Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) just announced top line data from an exploratory phase IIa of its lead diabetes candidate, IW-9179. The drug didn’t perform as the company and its shareholders had hoped, and alongside the data release Ironwood detailed its intention to discontinue its development. Oftentimes, this sort of discontinuation will initiate some heavy downside in a developer’s market capitalization. In this instance, however, markets have been pretty lenient towards Ironwood. The company is down close to 4% on its Tuesday open, and looks set to open US Wednesday at the same price. So why didn’t Ironwood take a bigger hit? Further, is the albeit small 4% discount an opportunity to get in at a discount ahead of a recovery? Let’s take a look.

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First, a look at the drug in question. It’s what’s called a guanylate cyclase agonist – part of a family of drugs that Ironwood has been developing across a host of target indications called linaclotide. It works by reducing the sensitivity of neurons in the colon, and concurrently activating motor neurons in the region, which serves to reduce pain (as a result of the former) and improve smooth muscle contraction (as a result of the latter). A combination of both these actions gives this type of drug a bunch of potential indications, and its already approved under the trade name Linzess for irritable bowel syndrome and chronic idiopathic constipation – both of which came about as a result of Ironwood’s development cycle.

It’s this large potential scope of indication that underlines the pretty weak market response to the drugs failure to show efficacy in the diabetic gastroparesis indication just announced. Ironwood has a range of what it calls exploratory phase II trials underway, and some have already failed, but they are not that expensive to run and each have a potentially large patient population if successful. This means that the company can approach these indications with a relatively low risk, high reward attitude.

Further, these exploratory trials are far from the highlight of Ironwood’s development pipeline. Of more interest are the five separate indications in which the company is conducting trials in cahoots with pharma giant Allergan plc (NYSE:AGN). The most advanced of these, a CIC trial in adults that is testing a lower dose variation of the already mentioned Linzess (a dose of 72 mcg versus the currently approved 145mcg capsule), demonstrated some great efficacy and tolerability data at the end of 2015. Allergan and Ironwood intend to submit an sNDA for the drug before the end of this quarter, and this submission (and subsequent acceptance) could easily reverse the 4% decline seen on yesterday’s termination announcement. Looking further down the line, there is an opioid induced constipation and a CIC in pediatrics indication, both of which are set to move into phase III, again in cahoots with Allergan.

So what’s the point here? Well, yes – the termination of a trial due to the lack of any real efficacy data is disappointing, but that’s really all. It’s far from terminal to (in this instance) Ironwood’s wider development pipeline, and if anything, frees up capital to push the more promising indications toward commercialization.

With this in mind, is the recent decline an opportunity to get into Ironwood at a discount from a long term holding perspective? In short form, it looks that way. Further, it doesn’t need to be too long a timeframe play. With a number of key trial and NDA related milestones, and catalysts, slated for the next couple of quarters, chances are Ironwood is set for a strong remainder of 2016. It’s currently trading at a little over $10 a share – a close to 40% discount on last year’s highs, and looks like a nice allocation going forward at its current price.

As a longer term holding, it also looks promising. With a little over $260 million cash on hand, quarterly revenues ramping up on the success of its approved Linzess product (($53 million during the final quarter of 2015) and milestone payments set for the further development of its pipeline from Allergan, the company isn’t going anywhere soon.

There’s always risk, of course. sNDA’s may be easier to get approved, but if Allergan pulls out of the partnership on some weak data (or if the company’s deal with Pfizer Inc (NYSE:PFE) comes in to play in some unpredictable manner) then Ironwood would take a hit. At present, however, it looks like the potential upside outweighs the risk.