What happened

Intercept Pharmaceuticals (ICPT), a mid-cap drugmaker focusing on diseases of the liver, saw its shares lose 14.5% of their value last month, according to data from S&P Global Market Intelligence. Prior to last month's pullback, Intercept's shares were up by almost 80% over the last 12 months.

So what halted Intercept's protracted rally? On Feb. 19 the company reported positive top-line results for obeticholic acid (Ocaliva) in patients with liver fibrosis due to nonalcoholic steatohepatitis, or NASH for short. Unfortunately, the results turned out to be somewhat of a mixed bag for a number of reasons. 

A black and white chalkboard chart showing a positive trend line turn negative.

Image source: Getty Images.

So what

Wall Street is deeply concerned about obeticholic acid's commercial viability in NASH following this top-line data release. There are two glaring problems with the data. First, the drug failed to meet one of the study's primary endpoints: NASH resolution with no worsening of fibrosis. Second, over half of the patients in the highest dose arm of the study experienced mild-to-moderate pruritis (itching). Given that the high dose arm was the only one to meet the study's other primary endpoint -- improvement in liver fibrosis by at least one stage, this annoying side effect could hurt the drug's sales (assuming approval). 

Check out the latest earnings call transcript for Intercept Pharmaceuticals.

Now what

Intercept is reportedly preparing to file regulatory applications for obeticholic acid's NASH indication in both the U.S. and Europe later this year. Regulators will probably overlook some of the drug's flaws, making it the first product ever approved for NASH. But a regulatory approval doesn't guarantee long-term commercial success. There are literally dozens of NASH drugs in development -- some of which have a good shot at being more potent and safer than obeticholic acid.