Company Update (NASDAQ:ICPT): Intercept Pharmaceuticals Inc Announces 3Q:17 Financial Results and Provides Business Update


Intercept Pharmaceuticals Inc (NASDAQ:ICPT) reported financial results for the three months ended September 30, 2017, and provided other general business updates.

“We are pleased with our solid commercial performance, with continued quarter over quarter growth underscoring Ocaliva’s importance as a new treatment option in PBC,” said Mark Pruzanski, M.D., President and CEO of Intercept.

“We have continued to build on our leadership position in NASH and are planning to initiate our Phase 3 cirrhosis trial by the end of this year,” added Dr. Pruzanski. “The interim analysis in our flagship Phase 3 REGENERATE trial is on track to report in the first half of 2019, and is intended to support the filing of a supplemental New Drug Application for accelerated approval of OCA in NASH patients with fibrosis. We also recently presented positive results of our Phase 2 AESOP trial in primary sclerosing cholangitis (PSC) at The Liver Meeting hosted by AASLD, establishing proof-of-concept in another progressive, cholestatic liver disease with high unmet need.”

Ocaliva Third Quarter Commercial Highlights

Intercept recorded $40.9 million of worldwide net Ocaliva sales, including a change in estimate related to deferred revenue with a net effect of a one-time increase of $4.1 million in net revenue for the quarter. Net U.S. Ocaliva sales were $36.2 million, which included $3.7 million for the change in estimate related to deferred revenue.

Ocaliva was approved by the U.S. Food and Drug Administration (FDA) in May 2016 for the treatment of primary biliary cholangitis (PBC) in combination with ursodeoxycholic acid (UDCA) in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA. Intercept commercially launched Ocaliva in the United States in June 2016 and in conjunction launched Interconnect®, a comprehensive, personalized program that connects patients with dedicated care coordinators who help them understand their disease and provides treatment support and, for eligible patients, financial assistance options.

Net ex-U.S. international Ocaliva sales were $4.7 million for the third quarter of 2017, which included $0.4 million for the change in estimate related to deferred revenue.

Ocaliva was granted conditional approval by the European Commission in December 2016 for the treatment of PBC in combination with UDCA in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA. We commenced our European commercial launch in January 2017. Ocaliva was granted conditional approval by Health Canada in May 2017.

Upcoming Milestones

  • PBC Program
    • Continue growth in ongoing Ocaliva launch in U.S., Europe and Canada
    • Updated U.S. label for Ocaliva anticipated by early 2018
    • Continue enrolling COBALT (Phase 4 confirmatory trial in PBC)
  • NASH Program
    • Continue enrolling clinical outcomes cohort in REGENERATE (Phase 3 trial in NASH patients with fibrosis)
    • Initiate Phase 3 trial in NASH patients with cirrhosis by YE 2017
  • Pipeline
    • Define path forward for OCA in PSC in 2018

Third Quarter 2017 Financial Results
During the quarter, Intercept reported a net loss of $72.6 million. GAAP operating expense was $107.5 million, and non-GAAP adjusted operating expense1 was $92.9 million, excluding non-cash stock-based compensation expense of $13.2 million and depreciation expense of $1.4 million.

Revenues
Intercept recognized $40.9 million of net sales of Ocaliva, which included a one-time increase of $4.1 million in deferred net revenue.

Prior to July 2017, Intercept recognized revenue using the sell-through method (i.e., recognition occurred when its specialty pharmacies dispensed Ocaliva to patients, not when products were sold to the specialty pharmacies). During the third quarter of 2017, Intercept revenue recognition transitioned from the sell-through method to the sell-in method as a sufficient period of commercial experience had occurred to enable the Company to reasonably estimate product returns.

Adjusted operating expense, as presented above and elsewhere in this press release, is a non-GAAP financial measure. Adjusted operating expense excludes stock-based compensation and other non-cash items from GAAP operating expenses. A table reconciling historical adjusted operating expense to GAAP operating expense is included below under the heading “Reconciliation of GAAP to Non-GAAP Operating Expense.”

Intercept recognized $0.4 million and $0.4 million of license revenue related to the amortization of the up-front and milestone payments under the collaboration agreement with Sumitomo Dainippon for the third quarters ended September 30, 2017 and 2016, respectively.

Expenses

Cost of goods sold (COGS) was negligible for the third quarter of 2017. Prior to the FDA approval of Ocaliva, Intercept had expensed costs related to the manufacturing and buildup of commercial launch supplies of OCA. Therefore, COGS was only reflective of packaging and labeling costs incurred during the period. Intercept expects COGS to remain negligible until previously expensed supplies of OCA are sold.

