Ironwood Pharmaceuticals, Inc. (IRWD) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals 2Q 2016 Investor Update Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host for today's conference, Senior Vice President of Corporate Communication, Lisa Adler. You may begin.

Thank you and good afternoon, and thanks for joining us for our second quarter 2016 investor update. Our press release on this topic crossed the wire earlier this afternoon, and can be found on our website, www.ironwoodpharma.com. Today's call and accompanying slides include forward-looking statements. Such statements involve risks and uncertainties that may cause actual results to differ materially. A discussion of these statements and risk factors is available on the current Safe Harbor statement slide, as well as under the heading Risk Factors in our quarterly report on Form 10-Q for the quarter ended March 31st, 2016, and in our future SEC filings. All forward-looking statements speak as of the date of this presentation and we undertake no obligation to update such statements. Joining me for today's call are Tom Graney, Chief Financial Officer, who will review our operational execution, financial performance and guidance, and Tom McCourt, Chief Commercial Officer who will provide an overview of our commercial activities surrounding both our IBSC and CIC and our uncontrolled franchises. Mark Currie, Chief Scientific Officer will also be available during the question-and-answer portion of the call. Peter Hecht, our CEO is enjoying a well deserved vacation right now and looks forward to connecting with many of you this fall. Our speakers will be referring to slides available via the webcast. For those of you dialing in, please go to the Events section of our website to access the webcast slides. I would now like to turn the call over to Tom Graney.

Thanks Lisa and good afternoon everyone and thanks for joining us. The momentum we've created in recent quarters continues to propel us forward in the second quarter as we build a top performing commercial biotech company. Our goal is to create medicines that make a difference to patients and to create value for our fellow shareholders. We are grounded in innovation and are advancing 40 franchises with multiple blockbuster opportunities. In the second quarter, we continued to demonstrate strong operational execution. Revenue nearly doubled year-over-year, increasing 96% to $54.4 million. This revenue growth positions us well to advance our four priority franchises and we remain on track to achieve positive cash flow in 2018. Within our IBS-C and CIC franchise, LINZESS U.S. net sales grew 34% year-over-year to $150.5 million driving commercial margin expansion to 52% from 31%. LINZESS remains on track to exceed $1 billion in annual net sales by 2020. Meanwhile in the second quarter, we added a fourth franchise, Uncontrolled Gout, and are preparing to launch the first product ZURAMPIC in our program. I'll provide a few updates on our other franchises in a few minutes. But first I would like to turn the call over to Tom McCourt, so he can provide more details on our key commercial activity around LINZESS and ZURAMPIC.

