Intercept Pharmaceuticals, Inc.
Q3 2017 Earnings Call Transcript

Published: 1 Nov 2017

[Operator:]

Thank you for joining the Intercept Pharmaceuticals' 2017 Third Quarter Financial Results Conference Call. All participants are now in listen-only mode. Following opening remarks, Intercept 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 a webcast of this call will be archived on the company's website for two weeks from today's date. I would now like to introduce Dr. Mark Vignola, Intercept's Director of 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 covering our third quarter financial results and providing a business update, which is available on our website at www.interceptpharma.com. Before we begin our discussion today, please remember we will be making certain forward-looking statements on today's call, including statements and forecasts regarding our future financial and operating performance; anticipated time lines for our development programs for obeticholic acid, or Ocaliva; market estimates relating to the indications we are pursuing; and our regulatory clinical and commercial plans, goals, and estimates, as well as other statements which relate to future events. These statements are based on the beliefs and expectations of management as of today. Our actual results may differ materially from our expectations. Investors should read carefully the risks and uncertainties described in our reports filed with the U.S. Securities and Exchange Commission, including in Risk Factors section of our most recent annual report on Form 10-K and in our other filings with the SEC. We assume no obligation to revise or update forward-looking statements, whether as a result of new information, future events, or otherwise. OCA is an investigational product that has not been approved for use by any regulatory authority in any indication other than primary biliary cholangitis, or PBC. No conclusion can be drawn concerning the safety or efficacy of OCA in those indications at this time. The call will begin with remarks from our CEO, Mark Pruzanski, followed by those from our Senior Vice President and Head of U.S. Commercial, Richard Kim; our President of International, Lisa Bright; and closing by our Chief Financial Officer, Sandip Kapadia. We'll then open the call to take your questions. We would like to note that there are slides associated with today's call that can be accessed via the webcast and on the Events section of our IR webpage. Let me now turn the call over to our CEO, Dr. Mark Pruzanski.

[Mark E. Pruzanski, M.D.:]

Thanks, Mark. Good morning and thank you for joining us on today's call. I'd like to start by acknowledging the devastating storms and acts of terror we've witnessed over the past few months, and I'm grateful knowing that our employees and the physicians and patients we serve around the world have not been harmed. In the face of these events, Intercept remains resolutely focused on developing breakthrough medicines for patients with progressive non-viral liver diseases. Today we reported $40.9 million in third quarter Ocaliva sales in our marketed indication, primary biliary cholangitis, or PBC. While we're currently addressing the recently raised post-marketing safety concerns, we're confident that the benefit/risk profile of Ocaliva remains favorable and unchanged, and it continues to represent an important treatment option for the many PBC patients with an inadequate response to or intolerant of standard of care. On the NASH front, coming off the AASLD Liver Meeting last week, we feel increasingly confident about the potential of OCA and our leading position in the field. Our flagship Phase 3 REGENERATE trial is on track to report the first pivotal data in NASH to support regulatory approval. Now for some specific updates on the business, and first our latest progress in PBC. Demand for Ocaliva in the third quarter showed continued growth, and we continue to view the long-term market opportunity as robust. PBC treating physicians and thought leaders continue to provide us with positive feedback and support for Ocaliva. Richard and Lisa will provide a more detailed update on our U.S. and international launch performance later in the call. Meanwhile, we've been in active discussions with FDA regarding an update to the Ocaliva product label and are optimistic we will have a finalized label by early 2018. As part of this process, our post-marketing safety data have been reviewed and adjudicated by independent experts. We feel reassured by the results of the adjudication process as well as additional safety analyses of our clinical study data including over 1,300 patient years of exposure and epidemiologic documentation of PBC disease progression, all of which we have now shared with FDA. While we cannot today provide any further details pending resolution of the update to the product label, we continue to believe in Ocaliva's benefit/risk profile and the value it provides to patients in need. Moving now to our NASH program, as we announced in May of this year, we completed enrollment of the interim analysis cohort of the Phase 3 REGENERATE trial, and we are reiterating our guidance of data for the interim analysis in the first half of 2019. Assuming a positive result, this trial will serve as the basis for expanding the use of OCA to DASH patients with fibrosis. With respect to our planned NASH Phase 3 cirrhosis trial, we remain on track to initiate it before year-end and plan to share details on the trial design shortly. Finally, just last week, we presented results from the Phase 2 AESOP trial of OCA in primary sclerosing cholangitis or PSC at the EASL meeting. We were thrilled to see AESOP recognized as a featured late-breaker at the meeting and have been pleased with the excitement from the medical community about the results. With these data, we have established a clear proof of concept in a second cholestatic liver disease with no approved treatment, and this further underscores the potential of OCA in a broader array of progressive non-viral liver diseases with high unmet need. Based on the potential for OCA in PSC, we'll be engaging with FDA in 2018, and we'll report back when we have determined appropriate next steps. As with PBC and NASH before it, we expect the process to determine what regulatory path is available in PSC to take some time. I will conclude my remarks by saying that I'm very confident in OCA's potential. In short, the efficacy and safety profile of OCA is supported by the most robust evidence base in several progressive non-viral liver diseases. The Intercept team remains dedicated to our mission to bringing breakthrough therapies to patients suffering from these liver diseases and continuing to meet the challenges we face as the leader in the field. We continue to deliver global sales growth for Ocaliva in PBC and are advancing our leading Phase 3 clinical program for NASH where there's tremendous unmet need. We are also building a pipeline for Ocaliva in other diseases with high unmet needs including PSC and biliary atresia. With that, I'll turn it over to Richard for the U.S. commercial update.

