Intercept Pharmaceuticals Inc (ICPT) 2017 Q4 法說會逐字稿

Thank you for joining the Intercept Pharmaceuticals 2017 Full Year Financial Results Conference Call. (Operator Instructions) 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 2 weeks from today's date.

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

Good morning, and thank you for joining us on today's call. This morning we issued a press release covering our full year financial results and providing a business update, which is available on our website.

Before we begin our discussions today, please remember we will be making certain forward-looking statements on today's call, including statements regarding the safety, benefit, and efficacy of Ocaliva, the commercial potential of Ocaliva, any future events that may be experienced by patients who use Ocaliva and the association of such events with its use, the results of Intercept's educational efforts with healthcare providers and other planed and ongoing initiatives, the dosing of Ocaliva, the efficacy and potential future use of Ocaliva for PSC, the potential results of the REVERSE and REGENERATE trials, our clinical and commercial potential in NASH, the commercial effect of the recent label changes for Ocaliva 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 the Risk Factor section of our most recent annual report on Form 10-K and 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 and efficacy of Ocaliva in those indications at this time.

The call will begin with opening remarks from our CEO, Mark Pruzanski; followed by those by 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'd like to note that we have slides associated with today's call that can be accessed through the webcast or on the Events section of our IR website.

Let me now turn the call over to our CEO, Dr. Mark Pruzanski.

Thank you, Mark. Good morning, everyone, and thank you for joining us on today's call. We accomplished a great deal in 2017, despite it shaping up to be a challenging year for the company. I'm proud of the fact that we've continued to uphold our resolute commitment to patients and their physicians as the leading innovator in progressive nonviral liver diseases. We had several exciting achievements last year. Today, we reported $129.2 million in 2017 worldwide sales, with $37.3 million coming in the fourth quarter.

In the U.S, we drove a strong Ocaliva launch trajectory in PBC and maintained momentum even during a period of uncertainty regarding the issues informing the label update. Internationally, we gained accessed for patients in a number of European countries and Canada in record time, reflecting the value that the vast majority of payers ascribe to Ocaliva for PBC.

We also made solid progress in our development programs, establishing proof-of-concept for OCA in another cholestatic liver disease, PSC, with the AESOP trial, while also reporting a successful outcome in the controlled trial in NASH. And of course, we completed enrollment of the interim analysis cohort in REGENERATE, keeping us in the lead with the largest ongoing Phase III trial in NASH.

2018 will be a pivotal year for Intercept as we remain laser-focused on the following priorities: first, growing our PBC franchise; second, reinforcing our leadership position in NASH; and third, defining a path forward in PSC.

Now, some more detail on our PBC program. As you know, a couple of weeks ago, we announced an updated U.S. label for Ocaliva, reinforcing appropriate dosing in PBC patients with Child-Pugh class B or C or decompensated cirrhosis. Such patients are at an advanced stage of their liver disease and represent approximately 2% to 3% of the PBC population. The label update was supported by extensive post-marketing analysis, that has reinforced our conviction in Ocaliva's safety profile and the benefit it provides ineligible PBC patients when used as directed. Therefore, it is a critically important treatment option for the many thousands of PBC patients who are inadequately addressed by the standard of care.

Obviously, getting the label updated is just the first half. With this in hand, we now have the ability to re-engage with our key stakeholders, both physicians and patients. And we intend to reinvigorate growth in the PBC business, which we believe continues to be a significantly underappreciated opportunity. For all of our (inaudible) population in our first full year of launch, we believe there remains a very sizable number of PBC patients who can benefit from Ocaliva.

Moving now to our work in NASH. We are hyper-focused on our global Phase III NASH program, now comprising our ongoing REGENERATE trial and the REVERSE trial which we announced a couple of days ago. As we consider developments in the NASH therapeutic space over the past year, with several other companies reporting program delays and Phase II disappointments, we are reminded of just how strong our competitive position is. As you know, OCA is the only FDA-designated breakthrough therapy in NASH. It continues to be the only investigational drug that has shown robust efficacy on both of the 2 currently approvable NASH endpoints, with the potential to be uniquely differentiated as first-line therapy.

Starting first with REGENERATE, our flagship trial in NASH patients with advanced F2 and F3 fibrosis. As a reminder, this trial is designed to read out on an interim analysis, supporting initial regulatory approvals with continued follow-up for confirmation of benefit on clinical outcomes on a post-marketing basis. We remain on track for results of the interim analysis in the first half of 2019, while enrollment in the outcomes cohort continues.

