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Edited Transcript of ICPT earnings conference call or presentation 31-Oct-18 12:30pm GMT

Q3 2018 Intercept Pharmaceuticals Inc Earnings Call

New York Nov 9, 2018 (Thomson StreetEvents) -- Edited Transcript of Intercept Pharmaceuticals Inc earnings conference call or presentation Wednesday, October 31, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lisa Bright

Intercept Pharmaceuticals, Inc. - President of International

* Mark Pruzanski

Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director

* Mark Joseph Vignola

Intercept Pharmaceuticals, Inc. - Executive Director, Head of Corporate Development & IR

* Richard Kim

Intercept Pharmaceuticals, Inc. - President of U.S. Commercial & Strategic Marketing

* Sandip S. Kapadia

Intercept Pharmaceuticals, Inc. - CFO, Treasurer & Principal Accounting Officer

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Conference Call Participants

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* Alethia Rene Young

Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research

* Aspen Mori

BofA Merrill Lynch, Research Division - Analyst

* Brian Corey Abrahams

RBC Capital Markets, LLC, Research Division - Senior Analyst

* Brian Peter Skorney

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* François Daniel Brisebois

Laidlaw & Company (UK) Ltd., Research Division - Healthcare Equity Analyst

* Irina Margine

Cowen and Company, LLC, Research Division - Research Associate

* Jay Olson

Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst

* Joel Lawrence Beatty

Citigroup Inc, Research Division - VP & Analyst

* Joseph Patrick Schwartz

Leerink Partners LLC, Research Division - MD, Biotechnology

* Joseph Robert Stringer

Needham & Company, LLC, Research Division - Associate

* Michael Jonathan Yee

Jefferies LLC, Research Division - Equity Analyst

* Salveen Jaswal Richter

Goldman Sachs Group Inc., Research Division - VP

* Steven James Seedhouse

Raymond James & Associates, Inc., Research Division - Research Analyst

* Yanan Zhu

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Yasmeen Rahimi

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Thank you for joining the Intercept Pharmaceuticals Third Quarter 2018 Financial Results Conference Call.

(Operator Instructions) Please be advised that this call is being recorded at the company's request, the webcast of this call will be archived on the company's website for approximately 2 weeks.

I would now like to introduce Dr. Mark Vignola, Intercept's Executive Director of Corporate Development and Investor Relations. Please go ahead.

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Mark Joseph Vignola, Intercept Pharmaceuticals, Inc. - Executive Director, Head of Corporate Development & IR [2]

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Good morning, and thank you for joining us on today's call.

This morning, we issued a press release announcing our third quarter 2018 financial results, which is available on our website at www.interceptpharma com.

Before we begin our discussion, I'd like to note that, during our call and question-and-answer session today, we'll be making certain forward-looking statements, including statements regarding the progress, timing and results of our clinical trials, including our clinical trials for the treatment of NASH, the safety and efficacy of our approved product Ocaliva, the potential approval of OCA for indications other than PBC, the timing and potential commercial success of OCA and any other product candidates we may develop; and our strategy; future operations; future financial position; future revenue, future projected costs; prospects, plans, objectives of management; and expected market growth. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. And we undertake no obligation to update any forward-looking statement, except as required by law. These forward-looking statements are based on estimates and assumptions by our management that, although believed to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. Some but not necessarily all the factors that could cause our actual results to differ materially from our historical results or those anticipated or predicted by our forward-looking statements are discussed in this morning's press release; and in our periodic filings with the U.S. Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2017.

In addition, please note that OCA is an investigational product that has not been approved for use by any regulatory authority for any indication other than primary biliary cholangitis or PBC. No conclusions can be drawn concerning the safety or efficacy of OCA for any other indication at this time.

Today's call will begin with remarks from our CEO, Dr. Mark Pruzanski, followed by those from our President, U.S. Commercial and Strategic Marketing, Richard Kim; our President, International, Lisa Bright; and our Chief Financial Officer, Sandip Kapadia. We'll then open the call to your questions.

Let me now turn the call over to our CEO, Dr. Mark Pruzanski.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [3]

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Thanks, Mark. Good morning, everyone, and thank you for joining us on today's call.

2018 continues to be an exciting year for Intercept, and we remain focused on 2 key strategic objectives: advancing our industry-leading NASH clinical development program and driving continued growth in our PBC business. As we move into the fourth quarter of 2018 and towards 2019, we remain committed to developing and bringing to market important medications for the millions of patients suffering from progressive nonviral liver diseases.

Let me start with our flagship REGENERATE trial, which is designed to evaluate OCA in non-cirrhotic NASH patients with advanced fibrosis. We're excited to be coming into the final stretch of the interim analysis portion of this study and are reiterating our prior guidance for the readout of the top line results in the first half of 2019. These results are intended to support our initial regulatory approvals in NASH. REGENERATE is planned to continue through clinical outcomes in order to confirm clinical benefit on a post-marketing basis. To this end, I'm pleased that we've already enrolled more than 2,000 patients in REGENERATE, well on our way to our target total enrollment of more than 2,300. In addition, we continue to enroll patients in our Phase III REVERSE trial, which is designed to evaluate the efficacy and safety of OCA in NASH patients with compensated cirrhosis. We believe that positive data from this trial would be supportive of our broader commercial efforts in NASH.

