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Intercept Pharmaceuticals Investors Strap In for a Wild Ride

Cory Renauer, The Motley Fool

After five long years of anticipation, Intercept Pharmaceuticals (NASDAQ: ICPT) recently released top-line results from the Regenerate study. The biotech's lead drug, Ocaliva, achieved an important goal -- but the stock hardly budged. 

While Ocaliva cleared a big hurdle, the results hardly guarantee commercial success, or even approval to treat nonalcoholic steatohepatitis (NASH). Here's why Intercept investors could be in for some big price swings in 2019. 

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Why Regenerate was a success

NASH is a progressive liver disorder caused by an immune system that attacks fatty liver tissue. Somewhere between 80 million and 100 million Americans have livers with dangerously high fat content, and nobody's quite sure why around a fifth of these people also have immune systems that attack.

We might not understand exactly what triggers inflammation of fatty liver tissue, but we know that the scarring (fibrosis) that it causes can shut down a liver permanently. The Food and Drug Administration is willing to grant accelerated approval to a treatment that can significantly improve NASH symptoms without worsening fibrosis, and it's also willing to approve a drug that can improve fibrosis without NASH symptoms worsening.

The Regenerate trial was described as a success because patients who took 25 mg of Ocaliva daily were nearly twice as likely to achieve a fibrosis score improvement of one stage or better without worsening of NASH symptoms. Although Ocaliva didn't quite hit the mark when it came to resolving NASH symptoms, the observed fibrosis improvements are probably strong enough to support an approval.

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Where Ocaliva fell short

Natural bile acids leaking from a damaged liver often lead to severe pruritus (incessant itching) that can keep patients from sleeping. Pruritus generally signals it's time for a liver transplant, so investors were more than a little worried about a 9% dropout rate due to pruritus among patients given 25 mg of Ocaliva daily. If the 25 mg dose is considered too dangerous, Intercept's in trouble because fibrosis improvements among patients given a 10 mg dosage were barely strong enough to be considered statistically significant.

The FDA takes adverse events seriously -- even itching -- but there's a good chance Intercept will be able to overcome Ocaliva's pruritus problem with a simple risk-mediation strategy. Ocaliva is a more potent version of a naturally occurring bile acid, which suggests pruritus is an easily resolvable dosage issue and not a sign of drug-induced liver injury. 

While Ocaliva met enough efficacy criteria to apply for accelerated approval, it failed to significantly improve patients' chances of achieving NASH resolution without fibrosis worsening. The Regenerate study was aimed at patients with stage 2 and stage 3 fibrosis, but Intercept also included a group of patients with stage 1 fibrosis. The 25 mg dose significantly boosted patients' chances of NASH resolution, when earlier-stage patients were included in the calculation.

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The next big loop on this roller coaster

Failure to achieve NASH resolution doesn't necessarily mean Ocaliva didn't lessen inflammation enough to make a real difference for over a million potential patients. It's going to take five to six years for the long-term outcome portion of the Regenerate trial to play out. In the meantime, investors and regulators will have to settle for interim results that Intercept will present in further detail at the International Liver Congress this April.

Hopeful investors will be watching for signs of efficacy among earlier-stage patients, while traders betting against Intercept will look for signs of hepatotoxicity that could end Ocaliva's race to become the first approved NASH drug in a heartbeat.

In past decades, the FDA learned the hard way that mass-market drugs can lead to dozens of fatalities even if they're associated with less than one liver injury among 5,000 patients during clinical trials. As a result, any new drug candidates associated with high aminotransferase levels, and elevated bilirubin levels, are shuttered before they have a chance to cause harm. Hepatotoxicity signals terrify drug developers because just a tiny imbalance can cause the FDA to act first without waiting for a postmarketing study to confirm the danger actually exists.

Intercept told investors that serious hepatic events were numerically higher among patients treated with 25 mg of Ocaliva. The events occurred in less than 1% of patients from each treatment arm, but that's still enough to end Ocaliva's NASH aspirations.

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First to market?

Intercept expects to file for approval in the U.S. and Europe in the second half of the year, which means we won't see an approval until mid-2020 at the earliest. With dozens of potential competitors in clinical-stage testing, a first-mover advantage in the NASH indication is crucial for Intercept and Ocaliva, and any delay will result in another stock market beatdown.

First-mover advantage is far from guaranteed for Intercept because elafibranor from Genfit (NASDAQOTH: GNFTF) is in a pivotal NASH study that will produce results before the end of the year. Selonsertib from Gilead Sciences (NASDAQ: GILD) recently failed to help patients with stage 4 fibrosis, but a study with stage 2 and stage 3 patients expected to read out in the second quarter has a much better chance of success.

Hepatotoxicity imbalances will stop nearly any drug development program in its tracks, but nobody's quite sure how the FDA will view a drug intended to treat patients with severe liver problems. If Intercept gets the FDA to review an application to treat NASH with Ocaliva, we can expect the agency to convene a panel of experts to weigh Ocaliva's risks against its benefits before making a decision. Hopefully, there won't be a request for more safety information.

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Cory Renauer owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.