What happened

Shares of Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), a commercial-stage biotech, fell 13.2% in December, according to data from S&P Global Market Intelligence. Safety concerns poured water on otherwise positive clinical trial results last month.

So what 

Ironwood has two commercial-stage products, including Linzess, an irritable bowel syndrome drug, which it markets in partnership with Allergan (NYSE:AGN). Unfortunately, revenue from the collaboration agreement isn't covering Ironwood's operating costs, and a rival drug has entered the fray. In the first nine months of 2017, Ironwood's operations lost $100.2 million, which puts a lot of pressure on the company's development pipeline.

Man making a frustrated gesture with hands on head while looking at a downward sloping stock chart.

Image source: Getty Images.

The stock fell hard after investors noticed a patient in a mid-stage trial with the company's lead candidate in development, IW-1973, suffered a serious upper-gastrointestinal hemorrhage. The drug is being developed for the treatment of heart failure and diabetic neuropathy, both of which are chronic conditions likely to require years of treatment. That means Ironwood's candidate will quickly find itself on the scrap heap if it doesn't maintain a clean safety profile.

Now what

Investors should get nervous when a serious adverse event pops up in a 26-patient study, as was the case for IW-1973, but there's more to the story. The patient in question had a pre-existing condition involving chronic inflammation of the esophagus, which probably had more to do with the reported upper-gastrointestinal hemorrhage than Ironwood's new drug candidate.

Ironwood states it didn't set up the small trial to accurately assess IW-1973's efficacy against a placebo, but blood pressure, cholesterol, and fasting glucose reductions were noted. One thing Ironwood didn't note, though, was a timeline for advancing this candidate into a large, and expensive, study designed to support a New Drug Application.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.