Second, earlier this week, we are pleased to announce our Phase III REVERSE trial. This is a randomized double-blind placebo-controlled multicenter study that is evaluating the efficacy and safety of OCA in approximately 540 patients with a biopsy-confirmed diagnosis of compensated cirrhosis due to NASH. The primary endpoint is the percentage of patients with histological improvement in fibrosis by at least 1 stage using the standard CRN scoring system and with no worsening of NASH after 12 months of treatment. Patients are being randomized to 1 of 3 patient offers, once daily dosing of OCA 10 milligrams, once daily OCA 10 milligrams with titration to 25 milligrams at 3 months or placebo. We've begun enrolling patients in REVERSE and will be conducting the trial in the U.S. and a number of other countries worldwide. We designed this study to focus on the patient population with compensated cirrhosis, though we have confidence in OCA's ability to reverse disease course. The reversal of cirrhosis to an earlier stage of fibrosis is associated with very significant reduction in the risk of liver failure and all-cause mortality. REVERSE is more than 90% powered with confidence in this study's outcome based on the fact that OCA demonstrated robust reversal of advanced fibrosis in the well-controlled FLINT trial. We intend to complete enrollment of REVERSE as rapidly as possible, with the expectation that the results of the trial will be supportive of broader market access in our NASH lunch and to serve as the basis of approvals worldwide. With REGENERATE and now REVERSE, we've expanded our leading NASH Phase III program with the probability of success based on a strong foundation of simply the most robust safety and efficacy data of any NASH program in development.

And now a word about our broader cholestasis franchise. As the leading innovator in progressive nonviral liver disease, we remain committed to addressing the needs of a broader population of patients. This means that we will be engaging with FDA in the coming months to define a pioneering way forward in primary sclerosing cholangitis or PSC, a devastating autoimmune cholestatic liver disease with no approved therapy. As with PBC and NASH before it, we expect the process of defining an appropriate regulatory path to take some time and we'll provide an update on our PSC plan later this year.

I want to finally to highlight our announcement today of another key addition to our senior management team. I'm very pleased to welcome Ryan Sullivan, who's joined the company as General Counsel and Secretary. Ryan has held senior positions at a number of biotech and pharma companies, including most recently as Executive Vice President, General Counsel and Secretary at Anacor, which was acquired by Pfizer. As our new GC, Ryan has invaluable experience and will be a great asset to our team.

I'll conclude by saying that we're very excited to be looking ahead to what promises to be a transformative year for Intercept. We'll continue to put patients at the center of our collective efforts. And with the label update behind us and reaffirmation of OCA's safety profile based on experience in thousands of patients, we look forward to continuing to demonstrate the benefit that our drug, and further down the road others in the pipeline, can provide in multiple indications.

With that, I'll turn it over to Richard for the U.S. Commercial update.

Thanks, Mark, and good morning, everyone. In 2017, our first full year on the market in the U.S., we achieved $115.8 million in Ocaliva net sales. In the fourth quarter, we achieved net sales of $32 million compared to the $32.5 million in net sales for Q3 when adjusting out the onetime recognition of deferred revenue. The fourth quarter was significantly impacted by the FDA's Drug Safety Communication or DSC that was issued on September 21. Through Thanksgiving, we saw significant drops in existing patient refills, as we believe that the DSC created confusion with patients on whether the warning pertained to them. As a reminder, approximately 2% to 3% of PBC patients are estimated to be Child-Pugh B or C. we saw that patients who are on daily dosing, we're modifying to weekly or twice-weekly treatment and sometimes were stopping treatment altogether. However, this trend began reversing in December, and prior to Christmas, there was a sizable increase in refill rates.

In the fourth quarter, the field team focused on ensuring that physicians understood the appropriate dosing of Ocaliva for their PBC patients. We believe that our absolute commitment in making patient safety our top priority is the right and only thing to do. Interestingly and despite the DSC, market research conducted at the end of the year showed that the credibility scores of Intercept as a partner in chronic liver disease increased substantially from May to November.

New patient starts were softer after the DSC. Similar to the patient feedback, some physicians expressed confusion regarding which patients the DSC and the Dear Health Care Provider letter pertained to. However, from research we conducted, the majority of physicians stated that they would likely reevaluate patients and/or wait for updated information regarding the safety communications to decide on the next steps for their PBC patients. We are confident that the updated label will address many of the questions that these physicians have.

It's been almost 2 weeks since our updated label was approved and our efforts to inform physicians have been very robust. Collectively, we have trained our speakers, spoken with thought leaders, made calls to our target physicians, mailed and e-mailed the updated label to almost 40,000 health care providers. We've also been very active in communicating to payers, educating our specialty pharmacy partners and updating the key patient advocacy groups. Our teams have made enhancements to Interconnect, our patient services hub to further improve our vigilance for all patients. The reception to the updated label has been positive and the most consistent feedback we have received is that it now further clarifies who these advanced cirrhotic patients are and how to identify them. Other key elements of the label that we have received feedback on include: that the boxed warning is very clear about the dosing issue and the types of patients that it applies to, the dosing table is an upgrade to visibly show that there are different requirements for patients with advanced cirrhosis and that adding the clinical term of a prior decompensation event along with Child-Pugh B or C makes it easier to understand that these are patients with advanced cirrhosis.

In our first pulse of research with both current prescribers and non-prescribers of Ocaliva, 87% of physicians indicated that the updated label provided more clarity on how to prescribe Ocaliva.

We see the first quarter as a key transition of our business. First, we feel very confident that our label will provide the clarity that physicians want. And we see through our research, that the underlying strong belief in the effectiveness of Ocaliva has not changed. Although our short-term priority is to then notify physicians about the label update, it will take longer for us to have one-on-one conversations with majority of our target physicians.