Thanks, Tom and good afternoon everyone. LINZESS has demonstrated impressive growth in the second quarter and as Tom mentioned, U.S. net sales were $150.5 million, up 34% from the same period in 2015. This level of growth was driven primarily by strong demand and strong commercial fundamentals driving desired patient and physician and payer behavior. Our commercial efforts generated more than 650,000 LINZESS prescriptions being filed in the second quarter, a 29% increase year-over-year. And as we've grown our position in the market, we're also seeing a stronger market share growth with both total Rxs and new Rxs. We saw a 22% increase in total Rx market share and nearly an 18% increase in new Rx market share. And we have seen strong adherence, running 40% to 60% higher than industry analogs, which is generally considered to be a very positive indicator for patient satisfaction. Lastly on the payer side, through the relentless collaborative efforts with our partner Allergan over the past three years, we've now achieved greater than 90% unrestricted access among Medicare part D plans and greater than 70% unrestricted access among commercial health plans. In fact, LINZESS is number one in unrestricted access among branded prescriptions for IBS-C and CIC. LINZESS continues to be the branded prescription market leader for the treatment of adults of IBS-C and chronic constipation. Since launch, more than 5 million prescriptions for LINZESS have been filed by more than 1 million unique patients. It is the number one prescribed brand in the category by gastroenterologists, primary care physicians, nurse practitioners and physicians' assistants. And as I mentioned LINZESS is number one in its category in unrestricted pair access. I want to point out that the 1 million plus patients who have been treated by LINZESS so far are still just the tip to the iceberg. There's an estimated 40 million potential patients, many of whom we believe are dissatisfied with current treatment options, primarily OTC laxatives, and currently they are experiencing symptoms of IBS and chronic constipation. We believe this creates a $10 billion market opportunity for LINZESS, and the market is expanding. LINZESS and other IBS brands are growing the category, driven by our ability to create urgency on the part of the physician to choose LINZESS, increased awareness and specific patient requests for LINZESS, and the expansion of payer reimbursement for LINZESS. And even as the category itself expands, we are seeing our market share increase as patients move from OTC laxatives directly to LINZESS. As we grow LINZESS, we believe that we can help even more patients through the continued innovations in this category. We announced during the second quarter that FDA accepted the supplemental New Drug Application for the 72 microgram dose of linaclotide, which if approved we expect to launch early in 2017. We anticipate it will increase physician prescribing for LINZESS within this very large heterogeneous adult chronic constipation population. Another innovation in this franchise that we're particularly excited about, that we think could really raise the bar for linaclotide in the treatment of IBS and chronic constipation is linaclotide colonic release. Pain and discomfort are what currently drive patients to seek care from physicians, and the colonic release is a second generation product, which has the potential to provide both stronger and faster abdominal pain relief in adults with IBS. If approved, we believe colonic release could expand the IBS-C and chronic constipation market, providing physicians another option to treat these patients and providing patients another reason to be even more adherent, due to the abdominal pain relief profile. We have completed enrollment in our Phase 2B IBS-C trial for chronic constipation, and expect data in the second half of 2016. If positive, we and Allergan expect to initiate a Phase 3 trial in 2017. With continued strong LINZESS growth expected into 2031, and patent protection for the colonic release if approved expected into the mid-2030s, we believe the first two products in our IBS-C and chronic constipation franchise has the potential to generate peak U.S. sales of greater than $2 billion. Another franchise I want to update you on today is Uncontrolled Gout. We're gearing up to launch ZURAMPIC in October, an oral therapy for use in combination with Xanthine Oxydase inhibitors or XOIs for the treatment of hyperuricemia associated with uncontrolled gout. Our excitement for this opportunity starts with the patient. Gout is a highly symptomatic painful form of inflammatory arthritis caused by hyperuricemia. High serum uric levels can lead to characteristic painful flares, and some patients are able to lower serum uric acid levels sufficiently using an XOI such as Allopurinol. However, about 2 million patients in the U.S. suffer from uncontrolled gout, which means they cannot achieve serum uric acid levels below 6 milligrams per deciliter, and continue to suffer from frequent flares despite XOI therapy. These patients have a limited number of treatment options and continue to suffer from multiple flares and are looking for effective treatment. Physicians and payers report a recognition and the need to treat these patients and get their serum uric levels to a target of 6. We also know that there's limited competition in this promotional space, enabling Ironwood to establish a strong promotional voice in the marketplace. And most of the physicians actually treating gout are primary care physicians, which makes this asset quite efficient to promote alongside LINZESS. Now just a bit more detail on ZURAMPIC. The Xanthine Oxydase inhibitors decrease the production of uric acid. ZURAMPIC compliments this XOI therapy by increasing the excretion of uric acid. The combination provides a dual mechanism of action to decrease production and increase excretion. It's important to know, for an estimated 80% to 90% of patients with gout, insufficient excretion is an important factor contributing to elevated serum uric acid. ZURAMPIC has the ability to increase that excretion, representing a powerful option to further impact serum uric acid. In two clinical trials ZURAMPIC, plus the XOI Allopurinol demonstrated nearly two-fold increase in uncontrolled gout patients reaching target serum uric acid levels of below 6 milligram per deciliter versus our Allopurinol alone at month six for treatment. So ZURAMPIC in combination with an XOI appears to be a very logical next step in treatment for these patients suffering from uncontrolled gout. We are on track to launch in October 2016 and excited to leverage our proven commercial capabilities. We're expanding our sales force and expect that with approximately 300 sales specialists in total we will be able to call in 20,000 to 30,000 high prescribing primary care physicians. All of our representatives will be trained in both LINZESS and ZURAMPIC, which we believe will benefit both products due to the high degree of overlap between LINZESS and ZURAMPIC prescribing physicians, increasing the overall product activity of our selling effort. We're also preparing an online digital VCC campaign, aimed to help patients self-identify and take action, and we're on track to have discussions with peers to ensure broad access, supported by the strong value preposition that ZURAMPIC offers. As we've said previously, we see the estimated peak sales opportunity in the uncontrolled gout space to be greater than $300 million. We expect this transaction to be cash flow accretive by 2019. One of the reasons why we're confident we can succeed in this goal is because we are able to access this promising growth asset at favorable terms. We anticipate the first 12 to 18 months will be a gradual ramp, as we educate physicians, gain access in reimbursement and activate patients in primary care. In closing, we were really excited about the commercial progress in the future, and we look forward to continuing to update you as we launch ZURAMPIC and anticipate the launch of our 72 microgram dose of linaclotide in the next nine months. With that, I hand it over to Tom.