We've also been very active in our NASH launch preparations. We've gained important insights into the patient journey as well as an understanding of the NASH dynamics with physicians and payers in the U.S. and our other target markets. While there are millions of patients with NASH, the greatest unmet medical need appears to be those NASH patients with advanced fibrosis who are at greatest risk of developing severe liver-related complications such as progression to cirrhosis, hepatocellular carcinoma, liver failure, need for liver transplant and death. In our efforts to better understand the market, we've conducted a significant amount of blinded quantitative market research with hundreds of hepatologists and gastroenterologists as well as endocrinologists and primary care physicians. Based on this work, we believe that the majority of patients diagnosed

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fibrosis are under the care of hepatologists and gastroenterologists. Most of these patients were diagnosed and found their way to specialist care without receiving a liver biopsy. Our research confirms that hepatologists and gastroenterologists view fibrosis improvement as the primary goal of therapy, with NASH resolution providing additional value. We believe that OCA is well positioned to meet these needs if approved for NASH. OCA remains the only investigational therapy to have shown efficacy in a well-controlled Phase II trial across the key liver histologic features that inform both currently approvable endpoints, first and foremost fibrosis improvement, which has been shown to predict clinical outcomes, and also NASH resolution.

These insights from our market research are important as we continue to implement our launch preparation activities in NASH, and we look forward to sharing additional insights as our development program advances.

Moving now to PBC. I'm encouraged by Ocaliva's continued growth, as earlier this morning we reported $46.6 million in third quarter 2018 worldwide Ocaliva net sales. We are reiterating our previously announced guidance of between $170 million and $185 million in 2018 worldwide Ocaliva net sales. And our work continues to reaffirm our belief that PBC represents a robust longer-term opportunity. Richard and Lisa will provide additional details on our PBC business following.

Now on to our pipeline. While our key priorities are advancing our NASH clinical development program and driving continued growth in our PBC business, as we move into 2019, we are preparing the next phase of our development plan, including exploring potential combination programs with OCA, leveraging our bile acid chemistry platform by advancing additional compounds beyond OCA and continuing our efforts to define the path forward for PSC.

In conclusion, this is a very exciting time for Intercept as we prepare for the interim analysis readout in REGENERATE and what promises to be a transformational year for the company.

With that, I'll turn it over to Richard for the U.S. commercial update.

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Richard Kim, Intercept Pharmaceuticals, Inc. - President of U.S. Commercial & Strategic Marketing [4]

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Thanks, Mark. And good morning, everyone.

For the third quarter, we reported $36.7 million in net U.S. Ocaliva sales. As we expected and mentioned on the previous call, we generally see less new patient initiations during the summer. And this year, we did see a flattening new patient trend in July and August. However, since Labor Day, we have seen solid growth in new patient enrollment, and we anticipate that this will translate into stronger sales in the fourth quarter. Earlier this year, we made considerable changes to our sales model to increase our PBC coverage by about 50%, including covering more community-based gastroenterologists, along with nurse practitioners and physician assistants in their offices. While not as quick as we would have liked, we have begun to see the impact of these changes. And since the beginning of the fourth quarter, we have seen more new enrollments come from our expanded list of target physicians.

During the last couple of months, our team has been engaging with our key customers. And we had a strong presence at the recent American College of Gastroenterology event. In addition, we are gearing up for our largest U.S. conference, AASLD, next week. This activity has been complemented by continued focus on sales force execution as we have increased our collectivity and other key initiatives across all of our target physicians.

We believe that we have laid a solid foundation for continued U.S. growth in the fourth quarter of 2018 and into 2019. We have a strong commercial team. Our level of execution and reach are at our highest levels since launch, and our customers have a clear understanding of where Ocaliva fits into their decision-making process for their PBC patients. We are excited to continue to help many more patients living with PBC.

Thank you for your attention, and now I'd like to turn the call over to Lisa.

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Lisa Bright, Intercept Pharmaceuticals, Inc. - President of International [5]

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Thanks, Richard. And good morning.

International Ocaliva net sales were USD 9.9 million in the third quarter, representing a 14% growth in revenue versus Q2 given some expected slowness during the summer months. A significant portion of our international sales came from France and Germany, as expected. And we saw strong growth from countries still early in the launch phase such as Spain, Italy and Canada. As you know, we have secured rapid national pricing and reimbursements for our international business without major restrictions in most of our core countries and generally faster than industry averages for orphan drugs. However, uptake is still gated by the need to conclude certain regional negotiations, where we have made great progress.

As we approach the 2-year anniversary of our European marketing authorization, we are very encouraged by the adoption of Ocaliva across the region. We have seen a strong growth in prescribers in the third quarter of 2018 relative to Q2 and estimate a significant increase in new patient starts since December of 2017. With many countries still in their first year of launch and with intent to prescribe appearing to be high amongst users and nonusers, we continue to believe we will see future growth in international.

Thank you. Now let me hand you over to Sandip.

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Sandip S. Kapadia, Intercept Pharmaceuticals, Inc. - CFO, Treasurer & Principal Accounting Officer [6]

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Thank you, Lisa. And good morning, everyone.

Please refer to our press release issued earlier today for a summary of our financial results for the quarter ended September 30, 2018. I'd like to take the opportunity to give you an update on our Q3 2018 results, our cash position and our financial guidance for 2018.

We recognized $47 million in total revenues in the third quarter of 2018, up from $41.3 million in total revenues in the third quarter of 2017. Our Ocaliva net sales were comprised of U.S. net sales of $36.7 million and ex U.S. net sales of $9.9 million. The increase in total net sales represents a growth of approximately 14% versus the third quarter of 2017. Please note that, in the third quarter of 2017, we recognized $4.1 million in deferred revenues in connection with the change in our revenue recognition from the sell-through method to the sell-in method. Excluding the impact of this change in our revenue recognition policy, our Ocaliva net sales grew 27% in the third quarter of 2018, as compared to the third quarter of 2017.

