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Genfit: Refuting Bearish Arguments About Genfit's Results - Genfit (OTCMKTS:GNFTF)

Summary
After the publication of its phase 2b results in NASH, Genfit's data have seen strong backing from the scientific community despite widespread negativity among financial analysts.
Some analysts like TheStreet.com's Adam Feuerstein have made wrongful statements to support Intercept's data, as I will prove in this article.
While Genfit's stock is already up 25% since my last article, Intercept has seen large amounts of insider selling and an unusual number of equity offerings in the last months.
If it all comes down to a comparison between the two first-tier contenders in the "NASH race," that are Genfit and Intercept, I believe that Genfit is clearly getting ahead.
Arguably, one of the hottest biotech topics of the last year, the race to develop one of the first treatments against nonalcoholic steatohepatitis or NASH - a disease affecting at least 2 to 5% of people in the U.S. - has seen some captivating new developments in the last weeks.

This article is a complementary piece to my previous article on the subject (Genfit: Misunderstandings And Propaganda About Phase 2b Results Provide A Good Entry Point). As I believe that I have laid out the investment thesis based on the factual analysis of preliminary top-line data released on March 26 by Genfit (OTCPK:GNFTF), a French biotech listed on Euronext Paris, I will not repeat extensively this detailed argumentation here - the goal of the present article is to provide more context and review specific events that occurred in the last weeks and which I believe are highly relevant to the case.

As I previously wrote, there's no secret here: At the moment, it all comes down to a battle of numbers and PR between the two first-tier contenders in the NASH race, that are Genfit and Intercept (NASDAQ:ICPT), which published in November 2014 the results of its phase 2b "FLINT" trial in which it tested obeticholic acid, or OCA, in NASH patients. Other companies are currently developing NASH drugs (see for example the very informative series on NASH trials by SA Contributor Clinically Sound Investor), but only Genfit and Intercept have demonstrated histological proof of efficacy at reversing or reducing NASH so far and currently have compounds readying for large phase 3 trials - making those two companies the effective contenders to put the first targeted NASH drug on the market.

In this context, here is a review debunking some false notions that some tried to make you believe, and presenting some facts that you should definitely be aware of about Genfit's and Intercept's drugs going forward.

Refuting Adam Feuerstein's bearish arguments about Genfit's results and trial design

Spearheading the squad of Genfit's harshest critics is TheStreet.com's Adam Feuerstein, who has been consistently pounding on Genfit since well before its results were announced (see this article published March 11). However, since Genfit's announcement of phase 2b results on March 26, Adam Feuerstein has been doubling his efforts to discredit Genfit's results and claim the superiority of Intercept's data (see articles published March 27 and March 31). However, I believe that confronting his views with reality might be of use to neutral biotech investors who are relying on such information to make investment decisions. So here is my contribution.

In two of his pieces, Adam Feuerstein specifically writes (highlights added):

The FLINT study also looked at NASH resolution, which was defined as patients achieving zero in all three components of the NAFLD Activity Score. (Again, a more stringent criteria than in Genfit's study, where clearance requires a zero score in just one of the three NAS components). - Source

and

Intercept included NASH resolution as a secondary endpoint in the "FLINT" study of OCA. NASH resolution was defined as no NASH, meaning NAS scores of zero across all three components. - Source

As a reminder from my last article on the matter, current NAFLD histological diagnosis is based upon a scoring system, the "NAFLD Activity Score," or NAS, consisting of three components (steatosis, lobular inflammation and ballooning). Each component is given a score ranging from 0 to 3 (or 0 to 2 for ballooning), giving NAS a total range comprised between 0 and 8. Patients must score at least 1 in each of the three components to be considered suffering from NASH, thus making patients with a NAS score of 0 to 2 "not-NASH" patients by definition.

So, when Intercept's FLINT trial lists one of its secondary endpoint as "NASH resolution" or "change from definite or indeterminate NASH to not-NASH," there is absolutely no reason for Adam Feuerstein to come up with the notion that Intercept's endpoint would be asking for "a zero score across all three components." That has no factual basis, is medically wrong and does not reflect the broadly accepted definition of the disease. In other words, it makes no sense.

Furthermore, it is also mathematically impossible that Intercept would have reached a 22% "NASH resolution" in its OCA treatment arm on such a narrow definition of its secondary endpoint. Indeed, there's not even space for debate here, as data from the FLINT trial are publicly available from The Lancet article and its appendix presenting the complete detailed results of the trial. In this document, it is shown for example that only one out of the 102 patients treated with OCA at the 72-week biopsy had a "zero" score in lobular inflammation (see Table 1 below). If the "NASH resolution" criteria was really the one which Adam Feuerstein claims it is, that would give an absolute maximum of 1% resolution rate (1/102) for this secondary endpoint, not 22%!

Table 1: FLINT results, lobular inflammation scores at 72 weeks

(Source: The Lancet, FLINT trial results, appendix)

This is further confirmed without the shadow of a doubt by looking at the FLINT trial's detailed results on patients' histological scores, or NAFLD Activity Scores (NAS), at the end of the study (see Table 2 below): 26 patients in the OCA arm (on 102 treated patients) vs. 12 patients in the placebo arm (on 98 patients) were considered as having a NAS score under 3 at the end of the study. That is 25% vs. 12%, which is very close to the officially reported rates for the "NASH resolution" endpoint per Intercept's announcement (22% vs. 13% after statistical corrections). Also, note that absolutely none of the patients in either the OCA or the placebo arms is considered in these data as having a NAS score of 0 at the end of the study. So, in reality, there it is, no magic "zero" score across the three components for Intercept's data.

