What happened
Shares of the small-cap biotech Intercept Pharmaceuticals (ICPT) sank by a noteworthy 19% during the first six months of 2021, according to data from S&P Global Market Intelligence. The biotech's stock has slumped this year due mainly to the fallout from the U.S. Food and Drug Administration's (FDA) complete response letter for obeticholic acid's (OCA) proposed label expansion as a treatment for nonalcoholic steatohepatitis (NASH) in 2020.
OCA is currently approved as a treatment for a liver disorder known as primary biliary cholangitis (PBC) and sold under the brand name Ocaliva. Unfortunately, the FDA dealt Ocaliva another major blow this year by restricting its use in PBC patients with advanced cirrhosis due to the risk of serious liver injury.
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So what
Early on in 2020, Intercept appeared to have the inside track on bringing the first-ever NASH medicine to market. The big deal is that NASH is believed to afflict upwards of 5% of adult Americans, making it one of the largest untapped drug markets right now.
In fact, various Wall Street analysts have estimated that the treatment opportunity for NASH could be worth anywhere from $35 billion to perhaps $50 billion per year in the U.S. alone. Ocaliva, in short, quite possibly lost out on billions in annual sales as a result of the FDA's complete response letter for this high-value indication.
That being said, Ocaliva's well-documented safety issues may not ultimately keep it from becoming an important NASH medication at some point down the road. Intercept is awaiting additional late-stage trial results, which could significantly bolster the drug's chances of breaking into NASH in some form or fashion.
Now what
Is Intercept's stock worth buying? This unloved biotech equity does have a lot to offer potential investors.
On the bright side, Intercept's management doesn't think Ocaliva's stricter label in PBC will have a major impact on sales. That's potentially great news for shareholders over the long haul. PBC, after all, is expected to generate close to $360 million for the company in 2022.
In turn, Intercept's shares may be trading at less than two times 2022 sales at current levels, which is a dirt cheap valuation for a biotech stock. Most commercial-stage biotech stocks, in fact, trade at around three to five times forward-looking sales.
All told, Intercept's stock appears to be a flat-out bargain right now, despite Ocaliva's regulatory woes.
