Ironwood (IRWD) Incurs Loss In Q1, Announces Restructuring

 | May 01, 2018 11:00PM ET

Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) reported first-quarter 2018 adjusted loss of 27 cents per share, wider than the Zacks Consensus Estimate of a loss of 16 cents. However, the company had reported adjusted loss of 33 cents in the year-ago period.

Total revenues (collaborative revenue) in the quarter amounted to $69.2 million, up 32.7% from the year-ago period, and missed the Zacks Consensus Estimate of $89.5 million.

Quarter in Detail

As reported by partner Allergan plc (NYSE:AGN) , Ironwood’s key marketed product – Linzess (linaclotide) – generated U.S. net sales of $159.3 million, up 7.9% year over year.

Please note that Ironwood and Allergan have an equal share in 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 $61.2 million in the first quarter, up 23.7% year over year. Sales of linaclotide active pharmaceutical ingredient to the company’s Japanese partner Astellas Pharma added $5.4 million to revenues.

According to data provided by IMS Health, Linzess prescriptions filled during the quarter were more than 764,000, up 9% from the year-ago period. The drug’s uptake continued to grow in 2018 following a strong performance in 2017 and it remained a market leader among branded prescription drugs.

In January, Ironwood and Allergan settled a patent litigation related to an abbreviated new drug application of Sun Pharmaceutical Industries, seeking approval of a generic version of Linzess. Per the settlement agreement, Sun Pharmaceuticals will be allowed to market an authorized generic version from Feb 1, 2031.

Zurampic and Duzallo, approved for uncontrolled gout, generated sales of $0.6 million in the quarter. Duzallo was launched in October 2017 as an oral treatment for hyperuricemia associated with gout.

During the reported quarter, selling and administrative (SG&A) expenses increased 11.4% to $61.9 million. Research and development (R&D) expenses were $37.1 million, up 8.3% from the year-ago period

Restructuring Initiative

In a separate press release, Ironwood announced its intent to split the company into two separate entities. 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.

The company expects to achieve increased operational performance and strategic flexibility following the completion of the restructuring process.The separation is expected to close in the first half of 2019.

2018 Guidance

Ironwood expects to incur charges related to its restructuring initiative. Hence, the company did not provide any financial guidance for the full year and plans to provide an update in the second-quarter earnings release.

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.

A phase III study to evaluate Linzess in additional abdominal symptoms is expected to start in mid-2018. The companies are also in discussion with the FDA to start a phase IIb study to evaluate a delayed release formulation of linaclotide for treating all subtypes of IBS, including IBS-mixed and IBS with diarrhea.

A label expansion of Linzess in the chronic constipation indication is under review in Japan. In China, Hong Kong and Macau, Ironwood has an agreement with AstraZeneca plc (NYSE:AZN) for Linzess. The regulatory filing in China for IBS-C is under review. The company expects the review to be completed in the first half of 2018.

The company is also developing three candidates – IW-3718, Praliciguat (IW-1973) and Olinciguat (IW-1701) – for gastroesophageal reflux disease, diabetic nephropathy and sickle cell disease, respectively. Ironwood expects to advance IW-3718 in phase III studies in the third quarter of 2018. Two phase II studies to evaluate Praliciguat in diabetic nephropathy and heart failure are currently enrolling patients.

Our Take

The company’s first-quarter loss was wider than estimated and sales also missed expectations. However, the stock was up 3.2% on May 1 on restructuring news. The prospect of the new Ironwood with its sole focus on marketed drugs and GI pipeline is more attractive with lower potential R&D costs.

A look at the company’s share price movement shows that the stock has outperformed the industry this year so far. Ironwood’s shares have gained 24.7% during this period, while the industry declined 3.4%.