ICPT (2019 - Q3)

Good morning, ladies and gentlemen, and thank you for joining the Intercept Pharmaceuticals Third Quarter 2019 Financial Results Conference Call. All participants are now in the listen-only mode. Following opening remarks, Intercept’s management will open the lines for a question-and-answer period. Please be advised that this call is being recorded at the company's request and a webcast of this call will be archived on the company's website for approximately two weeks.I would now like to introduce Lisa DeFrancesco, Vice President, Investor Relations. Please go ahead. Lisa DeF

Thank you, operator. Good morning and thank you for joining us on today's call. This morning we issued a press release announcing our third quarter 2019 financial position and results and also posted accompanying slides, which are available on our website at www.interceptpharma.com. Before we begin our discussion, I'd like to note that during the call we will be making certain forward-looking statements, including statements regarding; one, our approved product and clinical development program; two, the timing of our regulatory filings and potential approval of our product candidates including OCA for NASH; and three, our strategy, prospects, financial guidance, and future commercial and financial performance.Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call and we undertake no obligation to update such statements except as required by law. These forward-looking statements are based on estimates and assumptions that although believed to be reasonable are inherently uncertain and subject to a number of risks and uncertainties. Some, but not necessarily all of the factors, that could cause our actual results to differ materially from our historical results or those anticipated or predicted by our forward-looking statements are discussed in this morning's press release and in our periodic filings with the SEC.Today's call will begin with prepared remarks from our CEO, Dr. Mark Pruzanski, followed by those from our Chief Operating Officer, Jerry Durso; and our Chief Financial Officer, Sandip Kapadia. We'll then open the call to take your questions. Please limit yourself to one initial question in order to allow the time for all questions to be addressed.Let me now turn the call over to our CEO, Dr. Mark Pruzanski. Mark?

Thanks, Lisa, and good morning, everyone. Thank you for joining us on our third quarter 2019 conference call. Let me begin my summary of the quarter by noting the achievement of a historic milestone with our submission of the first new drug application for NASH to the FDA. This is an extraordinary accomplishment for Intercept and for the many patients suffering from advanced fibrosis due to NASH, who unfortunately have no approved therapies available to them.I'd like to personally thank our team for their tireless efforts that resulted in our submission in September, consistent with our public guidance. We remain on track with our marketing authorization application or MAA in the EU with an anticipated filing later this quarter.In addition to the execution of our regulatory filings, we've continued to be laser focused on ensuring commercial readiness for the first-ever NASH launch. With more than 15 years of experience focused on the development of novel therapies to treat progressive non-viral liver diseases, Intercept remains the only company to have demonstrated a therapeutic anti-fibrotic benefit in large placebo-controlled Phase II and III trials with our first-in-class FXR agonist OCA that we believe to be crucial for the effective treatment of patients with advanced fibrosis due to NASH.As the leader in this space, we've proven time and again, there simply are no shortcuts. Developing effective new treatments for these indications is a marathon, not a sprint, and we remain well positioned for continued success with the anticipated first-approved NASH therapy on the horizon. We are in the fortunate position to be building on our established strong standing within the liver community globally. Based on the foundation we've built and ongoing commercial success of our PBC business worldwide, we have great confidence in our ability to execute a successful first-to-market launch of OCA in NASH, which provided FDA grants us priority review and approval, could be as early as the spring of 2020.I mentioned PBC and I'm pleased to point out the continued strong momentum in our business globally. We've continued to see steady demand growth versus the prior year quarter, based on solid execution of our commercial organization worldwide. Given our performance to date, we've now increased our 2019 full year net sales guidance for Ocaliva to between $245 million and $250 million.We believe our established medical and commercial infrastructure supporting the PBC business uniquely positions us for success in NASH. We've developed strong relationships with hepatologists and gastroenterologists, the specialists treating patients with advanced fibrosis due to NASH, many of whom have already gained valuable experience prescribing Ocaliva to PBC patients. As we've previously stated, we are flexing up our existing infrastructure and capabilities, while building on our relationships within the community in preparation for our NASH launch.Following its anticipated approval, OCA is positioned to become the foundational therapy in patients with advanced fibrosis due to NASH. We continue to have productive interactions with physicians, payers and patient groups, which Jerry will discuss in more detail shortly. These stakeholders all recognize the critical importance of a therapy with a robust anti-fibrotic benefit, underscoring what we believe to be OCA's key advantage.I now want to pivot and spend some time discussing the upcoming Annual Meeting of the American Association for the study of liver diseases, the AASLD Liver meeting, where we will have a significant presence and more than 20 abstracts being presented in the general and late-breaker sessions. Our team is dedicated to our customers in the hepatology community and we're excited about the posters and presentations that will be showcased at the liver meeting.Some highlights, on the PBC side, we're presenting the final results from our Phase III poised 5-year open-label phase, demonstrating OCA's durable therapeutic benefit with no new long-term safety findings in PBC patients on treatment for up to six years. On the NASH side, we'll have an oral presentation of the REGENERATE interim analysis results in the expanded intent-to-treat population, which reinforces the consistent benefit that OCA provides across the broader patient population. There are also two important patient-reported outcome or PRO abstracts from REGENERATE, including one demonstrating that patient-reported quality of life scores are substantially below population norms, indicating that NASH with established fibrosis is not an asymptomatic disease. And that effective anti-fibrotic treatment can improve PRO scores.We also have an important first presentation of OCA's effect on non-invasive tests NITs that are most commonly used by physicians in assessing their NASH patients. As we've said before, we believe there is growing acceptance in the medical community of NITs specifically for the diagnosis and staging of fibrosis due to NASH. The new data that will be presented this week at the liver meeting are coming at an important time ahead of our expected launch. We'll showcase OCA's ability to drive early and consistent improvements in a number of NITs, including, we believe for the first time ever in a therapeutics trial, clear improvement in fiber scan assessed transient elastography, a measure of liver stiffness correlated with fibrosis.Given the invasive and expensive nature of liver biopsy, it's really encouraging to see the NASH field move to embrace these noninvasive tests and we believe the data from robust well-controlled Phase III studies such as the interim analysis of REGENERATE will further accelerate the validation and adoption of noninvasive alternatives to biopsy as the NASH care pathway evolves.Our ongoing Phase III NASH clinical development program continues to progress well, with the completion of enrollment of the outcomes cohort of REGENERATE, with close to 2,500 patients randomized and we continue to drive toward the completion of enrollment of REVERSE, our Phase III trial in NASH patients with compensated cirrhosis, the only such study currently ongoing. We're on track to finish screening this month with expected completion of randomization early in the New Year.As a reminder, the primary endpoint in REVERSE is fibrosis improvement with no worsening of NASH, identical to the endpoint OCA achieved in REGENERATE. And last quarter, we announced we were expanding target enrollment in REVERSE to up to approximately 900 patients, plus extending the double-blind phase of the study to 18 months to align with REGENERATE. As recently reaffirmed by FDA, we expect a successful readout of REVERSE to support expanding the indication of OCA to the treatment of NASH patients with compensated cirrhosis.In summary, as we approach year-end, we're pleased to update you on the important progress we've made against our commercial and development objectives in 2019. We expect we will end this year with approximately $0.25 billion in Ocaliva net sales just three years after launch of our orphan indication.As a reminder, PBC is a rare liver disease in a market where no new therapies have been approved in 20 years prior to the approval of Ocaliva. It was uncharted territory much like NASH is today. We've developed the PBC market thoughtfully and have been successful delivering a novel therapy to patients in need, with regulatory approvals in more than 30 countries to-date.With our recent NASH NDA submission and upcoming MAA filing, we are uniquely positioned to do this again in NASH. While the NASH market represents a much larger commercial opportunity, we believe our foundation in the specialist hepatologists and gastroenterologists' community really positions us for success. I couldn't be more proud of the continued amazing accomplishments of our Intercept team worldwide, now more than 500 strong.Before I turn it over to Jerry, I'd like to announce that we plan to host an Investor Event on Monday, December 16 to provide additional detail regarding our NASH launch plans, including insights from our market research within the physician and patient communities and our thoughts about the commercial opportunities that we see ahead of us, starting with our anticipated U.S. approval and launch next year. There are of course some details we won't be able to provide at this event, such as anticipated pricing and certain details with respect to our label that will take final shape through the regulatory review period. Rest assured, we're working hard in these areas, and based on progress made to-date across the board, feel confident in our ability to successfully launch OCA NASH following approval.With that, I'll turn it over to Jerry for an update on our Global Commercial PPC business and our NASH prelaunch activities. Jerry?

