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Why Ironwood Pharmaceuticals Inc. Shares Jumped

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 with a focus on developing therapies to treat gastrointestinal disorders, rose as much as 18% after reporting its first-quarter results before the opening bell.

So what: For the quarter, Ironwood recorded $14.6 million in revenue, up dramatically from the $3.3 million reported in the year-ago period. Its revenue consisted of $8.4 million tied to the sale of Linzess -- a therapy approved for irritable bowel syndrome with constipation and chronic idiopathic constipation for which it's partnered with Forest Laboratories (NYSE: FRX  ) -- as well as $6.2 million from the sale of linaclotide's (the scientific name for Linzess) active pharmaceutical ingredient, and amortized revenue and/or milestone payments associated with Astellas Pharma, AstraZeneca, and Almirall. Net loss for the quarter shrunk noticeably to $49.6 million, or $0.38 per share, from $93.9 million or $0.87 per share in the prior year period. By comparison, Wall Street was expecting just $5 million in Linzess shared revenue and a wider loss of $0.42 per share.

Now what: Sales of Linzess appear to be progressing nicely, which should translate into a growing revenue stream for Ironwood, and hopefully shrinking losses. But with the majority of the revenue share going to Forest Labs (total Linzess sales were $60.8 million) I can't help but point out that it could be years before Ironwood is at breakeven in the profit-versus-loss column. Although the company has $332 million in cash, its midrange operating expense forecast of $230 million for 2014 is hefty. As such, with a $1.4 billion valuation and profits potentially years away, I would suggest sticking to the sidelines until Ironwood proves its worth.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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Related Tickers

8/28/2015 4:00 PM
IRWD $11.27 Up +0.22 +1.99%
Ironwood Pharma CAPS Rating: ***
FRX $0.00 Down +0.00 +0.00%
Forest Laboratorie… CAPS Rating: ****