Intercept Pharmaceuticals, Inc.
Q2 2018 Earnings Call Transcript

Published: 2 Aug 2018

[Operator:]

Thank you for joining the Intercept Pharmaceuticals Second Quarter 2018 Financial Results Conference Call. All participants are now in listen-only mode. Following opening remarks, Intercept's management will open the lines for a question-and-answer period. Please be advised that this call is being recorded at the company's request and the webcast of this call will be archived on the company's website for approximately two weeks. I will now like to introduce Dr. Mark Vignola, Intercept's Executive Director of Corporate Development and Investor Relations. Please go ahead.

[Mark Vignola:]

Good morning, and thank you for joining us on today's call. This morning we issued a press release announcing our second quarter 2018 financial results, which is available on our website at www.interceptpharma.com. Before we begin our discussion, I'd like to note that during our call and question-and-answer session today, we will be making certain forward-looking statements including statements regarding the progress, timing and results of our clinical trials, including our clinical trials for the treatment of NASH, the safety and efficacy of our approved product, Ocaliva, the potential approval of OCA for indications other than PBC, the timing and potential commercial success of OCA and any other product candidates we may develop, and our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth. 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 any forward-looking statements except as required by law. These forward-looking statements are based on estimates and assumptions by our management 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 factors 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 filings with the U.S. Securities and Exchange Commission including our Annual Report on Form 10-K for the year ended December 31, 2017. In addition, please note that OCA is an investigational product that has not been approved for use by any regulatory authority for any indication other than primary biliary cholangitis or PBC. No conclusions can be drawn concerning the safety or efficacy of OCA for any other indications at this time. Today's call will begin with remarks from our CEO, Dr. Mark Pruzanski; followed by those from our President, U.S. Commercial and Strategic Marketing, Richard Kim; our President, International, Lisa Bright; and our Chief Financial Officer, Sandip Kapadia. We'll then open the call to take your questions. Let me now turn the call over to our CEO, Dr. Mark Pruzanski.

[Mark Pruzanski:]

Thanks, Mark. Good morning, everyone, and thank you for joining us on today's call. The first half of 2018 has been an exciting one. We've made good progress on our priority initiatives and I'm happy with what our team has accomplished. Today we reported $43.2 million in second quarter 2018 worldwide Ocaliva net sales, and our launches continue to progress across all of our approved markets. These efforts have been recently bolstered by a strategic expansion of our sales infrastructure, and I'm happy to report that with this completed, we've set the stage for further growth in the PBC business. We continue to believe that PBC represents a robust opportunity across multiple geographic territories and we fully intend to realize that opportunity. We are today reiterating our previously announced guidance of between $170 million and $185 million in 2018 worldwide Ocaliva net sales. Richard and Lisa will provide further details later in the call. In addition to our work to bring Ocaliva to patients with PBC, we continued to advance our industry-leading Phase 3 NASH program, which we believe is based on the most robust clinical data set of any competing program. To date, OCA remains the only investigational therapy to have shown efficacy across all the key liver histologic features that inform the two currently approvable endpoints

[Richard Kim:]

Thanks, Mark, and good morning, everyone. For the second quarter, we reported $34.5 million in net U.S. Ocaliva sales. We are pleased with our execution, which resulted in significant volume growth compared to the first quarter. More importantly, in the second quarter, we saw substantial stability return to our business, and we achieved our highest level of total prescriptions in a quarter since launch. With this base, we feel like we have a solid foundation for our business going forward. While our return to stability in Q2 has mostly been driven by our core group of physicians who were early adopters at launch, we believe that one of our key longer-term growth initiatives will be driven by expanding our treater base. (00

[Lisa Bright:]