Thanks, Mark, and good morning everyone. In quarter three, we reported $61.5 million in worldwide Ocaliva net sales, representing 32% growth over the third quarter of 2018. In the U.S., we achieved net sales of $45.2 million in the third quarter, representing an increase of approximately 23% as compared to the prior year quarter and reflecting continued sequential growth in demand.Turning to the international region. We achieved ex-U.S. net sales of Ocaliva of $16.3 million in the third quarter, representing an increase of approximately 65% as compared to the third quarter of 2018, reflecting strong launch performances in our key markets following rapid national reimbursements. We're particularly pleased that our teams continue to increase the number of new patient initiations across the region as we transform PBC management. As we look ahead to the remainder of 2019, I'm confident in our abilities to drive momentum in our commercial PVC business.Now turning to NASH, we continue to make significant progress on our launch preparations. In the U.S., we continue working with physicians', payers and patients, focused on a framework defined by early and advanced fibrosis rather than the traditional staging of the disease. This change is being supported by the growing acceptance of noninvasive tests and we continue to make progress on that front.Based on our market research, most of the patients with fibrosis due to NASH, under specialist care were identified without a biopsy. And the majority of community-based specialists report that they're comfortable identifying patients using noninvasive tests, including imaging modalities and blood-based measurements. We expect the use of these tests to continue to grow as important tools in the management of NASH patients.We're also very encouraged by the noninvasive data, demonstrating OCA's efficacy which will be presented at the upcoming AASLD Medical meeting as Mark mentioned earlier. What we have learned continues to reinforce conviction in our thesis that there are many patients today, suffering from advanced fibrosis due to NASH without an approved treatment option. Specialists are eager to treat these patients with the most urgent goal of preventing advancement to cirrhosis.New data also suggests that the progression of cirrhosis can happen faster than previously anticipated. For example, in the advanced fibrosis population, one in six patients can progress to cirrhosis in just 14 months. These patients are critically ill and the urgency to treat is paramount. Our market insights indicate a clear willingness to treat these patients with an antifibrotic therapy with OCA's target product profile once approved and available in the market.Our data also tells us that the urgency to treat is not just with physicians as the majority of patients with advanced fibrosis report that they're very concerned about their disease. Many of these patients are seeking more information and during the quarter, we launched NASH Truth, which is an unbranded disease education campaign, focused on informing patients about the risk of NASH and progression to advanced fibrosis.Our conversation with the payers in the U.S. are progressing well. We continue to educate them on the disease state and the importance of treating advanced fibrosis and the best way to identify and monitor these patients. Importantly, we're now engaging in a phase of proactive discussions with payers under FDA's guidance regarding data from our Phase 3 REGENERATE study as we continue the sequential dialogue through approval and the launch.Payers view the prevention of cirrhosis and the related complications as a key value driver and they generally agree that patients with advanced fibrosis have the greatest unmet need. Payers also recognize the evolution towards the greater use of noninvasive methods to diagnose patients with advanced fibrosis. We believe that OCA's strong value proposition based on a demonstrated fibrosis benefit resonates with payers and we'll continue to make the communication of this benefit a top priority.I'm also happy to note that the expansion of our U.S. payer team in the field is nearly complete and we have the right capabilities to ensure our success at launch. As we look ahead, we're preparing for a specialty launch focused on patients with advanced fibrosis due to NASH. Our plan is to target approximately 15,000 hepatologists and GI specialists in the U.S. We already cover about 5,000 of these specialists today for PBC with approximately 55 territory business managers.We're on track to increase our internal sales organization to approximately 150 Intercept territory business managers by the time we launch. And we now have identified the majority of the sales managers to support the scale up. Consistent with our approach in PBC, we expect to deploy incremental field personnel from a contract sales organization to give us additional reach and flexibility.The first wave of our new disease state contract sales team completed trading and began educating specialists last month. We've also completed the expansion of our U.S. medical affairs team and the team has been executing well on a host of educational programs. Overall, we'll remain focused on maintaining our strong PBC business, while ensuring we're prepared for every phase of our upcoming launch.Across our international region, we have a footprint in place in the key markets and continue to focus on market access preparedness and thought leader engagement. It's important to highlight that the team we've built for this launch has broad expertise and skill sets. Many have direct experience in leading the launch of numerous successful blockbuster drugs within larger pharmaceutical companies across many therapeutic areas. We believe this deep expertise is important as we approach a blockbuster first-to-market opportunity with OCA in the advance fibrotic segment.To summarize, I feel very confident with the team we've built, the progress we're making and our ability to take advantage of this import opportunity. I look forward to sharing more details about the launch at the event in December.And now, I'll turn the call over to our Chief Financial Officer, Sandip Kapadia for a financial update. Sandip?