Gross-to-net deductions for the quarter were within our previously communicated 10% to 15% range. Our GAAP total operating expenses for the quarter were $105.3 million. And our non-GAAP adjusted operating expenses, which excludes stock-based compensation and depreciation, were $92.2 million. Our costs of sales for the quarter were $0.5 million, as compared to $0.2 million in the prior year quarter. As we've previously mentioned, prior to the FDA approval of Ocaliva, we expensed costs related to the manufacturing and buildup of our Ocaliva commercial launch supplies.

Our selling, general and administrative expenses decreased to $56.8 million in the third quarter of 2018, down from $61.4 million in the prior year quarter. The decrease was primarily driven by lower consultant spend and personnel-related costs in connection with our efforts to streamline our SG&A expenses and focus on key organizational priorities. Research and development expenses increased to $47.9 million in the third quarter of 2018, up from $46 million in the prior year quarter. The increase was primarily driven by OCA and NASH research and development activities and other costs. We also recognized $7.7 million of interest expense for the quarter related to our outstanding convertible notes.

And moving on to our cash position. As of December 30, 2018, we had cash, cash equivalents and investable securities available for sale of approximately $489.1 million. This represents a net decrease of $49.2 million versus the end of quarter 2 2018.

And finally, moving on to our 2018 financial guidance.

As Mark mentioned earlier on the call, we are reiterating our previously announced 2018 full year Ocaliva net sales guidance in the range of between $170 million to $185 million. We continue to expect gross-to-net for the year to be in the 10% to 15% range. In addition, we are confirming our previously announced 2018 non-GAAP adjusted operating expense range of between $390 million to $410 million. While we have maintained a disciplined approach to spending focused on our organizational priorities to date in 2018, we do expect an increase in Q4 as we expand our NASH launch preparation activities. For the full year, we expect interest expense of approximately $30 million, which includes both the cash interest and amortization component of our outstanding convertible notes.

Finally, as a reminder, non-GAAP adjusted operating expense is a non-GAAP financial measure under SEC regulations. Please refer to this morning's press release for an explanation and reconciliation of this measure.

With that, I'd like to turn it over to the operator for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Salveen Richter of Goldman Sachs.

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Salveen Jaswal Richter, Goldman Sachs Group Inc., Research Division - VP [2]

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So two on the NASH space. One, with regard to just the payer front, there have been some pricing dynamics that have been occurring in the metabolic space with regard to the PCSK9 sector. And I recognize that that's different from NASH but just wondering how that may be impacting, if at all, discussions on the NASH front and what work you're doing there. And then secondly, can you just comment on where your second-generation FXR stands in development and when we might get some insight into that program?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [3]

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Thanks, Salveen. I'll ask Richard to answer the question about payers. And I'll take the second one.

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Richard Kim, Intercept Pharmaceuticals, Inc. - President of U.S. Commercial & Strategic Marketing [4]

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Yes. Salveen, so yes, as far as the payers are concerned, we are clearly thinking about them a lot. We're very attuned to a lot of the market dynamics that are going on, and we know that payers are actually thinking about NASH quite a bit. In general I would say it's still probably early. I think they're quite early in their thinking process around the whole marketplace. And I think they're obviously waiting to see the readout from the Phase III datas as well. So our collaboration with payers is going to be a top priority. We're staying attuned to what's going on, and I think we'll keep you abreast in the future as things develop.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [5]

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Yes. And the only thing I would add to that, Salveen, is that as we mentioned in our prepared remarks, the highest unmet need and our focus is in patients with advanced fibrosis. And again depending on how the data reads out, there's a tremendous unmet need and a strong value proposition in that population. With respect to second-generation FXRs, we'll be coming back to you next year with a much more detailed update on our pipeline, as I mentioned in my remarks. We do have at least 2 other differentiated FXR agonists, INT-767 and 787. Both have different properties I won't get into right now, but as you know, we put on hold their development about earlier this year. And we'll be getting back to advancing those compounds next year.

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Operator [6]

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Our next question comes from the line of Michael Yee of Jefferies.

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Michael Jonathan Yee, Jefferies LLC, Research Division - Equity Analyst [7]

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I guess I wanted to ask 2 questions. One was you've obviously mentioned you've expanded the sales force effort. And you made some comments about how you thought things are picking up in the fourth quarter. Can you just comment how much you think things are picking up and what the contribution is for your new efforts versus, say, just seasonality? Just comment about that and how much a new sales force -- or sales force efforts, excuse me, could help for 2019. And then my second question is a bit detailed, but obviously in the REGENERATE study it is certainly not powered to look at CV events. But certainly to set expectations, you could appreciate that people are going to be focused on everything, so maybe you can just comment, Mark. What type of event [where it] is possible there? What would you be able to talk about in the initial top line? And how should we interpret small numbers and think about that? Obviously that was an issue back in the day for FLINT. So maybe just talk about it a little bit.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [8]

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Sure. Thanks, Mike. I'll ask Richard to take the first question.

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Richard Kim, Intercept Pharmaceuticals, Inc. - President of U.S. Commercial & Strategic Marketing [9]

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Yes. Michael, thanks. I mean, as far as the expansion is concerned, yes, we made a very important decision to increase our PBC coverage, as I mentioned earlier, by about 50%. And what I can say, Michael, is that where we're seeing our greatest growth in new initiations, new patients starting are from our expanded treater base. We've talked about the fact that PBC is relatively diffused across the country. And we believe that our growth opportunity in our expanded base is really where a lot of our opportunity lies for the future. So we're -- I think we're really starting to hit our stride there. And I think this gives us good opportunity for continued growth going into 2019.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [10]

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Yes, Mike. I mean, with respect to CV events, I mean, just a broad statement, I think that any NASH drug is going to have to demonstrate adequate safety for chronic use in what will prove to be a relatively large population of patients. And certainly this population is at significant cardiovascular risk. I -- you mentioned FLINT. There is really -- I don't think that FLINT data was any kind of cause for concern on this front. Clearly, we are monitoring and adjudicating major adverse cardiovascular events in FLINT, but as you mentioned, it's not a cardiovascular outcomes trial, nor was there any sense from FDA that we or anyone else would be required to conduct one as part of a NASH program. Obviously, cardiovascular will be part of the safety readout, and it's premature right now for me to tell you exactly what will get reported out in the top line.

