Ironwood Pharmaceuticals, Inc. (IRWD) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, welcome to the Ironwood Pharmaceuticals Q2 2013 Investor Update Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce your host for this conference call, Ms. Meredith Kaya, Director of Investor Relations. You may begin, ma'am.

Good morning, and thank you for joining us for our second quarter 2013 investor update. In today's call are Peter Hecht, our Chief Executive Officer; Tom McCourt, our Chief Commercial Officer; Mark Currie, our Chief Scientific Officer; and Michael Higgins, our Chief Operating Officer. 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. During the call, our speakers will be referring to slides available via the webcast. For those of you dialing in, it may be helpful for you to go to the event section of our website to access the webcast live, if you haven't done so already. Some of the information discussed in today's call is based on information as of today, Tuesday, July 23, 2013, 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 and on the current slide with the heading, Safe Harbor statement, as well as the risks under the heading Risk Factors, and our quarterly report on Form 10-Q for the quarter ended March 31, 2013, and any of our future SEC filings. I would now like to turn the call over to Peter.

Thank you, Meredith. And thanks, everyone, for joining us on the call this morning. As a result of the hard work, passion and dedication of our terrific team, first half of 2013 was a transformative period for Ironwood. We made important progress on all 3 strands of our mission: to bring important medicine to patients, maximize value for our fellow shareholders and build an outstanding, high-functioning and collaborative team and culture. Our primary focus is to maximize the LINZESS launch. Our performance there continues to be strong across leading indicators. Our U.S. partner, Forest, reported this morning approximately $28.8 million in net sales of LINZESS for the second quarter. Tom will be providing a full update on the launch shortly. Following that, Mark will provide an overview of our development efforts for linaclotide and other pipeline assets, and Michael will update you on our efforts to bring linaclotide to appropriate patients worldwide as well as review our financial performance for the quarter. Then I'll rejoin the dialogue to wrap up, and we'll open up the call for your questions. With that, I'd like to now turn the call over to Tom to provide an update on the LINZESS launch.

Thanks, Peter, and good morning. We continue to be encouraged by what we're seeing in our launch efforts with LINZESS and in the U.S. marketplace. The 4 most important indicators for success of LINZESS includes the growth and productivity of our prescriber base, the recognition by payers of the potential value of LINZESS can offer adult patients, the active involvement of the patient in the treatment decision and the uptake and growth of new and refill prescriptions which drive total prescriptions. We and our partner, Forest, are collaborating closely and effectively to activate all these levers. And as we will discuss in detail shortly, approximately 125,000 prescriptions for LINZESS have been filled in the second quarter. In addition, we are observing strong signals across key leading indicators reinforcing the substantial opportunity that exist for LINZESS moving forward. Our sales force is executing at a very high level and is a growing strategic asset for us. And we expect to utilize its full potential in the future. Starting with our physician efforts on Slide 5. At the end of June, approximately 30,000 physicians have prescribed LINZESS. This tracks well with other successful primary care launches in the GI space, including Prilosec and Zelnorm. These 30,000 physicians include over 70% of top decile gastroenterologist and approximately 40% of top decile primary care physicians. Additionally, we're seeing approximately 1,000 new prescribers choosing LINZESS for the first time each week, which is a critical component for sustained growth over time. We are not only seeing strong adoption but also continued growth in prescribing over time. The physician who began writing early continues to write. This suggests physicians appear to understand and recognize the patient need and the benefit LINZESS can offer for appropriate patients. Our robust and collaborative efforts to ensure physicians are well educated about the clinical profile LINZESS is manifesting itself in broad awareness, understanding and strong uptake. According to our internal market research, involving over 200 high and low-adopting physicians, 70% of surveyed gastroenterologists and 50% of surveyed primary care physicians report to be highly knowledgeable about LINZESS, and majority of surveyed physicians are highly satisfied with their initial experience with LINZESS compared to other treatment options and intend to expand use. These data, combined with the findings that is between 65% and 85% of physicians report a willingness to prescribe LINZESS for appropriate adult patients who request LINZESS, is very encouraging as we continue to execute our launch plan. Over the next several months, the strong joint sales force will continue to focus on our priority physician base to enable broader adoption, particularly amongst primary care physicians. The majority of LINZESS growth comes from either adult patients newly seeking care or adult patients actively managed by physicians with an OTC. 63% of patients treated with LINZESS are new to prescription, the majority of whom previously were treated with OTC. This continue to suggest a significant level of dissatisfaction amongst these adult patients as well as the potential size of the market available to LINZESS. Highly symptomatic conditions such as -- sorry. Physicians are reporting having a -- I'm sorry, physicians reporting having an effect in abdominal pain in addition to improving bowel function is a critical aspect to the treatment decision and they recognize the benefit LINZESS provides patients. Turning to Slide 6 and the payer. Managed-care coverage and out-of-the-pocket cost are the 2 most critical barriers for choosing LINZESS. This is one area where primary care launches have become increasingly more challenging in recent years and the primary focus of the LINZESS launch. We have made significant progress here in the first month of launch and we expect to add additional coverage in coming months. Right now, we estimate, based on current secured contracts, about 80% of patients covered by commercial insurance plans will have unrestricted access to LINZESS and approximately 50% will have Tier 2 or about a $30 co-pay. We have also made good initial progress in our Medicare Part D plan, which cover approximately 15% of target patient population. Slide 7 summarizes the progress to date that we've had with patients. Our initial efforts to engage patients is primarily been through the digital channel. Our market research shows that IBS-C and chronic constipation patients spend more time online seeking help for their symptoms than do others or any other GI conditions. To date, these patients have been quite responsive to online education efforts. And based on the importance of a good patient-physician communication and previous patient response in this category, there is sound support to expand this effort over time. Highly symptomatic conditions like IBS and chronic constipation with a highly dissatisfied patient population were actively seeking care, combined with a growing LINZESS prescriber base and a strong payer access, are foundational to expanding the patient awareness and educational efforts. Therefore, we intend to adjust our current marketing mix over the upcoming months to invest more fully in patient education to our digital channel as well as broader communication channels in media while expecting to continue to operate within the $250 million and $300 million marketing budget that we set forth. The combined efforts of physicians, payers and patients drive the steady growth in total LINZESS prescriptions. As I mentioned a few minutes ago, approximately 120,000 total prescriptions for LINZESS were filled in the second quarter and over 200,000 have been filled since launch. New prescriptions make up approximately 60% of total prescriptions, growing more than 150% quarter-over-quarter. And the refill prescriptions are growing very nicely, which is generally a good indicator LINZESS is working well in patients and is critical for long-term growth of LINZESS. We are extremely pleased of where we are today, yet it's important to remember that we're at the early stage of building our linaclotide franchise with the potential for long exclusivity. And as you can see from this slide, we continue to track against our analogs, Zelnorm and Prilosec, even though we are launching into a far more health care environment which we intend to improve over time. And together with our partner, Forest, we continue to advance LINZESS in the marketplace and hope and plan to strengthen the clinical profile as well as expand its utility for millions of additional appropriate patients. Over the next several months and years, we will continue to understand and leverage the critical success factors throughout the stages of the product life cycle in order to optimize the growth and success. I'll now turn the call over to Mark.

