Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) is a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat rare and serious liver diseases, including primary biliary cholangitis (PBC) and severe alcohol-associated hepatitis (sAH). The company's first marketed product, Ocaliva® (obeticholic acid or "OCA"), is approved in the United States and other jurisdictions for the treatment of PBC.

Ocaliva's Commercial Performance

Ocaliva, Intercept's sole marketed product, generated net sales of $240.465 million in the nine months ended September 30, 2023, up from $208.491 million in the same period of the prior year. This increase was driven by operational growth, primarily due to increased unit sales volumes, higher pricing, and lower gross-to-net deductions. For the full year 2022, Ocaliva generated net sales of $285.710 million.

Ongoing Clinical Development

In addition to commercializing Ocaliva for PBC, Intercept is currently developing other product candidates, including a combination of OCA and bezafibrate for the treatment of PBC, and its INT-787 compound, an FXR agonist, for the treatment of sAH.

The company is conducting two Phase 2 studies (Studies 747-213 and 747-214) of OCA in combination with bezafibrate in patients with PBC, evaluating drug efficacy, safety, and tolerability. In June 2023, Intercept announced results from a planned interim analysis of its ongoing Study 747-213, which showed that the combination of OCA 5-10 mg and bezafibrate 400 mg was effective in normalizing multiple biochemical markers associated with PBC-induced liver damage.

Intercept also has an open Investigational New Drug (IND) application with the FDA for its INT-787 compound and has initiated a Phase 2a trial evaluating the safety, tolerability, efficacy, and pharmacokinetics of INT-787 in subjects with sAH.

Regulatory Landscape and Challenges

Ocaliva was approved for PBC by the U.S. Food and Drug Administration (FDA) in May 2016 under the accelerated approval pathway. Continued approval of Ocaliva for PBC in the United States is contingent upon the verification and description of clinical benefit in confirmatory trials and Intercept's satisfaction of its other post-marketing regulatory requirements.

In June 2022, Intercept announced topline results from its COBALT trial, which did not demonstrate a statistically significant difference between Ocaliva and placebo on the primary endpoint. While Intercept intends to submit the data from COBALT as well as additional data, including supplemental real-world evidence (RWE) from large data-sets in the United States, as part of a broader evidence package in support of full approval of Ocaliva for the treatment of PBC, the FDA may decide, including due to its evaluation of efficacy and safety data (including RWD), that this evidence package does not support fulfillment of Intercept's post-marketing obligations. If the FDA does not provide full approval for Ocaliva for PBC, Intercept may not be able to maintain its marketing approval, or the FDA could require Intercept to conduct additional studies or analyses in order to maintain its marketing approval.

Discontinued NASH Program and Restructuring

In June 2023, Intercept announced that it had received a complete response letter (CRL) from the FDA regarding its new drug application (NDA) for OCA for the treatment of pre-cirrhotic liver fibrosis due to nonalcoholic steatohepatitis (NASH). Based on the content of the CRL, any resubmission of an NDA for OCA in NASH would require, at a minimum, successful completion of the long-term outcomes phase of the REGENERATE study. As a result, Intercept decided to discontinue all NASH-related investment, including closing out the REGENERATE trial, and to significantly reduce operating expenses.

In June 2023, Intercept announced the adoption of a workforce reduction and expense reduction plan (the "Restructuring Plan"), including a workforce reduction of approximately one-third and the discontinuance of NASH-related investment. The intent of the Restructuring Plan is to strengthen Intercept's focus on the treatment of rare and serious liver diseases and significantly reduce operating expenses.

Financials

For the nine months ended September 30, 2023, Intercept reported a net loss of $40.787 million, compared to net income of $242.641 million in the same period of the prior year. The company's annual net income for 2022 was $115.174 million.

Intercept's operating cash flow for the nine months ended September 30, 2023 was negative $57.819 million, compared to negative $31.291 million in the same period of the prior year. The company's annual operating cash flow for 2022 was negative $26.780 million. Free cash flow for the nine months ended September 30, 2023 was negative $57.745 million, compared to negative $46.314 million in the same period of the prior year. Intercept's annual free cash flow for 2022 was negative $27.348 million.

As of September 30, 2023, Intercept had $322.714 million in cash, cash equivalents, and investment debt securities, compared to $485.566 million as of December 31, 2022. The company's current ratio was 4.22 and its quick ratio was 3.91 as of September 30, 2023, indicating a strong liquidity position.

Indebtedness and Convertible Notes

Intercept has two series of convertible notes outstanding, the 2026 Convertible Secured Notes and the 2026 Convertible Notes, with a total principal amount of $226.492 million as of September 30, 2023. The company repaid the $109.808 million outstanding principal and interest amount due on the matured 2023 Convertible Notes in July 2023.

Intellectual Property and Patent Litigation

Intercept's commercial success with Ocaliva depends in part on its ability to obtain and maintain patent protection covering the product. The company has received paragraph IV certification notice letters from seven generic drug manufacturers indicating that each such company has submitted to the FDA an abbreviated new drug application (ANDA) seeking approval to manufacture and sell a generic version of Ocaliva prior to the expiration of certain patents listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (the "Orange Book") for Ocaliva.

Intercept has initiated patent infringement suits against each of these generic drug manufacturers in the United States District Court for the District of Delaware seeking injunctions to prevent them from selling a generic version of Ocaliva prior to the expiration of the Ocaliva patents. The company has settled with six of the seven generic manufacturers involved and intends to vigorously defend and enforce its intellectual property rights protecting Ocaliva against the remaining generic manufacturer.

Recent Developments

Pending Merger with Alfasigma

On September 26, 2023, Intercept announced that it had entered into an agreement (the "Merger Agreement") with Alfasigma S.p.A. ("Alfasigma") and Interstellar Acquisition Inc., a wholly owned subsidiary of Alfasigma ("Purchaser"). Pursuant to the Merger Agreement, Purchaser will commence a tender offer to acquire all of Intercept's outstanding shares at an offer price of $19.00 per share, net to the seller in cash without interest, subject to any applicable withholding taxes.

Following the consummation of the tender offer, Purchaser will merge with and into Intercept, with Intercept surviving as a wholly owned subsidiary of Alfasigma. The transaction is expected to close by the end of 2023, at which point Intercept's common stock will no longer be publicly listed.

Risks and Challenges

Intercept faces a number of risks and uncertainties, including the potential failure to obtain full approval for Ocaliva for PBC, the ability to successfully develop and commercialize its other product candidates, the impact of generic competition, the ability to maintain its intellectual property protection, and the successful integration of the pending merger with Alfasigma.

Additionally, Intercept's business is subject to various data protection laws, and the company may be subject to claims that its employees have wrongfully used or disclosed alleged trade secrets or other proprietary information of their former employers. The company is also exposed to the risk of employee fraud or other misconduct, which could significantly harm its business and financial condition.

Conclusion

Intercept Pharmaceuticals is a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat rare and serious liver diseases. The company's sole marketed product, Ocaliva, has generated growing net sales, but Intercept faces regulatory challenges in obtaining full approval for the product in the United States. The company has also discontinued its NASH program and undertaken a significant restructuring to strengthen its focus on rare and serious liver diseases.

Intercept's financial performance has been mixed, with net losses in the most recent period but positive annual net income in 2022. The company maintains a strong liquidity position but carries significant convertible debt. Intercept also faces intellectual property challenges and risks related to the pending merger with Alfasigma. Overall, Intercept's future success will depend on its ability to navigate the complexities of the rare and serious liver disease landscape and execute on its strategic priorities.