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Better Buy: Intercept Pharmaceuticals vs. CV Sciences

By Keith Speights – Jun 30, 2019 at 2:00PM

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Which stock wins in a battle between an up-and-coming biotech and a hemp CBD leader?

Intercept Pharmaceuticals (ICPT -14.99%) and CV Sciences (CVSI 1.95%) have practically nothing in common. Intercept is a biotech focused on developing and marketing liver disease drugs, while CV Sciences is a leader in the hemp cannabidiol (CBD) market. 

There are two similarities between Intercept and CV Sciences, though. Both stocks appear to have great long-term prospects. Both stocks are also down so far in 2019. But which is the better pick for investors now? Here's how Intercept Pharmaceuticals and CV Sciences stack up against each other.

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Image source: Getty Images.

The case for Intercept Pharmaceuticals

Intercept's crown jewel is Ocaliva. Sales for the drug soared nearly 48% year over year in the first quarter to $51.8 million. Ocaliva received FDA approval two years ago for treating primary biliary cholangitis (PBC).  

There's a significant market for Ocaliva in treating PBC. The chronic liver disease affects at least 75,000 people in the U.S. Ocaliva's price is around $70,000 per year. If Intercept could capture one-third of the addressable market, the company's annual revenue would be in the ballpark of $1.75 billion.

The international PBC market is even larger. Intercept has already won regulatory approvals for Ocaliva in the PBC indication in Europe, Canada, Israel, and Australia. 

But there's an even bigger opportunity potentially ahead for Intercept. The biotech plans to file for FDA approval of Ocaliva in treating nonalcoholic steatohepatitis (NASH) within the next few months. There currently are no approved treatments for NASH. The disease is a leading cause of liver transplants. Analysts think that the market for NASH drugs could be huge, with some even predicting a market size of up to $35 billion annually.

Several drugmakers have experienced major clinical setbacks for their leading NASH candidates. Intercept, though, reported positive results from its late-stage study of Ocaliva in treating NASH. The company appears to be on track to be a first-mover in the potentially lucrative indication.

Despite the tremendous potential for Ocaliva, Intercept's market cap is only around $2.6 billion. The average one-year price target among Wall Street analysts for the stock is nearly double the biotech's current share price. 

The case for CV Sciences

CV Sciences focuses on two areas. The company is best known for its top-selling hemp CBD products. However, CV Sciences also is developing experimental CBD-based drugs.

Business is booming for CV Sciences' hemp CBD products. The company's sales skyrocketed 85% year over year in the first quarter to $14.9 million. This sizzling growth should continue.

Thanks to the passage of the 2018 farm bill in December, hemp is now legal throughout the U.S. This has opened a lot of new doors for CV Sciences. In Q1, the company shipped to its first order to a leading national drugstore chain. A few weeks ago, CV Sciences announced a new distribution deal with Kroger. The company's products are now sold in close to 4,600 stores nationwide in the U.S.

Opinions vary about just how big the U.S. hemp CBD market could become. Cannabis market researcher Brightfield Group predicts a $22 billion market by 2022. Cowen estimates that the U.S. hemp CBD market could reach $16 billion within the next few years. Others have lower projections. But everyone agrees that the market should grow tremendously.

CV Sciences should be one of the prime beneficiaries as this market expands. The company's hemp CBD products are already the No. 1 brand, according to data from SPINS, the leading provider of analytics reporting for the natural, organic, and specialty products industry.

In addition to all of this, CV Sciences hopes to also have success in developing CBD drugs. The company plans to submit for FDA approval by early 2020 to begin a clinical trial for a CBD-based smokeless tobacco cessation product. CV Sciences estimates that the potential addressable market for this product could be around $4 billion annually.

Better buy

I think both Intercept and CV Sciences appear to be pretty good stocks to buy right now. If I had to choose just one of them, though, my pick would be CV Sciences.

CV Sciences is already nearly profitable. It posted adjusted net income of $1.5 million in Q1, although under generally accepted accounting principles (GAAP), CV Sciences had a net loss. Intercept continues to lose a lot of money. CV Sciences' valuation also appears to be more attractive than Intercept's right now.

There are still several risks for CV Sciences, though. The company is likely to face increasing competition in the U.S. hemp CBD market. It's possible that the FDA could come out with CBD regulations that hinder CV Sciences' growth. However, I think the potential rewards with this stock outweigh the risks.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Intercept Pharmaceuticals. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Intercept Pharmaceuticals Stock Quote
Intercept Pharmaceuticals
ICPT
$13.95 (-14.99%) $-2.46
CV Sciences, Inc. Stock Quote
CV Sciences, Inc.
CVSI
$0.04 (1.95%) $0.00

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