It doesn’t take a genius to predict what will become the big story in local biotech circles over the next few weeks. Even I can figure that out.
The big story will be all about linaclotide, an experimental drug developed by Ironwood Pharmaceuticals Inc. of Cambridge to help millions of people who suffer from irritable bowel syndrome. The Food and Drug Administration is expected to decide whether to approve the drug for sale in the United States early next month.
Linaclotide gets people excited because it could become one of the few effective treatments available to a huge population of patients in America and many millions around the world. Results from large clinical studies have been very encouraging. Best of all: Linaclotide is a treatment — not a cure — so satisfied patients would probably become long-term customers.
Some of Ironwood’s biggest investment fans are right here in Boston. Fidelity Investments and Wellington Management combined own about 25 percent of the company.
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But Ironwood’s drug isn’t approved yet. In fact, the FDA extended its timetable earlier this year, pushing a decision date into September. Regulators also asked for more analysis of some of the clinical results.
So here’s a tricky question for investors: How would you pencil out a fair value for Ironwood shares right now?
Ironwood shares closed yesterday at $12.71, giving the company a stock market value of nearly $1.4 billion. Ironwood doesn’t have any other products close to commercial development so that is the price of linaclotide’s potential; some analysts believe the market for the drug could eventually be several billion dollars.
A little context: The company went public in 2010 at $11.25 per share and sold more stock at $15.09 six months ago — well after a pile of clinical results and a formal application seeking FDA approval for linaclotide.
On Wall Street, opinion has been mixed. Six analysts recommend the stock, five are neutral, and three recommend selling shares.
All those analysts and investors have to work through a number of questions about Ironwood before deciding on the stock.
For starters, what is Ironwood worth if the company gets bad news from the FDA? This strikes me as a very unlikely scenario because in clinical trials linaclotide produced such good results without serious side effects. But red flags at the FDA would make Ironwood worth much less than $1.4 billion.
Here’s the big one: Can linaclotide become a commercial blockbuster worth billions? Most analysts think it can, but Ironwood must share the commercial pie with its US marketing partner, Forest Laboratories. Ironwood has another marketing partner in Europe, where linaclotide is also awaiting approval.
One more: How long would it take linaclotide to reach its sales potential? This is an important question but hard to answer. Ironwood and Forest are pitching the virtues of linaclotide to both gastroenterologists and primary care doctors. They are trying to build a following among tens of thousands of physicians and that will take time. Ironwood must also promote the “value proposition” of its drug to assure attractive reimbursement rates from insurers and the government.
Finally: What is the future at Ironwood? Could the company be acquired if linaclotide turns out to be a big hit? Ironwood’s dual-class stock structure gives super voting rights to investors who owned the company before it went public. No one is going to bully management into selling.
It’s all hard to predict. That’s why stock analysts can’t agree on Ironwood. But there’s no doubt that Ironwood and linaclotide are about to become the next big biotech story.