Thank you, Jerry, and good morning everyone. Please refer to our press release issued earlier this morning for a full summary of our financial results for the quarter ended September 30, 2019. Our solid financial results during the third quarter positions us well for a strong end to 2019. In the third quarter, we recognized $61.9 million in total revenues, up from $47 million in the third quarter of 2018 showing a growth of 32% versus the prior year quarter.Our third quarter Ocaliva net sales comprised of U.S. net sales of $45.2 million and ex-U.S. net sales of $16.3 million. This represents a growth of approximately 23% and 65% versus prior year quarter respectively. We continue to see solid Ocaliva demand growth in the U.S. During Q3, we observed orders from specialty pharmacies below underlying prescription growth. This was a reversal of the trend we observed in Q2 and within our expectations as outlined during our Q2 call.Total gross-to-net deductions for the third quarter were towards the lower end of our previously communicated 10% to 15% range. Our GAAP operating expenses for the third quarter were $137.5 million and our non-GAAP adjusted operating expenses were $122.1 million. As a reminder, our non-GAAP adjusted operating expenses excludes stock-based compensation, depreciation and amortization.Our cost of sales for the third quarter were $0.5 million and were consistent with the prior year quarter. Our selling, general and administrative expenses for the third quarter were $76.8 million. This was an increase of $20 million over the prior year quarter and was driven primarily by increases related to our NASH launch preparation activities.Our research and development expenses for the third quarter were $60.2 million. This was an increase of $12.3 million over the prior year quarter. The increase is primarily driven by costs associated with our NASH development program and NDA submission efforts. As of September 30, 2019, we had cash, cash equivalents and investment debt securities available for sale of approximately $712.4 million.Turning to our financial guidance for the year. 2019 continues to be a critical year as we build momentum in our PBC business while deploying resources to support our NASH regulatory efforts and launch activities. We are confident in the financial outlook for the remainder of 2019 and expect to see continued strong growth demand in Q4 for Ocaliva.As Mark mentioned earlier, we're increasing our 2019 Ocaliva net sales guidance range to between $245 million and $250 million from the $235 million to $245 million previously. We continue to expect gross-to-net for the year to be in the 10% to 15% range. We now expect 2019 non-GAAP adjusted operating expenses to be between $480 million to $500 million from the $470 million to $500 million previously. We also recently announced a mutual agreement to terminate our partnership with Sumitomo Dainippon in China and we're pleased to have the full uncumbered rights to OCA globally.In summary, we're in a very strong cash position have good momentum in our PBC business are making solid progress advancing our regulatory filings while continuing to make important investments to prepare for a successful launch of OCA in NASH. Finally, as a reminder, non-GAAP adjusted operating expense is a non-GAAP financial measure under SEC regulations. Please refer to our press release issued earlier this morning for a full explanation and reconciliation of this measure.I'd like to now turn it over to the operator for any questions. Operator?

