Ironwood Pharmaceuticals, Inc. (IRWD) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals Second Quarter 2012 Investor Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host, Meredith Kaya. Please go ahead.

Good morning, and thank you for joining us for our second quarter 2012 investor update. Joining me for today's call is Michael Higgins, our Chief Operating Officer. We also have Peter Hecht, our Chief Executive Officer; Mark Currie, our Chief Scientific Officer; Tom McCourt, our Chief Commercial Officer; and Jim DeTore, our Vice President of Finance, available for the question-and-answer portion of the call. By now, you should have a copy of our press release which crossed the wire earlier this morning. If you need a copy of the press release, you can go to our website, www.ironwoodpharma.com, to find an electronic copy. Some of the information discussed in today's call, particularly the information related to linaclotide, is based on information as of today, July 17, 2012, and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. We do not undertake any obligation to update any forward-looking statements made during this call or contained in the accompanying slides as a result of new information, future events or otherwise. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in our press release, as well as the risks under the heading Risk Factors in our quarterly report on Form 10-Q for quarter ended March 31, 2012, and any of our future SEC filings. I would now like to turn the call over to Michael.

Thanks, Meredith, and thanks to everyone on the call for joining us this morning. Over the next several minutes, I'm going to walk through some recent highlights on linaclotide, our broader pipeline and our cash position. In previous quarterly updates, we have provided an in-depth discussion around our view of the linaclotide launch, including lessons learned from other successful launches. We will not be going through that level of detail this morning, so I refer you to those previous investor updates if you're interested in learning more. As you know, our NDA for linaclotide is presently under review at the FDA. In April, the FDA notified us and our U.S. partner, Forest Laboratories, that it had extended the review period for our NDA for 3 months. The PDUFA date for linaclotide is now in September. We and Forest are working with the FDA during the review process and continue to plan for a 2012 launch. The MAA for linaclotide submitted by our European partner, Almirall, is also currently under review. Almirall submitted the MAA to the European Medicines Agency in September 2011 for linaclotide for the treatment of IBS-C, and they continue to work closely with the MAA during the review process. We and Almirall are aligned in our vision for linaclotide and have been working to develop an off-market access strategy that addresses the local market conditions in Europe, particularly given the significant pricing pressures and reimbursement hurdles for pharmaceutical products. The primary objective of the strategy will be to fully leverage the opportunity for linaclotide and enable broad access to patients. Our preparation for launch with our commercial partners, Forest and Almirall, are on track and continue to progress. Similarly, we are working closely with our global operations partners towards a high quality and nimble supply chain with redundancy in critical modes. This has been a steady strategic imperative for many years and we have made considerable investments towards this goal and will continue to do so. We believe our integrated teams, including our commercial and supply-chain partners, are fully prepared to launch upon approval. Astellas, our partner in Japan and other Asian territories, continues to advance linaclotide through clinical development. In the second half of this year, Astellas expects to begin enrolling patients in a Phase II trial with linaclotide in patients with IBS-C. Beyond our efforts in the U.S., Europe and Japan, we are also exploring opportunities in other parts of the world, such as South America and China, where we can enable access for linaclotide on a more global basis. There continues to be a lot of interest with several of these discussions continuing to progress nicely. In addition to our partnership discussions in China, we have been working to facilitate clinical development of linaclotide. And in May, we filed a Clinical Trial Agreement (sic) [Clinical Trial Application] with the State Food and Drug Administration for a Phase III trial with patients with IBS-C. We are excited to recently have been notified that the CTA was accepted for review. We believe there's a significant opportunity in China. However, keep in mind that the regulatory path to approval is long and our expectations are that we wouldn't reach commercialization for a number of years. We previously described the long-term strategic intent of Ironwood and Forest to expand the potential of linaclotide by evaluating its utility for patients suffering abdominal pain and bloating, as well as for patients suffering other constipation-related disorders. While it is difficult to assess either the scope or exact timing of these activities, we have begun to explore the potential for linaclotide in these other areas. For example, we and Forest recently initiated a Phase IIIb study to further characterize the effective linaclotide on abdominal symptoms in more than 400 patients with chronic constipation. In addition, we had a great experience with linaclotide at the Digestive Disease Week meeting this past May in San Diego. We and Forest presented 16 poster presentations and 1 oral presentation, with the bulk of the data focused on our linaclotide Phase III IBS-C results. And particularly, the effect of linaclotide had on abdominal pain and other symptoms in these Phase III trials. What really stood out for us this year, however, was the broad awareness of linaclotide's unique profile in the GI community. Given that this is a completely novel approach, we have spent considerable efforts educating this community over time, and we're very pleased with the knowledge around some of linaclotide's key attributes. And while our focus remains largely on linaclotide, our broader pipeline, which is comprised of discovery research efforts and early development candidates in multiple therapeutic areas, continues to advance well. These therapeutic areas include gastrointestinal disease, central nervous system disorders, respiratory disease and cardiovascular disease. Specifically, IW-9179, our second-generation GC-C agonist, continues to advance well and we expect to initiate Phase II clinical studies with IW-9179 later this year in functional dyspepsia patients. As we have previously stated, we expect to spend a total of approximately $60 million to $70 million in 2012 on non-linaclotide R&D. Our total R&D spend includes both non-linaclotide R&D, as I just mentioned, combined with linaclotide-related R&D, which includes items such as our continued investment in the global supply chain and opportunities to expand the potential of linaclotide in other populations. This leads me to some of our corporate and financial updates. We continue to maintain a strong balance sheet ending the second quarter with approximately $158 million in cash. For the first 6 months of 2012, we have used approximately $93 million of cash for operations. We have several remaining potential pre-commercial milestones for linaclotide from our commercial partners, including $85 million from Forest upon NDA approval and up to $20 million from Almirall upon commercialization in 5 of the primary countries in its territory. We believe this solid financial profile provides us with sufficient capital to effectively launch linaclotide if approved. With that, I would like to now open up the call to questions.

