Intercept Pharmaceuticals Inc (ICPT) 2017 Q1 法說會逐字稿

Thank you for joining the Intercept Pharmaceuticals 2017 First Quarter Financial Results Conference Call. (Operator Instructions) Please be advised 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 2 weeks from today's date.

At this time, I would like to introduce Dr. Mark Vignola, Intercept's Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on today's call.

Before we begin, 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 timelines for our development programs for obeticholic acid, or OCA; 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 carefully read the risks and uncertainties described in our reports filed with the SEC, including the Risk Factor section of our most recent annual report on Form 10-K and Intercept's 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 conclusions can be drawn concerning the safety or efficacy of OCA in those indications at this time.

The format for today's call will include remarks from our CEO, Mark Pruzanski; our Senior Vice President and Head of U.S. Commercial, Richard Kim; our President of International, Lisa Bright; and our Chief Financial Officer, Sandip Kapadia.

We'll then open up the call to take your questions.

Rachel McMinn, our Chief Business and Strategy Officer, is also available to answer questions during the Q&A portion of the call.

We would like to note that we have slides associated with today's call. These can be accessed via the webcast and on our Events section of our IR website.

At this time, I'd like to turn the call over to our CEO, Dr. Mark Pruzanski.

Thanks, Mark. Good morning, and thank you for joining us on today's call. 2017 has gotten off to a great start for Intercept, with substantial progress made across all of our key areas of focus in the business. We've continued to make solid strides in our efforts to bring Ocaliva to PBC patients in need in the U.S. and Europe, demonstrating steady quarter-over-quarter growth.

We've achieved a major milestone in our flagship REGENERATE trial by completing enrollment of our interim analysis cohort. And we expect to announce results from 2 clinical trials in our NASH and PSC programs midyear.

I'm pleased with our overall progress to date in 2017 and look forward to executing on our priorities over the remainder of the year.

I'd like to now provide some brief updates on our programs. Starting first with our ongoing PBC launch, we are reporting worldwide Ocaliva sales of $20.6 million for the quarter.

The first 9 months of the U.S. launch have been marked by significant progress on multiple fronts, including in education and reimbursement. We continue to believe that Ocaliva has solid market potential in PBC and that we'll continue to execute on our plans to realize our vision as we enter our second year of launch.

While we still have much work ahead of us, we expect steady growth throughout the remainder of 2017.

We also continue to make meaningful strides outside of the U.S., which in the first quarter was underscored by initiation of sales in our biggest markets, Germany and France, as well as rapid endorsement of Ocaliva by NICE in the U.K.

Looking forward, we will continue to focus on negotiating the reimbursement landscape to establish a solid foundation for long-term growth internationally.

Moving now to our NASH program. Starting first with our flagship REGENERATE Phase III trial, I'm pleased to report today that we've completed enrollment of our interim analysis cohort. As a reminder, we've targeted approximately 750 NASH patients with advanced Stage 2 or 3 fibrosis for the interim analysis, which is intended to support filing of a supplemental NDA for accelerated approval of OCA in this indication.

As a further reminder, we've also been recruiting an exploratory cohort of patients with Stage 1 fibrosis and concomitant risk factors and, with them, currently have over 1,000 patients enrolled in the trial.

As a result of today's announcement, we are narrowing our guidance for the anticipated timing of top line results from the REGENERATE interim analysis to the first half of 2019.

We plan to continue enrolling REGENERATE, targeting a total of approximately 2,000 patients, whom we will follow through outcomes with the goal of confirming clinical benefit on a post-approval basis.

Next, we are providing more specific guidance for the timing of top line results from the Phase II CONTROL trial, which we expect to report in the middle of the year. As a reminder, CONTROL is a placebo-controlled Phase II trial in approximately 80 NASH patients with fibrosis and cirrhosis, evaluating 3 doses of OCA and at least 2 doses of atorvastatin over a 16-week period.

The key endpoints include effect on LDL and lipid metabolism, and we hope that the data will serve to guide future physician decisions on appropriate use of statins in combination with OCA in patients with NASH.

Last, as previously announced, we plan to start 2 other trials in our NASH program this year. First is a Phase III trial of OCA in NASH patients with cirrhosis, which we expect to initiate in the second half. And second, we intend to conduct a Phase II trial of INT-767, our dual FXR/TGR5 agonist in NASH patients with fibrosis, also slated to start in the second half of this year.

And finally, an update on our cholestasis development program. We expect to report top line results from the Phase II AESOP trial in primary sclerosing cholangitis, or PSC, in the middle of this year. This is a devastating disease with no approved treatment options and a more complicated course compared to PBC. Positive data in PSC would further reinforce the potential of OCA therapy in various other cholestatic liver diseases where high unmet medical need exists.

