Positive Trial Results for Intercept, Shares a Bargain

Intercept ICPT reported positive top-line results from its phase 3 results of obeticholic acid (OCA) in patients with liver fibrosis due to nonalcoholic steatohepatitis (NASH) on Feb. 19. The trial met one of its two primary endpoints (and therefore met its primary objective), with patients on OCA (25 mgs) showing fibrosis improvement with no worsening of disease after 18 months with high statistical significance. Further, patients on OCA (both 10 mg and 25 mg doses) showed a trend toward NASH resolution, but this did not reach statistical significance. These results support our long-term outlook for OCA in NASH, as we believe the 25 mg dose shows strong efficacy and has potential to be first to market, resulting in solid market share expectations in the medium term. However, we believe side effects leave room for competing drugs to take share in the long term.

Consistent with prior studies, common side effects were dose-dependent pruritis (severe itching) and heightened LDL cholesterol. While 51% of OCA 25 mg patients exhibited pruritis (compared with 19% placebo), only 2% of OCA 25 mg patients experienced serious cardiovascular events (compared with 2% placebo). We do not believe OCA's LDL-raising effects alone would bar the drug from prescriber adoption or approval. The company expects to file in the second half of 2019, and we expect more detailed interim data at a liver conference in April.

Overall, we think these results are in line with our expectations, so we don't anticipate any material changes to our model. We continue to believe that the NASH opportunity is not fully baked into shares, and we reiterate our $150 fair value estimate for Intercept.

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