[Operator Instructions] Our first question comes from Geoff Meacham from JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: A question for you commercially, I guess, for Tom, so with the start of your Phase IIIb, maybe help us with the impact of this incremental opportunity in CC, either patient numbers or whatever demographics you can share with us.

Thanks, Geoff. Yes, I think and certainly, I'll ask Mark to jump in here as well. But I think as we've mentioned over and over again, there's a huge opportunity within CC with these patients that have, by definition, our CC patients not IBS patients, that have significant abdominal symptoms that would include bloating, fullness, a number of other symptoms, which we think is really a huge opportunity for us. And I think the more we can understand how well these patients respond to the drug, obviously, the stronger case we can make that they are appropriate drugs, appropriate patients for the drug and that this really becomes the drug of first choice for those patients. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: Got you.

I would add to those thoughts in our -- not only from the clinical trials, but from the patient interviews and our PRO work, certainly, the abdominal symptoms ranked very high for the patients that have chronic constipation, and there were certainly group to those patients that had high rates of bloating as a major symptom causing distress for those patients and also discomfort. So I think that certainly supports what Tom and the commercial team are thinking around this patient population. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: Okay. And then just one more on the commercial side. Michael, you mentioned China and South America and likely a partnership for linaclotide, I guess, outside of the Astellas and the Almirall regions. But maybe help us with kind of how you are thinking about these markets. Is this a partnership something that you guys would want to do, some period pre-approval, say, 6 months or one year? Is it something that you'd want to get the label to better understand what the opportunity is in these emerging markets?

Yes, Geoff. It's Michael. I'll take that. The opportunity's there, as you know, we've discussed a bit, we believe that the opportunity both in China and in South America, specifically Brazil, we think the opportunity is there. We've done a fair amount of work on the prevalence. We know it's there. There's a need to create market. So our discussions have really focused on finding the right partner to help advance the creation of the markets in those territories. So it's hard to predict when those partnerships ever come to fruition, so we've been actively having those conversations now. We're not limiting ourselves to the exact timing of them. We're engaged actively in conversations right now. I won't ever predict when those would be complete, but we certainly are engaged in substantive conversations, so we don't think it's necessary to have specific clinical data either in those territories or even launch data in the U.S. We think we can move forward with those. But we'll see how they progress and we're going to look to find a partner who can help advance it, and we're going to look to retain significant long-term value in all of those territories. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: So you're comfortable at this point with not needing a partner to kind of enhance your regulatory probability of success? It's more of a commercial straight up partnership?

Yes, I think while we're comfortable advancing the program and I think what we're going to look for in each of these territories is the right partner that can help us with all aspects of the business, but we want to remain involved as we have across the globe, so we're going to be participants in any relationship that we establish.