[Richard Kim:]

Good morning. As Mark mentioned, we're pleased with our performance in the third quarter. We achieved net U.S. Ocaliva sales of $36.2 million, which compares to $27.9 million in the second quarter of this year and $4.8 million in the third quarter of 2016. Also, please keep in mind that this quarter includes a one-time $3.7 million benefit in deferred revenue following a change in revenue recognition that Sandip will discuss. The third quarter showed steady demand growth over the second quarter. As anticipated, new patient demand softened slightly during the summer months, and we saw a small impact to our business due to Hurricanes Harvey and Irma. Towards the end of the third quarter, we also experienced some additional softness in prescriptions following the Dear Health Care Provider letter and the FDA safety communication on Ocaliva. New patient enrollments into Interconnect, our patient support program, and referrals to the specialty pharmacies have grown in September and October compared to this summer. However, the recent IMS data, which you can see on the supplemental slides posted on the website this morning, shows that just after the safety communication at the end of September, TRx has dropped. But over the last couple of weeks, prescriptions are on a more upward trend. We believe the drop is mostly driven by some existing Ocaliva patients delaying refills until they have an opportunity to see their physician. Our most recent weeks of data show refill rates rebounding towards the levels prior to the safety communication. The safe and appropriate use of Ocaliva is always our priority. We believe that by making it a priority to reeducate physicians and other health care providers on hepatic impairment dosing that it helps to remind physicians to manage these patients with the appropriate caution while reinforcing the high unmet need in PBC. Our sales and medical teams have been proactively reeducating all of our target physicians as well as our PBC speakers on the adjusted dosing recommendation for hepatically impaired patients. Our teams have also made enhancements to Interconnect to further improve our vigilance for all patients, including patients with more advanced PBC. Through our medical and patient advocacy teams, we have made consistent communication with the PBC and liver patient advocacy groups to ensure that they have our latest insights. We had thousands of face to face interactions and conducted pulse research following the safety communication amongst our target physicians to get an initial reaction to this communication. The research shows that across all PBC patients, 80% of physicians will either maintain or increase their level of prescribing for Ocaliva. Specifically, for patients with hepatic impairment, 60% of physicians say that they will either maintain or increase their prescribing of Ocaliva. For this lower response for use in hepatic impairment patients, we see this as a good impact from our communication efforts. And as a reminder, these patients make up about 2% to 4% of the overall PBC population. Things are still evolving, but we feel good about the initial customer feedback, and that the fundamental belief in Ocaliva as a treatment for PBC patients remains strong. From a payer perspective, up to this point, we have not seen any changes to prior authorization criteria. As you can see, for the past couple of months, we have been intensely focused on the appropriate communications and actions around the safety communication. Our commitment to non-viral liver disease has never been more evident than right now. The conversations and feedback from our target physicians reinforces their long-term belief in how Ocaliva meets unmet need for PBC patients with an inadequate response or intolerant UDCA. And for us, we remain focused on the growth opportunity of PBC and the thousands of patients who may be in need of a new treatment option. Thanks for your time, and now I'd like to turn the call over to Lisa.

[Lisa Bright:]

Thanks, Richard. Good morning, everyone. Throughout 2017, we've been pleased at the tremendous progress in accelerating access to Ocaliva for patients outside the U.S. For the third quarter, international Ocaliva sales were $4.7 million. As we had expected, sales continue to be driven predominantly by Germany and France. With the exception of Spain where negotiations remain positive and ongoing, we have now obtained access of some sort for patients in all major EU countries and Canada within a year of regulatory approval, well ahead of industry norms. Finalization of outstanding national pricing and reimbursement in these countries should be completed by middle of next year. Overall, there remains high interest and demand for Ocaliva. Our most recent research done in September suggests that in Germany, for example, more than 70% of our target PBC physicians have prescribed Ocaliva at least once, and over 80% of those physicians say they intend to increase the number of prescriptions in the next six months. So we're positive as we head into the end of the year. With that, I'd like to turn the call over to Sandip.