Thanks, Tom, and good morning. We are excited about the opportunities we are investing in across our research and development portfolio. As always, we advance programs in a gated, data-driven, earnest way forward mode. We are seeing encouraging results in a number of areas and believe that we are creating value with our pipeline assets. We continue to make advancements in the pharmacology of linaclotide that strengthen our understandings of the effects of linaclotide in adult IBS-C patients and CIC patients, and enables us to explore the utility of linaclotide and our Gpp franchise more broadly. In the near-term, we have opportunities to strengthen the current profile of LINZESS with existing data as well as with emerging data that we will continue to gather. These opportunities include providing a digital non-clinical data to support strengthening of the existing label, gaining a better understanding of linaclotide's effect on abdominal pain over time, exploring the effects of linaclotide on pain-sensing nerve and working with the FDA to understand the path forward for including additional secondary endpoint in the label for both IBS-C and CIC. We expect to report top line data during the third quarter from our Phase IIIb study conducted to further evaluate the effects of LINZESS on abdominal symptoms in patients with CIC. This study will further enhance our understanding of the effects of linaclotide on bloating as well as provide us with greater insight into the actions of linaclotide throughout the intestinal tract, particularly with respect to its effect on the abdominal symptoms of bloating, fullness and abdominal pain. We are also exploring with our partner, Forest, potential path to bring linaclotide to other patient population such as pediatrics, as agreed to in our post-marketing requirement with the FDA, and a digital indication such as opioid-induced constipation. Both represent significant opportunities to bring linaclotide to millions of additional patients, and we expect an FDA study for these indications in the first half of 2014, beginning with Phase II dose-ranging studies. We and Forest have begun exploring the potential for a fixed-dose combination with a proton pump inhibitor as there is significant overlap between GERD and IBS-C sufferers. We're also studying other formulations that may enhance the clinical profile of linaclotide. These efforts are in the early formulation development testing stage and could move into clinical development over the next couple of years. Lastly, we continue to develop technical expertise and strength in a couple of key scientific areas. First, our experience with linaclotide in spite of GMP have provided a strong base to further develop opportunity in the Gpp space and other modulators of cyclic GMP levels. We are studying a second Gpp agonist, IW-9179, in an exploratory Phase IIa study in European patients with dyspepsia symptoms, and we expect to report our top line data either late 2013 or early 2014. Second, we have built discovery and development expertise in the field of peptide science, including pharmacology, chemistry and formulations that have started to yield late-stage discovery assets. We expect to provide an overall pipeline update, including discovery and development stage opportunities, during an Investor Day later this year. Now I'd like to turn this call over to Michael Higgins.

