FDA Approval Makes the Price Right for This Pharma Stock
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Ironwood Pharmaceuticals (NASDAQ: IRWD) has scored its first FDA approved drug. The official stamp was recently granted to Linzess (linaclotide), a treatment for specific types of irritable bowel syndrome and chronic constipation. The PDUFA wasn’t expected until September 8 but came in early. Investors ran up IRWD share prices to a peak of nearly $16 in the past few months while waiting for an approval, many of whom got out on the day of the approval, when shares prices tend to spike. The price has since fallen nicely to the $12 range. The average current price target is $15 but shares will likely exceed that value when the drug is launched in the fourth quarter.
What’s the fuss about Linzess?
It treats two conditions that can become greatly uncomfortable and for which many current patients can’t find adequate treatments. Irritable bowel syndrome with constipation (IBS-C) sufferers may experience abdominal pain and/or bloating alongside the constipation. Chronic idiopathic constipation (CIC) has no diagnosable physiological cause but can present similarly to IBS-C. Linzess’ mechanism of action could offer these patients bowel relief while also regulating pain receptors in the area. The FDA didn’t restrict Linzess’ length of treatment, meaning that patients who are happy with the drug’s results can remain on the medication indefinitely.
The Market
According to National Institute of Health, there are approximately 63 million Americans suffer from generalized chronic constipation while 15 million are diagnosed with generalized IBS. Current treatment options include over-the-counter medications that are largely ineffective for these conditions and Takeda Pharmaceutical and Sucampo (NASDAQ: SCMP)’s Amitiza, which earned $237.6 million in its last fiscal year. Neither Amitiza nor Linzess is currently approved for pediatric use but Amitiza’s restrictions go a step further. The drug is approved for treating CIC in adults but should only be prescribed for women suffering from IBS-C. That’s because the treatment wasn’t deemed effective in men.
A stronger potential competitor is still in the pipeline. Plecanatide from Synergy Pharmaceuticals (SGYP) is currently in Phase IIb/III clinical trials for a CIC indication and expected to launch a Phase IIb trial soon for IBS-C. Trial results are expected to come in before the end of the year. Plecanatide, if approved, will come to shelves far behind Linzess but its reduced side effects, namely of the diarrhea that affected a portion of Linzess trial patients, may cause a defection to the newer drug.
Synergy currently lacks potential partners for plecanatide while Ironwood has a trio. Ironwood is partnered with Forest Laboratories (NYSE: FRX) for Linzess’ domestic release. The backing of the established Forest will certainly help Ironwood get the drug off to a strong start when it hits shelves in the fourth quarter. There are further deals in place with Almirall SA to sell the drug in Europe and with Astellas Pharma to get the drug out in Asia.
The Near Future
The fundamentals of the company are less important at this time than the drug’s revenue potential but the $85 million payment from Forest to Ironwood, payable upon Linzess’ approval, will certainly help things along. (There are also $100 million sales milestone payments on the table.) The companies currently have to focus on the commercialization of the drug and pursuing further indications.
Ironwood and Forest are in trials to pursue an indication for abdominal symptoms related to constipation. Ironwood further hopes to get the pediatric warning knocked off Linzess box. The warning made it on because pediatric uses weren’t covered in the clinical trial. There are also talks of pursuing indications for other forms of IBS and constipation.
The company will report its third quarter on November 5. Expect to see market reactions around that date and further towards the end of the year, as Linzess becomes available and Synergy releases its trial data. The current price is on the higher end of a good entry point but it’s still within that range.
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