In investing, everyone wants to board a ship before it rockets into the stratosphere for untold gains. How many times have you read about a huge gain, and been disappointed that you hadn’t been prescient – or lucky enough – to have moved sooner? You tell yourself to “get the next one next time…forget about this one and move on.”
But that may not be the wisest move. As stocks that suddenly become two-, three- or four-baggers on sudden, unexpected news or events settle into their new price neighborhood, it’s important to realize why they’re there, what happened and why it may be time to jump on board before its next move upward.
A huge move upward is often not the end of a stock’s positive longer term trend. Stocks almost always jump for reasons tied to their underlying prospects, and these prospects can serve as a crucial catalyst for further gains that build upon earlier ones.
One such stock that recently made a huge move is Intercept Pharmaceuticals (ICPT). As often drives such pharma and biotech companies, the news around a successful clinical trial pushed ICPT shares to previously unseen levels. But while I’ve been a fan of this stock for a while and many of you have benefited from my past calls on it, I believe those who haven’t still have an opportunity for future gains given the tremendous potential for this company and its groundbreaking products.
First a little background. Intercept’s a clinical stage biopharmaceutical company focused on developing and commercializing innovative treatments for chronic liver diseases like primary biliary cirrhosis. Diseases like this can run into the billions of dollars in health care costs for treatments, transplants, complications and so on. Intercept’s built an expertise in bile acid chemistry to bring new medicines to this market (and there are not many alternative solutions).
Intercept’s main product that they have developed and are testing is obeticholic acid (OCA), a bile acid analog. It’s a chemical substance that has a structure based on a naturally-occurring human bile acid. OCA selectively binds to and induces activity in the farnesoid X receptor, or FXR, which the company believes has broad liver-protective properties.
According to Intercept, OCA’s being developed initially for primary biliary cirrhosis, or PBC, as a second line treatment for patients who have an inadequate response to or who are unable to tolerate standard of care therapy (Ursodiol, the only approved therapy for this indication) and therefore need additional treatment. PBC is a chronic autoimmune liver disease that, if inadequately treated, may eventually lead to cirrhosis, liver failure and death.
In both the United States and Europe, OCA has received orphan drug designation (meaning its being developed for a rare disease, and can gain easier marketing approval and receive financial incentives) for the treatment of PBC. Intercept owns worldwide rights to OCA outside of Japan and China, where it has out-licensed the product candidate to Dainippon Sumitomo Pharma. Patent rights cover the drug’s key components through 2022 before any potential extensions and adjustments.
So far, so good? I’ve been following ICPT since its 2012 IPO (at $17) and in fact recommended its purchase mid last year (Forbes, June 18, 2013). At that time, ICPT was trading in the low $30s with a market cap of $550 million. I was particularly interested then because of its ongoing OCA trial to not only treat PBC but other liver diseases as well. There was (and still is) huge opportunity for such treatments.
Preliminary results were positive but further results from its ongoing trials were expected later in 2014. With the drug’s eventual approval, I saw ICPT as a stock that could easily double or more with such a blockbuster potential. In 2013, it was very “under-followed” on the Street as most analysts waited for more news before it would get more attention.
While recommending a short term trade from a November buy of ICPT and an early December sale to lock in a 19% profit, I again turned bullish on ICPT recently. Just about two weeks back in a year end review interview with the Wall Street Journal, I again recommended ICPT with shares then trading in the mid-$60s. One factor I highlighted then was a possible acquisition as another key catalyst for the stock, and mentioned how I wouldn’t be surprised to learn of a buyout at a big premium.