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Ironwood (IRWD) Q4 Earnings & Revenues Beat, Shares Rise

Zacks Equity Research

Ironwood Pharmaceuticals, Inc. IRWD incurred fourth-quarter 2018 adjusted loss of 2 cents per share, narrower than the Zacks Consensus Estimate of a loss of 17 cents as well as the loss of 14 cents in the year-ago period.

Total revenues in the fourth quarter were $130.7 million, reflecting a surge of 38.7% from the year-ago period, mainly owing to Linzess’ (linaclotide) sales growth, margin expansion and higher (active pharmaceutical ingredient) API sales to Astellas in Japan. The top line also beat the Zacks Consensus Estimate of $86.72 million.

Shares of Ironwood were up almost 11.7% following the news on Wednesday. In fact, the stock has inched up 1.8% in the past year versus the industry’s decline of 17.8%.

Quarter in Detail

As reported by partner Allergan plc AGN, Ironwood’s key marketed product — Linzess —generated net sales of $205.2 million in the United States, up 5.3% 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 $81.6 million in the fourth quarter, up approximately 6.5% year over year. Total commercial profit in the reported quarter was $146 million.

Sales of linaclotide API segment added $45.9 million to revenues including sales to the company’s Japanese partner Astellas Pharma. The company also earned $3.2 million from linaclotide royalties, co-promotion and other revenues.

Per data provided by IQVIA (formerly Quintiles and IMS Health), Linzess prescriptions filled during the quarter were more than 868,000, up approximately 7% from the year-ago period while volume of prescribed Linzess capsules increased about 12%.

During the reported quarter, selling and administrative (SG&A) expenses inched up 0.5% to $58.2 million. Research and development (R&D) expenses were $44.3 million, up 10.5% from the year-earlier period.

Restructuring Updates

The company is on track to complete its separation into two publicly trading entities in first-half 2019. Last May, the company announced its intention to split itself into two bodies for enhancing operational excellence and strategic flexibility. One part, which will continue with the current name, will focus on the commercial drugs and gastrointestinal (GI) pipeline development. While the other called Cyclerion will focus on developing the Soluble Guanylate Cyclase pipeline for treating serious and orphan diseases. The division of the entities is also being anticipated to be tax-free.

Last month, Ironwood’s board announced the appointment of chief executive officers (CEO) for the two new companies that will emerge from the planned separation of the erstwhile Ironwood Pharma. For the new Ironwood, the company’s board has picked Mark Mellon as its CEO. Meanwhile, Peter Hecht, the current CEO of Ironwood Pharma is set to lead the new company — Cyclerion.

2019 Guidance

Ironwood expects total revenues in the range of $370-$390 million during 2019. Net interest expenses are anticipated to be approximately $35 million. Separation expenses included within SG&A expenses are projected in the band of $30-$40 million while restructuring expenses are predicted within $3-$4 million.

The company will provide its earnings outlook for 2019 at a future investor update event following the conclusion of the business separation.

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.

Last July, Ironwood and Allergan initiated a phase IIIb program to evaluate 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.

The companies anticipate to initiate a phase II analysis during the second quarter of 2019 for evaluating MD-7246 (delayed release formulation of Linzess) to treat all subtypes of IBS including IBS-mixed and IBS with diarrhea.

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

Last month, Ironwood and Allergan announced that both have settled all pending patent litigations with Mylan Pharmaceuticals MYL related to Linzess. Mylan has filed an abbreviated new drug application (ANDA) seeking an approval to market a generic version of Linzess. However, Mylan is yet to receive an FDA nod for any generic version of Linzess.

Last August, a label expansion of Linzess in the chronic constipation was approved in Japan. In China, Hong Kong and Macau, Ironwood has a marketing agreement with AstraZeneca AZN for Linzess. Last month, Linzess was granted a marketing approval by Chinese regulatory authorities to treat adults with IBS-C. Ironwood plans to launch the drug in China along with AstraZeneca in the second half of 2019.

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.

Praliciguat and olinciguat will be developed by the new entity, Cyclerion. A phase II study is examining olinciguat for the potential treatment of sickle cell disease (SCD). Ironwood is currently enrolling patients in the STRONG SCD Phase II study with outcomes awaited in the second half of 2019.

Two phase II investigations to assess praliciguat for diabetic nephropathy and heart failure with preserved ejection fraction (HFpEF) are currently enrolling patients. Top-line findings from both studies are expected in the second half of 2019. Last September, the FDA granted a Fast Track designation to Praliciguat as a treatment option for HFpEF.

However, the company has notified its plan to out-license praliciguat to a global partner before progressing to phase III stage.

Late last month, Ironwood initiated a phase I probe on its orally administered, central nervous system (CNS)-penetrant soluble guanylate cyclase (sGC) stimulator, IW-6463. The candidate is currently being evaluated for the treatment of serious and orphan CNS disorders in healthy volunteers. Data from this study is anticipated during the second half of 2019.

IW-6463 is the first CNS-penetrant sGC simulator to enter clinical studies and is one of the five differentiated sGC stimulator programs. The same will also be developed by Cyclerion.

Our Take

Linzess’ prospects look encouraging owing to strong demand trends and the drug’s expansion to new patient population and geographies.

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

Moreover, the company’s $173.2 million cash resources as of last December-end 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 #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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