Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) Q4 2022 Earnings Call Transcript

Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Good day and thank you for standing by. Welcome to the Intercept Pharmaceuticals Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Nareg Sagherian, Executive Director, Investor Relations. Please go ahead.

Nareg Sagherian: Thank you. Good morning and thank you for joining us on today’s call. This morning, we issued a press release announcing our fourth quarter and full year 2022 results, which is available on our website at intercept pharma.com. Before we begin our discussion, I’d like to note that during our call, we will be making forward-looking statements, including statements regarding our approved product and clinical development program, certain regulatory matters and our strategy, prospects, financial guidance and future commercial and financial performance. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call, and we undertake no obligation to update such statements, except as required by law.

These forward-looking statements are based on estimates and assumptions that, although believed to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. Some, but not necessarily all of the risk factor that could cause our actual results to differ materially from our historical results or those anticipated or predicted by our forward-looking statements are discussed in this morning’s press release and in our periodic public filings with the SEC. Today’s call will begin with prepared remarks from our President and CEO, Jerry Durso; our Chief Commercial Officer, Linda Richardson; President of Research and Development and Chief Medical Officer, Dr. Michelle Berry; and Chief Financial Officer, Andrew Saik. We will then open the call for questions.

Let me now turn the call over to our CEO, Jerry Durso.

Jerry Durso: Thanks, Nareg. Good morning, everyone. Thank you for joining us on our fourth quarter and full year conference call. Intercept made significant progress across the business in 2022, and I’m proud to highlight our achievements today. Looking at our performance in PBC, we again delivered double-digit sales growth for Ocaliva and ended 2022 with total U.S. net sales of $285.7 million. This was 10% growth over 2021. Importantly, in the fourth quarter of 2022, Ocaliva generated $77.2 million in U.S. net sales, which is 13% growth over the prior year quarter. We now look to 2023 as the year to continue driving growth, and we’re more confident than ever in the longevity of our PBC business. We know, there remains a significant number of people living with PBC who can benefit from adding Ocaliva as a second-line therapy.

We added more certainty in the runway of our life cycle with the resolution of our patent infringement case for Ocaliva that was scheduled for trial in the U.S. District Court on February 27 of this year. The settlements protect Ocaliva market exclusivity into the 2030s and reinforce the long-term opportunity we have in PBC. In addition, we continue to progress our next-generation PBC therapy, the fixed-dose combination of OCA and bezafibrate which is another component of our long-term strategy. We look forward to sharing data on our next-generation medicine later this year and are excited about its potential. Turning now to NASH. At the end of the fourth quarter, we resubmitted our NDA for OCA in pre-cirrhotic liver fibrosis due to NASH. Following FDA’s acceptance in January, the agency has signed a PDUFA target action date of June 22.

Reaching this point is the result of hard work and dedication from patients, physicians, study personnel and our team here at Intercept and is a major milestone for the NASH community. OCA has demonstrated a strongly confirmed antifibrotic effect in our rigorous NASH program, but we believe it has the potential to become an impactful therapy. We’re now working through the regulatory review process and are advancing our launch readiness planning while taking a measured approach to investment as we progress through the upcoming milestones. We also made strides in our pipeline program with our next-generation FXR agonist INT-787. In November, we announced the lead indication for this investigational therapy, severe alcohol-associated hepatitis and initiated our Phase 2 FRESH trial.

Michelle will elaborate on this later in the call. Notably, the progress we made last year was complemented by the transformation of our capital structure. As a result of this work, we finished the year with nearly $500 million of cash on hand. 2023 will be a pivotal year for Intercept, and we’re operating from a position of strength. Our balance sheet and foundational PBC business provide us with the financial flexibility and the strategic optionality to drive growth while positioning ourselves for success in NASH. This year, I look forward to working alongside the team as we build on the momentum of last year’s performance and grow our commercial PBC business. As we work through the regulatory review of OCA while preparing for a commercial launch in NASH, and as we progress our pipeline opportunities while continuing to innovate on behalf of people living with liver diseases.

I look forward to sharing updates on our progression of these priorities throughout the year ahead. With that, I’ll now turn the call over to Linda.

Linda Richardson: Thanks, Jerry, and good morning, everyone. I’m pleased to share performance highlights for 2022. It was another strong year for our foundational Ocaliva business, underscoring the strength of Ocaliva’s market position as the only second-line agent approved for use in PBC. We achieved double-digit growth for both the fourth quarter and the full year compared to the same time frame last year. Our performance in PBC was driven by a strong return to growth in the second half of 2022, with a few notable contributing factors. First, our new-to-brand prescriptions grew nearly 30% during the second half of 2022 as reported by IQVIA’s NPA audit. We believe this would be the trend as we passed the one-year mark post label change in June of 2022.