Table 2: FLINT results, NAFLD Activity Scores (NAS) at 72 weeks

(Source: The Lancet, FLINT trial results appendix)

Therefore, what should come out of this demonstration?

As with Genfit's primary endpoint of "NASH resolution," any "zero" score in either steatosis, ballooning or inflammation is defined as "not-NASH" and Intercept's FLINT secondary endpoint is no different. Of course, strictly nowhere in the complete document describing the FLINT trial protocol is it written that Intercept's secondary endpoint would somehow require patients to reach a total NAS score of 0 to be considered responders.

So, where do we stand on a "factual basis" perspective when comparing Genfit's and Intercept's results on this endpoint?

NASH resolution without worsening of fibrosis was Genfit's GOLDEN-505 primary endpoint. It was also a secondary endpoint of Intercept's FLINT trial. As we have shown, both endpoints can indeed be compared head to head as their requirements to account for "responders" are basically the same. How do they compare, then?

- GOLDEN-505 results demonstrated a near doubling of responders on this primary endpoint (22.4% vs. 12.7%, p=0.046, RR=1.9) in the NAS>3 population with GFT505 120mg.

- FLINT results displayed a numerical trend in favor of OCA, but did not reach statistical significance (22% vs. 13%, p=0.08) in a comparable population.

As I have written in my previous article and will repeat right here, Genfit's efficacy results on a comparable patient population are numerically at least as good as Intercept's… and they do carry statistical significance, whereas the FLINT trial did not demonstrate this.

Since we have now proven that this repeated propaganda about Intercept's allegedly superior performance was fabricated, here are some of the other misleading statements that have recently appeared in Adam Feuerstein's pieces:

Only after Genfit threw out the placebo patients with baseline NAS scores of 3 and made other statistical adjustments did GFT505 "work." - Source

That is not only an exaggeration, but also a false statement, as it was clearly written in Genfit's top-line announcement and confirmed in the conference call that:

"Treatment with GFT505 provides a significant beneficial effect on the primary endpoint (GFT505 120mg vs. placebo, p=0.016, RR=2.03) in the global randomized population (n=274, full analysis set), where patients without an end of treatment biopsy were considered as non-responders".

So the drug was successful including NAS=3, but also when considering that patients who did not perform a final biopsy at 52 weeks were considered as having failed treatment. The only thing that Adam Feuerstein can claim is that the results, on the full analysis set, had to be corrected for baseline severity and site heterogeneity, which is not uncommon and was reviewed and approved by the FDA beforehand. NAS=3 patients did not have to be "thrown out" for GFT505 to "work."

GFT505's safety profile, given that it's a PPAR agonist, is not entirely clean. - source

That is an insinuation that has no factual basis. Genfit's drug has been tested for almost 10 years in at least half a dozen clinical trials and has consistently proven to be perfectly safe. This is also the case with phase 2b results in NASH, where GFT505 was even shown to have a cardioprotective effect. The drug was tested up to a dose of 300mg in healthy volunteers and demonstrated clear safety on cardiac activity. When knowing that cardiovascular disease is a leading cause of death in subjects with NAFLD or NASH, such a confirmation is obviously a very strong asset for Genfit's drug.

In brief, the message here is that Adam Feuerstein, despite being an experienced biotech blogger who has reviewed hundreds of companies and clinical trial outcomes, has made factual mistakes and distortions in his comments about Genfit's and Intercept's results and trial design. Hence, I believe that should induce the highest level of caution when considering some analysts' and bloggers' real knowledge of the subject they are so prompt to write about in such strong, and sometimes derogatory terms.

Genfit's data enjoy strong backing from key opinion leaders

Despite the market's negative reaction to the announcement of phase 2b top-line results, strong backing continues to abound to support the validity of Genfit's results and its perspective in the NASH race. Support comes from various sources:

1. From leading specialists and key opinion leaders

Outside of several financial analysts and bloggers, Genfit has been enjoying a rather strong and unequivocal backing from leading scientists and key opinion leaders about its phase 2b results. Here are some selected examples.

First among those specialists is Professor Vlad Ratziu, Professor of Hepatology at the Institute for Cardiometabolism and Nutrition at the Pierre and Marie Curie University and leading world expert in NASH. Although Prof. Ratziu was GOLDEN-505 principal investigator, he can be considered above partisanship in this matter as he was even quoted by Intercept in its November 2014 Lancet publication announcement regarding a rather enthusiastic editorial he wrote in the journal about OCA's potential in NASH. About GFT505, Prof. Ratziu said the following:

This critical trial demonstrates that GFT505 is safe and produces a dose-dependent improvement in liver histology in patients with NASH. Beyond its clear safety profile, GFT505 improves cardio-metabolic risk factors frequently present in these patients. (...) In my opinion, these data should encourage the further development of GFT505 for the treatment of NASH. - source

Then, there's also Professor Jean-François Dufour, who has served as the primary investigator on multiple clinical studies (but not Genfit's) focusing on NASH and hepatocellular carcinoma. He is a member of the EASL governing board, a member of the AASLD and an associate editor of the Journal of Hepatology. Prof. Dufour has published over 100 peer-reviewed publications. On March 27, he tweeted the following:

(Source: March 27 tweet)

About histological proof of fibrosis reversal, Genfit's management reported that it discussed the matter with Professor Scott Friedman, Dean for therapeutic discovery at the Mount Sinai Hospital, a renowned expert on the subject of fibrosis, who demonstrated to it the impossibility to witness histological reversal before at least 18 months of treatment (i.e. the duration of the FLINT trial).

