Biopharmaceutical researchers at Genfit (GNFTF -1.01%) have set their sights on a big prize. They're developing a diagnostic test that could help identify millions of people at risk of liver failure because of nonalcohoic steatohepatitis (NASH) as well as a therapy that may be able to resolve NASH. If they're successful, then Genfit could become a leader in a market estimated to be worth as much as $35 billion. To better understand the company's plans and progress, I recently spoke with Suneil Hosmane, the company's vice president of strategic development for the U.S. market. 

First, what's NASH?

NASH, a liver disease that's caused by a high-calorie diet and a sedentary lifestyle, is fast becoming one of the most common causes of liver transplant in the developed world. 

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In healthy patients, the liver contains less than 5% fat, but in patients with NASH, the percentage of fat can be much higher because these patients store excess calories in the liver. As more fat is stored in the liver, inflammation can cause cell damage that scars the liver, and if the scarring becomes too significant, then NASH can cause liver failure.

Currently, there aren't any FDA-approved medications specifically for NASH, but the spread of western diets worldwide has industry watchers predicting that the market for any drugs that do make it to market be as big as $35 billion per year.

A race is on

After Gilead Sciences (GILD -0.74%) reshaped hepatitis C treatment to curb liver damage with drugs that delivered functional cures generating tens of billions of dollars in annual sales, biopharma companies eager to duplicate the success have rushed to develop drugs for NASH that could be similarly successful.

There are a number of companies conducting early-stage and mid-stage trials for NASH therapies, but only three are expected to have late-stage, phase 3 trial results available in 2019 that could result in an FDA OK. Trial data from Gilead Sciences' selonsertib and Intercept Pharmaceuticals' (ICPT) Ocaliva studies are expected in the first half of next year, and Genfit expects results from its study of elafibranor by the end of next year.

All three of these drugs work differently. 

Gilead Sciences' selonsertib is an apoptosis signal-regulating kinase 1 (ASK1) inhibitor that reduces ASK1 activity to curb liver inflammation and scarring. Intercept's Ocaliva is a semisynthetic bile acid analogue FXR agonist that's already FDA-approved for primary biliary cholangitis (PBC), a disease affecting the bile ducts within the liver. And, Genfit's elafibranor is a dual agonist of peroxisome proliferator activated receptors (PPARs), which are ligand-activated transcription factors of the nuclear hormone receptor superfamily. By activating PPARalpha, elafibranor can reduce triglycerides (natural fats and oils), and by activating PPARdelta, it can enhance the metabolism of fatty acid.

How Genfit hopes to win

When asked how Genfit plans to outmaneuver its competitors, Hosmane said the company's strategy is twofold. First, it wants to be first to market with a diagnostic test that can remove a big obstacle to identifying patients who may benefit from NASH treatment, and second, it wants elafibranor to be a first-line treatment option that could also be used alongside other NASH drugs with different mechanisms of action.

The NASH diagnostic is particularly intriguing. A silent disease, NASH isn't often identified until patients present with late-stage liver disease, and currently, a diagnosis involves a liver biopsy. Liver biopsy is the gold standard; however, it's invasive, expensive, and isn't done in the primary care setting. Because most patients wouldn't be under the care of a hepatologist until their disease is advanced, millions of people that could benefit from intervention may be untreated for NASH.

To overcome that problem, Genfit is developing a test that can identify biomarkers associated with NASH from a simple blood sample. If they're successful, it could provide a low-cost, non-invasive alternative to biopsy that could be used by doctors to test for NASH in patients with conditions that increase their risk of it, including type 2 diabetes. 

Hosmane says Genfit's plan is to roll out the test for use by researchers early next year, and if all goes well, the diagnostic could gain an FDA OK by 2020. An approval would be particularly interesting for investors because the diagnostic can conceivably be used by competitors as a companion diagnostic supporting the use of their drugs, too.

Ideally, though, the approval of a diagnostic would drive eventual demand for elafibranor, but elafibranor will need to deliver positive results in its phase 3 trial first.

In phase 2 trials, elafibranor's performance was arguably mixed. The trial failed to meet the primary endpoint of NASH resolution without a worsening of fibrosis (scarring) when compared to placebo; however, post-hoc analysis showed that it did better than placebo in patients with a nonalcoholic fatty liver disease activity score equal to or greater than four, and those who responded to it did see a reduction in fibrosis. 

The post-hoc analysis suggests that elafibranor's inability to separate from placebo could have been due to trial design and uneven trial enrollment at clinical trial sites. Specifically, the inclusion of patients with limited disease may have dragged down efficacy because that subset had a higher placebo effect and faster-than-expected trial recruitment. According to Hosmane, these issues were carefully considered when designing the ongoing phase 3 study.

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What to watch next

If Genfit's post-hoc analysis did result in a phase 3 trial design that can deliver the goods, then interim data will allow the company to file for FDA approval when it's reported late next year. In the meantime, investors will want to keep an eye out for phase 2 trial data prior to the end of 2018 in PBC. If the company's PBC trial is a success, it could add conviction to the mechanism of action and provide Genfit with a second targeted indication with significant sales potential. There are limited treatment options available currently for PBC, and in the second quarter, Intercept reported sales of $43 million from Ocaliva's use in PBC, up from $30 million in the same quarter last year. 

Investors will also want to keep an eye on progress being made for Genfit's diagnostic, because if it's embraced widely, then it could be a treatment-agnostic source of revenue someday.

Furthermore, it will be important to track how quickly Genfit is burning through its cash. In September, it reported trailing-six-month financials including $42 million in operating expenses and $275 million in cash, down from $317 million in cash on December 31 (at current euro to U.S. dollar exchange rates). In my opinion, the company will need to execute some form of a licensing deal, or tap investors for more cash at some point, if it hopes to successfully commercialize its pipeline. That's especially true if Genfit starts a phase 3 trial in PBC and expenses in preparation of a NASH launch accelerate.

Investors should also consider that it isn't just Gilead Sciences and Intercept that Genfit may have to compete against someday. A number of other companies have therapies advancing toward phase 3 trials, including Madrigal Pharmaceuticals and Viking Therapeutics, which are both developing selective thyroid beta receptor agonists that boost thyroid activity to improve metabolism and reduce fat.

Ultimately, it could be combination therapies that become the standard of care in the indication, according to Hosmane. If so, I think there could be room for multiple players, partnerships, or outright acquisitions. It's anyone's guess, though, how this market will shake out -- or which of these companies' therapies will end up with the most compelling phase 3 results. Fortunately, we won't have to wait too long to find out.