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Ironwood Pharmaceuticals' Q3 Loss Narrower than Expected

Ironwood Pharmaceuticals, Inc.’s (IRWD) shares were down 7% since the time it announced its third-quarter results on Nov 4. Although the company posted a narrower-than-expected loss in the third quarter, its revenues missed the Zacks Consensus Estimate.

Ironwood reported a loss of 30 cents per share (excluding a one-time write-down of inventory) in the third quarter of 2014, much narrower than the year-ago loss of 51 cents per share and just a penny narrower than the Zacks Consensus Estimate of a loss of 31 cents.

Ironwood Pharmaceuticals, Inc - Earnings Surprise | FindTheBest


Revenues increased 243% year over year to $16.9 million. Revenues were much below the Zacks Consensus Estimate of $24 million. Revenues were however up more than 148.5% on a sequential basis due to a higher share of profits from Linzess sales in the U.S.

In the third quarter, the company’s inventory levels were toward the lower end of the 2 to 3 week range compared 2 to 3 weeks in the preceding quarter. The company expects its inventory level to remain in the 2 to 3 weeks range in the coming quarters.

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.TO). Ironwood co-markets the drug with Actavis (ACT). Net sales of the drug, as reported by Actavis, came in at $79.7 million in the third quarter of 2014, up 27% sequentially.

The number of prescriptions filled increased 22% sequentially to approximately 400,000 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 boosted Linzess prescription growth in the reported quarter.

More than 70% of the patients who are covered by commercial insurance plans and Medicare Part D patients have unrestricted access to Linzess. Meanwhile, approximately 75% had tier II ($30 co-pay or less) access as of Sep 2014.

Meanwhile, Ironwood’s EU partner Almirall has launched the product in 10 European countries including the UK and Italy. More launches are expected in 2014.

Linzess is well protected by patents and is unlikely to face generic competition before 2031. Ironwood and Actavis are working to strengthen the patent further.

Ironwood is looking to broaden Linzess’ label by expanding the targeted patient population and gaining approval for additional indications including opioid-induced constipation (initiated phase II study in the third quarter of 2014, data should mature in the second half of 2015), pediatrics and prevention of colon cancer.

Some other interesting pipeline candidates at Ironwood include IW-9179 (functional dyspepsia and gastroparesis, phase II study to be initiated by year end and data expected in the first half of 2016) and IW-3718 (refractory GERD, phase IIa, data expected in early 2015).

During the third quarter of 2014, selling, general and administrative (SG&A) expenses fell 5.7% to $28.5 million. Research and development (R&D) expenses amounted to $22.1 million, up 9.2%.

2014 Guidance

For 2014, Ironwood now expects its operating expenses to be on the lower end of its previously guided range of $215 million to $245 million (R&D expense of $105 million to $120 million and SG&A expense of $110 million to $125 million).

For 2014, Ironwood estimates total investment (including Actavis’ share) in sales and marketing for Linzess to be at the middle of the $240 million to $270 million range.

Our Take

Although we are disappointed with the company’s below-expectation revenues in the third quarter, we are pleased with Linzess’ uptake rates and believe that it has the potential to be a blockbuster product in the long run. Ironwood’s progress with its pipeline is also encouraging.

Ironwood carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Valeant Pharmaceuticals International, Inc. (VRX) and Auxilium Pharmaceuticals Inc. (AUXL). Both carry a Zacks Rank #1 (Strong Buy).

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