Finally, Genfit's management confirmed once again that all applied statistical analysis plans were fully disclosed and discussed with the FDA beforehand, and that those plans were designed by Professor Philippe Lehert, advisor to the WHO, reviewer for the FDA and EMA, and who provides similar services to the likes of Sanofi (NYSE:SNY), Merck (NYSE:MRK) and Novartis (NYSE:NVS).

In fact, it is virtually impossible to find today one scientific expert with a real knowledge of the subject that will not support Genfit's data. The only vocal critics of the French biotech so far have been the so-called "financial analysts" or bloggers, who do not seem to always grasp the full relevance of Genfit's results, as demonstrated earlier.

2. From additional data

On April 1st, Genfit's management conducted an analyst meeting to discuss the context of the announcement of its phase 2b results, restate its intention to proceed to phase 3 quickly and provide some additional data. Genfit also confirmed it will be present at the EASL congress, later in April.

Although management repeated its commitment to keep exhaustive detailed data for publication in a scientific journal (as embargo is contractually required until publication), it did confirm some specific data that were not included in the top-line results announcement.

Specifically, here are the results of the 120mg arm vs. placebo (RR = 1.94, p = 0.027) relative to severity of the disease at enrollment:

NASH Severity at baseline
Placebo arm response
GFT505 120mg arm response

Moderate (4-5)
19.5%
27.5%
Severe (6-8)
0%
14.8%
overall
12.7%
22.4%
(Source: Genfit's April 1st analyst meeting)

What this proves is that, when common and cheap methods such as a healthy diet and physical exercise are clearly not sufficient to improve patients' health (i.e. extremely ill patients that do not respond at all to placebo), GFT505 is safe and efficient to the point of being able to cure a significant proportion of those patients (nearly 15%). And that does not yet take into account the number of patients whose condition improved significantly (NAS reduction of 2 or more), which was also reported as being "statistically significant" by Genfit - more details will be released in the coming months about that.

Besides, Genfit confirmed that due to the excellent safety profile of GFT505 and given the dose-dependent efficacy of the drug, the company was thinking about including a 160 or 180mg dose arm in the phase 3 clinical trial design.

With an overall response rate of 22.4% in the GFT505 120mg arm, after only one year of treatment (compared to 72 weeks for OCA), there are reasonable chances to believe that a longer treatment period with a stronger dosing could provide even better results. Indeed, NASH being a chronic infection or metabolic disorder which grows steadily if not treated in the most severe cases, it is expected that GFT505's beneficial results would increase over a certain period of time. Therefore, good results after only one year of treatment - which is a short treatment period suitable for an exploratory phase 2b but not for longer phase 3 trials - are very encouraging as the drug was always intended as a chronic treatment. Leading scientific experts do realize that, hence their enthusiasm as reported before.

3. From the FDA

Probably, the most important support of all is the opinion of the FDA and the panel of experts it brought together in a historical AASLD workshop held in September 2013 to discuss and define together what the goals of NASH clinical trial design should be and what the outcome of such trials should look like.

Genfit's GOLDEN-505 trial design goes back to 2012 and was put together by 10 key opinion leaders (5 European and 5 U.S. specialists). Back then, the disease was not as broadly studied as it is today and there was no generally accepted consensus on trial design. GOLDEN-505 was designed as the first ever international, multi-center trial with broad inclusion criteria (NAS scores from 3 to 8), which was recognized as a powerful study by the FDA at the time.

However, since then, the proceedings of the AASLD workshop sponsored by the FDA were published in December 2014 in the Hepatology journal. The AASLD board made several recommendations and concluded among others that early-NASH patients (NAS=3, F0) should not necessarily be targeted in NASH clinical trials - as was confirmed by the huge placebo response seen in those patients in the GOLDEN-505 trial, a useful clinical indication the FDA will probably appreciate for its medical merits.

More importantly, during the AASLD workshop, one of the most important topics discussed was how to define a proper "clinical endpoint" to design NASH trials. While this is not a final decision and reflects mostly a consensus among international NASH specialists rather than a formal approval by the FDA, it clearly appears from the transcript of this workshop that Genfit's primary endpoint of "NASH reversal without worsening of fibrosis" is considered the most valid endpoint in NASH trials - as opposed to the FLINT trial's "decrease of at least 2 points in NAS" endpoint. Here are some extracts of the transcript:

DR. RATZIU: There is quite I wouldn't say overwhelming, but there is very strong evidence that steatohepatitis is associated with worse outcomes, and this has been reviewed previously, and therefore we all agree that your proposal of having reversal of steatohepatitis without progression to bridging fibrosis is something that is very reasonable in a typical trial within the framework of Phase 3 trials. - Source: AASLD Workshop minutes, p167

[W]hat are the endpoints that you think are going to be relevant and needed for clinical benefit and how would you define those?