Thanks, Richard, and good morning. We are very encouraged by the performance of the international region, which contributed $8.7 million in Ocaliva net sales in the second quarter. As expected, our international sales are mostly from Germany and France with an increasing contribution from the UK and Canada. The launches earlier this year in Southern Europe, Italy, Spain, and Portugal are also performing strongly as we secure regional access. Whilst we don't have the level of prescriber data that we do in the U.S., we estimate that the number of prescribers has doubled in international since December of last year. As we look forward, we see a number of important events that should help our international efforts meaningfully. We completed the national negotiation process to support public access in Canada, which will allow us to reach the other 60% of patients who previously could not access Ocaliva without private insurance. Reimbursement across provinces and territories is expected to occur through the second half of the year. In addition, we will continue to take significant steps to broaden access to Ocaliva. This quarter we received regulatory approvals in Switzerland and Australia. We expect sales in Australia by the end of 2019. We also achieved our first sales in Israel during this quarter. Importantly, we are able to leverage learnings from the early launches as we enter these countries. Within the broader community, we are particularly encouraged that for the first time the EASL governing board approved the patient version of the PBC clinical management guidelines for publication. These patient guidelines are an essential tool to help the physician and patient discussion and to reinforce the recognition of the unmet need in this disease. So in summary, we are optimistic about our continued growth in new patient starts this year for international and our teams are doing a great job of accelerating access to Ocaliva, which is not funded in all major European countries and Canada. And with that I'll hand the call over to Sandip.

[Sandip S. Kapadia:]

Thank you, Lisa, and good morning, everyone. Please refer to our press release issued earlier today for a summary of our financial results for the quarter ended June 30, 2018. I'd like to take the opportunity to give you an update on our Q2 2018 results, our cash position, and our financial guidance for 2018. We recognized $43.6 million in total revenues in the second quarter of 2018, including $43.2 million of Ocaliva net sales. Our Ocaliva net sales were comprised of U.S. net sales of $34.5 million and ex-U.S. net sales of $8.7 million. Gross to net deductions for the quarter were towards the lower end of our previously communicated 10% to 15% range. Our GAAP total operating expense for the quarter were $113.4 million and our non-GAAP adjusted operating expenses, which exclude stock-based compensation and depreciation, were $98.1 million. Our cost of sales for the quarter were $0.7 million. As previously discussed, prior to the FDA approval of Ocaliva, we expensed costs related to the manufacturing and buildup of our Ocaliva commercial launch supply. As a result, we expect our cost of sales to remain negligible until the previously expensed supplies of Ocaliva are sold. We also recognized $7.6 million of interest expense for the quarter related to our outstanding convertible notes. Moving on to our cash position, as of June 30, 2018, we have cash, cash equivalents and investable securities available for sale of approximately $538.3 million. This includes $261.4 million in net proceeds from our public offering and concurrent private placement of our common stock which we completed in April 2018. And finally, moving on to our 2018 financial guidance, while we expect to see the typical summer seasonality in the third quarter, we are reiterating our previously announced 2018 full year Ocaliva net sales guidance in the range of $170 million to $185 million. We continue to expect gross to net for the year to be in the 10% to 15% range. In addition, we're confirming our previously announced 2018 non-GAAP adjusted operating expense range of between $390 million to $410 million. For the full year, we expect interest expense of approximately $30 million which includes both the cash interest and amortization component of our outstanding convertible notes. Finally, as a reminder, non-GAAP adjusted operating expense is a non-GAAP financial measure under SEC regulations. Please refer to this morning's press release for an explanation and reconciliation of this measure. With that, I'd like to turn the call over to the operator. Operator?

[Operator:]

Thank you. Our first question is from Michael Yee with Jefferies. Your line is now open.

[Michael J. Yee:]

Hey, guys. Good morning. Mark and team congrats on a good quarter. Two questions for you guys. One is on the REGENERATE study. I would feel like we're getting sort of the general later innings of getting towards the data in the first half of 2019. The guidance seems quite broad on that. Maybe, Mark, as people get towards – closer to this data, can you just talk to the range of that guidance and what would drive data at the beginning of the first half versus later in the first half and what the assumptions are in that and how we should think about that? And the second question was related to competitive FXR data, whether coming at AASLD or others that are going on and how you think investors should contextualize all this FXR data coming out as it relates to your data, which obviously is coming in the first half.