Following the results from AESOP, we will seek advice from regulatory authorities to determine an appropriate path forward. Additionally, we continue to enroll the Phase IV COBALT trial intended to confirm Ocaliva's clinical benefit on outcomes in PBC, consistent with our post-approval regulatory commitments.

Consistent with our prior guidance, we believe this trial will take several more years to read out. As you can see, we have significant positive momentum heading into the middle of this year and we look forward to coming back to you soon to report on our progress.

With that, I'd now like to turn the call over to Richard to provide you with an update on the U.S. Ocaliva launch.

Good morning. We achieved first quarter net U.S. Ocaliva sales of $19.8 million, which compares to $13.4 million in the fourth quarter of last year, a $6.4 million increase.

We're pleased with our results to start the year and believe that we are building a good foundation for PBC to develop into a solid long-term market opportunity.

As you can see on the accompanying slides, we've observed a steady increase in total prescriptions since launch, with recent non-holiday averages about 300 scripts per week.

General feedback from our customers about Ocaliva remains very positive, and we continue to be encouraged by the demand generation that we can monitor through our patient services hub, Interconnect, and other distribution channels.

Additionally, thus far data suggests that patients initiating Ocaliva are staying on therapy consistent with our prelaunch assumptions. As we're about to approach our first year anniversary since approval, we can say that we're pleased with our progress thus far. We've worked to support increased education and awareness of PBC with physicians, payers and patients.

Since launch, we have executed over 350 PBC disease and Ocaliva-branded speaker programs, reaching over 3,000 physicians and office staff. Also, our focused approach for physician coverage has resulted in now having the majority of our high potential physicians already having prescribed Ocaliva at least once.

From a managed care perspective, our team has made very good progress with coverage, and we now have more than 282 million lives covered. And coverage continues to remain consistent with our label.

The average time from written script to drug in patients' hands is consistent with the last quarter and is approximately 3 weeks, which is within the industry standard for obtaining an orphan specialty therapy.

As we move forward, we see ourselves entering the next phase of our launch. We've been successful in penetrating top-tier physicians who have the highest number of PBC patients. We're now expanding our efforts to reach deeper into our target physician list with physicians who care for fewer PBC patients.

These physicians tend to be community-based gastros who see PBC patients less frequently and are generally less knowledgeable about PBC. So it will require a greater effort from us to gain Ocaliva adoption from these physicians.

To continue to support steady growth of our business, we're focusing on enhancing our executional efforts. We're streamlining messaging in framing the unmet need for PBC patients with an inadequate response to UDCA. Our team continues to work to identify appropriate PBC patients for Ocaliva in direct face-to-face interactions with physicians and by leveraging data sets to help us better target the right physicians.

In the second half of the year, we will be enhancing and modifying our target list for the sales force and for our expanded digital reach programs. Also, we're increasing our efforts in educating nurses and midlevel providers to further enhance our persistency initiatives.

We feel good about what we've accomplished since launch. Our confidence continues to grow about our future prospects and achieving our long-term goal for Ocaliva to become the standard of care for patients with an inadequate response to UDCA.

We know that we still have a lot of work ahead of us but remain dedicated, knowing that we are providing hope to people living with PBC.

Thanks for your attention. And now I'd like to turn the call over to Lisa.

Thanks, Richard. Good morning, everyone. I'm excited to provide an update on our international business. Following European approval in December 2016, international sales for the first quarter of launch were $0.8 million, in line with our expectations for modest sales this year. Although final reimbursement is yet to be concluded, we have made good progress in our negotiations with national payers, which generally takes 18 to 24 months to be complete across all countries in Europe and Canada.

In the interim, access is available in some forms in several countries, including France and Germany, which account for most of the revenues seen to date. Our discussions have been positive so far with payers with broad acceptance of the unmet need in PBC. A good example of this was the formal publication last week of the guidance by the highly regarded U.K. National Institute of Clinical Excellence, or NICE, to recommend the usage of Ocaliva for patients with PBC aligned to our label and with no restrictions based on their assessment that this would be cost-effective use of NHS resources. This has been one of the fastest approvals for an orphan medicine for NICE, coming only 4 months after EMA approval.

The NHS in England now have 90 days to implement the guidance before Ocaliva will be available to patients.

We look forward to continuing this positive momentum with the ongoing reimbursement discussions in other countries. In preparation, we've established our sales force, who are working with health care providers today in all of our early launch countries.

That said, we continue to expect Germany and France to be the primary drivers of ex U.S. revenue for the remainder of the year and demands will be weighted towards the back half of the year.

