If you are looking for stocks to buy and hold throughout the next decade, it might be a good idea to turn to biotech stocks. After all, the biotech industry as a whole -- as measured by the SPDR S&P Biotech Index -- grew by 414% over the past 10 years, handily outpacing the S&P 500's 203% return over the same period.
There are, of course, scores of biotech companies to think about investing in, but one that deserves your attention is Intercept Pharmaceuticals (ICPT). Year to date, Intercept hasn't exactly performed well, with its stock down by 24% since 2020 kicked off. Does this represent a buying opportunity for investors?
A one-trick pony?
Intercept's financial results aren't impressive at the moment. For the third quarter, the company recorded total revenue of $61.9 million, a 31.8% year-over-year increase. However, Intercept also recorded an operating loss of $75.5 million, and a net loss per share of $2.59. That being said, Intercept's fortunes could soon change. To see why, let's consider the company's sole product on the market at the moment: Ocaliva. Ocaliva was first approved by the U.S. Food and Drug Administration (FDA) in May 2016 for the treatment of primary biliary cholangitis (PBC).
Bile is a fluid secreted in the liver that aids in digestion, but PBC causes damage to bile ducts. This can lead to dangerous levels of bile acid building up in the liver, eventually causing liver failure and death if left untreated. Ocaliva works by preventing bile acid from building up in the liver.
Intercept is currently looking to add a second indication to Ocaliva. In September, the company submitted a New Drug Application (NDA) to the FDA for Ocaliva as a treatment for fibrosis (build-up of scar tissue in the liver) due to nonalcoholic steatohepatitis (NASH). NASH, a condition caused by a buildup of fat in the liver that leads to inflammation, is a condition that is currently on the rise and is projected to continue on its upward trajectory.
For instance, as many as 16% of liver transplants in the U.S. are due to NASH, and this condition is projected to become the leading cause of liver transplant in the U.S., a title that currently belongs to Hepatitis C.
Intercept estimates that there are about 19 million NASH patients in the U.S. alone, and about 16 million of them have fibrosis. There are currently no FDA-approved treatments for fibrosis due to NASH, which means Intercept has an exciting opportunity ahead. Furthermore, the company's Ocaliva was granted priority review by the FDA for the treatment of fibrosis due to NASH, which means the health industry regulator will go through the review process faster than it normally does.
There seems to be a good chance that Ocaliva will receive FDA approval as a treatment for fibrosis due to NASH, and Intercept has been gearing up for the launch of Ocaliva for this new indication. During the third quarter, the company's selling, general, and administrative expenses increased by $20 million year over year, in part due to expenses and "preparation activities" related to the eventual launch of Ocaliva. In other words, Intercept has very high hopes for Ocaliva in this new and uncharted market.
Should you buy?
Ocaliva, which is also approved in Europe, Israel, Canada, and other areas, will likely experience growing sales even without a new indication as a treatment for fibrosis due to NASH. However, with this new indication, sales of this drug could skyrocket, and Intercept's financial results could get significantly better. That's why investors should consider buying shares of this biotech company right now, especially given how poorly its stock has performed year to date and this big catalyst around the corner.