Why Ironwood Pharmaceuticals Shares Spiked Higher

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ironwood Pharmaceuticals (NASDAQ: IRWD  ) , a biopharmaceutical company focused on developing therapies to treat gastrointestinal, central nervous system, and cardiovascular diseases, rose more than 16% Tuesday after the company reported its fourth-quarter earnings results before the opening bell.

So what: For the quarter, Ironwood delivered $5 million in revenue, down 81% from the year-ago period, with royalties from its FDA-approved drug Linzess -- which is being co-marketed with Forest Laboratories (NYSE: FRX  ) as a treatment for irritable bowel syndrome with constipation – totaling $2.9 million. Total Linzess product sales increased to $51 million, a 48% quarter-over-quarter increase. Ironwood's net loss came in at $0.43 per share, $0.07 per share narrower than Wall Street's estimates thanks to lower research and development expenses outside of Linzess. Looking toward 2014, Ironwood anticipates it and Forest's combined marketing expenses for Linzess will total $240 million-$270 million, which could mean a decline from the $255.5 million spent in 2013.

Now what: Although Linzess sales growth has been strong, Ironwood still has a long way to go to reduce its expenses to a point where it has any chance of being profitable on a recurring basis. Don't get me wrong; Ironwood is well-capitalized with $198 million in cash and should see losses slowly shrink due to improved Linzess sales, so it's not like the company is in any financial danger. However, a significant move higher on earnings like we're seeing today seems unwarranted until its bottom line shows drastic improvement.

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