I'd also like to highlight that the European Association for the Study of the Liver Congress took place in Amsterdam in mid-April, during which their new treatment guidelines for PBC were published. In the guidelines, Ocaliva is recommended for second line therapy in patients not adequately responding to URSO treatment or for those intolerant to URSO. The guidelines are consistent with our clinical data and our label, and it's terrific news for patients that Ocaliva was so quickly adopted into the treatment guidelines following European approval.

We believe this underscores possible excitement amongst the PBC community for innovative therapy. During the EASL meeting itself, our first major Congress since European approval, our commercial and medical teams had productive and engaging interactions with over 4,000 physicians.

It's worth mentioning that over 60 posters and presentations on cholestatic diseases were made during the week, a significant increase over previous years. And our PBC symposia alone was attended by over 300 physicians.

So in summary, we started the year with great momentum towards our goals of accelerating access for patients with Ocaliva.

With that, I'd like to turn the call over to Sandip.

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 March 31, 2017.

I would like to take this opportunity to give you a brief overview of 3 key areas: our first quarter results, our cash position and remind you of our financial guidance for 2017.

So let me get started with our first quarter 2017 results. We recognized worldwide Ocaliva net sales of $20.6 million, of which U.S. net sales for the quarter were $19.8 million, which reflects our estimate of prescriptions filled.

Please note that, until we establish a history of sell-through, we will be booking Ocaliva sales based on this method. As Richard mentioned, we continue to expect steady growth throughout the remainder of 2017.

We also recognized $0.8 million of Ocaliva ex U.S. net sales. We continue to expect international revenues to be heavily weighted to the back half of this year and driven by pricing and reimbursement on a country-by-country basis. Recorded on our balance sheet, $4.2 million from deferred revenues, representing products sold to distributors but not yet shipped out to patients.

Gross to net for the quarter was at the higher end of our guidance of 10% to 15%. COGS was de minimis for the quarter as the costs related to manufacturing were expensed prior to the FDA approval of Ocaliva.

The company expects cost of goods to remain negligible until previously expensed supplies of OCA are sold. GAAP operating expenses for the quarter were $105 million while non-GAAP adjusted operating expenses were $90.1 million for the quarter.

We continue to invest in our commercial Ocaliva launch in the U.S. and Europe while expanding clinical development activities to support OCA into NASH. We also recognized $7.2 million of interest expense from our outstanding convertible notes in the quarter.

So let me move on to our cash position. We ended the first quarter with $608 million of cash, cash equivalents and investable securities on our balance sheet.

And finally, with regard to our guidance for 2017, we continue to expect gross to net for the year to be at the lower end of the 10% to 15% range.

We are reiterating our guidance for non-GAAP adjusted operating expense for 2017 to be in the range of $380 million to $420 million.

For the full year, we expect interest expense of approximately $30 million, which includes the amortization component from our outstanding convertible notes.

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 expenses under GAAP.

Please refer to our press release from earlier today for a reconciliation of our historical non-GAAP adjusted operating expense to GAAP operating expense.

So with that, I'd like to turn it over to the operator for some questions. Operator?

(Operator Instructions) Our first question comes from the line of Alethia Young from Crédit Suisse.

Congrats on completing enrollment. I joined a couple minutes late. So just with the enrollment timelines, I was just wondering, as you kind of changed the endpoint, did that kind of help kind of push the cadence along, or can you broadly characterize the enrollment cadence over the period of time during the enrollment cycle?

And then, second, I'm just curious about, with the doctors that are treating Ocaliva, do you think that it's a matter of just time for them to putting more patients on or is it experience with the drug and maybe characterize how discontinuation stands versus your expectations?

Thanks, Alethia. I'll take the first question and hand it to Richard. No, I don't think that the update on the co-primary endpoint going from an and to an or impacted enrollment. As we mentioned on the last call, we've been doing a lot of work on a number of areas to increase the rate of enrollment, and those efforts clearly paid off. I'm very, very happy to have reported today that we completed the interim analysis cohort. We have, by far and away, the largest Phase III study and momentum looks good to continue that enrollment.

Yes, hi, and it's Richard. Yes, as far as the question as far as the physicians treating with Ocaliva, yes, I'd say it's a bit of a mixed bag. Obviously, we have physicians who have gained a lot of experience who have treated a lot of patients, but we still have a broad treater base that we have to continue to build. So I think we're in a pretty good spot. In general, when people have prescribed with Ocaliva, feedback has been quite positive. But there's a lot more physicians that we still have to reach.