Thanks, Tom. Now let's get into a little bit more detail around key second quarter financial results and guidance. The detailed financial statements are in our press release. As I mentioned at the beginning of the call, we delivered strong operating performance in the quarter. Starting with our financial highlights, revenue for the quarter was $54.4 million up 96% compared to the second quarter of 2015. Revenue, primarily consists of revenue from our LINZESS collaboration with Allergan, our co-promotion agreement with Exact Sciences, the Cologuard, and with Allergan's VIBERZI, as well as additional collaboration, royalty and amortization revenue from our global linaclotide partnerships. The near doubling of revenue this quarter was driven primarily by growth in LINZESS sales and profitability. As a reminder, we are recording on our P&L, the non-cash unrealized gain or loss on derivatives each quarter as a result of the convertible debt financing completed in June 2015. This is related to the change in fair value, as we mark to market the convertible notes, hedges and warrants which comprise our cost spread overlay. In the quarter this was a non-cash gain of $3.1 million, which has been excluded from our non-GAAP measures as it’s not related to operational performance. In addition, starting this quarter we are also excluding from our non-GAAP measures the amortization of acquired intangible assets related to our licensing agreement for Lesinurad. This amortization totaled $1.1 million for the quarter. GAAP net loss for the quarter was $21.7 million or $0.15 per share, and non-GAAP net loss was $23.8 million or $0.16 a share. In the second quarter last year, the GAAP net loss was $48 million or $0.34 a share, and non-GAAP net loss was $47.8 million or $0.34 a share. Turning to LINZESS, increased demand in the quarter resulted in $150.5 million in net sales, up 34% compared to the year ago period. Commercial margins for LINZESS expanded to 52%, compared to 31% in the second quarter last year, once again demonstrating a high degree of operating leverage we are driving with the brand. The LINZESS brand collaboration in the U.S. recorded $58.3 million in total net profit for the quarter, compared to $50 million in the second quarter last year, growth of 289%. Brand commercial contribution increased by $44.7 million as sales increased by $38.4 million year-over-year. While LINZESS revenue increased an impressive 34% year-over-year, the revenue Ironwood receives from the LINZESS brand collaboration is growing even faster, 99% year over year. This is primarily due to the fact that our collaboration with Allergan is profit split, and the profit for the LINZESS is growing faster than sales as we are able to reach more and more patients without significantly increasing our level of investment. We ended the second quarter of 2016 with $325 million of cash and short term investments, a decrease of $109 million from the end of the first quarter of 2016. This includes our upfront payment to AstraZeneca of $100 million related to the Lesinurad licensing agreement. Cash used in operations was $6 million in the quarter compared to $26 million used for the year ago period. Regarding our 2016 financial guidance, we are updating to reflect the licensing agreement for Lesinurad, including the investments to support the launch of ZURAMPIC in October. R&D expenses are expected to fall within the range of $140 million to 150 million. SG&A expenses are expected to fall within the range of $170 million to 180 million, and intangible and amortization of intangible assets is expected to be $8 million. Consistent with our guidance, following the announcement of the Lesinurad license, we continue to expect to use less than $70 million in cash from operations this year. In addition, combined Ironwood and Allergan marketing and sales expenses for LINZESS are expected to be in the mid to high end of the previously stated range of $230 million to $260 million. We are always exploring ways to optimize our capital structure, which may include restructuring our debt. We feel really good about our financial position today and into the future, and we believe the growing LINZESS revenues and profits and our cash on hand will enable us to fully fund our current business going forward, without the need for incremental capital. In closing, we have several key value drivers coming up before the end of the year, including the launch of the ZURAMPIC and the Phase II linaclotide colonic release read outs. Also as we stated in today's press release, we just reported positive top line data in our Phase Ib study prior to the amounting [ph] 73, and we plan to advance our soluble guanylate cyclase stimulator program into Phase II this year. We are making great progress towards our goal of generating rapidly growing cash flows as one of the industry's top performing commercial biotech, and are looking forward to updating you on our progress in the months to come. With that, I'll hand it back Dimitry [ph] to being the Q&A portion of our call.

