Market Overreacts to Intercept Pharmaceutical Letter
The letter the drugmaker sent to prescribers about Ocaliva didn't include any new information, yet it fed market fears about the drug's commercial potential.
We are maintaining our $205 fair value estimate for Intercept Pharmaceuticals in light of a recent letter from the firm to prescribers underscoring the different dosing schedules of Ocaliva (obeticholic acid, or OCA) required for different segments of primary biliary cholangitis patients. The letter fed market fear that side effects may limit the commercial potential of OCA in the larger nonalcoholic steatohepatitis market, where the molecule is also being evaluated. We stress that the letter does not bring up any information that hasn’t been presented before, is unlikely to lead to any label changes for Ocaliva in PBC patients, and does not have direct bearing on Intercept’s NASH program at this time, in our opinion. However, we note that data from Intercept’s pivotal trial is not expected until the first half of 2019; we have a very high uncertainty rating on the stock, given that our valuation largely rests on the outcome of this trial.
We believe the market is being overly sensitive to the contents of this letter. OCA is a bile acid analog, meaning that similar to naturally occurring bile acids, it is circulated from the liver to intestines. In highly compromised livers--the most advanced stages of cirrhosis--the circulation of bile acids is disrupted and leads to toxic buildup in the liver. Given this phenomenon where more of the drug is accumulated in the liver than in noncompromised liver situations, Intercept recommends more gradual and less frequent dosing for the most advanced PBC patients (specifically, those with Child-Pugh B and C staging). These represent a very small proportion of PBC patients (less than 5% by Intercept’s estimates), but because some doctors were incorrectly dosing with the wrong schedule, Intercept issued the letter to highlight the protocol outlined in its label. Considering the small PBC patient population to which this situation applies and no indication for label changes, our outlook for OCA in PBC is unchanged.
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Kelsey Tsai does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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