The Nasdaq has entered a bear market for the first time in a decade and investors are looking for stocks that can outperform under any conditions. Intercept Pharmaceuticals (NASDAQ: ICPT) and Viking Therapeutics (NASDAQ: VKTX) have fallen along with the rest of the market, but upcoming catalysts could drive these biotech stocks through the roof.
Viking and Intercept are developing potential blockbusters for a condition that threatens the lives of millions of people that don't have any treatment options. Let's look at their paths ahead to see which is the better stock to buy right now.
The case for Intercept Pharmaceuticals
Around a third of Americans have non-alcoholic fatty liver disease (NAFLD), and for most of them, it's a relatively benign condition. Many NAFLD patients also suffer from constant autoimmune attacks on their liver tissue, a condition called non-alcoholic steatohepatitis (NASH). An estimated 20 million U.S. adults have progressed from NAFLD to NASH, which is a progressive, debilitating disease that can shut the liver down permanently.
Intercept's lead drug, Ocaliva, earned FDA approval in 2016 to treat a condition caused by an autoimmune assault on the bile duct called primary biliary cholangitis. PBC's a rare disorder, which has limited Ocaliva's contribution to Intercept's top line to an annualized run rate of $186 million based on third-quarter sales. That isn't nearly enough to cover operating expenses, and as a result, Intercept lost $221 million during the first nine months of 2018.
Ocaliva sales would skyrocket if it becomes the first treatment approved to slow the progression of NASH, and we'll know if it has a chance when the company takes a peek at interim data from the ongoing Regenerate study. In the first half of 2019, investigators will look at the first patients enrolled to see if 72 weeks of treatment with Ocaliva helped reduce liver inflammation and stiffness for NASH patients with fibrosis.
The Regenerate study will also look for signs of a survival benefit, but NASH progresses so slowly that the FDA appears willing to approve a NASH treatment that can reduce liver inflammation without worsening fibrosis, or vice versa. Success in the Regenerate study would give Ocaliva a solid shot at approval for advanced-stage NASH patients, and boost the drug's addressable patient population to include millions with unmet need.
Intercept's recent $2.6 billion market cap has some success for Ocaliva already baked in, but not a great deal. That's mostly because incorrect dosing has been associated with a disturbing number of patient deaths, which caused the FDA to attach a black box warning to the drug's label.
Investors should understand that Ocaliva's a synthetic version of a natural bile acid that isn't necessarily dangerous, but it's easy for sick PBC patients to take too much. Physicians with advanced-stage NASH patients are clamoring for a treatment option, and Ocaliva's dosing issues probably won't stop them from prescribing it, following stern warnings about using an incorrect dosage.
The case for Viking Therapeutics
Breathtaking clinical trial results for Viking's lead candidate, VK2809, sent the stock rocketing higher in September. A majority of patients given Viking's candidate achieved a 60% or better liver fat reduction after 12 weeks of treatment, compared to a 9% reduction in the placebo group.
Viking Therapeutics stock has fallen 60% since peaking near the end of September as investors compared its trial results to data from a similar experimental treatment that's further ahead on the development timeline. Although VK2809 and MGL-3196 are both thyroid receptor beta agonists, Madrigal Pharmaceuticals (NASDAQ: MDGL) ran a very different study with its candidate.
On the surface, it looks like VK2809 wiped the floor with MGL-3196, which saw an average liver fat reduction of just 36% at 12 weeks. It's important to point out Viking enrolled a relatively small group of NAFLD patients that were generally healthier than the NASH patients in Madrigal's study. Madrigal also has biopsy results that show MGL-3196 can significantly reduce inflammation and fibrosis, which ticks both of the FDA's boxes.
The better NASH stock now?
Although VK2809 is a few steps behind MGL-3196, and several steps behind Intercept's Ocaliva, it looks like investors are a little too pessimistic about its chances of becoming a blockbuster drug. Viking's market cap has been reduced to just $517 million lately, which seems awfully low for a company that finished September with $304 million in cash and securities.
Ocaliva's probably going to be the first NASH treatment, but Intercept's burning through heaps of cash to develop it at a snail's pace. After losing just $21 million over the past year, Viking Therapeutics can afford to sit around and wait for a deep-pocketed drugmaker to make a buyout offer.
It's still a bit early for VK2809, but Viking looks like a real bargain, and the better buy right now.
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