Thanks, Mark. Today, I'd like to update you all on 2 topics. First, progress globally with linaclotide and second, an update on our financial performance. I'll start with an update on the progress we and our partners have made in bringing linaclotide to appropriate patients worldwide, recognizing the increasing interdependencies of our development and commercial efforts on a global basis. Beginning with Europe, our partner Almirall has launched Constella in the U.K., Germany and the Nordic countries. Initial feedback from Almirall has been consistent across each of the territories on which they've launched. Physicians are reporting early positive experiences with Constella in their adult IBS-C patients. Almirall is working closely with the relevant regulatory authorities to establish appropriate pricing and reimbursement in those countries. As such, we were pleased to see the Scottish Medicines Consortium published a positive clinical assessment on Constella last month. From a financial perspective, we received approximately $2 million in milestone payments in the second quarter for our amended agreement with Almirall, and we'll be booking royalties from sales of Constella in Europe on a cash basis and expect to begin recognizing those royalties on our income statement starting in the third quarter. In China, we and AstraZeneca have initiated a Phase III clinical trial for linaclotide in adult patients with IBS-C, the patient enrollment beginning in coming weeks and top line data expected in the first half of 2015. Our Japanese partner, Astellas, continues to advance its Phase II clinical trials with linaclotide in adult IBS-C patients with completion expected in the second half of 2013. Pending completion of these development programs and submissions of the NDA equivalent in each country, we anticipate that linaclotide could be commercialized in China and Japan as early as 2016. Both China and Japan represent significant market opportunities for linaclotide given the large unmet need across both countries and the limited treatment options currently available. Importantly, in addition to the milestones and upfront payments from our ex-U.S. partners, we have the potential to share an approximately half of the long-term value of linaclotide in these territories. We also maintain full rights in the unpartnered territories representing additional value-creating opportunities for linaclotide. Turning to our financials, I'd like to start up with a few highlights from Q2. LINZESS net sales, as reported by Forest, were $28.8 million. As a quick reminder, LINZESS sales are not included in the Ironwood's revenue line but instead are captured as part of our collaboration expense line, which I'll discuss in more detail shortly. Total operating expenses for Ironwood during the second quarter were $55 million. And we ended the quarter with approximately $300 million in cash and cash equivalents. Turning to our income statement. GAAP revenues this quarter were approximately $9.7 million and are made up of a few components. First, $6 million in the sale of API to our ex-U.S. partners; second, $1.9 million in milestones from Almirall related to the launch of LINZESS in the U.K. and Germany; and third, $1.7 million in amortization from our Astellas and AstraZeneca collaborations. As I just mentioned, our total operating expenses in Q2 were approximately $55 million. Included -- excuse me, included in this is our R&D expenses, which for the second quarter, were approximately $24.1 million and comprised of the following: $3.8 million in LINZESS R&D; $7.1 million invested into our supply chain and to support our rest of the world partners in their development and commercialization efforts. As we bring linaclotide to adult patients globally, we're incurring validation expenses in R&D to build redundancy in our supply chain through multiple API and drug product manufacturers. And lastly, we invested $13.2 million in our non-linaclotide pipeline, which Mark spoke to earlier. Total operating expenses also included SG&A expenses which, for the second quarter, were approximately $30.9 million. Included in this quarter were: $8.3 million in LINZESS sales and marketing expenses as included in the collaboration expense share with Forest; $8.6 million of additional sales and marketing as well as rest of the world support. The additional sales and marketing cost is primarily made up of the unreimbursed portion of our sales force. We are making investments into our sales force that have brought significant value to our joint selling efforts with Forest, and we will look at ways to maximize this asset over time. And finally, in the overall operating expense, G&A cost of approximately $40 million were also included. We recorded approximately $5.3 million in interest expense for the second quarter 2013, in connection with the $175 million debt deal we completed in January 2013. From a cash perspective, we ended the quarter with approximately $300 million in cash and cash equivalents. During the quarter, we raised approximately $138 million in equity and used approximately $82 million of net cash for operations. Turning to our LINZESS financials, as I just mentioned, Forest reported $28.8 million in net sales of LINZESS in the second quarter of 2013. We have stated in prior calls that we expect gross net discounts to ultimately settle in the 20% to 25% range. We are currently in the mid-teens and expect to land at the high end of the range as we continue to add more patients on to Tier 2 coverage. From an inventory perspective, we have sold-through our initial stocking levels and are now trending towards wholesale inventory levels approximately -- approximating 4 weeks, as underlying script demand began to correlate more closely with ex-factory shipments. The LINZESS collaboration produced a total net loss of $38.9 million that resulted in a payment of $11.2 million to Forest recorded as collaboration expense after backing out the $8.3 million we incurred in LINZESS sales and marketing. LINZESS revenue growth will continue to have an impact on our cash flows in the future, shrinking the overall net collaboration expense. We're creating collaboration income if LINZESS sales continue to grow as expected. Thank you. And with that, I'll turn it back over to Peter.

Thanks, Michael. As you heard from the team this morning, we continue to make strong progress across our business objectives. The LINZESS story is just in the first few chapters in what we expect to be a big and exciting book. Important primary care drugs, and we strongly believe we have one with linaclotide, can offer significant benefit to patients and shareholders for years and years, but they also require substantial large investments to maximize their potential success. To develop and commercialize linaclotide here in the U.S. and around the world, we are building an organization that is made up of a focused efficient team here at Ironwood, working intimately with highly collaborative global partners. We expect the investments we are making across all of our assets to provide significant opportunities to generate additional near-term and long-term value. One thing we can assure you, management, our employees and our board are all aligned with you. All of us are co-owners focused on allocating capital efficiently and effectively to build our business to maximize per share value. Thank you. And with that, I'll turn it over to Kevin to begin the Q&A portion of the call.