DR. McCULLOUGH: I would say reversal of NASH and decreased progression of fibrosis." - Source: AASLD Workshop minutes, p279

The main issue here and the very next step in the "NASH race" is of course the approval of a phase 3 trial design by the FDA. All these important clues about a strong scientific backing of Genfit's results and clinical endpoints in the medical community are good signs that this approval could come swiftly for the French biotech.

Putting into perspective some recent facts about Intercept

Meanwhile, I believe that the staging of a series of recent events, culminating with the Intercept's latest stock offering, should raise some questions among investors. Here are the facts:

On February 10, Intercept completed an equity offering of 1.15 million shares for a total net amount of $191 million.

On March 13, a judge for the Southern District Court of New York formally rejected the motion to dismiss filed by Intercept's lawyers against the class action of shareholders that bought Intercept's shares on January 9 and 10 (i.e. between the initial announcement of the FLINT trial's early stop and the disclosure of the significant lipid abnormalities that contributed to the decision to stop the trial). In her memorandum, the judge concluded that:

"Plaintiffs' allegations are sufficient at this stage of litigation to suggest that Intercept consciously chose not to disclose the lipid information, which it knew or should have known to be a significant negative finding, and that it therefore acted with scienter."

From March 23 to March 26, Jonathan Silverstein, Chairman of Intercept's board of directors since 2012, sold for $100 million of shares in just 4 days through his asset management firm, OrbiMed LLC, of which he is also a general partner.

On March 26, Genfit announced the top-line results from its phase 2b trial in NASH. Several months before the announcement, Genfit had disclosed that it would release its top-line results no later than the end of March.

On March 27 and 31, TheStreet.com's blogger Adam Feuerstein published negative articles about Genfit's results containing factual mistakes (see above) while being quite bullish about Intercept's perspectives in NASH.

On March 31, Intercept initiated a new equity offering… less than 2 months after the last equity offering in which it already collected nearly $200 million (see above). Before this offering, Intercept had already more than $400 million in cash, and since the company will be collecting up to $389 million, this will bring its total cash reserve above $750 million. Why such a rush and why the need to hold such a big amount of cash when Genfit currently estimates that running a large, international phase 3 trial in NASH (enrolling about 1,500 patients) will cost approximately $200 million over several years?

The message here is that, in the last 3 months, Intercept's insiders have been selling more than 767,000 shares (representing around 3.2% of the company's shares) while since the announcement of OCA results in NASH, Intercept has raised cash through equity offerings for a total amount in excess of $760 million - $183 million in April 2014, $191 million in February, and up to $389 million in March.

In 2014, Intercept posted a net loss of $283 million (including a $170.8 million of non-cash warrant revaluation expense) and anticipates to use up to $200 million of cash in 2015 - an egregious amount in comparison to Genfit's net loss of around $18.5 million in 2014 while it was conducting its own phase 2b NASH trial of similar size than Intercept's. Of course, Genfit is primarily focused on developing GFT505 in the NASH indication (although it is also exploring GFT505 in Crohn's disease) while Intercept is currently conducting trials in other indications (PBC and PSC), which partially explains the bigger cash burn - although there still is a 15x factor between the two companies' 2014 net losses.

Finally, the FLINT study has been stopped since January 2014. Full data has been disclosed and published in The Lancet in November 2014. Intercept stated in January 2015 its intention to start a phase 3 trial in H1-2015, but to this date, there is still no approval from the FDA on the design of this trial. Since then, it has been revealed that about 20% of patients recruited in the phase 2 trial did not have definite NASH (in clear contradiction with inclusion criteria) and that some patients (n=26) initiated statins during the course of the trial, both bringing questions on the validity of the interpretation of collected data.

I will not engage in conjectures, but I do believe that those facts concur to the thesis developed in this article. Obviously, Intercept currently enjoys a rather strong support among the financial community - as demonstrated by the successful completion of two significant equity offerings in just two months - but when thinking about a long-term investment, I believe that savvy investors should take into account all signals and clues they can gather. In this case, I don't think those signals are playing in Intercept's favor.

Looking to the future of NASH drugs with a critical eye

On the other hand, Genfit received, as planned, the complete data set of its GOLDEN-505 trial in March 2015 and expects a publication in a major scientific journal in about 3 months. Discussions with the FDA are planned, and management expects that approval of a phase 3 trial could happen as soon as summer 2015. The trial should then start before year end.

As of now, neither companies have phase 3 NASH trials approved, yet. Due to its excellent safety profile, I believe that Genfit's drug could get such approval very quickly. Even if Intercept was to start its phase 3 trial before the end of H1-2015 as announced by the company, the time gap to Genfit's phase 3 trial has now been considerably reduced and would probably be less than 6 months.

The market's reaction to the announcement of Genfit's phase 2b top-line results was, as expected, a dramatic overreaction. From a trading point of view, Genfit's stock is already up 25% since I wrote my previous article (which was sent for publication to Seeking Alpha on March 27) despite some derogatory comments from analysts and proven propaganda.

Meanwhile, Genfit's management provided some behind-the-scene details about the redaction of its announcement. Management confirmed that the FDA, following Intercept's way of "trickling" data for more than a year instead of releasing it all at once transparently, was deeply unnerved and strongly insisted on Genfit disclosing right away every statistical changes and subgroup analysis it had performed. Genfit redacted its announcement in this view, and with the backing of American lawyers and bankers, decided to fully disclose all adjustments it had made, including the huge placebo response which would have crashed the trial - even if this population was never included in other NASH trials and those findings concurred with FDA guidance and expectations for NASH drug treatments.

