Could The Street Be Underappreciating The Ironwood Pharma Pipeline?

Ironwood Pharmaceuticals, Inc. IRWD has a lot cooking and its spread appeals to the Street's appetite.

The pharma firm caught a Buy rating Monday to compound three existing Buys and two Holds — each of which correspond with price targets that assume an upside for the stock. 

The Rating

Credit Suisse analyst Vamil Divan initiated coverage with an Outperform rating and $19 price target.

The Thesis

By last check, Ironwood’s Linzess was on track to exceed $1 billion in U.S. sales by 2020, and Credit Suisse expects “strong, sustained growth” in that franchise with potential market expansion, Divan said in a Monday note. (See Divan's track record here.)

But that’s just a side plot in the Ironwood story, according to Credit Suisse. 

“Though IRWD has already developed one successful blockbuster in Linzess (a solid base with much room left to grow), we believe that the Street is significantly underappreciating the value of its potentially promising pipeline,” the analyst said. 

IW-3718 for uncontrolled gastroesophageal reflux disease will enter Phase 3 studies in 2018 after performing well in Phase 2 trials, according to Credit Suisse. IW-1973 is in Phase 2 trials for diabetic nephropathy and heart failure with preserved ejection fraction, and is expected to produce Phase 2 data this quarter in the treatment of diabetic hypertension.

IW-1701 will yield Phase 2 data for treatment of achalasia in the first half of 2018, Divan said, while linaclotide will enter a Phase 3 trial for irritable bowel syndrome with constipation in the first half of 2018. Linaclotide delayed release-2 will enter a Phase 2b trial for abdominal pain relief in 2018.

“We currently assign a 35 percent probability of success (POS) to IW-3718 and 15 percent to IW-1973,” Divan said, forecasting discounted cash flow of $12 if both fail, with $11 boosts from each potential success. “Though the top-line impact of these assets is several years away, positive data should raise awareness of the pipeline and drive upside in the stock.”

Price Action

Ironwood spiked as much as 1.7 percent Monday but, at the time of publication, traded up just 1.2 percent at a rate of $15.82.

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