Thank you. [Operator Instructions] First question comes from the line of Alethia Young with Cantor Fitzgerald. Your line is open.

Hi, this is Emma on for Alethia. Can you help us frame what information we should expect at this December investor update and just in particular whether you anticipate being in a position to give patient number and diagnose assessments at that time?

Yes. Emma so I'm going to give that to Jerry. Thanks.

Yeah. So we definitely look forward to the meeting in December and what I think we should expect is that we'll update you all on our thinking about the market how we see the overall patient segments where we anticipate our plan will target. And based on all of the data that we've accumulated to date, the relative sizing of these segments and how we're going to attack it. So I think clarity on the overall commercial approach to different market segments. Again for us thinking about it more in the context of the market moving towards early in advanced fibrosis and how we see that in the context over time.

Okay. And then just also wondering, if you can provide any color on how your conversations are evolving with payers around F2 patients who have comorbidities? And specifically whether they're receptive to the fact that NASH with fibrosis could have nonlinear progression?

Yeah. Again the discussions with the payers are progressing well. As you can imagine it's a sequential dialogue. We started with a lot of discussion around the disease state and now we're moving into more depth on the -- on our data.The payers do recognize that the group of advanced patients are the ones that they're concerned about in terms of progression to cirrhosis and all of the complications and costs that are accumulated with them. And now we're in that window where we're really defining with them, the right advanced segment frankly looking at how best to identify those patients in the real world.They are thinking about how best to look at these patients and clearly they see the progress also towards more noninvasive means of diagnosis as the payers recognize like all the other stakeholders some of the challenges that exist with biopsy.

Great. Looking forward to the update in December.

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

Hi, there. Thanks very much for taking my question. I guess now with the NDA filed I'm just wondering if you had any updated thoughts on whether the FDA might hold an ADCOM and what key questions might be discussed -- potentially discussed there?And then I guess secondarily, as you're doing your on-the-ground market research, what sort of levels of pent up demand in NASH are you sensing, relative to what you guys view as the initially addressable market. I guess I'm just wondering how indicative the early launch numbers an uptake could be for the overall longer term trajectory? Thanks.

Yeah. Thanks Brian. I'll take the first question. So we don't have any additional insight since the last time we talked to you about the possibility of an ADCOM. We are prudently preparing for one. But, of course, it will be up to FDA to notify us whether they want to hold one or not.With respect to the second question, I'll ask Jerry to address it.

Yeah. So thanks for the question regarding how we see the initial phase of launch. I mean, I think first of all, we clearly recognize that this is a significant opportunity as we continue to stay focused on this advanced population, but we plan for a strong launch. We're going to focus on the HEPS and GIs who are the ones who are most likely treating this advanced segment that we're targeting. A couple of additional items, which I think are important.We would think about the payer dynamic as being typical in terms of timing of a specialty product launch. So they'll go through their formulary and coverage decisions as per their process, which is a bury sum some from payer to payer. We do know that there are patients that are under the care of a specialist today that the specialists are comfortable using an antifibrotic like OCA for.We would anticipate that that treatment flow would be more like a typical chronic therapy where patients are presenting at their next scheduled visit as opposed to a large group of patients on day one of launch. So we think about a strong launch and again typical with what you see with the chronic specialty medication.

That’s really helpful. Thank you.

And our next question comes from the line of Michael Yee with Jefferies. Your line is open.

Hey guys, thanks. And look forward to all the work you guys have done about the launch. I guess, it seems that you've made a lot of positive comments around your view of lack of need of a biopsy presumably, and whether FDA or payers would require that. Can you just remind us your confidence level or any precedence that a biopsy has been required for any type of these liver drugs or other ever drugs?And what precedent there is for payers to do that? And then as it relates to a follow-up question that was just asked, can you just remind us how often these NASH patients see their doctors, or is that a consideration, or is there actually people they'll be ready and lined up ready to go? Thanks.

Sure. I'll start Mike. So on the regulatory side, I've said this before, it's highly atypical of a regulatory authority to specify diagnostic method in a label. And certainly with respect to FDA, we know that they are just as attuned to the need to move away from this invasive method of diagnosing staging patients as any other stakeholder.I think there is precedent. Back in the days when viral hepatitis studies were done with biopsy you don't see the use of biopsy or certainly not the requirement of any kind of biopsy in those labels. On the payer side, Jerry can comment.

Yes. Mike I think your question was regarding the frequency upon which some of these patients are in the specialist office. Obviously, there's some variability there, but a good guidance is kind of once to twice a year depending on some of the specific elements with the patients.So, these patients that again we would anticipate to be targeting first are ones that have been recognized as having a progression of disease and would be under the care on a relatively regular basis with their hepatologists or their gastroenterologists.

Yes, and Mike just to round it out, we've said before that majority of these patients under specialist care today have not received the biopsy. We are certainly working very hard with respect to the non-invasive tests that I referenced in my prepared remarks we're very excited about the data that are being presented next week at AASLD, for example, looking at both proprietary, non-proprietary blood tests and imaging modalities like FibroScan, transient elastography.So, this is a work in progress. But we've said before that all stakeholders including payers are well aware of the deficiencies of biopsy, the expense, the risk, the variability, or the fact that it's not standard-of-care in day-to-day clinical practice. So, that's kind of where we're at.

