Follow the 'Strong Hands' Into Ironwood Pharmaceuticals (IRWD)

March 11, 2010 2:52 PM EST

A number of investment funds have piled into recent biotech IPO Ironwood Pharmaceuticals (Nasdaq: IRWD), as disclosed in 13G filings and other filings over the past month or so. Investors should take notice.

Filings show:

• Wellington Management owns 3,310,000 shares, or 17.27%
  
• Prudential owns 2,324,000 shares, or 12.13%
  
• Jennison Associates 2,160,000 shares, or 11.27%
  
• Vanguard owns 2,000,000 shares, 10.43%
  
• Field Cooperative owns 1,990,808 shares, or 10.39%
  
• Putnam owns 1,761,546 shares, or 9.19%
  
• Adage Capital owns 929,600 shares, or 4.85%

The filings indicate that "strong hands" currently own over 75% of the newly issued stock. This could be even higher as many funds with smaller stakes were not required to disclose their positions yet since the IPO was in February 2010 and the latest 13Fs were from the quarter ended December 31, 2009.

Ironwood's February IPO priced at $11.25, well below the expected range of $14-$16, due to initial weak demand. Shares are currently at $12.80 per share, giving other investors an opportunity to get it near the IPO price and below the originally expected price.

Another reason investors may want to take a look at Ironwood Pharmaceuticals is the insane M&A activity in the biotech sector lately, with the acquisition of Facet Biotech (Nasdaq: FACT) by Abbott (NYSE: ABT) this week and the recent takeover bid for OSI Pharmaceuticals Inc. (NASDAQ: OSIP), among other activity.

It is clear that larger pharmaceutical companies want to get their hands on successful drugs to fill their pipelines as they deal with patent cliffs.

Ironwood has one Phase 3 drug candidate, one Phase 1 pain drug candidate, and multiple preclinical programs. Linaclotide is the company's first-in-class compound currently in confirmatory Phase 3 clinical trials evaluating its safety and efficacy for the treatment of patients with irritable bowel syndrome with constipation (IBS-C) or chronic constipation (CC). Linaclotide recently achieved favorable efficacy and safety results in two Phase 3 CC trials, meeting all 32 primary and secondary endpoints, including the improvement of abdominal symptoms such as bloating and discomfort as well as constipation symptoms, across both doses evaluated in these independent trials involving 1,287 subjects. The company expects to have data from Phase 3 IBS-C trials in the second half of 2010. If those trials are successful, they intend to file a New Drug Application with the FDA in the first half of 2011, seeking approval to market linaclotide to IBS-C and CC patients age 18 and older in the U.S. If the FDA approves linaclotide for those indications, the company may seek to expand linaclotide's market opportunity by exploring its utility in other gastrointestinal indications and in the pediatric population.

Yet another reason to look at Ironwood is that the underwriters and others will soon pick up research coverage of the stock, which could prove to be a catalyst. Underwriters for the deal were: J.P.Morgan, Morgan Stanley, Credit Suisse, BofA Merrill Lynch, and Wedbush PacGrow Life Sciences.

So with strong hands, M&A activity in the sector, a great drug candidate and upcoming coverage, investors should seriously look at Ironwood Pharmaceuticals.

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