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Tokyo based, expat Cape Bretoner. Learning to live in a de-leveraging world. Better suited to the crusades. CFA & FRM charter holder. Disclaimer: @Firehorsecaper reminds investors to always perform their own due diligence on any investment, and to consult their own financial adviser or representative when warranted. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.
Joined Jun 23, 2015
86 Blog Posts

$ICPT : INTERCEPT PHARMACEUTICALS, INC., – BIDDING PADDLES READY

Intercept Pharmaceuticals, Inc., waiting until almost midnight, the Friday before the Memorial Day long weekend, 5/27/16, announced the FDA approved Ocaliva (Obeticholic Acid) for the treatment of the liver disease PBC (primary biliary cholangitis), formerly known as primary biliary cirrhosis. Approval was largely expected (the FDA Advisory Committee had previously voted 17-0 in favour), but the good news appears to be that the conditions attached to the approval are modest. Safety concerns had some worried that sales could be hampered by restrictions on use in patients with moderate or severe hepactic impairment, but the prescription label has no such restrictions from my reading of it (link for your perusal): ocaliva_pi

PBC is a rare, autoimmune cholestatic liver disease that puts patients at risk for life-threatening complications. PBC is primarily a disease of women, afflicting approximately one in 1,000 women over the age of 40.

Sales of OCA will begin In 7-10 days and expectations are that peak sales could reach $2.6 billion per annum. $ICPT closed Friday at $141.77 with a market cap of $3.5bln. With a typical valuation of 7x sales, clearly there is scope for a rally from here. ICPT’s float is small at 17.44mm shares and 3.4mm shares (19.5%) are held short. 78.5% of the shares are held by institutions. Fidelity Investments is the largest holder with almost 15%. The lifetime high for the stock was $462.26, which will not likely be eclipsed until OCA for NASH (fatty liver) is approved in early 2019, which obviously depends of the results of the 2,000+ patient Phase III global trial.

Another likely scenario is an approach from a larger player seeking a blockbuster drug to add to their stable. With OCA approved for PBC there is now a risk buffer to await the 2018 outcome of the phase 3 “Regenerate” trial for OCA in the treatment of NASH. Nonalcoholic steatohepatitis (NASH) is a significant metabolic form of chronic liver disease in adults and children effects a much larger percentage of the population that PBC. The OCA dosage for the treatment of PBC are 5-10mg whereas for NASH the trial is being conducted at dosages of 10 and 25mg. There are currently no drugs approved for the treatment of NASH and OCA for PBC is the first liver drug approval granted in the last 20 years. PBC & NASH are distinct, progressive liver diseases. Both diseases may lead to fibrosis and cirrhosis of the liver. From a valuation perspective most would argue 20% to the PBC application of OCA and 80% to the much larger NASH opportunity.

XBI the SPDR S&P Biotech ETF is -26% ytd in 2016. ICPT is the 4th biggest holding in the ETF at 2.6%.

What lies ahead:

Next week analysts will be tweaking their ICPT numbers based on the terms of the OCA for PBC approval. Most recently MS moved to underweight with a price target of $80. Stingy indeed when ICPT have > $22 a share in cash on their balance sheet! Merrill Lynch have an underperform on the stock and a $144 target. ML used to be the biggest bull on ICPT, with a target > $800 per share when Rachel McMinn Ph. D covered them, before joining Intercept Pharma as Chief Business & Strategy Officer in April 2014.

The street conjecture will also begin as to the timing of a bid and take-out premium likely on a bid for ICPT, now that a level of uncertainly has been removed. JCG

Disclosure: Long ICPT, 3% weighting, trailing stops, not inclined to sell < $200.

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5 comments

  1. helicopter ben
    helicopter ben

    I don’t have a good grasp on these sorts of things but it seems to be a great short term option play. Are there any good resources for telling which drug approvals will be the most impactful?

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  2. firehorsecaper
    firehorsecaper

    The treatment of NASH (aka “Fatty Liver”) is the holy grail, as noted. The global trial is very large for OCA use to treat NASH at 2,500. Having the same drug, OCA being used in the market to treat PBC is useful as doctors will be able to observe 1st hand the long term effects of Ocaliva on liver treatment patients. Remember that OCA received accelerated approval for the treatment of PBC. The market for NASH is expected to be worth $35-40bln by 2025. With a 1 year trading range of $90-285 volatility is high. The most recent FDA approval for OCA in the treatment of PBC should floor the stock and make it a good candidate for covered call writing as the primary catalyst for the next major leg higher is so far out in the future (late 2018 wrap up of the Phase III trials for OCA in the treatment of NASH). With a relatively small float, and 20% of it held short, there could be some near term fireworks for certain if shorts cover en masse (6 days of “normal” volume to cover and all of it on the bid side).

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  3. firehorsecaper
    firehorsecaper

    The $ICPT coverage universe (all opinions and PT pre FDA approval of OCA for PBC): MS, as noted, underweight and a $80 PT, Wedbush has a buy and the highest PT at $423 (down from $493 buy-out driven target prior).
    ML underweight $144
    CS overweight $200
    UBS buy $180
    GS buy $265
    Wells Fargo outperform $212
    Average PT $215
    Average PT dropping highest and lowest $200
    At least 2-3 of this coverage universe should be out with comments and revisions this week, post Intercept’s Tuesday am conference call. JCG

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  4. probucks

    Was either you or Boyaj that was bullish on ICPT. Cant remember.

    I took off biotech shorts long before it started 2 bounce again but am most cent lay interested in staying clear of these land mines this year.

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  5. firehorsecaper
    firehorsecaper

    Pro- It was me! With OCA approved for PBC we are already seeing some moving to a DCF methodology for valuing that revenue stream and OCA for NASH is late stage, albeit with a large and lengthy Stage 3 trial. Hoping for less drama going forward, at least with ICPT.

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