This Stock Just Doubled in 1 Day — Is It Still a Buy?

We are still pretty early in the new year, but some companies are already delivering outsize returns to their shareholders. Akero Therapeutics (NASDAQ: AKRO) is part of this group. On Jan. 27, the company's shares soared by 97%, closing the day at $51.71. Unsurprisingly, Akero owes this incredible one-day gain to data from a midstage clinical trial. These results must have been impressive for the market to get that excited, but is Akero Therapeutics worth investing in at current levels?

Akero Therapeutics is developing efruxifermin as a potential treatment for metabolic dysfunction-associated steatohepatitis (MASH), a non-alcohol-related liver disease. MASH is linked to a dangerous buildup of fat in the liver, leading to fibrosis (scarring of the liver) or, in some cases, a severe version known as cirrhosis. According to some estimates, about 22 million patients in the U.S. have MASH, with 9 million of them having clinically significant liver disease.

Last year, the U.S. Food and Drug Administration (FDA) granted accelerated approval to the first MASH treatment, Rezdiffra from Madrigal Pharmaceuticals.

With just one medicine on the market, this area has plenty of white space, and efruxifermin could fill some of that gap. In a phase 2 study on patients with compensated cirrhosis (an extremely damaged but still functioning liver), the medicine led to a statistically significant reversal of cirrhosis with no worsening of MASH compared to those taking a placebo. Some of those patients were on GLP-1 drugs such as Wegovy or Zepbound, but Akero also shared data that suggests that the reversal of cirrhosis was due to efruxifermin, not the GLP-1 medicines.

In a subgroup of participants not taking GLP-1s, 45% experienced reversal of cirrhosis with no worsening of MASH, compared to 17% for those in the placebo group. Efruxifermin had previously failed a phase 2 study, but Akero's management had argued that treating patients for longer might result in a different outcome. Turns out they were right.

Rezdiffra, approved last year to treat MASH, is not indicated for patients with cirrhosis, at least not yet. It might earn a label expansion for that later, but for now, it hasn't produced the kinds of results needed for this subpopulation of MASH patients. That paints efruxifermin in an even more positive light. The medicine could earn accelerated approval based on these phase 2 results, considering the high unmet need in this area.

The FDA can grant accelerated approval to medicines without solid evidence of efficacy from phase 3 studies, but the drugs that follow this path have to run post-marketing clinical studies to confirm efficacy. However, it's too early to say whether efruxifermin will get that nod. Even if it does, though the phase 2 data looked great, it wouldn't be the first time a medicine aced a midstage study but flopped in late-stage ones.

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