Thank you. [Operator Instructions] And our first question comes from Anupam Rama with JPMorgan. You may proceed.

This is Erik. Just a quick one on LINZESS. Wondering what you're thinking you're expecting regarding the kind of incremental impact on margins from the introduction of the 72 microgram dose? And looking longer-term to 2020 guidance, how are you thinking about peak margin potential relative to other primary care comps and what are some of the components to getting that?

This is Tom Graney. With respect to the impact 72 may have on our margins going forward following the launch in 2017, as we've always talked about this brand, in terms of what’s attractive to about it for us is the high degree of operating leverage. This is a high gross margin brand and we've had very stable levels of investment year-over-year since launch. We do not expect that to fundamentally change with the launch of the 72 microgram. As you know, this is a very heterogeneous population and we're looking forward to bringing this new dose to physicians and patients where we can continue to expand the utility of LINZESS in the marketplace. So really it's a growth story more than a margin story. Certainly, as we'll continue to grow the brand and manage expenses, you would expect over time margins to increase.

Yes, just to be clear. When we bring 72 microgram into the marketplace, it will simply slide in as part of our message -- a core promotional message. So you are not going to see incremental direct marketing expenses that you would see with launching a separate type of line extension. It's really going to be a core set of the overall story in which we now have a drug that can treat both IBC and chronic constipation, and we have three doses that can enable a physician to tailor therapy to the specific needs of the patient.

And just with reflect to your question about 2020, certainly we expect the brand to continue to grow as we’ve guided towards $1 billion target by 2020. We would not expect our investment profile to fundamentally change between now and then. Certainly, we look at our investments carefully and want to make sure that we’re resourcing the brand appropriately to take advantage of the growth opportunities. But again as I mentioned, with the high gross margin to start with, we’re in a really good position.

And our next question comes from Jami Rubin with Goldman Sachs. You may proceed.

[indiscernible] on behalf of Jami Rubin. Firstly, I just had a question on your SG&A guidance. That increase has been on for $40 million $45 million and that’s I guess attributed all to ZURAMPIC. Just wanted to understand how does -- what exactly goes into this spend? If you can just provide some context around how you would be spending this money? And as well as put this in context of the annual expenses to be less than $75 million. Is that for 2017 or is that for the first 12 months' post launch? I just wanted to confirm that with respect to previous guidance. Thank you.

Sure, and thanks for the question. This is Tom Graney. I’ll start off with the answer and then and kick it over to Tom McCourt to give a little bit more color. You’re correct. The increase in guidance primarily reflect the integration, prelaunch and launch cost associated with the ZURAMPIC which as we’ve mentioned we’re launching in October. We did bring in this asset in June, and as a result have been ramping up appropriately ahead of the launch in October. With respect to the $75 million annual guidance we gave related to ZURAMPIC for commercial spending, we gave that guidance back in April when we announced the transaction, and really the intention there was to help inform people about the level of investment we’ve done on annual basis. We have since built that into this 2016 guidance and we look forward to sharing our 2017 guidance on the fourth quarter call.

I think Tom, that’s spot on and I think as I think about bringing this to market, one of the real attractions of ZURAMPIC for us was the strong overlap that we’re seeing between LINZESS and ZURAMPIC prescribers. So, we could -- it enabled us to slightly grow the sales force, which not only is going to be able to enable us to call on the high ZURAMPIC prescribers who are also writing LINZESS, but also it is also going to strengthen our LINZESS selling efforts as we prepare to launch the 72 microgram. So to Tom’s point, I think we see this as a very reasonable investment. I think we see this as a very efficient play. I think we’re going to focus initially on the most productive high prescribers, and see how promotional response it is, and then obviously that’s going to guide our investments as we move forward.

And I just had a quick follow up. With respect to your online DTC for ZURAMPIC, I'm guessing that’s including the guidance as well. When do you expect to begin promoting this ZURAMPIC online?