[Operator Instructions] Our first question comes from Ravi Mehrotra with Crédit Suisse. Ravi Mehrotra - Crédit Suisse AG, Research Division: Let me ask a very easy one. Mike, could you just run through -- of your comments upon inventories because The Street is obviously very focused on where these inventory levels are right now and where you expect them to go? And can you just give us much granularity on how you're handling that given that you're still in the ramp phase? And then a follow-up question for Tony (sic) [Tom], you guys have made it incredibly clear that you're just laying down the foundations for mid- to long-term success here. Can you run us through some of the lessons you've learned from these first couple of months of launch? Where is the difference to your expectations in how you're adapting your message?

So I'll take -- while I take first part, and Tom can take the second. So let me reiterate a couple of things. First, I want to start by saying that, as we've stated in the past, I think it's really important to understand that we still believe that the IMS TRx data really is ultimately kind of a great source of information for underlying demand, and we keep an eye on that and, obviously, we talk about that frequently. And I know you all have -- many of you have access to that data and it comes out on a regular basis. So that remains an important part of the equation to really understand the underlying demand. With that said, I'll guess I'll just make a couple of comments. Our view is that we're moving in a nice direction. As you all know, from the fourth quarter of last year, there was initial stocking. We believe that we've moved through that initial stocking phase and we're now getting to the stage where the underlying demand and the ex-factory sales are going to start to correlate a little more tightly. And at this stage, we're looking at about 4 weeks of inventory at the wholesaler level. And I think those are kind of the elements that we feel are most relevant and most important. If you have a follow-up, I'm happy to catch that up, maybe after Tom does the -- his update.

Thanks, Ravi. I guess I'd go back to kind of the basics, and that is the physician, the payer and the patient. I think what we've learned from the physician is certainly the gastroenterologist were very, very strong out of the gate. They clearly saw these patients. They clearly adopt it, and they seem to be very happy with the brand. PCPs, as you'd expect, moved a little slower with regards to the rate of adoption, but we're clearly seeing good penetration in that market. I think the real core piece here is, now that they've adopted, how do we make that patient, a broader patient population come alive, to really help the docs help patients? So I think those are the key learnings on the physician side. We don't see any major obstacles on the physician side based on their high willingness to prescribe to a broader audience as well as their willingness to honor a patient request, which really says that they feel the drug is effective and safe. On the payer side, I think this has been really encouraging to see that the payers have moved quicker than we really expected them as far as getting to the table, contracting and securing good, solid access in healthy reimbursement. And of course, that's being pulled through over time. I think the third piece is the patient, in how quickly the patient has reacted to the initial digital efforts we've made and their willingness to come back over and over again for additional information. So as we think to the future, we have a good prescriber base that's growing and a high willingness to prescribe, we have payers that clearly recognize the value and are reimbursing for the drug, and I think the critical piece now is really educating and activating the patients to raise their hand and really ask for more effective therapy. So as I look across the key learnings and lead indicators, I think we're really, really encouraged about what's out in front of us. Ravi Mehrotra - Crédit Suisse AG, Research Division: That's great. And Michael, I'll take you up and comment back to you. Look, let me push you slightly about the last question. You talked about 4 weeks inventory, could you turn that around and give us a dollar value of how much inventory you have there because, obviously, on the lowest space, the sort of exponentials, I'm not sure what our week is.

Yes. I think that's -- so that's the -- that's a tough question to respond to. I think we're comfortable with that using the 4 weeks as reasonable guidance at this stage, and I think that at this point the charge for the wholesale is really is to ensure they have sufficient quantity as we go forward. They're already trending down to -- contractually, ultimately, by the end of this year, they'll need to get them to 3 weeks. They're already heading in that direction. So our view is actually we're getting close to those levels where, I think, the underlying demand really is just going to correlate very tightly with the ex-factory sales. But we're moving in that direction. We're not quite there yet. It's kind of hard to predict exactly when that's going to happen.

Next question comes from Matthew Harrison from UBS.

Let me just follow up on inventory and just ask a separate question. What do you think the IMS capture ratio is right now and has that shifted at all from what you're seeing in the first quarter? And then, as a follow-up, I was interested in the data you gave around new prescriptions. And I believe you said 1,000 new prescribers are being added each week. Can you help me correlate that with what we've seen in NRxs which look like they have started to slow in terms of their growth? Does that mean that there's a lot of turnover in terms of the new docs that are prescribing? Help me understand how your 1,000 new prescribers each week sort of correlates with the slowing NRxs that we're seeing.

Matthew, I'll take the new Rx number question first. I think with any launch, you do see fluctuations in new Rx growth over time as far as deceleration and slowing down. And we clearly did see some slowing of growth between Memorial Day and the July 4 holiday. What we are seeing is those physicians that did prescribe earlier continue to write, and they do progress in productivity. A lot of the recent new prescribers, as you can imagine, tend to be primary care physicians and, right now, are writing 1 or 2 or 3 prescriptions. And if you look at the last 4 to 8 weeks, adding 4,000 or 8,000 new prescribers, they're largely adding a few -- treating a few patients and they're really waiting to see what happens. Again, I go back to trying to predict what's going to happen in the future. And I think that's where we're really trying to understand the physicians' view of who the appropriate patient is and the unmet medical need, their willingness to prescribe. Not only prescribe to patients that present, that they recognize, but also their willingness to honor requests as we push harder on the patient side. While we've made good investments on the digital side, we see that this group is extremely promotionally responsive. So as we push harder on the patient promotion side, we certainly see the opportunity to grow new Rxs.

