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Catalyst - Winter 2013 - 'Strong Story' Leads Niche Biotech Intercept to IPO Success

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There is no other technology sector where the concept of "risk vs. reward" is more important than biotech -- where the difference between success and failure can be measured, literally, in lives saved.

It's incredible to know that some diseases such as AIDS, at one time almost always fatal, are now at bay thanks to pioneering biotech companies that believed -- proving that with science, there is always hope.

Of course, some companies are focused on the very big picture: finding a cure for cancer or slowing down Alzheimer's disease. Others become laser focused on small, but pivotal discoveries they believe will change medical science as we know it.

One such company is New York City-based Intercept Pharmaceuticals. Led by physician-turned-technologist Mark Pruzanski, M.D., Intercept is focused on the incredible impact novel bile acid therapeutics could have on the people suffering from chronic liver diseases. Like those who pioneered AIDS therapies, Dr. Pruzanski and his dedicated team believe wholeheartedly that the day when people dying from liver disease – one of the top 10 causes of death in both men and woman worldwide – will be ancient history is within reach.

In fact, to underscore his belief, he points to the history of treating kidney disease. "We have a great understanding now of the way the kidney works. When it comes to treating liver disease, we are about 20 years behind kidney disease which makes this an extremely important area of very high unmet medical need," Dr. Pruzanski said.

"The liver is much more complex than the kidney and it is absolutely essential to life," he added. "Yet, there are very few available drugs to treat liver diseases. Yes, there have been amazing advances with antivirals to treat Hep C, but there are so many other diseases that progress into cirrhosis with no drug therapy available."

Enter Intercept. With the "public" stars aligned in its favor, Intercept took its story to the markets filing a confidential S-1 in June 2012 and ultimately pricing in October. The company not only raised $80 million in the IPO, but raised an additional $61 million in follow-on funds in June 2013.

For Dr. Pruzanski, the question of when Intercept's lead product candidate, obeticholic acid (OCA), could be on the market is closer to being answered. A Phase 3 clinical trial, known as the "POISE" trial, is currently testing OCA in 217 enrolled patients. The company expects results from the POISE trial to be available in the second quarter of 2014.

The public financing, the CEO said, should take the company as far as early 2016, at which point OCA could be available for purchase in the United States and Europe.

First Things First

Intercept recruited Barbara Duncan four years ago to take over the financial helm of the company. As CFO, she brought not only established public company experience, but also the know-how to guide Intercept through the maze of an initial public offering – when the timing was right.

Duncan recalls the early back-and-forth discussions in 2009 when the company first considered an IPO. "We knew we needed to raise additional capital and the private markets were abysmal, but going public wasn't an option at that point either."

However, a cash infusion was necessary to get the company through Phase 2 development. Intercept turned to its major investor, an Italian institutional investor which already owned 70 percent of the biotech company, for the additional capital. In January 2010, Intercept closed a $25 million Series B Round.

Never Give Up

"In our industry, the large majority of companies fail because most compounds advanced as drug candidates fail along the way – for safety or lack of efficacy," Dr. Pruzanski said. "This is so hard to do and takes so long from discovery of a new molecule to get it to market and all along you are so aware that there is a greater than a 99 percent failure rate."

Truth is, for every 10,000 molecules discovered, 100 get through pre-clinical development to the clinic -- where the U.S. Food and Drug Administration (FDA) gives the green light for testing in humans. Of those, statistically, only one will get to market as an approved drug.

"So, the best hope you have is to plan one step at a time. At first, you raise capital to get through the next milestone," the CEO continued. "You know the story and results have to be perfect because this is a very high-risk, capital-intensive business. You need money to continue and you need data to attract money."

Some biotechs aim for the exit door where getting a compound to the stage where the company could be acquired or the would-be drug might make for an attractive purchase by a larger entity is the end game. Dr. Pruzanski decided early on that he would be in it for the long haul. He wasn't just building a company, but had the vision of developing a drug that would truly change the way science views and treats chronic liver disease.

Why the Liver? Why Now?

Fifteen years ago, after graduating from medical school in Canada, Dr. Pruzanski came to New York to work on the venture capital side of life sciences. He knew back then that, in this business, it takes a whole lot of money to make medical science happen.

