Intercept Pharmaceuticals (NASDAQ:ICPT) is in the enviable position of many biotech companies. It boasts a marketed drug on pace to deliver more than $200 million in sales for 2019 and is anticipating an upcoming decision from the Food and Drug Administration that could grant it the first approval for a disease with no approved treatment options.

Tackling unmet needs in liver disease

Intercept markets Ocaliva for adults with primary biliary cholangitis (PBC), a condition that causes bile ducts in the liver to become inflamed and damaged. The damage impairs the liver's ability to function properly and can lead to life-threatening cirrhosis (permanent scarring of the liver) and liver cancer.  

While PBC is the drug's first approved indication, all eyes in biotech are trained on the second indication: fibrosis, or scarring, due to non-alcoholic steatohepatitis (NASH). NASH is caused by an excess of fat in the liver leading to inflammation, fibrosis, and eventually cirrhosis. Currently no NASH-specific therapies have been approved by the FDA. Intercept's Ocaliva could potentially change that.

About 16.5 million Americans live with fibrosis due to NASH. That number is set to rise to more than 27 million according to the researchers. Intercept initially intends to focus on about half a million patients with advanced fibrosis and no cirrhosis who are under the care of liver specialists.

Liver image floating above hand of doctor holding clipboard.

Image source: Getty Images.

With millions of potential users of Ocaliva, a big pharma company will likely step in following approval. The first-mover advantage should provide a beachhead for subsequent generations of NASH drugs or those with alternative mechanisms to treat across the spectrum of patients.

FDA delays its decision

Last week, Intercept announced the FDA delayed the date to make its final approval decision to June 26, pushing it back from March 26. In the interim, the FDA plans to convene a panel of experts on April 22 to review the data on Ocaliva in NASH-related fibrosis. This three-month delay caused some biotech investors to get the jitters. While the FDA does not have to follow the recommendations of the committee, it generally does so. Thus, the outcome of the April panel is critical for the company's future.

Which companies could be buyers?

AstraZeneca (NYSE:AZN) touts a broad pipeline with one major segment called cardiovascular, renal, and metabolism. On its website, it mentions NASH as an area of interest for its metabolism research and development efforts. However, currently none of the drugs in the pipeline are designated as NASH treatments. Buying Intercept would remedy that situation.

GlaxoSmithKline (NYSE:GSK) has an oral tablet in phase 2 clinical trials for PBC-related cholestatic pruritus, otherwise called itching. Ocaliva, also an oral tablet, would give GSK a marketed oral option for treating the underlying PBC. Further, it positions GSK to enter the large field of NASH.

Privately held Boehringer-Ingelheim makes a third big pharma contender. Like AstraZeneca, it publicly states an interest in NASH and partnering with companies that are developing new treatments for the disease. On Dec. 18, B-I announced it was ending development of its phase 2 drug for NASH but remained committed to the disease area. Buying Intercept would give it an approved drug for PBC and potentially the first drug for NASH.

Finally, I'll throw one curveball idea out there. What if biotech Amarin (NASDAQ:AMRN) bought or merged with Intercept? Amarin's triglyceride-lowering drug Vascepa remains on pace to become a blockbuster in the coming years. The FDA expanded the approved use to lower cardiovascular events in at-risk patients.  Researchers have found substantial evidence linking NASH to cardiovascular disease. Recently Gilead (NASDAQ:GILD) added Vascepa to its drug trial for NASH.

Since each company relies on a single oral drug, putting the two together reduces risk around a single product and could generate substantial revenues. Amarin and Intercept provided 2019 revenue guidance in the range of $410 million to $425 million and $245 million to $250 million, respectively. If we imagine the two were combined, the companies would have generated sales  of up to $675 million in 2019 sales. That will only grow as Amarin adds to its sales force to handle the recent FDA-expanded approval. Likewise, if Intercept gains approval in NASH, it would be off to the races with a first-mover advantage in the field.

Bye bye, Intercept

In the end, Intercept will ultimately be swallowed by another company, but it may not happen this year. Big pharma companies are better suited for tackling broad markets with millions of patients. If approved for patients with fibrosis in NASH, it will be interesting to see what company is the ultimate acquirer.

If the fibrosis indication does not get approved or requires additional clinical trials, the stock will get eviscerated. Intercept has $525 million in long-term convertible debt that will need to be addressed should there be any setbacks. Delays getting to market could mean it is unable to pay back the debt or that it will have to raise additional capital, putting downward pressure on the stock price. While the landscape for emerging NASH treatments continues to evolve, Intercept's potential first-to-market position puts it in the enviable position of choosing the highest bidder.