Ironwood Pharmaceuticals, Inc. IRWD is focused on the development and commercialization of treatments primarily addressing gastrointestinal ("GI") diseases. The company has one marketed product – Linzess – in its portfolio that has been approved for treating irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (“CIC”).
Here we provide five reasons why adding Ironwood’s stock to a portfolio can be beneficial in 2020.
Strong Quarterly Results: Ironwood has delivered strong year-over-year growth in earnings and sales in the first nine months of 2019. The company reported adjusted earnings of 25 cents per share during the said period against adjusted loss of 74 cents in the year-ago period. Moreover, earnings have surpassed estimates in the past two quarters. Notably, the company generated profits for the first time in the second quarter, following the separation of its Soluble Guanylate Cyclase (sGC) pipeline in April. The company reported positive operating cash flow in the third quarter.
The company derives majority of its revenues from the sales of Linzess in the United States. The drug generated net sales of $572 million in the United States, up 2.9% year over year in the first nine months of 2019. Ironwood and Allergan equally share Linzess’ brand collaboration profits or losses. Ironwood's share of net profits from sales of Linzess in the United States (included in collaborative revenues) was $223.8 million in the third quarter, up approximately 22.5% year over year.
Moreover, Linzess’ prospects look encouraging owing to strong demand trends and the drug’s expansion to new patient population and geographies. Ironwood expects annual sales of Linzess to cross $1 billion by the end of 2020.
Rising Estimates: Ironwood’s earnings estimates for 2020 have increased 30% in the past 60 days. In fact, the company has reported impressive earnings performance and exceeded expectations in three of the trailing four quarters. Ironwood recorded an average positive earnings surprise of 135.01%. Favorable Share Price Movement: Strong performance of Linzess has enabled Ironwood to outperform the industry. Shares of the company have rallied 34.7% in the past year compared with the industry’s growth of 14.5%. Label Expansion Efforts for Linzess: Ironwood and Allergan are looking to expand Linzess’ label to include new indications and populations as well as develop the drug as a non-opioid, pain-relieving agent for IBS patients. In June, Ironwood and Allergan announced positive top-line data from the phase IIIb study on Linzess for treating multiple abdominal symptoms in adult patients with IBS-C. The company will file a supplemental new drug application to expand the drug’s label to include the indication soon. It is also striving to expand the drug’s label to include pediatric patients with IBS-C.
Ironwood is also developing a delayed-release formulation of Linzess, MD-7246, in a mid-stage study to treat abdominal pain associated with IBS with diarrhea. The company is also developing an interesting candidate called IW-3718. It is currently enrolling patients in two identical phase III studies, evaluating IW-3718 for treating gastroesophageal reflux disease. Results from the studies are expected in the second half of 2020. Positive data will be a boost for the company’s share price.
Global Collaborations and Partnerships: Ironwood co-develops and co-commercializes Linzess in the United States and Europe with Botox-maker Allergan AGN. The company has a collaboration agreement with AstraZeneca ( AZN Quick Quote AZN - Free Report) for development and commercialization of Linzess in China. It also has a deal with Astellas for the development of the drug in Japan.
These deals enable the company to reduce development costs for the drug and also provide support for better commercialization of Linzess as the partners have strong presence in their respective territories.
Strong demand for Ironwood’s Linzess has driven the top line consistently in the past few quarters. The strong performance is expected to continue in 2020. With the separation of its sGC pipeline, operating expenses are likely to decline as well.
However, the company is over-dependent on Linzess for its growth. Any negative news related to Linzess will affect the company and its growth prospects. The company’s pipeline candidates are also in mid- to late-stage development. It is unlikely that any of these candidates will be commercialized in 2020. Linzess also faces competition from Bausch Health’s
BHC Trulance as well as Takeda’s Amitiza and Motegrity among others. Several biotechs are focused on developing novel therapies targeting IBS. In September, Ardelyx’s Ibsrela was approved by the FDA for treating IBS-C patients. The rising competition can pose threat to Linzess’ dominance in the IBS segment. Zacks Rank
Ironwood sports a Zacks Rank #1 (Strong Buy) and is a good investment option. You can see
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