Ironwood Pharmaceuticals, Inc.’s (IRWD) share price increased 7.0% earlier this week on the announcement of a 10% workforce reduction. Since then, the company has gained approximately 8.4%.
The company expects to incur a severance and benefit cost of $4.0–$4.5 million. The termination of employees is expected to be carried out in the first quarter of 2014. The company expects to have approximately 480 full-time employees after the restructuring.
This move is in line with the strategy announced on the investor day in Dec 2013. At that time, Ironwood had said that it is working on reducing the net cash used in operating activities through revenue growth and cost control. The company is focusing on priority growth platform investments.
In the third quarter of 2013, the company recorded net cash used in operating activities of $58 million, a decrease of approximately 37.6% from the first quarter. The company expects this trend to continue through 2014.
We are positive on Ironwood’s cost control initiatives. We believe that these will help the company to offset increasing Linzess marketing costs. For 2014, Ironwood expects total investment in sales and marketing for Linzess in the $250–$300 million range.
We remind investors that the company’s sole marketed drug, Linzess, was launched in Dec 2012 in collaboration with Forest Laboratories, Inc. (FRX) for patients suffering from irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC). The company is looking to broaden Linzess’ label by expanding the targeted patient population and gaining approval for additional indications.
Ironwood carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Forest Labs, Sucampo Pharmaceuticals, Inc. (SCMP) and Gentium (GENT). All three carry a Zacks Rank #1 (Strong Buy).
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