[Sandip Kapadia:]

Thank you, Lisa. And good morning, everyone. Please refer to our press release issued earlier today for a summary of financial results for the quarter ended September 30, 2017. I'd like to take this opportunity to give you an overview of the Q3 results, our cash position, as well as provide guidance for the balance of the year. We recognized worldwide Ocaliva net sales of $40.9 million for the third quarter 2017. Inclusive in the worldwide net sales is a change in estimate related to deferred revenue. The net effect was a one-time increase of $4.1 million in net revenues for the third quarter 2017. Prior to July 2017, we recognized revenues using the sell-through method. During the third quarter of 2017, we transitioned our revenue recognition from the sell-through method to the sell-in method as sufficient period of commercial experience has occurred to enable us to reasonably estimate product returns. For the quarter, U.S. net sales were $36.2 million, which includes $3.7 million for the change in estimates related to deferred revenue. For the quarter ex-U.S. net sales were $4.7 million, which includes $0.4 million for the change in estimates related to deferred revenues. Gross-to-net remained constant in Q3 relative to Q2. Our GAAP operating expenses for the quarter were $107.5 million and non-GAAP adjusted operating expenses were $92.9 million for the quarter. The increase in non-GAAP operating expense relative to Q3 2016 is primarily driven by personnel costs related to support our commercial and international initiatives and clinical development program for OCA and infrastructure to support these programs. We also recognized $7.4 million of interest expense during the quarter from our outstanding convertible notes offering. We ended the third quarter with $492.7 million of cash, cash equivalents and investable securities on our balance sheet. This represents a reduction of cash of approximately $57.6 million during the quarter. Finally, let me turn to our guidance for the balance of the year. While we are not providing specific sales guidance for Ocaliva, we would like to reiterate our expectation for steady sequential quarter-over-quarter growth through year-end. This would be net of the $4.1 million of one-time net revenue recorded in Q3. We expect gross-to-net for the year to be towards the lower end of the 10% to 15% range. We project our non-GAAP adjusted operating expense for the year will fall in the middle of the previously guided range of $380 million to $420 million. This guidance includes several one-time related expenses to the start-up of our Phase 3 cirrhosis trial in the fourth quarter. For the full year, we expect interest expense of approximately $30 million, which includes the amortization component from our outstanding convertible notes. We're also embarking on an effort to reduce our operating expense growth by streamlining our operations and re-prioritizing programs to focus our resources on the ongoing commercialization of Ocaliva and the advancement of our clinical development for OCA and NASH. As part of that effort, we have decided to de-prioritize our 767 development program for the foreseeable future. Finally, as a reminder, adjusted operating expense is a non-GAAP financial measure. We anticipate stock-based compensation expense will represent the most significant noncash item that is excluded in adjusted operating expense as compared to operating expense under GAAP. Please refer to our press release for a reconciliation of our historical non-GAAP adjusted operating expense to GAAP operating expense. I'd like to now turn the call over to Mark.

[Mark E. Pruzanski, M.D.:]

Thanks, Sandip. Before we open up the call for your questions, today we are announcing that Rachel McMinn will be leaving Intercept at the end of the year to pursue an exciting entrepreneurial opportunity in a therapeutic area that she is deeply passionate about. Effective today, Rachel will step down from her role as Chief Business and Strategy Officer. Between now and the end of the year, she will continue to play an important role at the company as a strategic advisor and is fully committed to supporting the company through this transition period. I greatly appreciate Rachel's significant contributions to Intercept, which helped to accelerate our transition from a small company of approximately 50 people to a global commercial biopharma company during her tenure. We are fortunate to have had her leadership during a critical time in the company's life cycle and wish her all the success in the next chapter of her career. With that, I'll turn things over to the operator.

[Operator:]

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

[Michael J. Yee:]

Hey, good morning. Thanks for the question. Maybe for Mark, first question is maybe just characterize some of the regulatory discussions and progress that you've made suggesting that you'll have a label change by early 2018 as it relates to a focus on more Child-Pugh B and C severe patients versus perhaps what, if any, concern or commentary that would be in a label change as it relates to mild patients? And what our expectation would be on that? And then second question is – I don't know if Rachel's there, but appreciate all her work. If she's there, or for Mark maybe, as we came away from AASLD – obviously there are a lot of studies looking at the biomarker endpoints or imaging endpoints, such as PDFF. Maybe just comment as to how you would interpret some of that data, given you guys don't, as far as I'm aware, don't look at that data? You've had biopsy data, so how should we put those types of studies into context with your studies? Thanks so much.

[Mark E. Pruzanski, M.D.:]

Thanks, Mike. So I'll answer the first question and Rachel is here, so I'll let her take the lead on the second. So with respect to the label negotiation, as I said in my prepared remarks, we did follow up on our commitment iterated on September 25 call to select external experts to review and adjudicate all of the identified cases that FDA referenced in its safety communication and any others we could find in our PD database. That process has been completed and I just want to reiterate what I said, which is that we come away reassured by the findings of this process. That adjudication has gone into FDA as has additional analyses of our clinical trial data and epidemiologic analyses on background event rates in the population. We're now in a very constructive dialogue with FDA about the label update, and as I mentioned, our hope is that we actually get to a final label, if not by year-end, then in early 2018. Now with respect to your further question on different subpopulations of patients, what I can reiterate, I've said before, is that the main goal here of the label update is to aid the average clinician looking after these patients in identifying patients at risk, primarily the most advanced and most fragile patients with Child-Pugh B and C cirrhosis who need to be dosed in a different manner and also patients who are at risk of decompensation.

