On Aug. 19, guru Steven Cohen (Trades, Portfolio), manager of Point72 Asset Management, bought shares of Ironwood Pharmaceuticals Inc. (IRWD) increasing his stake by 45.50% and reaching a total of 2,005,800 shares with a total loss of 9% since the first buy done in 2014Q3. The stake of IRWD represent the 0.16% of the guru’s total assets and 1.41% of outstanding shares of the company.
The company
Ironwood Pharmaceuticals is an entrepreneurial pharmaceutical company that discovers, develops and intends to commercialize differentiated medicines that improve patients' lives. The company currently operates its human therapeutics business segment. Human therapeutics segment consists of the development and commercialization of its product candidates, including linaclotide. The company is subject to federal, state, city and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.
Last quarter results and outlooks
In the last quarter, the company had substantial progress with continued strong performance for each of its key value drivers and reported multiple positive data readouts from their pipeline including Phase I data from IW-1973, which provides the first evidence of the potential for their sGC stimulators platform .
IRWD signed key contracts with CVS Health Corp (CVS), a national pharmacy benefit manager and as well as United Health Products Inc. (UEEC), a commercial formulary during its last quarter.
LINZESS (linaclotide), which is a branded market leader in its category and was launched in December 2012, is continuing to be strong resulting its prescriptions approximately increased by 56% compared to the second quarter of 2014.
The Medical Drugs company announced earnings per share of -$0.34 and missing estimates by $0.11 but EPS had an increase of $0.22 compared to the same quarter of the previous fiscal year.
During the last quarter operating expenses were approximately $10.2 million more compared to the second quarter of 2014, and the company expects its 2015 total operating expenses to be in the range of $220 million to $250 million.
For the rest of year the company expects up to 12 ongoing clinical studies, also expects five clinical data readouts in 2015 while it will continue to evaluate opportunities to strengthen the clinical utility of linaclotide in its indicated patient population, as well as to develop and seek approval of linaclotide in additional indications, patient populations and formulations.
IRWD expects to initiate a Phase I clinical study with its second sGC stimulator, IW-1701, in the fourth quarter of 2015 and for finalizing preparations for the IW-3718 dose-ranging Phase IIb study for the potential treatment of refractory GERD, it expects to initiate it in early 2016.
Recently the company said the lead drug of LINZESS®, called IW-1973, was shown to be well-tolerated in a 46-patient trial, and it plans to begin a Phase 1b trial before the end of the year and two Phase 2 trials next year.
It also announced an agreement with Allergan PLC (AGN) for the U.S. co-promotion of VIBERZI (eluxadoline), Allergan’s new treatment for adults suffering from irritable bowel syndrome with diarrhea (IBS-D), this is separate from and complementary to the companies’ ongoing co-development and co-commercialization of LINZESS®. In the second quarter of 2015, IRWD recorded approximately $24.3 million in collaboration revenue from Allergan compared to $1.8 million in the second quarter of 2014.
Financial situation
The company has a financial strength rated 5 out of 10. The company has a total cash-to-debt ratio of 1.29; that is ranked lower than 58% of other companies in the Global Drug Manufacturers – Specialty & Generic industry which has an average ratio of 2.34.
The ratio shows the company doesn’t have any problem to cover its short term debts, while the ratio jumps to 26.27, even if things are getting worst: as can be seen from the table, the short term debt is increasing quarter by quarter at a very high rate.
| IRWD Short-Term Debts | (data in million) | Variation since |
| Ă‚ | Ă‚ | prev. Quarter |
| December 2013 | 1.10 | Ă‚ |
| March 2014 | 5.50 | +400% |
| June 2014 | 7.70 | +40% |
| September 2014 | 10.50 | +36% |
| December 2014 | 12.40 | +18% |
| March 2015 | 14.40 | +16% |
| June 2015 | 18.80 | +31% |
If we just consider the long-term debts, the ratio is lower, 1.35. Here the trend has been flat since the last quarter and on fiscal year 2013 and 2014, total debt has been 177.8 and 164.9 million. During the last quarter, this total amount of LT debts has doubled.
| IRWD Long-Term Debts | (data in million) | Variation since |
| Ă‚ | Ă‚ | prev. Quarter |
| December 2013 | 177.8 | Ă‚ |
| March 2014 | 173.2 | -3% |
| June 2014 | 171.3 | -1% |
| September 2014 | 168.3 | -2% |
| December 2014 | 164.9 | -2% |
| March 2015 | 160.4 | -3% |
| June 2015 | 364.0 | +127% |
Profitability
Both operating and net margins are negative and with no growing ratios. They are both ranked lower than 90% of other companies in the same industry, and they are respectively -125.32% and -144.07% and these are even the best performances of the company in the recent history.
