What happened

After reporting fourth-quarter financial results that were better than expected on both the top and bottom line and updating investors on its plans to split into two companies, Ironwood Pharmaceuticals (NASDAQ:IRWD) surged 11.7% higher today.

So what

Ironwood reported total sales of $130.7 million for Q4, 2018, up from $94.2 million in Q4 2017. Sales consisted of $81.6 million in revenue from Linzess, its treatment for chronic idiopathic constipation and irritable bowel syndrome associated with constipation. The company splits commercial profits in the U.S. on Linzess with Allergan (NYSE:AGN). The quarterly revenue was $38 million higher than Wall Street estimates.

A man in a suit with a megaphone in front of a wall displaying an ascending stock price chart.

IMAGE SOURCE: GETTY IMAGES.

In addition to its share of U.S. profits on Linzess, Ironwood's quarterly revenue also included $45.9 million in sales of Linzess' active pharmaceutical ingredient to its collaboration partner in Japan and $3.2 million in other Linzess-related revenue, including royalties. Linzess is being commercialized by Astellas (OTC:ALPMY) in Japan, and in January, Chinese regulators gave Ironwood's licensee, AstraZeneca (NYSE:AZN), a green light, clearing the way for a launch there in the second half of 2019.

Ironwood reported full-year 2018 revenue grew 16% year over year to $347 million, consisting of U.S. Linzess revenue of $264.2 million, API sales of $70.4 million, and other revenue of $12 million.

The company lost $0.02 per share in Q4 on a non-GAAP-accounting basis, which was $0.16 ahead of expectations. Its non-GAAP net loss was $0.95 per share for the full year. 

Management also updated investors on its plans to split in half. The company remains on track to spin off its rare-disease drug pipeline as Cyclerion to shareholders by the end of Q2. Afterward, Ironwood's focus will be on its gastrointestinal products, including Linzess, while Cyclerion's focus will be on developing drugs for uncommon conditions, including sickle cell disease and diabetic nephropathy and heart failure with preserved ejection fraction.

Now what

The big knock against Ironwood has been that expenses tied to its development pipeline have more than offset its Linzess revenue. Separating into two companies should put the company on a track toward profitability, while potentially also unlocking value in its clinical-stage pipeline.

There's some reason to be optimistic about Ironwood's post-spin-out future. Allergan, Astellas, and AstraZeneca are huge companies with deep pockets and extensive marketing and sales experience and ongoing trials could expand Linzess addressable market. Data from a phase 3b trial targeting abdominal symptoms including pain, bloating, and discomfort are expected mid-2019. 

Check out the latest Ironwood earnings call transcript.