Splitting Ironwood

Why splitting in two could finally give Ironwood and investors their just rewards

Ironwood Pharmaceuticals Inc. has accomplished what many biotechs aspire to but few achieve. It has built a high-growth GI business on the cusp of profitability, and discovered and developed a well-stocked pipeline of clinical candidates to treat a range of serious, underserved diseases.

But unlike other biotechs that have reached this inflection point, its stock hasn’t been well-rewarded for either its commercial success or its R&D.

To get the best, rather than the worst, of both worlds, the company announced on May 1 that it will spin out its soluble guanylate cyclase (sGC) pipeline into a yet-to-be-named newco while retaining its gastrointestinal disease assets under the Ironwood umbrella.

The reasons Ironwood has not been rewarded likely include a perceived lack of commercial synergies between its GI business and indications in the pipeline that run the gamut from rare diseases to large cardiovascular indications.

The specialty pharma-type investor hasn’t benefited from the strong sales growth of the GI franchise because the cash flows have been plowed back into the company’s R&D-heavy pipeline. And these investors cannot see how pipeline programs in indications such as sickle cell disease and heart failure with preserved ejection fraction (HFpEF) would leverage the existing commercial infrastructure.

Meanwhile, biotech-type investors haven’t seen the value creation typically associated with positive clinical data and pipeline de-risking and, worse still, have had to finance development at a higher cost of capital thanks to the company’s depressed stock price.

Ironwood’s shares have significantly underperformed its small- and mid-cap peers over the past several

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