And as far as discontinuations are concerned, right now, how we've modeled things is really using UDCA as a good role model, and I think we're seeing a lot of things consistent with what UDCA has been in the past as well. So I hope that answers your questions.

And our next question comes from the line of Ritu Baral from Cowen and Company.

I have a few questions on the new outreach to the community-based gastros that will be going on going forward. One, how will this detail be different than sort of the first tier? Two, will there be any additional sort of streamlining of the Interconnect hub and system for this new target list? And three, what sort of proportion of the overall PBC population do you think this new tier of community-based gastros is in charge of?

Sure. It's Richard. Great questions. So as we go out and reach more of the community gastros, I think for us a lot is going to be focusing on educating more on PBC, the disease state itself. A lot of the community gastros obviously see less patients. So we're going to be focusing a lot of our efforts on really educating about the disease state. What we can say is once people understand the disease state, they are clearly a lot more open to wanting to learn more about the product Ocaliva itself as well.

I think to your second question, as far as Interconnect is concerned, I think, like a lot of companies, when you launch with a patient services hub, we've learned a lot and we feel really good about where Interconnect is. I think it is adding a lot of value to customers.

As I mentioned earlier, about 3 weeks on average from a prescription to getting drug in patients' hands, and that's sort of consistent with Interconnect and specialty pharmacy channels. So we feel pretty good. And by the way, Interconnect seems to add even more value when you go further into the community because they have less office resources to help them with these patients.

And as far as the percentage of patients, we know that PBC is spread quite diversely. So holistically, there's a lot of patients out there in the community. It's just that these physicians tend to have fewer on average. So I can't give you an exact percentage, but we can say that there's a lot of patients that are out there; hence, really why at this phase of our launch we're focusing on the further outreach to those physicians.

So hope that answers your questions, and we'll go from there.

Richard, just a quick follow-up. Do you expect any wobble in the 3-week time to fill as you expand the detail?

You know, I'd say probably on average what we've learned is payers have become a little bit more educated on receiving the scripts. We've become a little bit better. And as we go out there, it sort of wobbles a little bit below and a little bit above on average, but I think 3 weeks is probably a pretty good surrogate going forward.

Our next question comes from the line of Ian Somaiya from BMO Capital Markets.

First question I had for you is just if you could -- Richard, maybe you could remind us what the payer mix is and what, if any, impact you might have experienced from the Medicare population in the first quarter?

And then I had a question on REGENERATE. Just trying to -- just was hoping maybe you could break down the patient characteristics you would expect, specifically breakdown between the F1, F2, F3 patients. Gilead mentioned on their earnings call that they're having quite a bit of success enrolling F3s, and I was wondering if that's what we should expect in the REGENERATE trials?

Sure, Ian. It's Richard, I'll take your first question. As far as the payer mix is concerned, it's very consistent with what we saw -- what we assumed prelaunch. So approximately 60% commercial, about 30% Part D and about 8% Medicaid. And then others being more the federal -- other federal channels. And what we see so far with that is -- sorry. What's the second part of the question again? Do you mind repeating?

If there was any impact from the Medicare population.

No, I think, as Sandip had alluded to earlier with some of higher G to Ns, obviously people go through their donut hole and other things early in the year. So Sandip has provided guidance in that 10% to 15% G to N range. But that's sort of more the impact that we saw early in the year. And we expect it to sort of work its way through as we go forward through the rest of the year.

And then Ian, this is Mark. With respect to REGENERATE, just a quick correction. You mentioned Gilead enrollment of F3s. I think what they said is they're having a lot more success with the F4s. And that's actually not surprising. It's just easier to diagnose a patient with cirrhosis than one with even advanced fibrosis.

In REGENERATE, just to remind you, it's a precirrhotic study and the intention to treat population is comprised of patients with advanced fibrosis with Stage 2 and 3. And we actually, in our study, the majority of the patients enrolled are F3s. So we've actually had quite a bit of success learning along the way how to identify F3 patients.

The Stage 1, the earlier stage fibrosis patients with risk factors are an exploratory cohort in the study.

Our next question comes from the line of Salveen Richter from Goldman Sachs.

So just wondering if there's any update on your statistical analysis plan for the REGENERATE study?

And then secondly, with INT-767, looks like you're initiating the Phase II in the second half. Could you just walk us through maybe trial design and where you see it fitting in the NASH portfolio and any thoughts on BD activities outside of Ocaliva?

Yes, and sorry, just to clarify, with respect to the SAP in REGENERATE, are you just asking a general question or about the endpoints?

Just really about the endpoints and how we're thinking about the alpha playing out between the interim and final analysis and the endpoints as well. Just wanted to clarify that.

