Shares of Intercept Pharmaceuticals (ICPT) fell more than 25% in early trading today after the company reported its NASH data in the Lancet Medical Journal. The company's lead drug, known as obeticholic acid or OCA, is being used to treat patients with a disease known as NASH, which stands for Non-Alcoholic Steatohepatitis. NASH is a liver disease where patients develop excessive fat in the liver but, as the name suggests, it is not due to the consumption of excessive alcohol. This build up of fat in the liver can lead to inflammation and fibrosis -- scarring-- of the liver. 

For starters the drug from Intercept known as OCA did prove in a mid-stage phase 2 that it was able to reduce the disease in patients compared to a placebo counterpart. There are hardly any treatments for the 6 million Americans living with NASH, so these results were outstanding. The problem lies with two safety issues that could hamper the future development of the drug compound, thus the reason for today's substantial decline. 

These are two safety concerns for Intercepts' drug OCA that are causing investors to become nervous. The first issue is severe: thus far, it has been shown that continuous use of OCA causes an increase in patients' bad cholesterol levels. This increase in bad cholesterol levels could increase the risk of heart disease as well, so a lot of testing will need to be done to determine the severity of this problem. We think that more testing will be needed to determine that OCA does not continue to cause a continuous increase in bad cholesterol levels over a period of time.

An additional problem noticed was that patients taking OCA had an excessive amount of itching. A little itching is not that bad of a side effect but these patients claimed that the itching interfered with daily life activities. Intercept has already stated that it will have to reduce the amount of dosing for their OCA drug to reduce this side effect. The reduction of the OCA drug for the phase 3 clinical trial could possibly also reduce the efficacy of the drug. 

Overall these safety concerns are pretty substantial problems; therefore those who are already holding on Intercept may not have a chance to recoup their losses until all safety concerns are addressed. So we say this stock is a hold, but we do not encourage investors to buy Intercept now after this drop, because it may decline further in the short-term on these safety problems.

As mentioned above, Intercept will possibly now have to spend additional cash on running new safety studies to prove that OCA does not increase bad cholesterol levels by a huge margin over time. These safety studies will take a long time and even then there is a possibility that they may not even satisfy the FDA completely.

There still might be an opportunity to invest in Intercept but we caution investors to consider the huge safety risks before taking a look at entering a new position.