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.