Yes. Online is a very, very attractive vehicle. What we've learned from our market research thus far is the point of change will be when people have flares. And when people are hurting, they're very active online looking for information and help. And so we think this is going to be a very efficient vehicle to educate these patients the need of a choice to enable them to get many of these uncontrolled patients to go. So we will initiate this very shortly after launch. Everything's been pre-cleared with the FDA. We feel very good about moving into this space and one of the things I mentioned is because there isn't a lot of promotional activity, it isn't going to require an enormous promotional investment to capture a large share of voice. So another reason why we think ZURAMPIC is a very efficient logical next step for us as an organization.

And our next question comes from Ying Huang with Bank of America Merrill Lynch. you may proceed.

Hi, this is Amanda on for Ying this evening. So we're wondering if you can give us a bit more color on the trajectory for LINZESS continued growth and market share expansion, and how you're capturing the conversion from older type of drugs to LINZESS? And then for the ZURAMPIC end, if you can give more comments on the preparation for launch in terms of the incremental sales force expansion, and colors around discussion of payers and pricing, as compared to [indiscernible]. Lastly we wonder if you can give more color and your thought on the delay in the synergy product in development for you guys.

So, I'll try to catch you up on all of those questions. First with regard to the trajectory of LINZESS, we're seeing very, very strong fundamentals with regard to lead indicators on ongoing growth of LINZESS. As I said, we're seeing the market grow, the size of the market grow and our market share grow in a very strong way, both with regard to certainly new Rxs, new Rx share and total Rxs. So the foundation for growth of this brand was very good. In addition, the consumer campaign is working very effectively in driving new patients in to see care and we're seeing a nice increase in new patient starts and of course reminding everybody we need to constantly find new sources of business and new patients to raise their hand as we continue to grow the product. So we like the current growth trajectory of the product. We don't see anything dramatically changing in the upcoming months and quarters. So we’re feeling very, very good about LINZESS right now. As far as ZURAMPIC is concerned and the investment, we're in the process right now of interviewing and identifying sales candidates and extending offers, but we won't be bringing in -- officially bringing in the sales force until we get a little closer to launch. So we're looking at expanding our sales force from roughly a 160 to about 300 sales representatives, which allows us to expand our reach into primary care from about 14,000 docs to about 25,000 or 30,000 docs, which are the most productive early prescribers that we think are in the marketplace and also tend to be very promotionally responsive. As far as the payer is concerned, based on the discussions, we have done extensive market research with the payers and AstraZeneca, previous to us acquiring the asset, they've done extensive market research. And the thing that we're hearing back from the payers is one, they really recognize that there is a high population here in these patients that have been on XOIs, whether it's [Indiscernible] or whether it's Allopurinol, and continues to suffer from flares and not treated to goals. And they see that need and they've been very clear that there is a place for ZURAMPIC on the formulary, and we'll be working with them to bring a very strong value preposition to the table which obviously encompasses the strong clinical profile as a logical next step for these patients as well as the price. We haven’t announced the price as of yet. We'll will do that as we get closer to launch. But keep in mind we will optimize the value preposition to payers, because job one is to secure access and reimbursement. Because if we can't do that, we really can't get the drug to patients. So we like where we're at right there and I think as we -- we still have a lot of work to do, but it looks very promising. And as far as the synergy of delays, I don’t have much to comment on that. Obviously it' not particularly a good news for them. Keep in mind we like where we're at in the marketplace right now. We're the market leader, because the drug has performed well clinically and we're seeing very strong patient and physician satisfaction. In addition, the payers have recognized the value we've brought to the equation and we've had very, very strong payer access. So we're in a market and I think very solid shape with an indication for both IBS and chronic constipation. We'll have these three doses that will enable physicians to tailor therapy to patients. And of course I think we'll be able to serve the needs of those patients.

And I think just to add a quick follow up, you notice, we also completed the enrollment on our IBS-C study, and that study enrolls very quickly, and we're looking forward to having data later this year.

And our next question comes from Tim Cheng with BCIT. You may proceed.

Has been there any update on the SDC stimulators Mark? And also when -- is there any more information that we should get? What kind of information should we expect from the colonic release, linaclotide Phase II2b study? Is there is going to be top line data? How much granularity will you would be able to provide?