[Rachel L. McMinn, Ph.D.:]

Hey, Michael. Thanks for the question. In terms of AASLD and other endpoints, I'd say a couple of things. One is we did walk away more confident in our overall competitive position. If you look at some of the data that was either surrounding the conference or at the conference particularly for the later stage products that was or was not there, we do feel that OCA remains in a solid leadership position. Specifically around the biomarker you mention, PDFF, keep in mind that is a very good surrogate for hepatic fat. Unfortunately, fat, though, changes in hepatic fat have not been correlated in any way, shape, or form with fibrosis improvements or longer-term outcomes. So relying on PDFF specifically to move forward as proof of principle could be fraught with significant clinical risk. And then just, so I guess the final thing I would say is we are hearing that regulatory agencies, particularly the FDA, is looking for biopsy data in proof of concept studies. So it's unclear. Some of these studies that are relatively short duration using novel biomarkers, it's unclear how that data will be interpreted by regulatory authorities in the overall clinical development program and proceeding into Phase 3, for example.

[Michael J. Yee:]

That's very interesting. Thanks so much, guys. I appreciate that.

[Mark E. Pruzanski, M.D.:]

Thanks, Mike.

[Operator:]

Thank you. Our next question is from Brian Abrahams of RBC Capital Markets. Your line is open.

[Brian Abrahams:]

Hey, guys. Thanks for taking my questions. Congrats on all the continued progress, and congrats to Rachel on your accomplishments there and best of luck in the future. First question for Richard. Can you maybe describe in a little bit more detail the use patterns in the U.S. that you're seeing for Ocaliva beyond maybe some of the refill delays? Just curious if there's been any change in titration tendencies, any shifts away towards – away from daily dosing in the milder non-decompensated patients, and whether there are any regions or patient types or physician settings where you see the most opportunity for education? And then I had a follow-up for Mark.

[Richard Kim:]

Hey, Brian. Yeah. Hey, thanks for the question. So as far as the sort of patterns are concerned, I think the way I would describe it as per the statements is, we did sort of see a bit of softness in the summer and maybe prior to the Dear Health Care Provider letter on the safety communication, we're starting to see a bit of an uptick again. But what I would say in general is there's no real regional differences that we see across the country. We've seen actually pretty steady titration from 5 milligrams to 10 milligrams, and a change in the – we've always been able to see daily and twice-daily dosings to our services. The proportions have stayed relatively constant over the last little while. So I think it's maybe a little difficult with the small numbers of patients who are on those doses to make any hard, fast judgments on that. So I think it's going to continue to evolve for the next little while here, but we haven't really seen what I would say dramatic shifts as far as some of the patterns are concerned, maybe minus the refill pattern that I mentioned earlier.

[Brian Abrahams:]

Got it. That's very helpful. And then, Mark, I was wondering if you could maybe expand a little bit on the deprioritization of 767 despite some promising early preclinical data. Is this just really strategic prioritization for financial efficiency? Has there been any change to your thesis on TGR5 activity contribution versus pruritus association? And is there anything, maybe an earlier-stage development that could be as potent as 767 on FXR but perhaps without TGR5 that could serve as a potential life cycle extension strategy? Thanks.

[Mark E. Pruzanski, M.D.:]

Yeah. Thanks, Brian. Look, we continue to believe in the asset, but as you alluded to and we mentioned in our prepared remarks, we are looking to streamline OpEx and prioritize maximizing the value of OCA in market and in its leading position in NASH and other progressive non-viral liver diseases. We will be exploring our options for 767 heading into 2018. Since you asked, we do have other compounds in the pipeline. There is one which is code named 787 that is a highly selective FXR agonist and shows a lot of promise, and that is being advanced albeit at a preclinical stage.

[Brian Abrahams:]

Thanks very much.

[Operator:]

Thank you. Our next question is from Alethia Young of Credit Suisse. Your line is open. Alethia Young - Credit Suisse Securities (USA) LLC Hey, guys. Thanks for taking my question. Maybe two. I guess one for Lisa, just have you seen any impact from kind of your doctor communication in the United States as it relates to Europe? And then also, can you discuss what underpins your confidence around the NASH cirrhosis trial? Like is there something particularly different maybe between the NASH cirrhotic liver versus the cirrhotic PBC liver? And Rachel, I wish you the best of luck.

[Lisa Bright:]

Hi, Alethia. Thanks for the question. So I mean, as Richard said, I mean, we've been continuing to do ongoing educational efforts around appropriate dosing as per the label for hepatic impaired patients. And really, the response from physicians has been pretty calm and pragmatic. I think they recognize the serious nature of this disease, and they recognize that a lot of these patients experience some rapid disease progression. So I think what I'd say is that generally, pretty calm, pretty pragmatic. The hepatic impaired patients anyway are not predominantly the main group of patients that physicians are starting to try Ocaliva on. And as we've said in my kind of pre-prepared remarks, generally sales are pretty solid in all of our launch countries. And as we talked about, the intent to prescribe is very strong even amongst those that haven't yet started. So yeah, I think that's a fair summary of where we're at.

[Mark E. Pruzanski, M.D.:]

Alethia, with respect to the NASH cirrhosis program, we are confident in proceeding as I mentioned. We're on track to initiate the study prior to year-end. We will be coming back shortly with details on trial design. You asked, yes, I mean a cirrhotic patient is obviously more advanced in their disease. And we will be going into compensated cirrhotics where there is a significant unmet need. I don't know if there's another part to your question, though. Alethia Young - Credit Suisse Securities (USA) LLC Well, I mean, just curious like obviously, the hepatic impairment in like PBC patients and the cirrhosis there, is there any kind of notable difference between the cirrhosis that might occur in the NASH patients?