Yes, we haven't -- so I think what you're referring to, this is a single study with the interim and then the final primary endpoint on outcomes. We're splitting the alpha between those two. We're not, for competitive reasons, going to get into any real detail. We do have the 2 primary endpoints that, as we've disclosed before, we've agreed with FDA now, have gone from a co-primary where we need to meet both in the entire population to an or. So the study can succeed if we meet either one. Of course, we're powered on both.

And then with respect to 767, as I mentioned in my prepared remarks, we're gearing up to start a Phase II study in patients with NASH fibrosis. And we'll be disclosing additional details on that study when we actually initiate it.

And then to your third question on business development activity, we're very involved in discussions with all of the relevant players in NASH and obviously focused on looking at combination therapy in the future. But nothing really to signal at this point in time. As you know, it's very early days for the overall field. There's not a lot of mechanisms, really no other mechanisms besides FXR with validated data and large clinical trials with very solid proof-of-concept data. So I think it's just early days, so stay tuned.

And our next question comes from the line of Ying Huang from Bank of America Merrill Lynch.

This is Aspen on for Ying. Just a couple quick ones. Could you talk a little bit about the protocol design for the Phase III NASH cirrhosis trial?

And then for REGENERATE, now that you've completed the interim cohort enrollments, if it's a 72-week trial, is there a reason that you wouldn't expect data at the end of 2018 as opposed to the first half of '19?

Yes, thanks for the questions. With respect to the NASH cirrhosis study, we're not prepared to get into any real detail at this point. We will when we initiate the study. As I mentioned, we're going to be doing so in the second half. I think, suffice to say that histology is an important thing to look at in NASH cirrhotics.

With respect to the 72-week endpoint, we are guiding to first half '19. And just recall that it's not just a question of last patient out of the study. There's extensive data cleaning after that point to get to database lock. And I don't think it would be advisable to project data within 2018.

And our next question comes from the line of Andrew Berens for Morgan Stanley.

Congrats on the commercial and regulatory progress. Just had a question about the controls. I know you had a slide at the end in the Appendix, but can you just remind us what the key inclusion and exclusion criteria are going to be in regards to patients that are already on pre-existing statins?

So patients who are on statins, if they're on statins are washed off of statins for the purposes of this study. So it's going to be a mix of patients who are statin-naive as well as statin-experienced. And then in terms of other inclusion criteria, these are patients with definitive, biopsy-proven NASH but can have anything from F1 all the way up through F4. So we do have some cirrhotic patients in here as well.

Okay. I just -- I had recalled, when you presented at AASLD, the study design, that there was -- you weren't going to allow some patients with -- that were on statins that didn't have adequate control or if they were on a high level of statins. Is that still an inclusion criteria?

We can talk with you on specifics. I'm sure that, beyond a certain threshold, if somebody is not responsive to a statin and that is sort of their homeostatic state, that those patients, for the purposes of this trial, would not be included. But exactly what their prior dose was, we'd have to go back and get that number to you specifically.

Okay. Do you know offhand what percentage of patients, NASH patients are on statins at baseline, just in general?

Andy, this is Mark. Based on what we know and the FLINT study, we would estimate that about half of NASH patients are on statins, at least in the U.S.

And our next question comes from the line of Joseph Schwartz from Leerink Partners.

Congrats on all the progress. So I guess, on the AESOP trial in PSC, that data this year, beyond ALP, what are you hoping to see in terms of liver and UC markers? And how much work needs to be done by you or the community through supergroup type initiatives to validate an endpoint for the FDA?

Yes, good question. So look, our definition of success in this proof-of-concept study would be to see significant falls in alkaline phosphatase as a primary endpoint and an adequate safety profile to support moving forward. There's a clear huge unmet need, no approved therapies in PSC, a much deadlier disease course than PBC. And the regulatory authorities clearly have taken notice. FDA hosted early last year an endpoints workshop that was very well attended by industry and academia. And clearly, a lot of interest in defining endpoints. But as I mentioned in my prepared remarks, based on the success of the study, we will be going to the regulatory authorities to discuss the path forward.

Yes, this is Rachel. Just to add on to that, so as Mark mentioned, ALP is really obviously the primary endpoint of the study and the primary focus. In terms of other potential markers, we really wouldn't want to set up an expectation in this study. This is just a proof-of-concept study. It's a very short duration. You know, something like bilirubin, I think we would want larger numbers of patients. We would want to have a longer time in order to monitor that. But that would be a marker in a future study to pay attention to: could we see stabilization of bilirubin.

