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Why the 2020 NASH Revolution Could Prove Underwhelming

It has now been six years since Intercept Pharmaceuticals (NASDAQ:ICPT) brought non-alcoholic steatohepatitis (NASH) to the forefront of biotech paradigm shifts. Back in November 2014, the stock exploded to all time highs on the back of positive data for a mid phase NASH trial.

The stock has steadily fallen ever since, but 2020 could prove to be the year when flagship NASH drug obeticholic acid (OCA) gains FDA approval. OCA will be up for review in April by an FDA advisory committee, followed closely by the agency's decision on approval.


OCA isn't perfect, but the very high prevalence of NASH, the lack of any drugs approved specifically to treat it and OCA's fairly decent safety profile all point to a good chance for approval. However, even if it does get approved, that doesn't mean the stock price for Intercept will climb back to its old highs. The real problems may come later, when OCA has to prove itself in the market. Much like the CAR-T sector, which has struggled despite proven efficacy, drugs like OCA could underwhelm in terms of income generation potential and prove too costly to go mainstream.

That may seem difficult to believe given that OCA would be the first drug on the market dedicated to NASH. The problem is that we are talking about a $70,000 a year lifetime treatment regimen, and it's not for a rare disease either. It is estimated that the incidence of NASH in the United States is between 3-4% of the population, an enormous number that's about half that of the most costly chronic disease in the world, diabetes. The average direct annual cost of diabetes treatment is about $10,000 per patient, so with OCA we are talking about increasing that per-patient cost by a factor of seven. NASH incidence being about half that of diabetes, the total cost of OCA treatment for NASH patients would be about triple that of all diabetes medications combined.

Due to this, Intercept won't suddenly achieve 100% market penetration in the NASH market or anything close to it. Any mass market penetration by OCA for NASH translates to costs so astronomically high that there are bound to be major struggles and pushback against it. Recall the relatively minor struggles that Vertex (VRTX) had with the National Health Services in Britain over cystic fibrosis treatment Trikafta. Trikafta's price tag is about 4.5 times that of OCA, but NASH is about 440 times more common. Thus, we're talking about overall direct costs of about 100 times that of Trikafta. For OCA, there are bound to be major coverage issues. Another example to consider is that of Praluent, Regeneron's cholesterol drug, which went through a 60% price cut.

OCA could still succeed in the market, just to a lesser degree than optimists predicting a mega-blockbuster would like. The real long term danger for OCA is competition from a cheaper alternative.

One potential alternative is already in late development by private firm Fractyl Laboratories, which presented encouraging two-year follow-up data on an earlier trial on diabetics last month. The company is developing a minimally invasive outpatient procedure called DMR, which is designed to spur regeneration of the lining of the small intestine. The purpose is to break the cycle of insulin resistance that leads to higher sustained insulin levels in the blood, which in turn promotes the proliferation of fat cells in the liver, leading to fatty liver disease. This is the precursor to NASH. Fractyl reported an 80% response rate among patients with improved liver results sustained for two years post procedure.

The treatment is designed for diabetics with NASH, but since it is not a pharmacological approach, there is no reason DMR can't apply to those with only NASH. One of the four ongoing trials for this procedure exclusively enrolled NASH patients.

The point here is not that DMR will succeed and Intercept will be priced out of the market entirely. Rather, there are structural problems with a medication as expensive as OCA for a market as huge as NASH. The astronomical costs could relegate it to a last line treatment, while a procedure like DMR, if approved, could be prioritized by the medical field.

Disclosure: No positions

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This article first appeared on GuruFocus.