However, I believe that despite that temporary blow to the share price, only one thing will be important in the long run: The FDA approval of a phase 3 trial and the efficacy demonstrated on FDA-recognized endpoints. Furthermore, while Intercept's insiders are selling large amounts of shares and while there's a lawsuit pending on the company, Genfit is thinking about initiating a NASDAQ listing before the end of 2015, which could give it access to a much larger shareholder base and bring a nice boost to its market cap.

Genfit's market cap today is approximately $880 million while Intercept's stands at around $6.4 billion - that is 7 times more. Meanwhile, a realistic valuation of $100 for Genfit's stock (see this Seeking Alpha article for details) would bring Genfit's total valuation to a $2.3 billion market cap, still less than half of Intercept's value. This would represent a 165% upside on current share price at the time of writing ($37.5).

Given the facts exposed in this article, my conclusion is simple and clear: I believe that, when drawing relevant comparisons - scientifically and financially - between the two current leading companies in the "NASH race," Genfit's prospects and valuation today clearly stand out as the best "NASH-related investment."

Risks

As always with development-stage biotechs, there exists a risk that clinical trials could fail and/or that the FDA could refuse the start of a phase 3 clinical trial, or demand additional studies before authorizing further trials, which could drive the stock down. Besides, Genfit will need to finance further clinical trials and has not, at present time, enough cash on its own to fund a complete phase 3 trial in NASH - partnering is in discussion, but should the company decide to go on its own, it will need to raise additional capital, which could lead to some stock dilution.

[more with clickable links] http://seekingalpha.com/article/3053856-genfit-refuting-bearish-arguments-about-genfits-results?auth_param=vfef:1ai63sb:1697f296661e953d7f9b394603cc70ed&uprof=44

Genfit: Misunderstandings And Propaganda About Phase 2b Results Provide A Good Entry Point - Genfit (OTCMKTS:GNFTF)

Summary

After the release of its phase 2b preliminary results in NASH, Genfit’s stock saw a nearly 45% decline following extremely negative interpretations of its results.
With a cool head and some analytical perspective, I believe that Genfit’s results fell victim to a widespread misinterpretation and offer great perspective in NASH.
When compared against its biggest competitor’s drug, Intercept’s OCA, Genfit’s GFT505 demonstrates very good efficacy results and a much better safety profile.
After Friday’s sell-off, which I believe is unjustified, Genfit still presents an excellent investment opportunity and current share price is a very good entry point.
Genfit (OTCPK:GNFTF), a French biotech listed on Euronext Paris, which stands in the race to develop one of the first treatments against non-alcoholic steatohepatitis or NASH, released on March 26 the preliminary results of its "GOLDEN-505" phase 2b clinical trial, conducted in 274 patients.

The complete press release, which can be found here (pdf file), gives some very important indications on Genfit's treatment, GFT505. Here are some important extracts (highlights are added):

Due to the unexpected rate of resolution of NASH in patients randomized to placebo who had early NASH (NAS of 3, placebo response rate >57%), along with the high number of sites for a limited sample size, the study as initially designed did not enable the trial to meet directly the primary endpoint. With correction for this baseline severity and site heterogeneity by a standardized statistical analysis, GFT505 120mg meets the primary endpoint: Reversal on NASH without worsening of fibrosis, as detailed below.

Treatment with GFT505 provides a significant beneficial effect on the primary endpoint (GFT505 120mg vs placebo, p=0.016, RR=2.03) in the global randomized population (n=274, full analysis set), where patients without an end of treatment biopsy were considered as non-responders. The primary endpoint was also achieved in the evaluable population of patients who underwent both baseline and end of study liver biopsies (n=237, ITT; p=0.027 vs placebo; RR=1.94). In the evaluable patient population, GFT505 120mg also has a beneficial effect of a decrease of NAS-score =2 (p=0.04 vs placebo).

Early NASH patients with NAS=3 were not included in other recent NASH trials. If the same is done in the GOLDEN-505 study, keeping patients with more severe disease defined by NAS=4 (n=202), GFT505 120mg demonstrates a doubling of responders on the primary endpoint (22.4% vs 12.7%, p=0.046, RR=1.9), thus providing evidence of a clinically meaningful benefit in patients with more advanced disease.

(...)

Even on top of various standard of care therapies, GFT505 provides additional improvements vs placebo on cardio-metabolic risk factors, commonly found in NASH patients:

-lipid profile: TG, LDL-C, HDL-C

-glycemic indices/insulin resistance in Diabetics: HbA1c, FPG, Fasting insulin

-inflammatory markers: Haptoglobin, Fibrinogen, CRP

The safety assessment of this one-year study demonstrates a very favorable profile, which is consistent with the conclusions of the DSMB reviews throughout the study. There were no cardiac events, signal on cancer, nor death in the GFT505 treatment groups. Weight remained stable, and no signal for edema was observed. A mild dose dependent increase in creatinine was noted (< 5%; GFT505 120mg vs placebo), which is a known reversible effect of GFT505. The most common adverse events were of gastrointestinal nature of mild intensity.

So why then would the stock plunge nearly 45%, wiping off $550 million of market cap in one single trading session on the day after this quite enthusiastic press release?