Our next question comes from Graig Suvannavejh from Jefferies. Graig Suvannavejh - Jefferies & Company, Inc., Research Division: I just have 2. One is, just wondering if there was any progress you can report on, on the commercialization efforts, whether they relate to kind of aspects on reimbursement of the payer front, as well as on DDMAC materials? And then secondly, just more of a modeling question. Just your R&D in the first half was a little higher than -- the first half of the year was a little higher than what I was expected. Is that a good run rate for the second half?

Why don't we have Tom take the first question and Jim will give a little detail on the R&D numbers.

Could you repeat the first question? I just want to make sure I have it. Graig Suvannavejh - Jefferies & Company, Inc., Research Division: Yes, I just want to know if you could comment on any progress you're making just on general commercialization efforts, particularly on the payer front and perhaps DDMAC materials?

Sure. Yes, I think we feel very, very good as far as where we are overall with the commercial readiness. As you know, we've been working very closely with Forest both preparing of the sales organization, the promotional platform and certainly preparing for the payer. And as you know, the payer space is the place where Forest has particular competency that we're really leveraging. I think we've spent a great deal of time really understanding from the payer what is the value proposition need to be to really secure reimbursement, because our #1 objective here is to make sure that we get drug to patient. So I think we're feeling pretty good about the overall value proposition to the payer in terms of the clinical benefit and certainly making sure that we get price right to make sure that we can maximize availability to patients. So I think we're making good progress there, I think we've zeroed in on the right strategies and I think we're fairly confident we'll do well there. With regard to DDMAC which is now OPDP, that will all depend on what final labeling looks like. We have the promotional materials ready to go. Obviously, they'll have to be tweaked once we get the final label to make sure that they're absolutely aligned, but we'll have to see what final labeling looks like and how we'll have to adapt the promotional platform so we could submit as quickly as possible, which enables us to get the commercialization as fast as we can.

Graig, it's Jim DeTore. On the expenses, particularly with R&D, we talked about the fact that we're going to continue to invest in robustness and redundancy of the supply chain. We've talked about the fact that for linaclotide and continue to expand the use of linaclotide in other populations, such as the IIIb study that was mentioned earlier, and then we have our $60 million to $70 million we've talked about in non-linaclotide. I would say all those investments will continue in terms of trying to comment quarter-to-quarter, there's going to be choppiness quarter-to-quarter, so it's difficult to put a trend line to that, but I would say those investments will continue. Graig Suvannavejh - Jefferies & Company, Inc., Research Division: So in terms of the second half, it's too difficult for you to kind of give us some sense of whether it'll be on a similar run rate to the first half?

I think the activities will continue, but how they come through quarter-over-quarter is difficult to predict at this time, and we don't have any guidance in that area.

Our next question comes from Ram Selvaraju from Aegis Capital.

A couple of things regarding clinical development timing and format. Could you give us some idea as to what the scope of the proposed Phase III trial in China for linaclotide is likely to be, if you know anything about that at this time? And then if you could give us an idea of when IW-2143, the anxiolytic compound, is likely to enter the clinic? And what the first proof-of-concept clinical study is likely to look like again with respect to what you have already determined at this time?

Hi, Ram, this is Mark. Thanks for the question. Yes, I think when we look at the China opportunity, again, we're thinking very similar type of program that we ran in the U.S. But as Michael described, we're actively looking for partnership engagement in the China territory. That certainly will have a big influence on what our open design of the trials will be. But again, we think they will move forward in a Phase III-like program and somewhat similar to what we saw in the U.S. Phase III program. It will be IBS-C, directed towards IBS-C development. Then going to the BNC210 or now the IW-2143, the anxiolytic compound. That compound, we haven't really disclosed the next step forward. Obviously, we license in that compound from Bionomics. We have been working diligently on design, of the further design of the Phase Ib as the next real opportunity for that compound. We then certainly will look more detail on the specific anxiolytic proof-of-concept study. But at this time, we're not ready to give guidance on when that study and the specific design.

Okay. And then with respect to the Chinese regulatory pathway, is it going to be something that we should think about as similar to the European situation where at least for the foreseeable future, your efforts there are going to be focused on potentially securing regulatory approval in IBS alone, or are you seeking to potentially get formal labeling authorization and chronic constipation eventually in that territory?

Yes, I think you described it exactly the way we're thinking about it, which is the initial focus will be on IBS-C, and then we will continue to explore the overall opportunity for life cycle management in that territory.

Our next question comes from Greg Wade from Wedbush.

