Is Genfit Still In Play?
The question of whether Intercept or Genfit has the better/best drug won't be answered until the Phase III results are in, and even then there is likely to be a lot of slicing, dicing, and recapitulating the data in an effort to show differences. Given the CV data on elafibranor and the company's Phase III design, I give at least a little more credit to Genfit now than I did before.
Intercept designed its Phase III study around an interim analysis at 72 weeks of 1,400 patients on two co-primary endpoints. Although it is not required that every patient hit both endpoints, there needs to be a statistically significant improvement in the percentage of patients achieving a 1-stage improvement in fibrosis (with no worsening of NASH) and a stat-sig improvement in the percentage of patients achieving NASH resolution (with no worsening of fibrosis). That's a more rigorous standard than that used in the FLINT study, though REGENERATE will only be enrolling patients with stage 2 or stage 3 NASH, as well as high-risk stage 1. These design adjustments should address prior issues with healthier patients muddling the data and with the variability that goes with liver biopsies.
Unlike Intercept, which is testing two doses of OCA, Genfit is testing one dose of elafibranor and the interim analysis will include 900 patients at 72 weeks. Unlike ICPT, which is looking to prove that OCA reduces fibrosis and resolves NASH, Genfit is using a single endpoint of NASH resolution with no worsening of fibrosis.
That doesn't mean that this is an easy trial. Genfit previously counted "NASH resolution" as a zero score in one of three metrics (inflammation, steatosis, and ballooning) while Intercept's definition was a total NAS score of 3 or less (a more demanding standard).
In this Genfit Phase III study, resolution will mean zero ballooning and a zero or one in inflammation, but can include higher levels of steatosis (zero to three). A post-hoc analysis from the Phase II GOLDEN study of the dose to be used in Genfit's Phase III RESOLVE study (120mg) did show efficacy versus the placebo (19% versus 12%) using this standard. That was in line with Intercept's post-hoc results, though Intercept's study showed a larger percentage of patients with a two-point or greater NAS improvement.
All of that said, there is still no official FDA standard on NASH resolution (at least that I'm aware of), so there could eventually be some issues if/when it comes time for a panel meeting for approval and/or for marketing in the real world.
The good news for Genfit is that this study design will reduce Intercept's prior lead, as both should have their interim results in the first half of 2018. The good news/bad news for Intercept is that hitting both the NASH resolution and fibrosis targets could be challenging. If ICPT can prove the fibrosis reduction, that will likely constitute a labeling advantage for OCA (at least in more serious cases), though Genfit's lipid/CV advantages could lead an edge among patients with cholesterol issues (not a small segment in NASH).
What Will The Market Actually Look Like?
I believe the NASH market could be one where it takes significant marketing and patient/doctor education efforts to build awareness and adoption. With that, first-to-market may not mean as much as it would with other drugs, as the initial competitors in the market will have to drive awareness, wrangle with payers over pricing, and so on. In other words, "have fun storming the castle." That may be more noteworthy with Genfit, as the company still needs to raise capital to fund its Phase III trial, let alone finance a commercialization effort (though clinical success would likely allow equity fundraising at a higher price down the line).
With that, I'd note that there are numerous would-be rivals in the space. Gilead (NASDAQ:GILD), Galmed (NASDAQ:GLMD), Bristol-Myers (NYSE:BMY), Durect (NASDAQ:DRRX), Galectin (NASDAQ:GALT), and Conatus (NASDAQ:CNAT) are just some of the companies with their hats already thrown into the NASH ring. If NASH truly proves to be a multi-billion-dollar market, count on plenty of competition at some point.
It may even prove to be the case that combo therapy becomes the norm here. Combo therapy is the standard of care in HIV and HCV and is heading quickly in that direction for many types of cancer. With various companies approaching NASH from metabolic, anti-inflammatory, and anti-fibrotic points of view, it may be the case that the best therapy is a combination of drugs, and that creates a whole new spectrum of possibilities for pricing, partnerships, and so on.
Reassessing The Value
I've cut my fair value on Intercept's shares by almost $100/share, as I think I was too aggressive with my pricing assumptions for OCA and the failed Japanese study leads me to lower my assumed odds of approval in NASH. I estimate a little more than $50/share in value for the PBC indication of OCA, with pricing a key unknown as Intercept is likely to launch the drug at a higher price than it will be able to maintain once the NASH indication is approved. Key risks to PBC, in addition to a recent three-month delay in the PDUFA date, remain the question of whether ATP elevation is a good efficacy metric, whether there are enough "uncontrolled" patients with severe enough disease to create a large market for OCA, and whether those patients can/will tolerate the pruritus and cholesterol side-effects.
I've cut about $75/share out of my NASH fair value (to $275) as I have lowered my long-term pricing assumptions (given the recent kerfuffles over drug pricing) and lowered my odds of approval (to 60%) given the mixed signals from the Japanese study. I'm assuming that OCA, at peak, gets about one-third of the severe NASH market (with Genfit getting around half of Intercept's share), but I would note that the relatively short patent protection for the drug (2027 with the Hatch-Waxman extension and maybe 2033 with other extensions) is a concern as it will make it more challenging for Intercept to recapture the benefits of all of the early market building that I believe will be required.
The remaining valuation comes from Intercept's pipeline, including additional indications for OCA in areas like portal hypertension and primary sclerosing cholangitis.
The Bottom Line
Neither Intercept nor Genfit are sure-fire successes. I believe that Intercept will get approval in PBC this year, but this indication alone cannot support today's valuation. With a long wait before the 2018 interim results, I expect the Street to focus keenly on any incremental updates from Phase II studies, as well as the clinical updates of competitors and would-be competitors in the NASH space.
There are a host of risks at Intercept, including a track record of less than pristine efficacy data, possible issues with lipid safety and tolerability, pricing concerns, and competition. The potential rewards are significant, though, and I think ICPT is worth a look from investors who can take well above-average risks in the pursuit of potentially well above-average returns.