EUR 850.00 For Business Accounts Only

Morningstar | Intercept's Undervalued NASH Program On Track in Late-Stage Trials; Maintaining $158 FVE

After a first-quarter sequential drop in Intercept's Ocaliva, or OCA, sales from seasonality and safety concerns, we were pleased to see OCA ramp back up with a 23% sequential increase and year-over-year growth of over 40%. OCA sales are on track with our full-year expectation of $185 million, which corresponds to the upper boundary of management's reaffirmed guidance. Given the no-moat company's in-line results from the second quarter, we are maintaining our fair value estimate of $158 per share and continue to believe that Intercept's nonalcoholic steatohepatitis, or NASH, pipeline is undervalued.

OCA, currently approved in primary biliary cholangitis, or PBC, is being evaluated in late-stage trials for NASH, a megablockbuster opportunity with millions of potential patients. We were pleased to hear that enrollment is well under way for its NASH trials, supporting our thesis that OCA is well positioned to be a first-mover therapy. Given the size and complexity of the trials, in addition to competition pushing forward at full steam, any misstep or uptick in dropouts endangers the company's potential advantage from an early market entry. The stakes in this $30 billion market opportunity are high, with OCA the pipeline leader alongside Genfit's elafibranor, Allergan's cenicriviroc, and Gilead's selonsertib. Although OCA showed strong efficacy in Phase 2 trials, its side-effect profile leaves room for improvement. Phase 3 results in non-cirrhotic patients with liver fibrosis are expected in the first half of 2019, and we currently weight this opportunity with a 65% probability of success.