Yes Mike. The only other thing that I would add is, of course, when we talk about the presentation of these patients. That's all in the context of no therapeutics available. So, we do anticipate again that the motivation to deal with these patient goes up when there's a drug available finally.

My point was that therefore if you do not have biopsy requirements either by payers like you say could be possible or FDA. We feel very good that there is a huge bolus of non-biopsy patients that are there for you?

We know that there are -- and again, we'll get into some more details on this next month I think it will be one of the interesting items. We do know that there are -- this group of patients that are with specialists already. And they have not only been identified as advanced, but have sometimes a number of these tests already done in a relatively recent time. Again one of the things that's been lacking is the path forward for the physician and the patient in terms of treatment.

Got it. Thank you.

Thank you. And our next question comes from the line of Ritu Baral with Cowen. Your line is open.

Good morning guys. Thanks for taking the question. I wanted to ask about the 15,000 clinicians that you mentioned that you will be targeting. Can you give us a little more granularity on who they are and why you picked them? Maybe split between hepatologists and gastros, whether they're at NASH centers, community centers. And at least your current thoughts on what percent of NASH patients may be under their coverage and further advanced NASH patients under their coverage?

Yes. So, I'll address the first part of the question and I think the second part of the question in terms of the percentages that fall that's probably an item that you'll see more from us in a couple of weeks.When we talk about the 15,000 approximate specialist targets at launch that is the broad group of GI specialists essentially the bulk of all of the hepatologists that have relevance in NASH and again the broad-based community group.Obviously, the GI group has some several different segments inside of that, but we are capturing the vast majority of GI specialists with that 15,000. It is a flex up as we said the great thing is, is that the core part of that 5,000 or so we have been already dealing with over time in PBC and so the incremental physicians that we'll get is to get at the larger group of specialists who treat NASH.We've looked at quite a bit of data. As you can imagine there's not traditional prescription data in NASH since there haven't been any approved therapies, but we're looking at a lot of interesting data sets to be able to identify those physicians that have the advanced population that we expect to be treated first.

Is there like a tier within them that covers more advanced NASH patients or specific centers of excellence that you are -- that you'll be targeting first in Tier 1?

Yes, there will be a subset of those in the key centers, obviously, some of the academic centers the groups that are heavily involved in the clinical trials in terms of opinion leadership, et cetera will be a core part of that.And then there's another real important audience which is the busiest community-based gastro practices where there are a large volume of patients due to the overall size of those practices.

Great. Thanks for taking the questions.

Thanks Ritu.

Thank you. Our next question is from Yasmeen Rahimi with Roth Capital Partners. Your line is open.

Hi team, thank you for taking the question. So, first congrats on dominating the liver meeting with 22 presentations. So, my first -- both of my questions are centered on the data being presented at the meeting.So, the first one is on the late-breaker of the five-year long-term safety data on employees. Can you maybe give us some color on -- did you look at changes and provide us over five years or event rates?And then how does this data set inform you in regards to COBALT? And then where are we in regards to COBALT timeline? And how important is this outcome data not only in market penetration for PBC, but as well as NASH? And then I have one more follow-up in regards to Abstract 1290.

Sure. Thanks Yas and thanks for focusing in our data, we're obviously really excited about AASLD this year. We do have 22 NASH and PBC abstracts. And I think it's really important to highlight the long-term PBC data. This -- again this is the completed Phase 3 POISE trial data. We had a five-year open-label extension phase up to the one-year double-blind. So, we have a number of patients have been exposed in that study for up to six years. And as I mentioned in my prepared remarks, we've got durable stable therapeutic response with no new safety signals and a nice tolerability profile as you mentioned. I can't comment on specific measures of pruritus during that long-term follow-up except to note that patients obviously vote with their feet. And we do see this long-term favorable tolerability that, we expect to extend to majority of patients treated with this drug.With respect to COBALT which is our ongoing Phase IV confirmatory outcomes study in PBC that continues to enroll. And we're on track in terms of event rate. It's premature for me to guide as to when we expect that to read out. But I will say that, this is important both on the PBC and NASH sides. We're going to continue generating really important clinical data and ultimately clinical outcomes data. And that we believe is going to continue to drive a differentiated fit profile for OCA, our second line in PBC and as the established foundational therapy in NASH. So, anyway we encourage you to come and check out all the abstracts at the meeting.

And then the second question is in regards to attract 2090. So in this abstract OCA looked at mortality rates in PBC patients with hepatic decompensation before OCA and after OCA era. So specifically, did you look into the 429 patients that were in the era after OCA? And what percentage of them we're taking OCA and therefore you can actually calculate the direct effects on OCA-improving mortality rates. And if you have not done so do you plan doing such analysis? And when should we be expecting to see that?

Yeah. You're talking about Ray Kim's abstract. So this is not an intercept abstract. Very interesting that you went and looked at a large number of PBC patients with advanced disease de-compensated cirrhosis Child-Pugh B and C. This is precisely the advanced segment that has been the most fragile at most risk where Ocaliva is recommended starting dose at just once a week. And the conclusion of this abstract was that since OCA was approved over three years ago mortality in this narrow patient segment appears to be lower than what would've been predicted based on the natural history of the disease.Now, I just want to stress the conclusion of this abstract is that this cannot be causally associated necessarily with Ocaliva. And so the answer to your question is we don't know – or I don't know at least, which of these patients if any were on treatment. But certainly the conclusion is that with Ocaliva around mortality, it appears to have gone down. I do think, it's worth looking plunging more into the data. We'll look forward to collaborating with Ray Kim on that.

