GILD Gilead Sciences Inc

A U.S. Food and Drug Administration advisory panel recommended the agency approve a new drug for the treatment of a rare liver condition—the latest milestone in a rapidly growing market for liver-disease drugs.

The FDA's panel of outside advisers voted 17-0 Thursday that there was substantial evidence to support FDA approval of Intercept Pharmaceuticals Inc.'s drug, obeticholic acid, to treat a condition called primary biliary cirrhosis, or PBC. The disease destroys bile ducts in the liver and can lead to life-threatening complications requiring liver transplants.

While primary biliary cirrhosis is relatively rare, analysts believe Intercept's drug has big sales potential because the company also plans to seek regulatory approval for it to treat a more common liver disease known as nonalcoholic steatohepatitis, or NASH. Credit Suisse predicts sales of obeticholic acid could reach $159 million in 2018 if it is approved for primary biliary cirrhosis this year, but eventually could rise to annual sales of $6.5 billion if cleared for NASH.

The drug was the focus of much attention in 2014 when positive clinical data caused Intercept shares to rally, but then the stock plunged on concerns that the drug might cause abnormal cholesterol levels in NASH patients. Those concerns weren't a major part of Thursday's FDA panel discussion because it focused on the drug's use to treat primary biliary cirrhosis, and lipid changes in these patients weren't significant in studies.

The market for liver-disease drugs is booming. Gilead Sciences Inc. has racked up billions of dollars in sales in recent years for its new drugs to treat hepatitis C, and Merck & Co. and AbbVie Inc. have introduced competing hepatitis C drugs. Gilead this week agreed to pay $400 million, with a potential for $800 million in future payments, to acquire another company developing a treatment for NASH.

Last week, the FDA approved a new drug from Jazz Pharmaceuticals to treat a life-threatening liver condition known as hepatic veno-occlusive disease.

"These blockbuster markets have attracted drug companies because these are areas of potential new drug options, huge unmet needs, and global epidemics," said RBC Capital Markets analyst Michael Yee.

Intercept is seeking to market its drug to treat primary biliary cirrhosis patients who don't improve while taking an older drug called ursodeoxycholic acid, or are unable to tolerate the older drug. The FDA, which isn't bound by its advisory committees but often follows their advice, is expected to make a final decision by May 29.

In a clinical trial, patients who received obeticholic acid had improved measures of liver function a year after starting treatment, compared with patients who received a placebo. The most common side effect was itchy skin, which led some patients to stop taking the drug.

Intercept was a little-known drug startup until January 2014, when its share price nearly quadrupled in a single day on news that obeticholic acid had performed well in a clinical trial of patients with NASH. The National Institute of Diabetes and Digestive and Kidney Diseases, which conducted the trial, halted it early because patients had shown significant improvement.

The NIDDK revealed that it had concerns about abnormal cholesterol levels in patients taking it in the NASH trial, but company later said the cholesterol effects appeared to be manageable.

Intercept shares, which were halted in trading Thursday, closed Wednesday at $163.83, down more than 60% from their peak in 2014.

The company, which operates out of offices in Manhattan's Meatpacking District, hasn't turned a profit to date. It was founded in 2002 by an Italian professor and an American venture capitalist and had an initial public offering in 2012.

Intercept's clinical study in PBC used a short-term measure of liver function in patients as a surrogate to predict long-term benefit, given that the disease progresses slowly over many years. Members of the advisory panel said Thursday they believed the surrogate measure was sufficient, but encouraged long-term follow-up.

"Weighing the risks and benefits in the setting of patients with PBC, with limited treatment options, I think it's very reasonable to go forward," Linda A. Feagins, a panelist and associate professor of medicine at the University of Texas Southwestern Medical Center, said at the meeting.

Intercept Pharmaceuticals said Thursday it was pleased that the FDA panel "recognized the unmet need in this population, and the potential" of its drug to help patients.

Shares of Intercept, up 21% over the past three months, rose 9.6% to $179.50 in after-hours trading.

Write to Peter Loftus at peter.loftus@wsj.com

(END) Dow Jones Newswires

April 07, 2016 18:25 ET (22:25 GMT)

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