Second, we are expanding the reach and coverage of our sales teams to continue our goal to educate physicians about PBC. We have added 8 full-time sales representative roles to bring us up to 53 and are in the process of hiring a contract sales team to help us increase our coverage of potential Ocaliva prescribers, as we believe that the fundamental opportunity of PBC remains very robust.

Third, and as we see across the industry at the beginning of the year, this is a time where patients who may have changed their insurance, may be seeing impact to benefits, coverage or out-of-pocket costs. Many patients are dealing with deductibles resetting or exposure to the Medicare Part D coverage gap, that could impact timing of some early year refills and also negatively impact gross-to-net. We still have a lot of work ahead of us, but our commitment and confidence in our ability to help people living with PBC has never been higher.

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

Thanks, Richard, and good morning. First I'd like to give a little bit more background on the regulatory activities in Europe. There will be an update to the EU label, harmonizing largely with the U.S. label, focused on reinforcing appropriate dosing in patients with advanced cirrhosis, which will be distributed in April once the translations have been formally approved by the EMA and individual countries' regulatory authorities.

Since the autumn, we've been actively communicating the cases of misdosing in the U.S. as part of our ongoing educational efforts and so these labels and updates are unlikely to come as a surprise to most physicians. In the interim, the Dear Health Care Provider letter outlining the main changes to the label is underway to health care professionals involved in caring for PBC patients in EU member states where Ocaliva is currently commercially available or where it is available through an early access program. We believe these activities will reinforce the importance of differential dosing and provide additional reinsurance and be welcomed.

So moving on to the launch itself. We're very pleased with Ocaliva sales in the first year of launch, with Q4 net sales of $5.3 million and $13.4 million for the full year. The majority of sales, as expected, was from Germany and France with good initial uptake in the U.K. and Canada and we are encouraged to see strong and underlying demand across the board. Clearly, uptake to date has been enabled by the rapid progress we've made in pricing and reimbursements following marketing authorization in December 2016. It reflects the strong recognition of the value of Ocaliva and how it meets an important unmet need. Since our last call, we've now concluded final national pricing and reimbursements in Germany, Spain and Portugal following on from Italy, U.K. and Austria amongst others earlier last year. We have broad access to the private market in Canada and our attention turns to the conclusion of public coverage through the summer and regional access in Italy and Spain.

In all countries where Ocaliva is available, we see a positive intent to prescribe over the next 6 months, with more than 80% of current users intending to increase their level of prescribing and almost 6 out of 7 nonusers intending to start prescribing. As we expect to see new prescribers initiating treatment over the coming months, we recently met with some of our top thought leaders to develop educational initiatives for PBC clinicians, which we believe will be instrumental in developing confidence and support for less experienced PBC treaters across all countries.

In just under 3 years, we've been able to establish a highly committed and professional team across all major European countries and Canada, who have delivered what they set out to do, rapid access to Ocaliva for people with PBC and helped to create networks for patients and physicians to raise the awareness and understanding of the unpredictable nature of this disease. With sales and medical teams now in place across all of our major countries, we continue to be focused on execution of our launch plans and international sales should make a meaningful contribution to our global growth in 2018.

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

Thanks, Lisa, and good morning, everyone. Please refer to our press release issued earlier today for a summary of financial results for the full year ended December 31, 2017. Before I get into the details of the financials, I would like to provide an update on our Asian territory partnership agreement.

We have reacquired rights to develop OCA in Japan and Korea from our partner Sumitomo Dainippon via an amendment to our existing agreement. As part of the amendment, Sumitomo will retain rights in China and we have agreed to milestones and royalty payments for the development and commercialization of OCA in China. In addition, Sumitomo has waived its option rights to develop OCA in any country outside of the original licensed territory. We see significant value in the Japanese and Korean markets and intend to explore opportunity to develop and commercialize OCA in these countries.

Now moving on to our financials. I would like to take the opportunity to provide an update to our 2017 fourth quarter and full year results, our cash position and provide financial guidance for 2018.

Let me start off with our fourth quarter and full year 2017 results. We recognized worldwide Ocaliva net sales of $37.3 million and $129.2 million for the fourth quarter and full year 2017, as compared to $13.4 and $18.2 million for the fourth quarter and full year 2016. This represents an increase of $111 million during 2017.

Gross-to-net remained constant in Q4 relative to Q3 and was towards the lower end of our projected range of 10% to 15% for the year. Our GAAP operating expense for the quarter were $142.7 million and non-GAAP adjusted operating expenses were $125.9 million. For the full year, GAAP operating expenses were $466.6 million and non-GAAP adjusted operating expenses were $405 million and in line with our previously issued guidance.

COGS was de minimis for the quarter of 2017 as the cost related to manufacturing was expensed prior to FDA approval of Ocaliva. The company expects cost of goods to remain negligible until previously expensed supplies for OCA are sold through. We also recognized $7.4 million and $29.3 million of interest expense for our outstanding convertible notes for the quarter and year-end 2017.

