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Ironwood (IRWD) Q3 Earnings & Revenues Miss, Shares Down

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Ironwood Pharmaceuticals, Inc. (IRWD - Free Report) reported third-quarter 2018 adjusted loss of 38 cents per share, wider than the Zacks Consensus Estimate of a loss of 14 cents and loss of 18 cents in the year-ago period.

Total revenues in the quarter decreased 24.3% from the year-ago period to $65.7 million mainly due to Linzess net sales adjustments and also missed the Zacks Consensus Estimate of $92.28 million.

Shares of the company fell 6.7% on Nov 7, following the earnings release. Moreover, a look at the company’s share price movement shows that the stock has underperformed the industry so far this year. Ironwood’s shares have lost 20.5% during this period, while the industry decreased 2.7%.

Quarter in Detail

As reported by partner Allergan plc (AGN - Free Report) , Ironwood’s key marketed product – Linzess (linaclotide) – generated U.S. net sales of $204.8 million, up 7.3% year over year.

Please note that Ironwood and Allergan have an equal share in 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 $52.3 million in the third quarter, down approximately 29% year over year.

The significant decline in sales was due to a $59.3 million negative adjustment related to Linzess sales over the last three fiscal years (2015, 2016, & 2017), which was shared equally by Allergan and Ironwood. The negative adjustment, as calculated by Allergan, is the cumulative difference between previous gross-to-net estimates and actual subsequent payments made by Allergan. The difference was mainly associated with previous estimation of governmental and contractual rebates. Going forward, such adjustments will be done more frequently to avoid adjustment of a significant magnitude.

Sales of linaclotide active pharmaceutical ingredient added $10.9 million to revenues, including $9.5 million of sales to the company’s Japanese partner, Astellas Pharma. The company also earned $1.9 million from linaclotide royalties, co-promotion and other revenues.

According to data provided by IMS Health, Linzess prescriptions filled during the quarter were more than 830,000, up approximately 6% from the year-ago period while volume of prescribed Linzess capsules increased about 12% in that period.

Zurampic and Duzallo, approved for uncontrolled gout, generated sales of $1.2 million in the quarter.

During the reported quarter, selling and administrative (SG&A) expenses decreased 10.6% to $55.2 million. Research and development (R&D) expenses were $46.8 million, up 26.2% from the year-ago period

Restructuring Updates

The company remains on track to complete its separation into two publicly trading entities in first-half 2019. In May, the company had announced its intention to split itself into two entities to achieve increased operational performance and strategic flexibility. One entity, which will continue with the current name, will focus on the 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.

In August, Ironwood sent a notice of termination to AstraZeneca (AZN - Free Report) for a license agreement related to lesinurad franchise which includes Zurampic and Duzallo. With this termination, Ironwood losses its rights to develop lesinurad-based products in the United States. The company expects to save approximately $75 million to $100 million in operating expenses for the full-year 2019.

2018 Guidance Reiterated

Ironwood maintained 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.

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 broaden Linzess’ label into additional symptoms and develop the drug as a non-opioid, pain-relieving agent in IBS patients.

In July, Ironwood and Allergan initiated a phase IIIb to evaluate a dose of 290 mcg of Linzess in multiple abdominal symptoms in addition to pain, including bloating and discomfort, in adult patients with irritable bowel syndrome with constipation (IBS-C). Top-line data from the study is expected by mid-2019.

The companies anticipate to initiate a phase II study in the first quarter of 2019 to evaluate MD-7246 (delayed release formulation of Linzess) for treating all subtypes of IBS, including IBS-mixed and IBS with diarrhea.

In 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 for Linzess. The regulatory filing in China for IBS-C is under review. The company expects the review to be completed by the end of 2018.

The company is also developing three candidates – IW-3718, praliciguat and olinciguat. Ironwood is currently enrolling patients in a phase III study evaluating IW-3718 for treating gastroesophageal reflux disease and in a phase II study evaluating olinciguat in sickle cell disease. Data announced, along with the earnings release, from a phase II study evaluating olinciguat in achalasia showed expected pharmacokinetic and pharmacodynamic effects. However, Ironwood is keen on developing the candidate in sickle cell disease due to significant opportunity and has decided not to develop olinciguat further for achalasia as of now.

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

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

Our Take

The company’s performance this year has been dismal as its missed estimates for both earnings and sales in the first three quarters of the year. However, Linzess’ prospects are encouraging due to strong demand trends and expansion of the drug in new patient population and geographic regions.

Meanwhile the prospect of the new Ironwood entity is high as it will turn profitable after the split and  its focus on encouraging gastrointestinal portfolio of commercial product and pipeline. However, the restructuring will unfavorably impact cash flow.

However, with a strong partner in Allergan and its $161.4 million in cash resources as of September end the company is likely to be able to meet its pipeline milestones and absorb the restructuring charges.

Ironwood Pharmaceuticals, Inc. Price, Consensus and EPS Surprise

 

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

Zacks Rank & Stock to Consider

Ironwood currently carries a Zacks Rank #3 (Hold). Vertex Pharmaceuticals Incorporated (VRTX - Free Report) is a better-ranked stock in the health care sector, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vertex’s earnings per share estimates have moved up from $3.74 to $3.83 for 2018 in the past 30 days. The company delivered a positive earnings surprise in all the trailing four quarters with the average beat being 18.94%. Share price of the company has increased 22.7% in a year’s time.

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