Selling, general and administrative expenses increased to $61.4 million for the quarter, up from $52.8 million for the same period last year. The increase from the prior period was primarily driven by personnel-related costs to support commercial and international initiatives and an increase in indirect expenses.

Research and development expenses increased to $46.0 million for the quarter, up from $35.4 million for the same period last year. The increase over the prior period was primarily driven by increases in clinical development programs for OCA and infrastructure to support such programs.

Interest expense for the quarter was $7.4 million. The interest expense is related to the 3.25% convertible senior notes due 2023 issued in July 2016.

Nine Months Ended September 30, 2017

Intercept reported a net loss of $249.1 million for the nine months ended September 30, 2017, compared to a net loss of $292.8 million for the nine months ended September 30, 2016. The net loss included $41.6 million and $27.0 million of non-cash stock-based compensation expenses for the nine months ended September 30, 2017 and 2016, respectively, as well as a one-time net expense of $45.0 million for the settlement of the purported securities class action lawsuit in the nine months ended September 30, 2016.

Cash Position
As of September 30, 2017, Intercept had cash, cash equivalents and investment securities available for sale of approximately $492.7 million, compared to $689.4 million as of December 31, 2016.

Financial guidance

Intercept projects non-GAAP adjusted operating expenses for the fiscal year ending December 31, 2017 will fall in the middle of the previously guided range of $380 million to $420 million. This guidance excludes non-cash items such as stock-based compensation and depreciation. These expenses are planned to support the continued commercialization of Ocaliva in PBC in the United States and other markets and the continued development for OCA in PBC, NASH, PSC and biliary atresia. In order to streamline operating expenses, Intercept has decided to deprioritize its INT-767 development program for the foreseeable future.

Intercept anticipates that stock-based compensation expense will represent the most significant non- cash item that will be excluded in adjusted operating expenses as compared to operating expenses under GAAP. Adjusted operating expense is a financial measure not calculated in accordance with GAAP. A reconciliation of projected operating expense calculated in accordance with GAAP to non- GAAP adjusted operating expense is not available on a forward-looking basis without unreasonable effort due to an inability to make accurate projections and estimates related to certain information needed to calculate, for example, future stock-based compensation expense.

Management Update

Intercept announced today that Rachel McMinn, Ph.D. will be leaving Intercept at the end of the year to pursue an entrepreneurial opportunity in a different therapeutic area.  Effective as of November 1, 2017, Dr. McMinn is stepping down from her position as Chief Business and Strategy Officer and will act in an advisory capacity through December 31, 2017.

“We greatly appreciate Rachel’s significant contributions to the company, which helped to accelerate our transition from a small company of approximately 50 people to a global commercial biopharmaceutical company,” said Mark Pruzanski, M.D., Chief Executive Officer. “We are fortunate to have had her leadership during a critical time in the company’s life cycle, and wish her success in the next chapter of her career.

“I am grateful for the opportunity to have worked at Intercept during this formative growth period.  Nonetheless, I have been considering for some time and am excited to begin an entrepreneurial venture in an area I am deeply passionate about,” said Dr. McMinn.  “As the leader in the field of progressive non-viral liver diseases, Intercept continues to make important progress for patients, and I look forward to following the company’s future progress.”

Shares of Intercept Pharmaceuticals are up nearly 5% to $64.80 in pre-market trading Wednesday. ICPT has a 1-year high of $135.59 and a 1-year low of $54.98. The stock’s 50-day moving average is $70.60 and its 200-day moving average is $104.95.

On the ratings front, ICPT stock has been the subject of a number of recent research reports. In a report issued on October 24, Oppenheimer analyst Jay Olson assigned a Hold rating on ICPT. Separately, on the same day, Cowen’s Ritu Baral assigned a Buy rating to the stock and has a price target of $112.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Jay Olson and Ritu Baral have a yearly average loss of -4.6% and a return of 20.2% respectively. Olson has a success rate of 43% and is ranked #4242 out of 4699 analysts, while Baral has a success rate of 52% and is ranked #112.

Overall, 2 research analysts have rated the stock with a Sell rating, 6 research analysts have assigned a Hold rating and 8 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $138.58 which is 124.9% above where the stock closed yesterday.

Intercept Pharmaceuticals is a biopharmaceutical company, which engages in the research, development, and commercialization of novel therapeutics in treating chronic liver diseases. Its product pipeline is OCALIVA which is used for the treatment of primary biliary cholangitis, nonalcoholic steatohepatitis, primary sclerosing cholangitis, and biliary atresia.