And then in terms of ulcerative colitis, as you were kind of hinting at, for those of you who don't know, ulcerative colitis is found at a very high prevalence in this population. Upwards of 3/4 of patients with PSC have concomitant inflammatory bowel disease. But the patients enrolled in this study were well controlled. So this isn't a study that's looking -- that should be signal finding on UC specifically. So something we could consider in the future.

And then on NASH, diagnostics continues to be a growing focus. Do you see the field converging on any biomarkers in particular? We've seen a lot of things studied, and I'm wondering what you in particular are doing to support less invasive identification of patients who are appropriate for treatment with OCA in time for potential market launch?

Yes, it's a good question. We and everyone else in the field are avidly looking at noninvasive diagnostics and incorporating them into our studies. I think that what we've seen recently is a lot of focus on the imaging modalities, particularly work on FibroScan, the ultrasound-based technique, and for -- at least for research purposes in the clinical trial context, MRI, and particularly MR elastography, multi-scan and PDFF. There are obviously other biomarkers that are being looked at and quantitative function tests but probably a little less advanced.

And just to add on to that, I think if you review some of the abstracts presented at EASL, you'll see that very readily available technologies today, whether that's FibroScan or even simple algorithms like APRI or NFS or FIB-4, these are very good at negative predictive values. They have a very high rate of being able to say, if you're under a certain value, the chances of you having advanced fibrosis are very, very low. So we think that this is already starting to gain traction in the community.

Coming in and doing more specificity and getting in -- I think the more difficult part is trying to distinguish between an F2 and an F3 or an F3 and F4. And a lot of work is being done there.

But just to remind you, we do have evaluation of many of the technologies that Mark mentioned specifically in REGENERATE. So we will, when that study is unblinded, have access to a lot of data where we'll be able to start to piece together correlations. Obviously, we've got data just from screen fails that we're able to even look at today.

So I think we're learning a lot. There will be a lot of information, not just from us, but from every other company in the space. So keep in mind that this isn't just an Intercept issue but it really is an industry issue for anyone that wants to play in NASH. And I think everyone is really aligned very well behind that. You've heard comments from other companies that are very dedicated to replacing biopsy as well. So we're optimistic that in the next couple years there's going to continue to be very good evolution. And ultimately the Phase III trials that are ongoing will help support those types of correlation to replace biopsy.

And our next question comes from the line of Joel Beatty from Citi.

For PSC, could there be more regulatory clarity on potential Phase III endpoints around the time you announce the Phase II AESOP data around midyear? Or is that something that you expect to be a longer term discussion with the FDA?

And then my second question is, for OCA in PBC, could you characterize the discontinuation rate you've been seeing?

Yes, so in answer to your first question, it really is the latter. There is no defined regulatory path right now. So we would need to go in to talk to the regulatory authorities based on -- after the AESOP study reads out.

Second question I think was for Richard.

Sure, and as far as discontinuation rates, once again, it's still relatively early days for this, but I would say we're looking at things that are more consistent with what we've seen from UDCA in the past as well.

And then to just add on, Joel, to your first question, just to remind you what Mark mentioned in an earlier answer to your question, there was an FDA workshop meeting on PSC specifically dedicated to endpoints, so there has been some real work done by the agency to try to really educate themselves and learn from the experts out there. So there is a high unmet need here. We think there is an eagerness. So again, if the data warranted, we would go in and have those discussions. But certainly, as Mark said, at the time of the data that's just going to be the first we have the data. We then go in to regulatory agencies and have those discussions and come back to the markets after.

And our next question comes from the line of Liisa Bayko from JMP Securities.

Actually, a lot of mine have been answered, but I wanted to ask about 767. Can you maybe talk about the relative selectivity for FXR versus TGR5 for this product versus Ocaliva?

And then really just mechanistically or strategically, what are you trying to do by getting a little bit more focus on TGR5? I know there's a little bit of controversy out there about targeting -- about that target. And maybe you can talk to us about the benefits that you see.

Sure, Liisa. So just 767 is a dual FXR/TGR5 agonist, in contrast to OCA, which we continue to be a selective FXR agonist. It's about threefold more potent on FXR, so around 30 nanomolar UC50 on FXR. And it's about 900 nanomolar, close to 1 micromolar, on TGR5. So it's significantly more potent on FXR, but it does have TGR5 activity.

You know, the controversy that you alluded to is whether or not there are target-related effects with respect to TGR5 and whether that -- those effects are implicated in pruritus that's seen. We think that the evidence is mixed for this. And in fact, there's -- I personally am not convinced by that thesis.

No one has studied a TGR5 agonist in the clinic so far. So our experience in patients will be the first. And I think that we'll just have to see.