While over 95% of our business is driven by existing patients, it’s good to see solid growth in new patients receiving Ocaliva and speaks to the ongoing need for second-line therapy for many patients with PBC. Second, as a result of our ongoing efforts to reach new prescribers, we continue to see an increase in first-time Ocaliva writers. More specifically, saw a 42% increase in new writers in the second half of 2022 versus 2021, a dynamic we see is very positive and important. Third, our continued investment in patient support services through our award-winning hub and our specialty pharmacy network has resulted in an eight-day improvement in specialty pharmacy time to fill. We want to ensure that appropriate eligible patients can quickly start treatment with Ocaliva.

Simplifying the facilitating processes here help sustain existing patients and initiate new ones. Strong customer engagement and communication of the benefits of Ocaliva remain a focus for our commercial team, in the field at major conferences and with patients. Last fall, we kicked off our new HCP and patient marketing campaigns each with updated messaging designed to drive urgency and demonstrate the need to go beyond ALP management in fully addressing PBC treatment. We recently began to proactively provide to HCPs, the gastroenterology publication that presented in greater detail, some of our strong real-world evidence regarding improved outcomes for patients taking Ocaliva. We anticipate additional publications and presentations of new real-world evidence later this year.

Prescribers recognize the significance of real-world outcomes data when treating PBC. In market research studies, we have seen a significant increase in projected accountable market share once HEPs and GIs were presented with the results from the real-world evidence studies. Turning now to NASH. We are engaging with all key stakeholders as we prepare to execute against our go-to-market commercial strategy. We continue to meet with payers to refine our thinking as we prepare for a potential launch in NASH. We are focused on understanding their needs and concerns, which has allowed us to gain valuable insight into our pricing, reimbursement and overall access strategy. Market research with health care professionals shows that reversal of fibrosis stopping further progression of fibrosis and the prevention of cirrhosis will be the three key drivers of prescribing for NAV patients with advanced fibrosis without cirrhosis.

We believe that the strong and confirmed antifibrotic effects of OCA shown in our REGENERATE trial address all these areas of concern with a unique differentiating mechanism of action. Importantly, our well-established U.S. field presence and broad geographic footprint provide Intercept with a competitive advantage. Based on our analysis, nearly three and four of the highest potential prescribers for NASH already are within our existing PBC customer base, where we’ve been building relationships for the past six years. This overlap will enable us to easily flex to NASH disease awareness messages and then OCA specific ones while also covering our current PBC targets. In the meantime, our disease awareness activities continue. Our unbranded website hosts our NASH Tipping Point campaign, educating providers on the significant risk associated with advanced fibrosis due to NASH.

We will continue our presence at key congresses while also initiating disease awareness programs. In closing, we had strong PBC performance in 2022, and remain confident in our ability to increase Ocaliva market penetration in 2023 and maintain a positive long-term outlook for our PBC franchise. The commercial team is actively and passionately preparing for our future in NASH. I’m proud of the team’s performance and look forward to sharing updates on our progress throughout the year. I’ll now turn the call over to Dr. Michelle Bars.

Dr. Michelle Berrey: Thank you, Linda, and good morning, everyone. In 2022, we made substantial progress in our NASH development program and building out our pipeline. Looking first at NASH, In January, the FDA accepted the resubmission of our new drug application for OCA and pre-cirrhotic liver fibrosis due to NASH. We are thrilled to have progressed to this regulatory milestone one step closer to reaching our goal of delivering the first FDA-approved therapy for this devastating disease. There’s a critical need to address liver fibrosis due to NASH before patients progressed to cirrhosis, a pivotal point in NASH disease progression associated with increased risk of both liver-specific and all-cause mortality. Our NDA is supported by a robust body of evidence from the OCA NASH clinical development program, including two positive 18-month interim analysis from the pivotal Phase 3 REGENERATE study and a large robust safety assessment that includes the 2,477 patients from REGENERATE with nearly 1,000 subjects on study drug for at least four years.

OCA has demonstrated a consistent antifibrotic effect across two studies and multiple analyses of the REGENERATE study that we shared over the course of 2022. Through two independent histologic methodologies, OCA demonstrated fibrosis improvement of at least one stage without worsening of any of the three histologic parameters that comprise the NAFLD activity score, or NAS. In both methodologies, OCA 25 milligrams demonstrated double the response rate of placebo and reducing liver fibrosis stage without worsening of any of the three histologic components. It’s important to note that this endpoint was defined as a result of direct interactions with the FDA prior to finalization of the REGENERATE statistical analysis plan. In addition to robust efficacy data, our safety database, which is the largest in the Nash field with the longest duration of patient exposure shows a well-characterized safety and tolerability profile that supports the potential chronic administration of OCA.