[Mark Pruzanski:]

Sure, Mike. Thanks. With respect to REGENERATE, as I mentioned in my prepared remarks, we are reiterating our guidance for first half. Obviously, no one's more focused on getting to database lock and readout of this flagship trial harder than we are, but at this point we're not prepared to tighten guidance. This is a massive trial. We've got a huge a number of biopsies coming in from around the world. It does take time to scrub the data and get to the most robust data possible, right? And remember that our study is an 18-month study, so we've got a lot of patients coming through later this year. In any case, we're very much looking forward to getting to readout. It's coming into sight right now. And, as I mentioned again, we're confident based on the robust clinical data in FLINT on both endpoints. With respect to the competing FXR programs out there, so far we haven't seen anything that moves the needle for us. I've mentioned before that what I call the first generation of non-bile acid FXR agonist, up to five of them have fallen away over the years from preclinical through to early Phase 2 due to idiosyncratic issues associated with each one of those molecules, which is not to say that one or more of the current crop in various stages of development aren't going to make it, but there's nothing that we've seen yet definitively in a patient population that leads us to believe that there's anything truly differentiated out there from OCA from our – the compounds in our pipeline.

[Michael J. Yee:]

Can I ask just one follow-up to clarify the first question? Part of the thinking around the guidance for REGENERATE is a view that either dropouts and re-consents and all those sort of issues that were brought up earlier in the year may have impacted ultimately the interim timing and how many patients were needed to hit that timing. Do you feel like that update to safety has absolutely not changed your drop-outs assumptions or anything like that?

[Mark Pruzanski:]

Well, look, large studies like this see dropouts, all of them do, but again, we remain confident in our guidance for the readout of the study. This is a very well-powered study on both endpoints. And as I mentioned in my prepared remarks, we are absolutely committed to generating the most robust data possible.

[Michael J. Yee:]

Okay. Thanks.

[Operator:]

Our next question is from Jay Olson with Oppenheimer. Your line is now open.

[Jay Olson:]

Oh, hey, guys. Thanks for taking the questions. I was wondering if you had seen a real-world study of NAFLD and the impact on healthcare resource utilization that was presented at DDW in June, which showed a cost burden of $32 billion in the U.S. and it was driven mostly by F3 and F4 patients. I was wondering if you had seen that, if the conclusion that reducing fibrosis in F3 and F4 patients is the primary driver of clinical and economic outcomes as consistent with your view of the NASH landscape.

[Mark Pruzanski:]

Yeah, thanks. Appreciate the question. We did see it. There's a growing body of research that keeps on reconfirming the epidemic proportion of the NAFL – really NASH epidemic. I think it's correct to focus on patients with advanced fibrosis and cirrhosis as they're the ones really driving the public health burden here, and therefore, the appropriate, at least initial, focus for therapeutic intervention. At the end of the day, what you need, really, absolutely to focus on is preventing patients from progressing to cirrhosis because that's where the biggest impact is on the healthcare system. And what's clear here, and you alluded to this, is that fibrosis is the driver. Right? Study after study has shown a clear association of fibrosis stage with not just liver-related outcomes, but all-cause mortality. And that's why we feel that being able to demonstrate a benefit on fibrosis is very critical for a NASH drug independent of what we today call NASH resolution. But in our market research, I mentioned this in my prepared remarks, what – physicians who are seeing a deluge of these patients in their clinics really would love to see there's a product that can do both, that can both reverse and stabilize fibrosis as the key and also resolve the underlying features that are driving state of hepatitis. And again, I keep saying this because it happens to be true. Based on the FLINT study, we again believe that our compound, OCA, is the only one, only investigational therapy out there that has demonstrated the ability to do both.

[Jay Olson:]

Thank you. Maybe just as a quick follow up. One of the authors of that study indicated that according to his economic analysis, a drug approved to treat NASH that did show significant reduction in fibrosis and prevention of progression of cirrhosis as you pointed out could be reimbursed at a net annual price of $5,000 with favorable economic outcomes and I was wondering if that's consistent with your pricing analysis for OCA and NASH?

[Mark Pruzanski:]

Look, we're not going to comment right now on pricing in NASH. It's really premature.

[Jay Olson:]

Okay. All right. Thank you.

[Operator:]

Our next question is from Salveen Richter with Goldman Sachs. Your line is now open.

