March 18, 2011 Ironwood Pharmaceuticals, Inc. Linaclotide Has $2+Bn Sales Potential; Initiate OW, PT $22
Conclusion: We are initiating coverage of IRWD with an OW rating and $22 PT. While approval of linaclotide, Ironwood’s key value driver, is expected since the only hurdle remaining is low-risk stability testing, we believe the Street underestimates linaclotide’s sales potential in chronic constipation (CC) and irritable bowel syndrome with constipation (IBS-C). We see linaclotide as one of a few potential blockbuster drugs in late stage dev’t with its solid therapeutic profile driving peak sales >$2bn. Our OW is a longer-term call as we do not expect most on the Street to focus on this name until peri-launch (likely ~mid-‘12). However, it can be hard to time interest in an impending launch. Thus an OW rating, even if a bit early, makes sense to us.
The Key Debate is How Big Will Linaclotide Be? We see sig. potential for linaclotide in CC and IBS-C as: 1) the once-daily pill has shown benefits on both pain and bowel movements with relatively limited side effects in 4 positive Ph 3 trials, 2) the unmet need is real with a majority of currently treated patients being unsatisfied, 3) the cost of the most commonly used over-the-counter laxatives is sig., making linaclotide’s cost less of an issue, and 4) there is limited current competition and potential future competition is at least several yrs away and unproven in the more important IBS-C market. Zelnorm Is a Good Comparison for Early Launch Novartis’ Zelnorm was the 1st drug approved for IBS-C (‘02), and was removed from the market in ‘07 due to safety problems unrelated to linaclotide. Peak sales prior to removal were >$550mn. We expect linaclotide’s early launch to be incrementally better than Zelnorm’s and its later launch to be more sustained as linaclotide has a stronger efficacy and safety profile and physician awareness about IBS/CC in general has increased.
Upcoming Catalysts: 1) Ph 3 IBS-C data at DDW (May), 2) linaclotide NDA (3Q11) and MAA filing (2H11).