Thank you.

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

Hey. Thanks for taking the question. I also had some questions about ASLB abstracts. There's an abstract-exploring synergies between bezafibrate and OCA and PBC. Can you talk about how you plan to leverage those synergies in PBC? And also maybe talk about potential synergies between these two molecules in the treatment of NASH. And then I have one follow-up.

Yeah. Thanks for the question, Jay. So yeah, you're referring to an abstract out of France. This is a second European cohort of patients. And this is interesting. It's Chris Corpus show who is the lead investigator in the BEZURSO study that was published last year. And what he looked at was patients with inadequate or intolerant to UDCA, who were then put on either Ocaliva on second line or bezafibrate second line. And then after a period of time were put on the triplet therapy.So, the combo therapy of OCA and beza. And anyway you look at the data it's very clear that the combo very substantially improves response just as would be predicted and that again supports our rationale after we licensed bezafibrate earlier this year in the U.S. to proceed with the development of a fixed-dose combination of the two compounds.First for the treatment of PBC and then we've also said that, we intend to try it in NASH. So again, we think that it's another robust dataset that can be leveraged in support of the combination therapy in PBC.

Great. And then my second question is related to a recent publication describing long-term benefits in patients with PBC after three years of treatment with OCA. It focuses on histological endpoints. And that publication combined with the abstracts you have at AASLD looking at the benefits of OCA treatment in patients with PBC after up to six years of therapy. Can you just talk about what sort of competitive barrier these data represent? And what the impact would be of these data on new entrants into the PBC market?

Yeah. Sure. I mean, I commented on this a couple of minutes ago that we continue to generate exciting data that the publication you're referring to is the data we presented last year and a subset of POISE patients who underwent baseline biopsy and then a follow-up after three years and we showed fibrosis benefit in those patients albeit small number and it wasn't controlled. And that coupled with the long-term safety and efficacy data being presented at this meeting. And eventually, we hope positive outcomes data will continue to cement we believe Ocaliva's position in second line irrespective of who's coming down the pike. And of course, we continue to be focused on generating new and exciting and differentiating data with Ocaliva on the PBC side.Same thing on the NASH side. I mentioned in my remarks that we're obviously building on the very exciting interim -- month 18 interim analysis data in support of the NDA and launch. But we having completed the outcomes cohort of REGENERATE close to 2,500 patients randomized, we're charging down the path for post-marketing readout on outcomes in NASH. So it's going to continue being exciting over the next few years.

Great. Thanks again for taking the questions.

Thanks.

And our next question comes from the line of Salveen Richter with Goldman Sachs. Your line is open.

Thanks for taking the questions. This is Ross on for Salveen. On the call you guys noted that the data from Phase 3 REGENERATE is going to be used to inform the payer decision. However, should we be expecting that the PRO and NIT data to be part of the initial label? Or is this something that should be part of a more broader initiative to elucidate the non-invasive diagnostic potential of OCA? And then, I have a follow-up.

Yes. I can't comment, right now, on the specifics of what's going to end up in the label. But definitely, the PRO and NIT data, we think are very important. They're being presented next week in Boston, there will be follow-up publication on these data and a lot more data mining to do to really understand the nuances and implications of these data. So I think more to the latter part of your question, this is going to be part of our broader educational effort. And we're certainly going to leverage these data with our various stakeholders, payers, physicians, et cetera.

Great. And then, for Sandip. So based on the reversal in the 2Q ordering trends, how should we be thinking about the underlying Q-over-Q demand change here? And how this will play out into the fourth quarter?

Yes. Again, thanks Ross for the question. I mean, we had obviously a very solid quarter where we saw good underlying demand growth even through the summer period. So we had good growth in the U.S. continued contribution of international as well.As you mentioned, this quarter we did see specialty pharmacy orders below the underlying IMS trends in the U.S., which is a reversal of what we saw the last quarter, which we had anticipated and indicated. So we increased our sales guidance for the balance of the year.So I mean we have continued confidence. I think, we're at -- we don't see any impact of potential trade inventory changes at least in the quarter four. But, we're seeing good strong growth, continued demand growth and thus we increased our sales guidance range from $245 million to $250 million.

Great. Thanks for the questions.

Our next question comes from the line of Brian Skorney with Baird. Your line is open.

Hi. Thank you for taking our questions. This is Jack dialing in for Brian. We wanted to drill down into the potential pricing discussion around PBC and NASH. And we're wondering what levers we should think about as you look to potentially implement differential pricing in PBC and NASH? And if the FDA potential approval of the 10-milligram dose in NASH has any effect in your ability to potentially implement differential pricing in the two indications? Thank you.

Okay. Thanks for the question. First, as you know, we filed a separate NDA. And so, the plan is, of course, to launch NASH under a different brand, which gives us some optionality, so we positioned ourselves to ultimately pursue the pricing option which maximizes the NASH launch and also considers the overall long-term value of the franchise.Obviously, the label and some of the questions that you mentioned are not quite clear at this point, as we go through the process. So we'll plan to continue our work. The dialogue with the payers, which are really an important input into that and finalize in and communicate the overall pricing approach at the NASH launch.

Awesome. Thank you so much.

Thank you. Our next question is from the line of Steve Seedhouse with Raymond James. Your line is open.

