Intercept Pharmaceuticals

Inc. ICPT,This biopharmaceutical company focuses on the development of different treatment options for those with progressive non-viral liver disease.

Intercept Pharmaceuticals

It’s also possible that small-cap biotech stock Intercept Pharmaceuticals (NASDAQ:ICPT) becomes the next Reddit meme stock.

One reason retail investors are bound to like Intercept is its volatility. Intercept’s beta is north of 1.5, which means that, on average, it moves more than 50% more than the broader market. For example, if the benchmark S&P 500 rises 1%, we would expect to see Intercept up more than 1.5%. The same is true when the broader market moves down, as well.

Additionally, Intercept is the perfect candidate for a short squeeze. As of May 28, just over 6 million shares were held short. Again, doesn’t sound like much – but it’s quite a bit when the total float is only 28.3 million shares. This equates to a short interest of 21%. It’s also worth noting is that Intercept only sees an average of 1.11 million shares trade hands daily. Thus, it would take well over five days for short-sellers to completely exit their positions.

However, as a shareholder of Intercept I can also attest that there are justifiable reasons for people to be pessimistic. Last year, the U.S. Food and Drug Administration (FDA) sent the company a Complete Response Letter for obeticholic acid (OCA) as a treatment for nonalcoholic steatohepatitis (NASH). To boot, it’s had a more stringent black-box warning added to Ocaliva, an approved treatment for primary biliary cholangitis.

If things are so bad, why hold? My expectation has always been that OCA would get the nod for NASH, even if it’s only for a small subset of the sickest patients. Since there are no approved treatments for NASH, this gives Intercept an even better case for approval. The issue is that it could be a while before additional clinical data is available for the company to make another run at FDA approval.