We know that fibrosis is the strongest predictor of clinical outcomes in patients with NASH and we continue to believe that OCA has the potential to become the first approved therapy in this disease. FDA indicated that it considers us a Class II resubmission and has assigned a PDUFA target action date at June 22 for the NDA. We fully anticipate an advisory committee meeting as part of this process, but we do not yet have a confirmed date. We’ll share additional updates as appropriate as we advance through this review process. Turning to PBC. We continue to prepare data from our post-marketing study, COBALT, and supplementary real-world evidence from large data sets in the U.S., U.K. and Europe. These data will be included in a regulatory submission to FDA this year in support of fulfilling post-marketing requirements for Ocaliva and PBC.

The real-world data we have generated to date demonstrates the actual long-term clinical benefits of Ocaliva. Specifically, patients taking OCA had improved transplant-free and decompensation free survival, which we know to be the most important treatment goals both for individuals living with PBC and for their clinicians. Building on our commitment to innovating in PBC, we are making great progress with our fixed-dose combination of OCA and bezafibrate of PPAR agonist. One of our two Phase 2 studies is now fully enrolled, and we’re accelerating recruitment of patients into a second. These Phase 2 studies and our pharmacokinetic analysis will inform dose selection and study design for a Phase 3 trial. We anticipate selecting doses for the fixed dose combination as well as sharing data from planned analyses of the large Phase 1 and Phase 2 studies later this year.

The OCA bezafibrate combination has synergistic mechanisms of action with the potential to further lower key biochemical measures that predict long-term outcomes in PBC and while also improving tolerability. We’re excited to show the potential impact of this combination that we believe has best-in-class potential. Finally, I’m happy to provide updates on our next-generation FXR agonist INT-787, with a lead indication in severe alcohol-associated hepatitis or sAH. For background, alcohol-related liver disease as a cause of chronic liver disease is on the rise. And is currently the leading indication for liver transplant in the U.S. Despite the increasing incidence of sAH in the U.S., there are no approved therapies for people who could develop this disease.

We believe there are several indications in which 787 could make a potential impact. However, sAH provides us with a great initial opportunity for this FXR agonist with a different gut to liver ratio compared to OCA. In November, we announced initiation of our proof-of-concept Phase 2a study called FRESH, evaluating the safety, tolerability, efficacy and pharmacokinetics of INT-787, in patients with AH. Our first fresh site was activated in December 2022, and we’re continuing to add additional sites in the U.S., U.K. and France. As of February 2023, we have completed recruitment for our Phase 1 study. We look forward to sharing additional updates as this program advances. At this point, I’ll turn the call over to Andrew for financial updates.

Andrew Saik: Thank you, Michelle, and good morning, everyone. We have had a very strong 2022, and I look forward to sharing our results and discussing our plans for the pivotal year ahead. I encourage you to please refer to our press release for a detailed summary of our financial results for the fourth quarter and year ended December 31, 2022. For this call, I will focus on the highlights as they relate to 2022, and we’ll also provide guidance for 2023. As I begin, I would like to remind everyone that as you review our fourth quarter and full year financial information, please note that the divestiture of our international business was completed on July 1, and our full year non-GAAP results include the divested business for the first half of the year.

In our financial statements, the divested business has been moved to discontinued operations. Turning to the highlights for the fourth quarter and full year ended December 31, 2022. We were very pleased with the growth of Ocaliva in PBC in 2022. Our fourth quarter net sales growth was 13% over the prior year quarter for Ocaliva in the U.S. For the full year, we reported worldwide Ocaliva non-GAAP adjusted net sales of $343.8 million, with $285.7 million in total U.S. net sales compared to $260.8 million in total U.S. net sales in 2021. Touching on operating expenses for 2022, selling, general and administrative expenses were $55.4 million in the fourth quarter of 2022 compared to $46.3 million in 2021. The period-over-period increase was primarily driven by investment in NASH launch preparation.

SG&A expenses were $176.3 million in full year 2022 and compared to $177.5 million in 2021, with a decrease in personnel-related costs, offset by an increase in NASH launch preparation. Research and development expenses decreased to $40.7 million in the fourth quarter of 2022 from $51.1 million in the prior year quarter. The decrease was primarily driven by lower NASH-related costs and cost sharing reimbursements R&D expense decreased to $176.6 million in 2022, down from $182.7 million in 2021. The decrease was primarily driven by lower NASH costs and cost sharing reimbursements and were partially offset by the recognition of lower R&D tax credits. In 2022, approximately 2/3 of our R&D costs were related to our NASH program spend. 2022 was a year of financial transformation for the Company.

