Loss Widens at Ironwood

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Ironwood Pharmaceuticals, Inc.’s (IRWD) second-quarter 2013 loss of 57 cents per share compared unfavorably with the year-ago loss of 38 cents per share. Results were primarily hurt by higher selling, general and administrative (SG&A) and collaboration expense. The Zacks Consensus Estimate hinted at a loss of 71 cents per share.

Total revenues in the second quarter of 2013 were down to $9.7 million from $14.6 million in the year-ago period. Revenues were above the Zacks Consensus Estimate of $8 million.

Linzess Update

We note that Ironwood’s sole marketed product is Linzess (linaclotide). It is marketed for the treatment (once-daily) of adults suffering from irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (:CIC). Ironwood co-markets the drug with Forest Laboratories, Inc. (FRX). Forest Labs and Ironwood share Linzess revenues generated in the U.S. equally. Net sales of the drug, as reported by Forest Labs, came in at $28.8 million in the second quarter of 2013 as compared to $4.5 million in the previous quarter.

We remind investors that on Dec 17, 2012, the companies announced the U.S. launch of Linzess. The launch followed the approval of the drug by the U.S. Food and Drug Administration (:FDA) in Aug 2012.

The companies are looking to broaden the Linzess label by incorporating additional patient populations and indications. To further analyze the effect of Linzess on abdominal symptoms in patients suffering from CIC, Forest Labs and Ironwood Pharma have initiated a phase IIIb clinical trial. Results from the trial are expected in the third quarter of 2013. Forest Labs and Ironwood plan to evaluate the use of Linzess in the pediatric population and in opioid-induced constipation patients in the first half of 2014.

In the EU, approval came in Nov 2012 under the trade name Constella. Ironwood is collaborating with Almirall, S.A. in EU for the drug. The product is now available in Germany, the UK and the Nordic countries and is expected to be launched across Europe in 2013 and 2014.

Ironwood is also working with its Japanese partner, Astellas Pharma Inc. for the development of Linzess in Japan, South Korea, Taiwan, Thailand, the Philippines and Indonesia and with AstraZeneca (AZN) in China. Currently, Astellas is evaluating it in a phase II trial for IBS-C with results expected this year. Ironwood and AstraZeneca expect to start enrollment in a phase III trial evaluating linaclotide in adult IBS-C patients in Aug 2013 with data expected in the first half of 2015.

Other Expenses

During the second quarter of 2013, SG&A expenses surged 53.6% to $30.9 million. The massive increase was primarily attributable to Linzess commercialization costs. For 2013, Ironwood continues to expect total investment in sales and marketing for Linzess in the range of $250 – $300 million.

Research and development (R&D) expenses amounted to $24.1 million, a decrease of 25.3%. In 2013, Ironwood continues to expect to invest approximately $60–$75 million in R&D expenses not pertaining to linaclotide.

Ironwood carries a Zacks Rank #3 (Hold) in the short run. We expect investor focus to remain on the market performance of Linzess. Stocks which currently look attractive in the pharma space include Cadence Pharmaceuticals Inc. (CADX), carrying a Zacks Rank #1 (Strong Buy).

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