Sure. Thanks Tim. So let's first start with the SEC program. So we've made great progress. As we indicated, we completed the 1b and have the data from 1973. We are excited to say we're moving onto Phase II. We essentially confirmed and extended what came previously with the Ia data. So all looking good there. We're in the process of defining exactly what the next stages of POCs and what POCs we will advance, and we'll update you on that later this year. With respect to the chronic relief, yes, again we expect data later this year. We will be certainly focusing on the key elements of complete spontaneous bowel movements and the improvements there, and also with abdominal pain. And we expect the top line data to be able to demonstrate clearly kind of the comparison of placebo with the current marketed LINZESS in a comparative way with the two formulation delayed relief one and delayed relief two that will provide more detail relative to the comparison by being able to look at those over the period of time with a trial that was 12 weeks.

Mark, maybe just a follow up. You guys are the dominant company in the IBS and CIC space. What sort of enhancements do you think the colonic release formulation could provide? And how do you think that could basically spur uptake of the linaclotide franchise? What’s so important about this formulation that maybe the market doesn’t get yet?

Yes, Tim. I’ll start with why we think the -- what the rationale and the objectives of the study, and then I’ll turn it over to Tom. Certainly what we’re trying to do is target the active portion of linaclotide to the colon, where we think there’re -- most of the abdominal pain and obviously also some of the constipation is affecting the patient. So our goal is to increase that pain relief and also give ourselves a chance to shift the balance from having fluid accretion in the upper intestine to more in the later small intestine, and then offer more and greater pain relief is the key objective. Thirdly, there are number of different possibilities that we can have out of the study, but that’s the first step, is if we can raise the bar in pain relief. And Tom?

Yes, Tim, I think what we’re learned in this marketplace is the primary driver for these patients who seek care is pain and discomfort. And linaclotide was a huge step forward in providing relief to these patients. But what we do see with the pain relief is it does take several weeks to optimize the effects of pain and the magnitude of pain. And what Mark and his team have better understood is much of the pain seems to be radiating out of the colon. And as you know, as the molecule goes down the intestinal track, a lot of it gets chewed up. So we wanted to be able to deliver more of the drug to side of action where we think the organic pain is generating from so we can deliver greater and faster pain relief. So as far as the impact in the marketplace, obviously one, we would have a far more compelling advancement with regard to the pain relief, possibly better tolerability, possibly expanded clinical utility. I think the other piece that we’ve learned, while the adherence to therapy is quite good with LINZESS, the primary reason why patients do discontinue therapy is that they don’t see a rapid improvement of pain. They see a rapid improvement of bowel habits [ph], but they don’t see a rapid improvement in pain and we think if we can improve that pain relief profile, we could get more patients and keep them on drugs longer. So we see that as growing the overall market. I think the last piece is obviously the extension and IP. So, we’ll have a significant extension in our IP. So the patients that we can get on or move over to drug over time, we'll be able to hang on to for years to come.

And our next question comes from Jason Gerberry with Leerink Partners. You may proceed.

I guess on the 1Q call it was a little too early to maybe talk about further benefits from the CVS formulary win. Kind of curious if you can comment at all to what extent that's been a tailwind on utilization? And now that your competitor MSC seems to be back on equal footing as co-preferred product, and how that might be a headwind in say 2017.

Sure, thanks. As we said from the very beginning, our primary objective has always been to access and provide unrestricted access in a preferred physician on as many formularies to as many patients we can, and certainly as you know we've had great success in that, which is a big part of what's driving the ongoing growth of the brand. From January on, there was a switch made at CVS Caremark, in which we were in an exclusive position. And we captured significant share because it was -- they were obviously transferring or automatically switching Amitiza to our brand, but keep in mind the primary source of growth for the brand isn't from Amitiza, it's from OTC laxatives. So even though we got a nice little bump there from that automatic switch program, the far majority of our growth is coming directly from OTCs, and we are in that environment we're capturing disproportionate share regardless of where Amitiza sits on the formulary. So our focus has always been on our OTCs. It will continue to be on OTCs. We just want unrestricted access for our patients and we're willing to take our chances in the marketplace as far as our ability to promote competitively and grow the market gain share.

Okay, and if I could just ask a follow up. So just on 72 microgram. What's specifically going to be the positioning with this one? Is it more to focus on the tolerability and flexibility it provides? Just want to make sure I'm crystal clear on how exactly it's going to be positioned?

