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Better Buy: Intercept Pharmaceuticals vs. Gilead Sciences

By Keith Speights - May 16, 2020 at 8:01AM

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Which stock wins in a matchup between these two biotechs?

Intercept Pharmaceuticals (ICPT 2.62%) and Gilead Sciences (GILD 0.83%) don't compete against each other at this point, but that just might change in the not-too-distant future. 

In the meantime, Intercept and Gilead sort of battle each other in another way by fighting for investors' money. Which of these two biotech stocks is the better pick for long-term investors? Here's how Intercept and Gilead stack up against each other.

Female scientist holding two test tubes

Image source: Getty Images.

The case for Intercept Pharmaceuticals

If you want to sum up the argument for buying Intercept in just one word, that word would be Ocaliva. Sales for the drug soared 40% year over year in the first quarter to $72.7 million. Ocaliva is currently approved in the U.S. and in other countries for treating primary biliary cholangitis (PBC), a liver disease that damages bile ducts.  

But Intercept hopes that PBC is just the start. The company awaits FDA approval of Ocaliva in treating liver fibrosis due to nonalcoholic steatohepatitis (NASH), another liver disease that currently has no approved treatment. Some industry observers think that the global NASH market could represent a $35 billion opportunity. 

Intercept won't get a decision from the FDA as soon as it originally wanted. In March, the FDA announced that it was postponing the advisory committee review meeting for Ocaliva in treating NASH to June 9 from its initial date of April 22 due to the COVID-19 pandemic. Still, the chances for FDA approval in the NASH indication appear to be pretty good.

The company is also evaluating Ocaliva in phase 2 clinical studies targeting two other liver diseases: primary sclerosing cholangitis (PSC) and biliary atresia. But the big prize is definitely in treating NASH. Analysts think that Ocaliva could generate peak annual sales in the ballpark of $2 billion if approved for the indication.

Intercept's market cap currently stands at a little over $3 billion. If Ocaliva is as successful as the company hopes it will be, Intercept stock should have a lot of room to run.

The case for Gilead Sciences

You really can't sum up the argument for buying Gilead stock in just one word; the big biotech has too many irons in the fire. But Gilead has achieved its greatest success in HIV. Its newest HIV drug, Biktarvy, is on track to become the biggest-selling drug yet for the company. Gilead is also testing possible future game-changers with a long-acting HIV drug in phase 2 clinical studies and two potential HIV cures in early stage studies.

However, Gilead is also already a major player in two other areas. Its hepatitis C virus (HCV) franchise commands a market share of 60%. Gilead's acquisition of Kite Pharma in 2017 immediately launched the big biotech into a top spot in the CAR-T cancer cell therapy market.

The company could soon enter yet another major market. Gilead awaits U.S. and European regulatory approvals for filgotinib in treating rheumatoid arthritis. In addition to filgotinib, Gilead has other promising candidates in its pipeline targeting inflammatory and fibrotic diseases thanks to its partnership with Galapagos.

Like Intercept, Gilead hopes to achieve success in treating fibrotic diseases affecting the liver. The company is evaluating cilofexor in a late-stage study targeting PSC. Its pipeline includes three programs in phase 2 studies for treating NASH, including cilofexor. 

We can't leave out Gilead's COVID-19 drug remdesivir. Although it hasn't been officially approved by the FDA yet, remdesivir appears likely to become the standard of care in treating the novel coronavirus disease after the agency granted the drug emergency use authorization (EUA).

Finally, Gilead sits atop a massive cash stockpile that totaled $24.3 billion at the end of March. Since then, Gilead has used $4.9 billion to acquire cancer-focused biotech Forty Seven. But the company still has plenty of cash left and a lot more cash flow being generated -- more than enough to pay its dividend, which currently yields nearly 3.4%.

Better buy

Which biotech stock is the better buy? My view is that it depends on your investing style.

Aggressive investors will probably like Intercept. The drugmaker should have greater growth potential than Gilead over the next few years if Ocaliva wins FDA approval in treating fibrosis due to NASH. 

But if you're more conservative, Gilead is the better pick. It's in a much stronger financial position than Intercept is. It offers an attractive dividend. Its revenue is diversified across multiple products. And it has solid growth prospects both in the short term and long term.

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.
$61.60 (0.83%) $0.51
Intercept Pharmaceuticals Stock Quote
Intercept Pharmaceuticals
$16.85 (2.62%) $0.43

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