Moving on to our cash position. We ended the year with $414.9 million of cash equivalents, investable securities on our balance sheet. This represents a reduction of cash of approximately $274.5 million during the year as compared to 2016.

And finally, we're announcing our guidance for 2018. Given the proximity to our Ocaliva label update, we are not providing sales guidance at this time, but hope to be in a position to update you next quarter. That said, I'd like to remind you of the industry-wide expected softness in the first quarter performance in the U.S. as insurance plans reset. Given this effect, we expect modest sequential growth in the first quarter of 2018. We continue to expect gross-to-net for the year to be in the 10% to 15% range.

Last quarter, we communicated that we were embarking on an effort to reduce our operating expense growth by streamlining our operations and reprioritizing programs to focus our resources on the ongoing commercialization of Ocaliva and the advancement of our clinical development program of OCA in NASH.

For the year 2018, we expect non-GAAP adjusted operating expense to be in the range of $390 million to $410 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 expense under GAAP. Now please refer to our press release from earlier today for a reconciliation of our historical non-GAAP adjusted operating expense to the GAAP operating expense.

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

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

Just one, can you talk a little bit about the frequency of like, how often doctors monitor patients at the moment? And kind of what's involved with that? And then just generally, maybe talk a little bit more about -- are they -- are physicians looking to monitor kind of all of their patients? Or is it just a subgroup that we've kind of bookend with the label update? And have you kind of updated what you think that percentage is of patients kind of involved in the label update as well?

Sure. Alethea, it's Richard Kim. So as far as monitoring is concerned, couple of weeks ago we had a chance to hear from Dr. John Vierling from Baylor University. I'm not a physician but I think the way we would describe it is, patients are generally monitored -- usually followed up every 3 to 6 months. And as far as the elements, as far as monitoring their -- and what's in our label, we best -- basically heard it's very consistent with this standard of care for how to assess an ongoing PBC patient, whether they're on UDCA or on Ocaliva itself as well. And when you think about the patients that I guess -- I think your question is maybe more of these advanced decompensated patients pertains to, right now we see about approximately 4% of our patients who are actually sort of in that category. This compares a little bit -- right now the estimate is about 2% to 3% of patients from the natural history perspective are Child-Pugh B and C. So that number has -- the 4% has been coming down over time. It started at closer to 8% when we launched. And like I said, it's now closer to about 4% currently today.

Our next question comes from the line of Michael Yee with Jefferies.

Two questions. One on commercial. I guess, Richard, I just wanted to confirm you expect Q1 to grow over Q4. I guess, what gives you that confidence given it's a pretty volatile quarter? How confident are you in that happening? And what impact does the new contract sales force add to anything? Maybe talk a little bit about that for Q1 and perhaps even Q2. And then on the clinical side, on the REVERSE study which you just announced, can you talk a little bit about perhaps your powering -- what that was based on? I know you had some patients in the FLINT study, I think, that might have even qualified for this study. So maybe talk about how you designed the study and your thoughts around the conviction in that, particular with the 1-year endpoint?

So as far as Q1 is concerned, I just -- I would consider Q1 to be, as I said earlier, a quarter of transition for us. What we would see overall across all of our marketplaces is very modest growth compared to what we saw in Q4 of 2018 (sic) [2017]. This is a quarter where we are making it top priority to make sure we communicate the updates in the label. So that's really our priority now. But I think once we get that foundation, we really see physicians having the clarity to know how to prescribe Ocaliva in these advanced patients. And to ask -- answer your question on the CSO's, basically, our intention here is to really just increase our reach of physicians. In the past, we covered approximately a little over 4,000 target physicians, with the addition of our TBMs, that's going up to 53, our territory business managers, will be up to about 5,300 physicians that we cover. With the CSOs we'll be cycling in about another 8,000 physicians. And we use them to help identify new potential treaters in the future as well. And I can turn the next question over to, Mark.

Yes, Mike, so with respect to REVERSE, as I mentioned in my prepared remarks, we continue to have the confidence based on the robust results in FLINT, on both fibrosis reversal and on NASH resolution, the 2 approvable endpoints that are out there. What we did was we took a look at patients with advanced fibrosis, specifically the F3s in FLINT to base our powering assumptions on for these early compensated cirrhotics. And again, that's the basis for which we're confident that we will, in fact, be able to reverse disease course in a significant number of patients with early compensated cirrhosis.

And reminded me, if without having to go back to the slides, in F3s what percent was that, or how many patients? And was the effect basically the same as the rest of the population?

So about 1/3 of the patients enrolled in FLINT and randomized to OCA 25 mg had F3 fibrosis. And I don't have the numbers right in front of me right now, but we actually had the most robust improvement in fibrosis in that cohort of these patients.

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

First question, Richard, if you could just share with us the type of feedback you're getting from the physician community? I know you mentioned that persistency and compliance are an issue during the FDA communications as you negotiated a new label. Curious what impact that had on the type of patients that were coming on to therapy and what you've started to see post the label update?