Mark, could you please just contrast the Phase IIIb and IBS or in chronic constipation that's proposed with the completed Phase III studies. What new information do you expect to glean? And should we read into this new study in that there's not sufficient information for approval in chronic constipation, and this is the study that's hopefully going to get the products across the finish line in that setting?

Yes, so thanks for the question, Greg. Relative to what we're doing with Phase IIIb, it's always been part of our life cycle management plan. As Tom described, we really have time to better understand the effect of the drug in patient population for chronic constipation that suffer from more of what Tom has previously described as patients that have abdominal symptoms, that not only the chronic constipation or the infrequency in bowel movements and hardness of stools, but patients that have these very distressing abdominal symptoms, particularly bloating. So it really is a chance for us to further characterize that in this patient group that is what we think is somewhat of a subset of the overall chronic constipation group. Relative to read through, I would caution against that. We think we feel very confident in our package for chronic constipation. We think the data that we've generated has been highly consistent, very clearly effective and we think we've got it again a great safety profile for our molecule, so I would caution against that read through. The second part of the question?

It was whether we should read into prior 2 additions [ph] like? I mean, what new information wasn't captured in the previous histories? I thought abdominal symptoms were captured in the 2 completed chronic constipation studies?

Yes, Greg. Again, I think that when we did the original chronic constipation study, it has a broad range of constipation patients throughout the spectrum. This is now looking more as the patients that suffer, specifically from a higher degree of bloating in particular, in the abdominal symptoms. So again, trying to get a better understanding specifically how well the drug works in that specific group and to strengthen that profile that we think we've already gotten a good indication from, from our broad population, so.

Our next question comes from Juan Sanchez from Ladenburg. Juan F. Sanchez - Ladenburg Thalmann & Co. Inc., Research Division: Back to the IIIb trial, how long are you going to follow these patients for, and what do you think is the commercial implications of positive data? One might think that a physician could assume that the IBS-C data could apply to this patient population as well and you don't need to make this investment?

So I think how long we're going to treat. We're going to treat standard of what we've treated before with chronic constipation. We're treating out 12 weeks for the treatment period. Relative to the...

The commercial outlook, just so I'm clear on your question, Juan, what do we think is the commercial benefit of a trial like this? Juan F. Sanchez - Ladenburg Thalmann & Co. Inc., Research Division: Yes, because I always assume that the IBS-C data will be sufficient for some -- for the majority of physicians to conclude that it all has this kind of bloating benefits in it.

I think that's true as far as our interpretation, but we have to be able to educate the prescribing physician on the spectrum of patients. And we feel very strongly that one of the key differentiators for this drug is its ability to improve symptoms, whether I call it IBS or chronic constipation. And as you know, there's a lot of patients out there that are defined as constipation but have significant bloating and other abdominal discomfort symptoms. So we want to make sure that we can actively educate -- identify and educate those patients where linaclotide really is likely the best treatment for those patients. And we want to be able to talk in terms of both IBS and chronic constipation. So we think this is a huge opportunity for us to further differentiate linaclotide from currently available therapies.

Our next question comes from Rachel McMinn from Bank of America.

Yes, not to sort of beat a dead horse, but my question's also on the Phase IIIb trial. Two questions there. One is, who is actually funding or like kind of running the trial and putting up the initial cost, like where are those costs going to come through on your P&L or in Forest initially? I know everything is kind of trued up. And then the second question is what -- given the discrepancy in doses that the FDA was looking at between constipation and IBS-C, I'm curious what doses you've decided to take forward into this study?

I'll take the first one -- the last one first, real quickly, so that's very direct. So we're doing both doses, the 145 and the 290 in this trial.

And from a financial presentation, you'll see 50-50 sharing, 50% of the cost on our partners' books and 50% on our books in R&D, Rachel.

Okay. So you're just splitting the cost upfront? It's not like Forest is funding them first and then you're kind of truing up later?

Right.

And then just a follow-up question on overall expenses on the SG&A line, somebody asked about R&D but can we use 2Q as a good run rate, or were there any particular one-time costs that boosted the SG&A number?

Again, I'd say similarly, we're building our commercial capabilities, we're building for our footprint for our global company, so you have a lot of pieces there so it's difficult to take one quarter. I understand the modeling need here, but while you're building a business, you're going to see some choppiness over the next few quarters as we build our business.