And with regard to the capture rate, we don't have an exact figure for you, but we do believe the IMS data really does capture the best majority of data. It is one of the challenges that we're working through and trying to understand a little more detail both the capture rate as well as the -- as we get into mail-order in terms of average number of days per script, I think those are some of the things that we're getting a little more granularity on over time. So there are some things, while I fully appreciate the desire to kind of get the number nailed down, we're still working through some of the details. But we do think the IMS data is a very good representation of the underlying demand.

And -- sorry, just to follow-up. Do you believe it changed at all from the first quarter to the second quarter?

We don't have any reason to believe that there's been a significant change. While there is, over time, there'll be mix change. We don't think it's a material change from Q1 to Q2. We don't have any data to suggest that it's been a material change between Q1 and Q2.

It does look like the days per script are going up over time and the mail order will go up over time. And there are -- this is Peter, and there are certain areas where IMS won't capture, certain other health plans and some of their captured health plans won't be captured in IMS. So -- and those have been coming on over time. Just for an example, Kaiser as a health plan isn't captured under IMS. They came on board in the second quarter. So there is some change.

The next question comes from Geoff Meacham with JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: I want to ask you about gross to net, what was the approximate gross to net adjustment in Q2? Was that different from 1Q? And then, are you guys still thinking about a 20% rate looking forward, maybe for the next, say, 12 months or so? And then, I have a couple of follow-ups.

Yes, Geoff. Thanks for the question. We're in the mid-teens right now in terms of the gross to net adjustment. And we do expect, as we talked in the past, that's in the same range that we were in Q1. We do expect that over time that we will be moving to that -- to the high-end of that 20% to 25% range. As we transfer, basically, transfer patients on to managed care from where they are. Many of them now are being picked up through our -- some of our patient programs, the relay health program as one example. So we're in the mid-teens now. We expect to move up into the 20%, 25% range. And late this year, sometime into next year, we expect to be in that 20% to 25% range and likely to be on the high-end of that range. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: Got you, okay. And then, can you talk about the covered lives under Tier 2 reimbursement you guys have today? I know you made some progress surrounding the 1Q call. I was curious if there's any new transitions to Tier 2? And then, maybe, what's the timing of getting the majority of potential patients to Tier 2? And what that means to kind of the overall trajectory in the first, say, 12 to 24 months of the launch?

Thanks, Geoff. This is Tom. I think we continue to make good progress not only with the national plant plans but also the regional plans to Tier 2. And again, the way I described it, we do have contracts in hand that estimate about 50% of that commercial population, which is really the focus, the primary source of our patients. 50% will be at a Tier 2, and a lot of those will be implemented in July, August and September, as we mentioned in the last call. And I think, as Michael mentioned, the instant savings program that we've also put in place is helping to supplement those patients that do have commercial coverage but have higher co-pays. In addition, as you know, the Medicare Part D payers tend to move a bit slower, but we're also making good progress with Med D plans. And even though they account for about 15 -- maybe 20% of our target patient population, we feel it's really critical to secure the Med D plans as well. So I think over the summer, by the end of the summer, early fall, I think we're going to be in a very, very strong position with the payer, in addition to the prescriber base that we feel very good about pushing harder on the patients.

If I can add just add a little bit on this, I think the payers are an exciting area for us where I think we all recognize going into the launch that the payer and reimbursement status become much more challenging over the last 5 or 10 years in general and especially in primary care. And we and I know all of you expected it to be a very substantial barrier earlier in launching. There's no question it had an impact and it's taking time to work through the payer situation. We continue to block and talk out our way through there. Having said that, I think we're quite pleased with the progress that we and Forest have made here and continue to make now and over the couple of quarters. So there's been no question. It's been a break on early adoption and early launch trajectory, and we're quite enthusiastic about our ability to soften that going forward.

Our next question comes from Mario Corso with Mizuho USA.

I was wondering if, maybe, Tom could talk about what you learned or takeaways from early experience program you did and what kind of return you received on that? And then whether that might be worth doing again getting the drug in the hands of patients and physicians is most important in a large population? I'm also wondering if you could describe the expanded digital efforts you talked about, anything specific ongoing there? And then finally, maybe just a little bit from Michael on kind of the use of cash and how you see that going forward through the end of this year?

