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Ironwood Rides on Linzess' Progress, Stalls Lenisurad Drugs

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On Aug 13, we issued an updated research report on Ironwood Pharmaceuticals, Inc. (IRWD - Free Report) . This biopharmaceutical company, based in Cambridge, MA, is focused on the development and commercialization of treatments primarily addressing gastrointestinal (“GI”) diseases. The company’s sole marketed drug, Linzess, is indicated for the treatment of irritable bowel syndrome with constipation (IBS-C) and chronic idiopathic constipation (“CIC”).

We remind investors that Ironwood co-develops and co-commercializes Linzess and equally shares Linzess U.S. collaboration profits/losses as well as development costs with Allergan .

In the last six months, Ironwood’s share price has outperformed the industryto which it belongs. The stock has gained 22.3% compared with an increase of a mere 0.8% for the industry.

Linzess Continues to Perform Well

Sales of Linzess have been displaying a rising trend in the past year. In the first six months of 2018, the drug’s sales rose 11.3% compared from the year-ago period. The rising sales have increased Ironwood’s collaboration revenues by 23.3% to $130.4 million in the same period. Prescriptions filled in the first six months of 2018 also rose approximately 8% year over year.

The company also earns from the sale of linaclotide (Linzess) API to Japan-based Astellas Pharma. The company generated almost $14.2 million from this transaction in the first half of 2018. Ironwood received $6 million from the sale of API in the year-ago period. Astellas Pharma started commercializing Linzess in Japan from March 2017 for IBS-C. A label expansion in chronic constipation is under review.

In July 2018, Ironwood and Allergan advanced evaluation of Linzess in additional abdominal symptoms including bloating and discomfort in adult patients with IBS-C to phase III study. A phase IIb study is currently being designed to evaluate delayed-release formulation of Linzess for treating all subtypes of IBS, including IBS-C, IBS with diarrhea and IBS-mixed.

However, the competition in Linzess’ target market has intensified, with Synergy Pharmaceuticals’ Trulance receiving approval for CIC in 2017.

Pipeline Progress

Apart from Linzess, Ironwood also has other pipeline candidates, including one gastro-intestinal (“GI”) candidate and two soluble guanylate cyclase (sGC) stimulators.

To capture a market of approximately 10 million American patients suffering from heartburn and regurgitation despite receiving treatment with proton pump inhibitors, the company is developing its candidate IW-3718. A phase III study, evaluating IW-3718 for treating persistent gastroesophageal reflux disease, is enrolling patients.

Ironwood is developing two sGC candidates – praliciguat and olinciguat – in phase II studies. Data from praliciguat studies, evaluating it in diabetic nephropathy and heart failure with preserved ejection fraction, is expected in second half of 2019. Meanwhile, data from the study evaluating olinciguat in achalasia is expected in the second half of 2018. In June, the FDA granted Orphan Drug status to the candidate for treatment of sickle cell disease.

Restructuring Initiatives

Although Ironwood has progressed well with Linzess and its pipeline so far, the company’s lenisurad franchise has been performing below expectations. Sales of Zurampic and Duzallo, two drugs from the franchise, have increased $1 million from the year-ago period to $1.7 million in the first half of 2018 mainly driven by Duzallo, which was launched in October 2017.

However, an analysis of the study exploring the path forward for this franchise generated unfavorable data and Ironwood has decided to discontinue the franchise. In July, the company sent a notice of termination to AstraZeneca (AZN - Free Report) related to lesinurad license agreement.

This will impact the top line and Ironwood has reduced its projected revenue and net cash flow assumptions from Zurampic and Duzallo for 2018. Moreover, upon completion of the termination of lenisurad franchise, the company will solely depend on Linzess for the majority of its revenues.

However, Ironwood has reduced its employee count by 185 related to lesinuard franchise, which is expected to save operating expenses of approximately $75 million to $100 million in 2019.

Ironwood has also decided to split itself into two separate entities to achieve increased operational performance and strategic flexibility. One entity will focus on Linzess and GI pipeline development and the other entity will focus on the development of the sGC pipeline for the treatment of serious and orphan diseases. The transaction is expected to close in the first half of 2019.

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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