The stock market is giving investors some real healthcare bargains right now. In this Fool.com roundtable, we present bullish views on a couple of NASH stocks that have been hammered. And we give some love to an under-the-radar COVID play that is super cheap right now.
Nearing profitability with a potential blockbuster indication
Patrick Bafuma (Intercept Pharma): I will freely admit that Intercept Pharma has been a dog through the years, down a maddening 87% over the last five years. It gets worse when you realize that the S&P SPDR Biotech ETF is up 45% over the same time frame, and the S&P 500 has almost doubled over the past half-decade. A significant portion of Intercept's drop was also due to a complete response letter in June 2020 for the treatment of non-alcoholic steatohepatitis (NASH). The FDA recommended that the liver disease-focused biotech submit additional NASH data for its drug Ocaliva from ongoing trials, sending the stock down almost 40% that day.
Fast forward to today, and Intercept looks like a diamond in the rough. Ocaliva is a winner in the rare disease realm of primary biliary cholangitis (PBC), a rare autoimmune disease targeting the liver. Now four years into the Ocaliva PBC launch, the company is guiding for 2021 fiscal year (FY) net sales of $355 million to $370 million, about 15% higher than 2020 FY sales. There is reason to believe sales growth will continue, too. A November 2021 study demonstrated Ocaliva improved transplant-free survival in patients with PBC, which means those who took Intercept's drug were able to delay the need for a liver transplant. With such great news for patients, Ocaliva has cemented its role in PBC for the foreseeable future.
This $478 million biotech reported a net loss of just $3.6 million in 2021's third quarter and has $428.8 million in cash. That's right. The company is nearing profitability, with almost as much cash on hand as it's market cap and a price-to-sales (P/S) ratio of less than 2. On top of that, the NASH story has not yet unfolded. Phase 3 data for Ocaliva in NASH is due this quarter, which could still be a multibillion dollar indication annually. Add it together, and Intercept looks like a bargain.
This biotech stock could go supernova in 2022
George Budwell (Viking Therapeutics): Small-cap biotech Viking Therapeutics hasn't exactly set the world on fire of late. Since reporting impressive mid-stage results for its fatty liver disease drug candidate VK2809 in 2018, the biotech's shares have fallen by over 80% from that former high point.
Viking's downfall has multiple components to it. First and foremost, investors have largely backed away from non-alcoholic steatohepatitis (NASH) drug plays in recent years. Even though this untapped drug market has been estimated to be worth upwards of $30 billion a year in sales, the pharmaceutical industry's repeated clinical failures in NASH have clearly scared away many investors. What's more, monotherapies like Madrigal Pharmaceuticals' resmetirom and Viking's VK2809 are now viewed as longshots due to these high-profile clinical failures.
This pessimism is likely way overdone, however. Why? Viking's NASH candidate produced stellar results in its first mid-stage trial. While there's no guarantee that these initial phase 2 results will carry over to the drug's ongoing biopsy-confirmed NASH and liver-fibrosis trial, Viking's NASH candidate shouldn't be pre-judged, either. After all, VK2809 sports a fairly novel mechanism of action for a NASH drug, and it appears to be extremely effective at reducing liver fat.
Why are Viking's shares worth a second look in 2022? The biotech is on track to release VK2809's mid-stage NASH trial results before year's end. If these data warrant a randomized phase 3 trial, Viking's shares could go parabolic. Underscoring this point, Wall Street's current consensus price target for this biotech stock implies a handsome 424% upside potential.
Down 75% off its highs, Vir Bio is a steal right now
Taylor Carmichael (Vir Bio): On Jan. 27, 2021, Vir Bio's stock price skyrocketed all the way to $141 a share. The unlucky investor who bought at the high is sitting on 75% losses right now. (In fact, that investor got hit on the same day of the purchase as the stock fell to $83 by the end of the day.) Vir, like a lot of COVID stocks, has been hammered as Mr. Market seems to think that COVID is yesterday's news, and there's no money to be made in this sector anymore.
That's a huge mistake. GlaxoSmithKline (GSK -1.14%) just reported over $1 billion in Xevudy sales last year. The COVID treatment, developed by Vir, costs over $2,000 a dose. Under its profit-sharing agreement with Glaxo, Vir will receive almost 75% of the revenues for the drug.
Xevudy is already a huge blockbuster for the tiny biotech. Last month, the Biden administration increased its Xevudy supply, contracting to buy another 600,000 doses of the COVID treatment. That sale alone adds close to $1 billion in revenues to Vir. Demand is soaring as the Food and Drug Administration (FDA) has dramatically narrowed its emergency authorization for competitor drugs from Eli Lily (LLY -0.41%) and Regeneron (REGN -0.27%), as data shows those drugs failing to work against the omicron variant.
Glaxo and Vir expect to manufacture 2 million doses of Xevudy in the first half of 2022. That's over $4 billion in sales at current prices. The companies already have orders in place for 1.7 million doses. Vir seems a lock to pull in close to $3 billion over the next six months. And yet its market cap is just $4.4 billion? Expect this stock to shoot much higher when Vir reports on Feb. 24.