Ironwood Up as Loss Narrows, Linzess Shines - Analyst Blog

Ironwood Pharmaceuticals, Inc. IRWD reported a loss of 38 cents per share in the first quarter of 2014, much narrower than the year-ago loss of 87 cents per share and the Zacks Consensus Estimate of a loss of 45 cents. Ironwood's share price jumped 11.21% on the news.

Revenues also increased a whopping 348.7% year over year to $14.6 million driven by Linzess sales. Revenues came in above the Zacks Consensus Estimate of $9 million.

Linzess Update

Ironwood's sole marketed product is Linzess (EU trade name: Constella) indicated for irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC). Ironwood co-markets the drug with Forest Laboratories Inc. FRX. Net sales of the drug, as reported by Forest Labs, came in at $60 million in the first quarter of 2014, up 19% sequentially.

Number of prescriptions filled increased 11% to approximately 240,000 driven by new patient addition and continued demand for Linzess. The company is focusing on promoting the product to gastroenterologists and primary care physicians.

Ironwood has launched a direct-to-consumer campaign which should boost new patient and refill rate for Linzess over the next three to six months.

The company is also working on expanding managed care access to Linzess and lowering the out-of-pocket cost borne by patients. More that 70% of the patients who are covered by commercial insurance plans and Medicare Part D patients have unrestricted access to Linzess. Meanwhile, more than 70% have tier II ($30 co-pay) access as of Mar 2014.

Meanwhile, EU partner Almirall has launched the product in 10 European countries including the U.K., Germany and Italy. More launches are expected in 2014. However, Almirall has recently announced its decision to discontinue commercialization of Constella in Germany from May 2014. The company has taken this decision after it was unable to reach an agreement with the German National Association of Statutory Health Insurance Funds regarding a reimbursement price for Constella.

Linzess is well protected by patents and is unlikely to face generic competition before 2026. Ironwood and Forest are working to strengthen the patent further. The companies received Notices of Allowance from the U.S. Patent and Trademark Office (USPTO) related to two Linzess patents which can extend Linzess' patent protection by five years (till 2031). The patents are expected to be issued in mid 2014.

Ironwood is looking to broaden Linzess' label by expanding the targeted patient population and gaining approval for additional indications including opioid-induced constipation, pediatrics and prevention of colon cancer.

Some other interesting pipeline candidates include IW-9179 (phase IIa–functional dyspepsia ongoing, phase IIa – gastroparesis to be initiated in the first half of 2015, data expected in 2016) and IW-3718 (phase IIa – refractory GERD ongoing, with data expected in the first half of 2015).

During the first quarter of 2014, selling, general and administrative (SG&A) expenses fell 10.3% to $29.9 million. Research and development (R&D) expenses amounted to $27.1 million, down 17.1%.

2014 Guidance Maintained

For 2014, Ironwood continues to expect operating expenses in the range of $215 million to $245 million (R&D expenses of $105 million to $120 million and SG&A expenses of $110 million to $125 million). Linzess-development related expenses are expected to be approximately 55% of total R&D spend.

For 2014, Ironwood expects total investment (including Forest Labs' share) in sales and marketing for Linzess in the $240 million to $270 million range.

Our Take

We are pleased with Linzess' uptake rates and believe that it has the potential to be a blockbuster product in the long run. Narrower-than-expected loss and above expectation revenues reported in the first quarter are also encouraging.

Ironwood carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the health care sector include Allergan AGN and OncoGenex Pharmaceuticals, Inc. OGXI. Both carry the same rank as Ironwood.