Last year, a letter written by Chinese scholar Zeng Gong in 1080 sold for more than $30 million. It became the world's most expensive letter. However, a letter issued by Intercept Pharmaceuticals (NASDAQ:ICPT) on Tuesday could be viewed as even more expensive: It knocked more than $350 million off the biotech's market cap. 

But was the huge sell-off of Intercept stock overblown? Intercept CEO Mark Pruzanski and chief business and strategy officer Rachel McMinn were already scheduled to speak at the Morgan Stanley healthcare conference on Tuesday before the letter went out. Based on their comments, there is reason to believe that investors overreacted. Here's why. 

Man looking at red line with arrow going through floor

Image source: Getty Images.

What the letter said

Intercept's letter was what many in the industry refer to as a "Dear doctor" letter. The subject line of the letter summarized the main message pretty well: "Liver injury, liver decompensation, liver failure, and death have been reported in primary biliary cholangitis (PBC) patients with moderate or severe hepatic impairment (Child-Pugh B and C) when Ocaliva was dosed more frequently than recommended." 

Pruzanski stated at the Morgan Stanley conference that the letter was placed on Intercept's Ocaliva website Tuesday morning to communicate to physicians that "a handful of PBC patients with end stage liver disease have been inappropriately treated according to the label [for Ocaliva]." He explained that physicians have used Ocaliva to treat patients with the highest medical needs, typically including patients awaiting liver transplant or those who are too ill for a transplant. In some of these severe cases, Pruzanski said, patients have been prescribed inappropriate doses of the drug.

McMinn noted that frequently these "Dear doctor" letters are accompanied by a label change. She stressed that isn't the case for Intercept, and said that it just underscores what is already on the label for Ocaliva in treating PBC.

Questions and concerns

Morgan Stanley has taken a negative stance on Intercept stock for a while, citing concerns in the past about Ocaliva in treating advanced PBC patients. It was no surprise that the Morgan Stanley analyst questioning Pruzanski and McMinn asked some hard-hitting questions.

One line of questioning related to whether physicians will now be reluctant to prescribe Ocaliva because they think the drug progresses to toxicity and cholestasis (a condition where bile can't flow from the liver to the duodenum). Pruzanski responded that the original rationale behind advancing Ocaliva as a treatment for PBC was its anti-cholestatic activity. He couldn't see any reason why physicians would be concerned about the acceleration of the cholestatis process. When confronted that Ocaliva at some point makes liver disease worse, Pruzanski responded that nothing in the letter sent to physicians should be interpreted as causal.

Question marks on multicolored pieces of paper

Image source: Getty Images.

McMinn added that "there is no limitation on use" for Ocaliva in treating PBC. She reiterated that this includes patients with cirrhosis, the vast majority of whom can take Ocaliva without issues. McMinn emphasized that the issue resulting in the letter sent to physicians related to "a tiny sliver of the population with the most advanced disease." This "sliver" includes roughly 2% to 3% of PBC patients with the most severe cases of the condition.

A broader series of questions applied to potential concerns about Ocaliva in treating non-alcoholic steatohepatitis (NASH), another serious type of liver disease. Pruzanski said that he doesn't think there "should be any read-through" of the letter outside of its intent regarding PBC. He stated flatly that the letter "doesn't apply to NASH."

Pruzanski said that Ocaliva "is the only drug so far in NASH to demonstrate ability to improve fibrosis in a significant portion of patients and drive NASH resolution." McMinn also pointed out that Intercept should have a large body of data to support Ocaliva's efficacy and safety assuming the company files for regulatory approval in NASH.   


Based on the "Dear doctor" letter itself, I think the sell-off of Intercept stock was overdone. The company's executives were 100% correct in stating that all the letter attempted to do was reinforce that the appropriate doses as specified on Ocaliva's label be used. Could the letter cause some physicians to be more hesitant to prescribe Ocaliva? Maybe, but we're really only talking about a very small subset of patients that the letter addresses.

Having said that, I don't necessarily think that Intercept will be the biggest winner over the long run in the real prize at stake -- the NASH market. I think Gilead Sciences (NASDAQ:GILD) is taking the smartest approach by focusing on the patients with the most advanced cases of NASH, including F4 fibrosis. That's where the greatest unmet medical need is. It's also where payers will be most willing to shell out big bucks.

But wiping out hundreds of millions of dollars in market cap because of a letter that basically just says prescribe a drug like it's supposed to be prescribed? In my view, that's an overreaction.