Founded in 2002, Intercept Pharmaceuticals (ICPT) is a biotech company whose only drug treats liver diseases. Intercept's drug, obeticholic acid, was approved by the U.S. Food and Drug Administration (FDA) in 2016 for treating primary biliary cholangitis, a chronic disease that destroys bile ducts. However, the company has seen difficulty in expanding that approval to treating nonalcoholic steatohepatitis (also known as NASH). In fact, in June 2020, instead of approval, the FDA requested more safety and efficacy data on the drug. NASH affects millions of people and Intercept has been running a NASH phase 3 trial since 2015, so management initially thought it had enough evidence for approval.
On the day of the negative news, the stock price plummeted from $77 to $47; it's currently trading at about $21. With clarified clinical trial results coming out in June, there is ample reason for investors to worry.
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Missing the mark
Intercept is currently running four clinical trials with obeticholic acid, two of which, named Regenerate and Reverse, are in phase 3. While Regenerate examined NASH patients in general, Reverse examined only those NASH patients with compensated cirrhosis (those who may have NASH without yet exhibiting symptoms, making diagnosis trickier to perform).
In both phase 3 trials, one major trend in safety profiles emerged -- as the dose increased from 10 mg to 25 mg, the risk of major side effects increased as well. While 25 mg was deemed more efficacious, this dosage also increased the risk of excessive itching and heightened LDL cholesterol levels. In the Regenerate trial, while 28% of those treated with 10 mg experienced excessive itching, 51% of those treated with 25 mg experienced excessive itching. In addition, a peak LDL increase of 22.6 mg/dL was observed four weeks after starting treatment; such an increase can significantly increase cardiac risk.
Data from one of Intercept's phase 2 trials of obeticholic acid, known as Control, suggested that 10 mg of atorvastatin, a generic drug that can be used to lower bad cholesterol, should be given with obeticholic acid to decrease cardiac risk stemming from high LDL cholesterol levels. Without data confirming such implementations in phase 3, Intercept could have a difficult time convincing the FDA to approve obeticholic acid for NASH.
When the drug is used to treat primary biliary cholangitis, the doses are lower -- 5 mg to 10 mg, with frequency varying from daily to twice weekly depending on liver function. But higher doses will be necessary for treating NASH, and without a better safety profile at those higher doses, obeticholic acid could face an uphill battle for label expansion.
A rough path ahead
If the FDA does issue a rejection, Intercept's successes with primary biliary cholangitis might not transfer over to NASH. So far in 2020, Intercept has made $234 million in net sales in the U.S. alone. With a market cap of $714 million, much is at stake for Intercept's ventures in treating NASH -- at its current trajectory, it may only have enough cash to last another couple of years. The company saw $312 million in annual revenue in 2020 and had $477 million in cash and equivalents on the books as of December. While that money may come in handy if Intercept needs to conduct more trials, given that the company's annual total operating expenses were $543 million as of December, satisfactory trial completion may also mean significant cost-cutting. Given all this, healthcare investors would be better served looking for better opportunities elsewhere.
