Intercept Pharmaceuticals (ICPT) and Madrigal Pharmaceuticals (MDGL -4.60%) are two stocks that have moved in opposite directions of late. Intercept's stock has slid by 36% since the year started, while Madrigal's stock is up by 22% over the same period. However, history -- particularly recent history -- isn't necessarily indicative of what will happen in the future on the stock market, and investors looking at both stocks today want to know which will outperform the other in the long run.
With that said, let's dig into both companies' respective businesses and decide which presents better investment prospects.
Growth prospects
Intercept's growth prospects largely depend on Ocaliva, the company's only approved drug at the moment. Ocaliva is a treatment for primary biliary cholangitis (PBC). This condition causes damage to bile ducts, which can lead to a dangerous buildup of bile acid in the liver. Left untreated, PBC can cause liver failure and even death; Ocaliva prevents this from happening. The drug continues to generate growing revenue, with first-quarter net sales up by 40% year over year to $72.7 million.
However, there could be a much juicier opportunity for Ocaliva in the future. In September 2019, Intercept submitted a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) for Ocaliva as a potential treatment for fibrosis (buildup of scar tissue in the liver) due to nonalcoholic steatohepatitis (NASH).
In a phase 3 clinical trial, Ocaliva achieved its primary endpoint of fibrosis improvement with no worsening of NASH. There are currently no FDA-approved treatments for this condition. And with roughly 16 million people suffering from fibrosis due to NASH in the U.S., according to the company's estimates, this could be a multibillion-dollar opportunity for Intercept.
Image source: Getty Images.
It is worth noting that Intercept recently announced that the FDA had postponed an advisory committee meeting related to the company's NDA for Ocaliva as a treatment for fibrosis due to NASH. While this will delay the process, I still expect Ocaliva to be approved for this indication.
Madrigal, meanwhile, currently has no approved products on the market. But the company's most promising candidate is called resmetirom, an investigational treatment for NASH. Madrigal recently reported positive data from a late-stage study for resmetirom. During the trial, patients treated with daily oral doses of resmetirom experienced at least a 50% reduction -- and in some cases a 60% reduction -- in liver fat.
The company also said that a new analysis of data from a phase 2 study showed that this promising treatment was associated with a 64% resolution of NASH symptoms. Long-term investors could see in Madrigal's resmetirom an exciting opportunity that will eventually pay off for those who remain patient. In my view, this opportunity makes Madrigal's stock worth considering.
Financial results
Running clinical studies for potentially life-saving drugs isn't cheap, and given the ongoing crisis caused by the COVID-19 pandemic, it's even more critical for biotech companies to have the funds necessary to support their operations. If these companies can do so without resorting to public offerings of common stock -- thereby diluting existing shareholders -- it is even better. With that said, let's look at some key metrics from Intercept's and Madrigal's first-quarter financial results.
|
Company |
Market Cap |
Revenue |
Operating Expenses |
Net Income (Loss) |
Cash and Cash Equivalents |
|---|---|---|---|---|---|
|
Intercept |
$2.5 billion |
$72.7 million |
$156.1 million |
($93 million) |
$554 million |
|
Madrigal |
$1.6 billion |
$0 |
$38 million |
($36.1 million) |
$408.5 million |
Source: Companies' Financial Statements.
With sales of Ocaliva still growing, Intercept looks likely to have the capital necessary to support its operations, and I don't expect the company to run out of cash anytime soon. If Ocaliva earns FDA approval for fibrosis due to NASH later this year, things will look even better for the company. Madrigal doesn't generate any revenue at the moment, which isn't surprising given that the company doesn't have any products on the market.
Madrigal's expenses could also increase because of the company's ongoing phase 3 trial for resmetirom. During the first quarter, Madrigal's operating expenses increased by 26.9% sequentially and by 109.8% year over year. Even with the company's reasonably strong cash balance, it wouldn't surprise me if Madrigal turned to dilutive forms of financing soon.
Which is the better buy?
Although both Intercept and Madrigal are looking to make waves in the NASH market, one of them, namely Intercept, is much closer to launching a product in this niche. Intercept also already generates revenue thanks to Ocaliva, and the fact that the company's shares have been hammered in recent weeks only makes its stock more attractive. For those reasons, I think Intercept is the better biotech stock to buy today. However, I also think investors should keep an eye on Madrigal.
