Mega Millions For Intercept Pharmaceuticals Shareholders. What's Next?

Jan 11 2014, 11:31am CST | by

When thinking of mega millions winners, we usually think of people who purchased lucky lottery tickets. This week, we should count as mega millions winners another category: investors who purchased shares in a small biotechnology company, Intercept Pharmaceuticals, Inc., before the closing of Wall Street on Wednesday — at around $72 or better at the 52wk low of $30.38.

The stock climbed to $275.87 on Thursday, and to $497 during the trading time on Friday, valuing the company close to $9 billion.

Now, think of the company insiders who held roughly 43 percent of the 13.4m of outstanding shares; the institutions, who held another 26 percent; and the individuals who held a few thousand before Thursday.

You can do the math.

The catalyst for these astronomical gains? The company’s liver-disease drug, which performed unexpectedly well in a clinical trial.

“The drug, called obeticholic acid, or OCA, mimics a naturally occurring human bile acid that Intercept believes has liver-protective properties,” writes Peter Loftus of Wall Street Journal.

But does the potential market for the drug justify the company’s current valuation?

ICPT key statistics

Market cap (intraday) 8.73B
Shares Outstanding 19.34M
%Held by insiders 42.7%
%Held by institutions 26.10%
Revenue 1.62M
Operating Cash Flow -21.87M

Source:Yahoo.Finance.com1/10/14

Obviously, investors buying shares on Friday believe so. I would be skeptical, however, for a number of reasons:

First, we are talking about a drug that performed well in a statistical trial, not a drug that has already received FDA approval. “Many experimental drugs fail to make it to the market, so Intercept’s OCA could stumble,” continues Peter Loftus. “But the clinical trial outcome raised investors’ expectations that the company could have a big-selling product on hands.”

Second, even if OCA receives an expedient FDA approval, marketing success is no guarantee. Investors have to look no further than the fate of Dendreon’s drug PROVENGE that received FDA approval a few years ago.

Third, even if OCA passes both the FDA and the market test, at the current market valuation, the company is valued at 10 percent of the value of Amgen Inc., which has been around for more than three decades and has several blockbuster stocks in the market.

Investors who have been around Wall Street long enough remember EntreMed Inc, another biotechnology company that displayed a similar performance in a short period. We all know what happened in that case.

Source: Forbes Business

 
 
 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Facebook Announces Messenger Platform and Businesses on Messenger
Facebook Announces Messenger Platform and Businesses on Messenger
Facebook launches two initiatives to bolster its Messenger app.
 
 
Apple Reportedly Working with Foxconn to Launch iPhone Trade-in Program in China
Apple Reportedly Working with Foxconn to Launch iPhone Trade-in Program in China
The move will solidify Apple’s business in China.
 
 
Steve Jobs Was a Tough Character, Says Bill Gates
Steve Jobs Was a Tough Character, Says Bill Gates
Bill Gates: Steve Jobs was a tough character, but he didn't direct his anger at me too often.
 
 
Amazon Prime Music Updated with Stations on iOS
Amazon Prime Music Updated with Stations on iOS
Amazon Prime Music on iOS gets smarter and better with Prime Stations. That means Apple users can stream songs with unlimited skips and without ads.