Yes. Let me take one at a time. First, I think as far as we mentioned, I think, in many calls, observed patient response is the most important driver for physician behavior, as well as certainly ongoing patient behavior. There's no question the early experience kits enable physicians, particularly the high-volume early-adopting physicians, who by the way, are the physicians that have got out of the gate faster than anybody else. A good opportunity to initiate therapy and observe the patient response. So the intention of the early use kit was really to establish the uptake curve, and I think that has been successfully achieved. It's something we will come back and revisit, your point, Mario. If there's no question, it has an impact. It was positive. Certainly the sampling program we'll continue to support that over time, but I think it's a resource that we'll take another look at. If it make sense, we'll certainly consider it. So I think, overall, the responses have been positive. I mentioned we just finished a pretty broad physician market research project involving 200 very productive prescribers, as well as physicians that were lagging a bit to really understand their impression of the drug and their willingness to prescribe moving forward. As I mentioned, that data looks very strong with regard to physicians' impression of the drug and their intention to prescribe to a broader patient audience over time, which really gets to the patient piece. So what we've seen so far, we've been very surgical in how we have implemented our digital program going after sites where we know there's high traffic. We knew we could engage our patients, and they responded extremely positively and in high volumes. So there's no question educating the patient will activate the patient as far as them seeking more information relative to going to the physician. Part of the research also revealed that a significant portion of patients are walking in, describing the symptoms and specifically asking for the brand, which again, further supports, moving forward, how do we broaden not only the digital investment but also through other channels. I think as we move forward with digital program, we'll look at broader health care sites where we know these patients are seeking all kinds of information, whether it's nutritional, whether it's other health-related topics to make sure that we can broaden our reach for the patient because we clearly have evidence that the patient will respond to the message.

And Mario, it's Michael, with regard to the investment and use of cash, I guess, I'll start with the biggest component. Obviously, as we saw this quarter, as the LINZESS net sales increased, that has a very significant impact on our cash flows as we go forward. With regard to the investments, starting again with LINZESS, we've talked for sometime about the total investment for the year in the range of $250 million to $300 million. We're comfortable that with where -- while Tom and team are talking about changes in mix over time, we're comfortable that, that is still the appropriate range. So we feel like we're in the right zone with regard to LINZESS investment. We're fully funding that. In terms of our other investments, you can see quarter-over-quarter there's going to be changes. For instance, in R&D, you'll see quarter-over-quarter changes. But I think the first 2 quarters give you a good indication of what you should expect over the course of the remainder of the year. So I think we're going to, as always, try and manage our investments so that we create significant value, but also are mindful of our cash. And I think you should expect to see that as we have always done, you'd expect to see that throughout the remainder of the year. But I think the current investments are in line with what we anticipated. And while it will be bumpy over the next couple of quarters, I think all in, we're still comfortable with the guidance that we've given, both from a commercial perspective and from an R&D perspective.

[Operator Instructions] Our next question comes from Irina Rivkind from Cantor Fitzgerald. Irina Rivkind - Cantor Fitzgerald & Co., Research Division: I wanted to revisit the inventory questions. So you said you were running at about 4 weeks inventory now, but could you comment on what the inventory was at the close of the quarter? And then the other corollary to that is, on the API that you sold to your European partners, did that include any stockings mix?

So Irina, first, with regard to the API in the -- in Europe, the partners do take API as -- on their schedule. So they will order that in a fashion that's it's going to be bumpy over time. I guess, it's the best way to answer it. In terms of trying to correlate that to sales is going to be different. [indiscernible] they'll[ph]inventory because they're buying API, remember, it's not finished goods. So they will stock that. So yes, there is some stocking that goes into the numbers and it will fluctuate quarter-to-quarter. With regard to the inventory, the range that I gave actually was, the 4 weeks is, again, an estimate of where we think we are. As to the end of the quarter, we've talked for sometime about directionally where we're going. It's ultimately the contracts with wholesalers' target getting them in a range of 3 weeks, so we're looking to move in that direction. And I guess, my comments we're really directed at we're moving in the right direction and over time, we think that the underlying demand for LINZESS will ultimately line up nicely with the x factory sales. But that's the 4 weeks is where we are. Irina Rivkind - Cantor Fitzgerald & Co., Research Division: And then, just a follow-up on the JV spending with Forest. It looked a little lower this quarter, and I was wondering if that was mostly because SG&A was lower within that agreement or the R&D piece? And is this a good run rate to look at going forward in terms of the $250 million to $300 million range?

Yes. Again, I guess what I reiterated is that quarter-over-quarter these numbers change based upon various investments that can happen in the timing of those, but I'll reiterate the $250 million -- in terms of commercial spend, the $250 million to $300 million is what we would anticipate that we're still in that range for the year.

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

I wanted to just follow-up on duration. I know it's early days, but would love to get your evolving thoughts on that? I think you kind of threw out like 115 days, somewhere in that range, and wanted to know where -- Peter, you mentioned that duration was kind of steadily increasing. I also wanted to follow-up on the fixed dose combo, just broad strokes of that, I guess what your plans are? Would you get a partner? Is this going to access broader numbers of patients? Just a little bit more color on that. And then finally, Michael, you mentioned that you might want to monetize your sales force or I guess get a little bit more leverage. Are you considering bringing another product and how should we think about that and the timing on that as well?

Thanks, Rachel. Tom, I want you take the first question about duration.

