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What: Shares of Intercept Pharmaceuticals (NASDAQ:ICPT), a clinical-stage biopharmaceutical company focused on developing therapies to treat liver and intestinal diseases, shot higher by 29% in January per S&P Capital IQ after receiving a favorable designation for its lead drug in development, obeticholic acid, or OCA.

So what: According to last week's press release, OCA has received the highly coveted breakthrough therapy designation from the Food and Drug Administration for the treatment of nonalcoholic steatohepatitis, or NASH, with liver fibrosis. Severe forms of NASH are believed to affect some 3 million people in the U.S., giving any NASH treatment a broad audience with few, if any, treatment options at the moment.

The breakthrough therapy designation allows Intercept to work more closely with the FDA to design a phase 3 trial and to hopefully bring OCA to market even faster. Breakthrough designated drugs have the potential to be submitted as a rolling approval while phase 3 testing is ongoing, which saves precious time and money when bringing a new therapy to market.

As a quick refresher, in its phase 2 FLINT trial 46% of OCA-treated patients met their primary endpoint of an improvement in their NAFLD Activity Score with no additional worsening of their liver fibrosis. It also delivered strong efficacy in its secondary histological endpoints, with 35% of patients experiencing an improvement in liver fibrosis compared to just 19% in the placebo group.

Source: Intercept Pharmaceuticals.

Now what: The breakthrough therapy designation is clearly good news for Intercept, although it would have been nice if the indication had come six months ago. With the company already well on its way to designing its phase 3 trial the best case scenario is likely a priority review, which could lop up to four months off the approval process (assuming it is approved).

Additionally, we have to wonder if there would be any boxed warnings with OCA considering the worries about elevated cholesterol levels during the FLINT trial. I'd opine that liver failure is considerably more threatening than elevated cholesterol levels, and that the benefits profile of OCA appears to thus far outweigh its risks, but this has to be in the back of investors' minds.

In spite of OCA's game-changing potential my personal belief is that much of its potential is already baked into Intercept's share price. In the meantime I'd suggest sticking to the sidelines and waiting for its critical phase 3 data.