[Salveen Richter:]

Good morning. Thanks for taking my questions. So two questions here, one on the REGENERATE study. Anything on surrogate biomarkers that you're going to release on the data set? And then just evolution of your thought process here between the, or just in general, the overall landscape thought process here on the link between NASH resolution and fibrosis improvements, and whether if you see NASH resolution we should expect that fibrosis improvement will come or whether that is not necessarily the case here? And I have a follow-up.

[Mark Pruzanski:]

Yeah, thanks, Salveen. So with respect to non-invasives in REGENERATE, we are – we have incorporated a number of them both imaging biomarker and other microbiome, for example. And over time, certainly we'll be reading out on them. I can't promise that the initial top line readout will have robust data there, but certainly, we – and not just we, but I think everyone right now in Phase 3 has incorporated some subset of non-invasives in their studies and we'll see a lot of robust data coming out of that correlating with histology and eventually outcomes. And I'm happy to answer any specific follow-up on any one of these non-invasives. With respect to NASH resolution, yeah, and – look, I think that the question that you asked speaks to the hypothesis and it is really right now just a hypothesis that if you achieve histologically what we currently define as NASH resolution, and which specifically means the disappearance of ballooning hepatocytes and going to residual or no evidence of inflammation on biopsy, irrespective of what fat is doing, that that ought to predict or lead eventually to improvement in fibrosis. But nobody has been able to show that yet. From what we can tell right now there's not necessarily a correlation and recent data sets, and including frankly the FLINT data set, don't show any correlation between first what MRI-PDFF, which measures fat content as you know in the liver, shows what then in turn NASH resolution predicts, right? In, at least in the context of FLINT study, the only correlation between non-invasive assessment of fat and then NASH resolution was steatosis, was fat, which is the one feature here which is not assessed as part of the NASH resolution endpoint. So I think it's premature right now to definitively answer your question and the jury's really out, and I come back again to the fact that fibrosis on the other hand very definitively have been linked to outcomes and there's been much more advancement in terms of already marketed and investigational non-invasive markers of fibrosis than the NASH resolution.

[Salveen Richter:]

Great. And just a follow-up on Ocaliva and PBC, I recognize that their trajectory has stabilized and you're expecting an uptick in the second half but what have the gating factors really been apart from the label to getting more of an uptick here?

[Richard Kim:]

Yeah. Hi. It's Richard. And thanks for the question. So I think when we think about PBC I sort of always remind myself that it's a rare disease that has had no new options for almost 20 years. And it is, I would say, because it's a rare disease very commercially (00

[Salveen Richter:]

Thank you very much.

[Operator:]

Our next question is from Brian Abrahams with RBC Capital Markets. Your line is now open.

[Beau Miller:]

Yeah, hi. This is Beau Miller on for Brian. Thanks for taking my question. Can you guys maybe speak to what the latest updates on the DSMB have revealed? I think you spoke earlier on the call on the rate of dropouts, but also on liver safety. Can you just give us the latest there? And then also on the price increase in July, can we expect a similar rate of gross to net going forward in light of that price increase? And also ex-U.S., can you talk a little bit about competition in terms of what you're seeing there and how that impacts your long-term growth assumptions going forward?

[Mark Pruzanski:]

Sure, I'll take the first part of the question on DSMB. Yeah, as I've mentioned in the past, our DSMB meets regularly on a quarterly basis at least and reviews all of our ongoing studies. There's nothing to report that's untoward from the latest review. And I can tell you that we now have – we don't put out a running tally of enrollment, but I can tell you that REGENERATE alone is now bigger than any competing NASH program out there in terms of number of patients enrolled. So, we're feeling good based on where we are there. With respect to gross to net, I'll hand over to Sandip for that.

[Sandip S. Kapadia:]

Yeah, no. I mean, we continue to guide towards the 10% to 15% range, and any impact in terms of gross to net from the price was incorporated in our guidance.

[Mark Pruzanski:]

And then the third part of your question was international competition? Maybe Lisa, you could make a comment?

