Ironwood Pharmaceuticals, Inc. (IRWD) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals Q3 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 followed at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference over to your host for today's conference, Meredith Kaya. You may begin.

Good morning, and thank you for joining us for our third quarter 2016 investor update. Our press release crossed the wire earlier this morning, 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 June 30, 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 Peter Hecht, Chief Executive Officer who will provide introductory remarks. Tom McCourt, Chief Commercial Officer who will provide an overview of our commercial activities; and Tom Graney, Chief Financial Officer who will review our operational execution, financial performance and guidance. Mark Currie, Chief Scientific Officer will also be available during the question-and-answer portion of the call. 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 Peter.

Thanks, Meredith. And congratulations to Cubs fan everywhere. What a game? Here in Ironwood, we delivered another strong quarter of growth driven by our flagship product LINZESS. The launch of our second commercial product ZURAMPIC and encouraging advances across our innovative pipeline. Our revenue increased 67% year-over-year to $66 million. Powered primarily by another quarter of strong LINZESS demand. In its fourth year since launch, LINZESS continues to show rapid sales growth, up 40% from the third quarter of 2015. And remains on track to exceed $1 billion by 2020. We launched ZURAMPIC in the beginning of October targeting the estimated 2 million American suffering from uncontrolled gout. You will hear more from Tom McCourt on that shortly. With LINZESS and ZURAMPIC, we have two commercial products with the potential for long durability, high margin growth. And an opportunity to help millions of patients suffering chronic debilitating condition. Our experience focused commercial team including approximately 300 terrific clinical sales specialist are bringing both of these products to roughly 30,000 of the highest prescribing primary care physicians in the U.S. We expect Ironwood to deliver continued strong top line growth as we move towards become cash flow positive in 2018. During this period, we look forward to three additional potential commercial launches including the 70 mcg linaclotide to the Lesinurad-allopurinol fixed-dose combination product and Linaclotide for IBS-C in Japan through our partner Astellas. We also expect several important data readout including results from the Phase IIb trial with linaclotide clinical release at the end of this year. The IW-3718 Phase 2b trial in refractory GERD and multiple Phase 2 studies from our STC stimulators which we believe have game changing potential in vascular and fibrotic diseases. In total, we believe we have the asset and capabilities to drive strong revenue growth and cash flow from many years to come. And the opportunity to bring a series of additional major innovations to the market. With that I'll turn it over to Tom McCourt. Tom, take it away.