Sure. Thanks, Rachel. I think as we've said many times, it's important to keep in mind that [indiscernible] are actual patients. And then the question is, what is the value of the patient, which really is equated into annual days of therapy. I think when we look -- what we're seeing right now in the refill rate, it looks very, very encouraging and is certainly comparable to what we saw with both Zelnorm and Prilosec at this point in time. And the question is, what does it look like moving forward, which is not necessarily do they fill it once, but do they fill it 10 times. And we have given a range of kind of what those 2 brands look like over time where Zelnorm was somewhere around 100 to 110 and Prilosec was 180 to 200. And we've consistently suggested that we are kind of taking the middle-of-the-road for planning purposes right now. But again, I'm just -- right now, I'm looking at initial refill rates to be really strong. And obviously, we're going to need a little bit more time to see how many times those patients actually fill with the system. But I think that we're still in the middle of that, those 2 numbers, but I think we're very encouraged by what we see so far.

If I can add a little bit to that. As Tom said, it is early days. But I think as physicians are getting more experienced with the product, it's really a novel mechanism and to a large extent, a novel category when you think about current [indiscernible]. One of the things that was interesting coming from a physician market research study that Tom has described a couple of times, there's very high awareness by physicians over [indiscernible] indicated in the label as for [indiscernible] on seeing over time and the fact that they could see the transition of the product being sold. So all of that trends well as well in terms of physicians understanding and setting expectations for their patients. So on the second question around fixed dose combo, Mark, can you talk about this?

Hi, Rachel. I think we're looking at it obviously with our partner Forest. This is a collaboration. It falls inside the collaboration. And we're in that, as I explained earlier, let's say, we're in the early exploratory stage of really looking at the formulation. We're looking at the market potential, what type of patients would we serve. We certainly think it opens up the possibility to get to a broader access of patients as so many of these patients have co-morbid symptoms, some of them have chronic constipation or IBS-C and GERD. And we're trying to be able to provide relief pretty much from the upper GI to the lower GI with this strategy. So Tom, maybe you want to...

Yes. I think, Rachel, I think as we've said before, there is a large overlapping population here that patients -- or that doctors actively manage. And we have begun to talk to a number of KOLs as well as other health care professionals about the utility of this. And again, these patients suffer from everything. They have a once-a-day treatment that really manages everything from literally GERD, intestinal symptoms and constipation. It's not only an attractive option, but also when you think about what that does to annual days of therapy to your earlier point, that looks from a commercial perspective, very attractive.

So then you'd ask about the sales force, maybe I'll start on that and then if Tom wants to add. Strategically, we've built a very strong selling team at our facility at Ironwood. And we made a decision that for the first year of the launch of LINZESS, we thought it was very valuable to have that sales force be adequately focused almost on this product. It's a very important product and potentially a new category. Our sales force is augmenting and complementing some very strong efforts as far as staying behind the product. And we feel very good about how we are supplementing and adding value to this product and how the teams are working together. Having said that, our sales team is delivering terrific access to probably the most valuable prescribers that are out there and is a very experienced and very high-performing. And we do feel for any commercial product, the opportunity is in the bag next to an innovative product [indiscernible] with good access with a very strong selling team would be an attractive position to be in. And we will expect and hope to generate value for ourselves and our shareholders by leveraging that going forward. Tom, if you want anything to that.

Yes. I think that's right, Peter. And I think if I'm looking for a partner, I want a highly skilled sales force who has access to the most important highest-volume physicians and can ideally collaborate. And I think we all know that that's very, very hard to do and it's something we work at every single day. But the feedback that we're seeing is that we're clearly adding value to the overall selling effort. We got a wonderful working relationship with Forest. The team works very hard at it. And I think we are very attractive partner for somebody that really wants to bring their product to either primary care or gastroenterology.

Our next question will come from David Friedman with Morgan Stanley.

I just wanted to sort of clarify if you can, can you quantify in dollars the inventory change this quarter?

Dave, we have not provided in that form yet. I think it's more comfortable just saying at the wholesale level, we're in the 4-week range.

Our next question comes from Juan Sanchez with Ladenburg. Juan F. Sanchez - Ladenburg Thalmann & Co. Inc., Research Division: The question is on frequency of prescriptions by gastroenterologists. I wonder whether or not the top prescribers are already treating the patients regularly, go to the practice and for them to prescribe more you need to create -- you need to bring new patients to the practice or not? And the second question is whether or not, on the chronic constipation trial that we saw in Q3, assuming it's positive and you change the label, do you expect that to have a material impact on demand or it's just something additive?

So let me repeat the question for Tom. So the question if I understood it right, Juan, with respect to gastroenterologists, are they -- have they already basically prescribed to the doctors the patients that come to see them, and in order for them to become more productive, will we need to be driving new patients to them? Is that the question you're asking for? Juan F. Sanchez - Ladenburg Thalmann & Co. Inc., Research Division: Yes. Yes, exactly.