Ian, sure, no problem. So first as far as the feedback is concerned, like I said in my prepared remarks, I would say generally I think people find that our label is providing a lot more clarity, on really identifying who and how to monitor these advanced cirrhotic patients. So the feedback has been really good. I think that people really appreciate the fact that this really removes a lot of uncertainty that the Drug Safety Communication had previously. As far as persistency compliance, what we saw once again was we actually saw a much greater rate of dropouts from the persistency post the DSC. As I stated earlier, we saw that rebound quite a bit in December and so we feel like we're back into the sort of the normal trend as far as that's concerned. As far as the patients are concerned, we saw a little bit of impact across all patient groups, the new patient starts at the end of last year. Because the biggest question some physicians had was who the DSC would be related to. What we're seeing is sort of -- well it's only been a couple of weeks since label has been updated, but I think people are sort of getting into their sort of normal mode as far as being able to think about where to prescribe Ocaliva. So I think with time with the label being out there, we'll see physicians get back to, what I would say, a slightly more normal state in how to think about their PBC patients.

Okay. And just on development, whether it's in PBC or NASH, we're seeing a certain level of movement towards combination therapies. I know you're clearly focused on the trials that you're conducting and on the commercial launch, but just speak to your willingness to participate in whether it would be investigator-sponsored studies or enter into data sharing collaborations, with other developers in this space, just anything in that regard, which might speak to a combination opportunity in the future.

Yes, Ian. So you're right and yes, we're willing, we've been saying for quite some time that we've got our eye on everything that is out there in the space, both on the NASH and the PBC side. At the same time, at least on the NASH side, it's been clear that the bar is exceedingly high to demonstrate the kind of efficacy on histology that is required to gain approval and to have success in the marketplace. And as I mentioned in my remarks, frankly, if you look at this past year's news flow, there've been a number of, frankly, disappointments right, that have recalibrated, at least from our view, on where things are in the space. It's still early days in the NASH space. And finally, I keep coming back to the fact that we simply -- we believe, we have simply the most robust safety and efficacy data supporting positioning OCA as first-line therapy and backbone therapy in this disease. And yes, over time, I'm sure that there will be drugs with other mechanisms of action that can be profitably added too, in certain segments of the population. And yes, we're committed to exploring that for the right mechanism.

Our next question comes from the line of Navin Jacob with Deutsche Bank.

Just a quick question for Sandip. Was there any inventory build or burn in Q4 on Ocaliva? That's question one.

Our general inventory -- I assume you're talking about trade inventory.

Right.

And typically, our inventory has been rather stable throughout the period. I mean, typically you'll see a little bit of an increase before the holidays as patients. But nothing that -- I think noteworthy to mention that impact to, let's say, the sales. But typically you'll see a little bit of an increase for the holidays because refills go up as well.

And then a couple for Mark P, please. Just on the REVERSE study, wondering what kind of PK/PD modeling you've done that gives you confidence that 10 and 25 milligram are the right doses in cirrhotic patients, in NASH.

Thanks, Navin for the question. So again, we felt that it was important to test the same dose range that we're testing in REGENERATE, just as is the case on the PBC side in patients up to and including compensated on cirrhotics. We currently don't anticipate -- dose modification in the sort of equivalent population on the NASH side, frankly -- or frankly any other liver-related indication. We have completed PK/PD work that frankly informed our choice of dosing in these patients. And I do think that it's important for us to take a look at -- we know that the 25 milligram is the dose that worked in FLINT, it was the only dose that was tested in FLINT, but we have reason to believe that 10 milligram could also be active. So we'll know first half '19 when we turn the card over on the REGENERATE. Interim analysis, we felt it was important to test the same doses in compensated cirrhotics.

Yes. I guess the reason why I'm asking is because obviously architecture of the liver is different, the greater the fibrosis is and so just for any concerns out there, that anyone who has concerns out there with regards to potential for drug accumulation, they're further down, the fibrosis scale you go -- further up this fibrosis scale you go. How do you -- why wouldn't you think about going down to like a 5 milligram, for example?

Well again, I think it's very important to remember that the REVERSE trial is studying patients with early compensated cirrhosis, who nonetheless, represent the majority of the unmet need in the cirrhotic population, and frankly, are at the most risk of progressing to liver failure and premature death. And you saw highlighted in the press release some stats just highlighting how seriously progressive the disease is once you have cirrhosis. But that said, I think it's very important to remember that our drug is modified bile acid, it circulates with the bile pool. And what's important to think about is exposure levels in the liver. And frankly, in patients with compensated cirrhosis, there's only a marginal increase in hepatic exposure of the drug dose-per-dose. So that's the basis upon which we felt -- just as is the case, there's no dose modification in PBC patients with compensated cirrhosis, we don't anticipate the need for dose modification in NASH patients with compensated cirrhosis.

And then final question. When can we start to see an inflection happening in scripts to see a return to the type of trajectory you had prior to the safety warning?

Richard?