In 2002, he began to notice that the major pharmaceutical and biotech companies were focusing on large families of drug targets – thanks to the Genomics Revolution. "I decided there was an opportunity to focus on a very small family of targets," he explained. His topic of interest was bile acids.

Bile acids are made from cholesterol in the liver and stored in the gallbladder in between meals. When we eat, they are squeezed out of the gallbladder, and after dietary cholesterol is emulsified, the bile acids are re-absorbed into the liver. This process is critical to human existence.

Knowing that, and the fact that the human liver is the only organ that truly regenerates – a person can give up 75 percent of their liver as a living donor and it will regenerate in a month! – Dr. Pruzanski began to focus on a particular bile acid receptor, FXR, under investigation at the time by scientists at Glaxo-Smithkline in North Carolina.

"FXR is the particular receptor that is responsible for liver regeneration. Upon further involvement, I found out that GSK scientists were already collaborating with a scientist in Perugia, Italy, who had been tinkering with human bile acids. GSK was screening the compounds he had created."

Apparently, while "tinkering" with compounds, as Dr. Pruzanski puts it, the scientist, Roberto Pellicciari, had discovered a slightly modified human bile acid that was 100 times more potent in activating the FXR receptor than natural bile acids.

"I really believed we had a drug on our hands. This was incredibly exciting because the discovery meant that we could have a drug in the form of a pill that could amplify the body's natural ability to regenerate after suffering from disease! It could reduce the need for liver transplants!"

And the Rest is History!

Dr. Pruzanski went to Italy and met Professor Pellicciari. Together, they formed Intercept in 2002.

Today, the company's lead product, OCA, is initially being developed for the second line treatment of primary biliary cirrhosis (PBC). PBC is a rare chronic autoimmune liver disease that, if inadequately treated, may eventually lead to cirrhosis, liver failure and death. The primary and only approved therapy for PBC is ursodiol. However, many patients have suffered an inadequate response to or are unable to tolerate ursodiol. To date, OCA has received orphan drug designation in both the United States and Europe for the treatment of PBC. Intercept owns worldwide rights to OCA outside of Japan and China, where it has out-licensed the product candidate to Dainippon Sumitomo Pharma.

Professor Pellicciari remains a consultant to the company. In addition to Dr. Pruzanski and CFO Duncan, Daniel P. Regan, a former senior executive at Genzyme, was recently brought on to fill Intercept's newly created position of chief commercial officer, rounding out the company's stellar management team.

The Tepid Market and a Hot Bet

Toward the end of 2010, almost a year after the $25 million Series B Round, Intercept was advancing toward Phase 3 clinical trials with OCA. More money was needed and, as predicted, Duncan's experience became critically important for the company's goforward strategy.

Looking back, she said, "we had been assessing conditions for quite a while and watching the market closely. In the end, we called it right."

It was actually a case of being in the right place at the right time. After all, Intercept, along with many, many other biotechs, had been in the wrong place for a very long time. The IPO market had screeched to a halt in 2007 through 2009 and the idea of obtaining public backing in those days was crazy talk.

"It was unthinkable for most companies to go public unless you were already in Phase 3 or further along for a few years, and even then it wasn't worth really considering. It wasn't until late 2010 that there was a bit of activity," Duncan recalled. "We watched the biotech market heating up and began to consult with our board and bankers."

Throughout 2011 and even as recently as early 2012, Duncan said the company was still considering – and questioning – the option of an IPO. "We felt the markets were opening up a bit, but we were not 100 percent sure of what was best for Intercept."

So, the company hedged its bet. The management team began to consider another round of private financing while "testing the waters," she said. "We were feeling our way in the public markets – telling our story and getting investor feedback. At the same time, we were going full steam ahead on private discussions because we didn't know where we would end up."

A $30 million Series C Round of private financing set the stage for Intercept's plunge into the public arena. Duncan said with a bit more money in the bank – and more leverage with its private investors – the company set up a viable backstop. "We took $30 million at a set price with another $20 million promised a year later if we didn't go public. Our investors believed in the company and wanted to fully back us through Phase 3."

However, Intercept had already set its sights on the public markets. It filed its S-1 in June of 2012 and looked forward to the flexibility an IPO could bring the company.

It all worked out, Duncan reflects now, noting: "We had a safety net but didn't need it. Our story was strong enough on its own."


EisnerAmper's Catalyst: Winter 2013

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