The trick here lies in the very first paragraph of the announcement: in the patients that were only moderately ill (patients with a NAFLD Activity Score or "NAS" of 3) there was such a huge placebo effect (close to 60%) that those results alone would have caused to study, as initially designed, to fail.

So, the shortcut from here is big as a boulevard and truckloads of "analysts" and press agencies did not hesitate to go down this obvious path, declaring Genfit's study "a failure" and some even resorting to thinly-veiled propaganda. There's no secret here: at the moment, it all comes down to a battle of numbers and PR between the two first-tier contenders in the NASH race that are Genfit and Intercept (NASDAQ:ICPT), which published in November 2014 the results of its phase 2b "FLINT" trial in which it tested obeticholic acid or OCA in NASH patients.

But since this rough trading day is now behind us, let's have a cold, hard look at facts and draw relevant comparisons where it is needed to provide some balance and set the record straight about Genfit's results. My analysis, detailed in 6 points, is provided hereunder.

Useful links:

- Genfit's GOLDEN-505 preliminary results.

- GOLDEN-505 clinical trial

- Intercept's FLINT results (Lancet publication)

- FLINT clinical trial

1. The placebo effect and revised population are coherent with other NASH trials

That is the spark that ignited it all: isn't it cheating to exclude a certain patient population when such patients would otherwise render the study unable to meet "directly" the primary endpoint? Let's look at the facts.

First of all, to understand the following explanations, you have to know the basics of NAFLD histological diagnosis. Nonalcoholic Fatty Liver Disease (NAFLD) or hepatic steatosis is the disease stage that precedes NASH (nonalcoholic steatohepatitis). Basically, it means that the patient's liver is saturated with fat (at least 5% of hepatocytes presenting visible lipid deposition). NASH is only diagnosed when, in addition to NAFLD, both inflammatory infiltrates as well as ballooning and liver cell injury are present. The severity of NASH is then determined according to a numerical score, which is called the NAFLD Activity Score or NAS. Accordingly, NAS is the sum of the separate scores for steatosis (0-3), hepatocellular ballooning (0-2) and lobular inflammation (0-3), with the majority of patients with NASH having a NAS score of =5. NASH patients all have a NAS comprised between at least 3 (the less ill patients) and up to 8 (the most severely ill patients), with at least a score of 1 in each of the three indicators (steatosis, ballooning and inflammation). (source: Medscape)

With that in mind, let's get back to the exclusion of "early-NASH" patients who were only marginally affected by the disease (NAS=3) in the revised analysis of Genfit's GOLDEN trial. While the initial patient population was 274, only 237 patients underwent the two compulsory liver biopsies that were defined as the primary assessment method for the NASH-reversal endpoint, and excluding all NAS=3 patients, the final population included in the analysis was 202 patients. So, by excluding only early-NASH patients, Genfit still has 85% of evaluable patients available for its final analysis after 52 weeks: that still is a significant patient sample and it is sufficient to validate the data obtained from this population -- for comparison, in the FLINT study the number of patients who actually completed the final 72-week biopsy was 200.

Then, the placebo effect in those "early-NASH" patients was extremely high (close to 60%). What this means above all else is that this less severely ill patient population does not seem to require any kind of specific medication to experience improvements in their disease state, be it Genfit's or any other -- a healthy diet and some exercise might be just enough. This is obviously a small flaw in the French biotech's trial design, as this should have been anticipated by excluding those patients right from the start -- just as Intercept did it, by accepting only patients with a NAS of 4 or greater in its FLINT trial. So, to put it simply, Genfit's revised analysis only aligned its target population to match the one of Intercept's FLINT trial. If nothing else, that makes results even easier to compare.

On the other hand, of the very few actual subgroup numbers released by Genfit's management during March 26 conference call, CEO Jean-François Mouney stated that in the most severely ill patients (NAS >6), where a placebo effect of 0% was observed, a response rate of 15% was confirmed in NASH patients with the 120mg dose, further confirming the efficacy of the drug in this target population.

Besides, Genfit's GOLDEN trial was conducted in 56 international centers in Europe and in the US, whereas Intercept's FLINT study only recruited from 8 US centers -- a much more homogeneous population for Intercept but a much more robust sample for Genfit. Even so, Intercept itself concedes in its Lancet publication that the FLINT trial "showed more favorable OCA-mediated results on NASH resolution when excluding patients found not to have had NASH at baseline". So, basically, everybody seems to have better results when excluding those patients who were not severely affected by the disease.

Furthermore, this last sentence should raise on itself some serious questions about Intercept's data. Indeed, it should be noted from Intercept's last investor meeting at the AASLD Colloquium that the company itself admitted that "two independent observers (...) made a determination of whether a patient actually did or did not have NASH and according to these two experts Elizabeth Brunt and David Kleiner about 20% of the patients actually didn't have NASH according to their criteria so we have removed those patients who had crazy NASH or didn't have NASH from the study from these analysis". If you understand this correctly, it means that not only did Intercept actually include nearly 20% of patients in its trial that were not formally diagnosed with NASH (in total contradiction with its inclusion criteria, so what should the FDA think about that?), but in some of its post-hoc analysis it did just the same as Genfit by excluding those "crazy NASH" patients to embellish its data.

So, the bottom line is that these results themselves should not in any way be worrying as the most important target population has always been the more severely ill patients and those results seem to corroborate those of other NASH trials.