Yes, I think for us 72 microgram has always been part of the lifecycle plan. As you know we launched initially with 290 and 145 for IBS and chronic constipation and physicians had always told us that they would like to have another dose, a lower dose for people that tend to have more mild disease or maybe more responsive to the drug. Just to be clear, diarrhea has not been a problem here. The far majority of these patients tolerate the drug extraordinarily well. They're very pleased on the drug. We see the drug behaving very similar to what we thought we would see based on the clinical trials in which there's a small percent of patients, 4% or 5% of patients, who are unable to tolerate the drug. I think there will -- I think the 72 microgram may help those patients but I think the growth opportunity for the 72 microgram is really around offering another option for physicians to look at more mild patients.

And our next question comes from Irina Koffler with Mizuho. You may proceed.

So it sounds like you're going to have more reps in the primary care offices with ZURAMPIC and LINZESS being promoted together, and you also guided to the higher range of spend with the Allergan co-promote, and I was just wondering if some of your ZURAMPIC reps are going to be in the same offices as the Allergan reps, and whether the increased sales effort is just going to be additive or are you going to in some cases sub out for their reps and potentially gain more share in the co-promote split? Thanks.

Yes, Irina as you know, this is 50/50 arrangement with us and Allergan and upfront we agree on an overall call-election with regard to the volume of calls that will be delivered to our target, and then we agree on how we'll split those. And as you know, our current model is an overlapping model as it is, where Allergan is targeting roughly 70,000 docs and currently we're targeting 23,000 of those on top of it. And those are the busiest most productive prescribers. And together -- obviously it's worked very, very well. As far as -- we'll certainly have an increased number of calls and probably in it possibly an increased percent of those calls. But that's something we're working through right now with Allergan side by side. So I think again, we'll have primary LINZESS targets and we'll have primary ZURAMPIC targets, but this target population, as I mentioned which makes us so attractive, is the fact that the core group that we're calling on these 20,000 to 30,000 primary care docs are writing a lot of both drugs.

Okay, got it. And a follow up if I may. So on your guidance so the R&D increase, I understand that you need additional SG&A to promote ZURAMPIC, but what's the funding for extra R&D spend this year for? Thank you.

It's Tom Graney. In addition to changing the range, we've also tightened the range. Previously it had been a $15 million. So we tightened that down to $10 million, and as you, it's higher than our original range. As part of the agreement with AstraZeneca, we brought in to fix dose combination of Lesinurad and Allopurinol which we're really excited about. So we're moving as quickly as we can to make sure that the development program for that is on track to file for the NDA to fix those combinations in the second half of this year. So that's really what that's about.

And our next question comes from Matthew Harrison with Morgan Stanley. You may proceed.

This is Cyrus on for Matt. A couple of questions. So you may have mentioned this early but for the chronic release, when should we expect to see data from that?

Yes, later this year.

Later this year. And then for your grid study. What do you guys view as favorable results in your Phase IIb?

We're focused on improving heartburn symptoms. So in particular heartburn severity. Again that's the primary endpoint for that study.

And our next question comes from Geoff Meacham of Barclays. You may proceed.

Just got a couple. The first one on ZURAMPIC. What are some of the lessons you guys have looked at, lessons to be learned from other gout launches? Just thinking with respect to duration of use and maybe what you could do differently from a competitive standpoint? And I have one follow up.

Sure, this is Tom. This has been a category in which it's been -- it's very different sub-segments of patients. I think that’s the one thing we’re learning. I think this group of patients -- the patients that tend to have infrequent flares tend to be less compliant. Those patients that have frequent flares do tend to be quite compliant, because obviously they’re trying to take medication to avoid future flares. So the compliance with those patients actually looks fairly high, because I think more simply that by taking their XOI, they will reduce it, but they still have flares. So it's certainly motivated, fairly compliant population. And this is -- I think we see this as a very logical next step for these patients to be added on particularly on top of allopurinol, which as you know it has the disproportionate share of the market. Generic allopurinol has above 90%, 93% of the market and obviously we want to be the next logical choice for those patients that are on allopurinol [indiscernible]. But I think as far as adherence and compliance, obviously this is going to be an educational effort to make sure that patients understand that they need to get to go. I think the other thing that we’ve learned is patients -- many patients are unaware that there's actually a threshold that they need to get to, that been 6 milligrams per deciliter, which is a very simple test to run in the physicians’ office. So getting patients to that goal, and helping them understand if they can keep their serum uric acid levels under 6, they’re going to have a much better probability of reducing the total number of flares.

And then high level question and that’s helpful Tom. When you have LINZESS and now ZURAMPIC, is there capacity in sales and marketing organization for yet another product? I'm just looking out say two-three years' time, with the real leverage that you have with respect to primary care in the GI audience?