Yes, I think it's great question. I think as I mentioned previously, I think quarter 1 will be, absolutely a transitioning quarter for us as we get the message out there. I think once we get the label -- updated label communicated and as I mentioned earlier, maybe physicians can get back to having greater clarity on where to prescribe Ocaliva, I think after that we should feel confident in our ability to get back to growth. But I think it will take some time for us to do that. We've made it a priority to really notify people about the label. But we have absolutely want to have those one-on-one conversations, so people truly understand the impact of the update as well.

So does that mean like a second half type of time frame? Second half 2018?

Yes. I mean, we don't really provide the specific guidance. But I would say, once we get past informing and actually having those one-on-one conversations around updated label, I think we should feel more confident about our ability to get back to growth.

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

Just in regards to your comment about drops in patient refills, could you just give us some clarity on the Child-Pugh A patients that were affected? And if they were, what was physician rationale around that? And then the second question just around your BD strategy as you think of expanding your pipeline outside of Ocaliva.

I'll take the first part of the question as far as the refills are concerned. So what I would say is what we saw in the marketplace was people weren't really certain what -- who the Drug Safety Communication pertained to. So one of the issues that we saw were people weren't necessarily clear if it was for Child-Pugh A versus B or C. So what we find in general is people who were on daily dosing were going down to something less than that, either weekly, twice weekly and sometimes stopping for a period of time. As I did mention, we saw refill rates increase quite significantly in December part of the holiday break. So and I -- what we've also heard is physicians have stated to us in market research that once there is clarity around the safety communication, they plan -- the majority of them plan to reevaluate their patients currently as well. I think Mark is going to take the second part of the question.

Yes. Salveen, I think on the BD front, it's as we've been saying, we're certainly avidly looking at everything that's out there on both frankly, the NASH and the PBC side. But I think that just as it has been the case with OCA, we remain fundamentally data-driven. And as I mentioned a few minutes ago on the NASH side, the bar is very, very high. And you need to demonstrate histologic -- so biopsy-based meaningful improvement in histologic parameter or parameters that actually are provable and meaningful clinically and commercially. So that bar is high. There's vanishingly few compounds that have met it. Frankly, none were really aware of outside of OCA in a robust well-controlled study. And so we'll keep looking and you should expect to see us engage in pipeline building activities as we focus on growing the business going forward.

Our next question comes from the line of Ritu Baral with Cowen.

First question is on REVERSE. Mark, can you take us through why the primary endpoint differs?

Sorry, differs from? Hello Ritu? We lost you.

Operator, we seem to have lost Ritu. Can we -- we'll see if she re-queues. Can we go out to the next question?

Our next question comes from the line of Jim Birchenough with Wells Fargo.

I just wanted to clarify on the powering for REVERSE, Mark, you mentioned a 90% power, but 90% power to detect what changed over what baseline assumption for the control group? And then could you remind us what the powering at that level is for the REGENERATE study? And then I've got a follow-up.

Yes, so Jim, for REGENERATE, we're also over 90% powered on both the primary endpoints there. I'm not going to get into the assumptions, specific assumptions behind it. But we stick to our -- we are confident in the assumptions that we made that led to patient selection and sample size in REVERSE.

And then maybe just commercially for Richard, could you talk about the decision to initiate treatment with Ocaliva and maybe the distribution that's out there between physicians that started 2x upper limit normal or 3x upper limit normal, or who need progressive increases in alk phos and how that's changing over time? It just strikes us that there's a bit of a distribution out there and maybe you could speak to that, and how you might have physicians treating earlier?

Jim, it's great question. So obviously, our label contains the patients, adult patients who have an inadequate response to TDCA and as we've explained before, different people define that differently, different physicians define it differently. As I stated earlier, we saw, as with a lot of product -- new product launches whether there's huge unmet need, there was higher uptake with patients with more advanced disease. And I think as we progressed, we're seeing patients with lower levels or less advanced disease that are coming more to mix. So there's been a lot of interesting data out at AFLD last year and other sources that talk about the impact of lower bilirubin levels, for example. So we see a natural progression around the definition of inadequate response sort of evolving as new data emerges the marketplace as well.

And then maybe just one final question, if you allow me. For PSC, I'm just interested in discussions around the regulatory strategy there and how much of that's focused on natural history? What is -- how well developed is the natural history data in PSC in terms of looking at surrogates like alk phos and predicting outcomes? And do you envision having to do a supergroup type study in PSC?

Yes. Jim, it's an important question. As I mentioned in my remarks, the pathway remains undefined. I can tell you FDA hosted, as you know, some year, 1.5 years ago or longer a PSC endpoints workshop with multiple stakeholders, and are very keen to work with us to define a pathway forward. Alk phos, there is literature supporting its clinical relevance, and what we've said before is that we believe it's necessary but likely insufficient to support an accelerated approval in PSC. There are several other potential endpoints, which are relevant clinically relevant in the disease course that could be considered in sort of adding to in a composite manner to alk phos. And again, it's premature for me to speculate right now what exactly the endpoint could look like, but suffice it to say that we're looking at this, FDA is looking at this. And it's going to take some time, but we're committed to defining the path forward.

Our next question comes from the line of Brian Skorney with Robert Baird.

