Seeking Alpha: Conatus Has A Clearer Path, But It's Long And Uncertain

The past year was a tough one for companies focused on treating liver disease, but Conatus (NASDAQ:CNAT) had an especially bad year. The shares fell almost 60% as investors grew increasingly concerned about the company's drug emricasan, particularly with respect to just how reliable or meaningful the data collected so far are with respect to real-world efficacy.

Emricasan seems to have clinical activity, but it is still very much an open question as to whether it is effective enough to halt the progression of cirrhosis and spare people with this life-threatening condition a liver transplant or worse. Unfortunately, investors are in for a relatively long wait before more clinical clarity is achieved, and in the "time is money" world of biotech, Conatus investors are likely looking at substantially more dilution before a clinical approval is attainable.

If Conatus can demonstrated a place for emricasan in even just a single-digit percentage of cirrhosis patients, it is not hard to arrive at over $2 billion in peak revenue and even a huge amount of anticipated dilution would still support a fair value above $6 today. That said, Intercept (NASDAQ:ICPT) and Genfit (OTCPK:GNFTF) have proved quite a bit more with their drugs and are undervalued in their own right. It is certainly possible that the success of Intercept/Genfit and/or other companies targeting liver disease will shrink the pool of eligible patients for emricasan, but frankly the biggest issue today is establishing whether or not the drug is effective and which patients stand to benefit the most.

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Conatus Has A Clearer Path, But It's Long And Uncertain

Seeking Alpha: The Math Could Get Weird, But Intercept Pharmaceuticals Looks Too Cheap

Whether it was a "sell the news" reaction or legitimate disappointment in the size and scope of the Phase III NASH study, Intercept Pharmaceuticals (NASDAQ:ICPT) shares sold off to the tune of 16% on Tuesday when the company revealed its plans for further development of obeticholic acid (or OCA) in NASH. Calculating the value of any pre-revenue biotech requires a lot of assumptions (and I'm well aware of the "garbage in, garbage out" risk), but I continue to believe that the market is undervaluing what could be a platform company in liver disease.

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The Math Could Get Weird, But Intercept Pharmaceuticals Looks Too Cheap

Seeking Alpha: Trial Data Add Little Clarity And Much Confusion To Conatus

Biotech investors can typically process positive and negative clinical trial results, but when the data are mixed and/or there are no simple conclusions it becomes more difficult to price the risk. I believe that is at least part of what's going on with Conatus Pharmaceuticals (NASDAQ:CNAT) in the wake of its confusing, and ultimately disappointing, Phase II trial data on emricasan in acute-on-chronic liver failure (or ACLF).

I think it's too early to say that emricasan is an ineffective drug and unworthy of further clinical development. The highest dose of the drug did suggest a benefit and it is worth the company's time to further refine the dosing and trial design. Unfortunately, the issues with trial enrollment and completion raise pertinent questions about the difficulty of future ACLF studies and whether management can find a clinical pathway to get this drug to market.

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Trial Data Add Little Clarity And Much Confusion To Conatus

Seeking Alpha: Is Intercept Pharmaceuticals Building The Next Great Specialty Franchise?

As great as Alexion (NASDAQ:ALXN) has shown itself to be with its orphan drug Soliris for rare kidney ailments, Intercept Pharmaceuticals (NASDAQ:ICPT) may be establishing a similar path in the until-recently overlooked world of liver disease outside of hepatitis C. Intercept's lead compound OCA appears to have broad utility as an anti-inflammatory, anti-fibrotic liver treatment and the efficacy in nonalcoholic steatohepatitis (or NASH) may unlock potential akin to that of new HCV treatments.

It is important to point out, though, that there is a lot of risk in biotech investing and particularly in companies where the expectations are almost solely built around a single product. Making matters worse, there is considerable uncertainty as to the true number of potential patients for many of the diseases Intercept is targeting, to say nothing of uncertainty regarding competition, pricing, and clinical endpoints for clinical trials. Despite these risks, I believe Intercept ought to be trading closer to $420 today and even then I consider the underlying assumptions to be quite conservative.

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Is Intercept Pharmaceuticals Building The Next Great Specialty Franchise?

Seeking Alpha: Conatus Pharmaceuticals Down On Low Enthusiasm For High Risk

Conatus Pharmaceuticals (NASDAQ:CNAT) has been a lousy pick. Since I last wrote on the company, the shares have dropped more than 40% as investors have fled higher-risk biotech stories. That fellow liver disease specialist Intercept Pharmaceuticals (NASDAQ:ICPT) was down just about as much before an encouraging mid-August trial update is cold comfort, and the company's recent habit of pushing back expected trial data read-outs doesn't help what is already a challenging situation.

Early-stage biotechs are volatile (that goes with the territory) and I'm still bullish on the company's prospects. The company will be announcing data from multiple studies later in 2014 through early/mid-2015 and those announcements could bring momentum back into the shares if the data look strong. I've lowered my expectations a bit (due to longer timelines), but Conatus still looks like it could double from here.

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Conatus Pharmaceuticals Down On Low Enthusiasm For High Risk

The Motley Fool: Is Intercept Pharmaceuticals, Inc. Overvalued?

With a $9 billion market cap and a stock that has shot up 1,167% over the past twelve months, it is not too surprising that expectations are high for Intercept Pharmaceuticals (NASDAQ: ICPT  ) and investors are nervous about even the slightest hint of trouble in the clinical pipeline. To that end, it would seem that investors are more nervous about the prospect of a cardiovascular safety issue in the Phase II study of lead compound obeticholic acid (or OCA) than cheered by another strong trial outcome in primary biliary cirrhosis.

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Is Intercept Pharmaceuticals, Inc. Overvalued?

Seeking Alpha: Amidst Huge Unknowns, Conatus Pharmaceuticals Worth A Closer Look

The unexpected success of Intercept Pharmaceuticals' (ICPT) Phase IIb trial in non-alcoholic steatohepatitis (also known as NASH) not only propelled those shares, it has brought more attention to liver disease as a therapeutic class and individual biotechs like Conatus Pharmaceuticals (CNAT).

Although Conatus is a one-drug stock at this point, it is pursuing multiple under-treated indications with its lead drug emricasan. Biotech investors can, and do, argue extensively about the odds that a particular drug will make it to market and what kind of revenue it will earn once it makes it there, but there's usually general agreement about pricing and likely dosing. Not so with Conatus, as nobody seems to know how long patients will take the drug the company is developing, nor what the market will bear for it.

Amidst that significant uncertainty, I still believe that Conatus is worth a closer look today. The liver failure market is significantly underserved today, with thousands of patients dying for lack of enough donor livers and adequate stabilization/supportive therapy. Should the company's efforts in NASH pan out, the market potential could be orders of magnitude higher, though again the question of pricing would become a large one. I currently estimate a fair value of $23, but this estimate is highly sensitive to changes in the drug price as well as the ultimate odds of approval.

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Amidst Huge Unknowns, Conatus Pharmaceuticals Worth A Closer Look