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Operator [11]

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Our next question comes from the line of Brian Abrahams with RBC Capital Markets.

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Brian Corey Abrahams, RBC Capital Markets, LLC, Research Division - Senior Analyst [12]

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Two questions from me. I guess, first off, I'm wondering if you're viewing some of the emerging data in the NASH space as -- or in the space overall as suggesting that pruritus might be an on-target FXR effect. And curious how that might shape the way you might plan for potential competition or your approach both developmentally and commercially. And then I have a follow-up.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [13]

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Yes, sure. Look, it's a good question, not least -- and we've known and very well characterized with OCA dose-dependent pruritus in different populations. I should stress that both in the post-marketing setting in PBC, where we've now treated thousands of patients; and in our clinical development programs, where we have many thousands of patient years of exposure, we have learned very well that this is a eminently manageable side effect of the drug in the vast majority of patients. With respect to other compounds -- and I think specifically you're referring to non-bile acid FXRs that are out there, where I think various companies have made the claim that -- because it's not a bile acid scaffold that they would expect to see pruritus dampened or go away. That doesn't seem to be the case, at least in terms of the data that have been presented to date. It's possible, but we are thinking more and more that it is potentially an on-target effect. But again with respect to our own experience, it's something that is really eminently manageable.

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Brian Corey Abrahams, RBC Capital Markets, LLC, Research Division - Senior Analyst [14]

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That's really helpful, Mark. And then just a follow-up. You mentioned in your prepared remarks some interesting market

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on NASH patients with fibrosis being under the care of specialists. And I'm just sort of curious how that impacts your commercial approach, where you might focus your educational efforts and whether you see an opportunity to stimulate the use of biopsies for more accurate diagnosis.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [15]

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Yes. So I'll start and hand over to Richard. I -- the research, the quantitative market research, we've conducted to date is very exciting. It's confirmed what our hunch has been, and that is that there are -- that a lot of patients, NASH patients, diagnosed with advanced fibrosis, a, have been diagnosed. It's a diagnosis of exclusion in the vast majority of patients, and they're not receiving biopsies as a basis for that diagnosis. B, they are, they tend to make their way to specialist care, right, appropriate specialist care, hepatologists, gastroenterologists. And what's great about that is that this is precisely the physician target customer base that we are calling on already in PBC. So it really gives us a huge leg up as we prepare our launch plans for NASH. And Richard, I don't know if you have anything to add to that.

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Richard Kim, Intercept Pharmaceuticals, Inc. - President of U.S. Commercial & Strategic Marketing [16]

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Yes -- no. I will just say, over the last 2.5 years in the U.S. and coming up on 2 years in Europe, we've grown to know this marketplace quite well. The hepatologists and gastros are our key target today; and in the future, pending approvals, that they would be our key target in the future as well. So we think we can leverage a lot of our insights from what we've done today -- or excuse me, of what we're doing. And we've clearly built out a very focused NASH team as well. So we feel good about the experience that we can leverage as we plan for our next indication.

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Operator [17]

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Our next question comes from the line of Alethia Young of Cantor's.

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Alethia Rene Young, Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research [18]

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Two from me. One, I think a lot of people ask about statistics related to this trial, so I guess, can you just talk a little bit about these different statistical considerations and your confidence level in being able to kind of manage through that and also whether it's a hierarchical analysis or not? And then the second question is just you mentioned in your script that people have found ways to get the treatment without biopsies, so can you just kind of maybe give us maybe a real-world example or unpack that a little bit more for us?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [19]

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Sure. Thanks, Alethia. With respect to the statistical approach, I mean, first, as I often say, we have the benefit of having generated very robust Phase II data in a well-controlled study, FLINT, where as I mentioned in my prepared remarks we continue to have the only investigational NASH drug in OCA that has shown efficacy on both approvable endpoints. And of course, the further advantage was that we were then able to power REGENERATE on both endpoints. And as I've said before, we're well powered on both. And we've got good conviction that our drug works mechanistically through FXR on all the histopathologic features that underlie both of these endpoints. I'm not going to comment more specifically in terms of statistical approach, except to say that, as we announced early last year, we have the only Phase III trial with REGENERATE reading out on both approvable endpoints. And while we very much hope and are powered to achieve both, we can -- the study can succeed hitting either one of those endpoints. And the second...

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Unidentified Company Representative, [20]

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Patient journey.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [21]

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Yes, patient journey. I'll ask Richard to take that.

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Richard Kim, Intercept Pharmaceuticals, Inc. - President of U.S. Commercial & Strategic Marketing [22]

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Yes. As far as NASH is concerned, and diagnosis, I mean, I think the first thing as -- we remind ourselves about the name having a non at the beginning is exclusion of a lot of other potential diagnoses that can be impacting these patients. I think their serologic markers and, I think, also some of the noninvasive technologies, FibroScan and others, are used to help support the diagnosis in today's world, but I will also say it's an evolving field. And I think we're going to continue to learn more as time goes on.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [23]

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Yes. And the only thing, Alethia, I would add to that is that what's been true, that while biopsy technically remains the gold standard way to definitively diagnose the disease, all stakeholders, whether hepatologists; gastroenterologists; the patients, of course, themselves; regulatory authorities, everybody wants to get away from biopsy. And as you know, we and others have employed noninvasive technologies in our Phase III studies. There's been intense interest in evolving these noninvasives to -- ultimately to replace biopsy altogether.

