Intercept Pharmaceuticals (ICPT)

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http://seekingalpha.com/article/3235216-nash-as-the-next-hepatology-investment-opportunity-buy-durect-sell-intercept?%20amp;ifp=0

NASH As The Next Hepatology Investment Opportunity: Buy Durect, Sell Intercept
Jun. 4, 2015 5:12 AM ET | 14 comments | About: Durect Corporation (DRRX), ICPT
Disclosure: The author is long DRRX, AND IS SHORT ICPT. (More...)
Summary

Hepatitis C has proved to be an excellent investment opportunity; NASH appears equally promising.
DRRX has a licensed early-stage compound for NASH and acute kidney injury. Early animal data, while not necessarily a very good predictor, is favorable.
ICPT has a drug, OCA, for PBC and NASH. The PBC data is impressive, but NASH approval seems unlikely.
NASH (non-alcoholic steatohepatitis) represents a major unmet medical need in hepatology. It is a progressive form of fatty liver disease that is estimated to affect 19 million Americans. It involves fat accumulation in the liver, with additional histological findings of inflammation and ballooning. It can progress to fibrosis, cirrhosis and hepatocellular carcinoma. There are no approved FDA therapies for NASH, though many patients receive Vitamin E or pioglitazone based on results of the PIVENS trial last decade. NASH is expected to soon become the leading indication for liver transplant, ahead of Hepatitis C and alcoholic liver disease.

There are many drugs under development for NASH, and various parameters, including insulin resistance, inflammation and fibrosis, are being targeted. A beneficial therapeutic regimen may ultimately include a combination of agents. Regarding Intercept's (NASDAQ:ICPT) OCA, results from the phase 2b FLINT trial demonstrated an improvement in NAS (NAFLD Activity Score) of at least 2 points in 45% of patients versus 21% who received placebo, thereby achieving the primary histological endpoint. Statistical significance for the secondary endpoint of NASH resolution was not met. My concerns regarding this study relate to the concomitant use of Vitamin E or pioglitazone, the vanguard analysis design and to a lesser extent, the side effect profile of pruritis and higher serum lipids. As previously stated, I do expect Intercept to receive approval of OCA for the Primary Biliary Cirrhosis indication, which has fast track and orphan drug designations in the US. Positive Phase 3 results were presented last year. It should be noted that the OCA dose in PBC is less than half that used in NASH. Intercept's market capitalization currently approximates $6 billion, and the prevailing expectation is that it will be successful in its efforts in NASH. Insiders have been sellers of the stock.

Durect Corporation (NASDAQ:DRRX), by contrast, has a market capitalization of $335 million. It was originally a spinout from Alza, and has proprietary drug delivery platforms. It has been focusing on chronic pain, ADHD and schizophrenia. The analysts who follow DRRX have yet to assess the potential for its early-stage compound, DUR-928. This drug was licensed from VCU Medical Center, and has potential use in NASH and acute kidney injury, both of which represent significant opportunities. Phase 1 trial results in a small cohort of 30 subjects showed that the drug was well tolerated with no treatment-related adverse events. Additional phase 1 trials are planned, with the expectation of entering phase 2 in 2016. DUR-928 appears to have a beneficial effect on organ inflammation and fibrosis, as well as on glucose tolerance. In an oral formulation, it could have applicability in treating NASH, while as an injection, it could be used in acute organ injury. In animal models, which are not necessarily very relevant to human fibrotic disease, the drug has demonstrated reduced inflammation and fibrosis and a lowering of NAS, while improving insulin sensitivity. Insiders have been buyers of the stock.

I believe there is a stark contrast between my assessment of Intercept's prospect in NASH, Wall Street expectations, its market capitalization and recent insider activity and that of Durect Corporation. DRRX's effort in NASH is nascent, but safety and tolerability of the compound are favorable. Animal data is supportive, but phase 2 clinical trial results will be required for an understanding as to efficacy. In the meantime, the market capitalization is very low compared to most companies in the NASH space and insiders have been accumulating the stock. From a risk-reward standpoint, I find DRRX preferable. The upside potential is quite significant.