Ironwood's Future Outlook And Uncertainty
Jun. 26, 2017 12:59 PM ET|
24 comments|
About: Ironwood Pharmaceuticals, Inc. (IRWD), Includes: SGYP
Life Sciences Millennial
Research analyst, biotech, healthcare, small-cap
(424 followers)
Summary
Trulance is approaching over 1,300 prescriptions per week, with 52% said to be OTC growth and 48% from ex-Linzess patients or Amitiza.
Sharp dip in U.S. Linzess sales last quarter a likely result of reactive inventory destocking due to decreased demand for Linzess.
Linaclotide CR1 data shows slight improvements in overall response, abdominal pain and a worsening effect on CSBM frequency.
Ironwood is running an all-new Phase 4 trial to study the effect of Linaclotide on abdominal girth to better understand the drugs problematic occurrences of bloating and abdominal distension.
Ironwood is running another Phase 4 trial, requested by the FDA, to assess the immunogenicity of Linaclotide, a concern first noted in the FDA's summary review of Linaclotide.
Ironwood Pharmaceuticals (NASDAQ:IRWD), a gastrointestinal focused company out of Cambridge, MA, is currently in a partnership agreement with Allergan (NYSE:AGN) for their lead drug, Linzess, where they own just less than 50% of the drug and its profits. Linzess has been a household name in chronic idiopathic constipation (CIC) and irritable bowel syndrome with constipation (IBS-C) since 2012. They quickly surpassed the market leader, Amitiza, after Linzess was proving to be more effective with less side effects. For these same reasons, Linzess could very well be surpassed by the new market leader, Trulance, which is marketed by Synergy Pharmaceuticals (NASDAQ:SGYP).
Both Linzess and Trulance treat the same two conditions, CIC and IBS-C. CIC is a condition that affects around 35 million Americans, while IBS-C is a much smaller condition that affects around 13 million Americans. The graphic below is a good indication that new entrants into this market, like Trulance, are actually growing the market and not cannibalizing it.
The most important measure seen in the above graphic is the growth of the OTC market (dark blue). It is the OTC market that is my first level of concern for Linzess. As mentioned previously, CIC and IBS-C total around 48 million Americans. A total of 95% of those 48 million Americans are not on branded therapies. This is a key fact that Synergy often states in their corporate presentations, along with Ironwood themselves, as is seen below.
Ironwood, in their corporate presentations, state that around 66% of their prescription growth is from this OTC market. Continuing, the company also mentions that 70% of patients are dissatisfied with OTC treatment. If this is the case then why is it that >95% of the market is still not on branded therapies? Linzess has been on the market for almost five years now. The answer lies in a study run by Synergy called the, BURDEN-CIC study, with results that can be found here. A key data point in the study mentions that 59% of patients are dissatisfied with Linzess and other branded therapies. This fact brings a lot of light to my opinion that Linzess users are simply on Linzess because it's the only drug available, and patients will quickly switch to another superior alternative, like Trulance.
The above graphic is already displaying significant growth for Trulance, which has only been selling since March 20th, 2017. In Week 11 (not shown), the company had just over 1,000 prescriptions filled (decrease due to the Memorial Day holiday). Prorating that number would have produced an estimated 1,256 total prescriptions. For the week ending June 16th, 2017, total prescriptions over 1,300 for the week would be very reasonable. More importantly, Synergy had stated that this impressive growth is roughly 52% OTC and 48% from ex-Linzess users. According to some analysts, this is extremely encouraging because many of them expected 10% OTC growth and 90% from ex-Linzess users. Linzess is not capturing the OTC market, and it would be the goal of Synergy to capture the OTC market and not actually grow through ex-Linzess users (although they seem to be doing both).