Two from me. I guess, just to get some more details on the thoughts around the doses in the REVERSE study. I just wanted to get an understanding for the thoughts about why specifically, you're using the titration stepped to the 25 mg dose as opposed to just a straight 25 mg dose in the NASH study. And just on the update with the Sumitomo Japan rights coming back to you, just your thoughts on what you're planning to do in Japan? Is there something that you'd explore for the development in NASH on your own? Or is this really something that you're just looking to partner?

Yes, thanks, Brian, I'll take the first one and then hand to Sandip. I think with respect to decision to titrate from 10 mg to 25 mg, it's a strategy that served us very, very well on the PBC side, if you remember in our Phase III program there in POISE, we showed -- we demonstrated that titrating from 5 mg to 10 mg over time significantly ameliorated tolerability specifically, the pruritus that we see in a dose-dependent way with OCA but with no sacrifice over time in efficacy. And the same principle we hope we'll prove to be true here. As I also mentioned in response to another question a few minutes ago, we do have some PK/PD data there that informed our selection of doses in this range. And there's -- we have good reason to want to test the 10 mg as well as the 25 mg, which of course is the dose that worked in FLINT so well.

And I'll take the second one, Brian. Thanks for the question. What I can say is we're really excited about reacquiring Japan rights. As you know, Japan is a major pharmaceutical market. And we see great potential for OCA there. And we're looking at all various different options in terms of how best to gain value there.

Our next question comes from the line of Joe Beatty with Citi.

The first question is on dosing in the REVERSE trial. As you mentioned earlier, these are compensated cirrhosis patients and the dosing is in line with compensated cirrhosis patients with PBC. My question is for our patients in the trial that advanced to decompensated cirrhosis, would you plan to use a similar dosing as is recommended for those types of patients and -- with PBC? And then I have a follow-up question.

Yes, it's a great question. And look, just to remind you, this study is a -- it's a 1-year double-blind phase in compensated cirrhotics. It is possible that a patient over that time course could advance, but probably unlikely to decompensation. And that said, just as is true in any such study, there are safety checks in place to catch patients who do advance and appropriate steps taken with respect to investigational product that the patient is taking.

Okay. And then one last question related to the survey results you showed today and how physicians feel about the clarity with the label update. Did you notice any difference between current prescribers and then non-prescribers of OCA?

Yes, it's Richard. Yes, there was absolutely a bit of difference, but to [recount] it, there wasn't much of one. So the response rates were a little higher with people with experience who already prescribed Ocaliva. But I think what I was pleased to see was it wasn't that much lower in folks who have not prescribed it as well.

Our next question comes from the line of Jay Olson with Oppenheimer.

I had a question about the potential to develop OCA for alcoholic hepatitis. I noticed you did some more kind of, for example, the Phase II treat study in moderately severe alcoholic hepatitis and then you have a second study looking at the effect of alcohol consumption on FXR signaling? Is this an area where you plan to pursue development of OCA? Or is that not -- no longer an option?

Look, it's a high unmet need. It's a tough population to do studies in. We actually -- our first experience in alcoholic cirrhotics including Child-Pugh B and C, D compensated patients was several years ago in the so-called PESTO study where we demonstrated a proof-of-concept with OCA at 10 milligram and 25 milligram doses over a relatively short period, 10 to 14 days, on hepatic venous pressure gradient, portal hypertension. And you mentioned treat and there's another study, which is frankly an IST, investigator-initiated study, where currently while acknowledging that there is clearly an unmet need there, that's the way that we intend to pursue research for the time being in that population.

Okay. And then just one follow-up on the progress of Ocaliva commercialization in Europe, thank you for the update there in the prepared remarks. I didn't hear mention of Italy or the Nordic countries and I was wondering if there's any color you can share about reimbursement there.

Lisa?

Yes, thanks, for the question. As you know, we've made pretty good progress across Europe in terms of pricing reimbursement in Italy. Specifically, we've concluded national pricing and reimbursement. As you know, that usually takes a little bit longer. So we're in a good place from a national perspective but of course, the real opportunity is now to negotiate on a region-by-region basis. So our teams are heavily involved in doing that right now. And so far, we've got...

We've lost -- Lisa, we've lost the feed.

Yes, it appears that we've lost Lisa. Jay, we can follow up.

Our next question comes from the line of Andrew Berens with Morgan Stanley.

Maybe one more PK/PD question and then a financial question. I guess this is in response to couple of things you said, Mark, during the call and then also that model that you guys put in to -- as a review process. Do the concentration, the locale -- does it go up in the liver in patients that are decompensated cirrhotics? And I'm talking about the concentration of the drug in the liver, not systemically.

Yes, it's predicted to go up in decompensated patients. And that's actually the basis for the recommendation in the Ocaliva label on the PBC side onto modified dosing in Child-Pugh Class B and C patients and decompensated cirrhotics there. And as I mentioned in my remarks, we do intend to follow up the REVERSE study and design a clinical outcomes confirmatory trial, which will include an overlapping but also more advanced population of patients. And it's possible, and this is the case for many drugs metabolized in liver, it's possible that we'll end up with modified dosing in more advanced NASH patients similar to the PBC side.