As you know, by design we went out and got some very tenured experienced sales reps who had a legacy of promoting multiple products successfully. And right now we are promoting as you know both linaclotide and VIBERZI side by side in Cologuard. And right now we’re actually delivering three calls, almost 85% of the time. So as you know, LINZESS is doing well. VIBERZI is doing well and we’re executing well against Cologuard and we think we’re going to be able to slip ZURAMPIC into the call panel very efficiently. And if we still think there's room for improvement. At some point, as we get another asset, we'd probably look at what we would do with VIBERZI in that position. Obviously, if we come up with an asset that creates greater value, obviously that’s going to affect that decision. So I think the really neat thing for us right now is to be able to really promote actually four very, very innovative products. LINZESS being a first in category product, and a breakthrough product, VIBERZI first in category breakthrough product, Cologuard, a clear advancement and now ZURAMPIC, a first in category advancement in care. We really feel good about where we are right now.

And our next question comes from Boris Peaker with Cowen. You may proceed.

Just on ZURAMPIC, I'm just curious how important to the long term strategy or adoption of this drug from your perspective is the Allopurinol combo pill.

I'll take that Boris. I think it's critical. I think one, these drugs have to be taken together. You have to take ZURAMPIC with an XOI. So we want to make that as convenient as we can for the patients. We want to make it as cost effective as we can for the patient. So it is a very logical next step and we can reduce the per pill burden. We'll have one co-pay. And it seems like a very nice fit. When we conducted the market research with both physicians and payers, they looked very-very favorably about it and obviously we will -- we will anticipate a step at it in the payer equation because these patients have to have tried Allopurinol, and we want them to continue to take Allopurinol, and this is just a far more convenient way for them to take both drugs at once.

Now in your research are you -- I'm just curious what the feedback was from physicians in terms of even just prescribing monotherapy ZURAMPIC in terms of their concern of patients just not being complaint on Allopurinol and the potential consequence of that. That's obviously before the combo pill would be available.

Yes, and I think it's something we're going to have to very actively monitor and obviously promote very assertively, that the two have to be taken together. We'll be providing patient educational material to patients with all of our starter packs. It will be on every prescription bottle, that the pill that has to be taken with an XOI. So we'll be very assertive with that. But we also want the flexibility that they can take it with either XOI, right. So whether Allopurinol or [indiscernible]. So if these patients are to go on either brand, we want them to be able to have the flexibility to use ZURAMPIC in addition to those XOIs.

Got you. Now I'm also curious in terms of looking at other drugs in gout. Probenecid is actually an approved URAT1 one inhibitor which is mechanistically similar to ZURAMPIC just has different kinetics. I'm curious what we could learn from that drug being on the market for a long time in terms of your ZURAMPIC strategy.

So I'll take it from a development point of view and then have Tom take it from the commercial. So from a science and development side, obviously Probenecid, if you look at it, it's not a very selective molecule. It hits all the major transporters for drug transporters and commonly used as just an organic acid transport inhibitor. So in reality it's not used very much for gout, but it is highly reserved back before any use. And so I think again it’s a -- it wouldn’t be that it would be a molecule used to a high degree I think because of its non-selectivity.

Yes, and I think there's some significant drug [indiscernible]. It's been viewed as kind of a messy drug in the past. I think the message that we have around this drug is we do -- it's more selective on the transporter than we’ve seen in with the Probenecid. So I think we will -- and by the way when that was first utilized, they were using this monotherapy in combination with Allopurinol, all kinds of things. I think what we're being very specific on is who gets this drug and this combination of drugs, which I think is really going to be critical to the success of the brand and certainly the fixed dose combination.

Great. And my last question is, I don’t recall if you mentioned it or not, but do you plan to give sales guidance for ZURAMPIC for 2017?

Hey Boris, it's Tom Graney. We will be giving as far as traditional guidance or annual guidance following the fourth quarter call. We will not be giving revenue guidance by product at that point. We will be giving our traditional expense line items going forward with 2017.

I would now like to turn the call back to Mr. Tom Graney, Chief Financial Officer for any further remarks.

Okay. Thank you and thanks everyone for joining us today. Our team is available if you want to connect either tonight or tomorrow. So please reach out to Lisa or Mary and we'll follow up with any additional questions. Thanks again and have a good night.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.