Why Intercept's Success Was a Big Disappointment

This year's International Liver Congress is getting more attention than usual, thanks to a presentation of long-awaited pivotal trial results from Intercept Pharmaceuticals (NASDAQ: ICPT) and its lead drug, a bile acid analog called Ocaliva.

An enormous underserved patient population could steer billions in annual sales toward the first successful drugs that treat a progressive liver problem. Here's why Intercept's big presentation didn't raise expectations that Ocaliva will become one of them.

A big problem

Around a third of U.S. adults have livers that store more lipids than they should, although many don't even know it. Around 20 million from this group also suffer from chronic inflammation of the liver, or non-alcoholic steatohepatitis (NASH).

Repeated immune-system attacks often lead to scarring and stiffening of liver tissue or fibrosis in NASH patients. Fibrosis progression can lead to complete liver failure, which is why NASH is becoming the leading reason Americans need liver transplants. There are at least a million NASH patients with stage 2 or stage 3 fibrosis in the U.S. and EU, and Ocaliva is the first drug to help them reduce fibrosis in a pivotal study.

A fibrosis reducer

Back in February, Intercept showed us top-line data from the Regenerate study that shows it significantly reduces fibrosis without worsening inflammation. Sadly, Ocaliva didn't significantly reduce NASH symptoms among patients with stage 2 and stage 3 fibrosis.

Intercept also included a group of healthier patients with stage 1 fibrosis who appeared more receptive to Ocaliva treatment. An encouraging 14.9% of NASH patients tested with all three stages of fibrosis were free from inflammation after 18 months of treatment with the high dose, which was significantly higher than the 7.9% observed in the placebo group.

Fibrosis progression is so dangerous that the Food and Drug Administration (FDA) is willing to accept applications for candidates that can reverse it, even if they can't significantly reduce NASH symptoms. In terms of efficacy, Ocaliva probably has what it takes to earn an FDA approval.

The problem

The Regenerate study tested two dosages, and the smaller one didn't get the job done. Intercept shares tanked when the company announced the top-line Regenerate results in February because the effective dosage might be too much.

The improvements that Ocaliva elicited came with deep concerns -- 51% of patients treated with the effective dosage experienced chronic itching. Since itching can be caused by a damaged liver leaking bile acids into circulation, it's taken very seriously. Investigators made 9% of patients from the group receiving the effective dose discontinue treatment due to pruritus.

Less than 1% of patients in the study had circulating liver enzymes high enough to raise severe hepatotoxicity concerns. In February, Intercept told us serious events occurred in all three groups and was numerically higher in the group treated with the effective dosage.

Nothing new

Investors entered the International Lung Congress looking for some more insight into Ocaliva's safety profile and further signs of efficacy. Instead, Intercept disappointed everyone by bringing nothing new to present except a per-protocol analysis of Regenerate results.

The Regenerate trial isn't finished enrolling patients yet, and Intercept has some safety data for 1,968 subjects. Unfortunately, Intercept has 18-month biopsy results for just 668 out of 931 patients who began the pivotal portion of the Regenerate study. Among the group that didn't drop out early, 13.3% of those given Ocaliva experienced a two-point or greater fibrosis improvement, compared to 4.5% of those given a placebo.

Unfortunately for Intercept, regulators generally ignore subgroup data, especially when you omit patients who drop out early. The only thing Intercept's per-protocol analysis tells us is that the company should run a new pivotal trial with NASH patients who are less likely to drop out.

Assuming the worst

At the International Liver Congress, Intercept rehashed the same safety data from all 1,968 NASH with fibrosis patients who had between 37 months and a single dose of exposure to Ocaliva. Investors paying close attention noticed the company didn't break out any safety data from the group of 931 patients selected for the pivotal half of the study or the group of 668 that made it to their 18-month biopsy.

If Intercept wants to submit an application to expand Ocaliva's availability to NASH patients with fibrosis, regulators will want to see safety data from the intent-to-treat group of 931 patients. For some reason, Intercept didn't want to show safety data for patients who have been on treatment the longest next to figures from the less-exposed safety population.

You can be sure the FDA will want to see numbers from the smaller intent-to-treat group that had at least 18 months of exposure. You can also be sure that if the numbers were positive, Intercept would have included them in the presentation.

What's next for Intercept?

The company intends to submit an application to the FDA in the second half of the year. The FDA will almost certainly hold an advisory meeting with independent experts who will measure Ocaliva's potential benefits against the apparent risks.

If you're thinking about catching this falling knife right now, it's probably best to wait until we've seen what the FDA has to say about Ocaliva's future as a blockbuster NASH drug.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Intercept Pharmaceuticals. The Motley Fool has a disclosure policy.