Okay. I mean, that sounds like a change from the review process where I think you guys and the FDA felt like the reason to do dose changing was the systemic effect like the pruritus rather than the concentration in the liver. At least, that was my read on the discussion, it's in the review documents. Is that -- has there been a change there?

No. I don't -- that's -- I don't have the review documents in front of me, but I think that the issue in it -- and it is in the label frankly is the fact that the predicted exposure in the liver dose-per-dose in a decompensated patient is going to go up. Systemic levels, plasma levels of any bile acid do not reflect hepatic levels of bile acids.

Okay, okay. And then just a question on the expense guidance. Does that include -- my understanding is that there will be another confirmatory trial in addition to REVERSE. And when would you start that trial? Would it be as large as the COBALT trial potentially or even the confirmatory part of NASH? And is that part of your 2018 expense guidance currently, that trial?

I mean, I'll take care of it. In terms of the guidance, we're very much focused on -- the guidance does obviously include the REVERSE trial and the expenses related to that as well as our ongoing development programs in NASH as well as of course the commercialization of PBC. The confirmatory trial would be something that would be beyond 2018. And so not really included as part of the guidance for this year.

Yes. And just a couple of additional points of color here, Andy. We have to design the study and as you well know under Subpart H regulation is the accelerated approval pathway study, a confirmatory trial should be underway prior to marketing approval and then reads out on a post-marketing basis, very similar to the COBALT, our Phase IV PBC study. Can't speculate on how big it's going to be at this point. But it's going to be down the road. And frankly, it will also be derisked in the sense that we'll at that point have data on histology in the population.

Okay. And then the -- just the last question. Can you give us any color on SDP's decision to not go forward in Japan and with the program outside of China?

Yes. We really -- what I'd say is we can't really speculate on their sort of evolving business goals over the years. But as I said before, I mean, we're very excited about reacquiring the rights. We see a lot of potential for OCA there in Japan. And we're certainly committed to moving forward and [ensuring] that at some point.

Our next question comes from the line of Ritu Baral with Cowen.

One question on REVERSE and another question on the contract sales team. One, why is there a difference in the primary endpoint for REVERSE versus REGENERATE? Are these patients already at risk for the NASH burnout that KOLs can -- often speak of? And also, can you go over the monitoring and safety requirements? And then I'll move on to the CSO question quickly.

Yes. So Ritu, the reason quite simply is exactly as you just mentioned that not all -- once you progress to cirrhosis you often see burnout of state of hepatitis. And so while this is a study in NASH patients with compensated cirrhosis, the thing to focus on in this population is reversal of fibrosis, first and foremost. And the -- just to be clear, that endpoint, which is 1 stage improvement. So in this case, going from F4 to at least F3 with no worsening of NASH is identical to 1 of the 2 endpoints in REGENERATE.

Are the monitoring and safety requirements as part of the protocol right now?

Just standard -- it's a standard study design that we have. We don't get into -- we have a lot of studies ongoing but so we don't get into details of visit frequency study-to-study, but nothing untoward.

Nothing materially different than REGENERATE. Is it fair to say?

Yes.

Okay. And then the contract sales force. Can you go over the expected size and cost? Do you expect it to be a permanent part of your sales effort? And any more detail on who exactly the doctors, they're targeting? Is it community? Is it different part of the office, et cetera?

Thanks, Ritu. First, I always think about PBC as a large rare disease. And there's a lot of patients out there that -- and physicians who manage them that we still have to reach. So as far as the CSO is concerned, we're still working through the final numbers and costs. But what I would say is, as you know in the United States, they're somewhere between 12,000 and 15,000 gastroenterologists. We cover around 4,000 to 5,000 of them. So we believe there's an ability to actually expand our reach and get to more physicians who may have a few patients here and there, as opposed to the larger centers as well. We also do know that there are -- through prescription claims and lab data that there are many PBC patients within primary care offices and other specialties as well. So our intention is to make sure we understand where more of these patients are and provide the right support for those physicians going forward.

And do you expect it to be permanent -- this force to be permanent at this point?

My mom has told me nothing in life is permanent, but what I would say is this is a very important pillar for what we're doing. And I think we're going to learn a lot and we'll be really happy to share our insights that we learn over the upcoming quarters as well. So I think we want to first get out there and see what's going on. We have a lot of good data that we want to validate. And we'll see where this goes.

And that concludes today's question-and-answer session. I'd like to turn the call back to Mr. Mark Pruzanski, for any closing remarks.

Thanks, operator. And thanks, everyone, for listening in and contributing today. As I mentioned earlier, 2018 will prove to be a pivotal year for Intercept, and on behalf of everyone here at the company, we are super excited to continue to focus on PBC, NASH and PSC patients and others with progressive nonviral liver diseases. We will deliver this year on return to growth in the PBC opportunity, reinforce our leadership position in NASH and our ongoing Phase III program -- REGENERATE and REVERSE as anchors, and intend to clarify our path forward in PSC. We will maintain our commitment without any wavering to the patients who inspire the work we do at the company every day. Thanks very much and we'll see you next time.

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