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Operator [24]

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Our next question comes from the line of Joseph Schwartz of Leerink Partners.

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Joseph Patrick Schwartz, Leerink Partners LLC, Research Division - MD, Biotechnology [25]

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So you have a couple of industry-leading programs in PBC and NASH, but there's a lot of competition in both pipeline areas, so can you give us some more insight into how you're thinking about life cycle management? What have you been doing and what more can you do to shore up your competitive position going forward?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [26]

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Sure, Joe. And the first thing I will say is that we are thrilled to be a pioneer in this category of progressive nonviral liver disease. We've led the way with a lot of innovation, and it's really gratifying to see all the other innovation going on to met what are -- what really are tremendous unmet medical needs. No one company can address all of that need. So that's the first point. This is ultimately to the benefit of patients out there. Second, look, we are not only the leader, but we're not standing still. And we've been doing a lot of work behind the scenes exploring potential for combination regimens and not only in NASH, where a lot of people think about combo, but also in cholestatic liver disease. We have additional compounds in the pipeline. And frankly, from a life cycle standpoint, there are a lot of things that -- a lot of pathways and regulated via FXR, for example, that haven't yet been fully elucidated that we believe are at play systemically in -- for example, in PBC and other diseases. So we're not going to be standing still. We believe we have several more years unobstructed in the marketplace as second-line therapy in PBC irrespective of what comes from competitors. And then of course, in NASH it's really -- despite all of the activity, it remains early days. This is going to evolve over the next decade or so. So look. As I mentioned in my prepared remarks, look for more detailed plans from us next year.

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Joseph Patrick Schwartz, Leerink Partners LLC, Research Division - MD, Biotechnology [27]

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Okay, that's helpful. And then there's some increasing work showing that NASH and NASH treatments might behave differently in different ethnicities. So as you look at the demographics in REGENERATE, how do you feel about the potential for OCA to show more or less of a benefit in the different patient subgroups you've enrolled?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [28]

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Well, so REGENERATE is what we call -- it's a Western NASH study. And we've commented in the past about potential phenotypic and regional differences in the disease, as is true in a lot of chronic diseases. And I think that our data set and, frankly, that of other companies running large Phase IIIs is going to provide a -- really a treasure trove of data in -- whether it's ethnic subgroups or genotype subgroups, to really drive forward the understanding of the disease and its heterogeneity. We're still fairly early in our understanding of any differences in different ethnicities and genotypes, and that will evolve over time.

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Operator [29]

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Our next question comes from the line of Brian Skorney of Baird.

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Brian Peter Skorney, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [30]

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Just to try to get some granularity as we think about the readout for the REGENERATE time line. You're saying first half 2019. Just kind of give us a refresher in terms of the process here of now accumulating and analyzing the data. Were you -- as biopsies were being taken, were they being read all along? Or was this a situation where you took all the biopsies and only now having them independently read? And then just remind us again, is this independently read by 1 pathologist, 2 pathologists, 3 pathologists? And then what's the next step in the process to analyzing and scrubbing the data?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [31]

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Sure. Thanks, Brian. So I mean, first, as I mentioned in my remarks, we're really excited to be in the final stretch as we gear up for the interim analysis. This is a large multinational study. And biopsies are read by the 2 central pathologists in the study reading the biopsies. And yes, they do read them as they go along, but of course, we were kind of getting into the hockey stick of the curve in enrollment at the time that we sort of finished enrolling the interim cohort in the study. And of course, as I mentioned in my remarks, we're now at over 2,000 patients enrolled in this study, so it's a huge study. Biopsies are read as they go. And of course, with any large data set like this, there's a tremendous amount of work underway to scrub the data and ultimately get to a database lock and readout of top line results. So no one is working harder on this than we are, is more excited to get to that point of readout, but -- I and at this point can't provide you any more detail other than we're excited to repeat our guidance on first half.

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Operator [32]

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Our next question comes from the line of Jay Olson of Oppenheimer.

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Jay Olson, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [33]

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I had two of them. The first one is related to the quantitative market research that you've conducted. And I was curious if you could characterize the relative importance of the 2 registrational NASH endpoints in terms of their ability to influence the behavior of prescribers and payers. And for example, did you find that reduction of fibrosis was more significant than NASH resolution when it comes to impacting behaviors? And then in terms of the level of field force or commercial infrastructure expansion that you envision to build out in preparation for the NASH launch, could you just characterize how extensive that would be relative to the existing infrastructure you already have in place for PBC?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [34]

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Sure, Jay. I'll take the first question, which was...

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Richard Kim, Intercept Pharmaceuticals, Inc. - President of U.S. Commercial & Strategic Marketing [35]

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Market research...

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [36]

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Yes, market research. Sorry -- on fibrosis. I apologize. I was focusing on the second. The -- so yes. Again, we've done now pretty extensive quantitative market research. And that's confirmed the fact, as we've long been saying, that of the 2 currently approvable endpoints, fibrosis improvement really is the more clinically meaningful and important one. And the reason for that quite simply is that fibrosis stage, particularly advanced fibrosis stage, has been very clearly associated and predicts the risk of progression to liver failure and liver-related outcomes and, in fact, all-cause mortality, whereas so far there's much less evidence for NASH or what we call NASH resolution as an endpoint. So -- and this is clearly accepted by and understood by the physicians that we've been talking to, who also incrementally value NASH resolution but really are looking for a fibrosis benefit.

