Boom! Trial halt turns Intercept into an improbable midcap company

Intercept Pharmaceuticals’ incredible near quadrupling in value on the back of phase II data in fatty liver disease should have many reminiscing about the days of the 1999-2000 biotech bubble. The jump to $275.87 yesterday obliterated every price target and had some analysts suggesting the potential of obeticholic acid merited Google-like share prices for a one-product company that went public just 15 months ago.

In its powerful slipstream Intercept pulled along two other companies, Galectin Therapeutics and Conatus Pharmaceuticals, which are also working in advanced liver disease. While there is potential for big sales in the underserved liver disease targeted by obeticholic acid, today might be a good day for investors to take a deep breath and step away from momentum trading.

"Tsunami"

Perhaps the most surprising part of yesterday’s tornado of interest in Intercept is that the news did not come from its lead indication – primary biliary cirrhosis – and was the result of a mid-stage, National Institutes of Health-led trial. The NIH announced that it had ended the Flint study early after an interim analysis that found 72 weeks of treatment with obeticholic acid, when compared with placebo, had improved non-alcoholic steatohepatitis (NASH) symptoms at a statistical significant p value of under 0.0031.

Indeed, that statistically significant result on an intent-to-treat basis was achieved even though half the patients had not completed both a baseline and 72-week biopsies to measure their non-alcoholic fatty liver disease score, and thus were considered non-responders. On a per-protocol analysis, the p value was 0.0015, chief executive Mark Pruzanski told investors in a conference call.

No doubt this is the sort of news that ought to create optimism about a drug, and cause a reassessment of future earnings potential. Sales before the Flint readout were pegged at $231m in 2018, according to EvaluatePharma’s consensus, nearly all in the primary biliary cirrhosis indication in which a phase III trial is nearing readout.

With such a decisive finding in NASH it would not be unreasonable to increase forecasts based on expectations in this indication – the NIH says the condition affects 2-5% of Americans, and the prevalence may increase with the rise in obesity as fat accumulation in the liver is a major feature of the disease.

Mr Pruzanski and his executive team did little to discourage the optimism, of course, describing NASH as a “tsunami” that could soon eclipse hepatitis C as a cause of liver transplants.

Wait a minute

Yet there are plenty of reasons for caution about the outlook – or at a minimum, to be substantially less than five times as optimistic about Intercept’s promise today as on Wednesday. For one, regulators have not decided on a clinical endpoint for pivotal trials given that NASH is a slow-moving disease, and it is entirely possible that long-term outcomes endpoints could be demanded, pushing a launch date far into the future.

There is no precedent on this count, since there are no treatments for the disease, and no hard clinical outcomes exist yet, a point that Intercept managers highlighted in their conference call. The Flint endpoint – NAFLD activity score – was chosen by the NIH based on experience in an earlier trial with Actos and vitamin E, but the NIH’s use of it does not necessarily mean regulators believe it to be the best choice.

Even if the activity score is chosen as an endpoint, recruitment of a large trial could be slow – NASH is often a symptom-free disease, and sometimes resolves spontaneously. The use of a biopsy to establish baseline and follow-up disease activity could also discourage patients.

This sense of caution was not present in the markets today, however – shares were up another 50% in early trading today, putting the increase since Wednesday’s close at a mind-blowing 472% and valuing Intercept at $7.5bn.

With $157m in cash at September 30 the New York-based group says it can fund operations through the second half of 2015, but with such a rise it would be foolish not to raise money in the near future. A pivotal trial in primary biliary cirrhosis is due in the second quarter, and it would not be surprising to see a sell-off at that point, if not before. Intercept would be wise to start preparing documents for a public offering now.

To contact the writer of this story email Jonathan Gardner in London at [email protected] or follow @JonEPVantage on Twitter