It has been about a month since the last earnings report for Ironwood Pharmaceuticals (IRWD - Free Report) . Shares have added about 6.7% in that time frame, outperforming 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 drivers.
Ironwood Q3 Earnings & Revenues Miss
Ironwood reported third-quarter 2018 adjusted loss of 38 cents per share, wider than the Zacks Consensus Estimate of a loss of 14 cents. The figure was also wider than the year-ago period’s loss of 18 cents.
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.
The Quarter in Detail
As reported by partner Allergan, Linzess generated U.S. net sales of $204.8 million, up 7.3% year over year.
Ironwood and Allergan equally share brand collaboration profits or losses. 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 can primarily be attributed to 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 reported quarter were more than 830,000, up approximately 6% from the year-ago period while volume of prescribed Linzess capsules increased about 12%.
Zurampic and Duzallo, approved for uncontrolled gout, generated sales of $1.2 million
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.
In August, Ironwood sent a notice of termination to AstraZeneca for a license agreement related to lesinurad franchise which includes Zurampic and Duzallo. With this termination, Ironwood will lose 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 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 anticipated in the range of $160 million to $180 million.
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 -136.52% due to these changes.
Currently, Ironwood has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest 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.
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.