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Richard Kim, Intercept Pharmaceuticals, Inc. - President of U.S. Commercial & Strategic Marketing [37]

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Yes. And then Jay, as far as the field force perspectives. I mean, clearly, covering gastroenterologists and hepatologists are our top priority across the world, as far as we think about our coverage. When we get to NASH, I mean, we will have to cover more customers, obviously, strategically. We're still working through some of our options, but the need to cover a greater swath of our customers is absolutely going to be essential for us as we are planning our build-out for NASH.

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Operator [38]

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Our next question comes from the line of Yasmeen Rahimi of Roth Capital Partners.

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Yasmeen Rahimi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [39]

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Two questions. Question one is sort of on the payer discussions, so zooming in. So given that fibrosis is linked to heart outcomes, as you just mentioned, Mark, do payers view that pricing for NASH drugs that claim antifibrotic effects would cost more than drugs that claim NASH resolution? And then do they see NASH as an acute or chronic therapy? And then I have one follow-up question.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [40]

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I'll ask Richard to take that.

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Richard Kim, Intercept Pharmaceuticals, Inc. - President of U.S. Commercial & Strategic Marketing [41]

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Yes. I think once again we -- payers are definitely a top priority for us. And when you think about where they are, I think they are still early generally in their thinking process as they think about NASH. I definitely see a bit of a segregation between sort of more the metabolic products and products that have the ability to impact on NASH itself, but I feel right now, I mean, there's a lot of education going on with the payers. And I think ultimately they're still going to be waiting to see the clinical data readout to really help shape a lot of their thinking as well. So I think there's definitely more to come on sort of the payer insights around endpoints and how they'll be evaluating that.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [42]

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Yes, Yasmeen. The only thing I would add to that is that -- and I said this a few minutes ago, that the value proposition, I think, of a drug that can improve fibrosis, given the link to outcomes, is certainly an easier -- it's an easier argument to make out there and, again, can position a drug to address where the highest unmet need is in advanced fibrosis.

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Yasmeen Rahimi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [43]

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And then maybe my follow-up question is sort of going back to some -- to placebo rates. So we know that lifestyle changes, weight loss -- gain or loss or a diet contribute to the variability in the NASH trials, especially when the trials are long. So can you provide us some insight how patients are monitored in the REGENERATE trial specifically when it comes to these sort of lifestyle interventions?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [44]

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Yes. And it's a great question. And I think your -- so of the 2 endpoints, placebo responses on fibrosis have tended to a mean of around 20%. For NASH resolution, they've tended sort of in the higher single-digit percentages. And it is striking, particularly on fibrosis, to see these kinds of consistent placebo responses. All patients entering these trials, not just REGENERATE but I believe any such NASH trail, do get diet, lifestyle counseling, right. And they are coming in on a fairly regular basis to the clinic. My personal hypothesis is that, as would be the case in any such trial, patients probably just do behave better. They respond to the counseling. They know that they're being monitored and examined on a regular basis. They don't -- at least in our experience, they don't seem to actually lose weight. Some -- on placebo, but there's something -- and of course, there's the variability as well in biopsying that can account for some of this response, but frankly, that's the reason that you have placebo control. And it's the reason that we continue to emphasize, with respect to proof of concept at Phase II stage, just how important it is to be running well-controlled studies, because it's very difficult to draw conclusions with respect to the efficacy profile of your investigational drug if you don't have well controlled data.

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Operator [45]

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Our next question comes from the line of Irina Margine of Cowen.

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Irina Margine, Cowen and Company, LLC, Research Division - Research Associate [46]

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I was wondering at this point. Do you have any blinded indication of how many of the total enrolled patients in the NASH trial are on statin treatment? And if not, perhaps you could comment on your latest understanding of how widely statins are currently being used in NASH patients both in the U.S. and maybe EU5. And then I have one more.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [47]

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Yes. So of course, we remain blinded in REGENERATE, so I don't have any insight with respect to statin use, except to say that REGENERATE was designed as a real-world study. We allowed patients to be on statin or not. We allowed the addition of statin to manage cholesterol as physicians -- to standard of care around the world. So what I can tell you, though, is that from our CONTROL study, which we think is fairly representative, and we've commented on this before, at least 2/3 to 70%, 3/4 of the patients were statin eligible based on where the their LDL cholesterols were. And approximately 1/3 of those patients actually were on a statin. So not surprisingly, there's a gap out there. Both AASLD and EASL recommend the use of statins in dyslipidemic NASH patients because they've been shown to be safe and effective. And the results of our CONTROL study certainly corroborate that. So again, we'll find out when we turn the card over what the disposition was with respect to statin use in REGENERATE.

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Irina Margine, Cowen and Company, LLC, Research Division - Research Associate [48]

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Okay, great. And then my second one, I was just wondering if you could give a bit more color on the type of data detail that you anticipate being able to include in the top line release next year. Should we just expect an indication on the primary endpoint? Or do you think you will likely release more specific numbers as well as surrogate biomarkers and so on?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [49]

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Look, over the course of time, all of that will be clear. I think it's premature to comment right now on the specifics of the top line release, but of course, there'll be a readout on primary endpoints; and a fair and balanced disclosure around safety, tolerability and efficacy.

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Operator [50]

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Our next question comes from the line of Steve Seedhouse of Raymond James.

