Intercept could move higher today on positive regulatory news
Shares of Intercept Pharmaceuticals climbed over 7% in after-hours trading yesterday following news that the company's lead clinical product, obeticholic acid, or OCA, received the coveted Fast Track designation from the Food and Drug Administration as a potential treatment for primary biliary cirrhosis, or PBC. Fast Track status allows the company to have more regular contact with the FDA throughout the review process and makes the drug eligible for priority review. According to the press release, Intercept plans on completing its New Drug Application, or NDA, for OCA in the first half of 2015, meaning that a regulatory decision could be in hand before the end of next year.
Last March, the company announced that OCA met both its primary and secondary endpoints in a large, late-stage study called POISE. Specifically, patients receiving OCA tended to exhibit improved liver function compared to those receiving placebo. That said, you need to understand that the two doses of OCA tested in the study, 5 mg and 10 mg, only helped about half of the patients. In other words, OCA appears to be effective in roughly the same proportion of patients as ursodiol -- the only drug currently approved for PBC.
Looking ahead, we need a better understanding of OCA's clinical benefits compared to ursodiol and how the drug would be implemented into the current standard of care before understanding its true commercial potential. In short, this is certainly good news, but like OCA's NASH data, there are important questions that will take time to be answered in full.
Is VIVUS' buyout rumor a head fake?
VIVUS shares surged over 16% at one point yesterday after a 13D filing with the Securities and Exchange Commission from Aspen Investment disclosed a potential bid offer for the struggling biotech. Specifically, the filing disclosed that Aspen had recently taken a 9.65% stake in VIVUS and was mulling a $640 million offer to take the company private. If we do the math, $640 million amounts to $6.19 a share or a noteworthy 33% premium compared to VIVUS's share price prior to this disclosure.
Should you jump on this buyout rumor for a double-digit gain? Before doing so, I think there are some important points to consider. Firstly, Aspen is not obligated to follow through with this bid offer, per the 13D. Secondly, you need to understand that Aspen's stake in VIVUS is primarily in the form of forward purchase contracts and call options. And that plays into the final point you need to consider: Aspen made this offer public before it secured the financing to put an actual bid together.
Taken together, my view is that this is a tactic for a short-term gain by Aspen, not a real buyout offer. Remember, Pfizer's recent bid for AstraZeneca started to take shape months before it became public knowledge. In other words, it's highly unusual and counter productive to disclose a bid offer this early into the process. So, this feels to me very much like a head fake that you'd be wise to sidestep.
After all, the market uptake for VIVUS' two approved drugs, Stendra and Qsymia, have been weak so far into their respective commercial launches, creating serious problems for the company's bottom line. As such, I find it hard to believe that a buyout would occur at this juncture and at a 33% premium no less.
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