Ironwood Pharmaceuticals (NASDAQ:IRWD) shares are nudging up against 52-week highs because of optimism surrounding Linzess, a drug used in treating chronic idiopathic constipation (CIC) and irritable bowel syndrome associated with constipation (IBS-C). Linzess' sales have grown rapidly since the drug won FDA approval in 2012, but growth could slow now that Synergy Pharmaceuticals (NASDAQ:SGYP) has launched Trulance, a competing drug.

What's at stake

CIC affects roughly 35 million people, and given an addressable market that large, it's not too surprising that Linzess has been a big success for Ironwood and its commercialization partner, Allergan (NYSE:AGN)

A businessman appears worried.

IMAGE SOURCE: GETTY IMAGES

According to the company, over 1.5 million patients have been treated with Linzess since its launch, and based on first-quarter financial results, more patients than ever are being prescribed it.

Allergan reports that Linzess sales in the U.S. were $625.6 million for the full year 2016, a 38% increase over 2015. In total, 2.7 million prescriptions were filled last year, up 27% from 2015, according to QuintilesIMS.

Ironwood and Allergan share equally in brand collaboration profits, and after adjusting out collaboration costs associated with commercializing Linzess and adding in licensing revenue and milestones from other commercial partners, Ironwood reported full-year 2016 revenue of $274 million, up 83% from 2015.

Stiffening competition

Achieving that kind of growth in the future isn't going to be easy, especially now that the FDA has given the green light to Synergy Pharmaceuticals' Trulance. The drug has won FDA approval for use in CIC, but a supplemental application for approval has been submitted that could result in an approval for use in IBS-C, too.

Trulance won its go-ahead for CIC in January, but it didn't begin shipping until March. Despite becoming available late last quarter, it may have already had enough of an impact to negatively affect Linzess.

In Q1, Linzess' year-over-year growth slowed from its torrid pace in 2016 to just 8%. in spite of a 20% increase in prescription volume, sales of $148 million in the first quarter only inched higher because wholesalers drew down inventory ahead of Trulance's launch.

According to analysts at BTIG Research, Trulance prescription trends are running ahead of projections at 800 per week. While that's a fraction of Linzess' prescription volume, there are reasons to wonder if Linzess' volume will slow as Trulance's momentum builds.

One of the biggest knocks against Linzess has been the rate of diarrhea patients have reported. In trials, 20% of IBS-C patients and 16% of CIC patients experienced diarrhea, compared with 3% and 5% in the placebo groups, respectively. The rate of discontinuation of Linzess because of diarrhea was 5% in both indications.

Direct comparisons from different trials shouldn't be made, because of differences in patient populations studied. However, the incidence rate of diarrhea in Trulance's studies could still give it an edge, in the view of doctors and patients. In trials, only 5% of Trulance patients suffered from diarrhea, and 2% discontinued therapy because of it.

Protecting its position

In a bid to shore up its market share, Ironwood and Allergan secured approval earlier this year for a new, lower-dose version of Linzess that may reduce the risk of diarrhea in CIC patients.

The new 72 mcg dose is half of the previously approved 145 mcg dose, and in studies there was a numerical reduction in diarrhea rates and discontinuation because of it. The lower dose means that doctors can choose between either dose, depending on each patient's needs. The recommended dose for IBS-C patients is 290 mcg.

The new lower dose was rolled out in March, so second-quarter financial results should provide more insight into how doctors view the dosing flexibility relative to Trulance's availability.

Ironwood and Allergan are also evaluating a delayed release formulation of Linzess in IBS-C. A phase 3 study in adults is expected to begin this year. The companies are also evaluating Linzess in non-constipation subtypes of IBS to see if there's the potential to expand the addressable patient population.

Looking forward

Ironwood Pharmaceuticals has the advantage of teaming up with deep-pocketed and highly experienced commercialization partners. In addition to working with Allergan, AstraZeneca has licensed Linzess for sales in China and Astellas in Japan. Chinese regulators are expected to weigh in on Linzess early next year, and Linzess was launched in Japan in March. Meanwhile, Synergy Pharmaceuticals is going it alone with Trulance.

Ironwood Pharmaceuticals also has the advantage of a solid cash position thanks to Linzess' success in the past, and by reinvesting Linzess' cash flow into R&D, it's bringing other products to market. It won FDA approval of Zurampic for hyperuricemia in patients with uncontrolled gout last fall, and Ironwood filed for FDA approval of a second gout medicine earlier this year. 

Data from a trial evaluating anther drug, IW-3718, in uncontrolled gastroesophageal reflux disease, is expected mid-year, and a mid-stage study is planned for yet another compound in vascular and fibrotic disease.

Overall, it may be a while before Ironwood's other products contribute meaningfully to sales, and that means in the short term, it has to hope demand in Japan (and eventually in China) offsets any decline in the U.S. because of Trulance's launch. For this reason, investors may want to stay on the sidelines and scrutinize the next couple quarters of sales before buying. 

Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.