Nonalcoholic steatohepatitis (NASH), a type of nonalcoholic fatty liver disease, is widely expected to be the next big thing in biopharma. Thanks to the out-of-control obesity pandemic and truckloads of research dollars pouring into this space at the moment, NASH drugs are projected to only slightly trail the sum total of all diabetes medications in terms of sales by 2028.
NASH medications, in effect, are expected to balloon into the third-largest pharmaceutical market over the course of the next decade. That's an eye-catching growth projection, given that there are no NASH-specific drugs even on the market right now.
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Which NASH-oriented biotech stocks should investors have their eyes on right now? Intercept Pharmaceuticals (ICPT) and Madrigal Pharmaceuticals (MDGL 6.38%) sport two of the top NASH contenders. Which stock is the better buy? Let's check out how these two biotechs stack up to find out.
The case for Intercept Pharmaceuticals
Intercept's core value driver is the selective farnesoid X receptor agonist known commercially as Ocaliva. Ocaliva is currently approved as a treatment for primary biliary cholangitis, which is a progressive nonviral liver disease. But Intercept recently submitted the drug for approval with the Food and Drug Administration as the first-ever treatment for patients with liver fibrosis due to NASH.
Intercept requested a so-called "priority review" for this second indication. What this term of art boils down to is that Ocaliva could be approved for NASH by the second quarter of 2020. Intercept also has designs on a European NASH launch in either late 2020 or perhaps early 2021.
What's the big deal? Ocaliva's peak sales are expected to climb to $2 billion by 2024 with a NASH indication in hand, according to various analysts polled by EvaluatePharma. Moreover, Ocaliva's NASH sales may even eclipse $5 billion, depending on whether or not a viable challenger emerges within the next two years.
What's the catch? Ocaliva has some problematic side effects that make it vulnerable to competition as a monotherapy and that limit its potential as part of a combo treatment. So there's a good chance that Ocaliva would initially thrive as the only game in town for NASH, but later struggle to remain relevant once rival medications enter the space.
The case for Madrigal Pharmaceuticals
Madrigal's NASH candidate is the selective thyroid hormone receptor-beta agonist MGL-3196 (also known as resmetirom). MGL-3196's stellar mid-stage results caused the biotech's shares to shoot up by a whopping 240% during the summer of 2018. But the market has since cooled its heels toward this mid-cap biotech stock in a big way. Madrigal's shares have now lost over 70% of their value since hitting a high-water mark in mid-2018.
What's behind Madrigal's dramatic rise and fall? The brief rundown is that MGL-3196's outstanding mid-stage data prompted some analysts to roll out noteworthy peak sales targets in excess of $6 billion. Then the harsh reality of developing drugs in a hotly contested area kicked in.
The long and short of it is that Madrigal took nearly a year to advance MGL-3196 into late-stage testing, which gave the broader field NASH competitors time to catch up from a developmental standpoint. Thus, these $6 billion peak sales estimates may turn out to be wildly off the mark.
The crux of the situation is that Madrigal arguably needs to sell itself in order to maximize the value of its lead drug candidate. Unfortunately, the company's price tag may prove unpalatable to suitors. Viking Therapeutics, after all, is developing a competing beta thyroid agonist for NASH and it sports a far lower market cap. Put simply, it wouldn't make a whole lot of sense for a suitor to pay top dollar for Madrigal with Viking in the picture.
Verdict
Although Madrigal probably has the safer and more potent NASH candidate, the market dynamics clearly favor Intercept from a share price appreciation standpoint. Intercept should turn out to the first NASH drug to market and it should have a monopoly over this space for at least a year. Ocaliva, therefore, has an excellent shot at generating blockbuster level sales early in the next decade. That's a big deal for a company with a market cap of only $2 billion at present.
Madrigal, on the other hand, is two to perhaps three years from entering the market and it has zero experience at marketing drugs. Moreover, the putative competition from Viking Therapeutics will probably scare off potential buyers for the time being. That's not a great setup for Madrigal's shares, as its lead product candidate slowly winds its way through late-stage testing.