[Mark E. Pruzanski, M.D.:]

Well – look, I mean, first of all, it needs to be said that PBC and NASH are very different diseases and you have different effective hepatic exposure of our drug as a modified bile acid between a cholestatic disease like PBC and a non-cholestatic disease like NASH. We wouldn't predict any kind of meaningful difference in exposure in a compensated NASH cirrhotic versus like a fibrotic NASH patient. But obviously as you get to the most advanced decompensated patients, it's a different story. No surprise, many drugs that are dose-modified in very advanced liver patients, and we'd expect the same in NASH. Alethia Young - Credit Suisse Securities (USA) LLC Okay, great. Thanks.

[Operator:]

Thank you. Our next question is from Ian Somaiya with BMO Capital Markets. Your line is open.

[Unknown Speaker:]

Yeah. Hi. Thanks for taking the question. This is Steve (28

[Mark E. Pruzanski, M.D.:]

Sure. So I'll add just a quick correction that in PBC patients, Ocaliva does not increase LDL. But I'll hand to Richard on the pruritus question.

[Richard Kim:]

Yes. Sure, Steve (28

[Mark E. Pruzanski, M.D.:]

Yeah. And then with respect to the second part of your question, other competing FXR agonists, the short answer is we just don't know. We've said before that the mechanism of pruritus is still unknown. It is theoretically possible that you could activate the receptor without seeing it, but until we see larger, longer-term studies in PBC and other patient populations, we're not going to know. We have also stated that target engagement in both the GI tract and the liver, we believe, is absolutely necessary to see the kind of hepato-protective effects that we've demonstrated in several progressive non-viral liver diseases. And there have been several purely synthetic FXR agonists that have failed historically, and so it remains to be seen, depending on which FXR we're talking about, which FXR agonist we're talking about, if any of these will be viable going forward.

[Unknown Speaker:]

Okay. Thanks. And thinking about the decision to de-prioritize 767, I'm just curious if that's related to what you've been seeing in the real-world setting with Ocaliva and if there's an expectation that 767's profile wouldn't, I guess, be differentiated? And also, is there anything about the profile that you saw maybe preclinically that would have read-through to other competing FXR agonists, whether it's the TGR5 agonism or its potency on FXR or anything else? And then just quick, lastly, I was hoping you could clarify how frequently patients are monitored in the REGENERATE NASH trial, what the monitoring requirements are for liver injury? Just thinking about, I guess, a high bar for what a rigorous monitoring requirement might be in a potential label amendment. Thank you.

[Mark E. Pruzanski, M.D.:]

Sure. So with respect to 767, as we've long said, based on extensive preclinical study in different animal models, different diseases, liver and non-liver, we have felt that 767 has a differentiated profile that look superior to OCA. The decision to not – I mean, we obviously don't have the clinical proof-of-concept data to substantiate that claim in patients. And the decision to de-prioritize, as we mentioned, is one of streamlining OpEx and really prioritizing our resources on our in-market asset and Phase 3 NASH asset OCA. With respect to – sorry, your – the frequency of – yeah, that's right, in REGENERATE. So look, we have a number of ongoing clinical trials. As I mentioned on our September 25 call, we have committed to stepping up our vigilance not only in the marketplace with Ocaliva in the PBC population, but also in safeguarding patient safety across our clinical trials. I can't comment on a specific monitoring regime in a given clinical trial, but suffice it to say that we feel good about our monitoring in our studies and safeguarding patient safety.

[Unknown Speaker:]

Great. Thank you.

[Operator:]

Thank you. Our next question is from Ritu Baral of Cowen. Your line is open.

[Ritu Baral:]

Good morning, guys. Thanks for taking the question. First question is on the mentioned enhancements to Interconnect monitoring for severe patients. Can you guys go into a little more detail on that and how that might either play into or void any even potential for a REMS with the label update? And then I have a follow-up.

[Richard Kim:]

Yeah. Hi. It's Richard. Yeah. So obviously, I can't really speculate as far as what will go on with our label or the FDA discussions, but as far as Interconnect is concerned, we have been capturing already, obviously, a dosing initiation and titration for Child-Pugh B and C patients that differs from the weekly – the daily dosing of non-advanced patients. Enhancements that we're adding to Interconnect are mostly driven to have a clear form on how to actually articulate that a patient does have Child-Pugh B or C status. And also we have our nurse coordinator and patient care coordinators having more education on how to outreach when there is less clarity on enrolment forms as well. So I think I feel pretty proud about the fact that we're going really well above and beyond, and the communication thus far has been really, really I think well-received by the practitioners, knowing the vigilance that we've added there. So we're looking in essence just to have a couple of tweaks to the forms so that there's more – even more prominence around reminding people how to actually capture a Child-Pugh B and C patient.

[Ritu Baral:]

And these are enhancements that FDA is aware of?

[Richard Kim:]

Well, so for what we do through our patient services when we do not actually mention our product specifically, we don't actually have to notify the FDA, but they're clearly aware of all of our promotional materials and materials that actually support Ocaliva in the marketplace today.

