How can Ironwood fix slowing Linzess sales? Ditch partner Allergan, analyst suggests

Growth for Allergan and Ironwood’s constipation drug Linzess is easing up, Allergan revealed last week. And one analyst thinks Allergan may not be part of the solution.

On Wednesday’s third-quarter conference call, Allergan dropped commentary that was “both new and negative,” as Wells Fargo analyst David Maris put it in a note to clients. Industrywide pricing dynamics will hurt the drug’s pricing power in the future, company marketing chief Bill Meury told investors, adding that Allergan had lowered its growth projections to a low- to mid-single-digit percentage range.

The way Maris sees it, the news was “a good reminder of the issue of being tethered to a partner.” Ironwood’s share slide and underperformance versus the S&P 500 as of late should make the company “revisit its strategic review and really push the question whether Ironwood is better off independent,” he wrote.

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Massachusetts-based Ironwood has made some major changes this year, prompted by a little activist intervention. In April, Sarissa Capital Management—the fund run by Alex Denner, one-time protégé of famed proxy brawler Carl Icahn—said it was prepping a boardroom bid for Denner. To keep Sarissa at bay, Ironwood pledged to spin off most of its R&D, hanging onto treatments for GI, gout and abdominal pain, as well as a gastroesophageal reflux disease prospect.

It didn’t take long for Ironwood to realize it didn’t want to keep gout offering Zurampic after all, and it handed that treatment back to partner AstraZeneca to “allocate capital to the highest return opportunities and drive growth,” CEO Peter Hecht said in a statement.

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And as Maris figures, it might want to reconsider its Allergan partnership, too, especially because Allergan is going through some soul-searching of its own. Its shares have struggled badly over the last couple of years, thanks in part to competitive threats to its top products, and asset sales meant to boost investor sentiment so far haven’t panned out.

“With competition headed to the market and a partner going through its own strategic review, slower growth assets may not get the attention they once did. This, combined with pricing pressures, may point [out] that there are options that should be more fully explored than the split already contemplated,” Maris wrote.