Returns are negative as well, ROE -147.06%, ROA -40.01% are the worst of the whole industry and while ROA is slightly “getting better” quarter by quarter, ROE keeps on decreasing.
| IRWD Return on Assets | Ă‚ | Variation since |
| Ă‚ | Ă‚ | prev. Quarter |
| December 2013 | -68.76% | Ă‚ |
| March 2014 | -56.89% | +17% |
| June 2014 | -61.13% | +7% |
| September 2014 | -46.83% | +23% |
| December 2014 | -44.31% | +5% |
| March 2015 | -41.59% | +6% |
| June 2015 | -40.04% | +4% |
| IRWD Return on Equity | Ă‚ | Variation since |
| Ă‚ | Ă‚ | prev. Quarter |
| December 2013 | -339.68% | Ă‚ |
| March 2014 | -174.76% | +49% |
| June 2014 | -145.98% | +16% |
| September 2014 | -134.37% | +8% |
| December 2014 | -153.11% | -14% |
| March 2015 | -169.59% | -11% |
| June 2015 | -184.30% | -9% |
Growth rates
Over the last five years, revenue has been quite unstable even if on a TTM basis it dropped just by 26%.
| IRWD Revenue | (in million) | Variation since |
| Ă‚ | Ă‚ | previous year |
| Ă‚ | Ă‚ | Ă‚ |
| December 2011 | 65.90 | Ă‚ |
| December 2012 | 150.2 | +128% |
| December 2013 | 22.90 | -85% |
| December 2014 | 76.40 | +234% |
| TTM | 111.70 | +46% |
| December 2015 | 151.00 | Ă‚ |
| December 2016 | 267.00 | Ă‚ |
| December 2017 | 368.00 | Ă‚ |
For the year 2015 analysts expect revenue of $151 million; that would give the company the same revenue of the year 2012, giving a 0% growth rate since that time. The main cost for the company comes from the research and development area that, during the last five years, has had an average value of $102.36 million being always higher than the revenue.
Revenue is expected to rise to $267 million in FY2016 and to $368 million in FY2017 and if we assume the company to have the same R&D expenses that had so far, these forecasts will turn the current balance sheet to cover total expenses and report positive earnings.
Earnings per share over the last three years are showing some progress, but the ratio is still deeply negative even so analysts are hopeful to see positive earnings in the next two years, mainly thanks to the big profits that LINZESS will bring.
| IRWD EPS | Ă‚ | Variation since |
| Ă‚ | Ă‚ | previous year |
| Ă‚ | Ă‚ | Ă‚ |
| December 2011 | -0.65 | Ă‚ |
| December 2012 | -0.68 | -5% |
| December 2013 | -2.35 | -246% |
| December 2014 | -1.39 | +41% |
| TTM | -1.15 | +17% |
| December 2015 (estimate) | -0.82 | Ă‚ |
| December 2016 (estimate) | -0.09 | Ă‚ |
| December 2017 (estimate) | 0.61 | Ă‚ |
Share price
The stock is trading at about $11. Year to date the price has dropped by 31% but has risen by 17% over the last five years. The price is fluctuating between the trading range between $10 and $16 since 10 years.
During the last 12 months has dropped by 17% and is now trading -36.09% from its 52-week high and +7.73% from its 52-week low, with an incredibly high forward P/E ratio of 357.14 and a P/B ratio of 10.95.
Discounted cash flow
Assuming an EPS of $0.61 (current forecast for 2017) and a growth rate of 15% for the next 10 years (but to reach that EPS’ value, the growth rate will be higher), the DCF model gives a fair value of $12.48 that puts the stock at current price as undervalued with a margin of safety of 14%
Hedge fund and gurus
The main hedge fund holding shares of the company is Vanguard Health Care Fund (Trades, Portfolio) with 3.06% of shares outstanding that is 0.11% of its total assets. Steven Cohen (Trades, Portfolio) is the second one followed by Jim Simons (Trades, Portfolio) who holds 0.05% of outstanding shares.