I think in terms of the relative -- the differentiation, we can only comment on what we've seen preclinically. But as I've said in the past, in a number of different animal models of liver and other diseases, 767 has consistently looked better than OCA and differentiated. So that's really what we're after in the clinic. But again, until we have results in patients, it's premature to speculate on what we'll see.

Okay. And then just to clarify just structurally, is this also a bile acid or does it have some other structure?

It is a bile acid analogue. But it's structurally different from OCA inasmuch as it doesn't get conjugated in the way that bile acids typically do. So it's actually -- it's a move quite a bit away from a natural bile acid.

And our next question comes from the line of Jay Olson from Oppenheimer.

My first question is related to the Ocaliva sales performance in the first quarter. Management had guided to modest sequential sales growth in the first quarter, yet obviously you've delivered 54% growth. So what were some of the surprise factors that drove the higher-than-expected sales growth? And can you comment on how those factors might shape Ocaliva sales growth in future quarters? And then I have a follow-up question.

Yes, hey, Jay, it's Richard. As far as the factors are concerned, I wouldn't necessarily say there were surprises. I think this is just good, solid execution of our launch plan. As we go through things, it takes time to educate the physicians and our audiences out there. So I'm not -- when we talk about steady, it's just about this is a disease where it takes a lot of time for change. And I think we have seen the effects of our consistent kind of focus on educating the marketplace.

So it's hard to predict exactly. I think that's why we keep using the words steady growth. But I think we're really pleased with what we've seen so far in the marketplace. And once again, I really do believe that our key has really been reaching the right physicians and really providing the right level of education in a setting where nothing has been different for 20 years.

Okay. And then with regard to the potential for future combination treatments of NASH, Intercept has consistently said that FXR agonists would form the backbone of potential combination treatments. And that belief seems to have been confirmed with recent external validation in the form of abstracts at EASL. And there was a partnership between 2 of your competitors. Can you just help us understand what Intercept is doing to advance the potential for combination treatments of NASH with FXR? And when should we expect to see progress on that front in the form of abstracts at scientific meetings or external partnerships or any other activity to drive combination treatments of NASH with FXR?

Yes, it's a good question. And you're right in saying that FXR does look increasingly solid as future backbone of NASH therapy. And frankly, that's based on the fact that, so far, it's the only mechanism and, frankly, our therapy OCA is the only one to have shown solid improvement in all key histopathologic features in NASH, not only the key features of steatohepatitis itself but, more importantly, fibrosis improvement.

So yes, we do continue to very much believe that FXR agonists and specifically OCA will form backbone therapy in the disease.

With respect to combinations, we have been looking very seriously at different putative mechanisms. It is, even with the flurry of activity and more recent early proof-of-concept data presented at EASL and at other meetings, it's still very early days. But we are working hard on this. And a lot of work has been going on behind the scenes, especially preclinical and diligence, et cetera. So just stay tuned. You will be hearing more from us on combinations.

And our next question comes from the line of Alan Carr with Needham & Company.

I guess to push on that point from Jay a little bit more, you all had cautioned a bit about how sales might look this quarter. Was it different from what you had expected because of something around gross to net or just a lot more patients than what you expected?

And then also, can you comment on the baseline characteristics for patients that are using the drug? Has that changed since initiation? Just wanted to get your thoughts on disease severity and that sort of thing at baseline for patients taking the drug.

And the last one is the opportunity in Europe relative between Britain, Germany and France.

Hey, Alan, it's Richard. Yes, I'll take the first couple. As far as -- as we think about our Q1 performance, I really think it just comes down to really good, solid execution. It's hard, as we go into the new phase, we have a lot of plans (inaudible) early in the year, but I think our performance in Q1 is really based off of just really good, solid education and execution from our teams.

When you think about the baseline characteristics of the patients that we see being treated today, they're pretty similar to what we saw early on. The vast majority are overlapping with the POISE criteria that we see; elevated alk phos levels. Sometimes we have patients with elevated bilirubin levels. But we're seeing pretty consistent mindset of who is being treated thus far.

Sandip, would you like to make any other comments?

Yes, this is Sandip here. Thanks, Alan. I think on gross to net, essentially we had guided in the first quarter towards the high end of our range of 10% to 15%. What I'd say, it probably came in towards still the high end of the range but maybe not as high as maybe at the top end. This was, as we discussed in the first quarter, this is our first quarter and a lot of co-pay resets and so forth. So it was an experience also for first time going through it for us. But there wasn't anything, let's say, very surprising overall.

And I just want to reiterate, as we go forward, we anticipate future quarters to be on the lower end of the 10% to 15% range.