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Steven James Seedhouse, Raymond James & Associates, Inc., Research Division - Research Analyst [51]

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Maybe just one quick follow-up, first, on statins. Do you think statins have any impact on NASH-specific endpoints?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [52]

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Good question. There is some literature about statin, the potential for statins to positively impact cirrhosis, but I think it's not definitive. In FLINT, when we took a look at patients who were either on a statin and baseline or had statins added versus statin-naïve patients over the 18-month period of treatment, there appeared to be a clear benefit on -- or marginal benefit but potentially clear benefit on liver enzymes but no impact on histology. So the histologic readout was equally good for patients on or off statins. And we don't believe that in REGENERATE statins will be confounding with respect to efficacy readout.

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Steven James Seedhouse, Raymond James & Associates, Inc., Research Division - Research Analyst [53]

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Okay, that's helpful. And just looking at -- unrelated but looking at the aggregate MRI-PDFF data that's emerging for other FXR agonists, including some new data sets obviously at AASLD, I mean, the magnitude of the effect on that particular measurement that you see for FXR agonists is usually lesser than some of the other mechanisms like ACC or TR-beta or the injectable FGF19. So what does that tell you about either FXR as a mechanism or about the MRI-PDFF modality? And just another detailed follow-up: And I know you -- and there's published study from last year where MRI measurements were taken in FLINT at 72 weeks. Just, obviously this measurement is typically done at 12 weeks in some of the newer trials. So given that, do you have a sense of how Ocaliva stacks up by MRI-PDFF compared to other FXR agonists?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [54]

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Yes. And clearly, there's been a lot of focus on MRI-PDFF as a noninvasive assessment in NASH, but let me start by reiterating the fact that OCA as an FXR agonist continues to be the only investigational NASH drug that has shown efficacy across-the-board on the histopath features that underlie both endpoints. And that includes steatosis or fat reduction, and that was further corroborated in the paper that you mentioned that was published in -- I believe that there were about 100 patients in FLINT who had baseline and end-of-treatment MRI-PDFF. We continue to think that PDFF is a useful tool to assess fat clearance in the liver. It's been highly corroborated with actual fat clearance on biopsy, but there's scant evidence that it really predicts improvement in other histopathologic features that inform either NASH resolution or fibrosis improvement. And just remind you: The way that NASH resolution is currently defined is a resolution of hepatocyte ballooning. So you want to see a score of 0 for ballooning; and resolution or residual inflammation 0 or 1. Steatosis fat is not even considered in the assessment of NASH resolution. So while PDFF is an interesting tool in the context of Phase II proof-of-concept studies, its role in Phase III, let alone in a commercial setting, has yet to be proven.

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Operator [55]

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Our next question comes from the line of Ying Huang of Bank of America.

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Aspen Mori, BofA Merrill Lynch, Research Division - Analyst [56]

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It's Aspen on for Ying. Just one quick one on REGENERATE. For the top line analysis, can we expect announcements on both of the endpoints, or will it be a responder rate for the 2 endpoints pooled together?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [57]

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So just to remind you, the study can succeed if we hit on either one endpoint. So yes, we would expect to readout on both endpoints, individually.

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Operator [58]

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Our next question comes from the line of Alan Carr of Needham.

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Joseph Robert Stringer, Needham & Company, LLC, Research Division - Associate [59]

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This is Joey, on for Alan. A quick one on the PSC program. Can you maybe comment on maybe what the gating factor is there? I know you mentioned you're pursuing it maybe potentially next year or taking a look at it again next year. Is it around -- the discussion around with the FDA around endpoints? Or maybe some additional thoughts there. And then second question is you mentioned potential combination trials with Ocaliva not only in potentially NASH but other cholestatic liver diseases. And would you potentially be looking at it in house with the combo there or external assets? Or maybe some high-level thoughts on that.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [60]

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Sure, thanks. Look, PSC, primary sclerosing cholangitis, is a relatively rare disease but one with tremendous unmet need and no approved therapies. And so it's imperative for novel therapies to be advanced and ultimately marketed to address that need. We remain absolutely committed to PSC patients in the community, but as we mentioned in our prepared remarks, this has been a year of laser focus from a clinical development and regulatory interaction standpoint on our NASH program, not surprisingly. And so that, coupled with the fact that the landscape in PSC with respect to endpoints, particularly biomarkers, has been rapidly evolving, that has contributed to the pace here with which we clarify our approach to PSC. But as I mentioned in my prepared remarks, we are going to be coming back next year, as part of a broader pipeline update, with more detail on what we're thinking with respect to PSC. Your second question, on combo, particularly in cholestatic liver disease, yes, we would look. We do have other compounds in our existing pipeline internally that are differentiated, we believe, from OCA. We can certainly look there, but we are -- we have been scouring the landscape out there for drugs with other mechanisms that could be at the very least complementary or even synergistic with OCA in the treatment of cholestatic liver disease. So more to come on that in the new year.

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Operator [61]

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Our next question comes from the line of Joel Beatty with Citi.

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Joel Lawrence Beatty, Citigroup Inc, Research Division - VP & Analyst [62]

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It looks like the first 2 drugs with Phase III NASH results will be OCA in the first half of '19 and then also Gilead's selonsertib with 2 Phase III trials reading out in the first half of '19 as well. Could you just provide your thoughts on that agent and its potential to be a competitive threat to OCA in NASH?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [63]

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Yes. I mean you're right. So we and Gilead are going to be reading out essentially on top of each other. They do have a drug with a different mechanism. And let me just say, and I've said this consistently, this is great for patients. It's great for the field. We are proud of the leadership role we've taken and the fact that Gilead and other companies have committed a vast amount of resource and investment in innovation in this space. Ultimately, this is such a large heterogeneous disease population that no one company can adequately address the unmet need, and patients will benefit from having different treatment options. I do continue to believe that our drug as an FXR agonist represents an optimal approach. And assuming that we do demonstrate the kind of efficacy in REGENERATE that we did in FLINT, we believe we can establish OCA as backbone therapy in NASH to which other compounds can be added. Of course, this will all depend on the data readouts that we and Gilead and others present, but like I said, there's lots of room here. And frankly, again, no one company can do this on its own. This is going to be a major lift to drive education and get appropriate patients on treatment, and I wish Gilead the best of luck in their Phase III program.