[Ritu Baral:]

Got it. And then my follow-up was if you saw any difference in behavior, whether we're talking the refill rates that you mentioned or physician prescribing behavior for Ocaliva now between the specialist community, the hepatologists, versus the community gastros who I believe you guys have been reaching out to for the last three to six months. Insofar as you guys are I guess changing messaging or intensifying messaging, is there a difference between how you approach those two prescriber populations and the patient populations that are cared for by those prescriber populations?

[Richard Kim:]

Sure. That's a great question. So we don't really generally see a lot of overall differences in the patterns between hepatologists and gastros, and mostly because most of our patients are still treated by gastroenterologists because there's just a whole lot more of them in the country. But I would say generally, the case was with every HCP and physician that we reach out to, we really want to make sure that they're very truly focused on PBC, the disease and the progression and the impact of the disease first. What I would say in general is we probably spend a little more time on that with less focus on community gastros than hepatologists. But our goal is to sort of take people on that journey and always focus on the impact we see first before we even get into the particulars of the products. So it's really been our commitment that we've made to really make sure PBC really is well-recognized appropriately, and our commitment hasn't changed throughout everything that's gone on here as well.

[Ritu Baral:]

Got it. If you guys could indulge me with one last question. This time it's for Lisa. Lisa, where do you see the next leg of ex-U.S. growth? You mentioned that European reimbursement discussions should wrap up by midyear next year. Where to next, I guess?

[Lisa Bright:]

Yeah. So I mean, we have, as you said, made really good progress with respect to our pricing reimbursement across the EU5 and Canada. Of course, as you'll know, securing national pricing and reimbursement is kind of the first step. Most of these countries, we now have to discuss access at a regional-type level. So that's kind of really going to be the next major focus for us and, obviously, some of the smaller countries out across Europe. And then outside of that, we'll work on a country-by-country basis where we see there being an opportunity. So I think, as I've mentioned on the last call for example, we filed in Israel and we'll continue to look at markets on an individual-by-individual basis. But our focus right now is really just cementing a really strong launch based on the good progress we've been making with national pricing and reimbursement.

[Ritu Baral:]

Got it. Thank you. And good luck, Rachel.

[Operator:]

Thank you. Our next question is from Ying Huang of Bank of America. Your line is open.

[Aspen Mori:]

Hi. It's Aspen on for Ying. Thanks for taking my question. So have you guys seen any impact from or on REGENERATE recruitment since the FDA safety communication? For example, do you have to ask every patient in the trial to consent again after reviewing the latest safety information? And has the monitoring protocol on REGENERATE been updated, given the safety issues as well? Thank you.

[Mark E. Pruzanski, M.D.:]

So, we don't comment on recruiting rates in ongoing clinical trials, but I did mention on our September 25 call that we have well over 1,300 patients randomized onto REGENERATE, making it not only the leading NASH Phase 3 trial, but also by far the largest. We continue to feel confident that the trial is on track with projected readout of the interim analysis in the first half of 2019. And I think you had another part of your question, or?

[Aspen Mori:]

Yeah. I wanted to ask if the monitoring protocol for REGENERATE had been updated given the new communications.

[Mark E. Pruzanski, M.D.:]

Yeah. As I mentioned a couple of minutes ago, we've taken the opportunity to step up vigilance across all of our clinical trials ongoing.

[Aspen Mori:]

Okay. Thank you.

[Operator:]

Thank you. Our next question is from Jay Olson of Oppenheimer. Your line is open.

[Jay Olson:]

Oh hey, guys. Thanks for taking my questions. I guess just to follow up on the Ocaliva label revision, is there any color you can provide on the gating factors that would lead up to the label revision? Is it just a matter of the FDA reviewing all the additional analysis and data that you've provided? Or do you expect an FDA advisory committee meeting. And then I had a question for Sandip.

[Mark E. Pruzanski, M.D.:]

We have no indication of an advisory meeting. As I mentioned, we are in a constructive ongoing discussion with the agency about the label update. We have provided them with all of the information I mentioned in my prepared remarks, and we feel good and confident about the benefit/risk profile of our drug remaining both favorable and unchanged. So the expectation is that through this discussion with the agency, we'll align on appropriate update to the label and get that finalized, if not by year-end then early next year.

[Jay Olson:]

Okay. Thank you. And then just for Sandip, I was curious about the comments made about the objective to streamline and stabilize the growth of operating expenses. Can you just talk about maybe what some of the factors are behind that objective? And is there any goals you could share with us in terms of operating expense growth? And then also, I wanted to wish all the best to Rachel.

[Sandip Kapadia:]

Thanks for the question. As I mentioned, I mean – I think, look, we're embarking on a process to just reduce our operating expense growth as we go further into next year or not. And any addition at this point is to provide guidance view. Our objective is to streamline operations, prioritize programs just as any company would generally do overall. So I mean, it's basically just as our company has become because we have more and more programs now as an organization, and we just need to have a more prioritized focus on things, so.

[Jay Olson:]

Thank you.

[Operator:]

Thank you. Our next question is from Andrew Berens of Morgan Stanley. Your line is open.