Evidence of Trulance's strong uptake can be seen in the above graphic. U.S. sales of Linzess experienced a sharp decline in the first quarter of 2017, which the CEO for Ironwood contributed to the "destocking of inventory". With a comment such as the destocking of inventory to come out the same quarter that Trulance entered the market means it is probably, more likely than not, a reactive destocking. Meaning, the company is expecting less of a demand for their products (Linzess). However, the strong uptake in sales for Trulance isn't the only indicator of trouble for Ironwood.
Going back to Synergy's BURDEN-CIC study, the company also stated that the reasoning for people's dissatisfaction with branded therapies is due to either efficacy or side effects.
Investors in Synergy or Ironwood likely know the differences in efficacy and side effects for these two drugs by now.
In short, Trulance is producing 5% diarrhea in CIC patients, compared with 16% in Linzess patients. For IBS-C, it's 4.3% in Trulance patients, compared to 20% in Linzess.
I would remind investors that Linzess overtook Amitiza because of less side effects and improved efficacy, something Trulance is showing over Linzess.
Ironwood has, on more than one occasion, tried to combat the obvious advantage of Trulance in this area. The company presented some perplexing charts at Digestive Disease Week ("DDW") explaining the "placebo adjusted" numbers for Trulance in comparison to Linzess. The company then ran costly Phase 3 trials for a new 72mcg dose of Linzess, which has since been approved. The company waited almost two years to report the actual data from the trial, which ended up showing worse diarrhea (19% vs. 16% originally).
More evidence of Trulance's superiority was seen when Ironwood started working on a new formulation of Linzess. Currently, Linzess is approved as an immediate release (IR) solution, but the company has developed a colonic release (CR) solution for IBS-C patients only. Data from this new formulation is producing numerically greater results in the area of abdominal pain, overall response and is actually worse than the IR solution when it comes to CSBM frequency. Data from this Phase 2b trial can be found here.
The study's primary endpoint was the overall responder endpoint, which was 38.8% for the CR solution compared to 31.8% for the IR solution. The company also stated a 56.2% improvement in abdominal pain over placebo for the CR solution, but in reality it represents only a slight improvement over the IR solution (-2.14 vs. -1.94 IR 290mcg).
Lastly, for the CSBM frequency endpoint, the company stated a 59.3% improvement over placebo for the CR solution, but the CR solution was really worse than the IR solution (1.78 vs. 2.11 IR 290mcg). Additionally, this data was just from a Phase 2b trial, and a larger Phase 3 trial is expected to be conducted, but I don't believe the data will prove to be much of an improvement, especially with a larger sample size, over the IR solution.
Another concern for Linzess is the drugs unforeseen side effects, especially with weight gain, which is something I touched on in another one of my articles. Turns out the company is running an all-new Phase 4 trial, specifically requested by the FDA, to study the effect of abdominal girth on IBS-C patients.
The study's primary endpoint is the change in abdominal girth, which will be taking into account bloating and abdominal distension. The study will also be analyzing symptom severity measures among others. Synergy already ran a study regarding bloating, and patients saw statistically significant symptom relief of bloating over placebo.
Most importantly, statistically significant results were seen after one week and continued throughout the entire 12-week treatment period. It's also important to note that Linzess' drug label has listed these associated side effects, but no such listing on Trulance's label exists, which further demonstrates Trulance's much cleaner and safer drug label, as is seen below.
And below is the same table from Linzess' label:
My last concern for Linzess is not that they still remain unprofitable after years of approval, but the future of the life sciences industry politically.
President Trump has drafted an executive order on drug prices that is seen as favorable for the drug industry. A dark cloud in the industry has been removed, and I would expect M&A activity to start picking up. Not only that, but President Trump is expected to comment on, later this year, the 10% repatriation of profits tax that he proposed. Pfizer (NYSE:PFE) currently has over $80 billion in overseas accounts, and news of this 10% tax would be a huge catalyst for the industry. Not many people have commented on this, but Synergy is a prime takeover target. Ironwood would essentially have to prepare for a 1,250+ person salesforce, like they have, overnight. That could potentially be troubling for the company.
Disclosure: I am/we are long SGYP.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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