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Ironwood (IRWD) Q1 Earnings & Revenues Miss, Shares Fall

Zacks Equity Research

Ironwood Pharmaceuticals, Inc. IRWD incurred first-quarter 2019 adjusted loss of 26 cents per share, wider than the Zacks Consensus Estimate of a loss of 16 cents as well as the year-ago loss of 25 cents.

Total revenues in the first quarter were $68.7 million, almost flat year over year as higher Linzess collaboration revenues were partially offset by lower (active pharmaceutical ingredient) API sales to Japan-based Astellas. The top line also missed the Zacks Consensus Estimate of $83.14 million.

On Apr 1, 2019, Ironwood completed its previously announced separation into two public entities.

Following the separation in April, Ironwood is focusing on commercial drugs and gastrointestinal (“GI”) pipeline development. The new entity, Cyclerion, will focus on developing the Soluble Guanylate Cyclase (sGC) pipeline for treating serious and orphan diseases.

From second quarter onward, Ironwood will report assets and business operations related to sGC pipeline as discontinued operations.

Shares of Ironwood crashed 12.8% following the dismal earnings performance. In fact, the stock has declined 0.8% so far this year agianst the industry’s rise of 9%.

Quarter in Detail

As reported by partner Allergan plc AGN, Ironwood’s key marketed product — Linzess —generated net sales of $161.3 million in the United States, up 1.3% year over year. Ironwood and Allergan equally share brand collaboration profits or losses for Linzess.

Ironwood's share of net profits from sales of Linzess in the United States (included in collaborative revenues) was $64.3 million in the first quarter, up approximately 5.7% year over year. Total commercial profit in the reported quarter was $94.4 million.

Sales of linaclotide API added $2.6 million to revenues including sales to the company’s Japanese partner Astellas Pharma. The company also earned $1.8 million from linaclotide royalties, co-promotion and other revenues.

Per data provided by IQVIA, volume of prescribed Linzess capsules in the first quarter increased about 14% year over year. However, lower realization of net prices unfavorably impacted sales of the drug.

In January, Ironwood and Allergan settled a pending patent litigation with Mylan Pharmaceuticals MYL, the third settlement related to Linzess. Per the settlement terms, Mylan will be granted license to launch generic version of Linzess in February 2030 for 145 mcg and 290 mcg doses, and in August 2030 for 72 mcg dose.

During the reported quarter, selling and administrative (SG&A) expenses increased 8.8% to $64.7 million mainly due to separation costs, partially offset by decrease in sales and marketing programs and employee-related expenses.

Research and development (R&D) expenses were $54 million, up 47.9% from the year-earlier period, primarily due to increase in costs related to early-stage pipeline candidates.

2019 Guidance

Ironwood maintained its guidance for total revenues in the range of $370-$390 million for 2019. Net interest expenses are anticipated to be approximately $35 million. The company provided its earnings outlook for 2019 including the impact of the business separation. The company expects adjusted EBITDA to be more than $65 million. It also expects net sales of Linzess to grow by low-to-mid single digit percentage point.

The company expects to turn profitable in 2019 for the first time since its inception.

Pipeline Updates

Linzess is approved in the United States for the treatment of adults with irritable bowel syndrome with constipation (IBS-C) and chronic idiopathic constipation (“CIC”). Ironwood and Allergan are looking to expand Linzess’ label into additional symptoms and develop the drug as a non-opioid, pain-relieving agent for IBS patients.

During the quarter, Ironwood and Allergan completed dosing in the phase IIIb program evaluating a 290-mcg dose of Linzess for multiple abdominal symptoms in addition to pain including bloating and discomfort in adult patients with irritable bowel syndrome along with constipation (IBS-C). Top-line data from the study is expected by mid-2019.

Linzess is marketed by Allergan for IBS-C in Europe and Canada under the brand name Constella.

The companies anticipate to initiate a phase IIb study in May for evaluating MD-7246 (delayed release formulation of Linzess) to treat abdominal pain associated with IBS with diarrhea.

The company is also developing an interesting candidate called IW-3718. It is currently enrolling patients in two identical phase III studies, evaluating IW-3718 for treating gastroesophageal reflux disease (“GERD”). Results from both studies are expected in the second half of 2020.

Global Collaborations and Partnerships

Ironwood has a license agreement with Japan based, Astellas Pharma. Ironwood supplies linaclotide API to Astellas Pharma for manufacturing and developing Linzess for sale in Japan. In China, Hong Kong and Macau, Ironwood has a marketing agreement with AstraZeneca AZN for Linzess.

In January, Linzess was granted marketing approval by Chinese regulatory authorities to treat adults with IBS-C. Ironwood and AstraZeneca plan to launch the drug in China in the second half of 2019.

Our Take

Ironwood reported dismal first-quarter results with sales and earnings missing estimates. However, Linzess’ prospects look encouraging owing to strong demand trends and the drug’s expansion to new patient population and geographies.

The new Ironwood entity has high potential as it is expected to be a profitable venture after the split and its focus on the gastrointestinal product of commercial portfolio and pipeline appears impressive.

Moreover, the company’s $119 million cash resources as of March-end, separation of sGC pipeline and a strong partner in Allergan bode well.

Ironwood Pharmaceuticals, Inc. Price, Consensus and EPS Surprise

 

Ironwood Pharmaceuticals, Inc. Price, Consensus and EPS Surprise | Ironwood Pharmaceuticals, Inc. Quote

Zacks Rank

Ironwood currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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