Thanks, Juan. I think what we -- as we've mentioned before, there's an awful lot of patients that are present in different profiles in the gastroenterologists and primary care offices. Gastroenterologists continue to grow, and we have a broad range of like -- of prescribing within gastroenterology and primary care. I mean just to kind of give you the spectrum, we have over 1,000 physicians who have prescribed over 25 prescriptions all the way up to 400. So there is a lot of patients that are in the office. I think our job moving forward is really to help physicians identify who the appropriate patient is for the drug, and make sure that they're comfortable prescribing the drug. In addition, as far as our educational efforts, certainly one objective is to increase the number of patients actively seeking care, raising their hand, describing their symptoms and asking for effective therapy. But a lot of that effort also goes to the patients who are already actively seeking care, who really need to more effectively communicate with the physician. So we -- I think we have a lot of growth space in both gastroenterology and primary care. I think educating the patient, there's no question the efforts thus far are impacting what's going on in the physician's office. And as we expand that, we'd fully expect that to increase over time.

And Tom, the second question is, if I got it right, Juan, if we assume success with the Phase IIIb chronic constipation study, do we expect that to have an impact on the growth of the product?

Yes. I think that the objective of the chronic constipation study was really to better understand our patient population, both in terms of those people that had really problematic bloating, but also overlapping co-morbid conditions such as functional dyspepsia and GERD. I think based on everything that we've seen in the clinical trials, and Mark can certainly comment on this as well, is that this drug seems to improve a number of intestinal symptoms that patients can benefit. Now keep in mind, those data are not currently in our label, and we believe this study can further bolster, certainly the evidence that we've seen in previous federal trials to go back and have a broader discussion with FDA to make sure that we can better serve patients and docs. Mark, is that...

Yes. I think that's a great comment on -- I think also we're going to be able to form a study to get a better understanding of patients that suffer co-morbid symptoms. So again, some of them -- we have a significant number of patients who have GERD [indiscernible] and other upper GI symptoms. So we're excited about being able to, at least from a development point of view, kind of help direct that future development efforts by some of the things we learned from more the kind of exploratory nature of the study versus also the things that we're going back and confirming and strengthening.

Our next question comes from Patti Bank with DISCERN Securities.

Just 2 quick questions, one on the current sampling that's ongoing. Have you worked through all the 30-day packs at this point, and is that kind of a once and done? And are there any plans to expand that? Then the other question, maybe for Tom, just in terms of dropout rate, can you maybe give me a little bit more color in terms of why patients wouldn't fill prescriptions, whether you're hearing anything [indiscernible] whether it's because of side effects, cost or maybe doctors just writing for the one 30-day prescription upfront?

Thanks, Patti. Great questions. First of all, with sampling, as I mentioned earlier, the most important thing that we can do is enable physicians to observe the benefit that LINZESS can bring to their patients, which clearly is why we sample and why we did early experience kits. The feedback on the early experience kits was extremely positive from a physician perspective with regard to enabling them to give a real strong clinical trial for the patients so they can evaluate the drug. It's something we will -- we're evaluating right now to say, "Does it makes sense to continue that program or do we lean primarily on samples?" But I think, again, we want to make sure that physicians have access to either samples or early experience kits, more clinical trial kits to initiate therapy for new patients and really observe the clinical performance of the drug. I think the second piece with regard to the dropouts, as I mentioned earlier, the 2 main reasons that are inhibiting physicians from prescribing the drug, as well as what's getting in the way of the counter is clearly the payer. As much as we talk about the progress we're making with payer, we're still bumping our heads a fair bit of time with regard to drugs that are not on formularies and regional plans or have prior authorizations steps added. We're doing a pretty good job on the co-pay assistance, but we still have a number of plans, particularly in certain regions across the country where that's a bit problematic, but again, getting better over time. I think in the last piece of this, which I think is really important to understand is, overall, how's the drug doing in the marketplace. And I think this is where -- I think based on what we're hearing back from the sales force and what we're certainly seeing in this large-scale physician research project that we did, is that the drug is performing very similar to what we saw in the clinical trials. And that the drug clearly is efficacious, the doctor is recognizing its efficacious. They believe that they are satisfied and the patients are quite satisfied with the drug. And that the tolerability is consistent to what they expect -- we expected it to be based on those clinical trials. Does that help?

It does. 2 quick follow-ups if I could, one in terms of the patients. Maybe I missed this. Do you know at this point if they are taking the full 30-day or if there isn't more symptomatically? And then on the samples, the early experience kits, do you know if those are all out with physicians at this point? Are you able to track that? Or they -- do you know if there's some stone [ph] in the sales forces hands?

Well, first, as far as the early experience kits, they are all distributed. They've been distributed for a number of months. And obviously, there's 300,000 to 30,000 docs, those are getting pulled through the system over time. And of course, as you know, there's no real way to actually track that other than the sales reps observing what's in the sample closet. So as far as the annual -- as far as physician or patients adhering to therapy, we haven't finished our patient research yet, but what we're hearing from physicians, as Peter mentioned before, they clearly see this as a chronic therapy. And that they are fully aware that when treatment stops, symptoms return, which is it's probably the single strongest driver for adherence in annual days of therapy. But I think we're going to learn a lot more from the patients at this point in time as we get the patient research back in the upcoming months.

I'm not showing any further questions at this time. I'd like turn the call back to our host for closing remarks.

Thanks, Kevin, and thanks again to all of you for joining us this morning. We very much appreciate your interest and collaboration. We'll be here for the rest of the day. If you have follow-up questions, please reach out to Meredith, and thanks again. Have a great day.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect, and have a wonderful day.