[Andrew Scott Berens:]

Hi. Thanks for taking the question. Maybe two questions. I just wanted to ask at the Liver Meeting, there was a concern circulating the investigators had to phone the REGENERATE and COBALT enrolled patients and then informed them of the safety issues and also offer the opportunity to drop out of the trial. So I'd like to ask whether that was actually the case in either trial. And I know you said you wouldn't talk about enrollment rates, but has there been a dropout increase after that communication? And then also I do have a question on the NASH services trial.

[Mark E. Pruzanski, M.D.:]

Andy, I didn't catch the entirety of your question, but you're talking about dropout rates in 303 in the REGENERATE trial?

[Andrew Scott Berens:]

Well, in either REGENERATE or COBALT. We had heard that the investigators had to actually phone patients that were enrolled in the trial and tell them about the safety communication, and then offer the opportunity to drop out of the trial, so I wanted to confirm whether that was the case? And have you seen an increase in dropouts in either trial?

[Mark E. Pruzanski, M.D.:]

Yeah. Look, Andy, as I mentioned a couple of minutes ago, we have stepped up vigilance on patient safety across all of our programs. I'm not going to comment on specifics in any ongoing trial, but as we've said, we remain very confident that REGENERATE is on track. With respect to patient enrollment, we're right now actively enrolling the outcomes cohort of the study, having already back in May fully enrolled the interim analysis cohort that's on track to read out in the first half of 2019. Second part of your question, you mentioned a NASH cirrhosis question?

[Andrew Scott Berens:]

Right. And I wanted to see – at this point you guys obviously have an IND in place, and does the FDA have a role in whether or not that trial starts? Do they actually have to endorse the start of that trial? Or is that completely up to the company?

[Mark E. Pruzanski, M.D.:]

No. Obviously, it's a function of a discussion with FDA about any such trial. And as I mentioned, we'll be coming back shortly with the details of the trial. We will be initiating it prior to year-end.

[Andrew Scott Berens:]

Okay. Thanks a lot. Appreciate the questions.

[Mark E. Pruzanski, M.D.:]

Thanks, Andy.

[Operator:]

Thank you. Our next question is from Alan Carr of Needham & Company. Your line is open.

[Alan Carr:]

Hi, thanks for taking my questions. Sandip, I wonder if you could clarify a bit about the OpEx guidance for this year. You mentioned that it looks like it's going to pick up quite a bit in the fourth quarter. I was wondering if that's entirely due to the cirrhosis trial. And can you clarify if – I believe you said that was some sort of one-time increase, and I just want to get a sense of whether some of that would spill forward into 2018 as that trial continues? And then also another one around the impact of the warning letter. Is there a similar review process underway with the EMA over some of the events reported here in the U.S.? Thanks.

[Sandip Kapadia:]

No. Thanks for your question. I mean, look, I think we are generally comfortable with the guidance that we have provided previously from $380 million to $420 million. What we basically said was, look, at this point we see us coming in the middle of that range. And I did mention that there would be, in the fourth quarter, some one-time expenses as you sort of start up a major Phase 3 program. So I think that that's something. At this point, I'm not really in a position to provide more guidance for 2018. I think that's something that we'll certainly follow up at the right time, but the key driver for the fourth quarter was effectively some of those costs.

[Lisa Bright:]

Okay. The second question, I mean, obviously, we're in regular conversations and discussions with the regulators in Europe and Canada. We've clearly been sharing with them the work that we've been doing to continue to educate around the appropriate use as per the label. At this stage, we've not been asked to make any changes to the label, and I think what's probably important to know, of course, is in Europe, there's an additional monitoring in any case for any new treatment that's effectively supported by what we call a black triangle designation, which encourages a reporting of any suspected adverse events which allows them to be swiftly evaluated and assessed. But at this point, we've not been asked to make any changes.

[Alan Carr:]

Great. Thanks very much.

[Sandip Kapadia:]

Hi, Alan. Just to maybe just briefly follow up and as you also think about 2018, as I mentioned, we're also on a process to reduce our operating expense growth overall, so that's something that we'll certainly be doing as we go into 2018, so. But right now, like I said, I can't really provide further guidance. You just want to keep that in mind as well.

[Alan Carr:]

All right. Thanks for that.

[Operator:]

Thank you. Our next question is from Joseph Schwartz of Leerink Partners. Your line is open.

[Dae Gon Ha:]

Great. Thanks very much for taking our questions. This is Dae Gon dialing in for Joe. Two quick ones. So just following up on the previous question on the EMA review process, can you actually provide us with an exact date of when that meeting occurred where the EMA said no change to the label needs to be made? And also, on the second question, following up on the AASLD presentation for AESOP trial, I know you previously mentioned that the ALP reduction is necessary but not sufficient as an alone endpoint, so has there been any further update from the FDA or the EMA in terms of what could sort of compound the ALP reduction for a Phase 3 pivotal trial? Thanks.

