What happened
Shares of Galmed Pharmaceuticals (GLMD 2.46%) are up 19% today and 33% for the week after a pair of analysts initiated coverage and assigned monster price targets.
So what
An analyst from Cantor Fitzgerald started the run on Thursday with an overweight rating and a whopping $59 price target on Galmed Pharmaceuticals. Then, a Stifel Nicolaus analyst initiated coverage Friday with a buy rating, although he's not quite as bullish and only gave a price target of $35. Nevertheless, that's more than double the $15.24 that the stock closed at today.
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While we tend to ignore price targets here at The Motley Fool, the analysts' targets aren't all that outlandish depending on the time frame and the likelihood of success investors want to assign to Galmed's nonalcoholic steatohepatitis (NASH) drug Aramchol.
NASH, a liver disease characterized by the buildup of fat that can lead to inflammation and fibrosis, is a potentially huge market. No one really knows how big since there aren't any drugs currently approved to treat the disease, but considering NASH may ultimately affect 5% of the adult population in the U.S. and can lead to very costly liver transplants, estimates in the $20 billion range seem reasonable.
A company capturing just 10% of the market with a price-to-sales ratio of 5 would be valued at $10 billion; Galmed Pharmaceuticals' market cap is $318 million, offering plenty of upside if Aramchol helps patients.
Now what
Despite Galmed Pharmaceuticals' potential, investors should be cautious. Data from the recent phase IIb trial was mixed, with the company needing to adjust the analysis to show that the higher dose helped patients. Anytime a company has to do a so-called post-hoc analysis to prove its point, there's a higher risk that the result won't be replicated in a future trial.