[Lisa Bright:]

Yeah. So, of course, I mean, apart from UDCA, there are no other licensed options for patients with PBC. So obviously our focus is on continuing to promote Ocaliva to the label, so for those patients who are either unable to tolerate UDCA or who don't get an optimal response. There is a small amount of use of investigational off-label products, but that's very contained to a very small number of patients.

[Beau Miller:]

Great. Thanks very much, everyone.

[Operator:]

Our next question is from Brian Skorney with Baird. Your line is now open.

[Unknown Speaker:]

Hi, this is Trevor (00

[Mark Pruzanski:]

The short answer is we don't. The study is blinded. As you know, this is as close to a real-world study as we could design it, which means that patients who are randomized in the study originally could be on a statin or not. We are stratifying the end to look at patients who are on or off. Patients can be put on a statin over the course of the study, and there's a recommendation and the protocol to follow, local guidelines in management of cholesterol consistent with the AASLD and EASL guidelines for statin use in the population. But we will have that data at the end, and I'll just remind you that last year, we readout on the Phase 2 control study where we specifically looked at the combination of OCA and atorvastatin in different doses and reproduced prospectively what we had shown retroactively post-hoc in FLINT, and that is that if you add a low dose of atorva, 10 milligrams of atorva to OCA, it's not only safe and well tolerated, but does the trick of managing LDL, not really different from what we saw in placebo patients. So we're very happy to advocate, as those AASLD and EASL did the use of statins in the population.

[Unknown Speaker:]

Great. Thanks.

[Operator:]

Our next question is from Ritu Baral of Cowen and Company. Your line is now open.

[Irina Margine:]

Hi, guys. This is Irina on for Ritu. Thank you for taking my question. My first one relates to the cirrhotic NASH program, just wondering how enrollment is going there and whether dropouts, so far, are in line with your expectations. And then I have one more.

[Mark Pruzanski:]

Yeah. So you're referring to the REVERSE Phase 3 trial, it is enrolling, we're expanding sites around the world, per our study plan. It's a little too early right now to provide any more specific guidance with respect to when we expect it to fully enroll and readout, but we're definitely making progress. We don't comment on dropouts, but we haven't seen anything untoward in the study.

[Irina Margine:]

Great. Thank you. And then just wondering has there been any change in inventory policies that you have going back to the Ocaliva launch in PBC? Thank you.

[Mark Pruzanski:]

Can you clarify a little bit more on that? Are you talking about internal inventory? Trade inventory?

[Irina Margine:]

Yes, internal inventory at your hub.

[Mark Pruzanski:]

No. No. I mean, our inventory at the hub remains stable to support the continued growth of the product, so no changes there.

[Irina Margine:]

Great. Thank you.

[Operator:]

Our next question is from Steven Seedhouse with Raymond James. Your line is now open.

[Steven Seedhouse:]

Hi. Thanks for taking my questions. Just on the REGENERATE trial, you stressed the importance of fibrosis from a clinical benefit standpoint. I'm just curious, which of the two endpoints though, fibrosis improvement or NASH resolution do you think is less variable or perhaps, said differently, more predictable? I'm just trying to get a sense directionally of how you might have allocated alpha between those two endpoints, and if it's allocated evenly or not.

[Mark Pruzanski:]

Well, we're not going to get into the details of our statistical analysis plan on this call. What I can tell you is that the benefit, the advantage we have is that we're the only Phase 3 program that is reading out on both of these endpoints, as you know. And we've agreed with FDA that the study can succeed if we hit one or the other. Of course, we're very much hoping that we can hit on both based on FLINT and the powering in the study. I can't – the only way I can answer your question about variability is simply to refer to the pretty consistent readout from a number of large, long-term studies which has shown a pattern of response that is – appears to be from an absolute response standpoint more robust on fibrosis, both in terms of placebo, what you see with placebo, and highlighting frankly the critical importance of having a placebo in any study looking at both of these endpoints than you see NASH resolution. Perhaps that's not surprising because NASH resolution means what it means, which is disappearance, essentially disappearance of the underlying features. Whereas fibrosis improvement by on one stage can allow, you know, can still allow fibrosis. But I can't speak any more specifically than that to variability.

[Steven Seedhouse:]

Okay. Thanks. And just quick on PBC, you mentioned that core group of physicians driving the return to growth and also increase quarter-over-quarter in first time prescribers. Could you just quantify the first time prescribers now versus prior to the Dear Doctor letter maybe and so on a year-over-year basis? And are you back to where you were this time last year or not quite yet? And also, are you seeing continued increase in first time prescribers so far this quarter? Thanks.

[Richard Kim:]

Sure, no, hey, thanks, yeah. We really (00

[Steven Seedhouse:]

Thank you.

[Operator:]

Our next question is from Ying Huang with Bank of America. Your line is now open.

[Aspen Mori:]

Hi, guys. It's Aspen on for Ying. Thanks for taking our questions. Just a couple quick ones. The sequential growth in the PBC sales, was that primarily driven by volume or was there any sort of pricing benefit? And then have you received any feedback on the Dear Healthcare Provider letter in Europe? And lastly for the PSC endpoints, do you have any timeline that you could give us for the – I mean maybe a meeting schedule with the FDA for working out what additional endpoints you'll need beyond alpha (00

[Sandip S. Kapadia:]

Hi, Sandip here. Just in terms of your question on volume versus price, in the first half of the year, and even the last part, we didn't have any pricing changes. So it was all driven by volume.

[Mark Pruzanski:]

And, Lisa, if you could take the DHCP in Europe question.

[Lisa Bright:]

Yes. Thank you. So as you'll probably remember, we've been communicating around the importance of correct dosing in hepatic-impaired patients for some time before the Dear Healthcare Provider letter was issued. So it really acted as a reinforcement for the communication that we'd already been seeing. And I guess what I'd do is refer you back to the strong quarter-on-quarter growth that we've seen this year and the fact that the number of prescribers that we've seen since December last year has doubled. So we're optimistic about the growth going forward.

[Mark Pruzanski:]

Thanks. And then with respect to PSC, we continue to guide that by end of the year we'll be able to update you. We don't comment on our meeting schedule with any regulatory agency, but I have said before that just given how overwhelmed FDA is specifically that this review division dealing with NASH, PBC, PSC, everything that's going on, they are bandwidth constrained and that's led to certain delays, but we're confident that we'll be able to provide an update by the end of the year.

[Aspen Mori:]

Thanks.

[Operator:]

Our next question is from Joel Beatty with Citi. Your line is now open.

[Joel L. Beatty:]

Hi. Thanks for taking the question. Regarding the REGENERATE interim analysis reading out in the first half of next year, could you discuss which endpoints are most important for our peers and the conversations with – arguing for the benefit of using OCA in NASH?

[Mark Pruzanski:]

Yes. Look, as I've mentioned on this call, we continue very much to believe that fibrosis is certainly more important. There's very clear evidence linking fibrosis to progression to liver failure, need for transplant, and death, all-cause mortality not just liver-related outcomes and that's why we continue to stress the importance of showing a benefit on fibrosis.

[Richard Kim:]

And Mark, I would just – it's Richard. I would just add – and obviously as Mark has said, fibrosis in addition to NASH is important to the condition. So I think compounds that can actually achieve both endpoints are going to be meaningful to our broader customer base.

[Joel L. Beatty:]

Okay. And will there be any way from the interim data to link, at least preliminarily, fibrosis and NASH resolution to outcomes? Or is any type of analysis like that completely held until the final analysis?

[Mark Pruzanski:]

I wouldn't – I mean as you know, REGENERATE and all of the current ongoing Phase 3 NASH programs are designed as outcomes on trials, but typically over a period of five or so years, just given the time needed to accumulate sufficient number of outcomes in this population. So, I would not expect – obviously we're going to monitor outcomes and the study will have sense of them in the interim, but I wouldn't expect that.

[Joel L. Beatty:]

Got it. Thank you.

[Operator:]

Our next question is from Alan Carr with Needham & Company. Your line is now open.

[Joseph Stringer:]

Hi, this is Joey on for Alan. Thanks for taking my question. Two quick ones here, the first one, can you give an update on the – looks like it's still ongoing – the OCA biliary atresia trial? And as a follow-up to that, are you thinking about potentially other sort of rare liver disease indications for that? And second question is, what's the, just on a high level, Intercept's thinking about combination therapies, for example using OCA as a backbone therapy? Thanks.

