Can this be another buyout target?

Over 4 months ago, Intercept Pharma (ICPT) got decimated by half from its peak of over $120 to about $60 due to safety concerns with its leading drug, Ocaliva. At that time, while it was quite tempting to jump in, I thought it was too early to do so. Here was what I said then: In short, it is still too early to tell whether ICPT has already priced in all the potential risks. It is not a good idea to catch the falling knife even though it could turn out to be a good entry point. Better to let the dust settle before jumping in. My primary concern was about the scope of the safety concern as there was a chance that the FDA could mandate a very strict REMS in place to limit the use of Ocaliva, if the fatality concern was considered severe enough. Well, ICPT didn’t bottom at $60 but continued to draft lower towards low $50s in the following months. However, I think the worst for ICPT is probably over. Let me explain.


 For one, the safety crisis appears to have been addressed successfully with the FDA and no restrictive REMS is needed. That’s a big relief for the company. Its technical pattern in both the daily and weekly charting is also suggesting a bottom is in for ICPT. That’s why I told my friends that low $50s was attractive last week. Luckily almost immediately after I went in, ICPT started to move up and now over $60 as I’m writing. But the biggest question for ICPT is if its phase 3 studies (one ongoing and the other to be initiated this quarter) on nonalcoholic steatohepatitis (NASH) can confirm its dazzling phase 2 results. While there is no guarantee how the phase 3 studies will turn out, we can make a calculated guess based on the phase 2 study. Actually the result was quite promising. In that trial, the NAFLD Activity Score improved by at least two points with no worsening in fibrosis for 46% of Ocaliva patients compared to only 21% treated with the placebo. Similarly, 35% of Ocaliva patients demonstrated an improvement in fibrosis, along with 22% that had NASH resolution. Comparatively, 19% of the placebo group demonstrated fibrosis improvement, and just 13% had NASH resolution. The safety profile for Ocaliva was also very comparable to the placebo arm. If the phase 3 result can replicate the phase 2 result, ICPT will be on fire and a double or even triple is not out of question. Since NASH is a huge market with no approved drug yet, I will even think ICPT may very well be the next acquisition target if some big boy with deep pocket can take the risk and wants to secure their NASH leading position. The opportunity is much better at the moment when ICPT is very depressed but the cost will be much higher if and after ICPT indeed gets great result from the phase 3 studies. Who knows maybe a deal is brewing now for ICPT. I’m long ICPT at this level for sure! Of course, trading for biotech is always very risky as there is no guarantee. So don't bet the farm!