Running the Numbers on Intercept Pharma's NASH Drug. Huge!

I just got off the phone with an institutional investor who was long Intercept Pharma (ICPT) going into today's big NASH data win. Yes, he's incredibly happy.

He hasn't done a ton of work on obeticholic acid (OCA) in NASH -- he was more focused on the ongoing phase III study in primary billary cirrhosis -- but he has worked through some quick calculations on the commercial potential for OCA in NASH. The numbers are huge and suggest Intercept shares could go even higher. Before that happens, the company could be acquired, he believes.

Yes, he's long Intercept so talking his book to some degree, but hear him out. The story is compelling.

This is the way he looks at the market for OCA in NASH:

2-3% of the U.S. population (315 million people) are diagnosed with NASH, with 0.3% to 0.9% diagnosed with NASH that has progressed to cirrhosis. He uses the latter,  sicker patient population for his calculations because they're more likely to seek treatment. This equates to a patient population of 1.8 million people.

Assume Intercept treats 20% of these NASH+cirrhosis patients, which is 360,000 patients. 

Assume Intercept prices OCA at $10,000 per year. It's a pill and a daily, chronic treatment, so this pricing is in line with that the PCSK9s might cost. 

Calculator, please...

You're looking at a peak sales potential for OCA in U.S. NASH patients of $3.6 billion.

If you think 20% market share is too high, bring it down to 15%. That's $2.7 billion in peak sales.

How long to $2.7 billion in peak sales? Let's say five years. Sales multiple? 5x. Discount rate: 20%

The net present value of OCA in NASH is $6.75 billion. 

Even with today's huge move, Intercept's market cap is $5 billion.


Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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