2. The standardized statistical analysis was discussed with the FDA beforehand and will guide the design of the phase 3 trial

Another argument used by Genfit's detractors is the purported "mess" created by a post-study change of the statistical analysis plan. While the details of the analysis are not known yet, making those affirmations nothing more than conjectures, Genfit's press release clearly states that "using the initial protocol analysis, statistically significant improvement of the following liver related biomarkers was noted: decrease of ALT, GGT, ALP, and improvement on various NAFLD composite scores (Steatotest, Fibrotest, Fatty Liver Index, NAFLD Fibrosis score)".

And since from the start, Genfit has been in close contact with the FDA to discuss clinical trial designs and statistical analysis plans -- and even more since the agency granted Fast Track designation to GFT505 in 2014 -- Genfit explicitly confirmed during its conference call that the applied statistical plan was discussed and agreed upon with the FDA before the collection of the results. So again, why would this adjustment be a problem if statistical power is not overly diminished from the somewhat smaller population?

Basically, one of the main purposes of phase 2 trials is to evaluate the relevance of dosing and target populations before starting bigger, more expensive phase 3 trials. That is exactly what Genfit is doing: while confirming the company's intention to start a phase 3 trial in NASH before the end of 2015, Genfit now has collected a precious amount of data that will help it design a more targeted and efficient late-stage study. Before releasing all the detailed data to the public, Genfit anticipates the publication of a manuscript in a major scientific journal, which demands to place a partial embargo on the release while review is ongoing. Nothing weird in this, really -- after all, Intercept "only" took about 10 months to publish the full results of the FLINT trial, and Genfit anticipates a more detailed presentation at the EASL congress in April this year, in about a month from now...

3. On a similar patient population, GFT505 demonstrates very good efficacy results compared to Intercepts' OCA…

So, back to NAS scores defined above in this article: in the FLINT study, primary endpoint was defined as "no worsening in fibrosis and a decrease in NAFLD Activity Score (NAS) of at least 2 points", which basically means that patients would only need to improve on their current disease stage rather than being effectively cured. For example, severely ill patients could improve from an overall score of 8 to 6 and be counted as "responders" in the FLINT trial, while still suffering from steatosis, ballooning and inflammation.

On the other hand, GOLDEN-505 primary endpoint was defined as the "disappearance of steatohepatitis (i.e. patients no longer meeting the criteria for steatohepatitis) without worsening of fibrosis", meaning that patients would not be considered to suffer from NASH anymore, as they would have a 0 score in at least one of the three NAS criteria described above.

While this frontal comparison is admittedly a bit simplistic, the point was even made by some analysts, prior to the announcement of Genfit's results, that the company's "disappearance of NASH" endpoint was too restrictive and would be significantly harder to reach than OCA's 2-point improvement...

However, not only does GFT505 120mg demonstrate a near doubling of responders on the primary endpoint (22.4% vs 12.7%, p=0.046, RR=1.9), but in a nod to Intercept's results, Genfit also specifies that "GFT505 120mg also has a beneficial effect of a decrease of NAS-score =2 (p=0.04 vs placebo)".

From the Lancet publication, the FLINT trial demonstrated that 45% patients in the OCA group had reached primary endpoint compared with 21% of patients in the placebo group (relative risk 1.9, 95% CI 1.3 to 2.8; p=0.0002). In other words, OCA "improved" NASH scores twice more than in placebo patients, while GFT505 actually "cured" nearly the same proportion of patients, relative to placebo.

What's even more telling is that one of Intercept's trial secondary endpoint was actually "NASH resolution" -- which is as close as you can get from the GOLDEN primary endpoint -- and those results, while displaying a numerical trend in favor of OCA, were actually not statistically significant (22% vs. 13%, p=0.08).

Finally, Genfit reports that GFT505 efficacy is proven to be dose-dependent (i.e. better results in the 120mg arm than in the 80mg arm), which provides supplementary pharmacological proof that the drug's efficacy is not due to chance. The same cannot be said from the OCA phase 2 trial as there was only one tested dosing against placebo.

The bottom line is that, according to available efficacy data at this point in time, there is absolutely no reason to think objectively that OCA results in NASH would be any better than GFT505, and blatantly stating the contrary can only be interpreted as a distortion of scientific facts.

4. … but Genfit's treatment has a much better safety profile!

While OCA's problems with bad cholesterol and other drug related side-effects such as pruritus (or itchy skin) are well-documented -- pruritus was confirmed in 23% of patients receiving OCA vs. 6% in the placebo arm, which is significantly higher -- Genfit's drug, given on top of other standard of care therapies, actually provides additional improvements on cardio-metabolic risk factors, including lower levels of bad cholesterol (LDL-C) and insulin resistance in diabetics. All adverse events in the study were mild, with the most common being of gastrointestinal nature and of mild intensity.

On the other hand, in the FLINT study, while most severe adverse events in OCA-treated patients were judged to be unrelated to therapy, five severe or life-threatening adverse events in the patients receiving OCA were judged to be possibly related to the treatment (3 severe pruritus, 1 hyperglycaemia and 1 dysarthria and dizziness possibly due to cerebral ischaemia).