As I said the one specific item that will be picked up later this year post-approval to state the obvious, Rachel, is the sales force. Just to remind everyone, the sales force is not being brought -- the full sales force is not being brought on board until after approval, so that will be an uptick later on in the year. That will be a specific increase in it, in expense. We've intentionally done that, so we minimize the impact prior to approval. But as Jim stated, we've already started to build the commercial infrastructure. We've got the regional sales managers on board and we're building the baseline. But charges for sales force from both us and from Forest won't hit until after we have approval for the product.

I'm sorry, one last question. Have you said on the manufacturing front what level of manufacturing investment you're making this year?

We haven't provided specific detail on the level of investment, Rachel, but we have continued on both API to build inventory. And from a drug product perspective, we're ensuring that we have redundancy. So we're making investments in additional drug product, to access additional drug product manufacturing capabilities.

Our next question comes from Mario Corso from Caris & Company. Mario V. Corso - Caris & Company, Inc., Research Division: There's a couple of things I wanted to ask about. On the IIIb study, is the primary endpoint constipation or would the primary endpoint be abdominal symptoms? And I'm assuming that part of this on a post-approval basis is to demonstrate that the higher dose may have benefit in abdominal symptoms, whereas perhaps the higher dose does not have a benefit in constipation, which can be perhaps satisfactorily taken care of with the lower dose. And then in terms of -- can you walk me through with the OPDP process a little bit? I mean, I imagine post-approval, you guys can tweak your materials in a few days, get its OPDP, and my understanding is they have to get back to you within 45 days. And from there, I would imagine it's kind of minor tweaks in a few days perhaps to finalize things, but just curious if you would alter my thinking on that at all?

Yes. So Mario, this is Mark. Relative to the end point, we haven't disclosed specifically yet. But essentially look at it the same way we did our chronic constipation trial previously. So primary type end point theme is what we've done prior with the other symptoms being more secondary. And then I think...

The OPDP response. Yes, thanks for the question. I think it's -- I think you've got it right. As soon as we get label, we'll make modifications to our core campaign, which we will submit to DDMAC. That'll take a couple of weeks or so to make sure that we have everything lined up and ready to go. Then they will take somewhere around 45 days to review the material. Then once we get the feedback back from OPDP, then we have to modify all other materials, not just the promotional materials but certainly all the launch materials, the training materials et cetera to make sure it's fully aligned with product labeling, which is going to take a few more weeks, so we walk into our full commercial launch meeting. So that's really the critical path.

[Operator Instructions] Our next question comes from Irina Rivkind from Cantor Fitzgerald. Irina Rivkind - Cantor Fitzgerald & Co., Research Division: I just wanted to keep pursuing the DTC vein a little bit more. Do you anticipate launching the online DTC promotion immediately after the launch, or is this tactic something that you sort of plan to layer on later in 2013? And also, how do you think about periodically refreshing this campaign in terms of how you reach patients on the Internet, such that there's new ways to keep bringing the information to them?

Yes, Irina, thank you for the question. As you know, this is a big -- it's a core piece of our promotional strategy. We know these people are highly systematic. We know that we can -- once we educate these people, we'll respond significantly and quickly to seek care or raise their hand and certainly ask for more effective therapy. So this is really a key part of the overall promotional effort. As we mentioned before, as the digital spaces become far more effective and efficient, we know that this population are high information seekers and it's a great place or a wonderful opportunity for us to go out and communicate with patients. We certainly plan to do that as quickly as we can. Obviously, that will be dependent on the feedback we get from OPDP and we certainly want to be able to engage the patient as fast as possible. So it would certainly be after we get feedback from OPDP on our promotional efforts. Included in that will be certainly some of the patient-related information, but we certainly want to go there as quickly as possible. And as far as your second comment with regard to the evolving technology and the opportunity, as you know, FDA's thinking around this space is evolving and certainly, we want to make sure we're out on the forefront to make sure that we appropriately leverage this communication channel as effectively as we can, because we know it has -- it can have a significant impact on how patients behave and how they engage their physician. Irina Rivkind - Cantor Fitzgerald & Co., Research Division: And just a quick follow-up, can you share with us how much the IIIb trial is expected to cost and also when the data could be expected? That's the end.

Irina, let me take that one. I think at this stage, we're not comfortable giving any specific estimates on time or costs, but we'll keep you updated as we go forward and let you know, give you some more details on that as we move forward.

And I'm showing no further questions at this time. I will now turn the conference back over to management for closing remarks.

All right. Well thank you, again, for joining us this morning. We're looking forward to preparing for our launch, and we'll keep you up-to-date over the coming months. Thanks, and have a great day.

Thank you. Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.