Summary
- Intercept is likely to introduce the first successful NASH therapy early next year.
- The barriers to entry and lack of competition should consolidate market access.
- While the higher disease prevalence and better pricing could lift sales.
- The relative valuation indicates an upside depending on FDA approval.
- As the market hasn't fully priced in the favorable sales impact next year.
Investment Thesis
OCA (obeticholic acid), the only commercialized product of Intercept Pharmaceuticals, Inc. (ICPT), could become the first successful therapy for NASH (nonalcoholic steatohepatitis). The deadly liver disease has no approved cure yet despite its rising prevalence. Currently, OCA is the only FDA-approved therapy for PBC (primary biliary cholangitis), a lethal, but rare liver disease. However, a significant market opportunity awaits OCA as the FDA granted the priority review for the company's recently-filed New Drug Application, setting a PDUFA date for March 2020. The investors look unconvinced though: the stock remains steady gaining only ~1% in the last twelve months, compared to ~15% gain of the Nasdaq Biotechnology Index.
Despite the marginal benefit, as demonstrated in the trials, the drug will have a higher market penetration due to the fledgling competition and tighter barriers to entry. The rising prevalence of the disease will encourage better pricing, thus improving third party reimbursements. We estimate the new indication should improve Intercept's 2020 sales by as much as ~$27M, with the total sales growth reaching ~51% YoY. Our sales estimate and the current price to forward sales multiple for 2020 indicate ~15% upside, revealing a clear 'Buying' opportunity in Intercept subject to an FDA approval for the new indication next year.
Source: Yahoo Finance
Fatal Liver Disease Needs a Cure
NASH causes fat accumulation in the liver leading to fibrosis (scarring) over time, eventually resulting in liver failure, cancer, and death. According to the National Institute of Health, the illness, which can remain asymptomatic for decades, affects 10M - 30M of U.S. adults, approximately 3-12% of the population. It is expected, the prevalence, standing at 3-5% globally could rise significantly by 2030 due mainly to the rising incidence of hyperlipidemia and obesity caused by lifestyle changes. Relying on off-label therapies with no approved treatment yet, NASH is projected to become the number one cause for liver transplants next year.
NASH to Widen the OCA Target Market
OCA, also known as Ocaliva®, is Intercept's only commercialized product, and the drug's pivotal phase 3 trial named REGENERATE is currently underway in patients with liver fibrosis caused by NASH. The drug, an FXR agonist (farnesoid X receptor), is the first experimental therapy to yield positive phase 3 data in a NASH trial according to the company. The Drug's NDA (New Drug Application) for treating NASH has been granted the priority review by FDA (the U.S. Food and Drug Administration) with a PDUFA (Prescription Drug User Fee Act) date set for March 26, 2020. An MAA (Marketing Authorization Application) submission with the EMA (European Medicines Agency) is planned for the final quarter of 2019 (Q4 2019).
PBC (Primary biliary cholangitis), OCA's other clinical indication, is a fatal and rare liver disease caused by autoimmune destruction of bile ducts that leads to impaired bile flow. If left untreated, the liver inflammation and fibrosis could result in death. Approved in May 2016, Ocaliva remains the only FDA-approved therapy for the disease amid numerous late-stage clinical trials by competitors.