Even though, according to recent findings, Intercept's investigators seem to be suggesting that patients taking OCA could add statins to the mix to effectively control their cholesterol levels, Genfit's overall advantage is nonetheless undeniable on the safety front. So really, when presented with two effective NASH treatment options, when patients will be given the choice between the pills that will give them itchy skin and increase their bad cholesterol, or those which will actually improve their cholesterol and heart condition at the same time that it cures their disease, will it be a hard, thoughtful choice?

5. And then, there's the reversal of fibrosis…

To this point, as with all the detailed data from the other histological biomarkers, there's no specific mention, yet, of the rate of improvement in fibrosis scores from the GOLDEN study. However, Genfit's preliminary announcement mentions that "statistically significant improvement of the following liver related biomarkers was noted" including "NAFLD Fibrosis score". More details will probably be released in the coming months.

Besides, even if GFT505 has previously demonstrated anti-fibrotic properties in animal models, as fibrosis is basically a form of scarring, 52 weeks is a short period of time to actually witness such reversal through biopsies. Genfit's management estimates that, whatever the treatment is, longer studies (18 to 24 months) should be conducted to really confirm this positive effect -- however, additional data should shed some light on this issue.

6. … but what about the FLINT trial limitations?

To be fair, as we don't have access to the detailed results or the peer reviewed publication of the GOLDEN results, it is impossible to avoid all speculations about the consequences of Genfit's phase 2b trial design. There could be some flaws, and there could arise some questions at the reading of the complete publication.

However, about what we do know on Intercept's trial design, it is interesting to read what Dr Vlad Ratziu, Professor of Medicine at the Pierre and Marie Curie University and leading world expert in NASH -- as recognized by Intercept itself since a quote of Dr Ratziu was included in its own November announcement -- has to say about the design of the FLINT trial:

Although obeticholic acid had an effect on the primary endpoint, it did not cause a significant proportion of patients to cross the threshold from a histological diagnosis of definite or borderline non-alcoholic steatohepatitis to a diagnosis of not non-alcoholic steatohepatitis. One explanation is that the improvement in the NAFLD activity score might reflect a decrease in the severity of disease but not to the point of resolution of non-alcoholic steatohepatitis. (...)

The benefits of improving the histological features of non-alcoholic steatohepatitis and reducing serum aminotransferase concentrations without suppressing disease activity to the point of resolution need to be shown.

(source: Vlad Ratziu, "Starting the battle to control non-alcoholic steatohepatitis", The Lancet Journal, November 2014)

In clear, while Dr Ratziu rejoices at the significant efficacy results demonstrated in the FLINT trial, he also raises the question whether the initial primary endpoint chosen by Intercept (a reduction of 2 points in NAS) will provide enough benefits to actually improve significantly patients' health (i.e. "curing" them of NASH), and whether the improved histological features (i.e. the parameters which Intercept chose to monitor) are actually relevant to conclude that the disease activity has diminished enough.

On the other hand, what the GOLDEN trial has proven is that GFT505 effect is dose-dependent, and that it has an excellent safety profile -- clearly opening the way for longer, chronic treatments. So while Intercept is evaluating smaller dosing of OCA in some of its trials to compensate for treatment-induced adverse events (severe pruritus mainly), Genfit could actually design a phase 3 trial testing at least one treatment arm with a dosing of more than 120mg, with the perspective of increasing even more the already demonstrated efficacy -- especially since the safety of GFT505 in healthy volunteers is already proven up to at least a 300mg dosing.

CONCLUSIONS

Obviously, details of the GOLDEN trial are not available yet, and all data will need to be carefully analyzed upon release.

However, I not only believe that investors' initial reaction on Friday (after the announcement of Genfit's result) was an absolute overreaction, but I am also convinced, after thoroughly reviewing available data, that GFT505 definitely hinted at superiority over OCA in the severely ill patient population. Even so, I believe that there are enough opportunities in the NASH market to support commercialization of several drugs, and that even if OCA succeeds in getting market approval, Genfit's drug is currently worth a significant share of this global market, estimated by some at $35 to $40 billion by 2025.

Therefore, I believe that current "post-shock" valuation of around $30 per share provides an excellent entry point, before investors gradually realize the terrible misunderstandings, and sometimes propaganda, that led to this stock action on Friday.

Current price targets, with phase 2b efficacy demonstrated, stand at around $100 per share -- see details in this excellent SA article -- meaning a nearly 250% upside on Friday's share price. With the intention to start a phase 3 before the end of the year, Genfit's management should be quick to discuss with the FDA and provide additional details of the study, meaning that revaluation could happen very fast -- I anticipate that before year's end and at least upon announcement of the start of a phase 3 trial, a $100 price per share should be reached.

Risks

As always with development-stage biotechs, there exists a risk that clinical trials could fail and/or that the FDA could refuse the start of a phase 3 clinical trial, or demand additional studies before authorizing further trials, which could drive the stock further down. Besides, Genfit will need to finance further clinical trials and has not, at present time, enough cash on its own to fund a complete phase 3 trial in NASH -- partnering is in discussion, but should the company decide to go on its own, it will need to raise additional capital, which could lead to some stock dilution.

However, I believe that in the current situation, scientific reason will prevail over investors' feelings and PR battles and that Genfit has now significant data to proceed with its trials and bring its product to the market.

http://seekingalpha.com/article/3038226-genfit-misunderstandings-and-propaganda-about-phase-2b-results-provide-a-good-entry-point?auth_param=vfef:1ahlan0:42a2546c16ffc18c49408d4283843d59&uprof=44

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