Tuesday, January 14, 2014

Ironwood Pharmaceuticals: Sometimes a Blockbuster Isn't Enough

Small biotechnology companies typically risk everything for their first 15 years or so until their first big drugs win approval. Once sales start rolling in, it should be time to invest in the rest of the pipeline. The last thing a long-term investor wants to see is a cut to the R&D department.

Well, Ironwood Pharmaceuticals, Inc. (NASDAQ: IRWD  ) began marketing its first big drug, Linzess, in the U.S. about fifteen months ago. Analyst estimates vary, but it is likely to reach peak sales of more than $1 billion dollars per year. Sales, general, and administrative costs (SG&A) have risen, but R&D has remained somewhat level.

Reports of the launch are positive, but Ironwood's earnings are not. As a result, the company is making cuts. According to a recent report in the Boston Business Journal, some of Ironwood's research staff will be cut during the present quarter.
Lets take a closer look at Ironwood and its Lizness strategy to see if we can explain this head-scratcher.

The opportunity
Bowel disorders are a big business brimming with opportunities. Frost & Sullivan estimates the U.S. market alone is worth more than $4 billion and rising. Between the two main subtypes, irritable bowel syndrome (IBS) and the more severe inflammatory bowel disease (IBD), there is an inverse relationship between the patient pool and the availability of effective therapies.

Read the rest only at The Motley Fool, here.