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Ironwood Pharma (NASDAQ:IRWD) is developing lead product candidate (Linaclotide) for the treatment of gastrointestinal (GI) disorders with pending near-term US and EU approval decisions.

Along with US partner Forest Labs (NYSE:FRX), Ironwood has an upcoming PDUFA decision goal date of 9/8/12 under a standard 10-month review for a NDA seeking approval of Linaclotide for the once-daily treatment of irritable bowel syndrome with constipation (IBS-C) and chronic constipation (CC). The companies are co-developing the drug and plan to co-promote in the US with a planned launch in 2012 if approved by the FDA decision date next month and patent protection in the US through 2025.

In addition, Ironwood will receive $85 million from Forest Labs if the drug receives FDA approval in addition to $100M in potential sales-based milestone payments. Linaclotide is also partnered with Almirall in Europe with a MAA / EMA regulatory approval filing submitted in SEP11 (2H12 estimate for EU approval decision) and Ironwood is eligible to receive $20M in launch milestones.

Ironwood has partnered with Astellas Pharma for the development and commercialization of the drug in Japan, Indonesia, Korea, the Philippines, Taiwan, and Thailand while retaining the rights in all other regions of the world including key markets such as China and South America (Brazil).

Linaclotide is classified as a peptide drug (guanylate cyclase-C agonist) that stimulates specific GI receptors / enzymes and is taken by mouth but works locally in the GI tract with no systemic absorption/exposure to greatly minimize the risk of serious side effects (i.e. the most common side effect in Phase 3 trials was mild to moderate diarrhea, which is a local GI effect and reflects the mode of action of the drug by increasing fluid secretion and speeding up intestinal motility).

The FDA approval filing was based on four Phase 3 efficacy trials in patients with IBS-C or CC which met all primary and secondary endpoints with no major safety concerns reported and two ongoing long-term (18-month) open-label safety studies that have enrolled over 3,200 patients. The PDUFA decision goal date of 9/8/12 represents a standard 10-month review period in addition to a three-month extension for the review of additional data analyses request by FDA and the Agency did not require an advisory panel meeting during the review process.

As of 6/30/12, Ironwood reported approximately 107M shares of common stock outstanding, $158M in cash and used $93M to fund operations during the first six months of 2012. In FEB12, Ironwood completed a public offering of its common stock near the high end of its 52-week stock price range @$15.09/shares for 6M shares, resulting in net cash proceeds of about $85M.

With shares of Ironwood still trading below the 50 and 200-day moving average stock prices around the $13 level ahead of a near-term FDA decision that is less than one month away, I expect a rebound/run-up back to the $13-15 range prior to the FDA decision date. In addition, I estimate a better than average chance at approval (i.e. 70/30 odds) given the three-month extension, no need for FDA advisory panel and the strength of the overall Phase 3 program, including four efficacy trials that met all endpoints with no safety concerns and a mode of action that works locally in the GI tract to speed up motility and increase fluid excretion to address constipation related GI conditions.

Given the $85M milestone payment due from Forest Labs upon FDA approval and capital raise/stock sale in FEB12; the risk of dilution at this point is minimal for Ironwood, which continues to invest heavily in R&D for the continued development of Linaclotide but really has no need at this point to raise cash with the potential for major US and EU approval and sales-based milestone payments in addition to royalties/profit-sharing at the time of commercial launch with a US launch expected to occur this year. Finally, Forest Labs is a very motivated co-promotion partner for the drug in the US given their loss of marketing exclusivity for former top-selling anti-depressant drug LEXAPRO which now faces generic competition.

Downside risk is significant (i.e. over 50% downside) if the FDA issues a harsh complete response letter requesting additional clinical trials or resulting in significant delays to approval since Ironwood has no other late-stage pipeline candidates or marketed products. However, other than minor delays or labeling issues; the risk of a harsh CRL appears minimal.

With shares of Ironwood boucing off recent lows near the low end of the 52-week stock price range on increased trading volumes and with a key FDA decision catalyst expected within weeks; bio-pharma catalyst event traders are starting to take notice of Ironwood which seems likely to make a move toward the high end of its 52-week stock price range (i.e. $13-15 range) as the PDUFA date quickly approaches.

Source: Ironwood Pharma: FDA Decision Expected Within Weeks For GI Drug