Great. And if I take the question around Europe. So the number of patients basically who were under treated care who have an elevated ALP above 1.67 is very similar across the core European countries as the U.S., but of course what is very different is pricing. So as we've guided before, generally the pricing in Europe tends to be 40% to 50% that of the U.S. price. And as we've said so far, this quarter our sales have really predominantly come from France and Germany. So even though we haven't yet fully concluded pricing reimbursement, there is access to Ocaliva across some countries.

So, so far it's very early days. As we mentioned earlier, NICE did approve Ocaliva for reimbursement against our full label with no restrictions. But as with all of these things, actual implementation can take a little time. So, for example, in the U.K. itself, it's going to take at least 90 days before that guidance can be implemented.

So as we've guided, it's going to be kind of modest sales this year with most of it coming in towards the end.

With respect to the long-term opportunity in those 3, is there substantial differences that you would expect between them in ultimate use of this drug or no?

In between France, Germany and the U.K., actually, the number of patients in each of those is actually pretty similar, and of course it's all going to depend on pricing and reimbursement. And we won't have that concluded, of course, in France and Germany really until beginning of next year.

And our next question comes from the line of Jim Birchenough from Wells Fargo Securities.

This is actually Yanan Zhu in for Jim. Congratulations on all the progress. Two questions from us. One is Ocaliva sales. Could you characterize how much of the sales increase is due to [upped] titration and how much is due to increasing patient numbers?

Sure. As far as the [upped] titration is concerned, it's the same price for the 5 milligram and the 10 milligram. So there's really no uptick from sales from that perspective. And basically, this is all being driven by an increase in demand.

Got it. And our second question is related to some recent data that Gilead projected on their ACC inhibitor, where they showed, in small patient numbers, but they did show some kind of increased reduction in fibrosis as early as 12 weeks. The mechanism of action of that drug is simply to reduce new synthesis of fat, as opposed to OCA, which do have antifibrotic and anti-inflammatory mechanisms. So I was just curious about your thoughts on ACC and, perhaps more broadly, the compatibility with OCA down the road?

Yes, this is Mark. Yes, I think you're alluding to the 12-week noninvasive study. So I just want to caution that, when you talk about fibrosis benefit, this was done by virtue of imaging with MRI, with MR elastography, and not by biopsy, which is really the only definitive way right now to establish an antifibrotic benefit. But look, the data looked intriguing from this and other mechanisms that are being tried, but early days.

With respect to plausibility of an antifibrotic effect, there's potential for an indirect effect that you could get from improvement of underlying disease. But I would hypothesize that 12 weeks is a relatively short time to show indirect benefit. So really I think you're going to have to wait to see the outcome of larger, well controlled biopsy-based studies.

I think that mechanism, just to throw it out there, we don't know enough about the long-term safety profile. And that's something that at least we've heard some questions around. So de novo lipogenesis is really important in other parts of the body outside the liver. So I think we just -- we're a little bit cautious on that mechanism in particular, but certainly with the early data it's intriguing.

And our final question for today comes from the line of Brian Skorney with Robert W. Baird.

I guess my question is really around the protocol analysis for the interim on REGENERATE. I know in FLINT, there was about 30% of patients enrolled that didn't undergo the second biopsy. So I guess, to start, what's your expectation of how many patients or what percentage of patients will undergo the second biopsy? Should we use FLINT as kind of the baseline? And exactly how is the protocol going to analyze the differences between treatment and placebo under assumptions of patients not going under biopsy? How will those patients be counted in the study? And how does a change in the percentage of patients not undergoing biopsy change the powering assumptions?

Yes, Brian, so you referred to FLINT. Just to make sure that it's clear, the only reason that there were patients who did not undergo repeat biopsy in FLINT was because the study was stopped early after a preplanned interim analysis showed that OCA met a very high statistical bar in meeting the primary endpoint.

There were, at the end of the day, approximately 200 patients who underwent repeat biopsy. And there was extremely high compliance with that repeat biopsy. Very, very few -- there was only 1 patient in the -- I believe there was only 1 patient in the OCA arm who discontinued. And there were very few patients who did not undergo repeat biopsy.

With respect to REGENERATE, which obviously is a much larger study in a much larger group of centers, we do assume a certain attrition rate, as would be expected in any study of this size. But so far, whether it's FLINT or, frankly, other Phase II biopsy studies, there seems to be a very high degree of compliance with repeat biopsy. So I don't think that this will -- and in any case, our powering assumptions in REGENERATE take account of dropout.

And Brian, but to the extent that we do have missing data, those patients will be counted as nonresponders.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to Intercept management for any closing comments.

Thanks, everyone, for joining us today. A very good day for the company, great start to 2017, and look forward to coming back to you with news on our progress in the near future.

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