Investors Take Notice That Conatus Pharmaceuticals (CNAT) is a Liver Disease Stock (ICPT, ACHN & IDIX)

While Intercept Pharmaceuticals Inc (NASDAQ: ICPT) surged earlier this year and Achillion Pharmaceuticals, Inc (NASDAQ: ACHN) has surged this week after Merck & Co. Inc (NYSE: MRK) agreed to purchase hepatitis stock Idenix Pharmaceuticals Inc (NASDAQ: IDIX) at a 239% premium, it seems the herd has realized that small cap Conatus Pharmaceuticals Inc (NASDAQ: CNAT) is also a liver disease stock as shares suddenly surged 56.69% on no apparent company news. But just what is Conatus Pharmaceuticals and is it worth taking a chance on?

What is Conatus Pharmaceuticals Inc?

Small cap Conatus Pharmaceuticals a biotechnology company focused on the development and commercialization of novel medicines to treat liver disease. The company is developing its lead compound, emricasan, for the treatment of patients with chronic liver disease and acute exacerbations of chronic liver disease. Emricasan is a first-in-class, orally active pan-caspase protease inhibitor designed to reduce the activity of all ten human caspases, which are enzymes that mediate inflammation and cell death, or apoptosis. Conatus Pharmaceuticals plans to study emricasan in patients with established liver cirrhosis and decompensated liver disease with the first planned trials in ACLF are to evaluate whether the treatment can halt the progression of decompensation to multi-organ failure - a requirement for liver transplant or death in an acutely decompensating cirrhotic patient population. Two studies are planned in this patient population.

As for potential peers in the liver disease or hepatitis space, Intercept Pharmaceuticals Inc is a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat chronic liver and intestinal diseases utilizing its proprietary bile acid chemistry; Achillion Pharmaceuticals, Inc is focused on solutions for the most challenging problems in infectious disease including hepatitis C and resistant bacterial infections; and Idenix Pharmaceuticals Inc's current focus is on the treatment of hepatitis C virus infections plus the company has previously discovered and developed antivirals for the treatment of hepatitis B virus and HIV/AIDS.

What You Need to Know or Be Warned About Conatus Pharmaceuticals Inc

Conatus Pharmaceuticals' website notes that many people with active liver disease remain undiagnosed largely because liver disease patients are often asymptomatic for many years. In fact, liver problems are often first detected as hepatitis, which is defined as inflammation of the liver. Hepatitis can be detected by a routine laboratory test to measure blood levels of the liver enzyme ALT – something that is elevated in almost all liver diseases and represents an overall measure of liver inflammation and liver cell death.

It should be noted that the National Institutes of Health (NIH) estimates that 5.5 million Americans have chronic liver disease or cirrhosis, and liver disease is the twelfth leading cause of death in the United States. According to the European Association for the Study of the Liver, 29 million Europeans also have chronic liver disease and liver disease represents approximately 2% of deaths annually. In the United States, more than 5,000 liver transplants are performed in adults and more than 500 in children annually while approximately 17,000 patients are still awaiting transplant.

With that in mind, Conatus Pharmaceuticals' strategy (which is outlined in more detail on the company's website here) is to develop and commercialize medicines to treat liver disease and associated fibrotic indications in areas of high unmet medical need. More specifically:

Develop emricasan as a treatment for liver diseases with high unmet clinical need and in small, potentially orphan, patient populations. Pursue accelerated pathways for regulatory approval in the United States and the EU. Build our own sales and marketing capabilities to commercialize emricasan for indications that target small, potentially orphan, patient populations in North America and the EU. Evaluate strategic partnerships to maximize the commercial potential of emricasan.

On May 12th, Conatus Pharmaceuticals announced the initiation of a Phase 2b clinical trial of emricasan in "post-orthotopic liver transplant (POLT) recipients with reestablished liver fibrosis post-transplant as a result of recurrent hepatitis C virus (HCV) infection who have successfully achieved a sustained viral response (SVR) following HCV antiviral therapy (POLT-HCV-SVR)." The President/CEO commented:

"The recent introduction of highly successful antiviral treatments has provided new hope for patients infected with HCV but clearance of the virus does not eliminate the damage already established in the liver. We believe emricasan may have the potential to accelerate the liver healing process, and this trial is designed to evaluate emricasan's potential impact on fibrosis. Proof of concept in this patient population could support expansion into additional liver fibrosis indications resulting from viral infections, obesity, chronic excessive alcohol use or autoimmune diseases."

It should be noted that the FDA has already granted Orphan Drug Designation to emricasan in late 2013 for the treatment of liver transplant recipients with reestablished fibrosis to delay the progression to cirrhosis and end-stage liver disease.

Otherwise, Conatus Pharmaceuticals has reported no or token revenues and annual net losses of $15.62M (2013), $8.75M (2012) and $12.00M (2011) plus a net loss of $5.24M for the first quarter. At the end of the first quarter, Conatus Pharmaceuticals had $51.08M in cash and short term investments to cover $3.62M in total liabilities – meaning it looks like the company has enough cash for at least another year or two.

Share Performance: Conatus Pharmaceuticals Inc vs ICPT, ACHN & IDIX

On Wednesday, small cap Conatus Pharmaceuticals surged 56.7% to $9.48 (CNAT has a 52 week trading range of $5.06 to $15.67 a share) for a market cap of $148.19 million plus shares are up 43.2% since the start of the year and down 0.21% since July 2013. Here is a look at the long term performance of Conatus Pharmaceuticals verses that of Intercept Pharmaceuticals Inc, Achillion Pharmaceuticals, Inc and Idenix Pharmaceuticals Inc:

Notice the price spikes for related liver or hepatitis stocks whenever one has big news.

Finally, here is a look at the technical charts Conatus Pharmaceuticals, Intercept Pharmaceuticals Inc, Achillion Pharmaceuticals, Inc and Idenix Pharmaceuticals Inc:

The Bottom Line. Baring any more major news about liver disease or hepatitis stocks, I suspect Conatus Pharmaceuticals will start to trend back down to earth in the coming months. Nevertheless, the surge does show why investors and traders alike need to watch other players in hot biotech or disease subsectors.