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Why Is Ironwood (IRWD) Up 0.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Ironwood Pharmaceuticals (IRWD - Free Report) . Shares have added about 0.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ironwood due for a pullback? 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 Q2 Earnings & Revenues Miss

Ironwood reported second-quarter 2018 adjusted loss of 28 cents per share, wider than the Zacks Consensus Estimate of a loss of 19 cents and in line with the year-ago period.

Total revenues (collaborative revenue) in the quarter increased 24.6% from the year-ago period to $81.1 million but missed the Zacks Consensus Estimate of $89.75 million.

The Quarter in Detail

As reported by partner Allergan, Linzess generated U.S. net sales of $192 million, up 14% year over year.

Ironwood and Allergan equally share brand collaboration profits or losses. Ironwood's share of net profits from the sales of Linzess in the United States (included in collaborative revenues) was $69.3 million in the second quarter, up 23% year over year. Sales of linaclotide active pharmaceutical ingredient to the company’s Japanese partner Astellas Pharma added $8.8 million to revenues.

According to data provided by IMS Health, Linzess prescriptions filled during the quarter were more than 800,000, up 7% from the year-ago period.

Zurampic and Duzallo, approved for uncontrolled gout, generated sales of $1.1 million

During the reported quarter, selling and administrative (SG&A) expenses increased 18.3% to $68.4 million. Research and development (R&D) expenses were $38.9 million, up 4.3% from the year-ago period.

Restructuring Updates

The company remains on track to complete its separation into two publicly trading entities in the first half 2019. In May, the company had announced its intention to split to achieve increased operational performance and strategic flexibility.

One entity, which will continue with the current name, will focus on the three commercial drugs and gastrointestinal (“GI”) pipeline development. The other entity will focus on the development of the Soluble Guanylate Cyclase pipeline for the treatment of serious and orphan diseases.

Meanwhile, Ironwood sent a notice of termination to AstraZeneca for a license agreement related to lesinurad franchise. In January, the company commenced an initiative to explore a path for value creation of lesinurad-based products by increasing investments and/or optimizing marketing mix to drive promotional response. However, analysis of the data from the study did not generate any favorable response to support further investment. Ironwood decided to terminate the agreement for allocation of funds in opportunities that provided better returns.

The company announced a reduction in its workforce by approximately 125 employees, following the termination notice. It had reduced its workforce in January 2018 by approximately 60 related to lesinurad franchise. The company expects to save approximately $75 million to $100 million in full year 2019 in operating expenses.

Furthermore, Ironwood reduced its projected revenue and net cash flow expectations from Zurampic and Duzallo.

2018 Guidance

Ironwood provided its guidance for 2018 operating expenses. Selling, general and administrative expense is expected to be in the range of $230 million to $250 million while R&D expense is expected in the range of $160 million to $180 million.

The company expects total restructuring costs including workforce reductions expenses to be in the range of $18 million to $21 million for 2018. The company does not expect to be cash flow positive in the fourth quarter of 2018 due to restructuring costs.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -107.41% due to these changes.

VGM Scores

Currently, Ironwood has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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 these revisions indicates a downward shift. Notably, Ironwood has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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