Yeah. Good morning. Thank you. I just wanted to follow-up on the indication-based pricing discussion. Is that easier in your opinion to achieve in the U.S. or in Europe? And then, I wanted to also ask just, as you're preparing for a potential AdCom and just thinking about the different issues and questions that could arise, I wanted to get your thoughts on your comfort with the risk of gallstones based on what you see and you're regenerating based on some academic literature, just discussing the mechanism and risk of gallstones. Thank you.

Yes. I guess I'll take the first part. So regarding pricing, it's a different system, obviously, between the U.S. and Europe. And the different markets in Europe have a different approach. So the mechanisms in Europe will be varied.Some will look at it completely independent, because it will be by definition a separate brand and will have its own discussion regarding the criteria that the individual international markets used to make their pricing decision work in the U.S. We'll take the approach I outlined earlier.

Yes. With respect to your question about AdCom. I mentioned earlier that we're preparing for one if there is one, if FDA decides to have one. And I think, in terms of the focus of interest at that AdCom, it would ultimately go to across-the-board to efficacy and safety and overall benefit risk.Needless to say, we're obviously very confident based on all the data that we've seen in the favorable benefit-risk profile of OCA, the 25-milligram dose, the effective dose in this population with advanced fibrosis. You asked specifically about gallstones.It was something where we saw a numeric difference with more gallstones reported in patients, the OCA 25-milligram dose. And there's a plausible mechanism that you alluded to in a recent publication. To the extent that this signal proves to be real, we would think that it's probably a class effect of FX or -- but again, gallstones are very common in this patient population and imminently manageable in the vast majority of patients. So from our perspective that particular signal doesn't alter our view of benefit risk.

Thanks very much.

Thanks.

Thank you. And our next question comes from the line of Alan Carr with Needham & Company. Your line is open.

Hi, thanks for taking my question. You talked earlier about 150 person sales force but also a contract sales force. I wonder if you could talk more about the potential scale of that and timing around building that the decisions that go into building it And then also can you go over the relative opportunity in Europe, and I guess the amount that you expect to invest there and in your own commercial infrastructure? Thanks.

Okay, thanks. As I mentioned in the prepared remarks, we have earlier -- sorry, last month implemented the first group of our contract sales organization team that's out there doing education.It's really been a part of our sales force model for a while in PBC that we keep a portion of our overall sales team from a contract group. It gives us some flexibility and some opportunity to pulse when we need to.I think the way to think about that group is it's a complement ultimately to the 150 internal sales team that we will ramp up to -- for the launch. We'll continue to look how to use the different levers effectively. We will be progressively adding both to the contract group and to the internal team as we move forward through the launch as per our plan.

No specific details at this point on the size of the contract sales force that…

Yeah. We'll give some more details on the ramp-up of process and the sizing when we get to the event. But the way to think about it again is that ultimately at launch the majority of our effort will come from that internal team of approximately 150 Intercept territory business managers.

Okay. And then for Europe?

Yeah. So Europe I mean if you look at the prevalence data there's potentially similar numbers of patients in the European market. Obviously there will be the normal process in Europe around pricing and reimbursement, which will take some time. We'll look at our investment plan to take advantage of the opportunity.But also to move through on a milestone basis you have different timing. First on the regulatory front as we get ready to file later this quarter and then you look market-by-market at the right way to ramp up the individual markets based on the reimbursement process that exists in that individual market, so the nice significant opportunity in Europe, which we'll tackle progressively. But obviously the first focus in the first market in terms of chronology will be the U.S. market.I think it's important on the ERP. And just one last thing, the important consideration on Europe as we did build up our internal infrastructure in the key European markets where the PBC launch. So like the U.S. when we talk about flexing up the resources same kind of process there where we start with an infrastructure and with a real good, strong teams and sound relationships with the key stakeholders in these markets.

To what extent are you open to co-marketing or out licensing type arrangements in parts of Europe?

Yeah. Alan we've said before that we're very open minded with respect to strategic options. If there's a like minded company that can accelerate access to patients in need. We're very open to that possibility.

Great. Thanks for taking my questions.

Thanks Alan.

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

Hi, thanks. The majority of my questions have been answered, but I guess just to probe a little bit more on your discussions with payers, not on pricing but really the use of biopsy. I mean, where are they at in terms of either wanting to see a biopsy, or are they at this point pretty comfortable with he noninvasive approaches?

Okay. Thanks for the question. I mean, I think as we've been indicating, we believe NITs are the best way frankly to diagnose the advanced fibrotic patient in the real world given all the challenges around biopsy. I think if we think about the conversations and the learnings we've had from payers, they're obviously well aware of the NITs that are available for assessing fibrosis and liver disease.Partially clearly thanks to their experience in hepatitis C where the use of NITs on the payer side is a rather consistent approach in many of the large payers. So we see this momentum continue, continue with the payers. We're in the middle of as you can imagine all of those discussions now. But the momentum in the overall market is encouraging.It's also evident that the large REGENERATE dataset's going to be key in those discussions. And so it's great to see that the NIT data specific to OCA begins to emerge at the meeting in Boston next week and that will really be an important part of the overall dialogue with them.And again I think payers understand that there's this group of advanced patients that they're most concerned about that are already being identified primarily through noninvasive means in the practice setting today. And they're also, of course, looking to what the key opinion leaders are saying so the fact that more data is emerging all the time and the KOLs are clearly behind. This is going to be another important dimension when we think about the payer dialogue between now and launch.

Thank you.

Thanks, Liisa.

