Ironwood Pharmaceuticals, Inc. (IRWD) reported a loss of 38 cents per share (excluding a one-time write-down of inventory) in the second quarter of 2014, much narrower than the year-ago loss of 57 cents per share but wider than the Zacks Consensus Estimate of a loss of 36 cents. Ironwood’s share price jumped approximately 1.9% on the news.
Revenues decreased 29.2% year over year to $6.8 million. Revenues were much below the Zacks Consensus Estimate of $15 million. Revenues were also down more than 53% on a sequential basis due to a change in wholesaler inventory levels. In the second quarter, the company had 2 to 3 weeks of inventory as compared 4 to 5 weeks in the preceding quarter.
Linzess Update
Ironwood’s sole marketed product is Linzess (EU trade name: Constella) indicated for irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC). Ironwood co-markets the drug with Actavis (ACT). Net sales of the drug, as reported by Actavis, came in at $62.7 million in the second quarter of 2014, up 3% sequentially.
Number of prescriptions filled increased 36% to approximately 326,000 driven by new patient addition and continued demand for Linzess. The company is focusing on promoting the product to gastroenterologists and primary care physicians.
Ironwood has launched a direct-to-consumer campaign which boosted Linzess prescription growth in the reported quarter.
The company is also working on expanding managed care access to Linzess and lowering the out-of-pocket cost borne by patients. More than 70% of the patients who are covered by commercial insurance plans and Medicare Part D patients have unrestricted access to Linzess. Meanwhile, approximately 70% had tier II ($30 co-pay) access as of Jun 2014.
Meanwhile, Ironwood’s EU partner Almirall has launched the product in 10 European countries including the U.K. and Italy. More launches are expected in 2014. However, Almirall has recently announced its decision to suspend commercialization of Constella in Germany from May 2014. The company has taken this decision after it was unable to reach an agreement with the German National Association of Statutory Health Insurance Funds regarding a reimbursement price for Constella.
Linzess is well protected by patents and is unlikely to face generic competition before 2031. Ironwood and Actavis are working to strengthen the patent further.
Ironwood is looking to broaden Linzess’ label by expanding the targeted patient population and gaining approval for additional indications including opioid-induced constipation (plans to initiate phase II study in the third quarter of 2014, data should mature in the second half of 2015), pediatrics and prevention of colon cancer.
Some other interesting pipeline candidates at Ironwood include IW-9179 (functional dyspepsia and gastroparesis) and IW-3718 (refractory GERD).
During the second quarter of 2014, selling, general and administrative (SG&A) expenses fell 5.1% to $29.3 million. Research and development (R&D) expenses amounted to $22.1 million, down 8.1%.
2014 Guidance Maintained
For 2014, Ironwood continues to expect operating expenses in the range of $215 million to $245 million (R&D expense of $105 million to $120 million and SG&A expense of $110 million to $125 million).
For 2014, Ironwood estimates total investment (including Actavis’ share) in sales and marketing for Linzess in the $240 million to $270 million range.
Our Take
We are pleased with Linzess’ uptake rates and believe that it has the potential to be a blockbuster product in the long run. Although the wider-than-expected loss and below expectation revenues reported in the second quarter are a bit disappointing, we believe that revenues will pick up from the next quarter on the back of price increases. Ironwood and Actavis have increased the price of Linzess from $7.70 per pill to $8.43 per pill, effective Jul 1.
Ironwood carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the health care sector include Salix Pharmaceuticals (SLXP) and Endo International (ENDP). Both carry a Zacks Rank #1 (Strong Buy).
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