[Mark Pruzanski:]

Yeah. Thanks for the question. So we never have a chance to talk about biliary atresia, but this is a very rare pediatric cholestatic liver disorder. It is our pip right now and we continue to enroll study. As you can imagine, given how few patients there are who are appropriate to include in the clinical study especially, it takes quite some time. So we're not commenting on rate of enrollment, but we remain committed to the study and continue our enrollment efforts around the world. We are very much – despite the fact that there's so much focus on NASH, which is perhaps one, if not the only remaining true blockbuster untreated diseases out there, we remain committed to the broader community of patients with progressive non-viral liver diseases who often have no options other than the hope and prayer of eventually getting a liver transplant and that means that we are actively looking at other rarer liver diseases to pursue. Oh! And then second part of your question was on combo with OCA established as a backbone. Yes, absolutely, and not just in NASH but also in the context of cholestatic liver disease, PBC, PSC. We very much continue to evaluate opportunities to combine with OCA. We do believe, that said, that it's early days here and that we need to see more data typically with a lot of the proposed mechanisms out there to feel confident even in proof-of-concept and safety. And it's going to take a lot longer than people think to see real combo regimens end up on the market, whether it's for NASH or other indications.

[Joseph Stringer:]

All right. Thank you.

[Operator:]

Our next question is from Joseph Schwartz with Leerink Partners. Your line is now open.

[Dae Gon Ha:]

Good morning, guys. Thanks for taking my question. This is Dae Gon dialing in for Joe. So two quick ones for me. I guess looking forward into your one half interim analysis, REGENERATE data, I was wondering, given that it's a co-primary endpoint, you kind of alluded to this question earlier, but just wanted to dig a little deeper in terms of your research, if only NASH resolution had statistical significance versus only fibrosis hitting the improvement – I mean fibrosis improvement hitting statistical significance. What impact would you think that has on the uptake trends both on the physician and patient side, just kind of briefly talked about the payer side of the equation on that one? And then the second question is as we look into the NASH market evolution, we're hearing more about the NASH market going into more of a poly-pharmacy approach, so you kind of alluded to this in the prior question, but what internal work have you done to at least start addressing what potential combinatory would be amenable or at least doable? And I guess based on the proposed mechanism that's been out there thus far, at least on a biological hypothetical level, what do you think makes most sense on the safety and efficacy side? Thanks.

[Mark Pruzanski:]

I'll ask Richard to answer the first part of your question and then take the second.

[Richard Kim:]

Well, I guess as far as – I mean we're not really going to comment about sort of when primary hits or the other, but what I can say is we have done a extensive research into NASH marketplace to really characterize both the patients that are in offices, the physicians who are treating them, and the poly sort of conditions that a lot of patients are facing. We know that a lot of these patients are – have comorbid conditions like diabetes and cardiovascular disease. So we have to really well characterize that. So I think it's a little bit too early to say exactly how this will payout. But what I can say our knowledge about sort of what a lot of these patients are going through, I think we've really built up quite a knowledge base in here. Mark, I don't know, do you want to take the rest of the question then?

[Mark Pruzanski:]

Yeah, sure. So I think you're asking about combo and maybe a little bit more detail. As I mentioned in an answer to the previous question, it's still early days. There has been, obviously, some promising data. I've said publicly in the past that we think just given that the target's already validated with a classic molecule out there in the most at-risk population, FLINT 1, look, we've got an RI on that. That looks interesting. But at this point – and there are obviously other mechanisms as well, but most, again, most are just at hypothesis stage at this point without definitive even proof-of-concept in Phase 2. And I mentioned previously on a call, that the critical importance of having doing well-controlled studies and reading out on the histologic, the biopsy-based endpoints that are actually approvable because nothing else non-invasive or other so far has been shown to be predictive.

[Dae Gon Ha:]

If I can just squeeze in one more. I guess how has the NASH market been evolving? I mean, with all these new drugs coming into the clinical trial pipeline, are you seeing the NASH market segmenting in a particular way? And can you comment on that if you've seen any trends there? Thanks.