Thank you. And our next question is from Joel Beatty with Citi. Your line is open.

Hi, thanks for taking the question. The first one is, could you provide any thoughts on whether the labeling would be based on fibrosis stage? And then secondly could you discuss the potential upon the initial approval expected next year to use OCA to treat NASH patients with F4 fibrosis? I realize that's still being studied in the REVERSE study, but until those results come, it seems like there'll be no other alternatives for those patients?

Yes. So with respect to your first question, I'd point out again that our breakthrough designation is in NASH patients with fibrosis. And we wouldn't necessarily anticipate a stage-specific indication. But we'll see. Can't comment on where we're going to end up exactly in the label.I think post-launch and F4s I mean it is a separate population of patients. We study in REVERSE. I mentioned in my prepared remarks REVERSE is the only such Phase III study that's ongoing right now. It's a very important segment of the market with the highest unmet need.And I think again a positive outcome in that study positive result in that study will support an expansion of the indicated use of the drug in this segment and further differentiate it. But in the initial phase of the launch this is not a segment of the population we would be targeting.

Thank you.

Thank you. And our next question is from the line of Jim Birchenough with Wells Fargo. Your line is open.

Hey guys. Thanks for fitting me in and pause it, as I try to avoid, but a couple of questions. Just on Ocaliva, Mark what are the drivers for growth going forward? If it's territory expansion maybe speak to territories where we're further behind. If it's expansion of market share in Europe versus U.S., could you maybe tell us where we're at market share-wise, Europe versus U.S.? And then in the U.S. what segments are you missing right now that you think you can get to? And then I've got a follow-up.

Sure. I mean -- thanks Jim. So look as we said in our call we're thrilled with the continued momentum in the business around the world. I'll ask Jerry to comment on the specifics.

Yes. I guess a couple of items. As we've mentioned throughout, we see good underlying demand continue in the U.S. market. We still see as we've expanded the reach into a larger group of GI physicians that the broader community-based GI physician who may only have one or two or three PBC patients is willing to prescribe for those patients once they get the appropriate information.So we do see a continued opportunity to expand. I think it's also important. The majority of patients out there in all markets, frankly that are eligible for OCA according to our second-line treatment don't -- haven't received it yet. So there is still just a strong organic opportunity.I did reference in the prepared remarks that really encouraged to see what's happening in the international markets where we see good -- we launched later, so we are earlier into the launch phase in many of those markets, but we see a good solid growth prospects continue.And then yes there is opportunities as we've expanded beyond the classic European markets. So I think you see it. We're still relatively early frankly from a volume standpoint in the PBC opportunity and we'll look to leverage that in appropriate way as we move forward.

The only thing I'd add Jim is that, what's really encouraging to see is long-term adherence rates that continue to improve. We've got better adherence with Ocaliva than the first line. And also physicians are getting more and more valuable experience with the drug.So those who have the most experience prescribing Ocaliva the vast majority have a positive experience with the drug. And again as Jerry said earlier, these are the core group of physicians who'll be prescribing for NASH.

And then maybe just on the noninvasive testing. I'm just trying to understand the strength of the evidence in support of noninvasive testing. Could you maybe speak to the ability of noninvasive testing to discern REGENERATE patients from REVERSE patients or those eligible for REGENERATE and those that were ineligible? If you have numbers on positive predicted value negative predicted value, sensitivity specificity. Just trying to understand the strength of noninvasive testing data?

Yes. It's exactly the right question. And I'm happy to say that based on the data mining we've done in our own dataset -- and actually our recent really strong publication from Gilead in the STELLAR and 4 studies. You can see pretty robust sensitivity specificity particularly when you use these tests together, right? So two sequential noninvasive tests including standard commonly used serologic tests that are available to all physicians out there and also things that are growing in use like transient, elastography, ultrasound-based technique.And so we are confident bottom line that these tests are accurate enough to discern -- to identify patients with advanced fibrosis and help -- be also helpful in addition to the other very standard work-up a physician would do to identify and distinguish from a cirrhotic patient.

Great. Thanks for taking the question.

Thanks Jim.

And our final question comes from the line of Navin Jacob with UBS. Your line is open.

Hi, thanks for taking the question. Can you hear me okay?

Yes.

Okay. Great. So just -- Sandip maybe going into 2020, if you could help us understand how we should be thinking about expenses as you ramp your sales force, your marketing expenses all associated with the impending hopeful launch of NASH? Any kind of color on some of the dynamics we should be thinking about? And also as it relates to any other line item for 2020 BG COGS or tax rates and so on and so forth?

Sure. Thanks for the question. I think -- I mean it's obviously a bit early to give guidance through 2020. We'll do that at a later point. But what I can say is, look we -- as Jerry mentioned, we've completed a large part of the infrastructure build as we're going through this year in terms of the MEPCO organization, the payer organization. You can see our spend has increased as a result of it.The key additional investment for -- as we get towards either the later part of this year. Certainly for next year is the sales force expansion, our internal sales force expansion, which would be the key investment as we think about next year, along with probably some additional resources to continue education probably required in the market. But I'd say we'll provide greater clarity as we get -- certainly as we get closer to next year. And hopefully that gives you something.

Okay.

Thanks very much. I think we've run a little bit overtime, operator, so we'll call it there. Thanks everyone for dialing in. We've had a great year so far. We look forward to driving towards a NASH launch next year and see many of you in Boston later this week.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.