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Operator [64]

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Our next question comes from the line of Jim Birchenough of Wells Fargo Securities.

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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [65]

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This is Yanan in for Jim. So 2 questions. First question is, would you be able to talk about the statistical assumptions around the interim analysis? And what are the potential outcomes of the interim analysis? And then second question, on the combo strategy for NASH which you have briefly mentioned on the call, I was just wondering. Given recent activities in that space, could you give us some updated thoughts on potential combo partners? And how would you go about obtaining the desired combo partner drugs?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [66]

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Yes. So as I mentioned earlier in the call, we believe we are well powered on both endpoints based on the robust data in FLINT. And in fact, at this upcoming AASLD meeting we will be formally presenting a data, efficacy data and safety data, for OCA from FLINT in a REGENERATE matched cohort of patients on both endpoints, where we have statistically significant results on both endpoints. And that informed our powering assumptions in REGENERATE. I'm not going to comment in any more detail about the statistical approach, but suffice to say we have good conviction in our powering on both those endpoints. With respect to the approach to combination, yes, I mean, we've long stated that we believe over time you'll see combination regimens emerge but that it is really early days. It's going to take a long time for combos to come to market. And we are laser focused on establishing OCA as a backbone therapy in -- for the treatment of NASH patients with fibrosis to which other compounds with different mechanisms might eventually be added. We also believe that the bar has been very high on establishing definitive proof of concept, right? It requires, as I mentioned earlier, not only biopsy but placebo control to really generate robust data. And there are just very, very few investigational NASH drugs other than OCA that have met that bar, so far. Once we readout on REGENERATE, we think we'll have a lot of optionality in how to approach this. And you'll hear more from us then with respect to our approach to combo in NASH.

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Operator [67]

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Our next question comes from the line of François Brisebois of Laidlaw.

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François Daniel Brisebois, Laidlaw & Company (UK) Ltd., Research Division - Healthcare Equity Analyst [68]

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Just a couple here. So I'm just wondering. We've talked about MRI-PDFF and progression there. Has there been any more progression in terms of better understanding of LDLs in terms of large buoyancy versus small, dense molecules?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [69]

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Well, yes, not the -- I'm not a lipidologist, but I will say that we reported out in the CONTROL study last year lipid subfractions for LDL, HDL. And we did show and reproduce what we'd shown in Phase I healthy-volunteer studies, that the increase in LDL that we see with OCA is primarily driven by large, buoyant LDL particles, which are thought to be significantly less atherogenic than small, dense LDL. But with respect to your question in terms of updated understanding about this, I can't offer further comment, except to say that, frankly, we have decades of experience in clinical medicine with the management of LDL and cholesterol in general. There are tried and true generic drugs out there. We showed that low-dose atorvastatin combined with OCA can nip LDL in the bud in the vast majority of patients and maintain LDL below baseline levels. So that and other options to treat cholesterol are certainly at the disposal of physicians who are concerned about dyslipidemia in NASH patients.

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François Daniel Brisebois, Laidlaw & Company (UK) Ltd., Research Division - Healthcare Equity Analyst [70]

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Understood. And then 2 quick ones. Just I was wondering in terms of sales rep details in terms of numbers. You mentioned about 50% more coverage and the U.S. efforts. Can you just give more granularity as to the consultant cut -- costs that you clearly decreased? And just to explain this SG&A being a little lower in this quarter. And then looking into AASLD next week, is there anything in particular that you guys are excited about, keeping an eye out for?

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [71]

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I'll ask Sandip to take the first one, and then I'll take the second.

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Sandip S. Kapadia, Intercept Pharmaceuticals, Inc. - CFO, Treasurer & Principal Accounting Officer [72]

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Sure, yes. Look, in terms of our spending, I mean, I think last year we discussed how we had refocused the organization on really driving 2 key priorities in terms of the advancement of our NASH program as well as focused on -- primarily on the PBC launch. So that's what we've been focused on and that's what you see in terms of the investments overall. We continue to make sure we make the right investments for to drive the PBC launch, for sure. And as I mentioned in my remarks, we do anticipate an increase in quarter 4 as we start -- we expand our programs in terms of the NASH preparation activities.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [73]

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Yes. And with respect to AASLD, look, we're always excited going into AASLD. This is the -- along with EASL, the most important scientific meeting of the year for us. We have some exciting NASH and PBC abstracts that we'll be presenting there, so please look out for those. And as always, we're excited to see the increasing focus on NASH and other cholestatic liver diseases where there is such tremendous unmet need. So there are a number of abstracts there, and we'll look forward to gleaning more as we go into the meeting.

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Operator [74]

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Thank you. And that is all the time we have for questions for today. I would like to hand the call back over to Mark Pruzanski for any closing remarks.

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Mark Pruzanski, Intercept Pharmaceuticals, Inc. - Founder, CEO, President & Director [75]

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Sure. Thanks, operator.

Just very briefly. Thanks, everyone, for listening in today. We are very excited, as we are in the final stretch here heading towards interim analysis in REGENERATE with first half readout next year, which will clearly be a transformational year for the company.

And I want to wish everyone, with that, a happy Halloween.

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Operator [76]

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Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone have a great day.