6M in Q2/2017.

Epilogue

If you talk to a man in a language he understands, that goes to his head. If you talk to him in his language, that goes to his heart.
—Nelson Mandela

After almost 20 years of presumed passivity in cholestasis liver diseases research, tremendous scientific progress was attained with the development and approval of ocaliva in 2016 for PBC. Unfortunately, PSC still remains a chronic progressive liver disease without FDA approved therapeutics. Although the prognosis for these patients could be heartbreaking, I believe that there will be an approved FDA therapy for this debilitating disease sooner rather than later.

Patients with orphan diseases are typically underserved. However, the intensive clinical interest in liver therapeutics by small biopharmaceuticals has seen several drug candidates being evaluated for therapeutic efficacy in PSC. These drug candidates including ocaliva will bring an innovative corrective therapeutic approach to an area of medical research that seemed all but forgotten until recent years.

Disclaimer: As always, my articles are meant to facilitate your understanding. Readers are expected to form their own trading plans, do their own research, and take responsibility for their own actions. Investing in common stock can result in partial or total loss of capital. Please implement due diligence and invest wisely.

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Disclosure: I am/we are long ICPT. 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.

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