Why Ironwood Pharmaceuticals Shares Popped

Why Ironwood Pharmaceuticals Shares Popped

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 , a specialty biopharmaceutical company, gained as much as 11% after the company reported better-than-expected second-quarter earnings results.

So what: Take that phrase "better than expected" with a grain of salt, because when you're a growing biotechnology company with a newly approved drug, Wall Street tends to cut you some slack. For the quarter, Ironwood recorded a 34% decline in revenue to $9.7 million as its loss widened to $0.57 per share. Comparatively speaking, though, this was far better than the $0.70 loss per share on $6.2 million in revenue that the Street had expected. Furthermore, Ironwood backed its full-year sales and marketing expense guidance for its lead drug, Linzess, that it co-markets with Forest Laboratories . According to Forest Labs, sales of the drug, which is used to treat irritable bowel syndrome with constipation and chronic idiopathic constipation in adults, totaled $28.8 million for the second quarter.

Now what: It was a good quarter for Ironwood in terms of a sales ramp-up, but it was nowhere near anything to write home about. Although Ironwood ended the quarter with $300.5 million in cash and securities, it burned through an incredible $80 million in net cash during the quarter! I doubt it keeps burning through its cash at this rate, but if it does, it's only got about a year's worth of cash left before it runs out. This leaves the door open for dilutive share offerings, which raise cash for the company at the expense of current shareholders. For now, I'd suggest being an innocent bystander and watching from the sideline until Ironwood's cash burn drops considerably from its current pace.

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