Morgan Stanley Cuts Intercept (ICPT) to Underweight on Ocaliva Label/Launch Concerns, NASH Read-Through

(Updated - April 8, 2016 9:25 AM EDT)

Morgan Stanley downgraded Intercept Pharmaceuticals (NASDAQ: ICPT) from Equalweight to Underweight with a price target of $80 (prior $100). Cautious comments from analyst Andrew S Berens followed a favorable FDA panel vote supporting approval of Ocaliva in PBC. Berens believes concerns raised in the panel could impact the drug's label and eventual launch. He also thinks restrictions in cirrhotics could impact Ocaliva's potential in NASH.

"The panel unanimously recommended to approve the drug based on the surrogate endpoint used in the Phase 3 trial, but failed to endorse usage in advanced PBC patients given the lack of data supporting efficacy, as well as safety concerns," said Berens. "According to external consultants, the primary unmet medical need in this patient population is in patients with advanced or aggressive disease, so this lack of an endorsement by the panel has important commercial implications in our opinion, especially if the label is similarly restrictive."

The analyst continued, "The panel also expressed concerns about usage of the drug in patients with cirrhosis given the doserelated liver toxicity noted in the program. Additionally, the panel suggested that a less frequent dosing regimen be used in PBC patients with liver compromise and that patients be discontinued from treatment that do not respond within a specified time (6 or 12 months) given safety and tolerability concerns. We think these restrictions are likely to truncate the commercial PBC opportunity significantly and impact the launch, and therefore have lowered our peak PBC revenues to $117mn from $148mn."

Berens believes these concerns will weigh on ICPT shares ahead of the May 29 FDA action date, with potential for precautionary language in the drug's label.

Discussing NASH in more detail, the analyst said, "...The PBC panel clearly felt the drug was better suited for early stage liver disease without any hepatic compromise, which could be an issue in NASH if the same findings are noted in that program. While there was only one Ocaliva hepatic-related event disclosed in the Phase 2 FLINT trial, the REGENERATE trial is expected to enroll more advanced patients, which could increase the risk for additional toxicity concerns. We think it is critical that Ocaliva maintain a viable therapeutic window in NASH, where the higher doses may be necessary to maintain a fibrosis benefit, the key value proposition of the drug. We had previously assumed usage of Ocaliva in up to 20% of cirrhotic patients (Metavir F4). Given the concerns voiced by the clinicians and the FDA, we have decreased our penetration into NASH patients with cirrhosis to 5% at peak. Given the tempered PBC launch and reduction in usage in F4 NASH patients, we are lowering our price target to $80 and moving to Underweight."

For an analyst ratings summary and ratings history on Intercept Pharmaceuticals click here. For more ratings news on Intercept Pharmaceuticals click here.

Shares of Intercept Pharmaceuticals closed at $163.83 yesterday.

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