Morgan Stanley Turns Bearish On Ironwood Pharma, Lowers Linzess Sales Estimate

Commercial stage biopharma company Ironwood Pharmaceuticals, Inc. IRWD's Linzess, which it markets along with Allergan plc AGN in the U.S., is a major revenue earner for the company. In the first quarter, Ironwood received roughly 89 percent of its total revenues from its share of Linzess sales in the U.S.

Linzess is indicated to treat adults with irritable bowel syndrome with constipation or or chronic idiopathic constipation.

The Analyst

Morgan Stanley analyst David Lebowitz downgraded shares of Ironwood from Equal-weight to Underweight and lowered the price target from $15 to $13.

The Thesis

Linzess, although a steady grower for Ironwood, poses risk in the form of challenges to its long-term target, Lebowitz said in a Wednesday morning note. (See the analyst's track record here.)

The company targets U.S. Linzess net sales of $1 billion in 2020, which would require a 12-percent growth rate. In Q1, Linzess sales were up only 8 percent, the analyst said.

Morgan Stanley lowered its 2020 U.S. Linzess net sales estimate from $1.1 billion to $985 million.

Despite patent settlements reached by Ironwood, Lebowitz expects generic competition, once the composition of matter patent expires in the U.S. in 2026.

Ironwood shares have ran up ahead of fundamentals in reaction to activist Sarissa Capital's plan to nominate its CIO to the board, Lebowitz said.

"Furthermore, though the company has multiple mid-to-late stage pipeline products, we are not yet comfortable enough with them to incorporate into our valuation." 

The Price Action

Ironwood shares were down nearly 6 percent at the time of publication Wednesday. 

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