[Mark Pruzanski:]

Well, my simple answer is that there is no NASH market right now because there's no approved marketed product out there for these patients. The only thing that we can do, and it is first and foremost the most critical, is diet and lifestyle counseling, right? But I was just out visiting one of the top hepatology centers in the country the other day, they're deluged with these patients in their clinics. All they can do is provide nutritionist support and counseling for these patients to try to lose weight and improve their – and get off their couch and at the same time what we're also hearing is that while obesity is a – there's also lean NASH that is coming more into the floor, right, where patients aren't obviously obese. And so, look, this is in epidemic proportions, a lot of physicians out there, heps and gastros who see these patients, are eagerly awaiting approved therapies. But until then, we can't really talk about the market and how it's going to segment.

[Dae Gon Ha:]

Great. Thanks very much for taking our question.

[Operator:]

Our next question is from Jim Birchenough with Wells Fargo Securities. Your line is now open.

[Yanan Zhu:]

Hi, thank you for taking the questions. This is Yanan in for Jim. Two quick ones for me. So you mentioned you have increased the outreach to community GI physicians in your PBC launch effort, and expect contribution from this segment to emerge in second half of 2018. Just curious what proportion of PBC patients are treated by community GI physicians? And second question is related to the NASH program. A number of placebo-controlled trials have readout since FLINT. So I'm just wondering is there anything to be learned when you look at their placebo arms and look at the fibrosis improvement and NASH resolution? Are their rates consistent with FLINT and consistent with the assumption that link into your powering assumptions for the REGENERATE study? Thank you.

[Mark Pruzanski:]

Yeah, thanks. I'll ask Richard to take the first part of the question and I'll take the second.

[Richard Kim:]

Yeah, no. Thanks. Great question. So as far as where the patients are, now keep in mind in the United States, there's probably only about 700 physicians that are dubbed hepatologists and there's around 13,000 to 15,000 gastroenterologists. So obviously, the vast majority of PBC patients reside in the gastroenterology community. And as we said before, PBC is a phenomenon where the patients are spread quite thin. So hard to give an exact percentage of around how many are based, exactly, in the community, but we would say there is quite a large percentage. And generally what happens is, the community GIs just don't have many of the patients. They'll have more only a few at a time, so. That's why our reach is important because there's a lot of physicians out there that probably manage only a couple or two or three of these patients. But there's large numbers of those physicians that you have these two or three patients as well. Mark, maybe back to you for the NASH question.

[Mark Pruzanski:]

Yeah. So you're asking specifically about what we've observed with respect to placebo response and learned from that. Yeah. And I alluded to this earlier in the call. There has been a remarkably consistent pattern in the large, longer-term studies. Anything from nine months on with respect to placebo response on fibrosis improvement by one stage, and that's basically around 20%. One in five patients on placebo improves. This has been consistent and again highlights the critical importance of doing placebo controlled studies at the Phase 2 stage with biopsy. I'm not going to get into conjecture right now about what drives placebo response. I've got my own hypotheses, but it has been consistently observed. NASH resolution significantly lower response rates, perhaps not surprisingly. As I mentioned, because here you're looking for disappearance of key features of the disease and you typically see single-digit responses. But, again, fairly consistent across studies. But with respect to what we've taken away and our thinking about powering in REGENERATE, which I think was your question, we haven't seen anything that counters our assumptions.

[Yanan Zhu:]

Great. Thank you for taking the questions.

[Operator:]

I'm showing no further questions. I would now like to turn the call back to Mark Pruzanski for any further remarks.

[Mark Pruzanski:]

Yeah. Well thanks, everyone, for listening in today. For the back half of 2018, we are very excited. Everyone here at Intercept is very focused on delivering on our key objectives, which continue to be to drive worldwide our PBC business and ensure that Ocaliva gets to PBC patients in need. And of course to continuing the execution in our global Phase 3 NASH program in the lead up to readout and REGENERATE in the first half of next year. We remain steadfastly committed to the health and well-being of patients with progressive non-viral liver disease, whatever their disease.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect. Everyone, have a great day.