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Ironwood Pharma Prices Stock Offering

Zacks Equity Research

Ironwood Pharmaceuticals, Inc. (IRWD) recently priced a public offering of 10.5 million shares of Class A common stock at $13.00 per share. Ironwood expects to raise $136.5 million through this offering, slated to close on May 24, 2013. The company has provided the underwriters with a 30 day over-allotment option for an additional 1.575 million shares.

Ironwood Pharma intends to use the funds from the issuance of shares to support the launch of its sole marketed product Linzess in the US, pipeline development and other corporate activities. Earlier this year, Ironwood Pharma raised funds by offering $175 million Linaclotide PhaRMA 11% notes.

We note that Linzess was launched in Dec 2012 in collaboration with Forest Laboratories, Inc. (FRX) for patients suffering from irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (:CIC).

Net sales of Linzess, as reported by Forest Labs came in at $4.5 million in the first quarter of 2013 as compared to $19.2 million in the fourth quarter of 2012. We note that in the final quarter of 2012, Linzess sales primarily consisted of initial trade stocking. For 2013, Ironwood expects total investment in sales and marketing for Linzess in the range of $250–$300 million.

The company is looking to expand Linzess’ label into 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 are conducting a phase IIIb clinical trial. Results from the trial are expected in the second half of 2013. Ironwood Pharma plans to conduct additional trials to evaluate Linzess for additional gastrointestinal disorders.

Ironwood Pharma carries a Zacks Rank #3 (Hold). Though encouraged by the company’s efforts to develop and commercialize Linzess, we are concerned about the company’s over dependence on Linzess for growth. It remains to be seen how the product performs in the market.

Currently, companies like Santarus, Inc. (SNTS) and Jazz Pharmaceuticals (JAZZ) look attractive with both being Zacks Rank #1 (Strong Buy) stocks.

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