Investing in NASH: The Next Breakout Biotech Market

In the world of biotech stocks, investors are more than familiar with things that go boom and bust.

Over the last few years, the hepatitis C (HCV) market has been the epitome of the boom portion of this cycle, as drug companies have scrambled for a piece of this multi-billion dollar segment.

We have seen Merck & Co. (NYSE: MRK) complete a $3.85 billion buyout of Idenix Pharmaceuticals (NASDAQ: IDIX) for its hep C pipeline, and we’ve watched Gilead Sciences (NASDAQ: GILD) blow expectations out of the water with its wonder-drug Sovaldi.

Gilead has not only been able to get away with selling Sovaldi at $1,125 a pill, but it absolutely shattered previous U.S. drug sales records in 2014, raking in $2.3 billion in its first quarter on the market.

For perspective, the previous sales record went to Vertex Pharmaceuticals’ hepatitis C drug Incivek at $1.56 billion. The kicker? That’s the record for annual sales, meaning Gilead’s Sovaldi beat Incivek in a quarter of the time.

That’s kind of like someone breaking Jack Taylor’s NCAA record by scoring 138 points in a single quarter…

All said and done, by the end of 2014, Sovaldi brought Gilead a mind-boggling $10.3 billion on the top line. Considering that figure, it should be of little surprise that anyone who picked up shares of Gilead leading up to Sovaldi’s launch has likely made a killing on the stock.

Thanks to the success of a single drug, anyone who picked up shares two years ago is now up more than double on their initial investment.

Of course, with every boom, there usually follows a bust. In the case of Gilead, that bust has come in the form of a heavy 46% discount on Sovaldi now that rivals AbbVie Inc. (NYSE: ABBV), Bristol-Myers (NYSE: BMY), and Merck are all entering the market.

Granted, there’s plenty of growth left in the hep C market for all four of these companies to making a killing for the foreseeable future, but the initial buzz around this indication has undoubtedly come and gone.

The Next Hep C

Fortunately for those of you looking for the next breakout biotech, hepatitis therapeutics aren’t the only liver disease drugs worth getting excited about.

In fact, the disease I’m about to tell you about is expected to surpass hepatitis C as the leading cause of liver transplant by 2020 — and it is sure to see a slew of interest from big pharma and investors alike in the coming years.

Nonalcoholic fatty liver disease (NAFLD) is caused by excessive fat in the liver and can progress to nonalcoholic steatosis (NASH), a disease characterized by inflammation and irreversible cell death.

Today, NASH is the third-leading cause of liver transplants in the U.S., with anywhere between 2% and 5% of the general population currently infected.

Since 2001, liver transplants attributed to NASH have increased by an alarming 1,000%. By 2025, it’s estimated that more than 25 million Americans will have the disease. For perspective, hepatitis C affects just 3.2 million.

The culprit for this rapid increase in NASH is none other than obesity. In the past 10 years alone, the rate of obesity has doubled in adults and tripled in children.

Not only does obesity contribute to the inherent cause of NASH (fatty liver), but it also increases the risk of diabetes and high blood cholesterol, which can further complicate the health of someone with the disease.

Most importantly, there are currently no available therapies approved for the treatment of NASH, which means whoever gets to market first stands to make a considerable amout of money in the process.

It also means investors could see a considerable windfall of profit from what one analyst has recently called “the next big global epidemic” and what CNBC has already dubbed “the next hepatitis C.”

All said and done, the market for NASH treatments is expected to reach $35 to $40 billion by 2025. If you’re a biotech investor, you’re not going to want to miss out on those profits.

Until next time,

Jason Stutman

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