516% Jump for Intercept Pharmaceuticals, Unknown Biotech With Unlikely Outcome

Intercept Pharmaceuticals jumps on phase 2 data for obeticholic acid in patients with NASH.

Jan 10, 2014 at 6:00PM

Sometimes it takes big news to get a biotech on investors' radar. It doesn't get much bigger than the more than 500% jump that Intercept Pharmaceuticals (NASDAQ:ICPT) has had over the past two days.

You're excused if you've never heard of Intercept Pharmaceuticals. The company only IPOed a little more than a year ago. If you're like me, you tend to ignore IPOs, figuring there's plenty of time to get to know the company.

Intercept IPOed at $15; it's now around $445. Oops.

Why all the fuss?
Being an unknown biotech can keep a company undervalued, but big moves require an unexpected catalyst. In Intercept's case, few people -- not even company executives -- were expecting that the company's lead drug, obeticholic acid, would pass its phase 2 study in nonalcoholic steatohepatitis, or NASH, at the interim peek at the data. Most investors were focused on the phase 3 trial in primary biliary cirrhosis, another liver disease.

To be stopped early, the trial had to reach a p-value of less than 0.0031; or put another way, there's a 0.31% chance that the difference between the improvement by patients taking obeticholic acid and those taking placebo happened by chance alone.

The company didn't release the full data -- it doesn't even have the data yet since the trial was run by collaborators at the National Institute of Diabetes & Digestive & Kidney Diseases -- but at this point, it doesn't really matter. The drug is clearly working given the highly statistically significant improvement.

NASH is one of the last large untapped markets. There's no approved drugs for the disease, and more than 6 million Americans may have NASH that has advanced far enough that they're in danger of needing a liver transplant in the not-too-distant future. It's not hard to get to billions of sales when you start with millions of patients.

Interested yet?
The next step for Intercept is to obtain the data, and see if it is sufficient to get an accelerated approval, or if the FDA will want a larger phase 3 trial. Intercept's collaborator Dainippon Sumitomo Pharma is running a NASH trial in Japan that's supposed to read out by the end of next year. If the FDA allowed that trial to substitute for a pre-approval trial run by Intercept, it would shave years off the approval time.

A couple of things still need to go right to justify Intercept's lofty valuation. NASH is currently diagnosed by liver biopsy. That's not really practical to identify those 6 million potential patients. A diagnostic will increase the realistic market size substantially.

Second, obeticholic acid isn't without competition. While there aren't any approved drugs for NASH, Conatus Pharmaceuticals (NASDAQ:CNAT), Gilead Sciences (NASDAQ:GILD), and Isis Pharmaceuticals (NASDAQ:IONS) all have drugs being tested as treatments for the disease. Being first is helpful for grabbing the market, but the best drugs usually win out. If Conatus, Gilead, or Isis can improve NASH faster, better, with fewer side effects, or cheaper, they could eat into Intercept's potential market.

Two game-changing biotechs
The best way to play the biotech space is to find companies that shun the status quo and, instead, discover revolutionary, groundbreaking technologies. In the Motley Fool's brand-new FREE report, "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that big pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences and Isis Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers