An Encouraging Quarter, Ironwood One To Keep On The Radar In 2014


Ironwood topped consensus estimates on revenue and earnings (still a loss) in the first quarter.

Refill rates and total prescriptions for Linzess continue to track positively. Advertising campaign, which began last month, should have a meaningful impact on scripts - and Linzess sales.

Primary concern remains: can Linzess produce the multi-billion dollar sales figures anticipated by the Street?

By Jake King

Shares of Ironwood Pharmaceuticals (NASDAQ:IRWD) climbed following revenue and earnings beats in the first quarter as sales of the company's only approved and marketed product, Linzess (linaclotide), continue to grow. Linzess is approved for Irritable Bowel Syndrome with Constipation (IBS-C) and Chronic Idiopathic Constipation (CIC). This latest suggests Linzess is producing a loyal patient base as refill rates track new prescription trends. And with a major advertising program getting off the ground, we suspect the next few quarters will be good for Linzess sales.

Ironwood and partner Forest Labs (NYSE:FRX) reported Linzess sales of $60.8 million (a run rate of $243.2M) in the first calendar quarter (Forest's fiscal fourth quarter), a 19% improvement over the previous quarter. Ironwood and Forest jointly fund the development and commercialization of Linzess, splitting equally net profits/losses on the product. Ironwood booked revenue of $14.6M in 1Q14, $8.4M from its profit split with Forest and $6.2M from API sales & milestone/royalties from overseas partnerships. Ironwood reported a net loss of $49.6 million, or $0.38 per share.

Importantly, new prescriptions and refills continue to climb in parallel.

At just under 240,000 prescriptions filled in the quarter, Linzess prescriptions were up 11% sequentially. New prescriptions and refills trending higher in tandem are encouraging since Linzess has taken some flack for high rates of diarrhea (20% in IBS-C trials, 16% in CIC trials). It would be disconcerting to see refill rates breaking away significantly from new prescriptions (i.e. "tried it, don't like it").

Patient persistency rates also signal a sticky patient base. Linzess persistency is tracking ahead of Zelnorm (tegaserod), a decent proxy for Linzess' potential, in the months since launch. Zelnorm was heralded in the early 2000's as the next blockbuster treatment for IBS-C and CIC. In 2006, there were more than 16 million prescriptions written for Zelnorm, with sales totaling $560M. The ramp was stopped short, however, when Zelnorm was pulled from the market (2007) due to concerns over possible adverse cardiovascular effects.

Ironwood kicked off a Direct-to-Consumer advertising campaign (TV, digital) in the second week of April which should make itself apparent in prescription rates over the next 3-6 months. Given the ramp seen with Zelnorm when a focused advertising campaign started, and the nature of the target population, marketing efforts should have a meaningful impact on prescription rates for Linzess - and, of course, sales. For a back of the envelope look at Linzess' potential, we use a price per prescription of $196.35 ($7.70/day with a 25% gross to net discount). At half of the 16 million prescriptions that Zelnorm did in 2006, sales would top $1.5B. This is why Ironwood currently carries a lofty $1.5B valuation, and why analysts have been calling for multi-billion dollar peak sales.

Driven by prescription trends and the direct-to-consumer campaign, IRWD's second and third quarters will be interesting, and we're optimistic about the stock if the macro situation holds up. On a related note, Synergy Pharmaceuticals (NASDAQ:SGYP) reported Phase II data for its own guanylate cyclase-C agonist, plecanatide, on April 30. We've opined extensively on SGYP, plecanatide, and the relation to Ironwood in the past, and you can read our take on plecanatide's latest at

Disclosure: I am long SGYP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. PropThink is a team of editors, analysts, and writers. This article was written by Jake King. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. Use of PropThink’s research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein. You should assume that as of the publication date of any report or letter, PropThink, LLC and persons or entities with whom it has relationships (collectively referred to as "PropThink") has a position in all stocks (and/or options of the stock) covered herein that is consistent with the position set forth in our research report. Following publication of any report or letter, PropThink intends to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. To the best of our knowledge and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and not from company insiders or persons who have a relationship with company insiders. Our full disclaimer is available at

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