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Better Buy: Intercept Pharmaceuticals vs. Gilead Sciences

By Keith Speights – Sep 21, 2019 at 7:30AM

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Which stock wins in a matchup between an up-and-coming biotech and a longtime biotech leader?

It appears to be pretty clear that Intercept Pharmaceuticals (ICPT -15.78%) will beat Gilead Sciences (GILD -0.28%) in the race to launch the first drug for treating nonalcoholic steatohepatitis (NASH). Gilead's late-stage disappointments for selonsertib caused a big setback for the company's NASH hopes.

But does Intercept's lead in the NASH dash make it a better stock than Gilead right now? Or could Gilead's other drugs and pipeline candidates give it an edge? Here's how these two biotech stocks stack up against each other.

Gloved hands holding two test tubes

Image source: Getty Images.

The case for Intercept

There's one overriding reason investors should consider buying Intercept: the potential for Ocaliva. Intercept reported strong 52% year-over-year sales growth in the second quarter for Ocaliva in treating primary biliary cholangitis (PBC). The company anticipates continued momentum for the drug in treating the liver disease.

But Intercept has even greater expectations for Ocaliva in treating NASH. The company plans to file for U.S. regulatory approval of the drug in treating NASH within the next few weeks, followed by a European regulatory filing in the fourth quarter.

Intercept CEO Mark Pruzanski said in the company's Q2 conference call that "we firmly believe that NASH is a blockbuster opportunity for us." Industry observers agree. EvaluatePharma, for example, projects that Ocaliva could achieve peak annual sales of $2 billion.

That kind of sales estimate makes Intercept look especially attractive for investors. The company's market cap currently stands at close to $2.3 billion. Assuming Ocaliva wins regulatory approvals and succeeds in the marketplace as hoped for, Intercept's shares should soar over the next few years.

Will Ocaliva secure those approvals? It's too soon to say for sure. However, the drug demonstrated great results in the Regenerate phase 3 clinical study in improving fibrosis without worsening NASH. Ocaliva does have some side effects, especially pruritus (itching). But those side effects didn't prevent it from winning approval in treating PBC.

One key thing to keep in mind is that there currently are no approved drugs for treating NASH. Should Ocaliva win regulatory approval, it will have the market all to itself -- at least for a while. Genfit's elafibranor might not be too far behind if all goes well with ongoing phase 3 clinical studies. Elafibranor has shown promise in resolving NASH without worsening fibrosis, which could give it an edge over Ocaliva.

The case for Gilead Sciences

Gilead Sciences is still making progress with its own efforts in treating NASH. The big biotech has two pipeline candidates in phase 2 studies targeting the indication. But NASH isn't the main reason investors should consider buying Gilead.

The company's continued dominance in HIV stands at the primary attraction for Gilead right now. Biktarvy appears to be on a solid path to becoming the most successful HIV drug of all time. Gilead also thinks that there is significant growth potential for Descovy as a pre-exposure prophylaxis (PrEP) therapy for HIV. Over the longer term, the biotech hopes to launch a long-acting HIV treatment and potentially even develop a cure for the disease.

Gilead also ranks as the leader in the cancer cell therapy arena. Its 2017 acquisition of Kite Pharma brought Yescarta into its lineup. Sales continue to grow for Yescarta, and Gilead has several clinical studies in progress that could lead to expanded indications for the cell therapy.

It might not be too long before Gilead becomes a force in another therapeutic area. The company plans to file for regulatory approval for filgotinib in treating rheumatoid arthritis by the end of 2019. Gilead recently announced a major expansion of its partnership with Galapagos that could significantly expand its prospects in the inflammation and immunology market.

Don't overlook Gilead's hepatitis C virus (HCV) franchise, either. While HCV is no longer an area of growth for the company, Gilead's HCV drugs still rake in well over $3 billion annually. Also, HCV sales appear to have stabilized, clearing the way for Gilead's HIV drugs, Yescarta, and its promising pipeline candidates to propel the biotech to stronger growth in the future.

We also can't forget Gilead's enviable financial position. The company has a huge cash stockpile. It pays an attractive dividend that currently yields north of 3.8%. Gilead also has plenty of money to fund stock buybacks and make additional acquisitions down the road.

Better buy

I like both of these biotech stocks. Which one is the better pick depends on your time horizon and investing style. 

My view is that Intercept has more room to run than Gilead does over the next couple of years. If Ocaliva wins U.S. and European approvals (as I suspect it will), it should provide a huge catalyst for Intercept stock.

On the other hand, I think that Gilead Sciences could be the bigger winner over the long run. Intercept won't enjoy a monopoly in NASH for very long. I expect that other companies, potentially including Gilead, will launch combination therapies that are more effective and have better safety profiles than Ocaliva. Meanwhile, I look for Gilead to keep its momentum going in HIV and cell therapy plus make a splash in the inflammation and immunology market.

Of course, if you're an income-seeking investor, Gilead is the no-brainer choice since Intercept doesn't offer a dividend. My take is that Gilead's juicy dividend combined with its decent growth prospects across multiple fronts make the biotech stock an attractive option for relatively conservative investors.

Keith Speights owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Intercept Pharmaceuticals. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$62.89 (-0.28%) $0.18
Intercept Pharmaceuticals Stock Quote
Intercept Pharmaceuticals
ICPT
$13.82 (-15.78%) $-2.59
Galapagos Stock Quote
Galapagos
GLPG
$42.94 (1.58%) $0.67
Genfit SA Stock Quote
Genfit SA
GNFT
$3.79 (-3.07%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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