Why Intercept Pharmaceuticals Is Sinking Again Today

What happened

As of 2:42 p.m. EDT Friday, shares of Intercept Pharmaceuticals (NASDAQ: ICPT) are down by over 14% on heavier than normal volume. The drugmaker's shares are tumbling as the result of analysts chiming in on the U.S. Food and Drug Administration's (FDA) warning letter issued Thursday stating that incorrect dosing of the primary biliary cholangitis (PBC) medicine, Ocaliva, could increase the risk of liver injury and death.

Wells Fargo, for instance, slashed their 12-month price target on Intercept from $265 to a mere $95 on fears that a dreaded "black-box warning" -- the most severe type the FDA can issue -- is coming down the pike following 19 patient deaths that appear to stem from Ocaliva-induced liver damage.

So what

A black-box warning for Ocaliva could have two major impacts on Intercept's growth prospects. Firstly, the drug's peak sales forecast of around $1.6 billion for PBC would almost certainly be walked back in a big way -- perhaps by 50% or more. More importantly, though, the drug may also have trouble getting the greenlight from the FDA for its far more valuable indication -- nonalcoholic steatohepatitis, where it's currently in late-stage testing.

Now what

Not all analysts share this dire outlook, however. Jefferies' Michael Yee, for instance, argued on Thursday in a note to investors that the market's reaction to these patient deaths was overblown because the individuals who died were generally very sick, and had received excessive amounts of the drug as a result.

While that upbeat assessment might be true, investors may still want to stick to the sidelines for the time being. The FDA, after all, does tend to err on the side of caution, and that implies a black-box warning is indeed a real possibility in this case.

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George Budwell 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.