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Ironwood (IRWD) Down 22.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Ironwood Pharmaceuticals (IRWD). Shares have lost about 22.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ironwood due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Ironwood Q4 Earnings and Revenues Beat Estimates

Ironwood reported fourth-quarter 2019 adjusted earnings of 30 cents per share, surpassing the Zacks Consensus Estimate of 22 cents. Earnings also came in higher than 4 cents recorded in the year-ago quarter.

Total revenues of $126.3 million comprehensively beat the Zacks Consensus Estimate of $109.7 million. However, revenues were down 3.4% year over year, primarily due to lower linaclotide API sales.

Quarter in Detail

As reported by partner Allergan, Linzess net sales totaled $231.2 million in the United States, up 12.6% year over year.

Ironwood's share of net profits from sales of Linzess in the United States (included in collaborative revenues) was $101.6 million in the fourth quarter, up approximately 24.5% year over year.

Per data provided by IQVIA, volume of prescribed Linzess capsules in the fourth quarter increased about 13% year over year.

Sales of linaclotide API to Ironwood’s Japanese partner, Astellas Pharma, were $20.6 million compared with $45.9 million in the year-ago period. Ironwood recorded $4.1 million in linaclotide royalties, co-promotion and other revenues, compared with $3.2 million in the year-ago period.

We note that Ironwood amended its agreements with two partners — Astellas Pharma and AstraZeneca — related to development and commercialization of Linzess in Japan and China, respectively, in 2019. Per the amended terms of the agreements, Ironwood will stop supply of linaclotide API and will receive royalties on sales of Linzess in Japan and China, beginning 2020.

2019 Results

Ironwood posted full-year revenues of $428.4 million, representing year-over-year growth of 23.6%. Adjusted earnings per share were 55 cents against loss per share of 69 cents in the year-ago period.

Please note that the company’s operating cash flow turned positive in the third quarter of 2019, following the separation of its soluble guanylate cyclase (sGC) pipeline into another entity, Cyclerion Therapeutics, in April 2019.

Guidance

Ironwood provided its guidance for total revenues in 2020. The company expects full-year revenues in 2020 to be in the range of $360-$380 million. The company expects adjusted EBITDA to be more than $105 million in 2020. It also expects net sales of Linzess to grow by mid-single digit percentage point.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -66.67% due to these changes.

VGM Scores

Currently, Ironwood has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Ironwood has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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