We executed a series of strategic transactions to transform our capital structure, which included the sale of our international business and several private repurchases of senior secured conversion votes. Regarding our convertible notes as a result of the repurchases during 2022, the principal balance of the 20 convertible secured notes was reduced by approximately 78% to $111.1 million. Moreover, the Company dramatically decreased annual cash interest. For 2023, cash interest expense will be $8 million as we anticipate our 2023 notes will be redeemed in July with cash on hand. At year-end, the Company had $491 million in cash and cash equivalents and $336 million in outstanding debt. We ended 2022 with the financial flexibility to move our business forward regardless of the FDA decision on OCA and NASH expected later this year.

Turning to our financial guidance for 2023, we are guiding to $310 million to $340 million of Ocaliva net sales which compares to $285.7 million in 2022. For 2023, non-GAAP adjusted operating expenses, we are guiding to $360 million to $390 million which compares to approximately $325 million in non-GAAP operating expenses in 2022 from our continuing business when excluding the sale of the international business. Similar to what we’ve seen in prior years, we anticipate slightly lower revenue and higher cash utilization in the first quarter of 2023 relative to the rest of the year. We expect that Ocaliva first quarter sales will be impacted by the usual seasonality as patients are faced with insurance plan resets and Medicare coverage gaps at the beginning of the year.

We also anticipate greater cash use in the first quarter due to activities from work related to preparing for a potential approval and launch in NASH and other annual expenses. Finally, we may choose to revise our 2023 guidance later in the year, pending potential regulatory approval for our NDA for OCA in pre-cirrhotic liver fibrosis due to NASH. In summary, we are pleased with our financial performance in 2022 and looking forward to a strong 2023. We are in solid financial position and believe that our current balance sheet and cash on hand gives us the financial flexibility to continue to grow our existing Ocaliva business support a potential launch in NASH and advance our pipeline programs. With that, I’d now like to turn it over to the operator for any questions.

Operator?

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Q&A Session

Operator: Our first question comes from the line of Ritu Baral with Cowen. Your line is open.

Ritu Baral: Michelle has the FDA at any point communicated to you what the topic of the AdCom could be and further any range we should be thinking of for the date of the AdCom. I guess we’re all sort of coming at it, wondering given the since resubmission, are you going to have things like a mid-cycle review meeting where they’re going to tell you these things? Or are you flying blind like last time?

Dr. Michelle Berrey: Good morning, Ritu. So, we do anticipate that the focus of the advisory committee meeting would be focused on overall benefit risk. We have had multiple conversations with the since the CRL and we know that there are some areas of focus for them. We intend to convey those certainly were all addressed in our NDA the specific areas that we have communicated at the AASLD presentation and again at NASH-TAG. We feel that we have addressed all the areas of concern with the confirmation of the antifibrotic benefit and the second analysis and a much more robust safety database with, which we can address any of their earlier concerns specifically around the long-term safety and tolerability of the drive, given that this would be anticipated to be a chronically administered drug. So, it’s important that we have years of therapy in order to demonstrate that safety and tolerability.

Jerry Durso: I guess just one more point to add in there, Ritu, to your question, as Michelle indicated in her prepared remarks, all the prep for the AdCom is ongoing, but we don’t yet have a confirmed date.

Operator: Thank you. Our next question comes from the line of Mayank Mamtani with B. Riley Securities. Your line is now open.

Mayank Mamtani: I have a few — just maybe following up on the prior question. As part of your acceptance letter on the NDA filing, was it clearly communicated to you by FDA that they are planning to hold an Adcom? And I just wonder the agency does — is increasingly requiring in-person format. So how confident do you purely getting answered by the June 22 PDUFA date? And then I have a couple of follow-ups.

Jerry Durso: Yes. I guess on the AdCom itself, we have every indication that we’ll have an AdCom. We can’t speak to a date as there is none confirmed yet, but we are working in the context of the existing PDUFA date. And typically, those come a handful of weeks prior to the PDUFA date. So, we’re moving forward, we’ll be fully prepared. And of course, will provide any additional information as appropriate if we get it from the agency.

Mayank Mamtani: Okay. And then on the apparently very strong guidance you had on PBC, seems like driven by new prescribers. Could you perhaps share what the overlap you may have with these new hepatologists that you’re having prescribed OCA for PBC, but also they may also care for NASH patients. Do you have that data cap?

Jerry Durso: Yes. So Matt, we do, as you said, feel good about the performance on PBC, both for the quarter and the year where we saw an acceleration in the second half of the year in the growth versus the first half and with a strong 13% growth in the fourth quarter. Clearly, this is a long-term area of focus for us. We have been working with many of the key prescribing physicians for several years now, and Linda can provide some details how we see a large part of that core audience also being really the first potential prescribers for NASH as we do the deep commercial planning in advance of the PDUFA on NASH.