[Mark E. Pruzanski, M.D.:]

Sure. I'll take both questions. We can't comment on specific timing of regulatory correspondence, but suffice it to say that, as Lisa mentioned, EMA is not requiring the letter go out. With respect to AESOP, yes, we do believe that alk phos will be necessary, but likely insufficient to support a regulatory path forward to approval. My understanding is that a paper will soon be published detailing the results of the discussion of the FDA-hosted endpoints workshop in PSC that was held early last year. But as I mentioned in my prepared remarks, again, we're pioneering now a third indication here. It's going to take some detailed dialogue, we believe, with FDA to arrive at an appropriate path forward.

[Dae Gon Ha:]

Great. Thanks very much.

[Operator:]

Thank you. Our next question is from Joel Beatty of Citi. Your line is open.

[Joel L. Beatty:]

Hi. Thanks for taking the question. The question's on Ocaliva in PBC. Could you discuss the opportunity for further sales growth among physicians who are already high prescribers compared to physicians who are lower or not prescribing it yet, and how that's affecting the focus of the sales force? Thanks.

[Richard Kim:]

Sure. Hey, Joel. It's Richard. Yes. Hey, thanks for the question. So as far as continued growth is concerned, so I would say generally in the initial parts of our launch, we have seen patients very much aligned to the POISE criteria as the largest population of patients treated out there right now. Our label allows us to be used obviously in patients who have an inadequate response or intolerance to UDCA, which is not defined by a specific alk phos level. So we know that there are lots of patients, even in the currently high-treaters who have probably slightly lower alk phos levels. So we still see a lot of growth opportunity in those offices who jumped on Ocaliva quite quickly. And then beyond that, we know that this whole marketplace has really been a bit of an inch-deep-mile-wide phenomenon, and we are actively looking at ways to continue, expand our impact in a broader target audience as well. So we feel good about our opportunity to go deeper within those who already have experience in Ocaliva and still gain and garner new treaters to come into the mix as well.

[Joel L. Beatty:]

Great. Thank you.

[Operator:]

Thank you. Our next question is from Liisa Bayko of JMP Securities. Your line is open.

[Liisa A. Bayko:]

You know what, my questions have been answered. Thank you.

[Operator:]

Our next question's from Jim Birchenough of Wells Fargo Securities. Your line is open.

[Unknown Speaker:]

Hi. Thanks for taking the question. This is Yannan (50

[Mark E. Pruzanski, M.D.:]

Well, thanks for your interest in the NASH cirrhosis study. As I mentioned, we will be coming back shortly with details on the trial design, so I'm not going to talk about specific dosing questions today. I do want to say, though, that with respect to your reference to PBC and hepatically impaired patients specifically, again, completely different disease, number one. So you have very different effective dose exposure in the liver of a PBC patient versus a NASH patient. And then, also, with respect to the upcoming Phase 3 NASH cirrhosis study, it will be in compensated cirrhotics with no or perhaps at most mild hepatic impairment. So again, very different from the patients with decompensated, significantly more advanced end stage disease.

[Unknown Speaker:]

That's very helpful. And another question is on the discontinuation rate for or kind of in PBC patients. I know you commented on persistence (52

[Richard Kim:]

Great points. So I would say generally what we see is consistency with Urso with the exception of the last couple of weeks I did mention earlier, in the prior remarks, that we have seen a higher rate of refills not recurring as quickly as we would normally see. Generally, what we're hearing through our services and from some patients directly is some patients who have delayed are waiting to see their physician before they reinitiate. And, as you know, sometimes you can't get in to see a specialist right away. It might take weeks and, in some cases, it could take months to get back into the office. So I think some of this will filter and sort its way out. But I think one of the things that's important that we have heard in general as well from the physicians is fundamentally the overall belief in the product still. So I think time will sort some things out here, but I also do think it will take some time for some of these patients to get back and see their physician as well.

[Unknown Speaker:]

Got it. Thank you for taking the questions.

[Operator:]

Thank you. Our next question is from Brian Skorney of Robert Baird. Your line is open.

[Brian P. Skorney:]

Hey, good morning, guys. Thanks for taking the question. I guess on the September call, the discussion around the five patients with liver assays that did not have hepatic impairment. There was some discussion around three of the patients. I think Dr. Plant (54

[Mark E. Pruzanski, M.D.:]

Yes. Thanks, Brian. Look, I think that the details you're alluding to just underscores again just how fraught it is to look at these post-marketing cases being reported into the company and into the FAERS database. There's a lot of complexity here. Each case requires very careful follow-up in the adjudication. As I mentioned in my prepared remarks, we've completed now an external expert adjudication of these and other cases, and we come away quite reassured with the findings of these experts that have now been reported into FDA and re-affirm our belief in the benefit/risk of our drug. Not today going to go back into individual cases. We'll come back to it at the appropriate time, once the label update has been finalized, and we'll talk to you in more detail then about where we come out.

[Operator:]

Thank you. At this time, I'd like to turn the call to Mr. Pruzanski for closing remarks.

[Mark E. Pruzanski, M.D.:]

Yeah. Thanks everyone for listening in today. I just want to leave you with the message that going forward we remain laser-focused on optimizing the PBC launch of Ocaliva worldwide and advancing our leading Phase 3 NASH program that's on track for first-data readout in first half of 2019 and expansion of our label for OCA in NASH and then of course a focus on other progressive non-viral liver diseases like PSC and biliary atresia. We'll look forward to coming back to you on next earnings call.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.