Thanks Peter. Good morning, everyone. As Peter mentioned we delivered another strong quarter for LINZESS, reinforcing its position as the US branded prescription market leader for the treatment of adult with IBS-C and chronic constipation. Nearly 700,000 LINZESS prescriptions were filled during the third quarter; a 26% increase year-over-year and more than 5.5 million LINZESS prescriptions have been filled by more than a million unique patients since launch. Further, as more LINZESS is prescribed and we continue to bring more OTC patients into the brand of prescription market, LINZESS continues to both grow the market and capture market share. Year-to-date through the third quarter of 2016, new prescription market share increased by 17% and total prescription market share increased by 22%, compared to the same period last year. Payer access remain strong which greater than 90% unrestricted access among Medicare part D plans and greater than 70% unrestricted access among commercial health plans. This is a great position to be in and we'll continue to work hard in our efforts to ensure millions of IBS-C and chronic constipation patients have access LINZESS at an affordable co-pay Physician satisfaction and intention to prescribe LINZESS continue to increase over time. In September 2016, a market research study was conducted involving more than 250 gastroenterologists and primary care physicians. Over 70% reported to be very to extremely satisfied with LINZESS. Additionally, survey physicians reported that they intend to choose LINZESS for almost 40% of their patients suffering from IBS-C and chronic constipation. And that percent has nearly doubled since LINZESS was first launched. We've made substantial progress in four years since launch but with just over million patients have the opportunity to try LINZESS than an estimated 40 million adult American suffering from IBS-C and chronic constipation, there remains a large opportunity within this category. The majority of these patients are dissatisfied with currently available treatment options primarily OTC laxatives. And are actively seeking care for their abdominal and constipation symptoms. LINZESS has set the bar high in its ability to relieve bothersome abdominal and constipation symptoms have resulted in very high level treatment satisfaction. This combined with broad access has led to continued strong growth in the prescription volume and sales. As the market leader, we will continue to innovate. By seeking to improve the clinical profile and expand the clinical utility of LINZESS to better serve and even broader patient population. This begins with 70 mcg dose of linaclotide which is currently under review with FDA, and if approved, we'll launch in early 2017. We believe providing a lower dose to increase physician prescribing of LINZESS within this large, heterogeneous, adult chronic constipation patient population. Later this year we also expect to have Phase IIb data for our Linaclotide Colonic Release formulation. A second generation product that we are developing that designed to enhance the clinical profile of the drug in appropriate patients. One of the key attributes of LINZESS is its ability to relieve abdominal pain in patients IBS-C. We believe with this colonic release formulation, we have the potential to see greater and faster pain relief in this patient population. If data from the Phase IIb are positive, we expect to advance the program into Phase III in 2017. We believe when linaclotide colonic release have approve could expand the IBS-C and chronic constipation prescription market by improving the clinical performance and enabling us to more effectively communicate the benefit of linaclotide that will in turn motivate physicians to choose linaclotide for even more appropriate patients, encourage more patients to request linaclotide and anticipate patients will be either more adherent on therapy due to the improvement in symptoms. Before I turn to ZURAMPIC, I want to quickly finish by saying that we are delighted with the progress that we made with our partner Allergan. As we continue to demonstrate strong prescription and revenue growth. This position is grounded on the real world clinical performance of LINZESS, a high level treatment satisfaction, extensive clinical experience and broad payer access and reimbursement. When combined with the 72 mcg dose and the colonic release formulation, if approved, we could further improve the clinical experience for patients and physicians, further strengthen the value proposition for payers and with patent protection expected into 2030, the LINZESS franchise has the potential to exceed a $1billion dollars in net sales by 2020 and $2 billion in peak US sales. Turning to our gout franchise. We launched ZURAMPIC last month. After spending most of September with the field sales team at various training and launch meeting, as well as the early feedback we are hearing from physicians, I am confident in our ability to successfully bring ZURAMPIC to the market. ZURAMPIC is an oral therapy for the treatment of hyperuricemia associated with uncontrolled gout and is to be used in combination with xanthine oxidase inhibitor or an XOI. As Peter said earlier, there are about 2 million patients in the US who suffer from uncontrolled gout and have very limited numbers of treatment options. Our commercial strategy for ZURAMPIC is quite so much to that of LINZESS. Focused on three key areas that we believe will enable us to drive growth overtime. First, we will work to educate physicians and create great urgency for them to treat appropriate uncontrolled gout patients. Most physicians that treat gout are in primary care and we have a team of approximately 300 clinical sales specialists who are now focusing on roughly 30,000 of the highest prescribing early adopting primary care physicians, who treat patients suffering from gout in addition to IBS-C and chronic constipation. Second, we need to secure access and affordable co-pays for the millions of patients suffering. And we are in act of negotiation and discussions with these payers. And third, we will seek to activate appropriate patients who can benefit from ZURAMPIC. These patients are in XOI but still are not achieving target serum uric acid levels and continue to suffer from multiple painful flares. We are in the process of launching an online digital DTC campaign aimed to help patients self identify and take action. We are encouraged by the initial feedback that we are hearing through the sales organization but we are only about a month into launch and still have a lot of work to do. We anticipate the first 12 to 18 months will be a gradual ramp typical of a focus primary care launch. From a development perspective, we submitted to the NDA for the fixed-dose combination of lesinurad and allopurinol, and if approved, expect to launch it in late 2017. Allopurinol is currently used in over 90% of patients with gout and a fixed dose combination product will enable those patients with uncontrolled gout to take both medication at the same time in one pill, which we believe will help drive physician adoption and further growth in the category. We plan to begin a post marketing study next year to further characterize the renal and cardiovascular safety of lesinurad. We expect ZURAMPIC to be cash flow accretive in 2019 and both ZURAMPIC and the fixed dose combination if approved led significant revenue with an estimated peak sales opportunity of greater than $300 million. With that I'll turn it over to Tom Graney.

Thanks Tom. I'll spend a last few minutes highlight a couple of recent corporate updates, as well as reviewing our third quarter financial results and guidance. You can find the detail financial statement in our press release. Beginning with the corporate update, first, in September we announced the closing of a $150 million debt refinancing. As we've said for sometime, we continually look to improve our capital structure and to lower our cost of capital. We were able to achieve both with this refinancing. With the new debt bearing an interest rate of 8.375%. The transaction is expected to fund in early January 2017 when the prepayment penalty on our existing 11% pharma note expires. The proceeds of the new note will be used to immediately pay down the remaining principal balance of the pharma note. Second, as expected while in the fourth anniversary of the FDA approval of LINZESS in August 2012, in October we received notice of ANDA filing by generic drug manufactures including Teva who are seeking approval from the FDA to manufacture, use and sell generic versions of LINZESS before its patent expire. As a reminder, we have nine orange book listed patents that we believe provide robust and long lasting patent protection. Together with Allergan, we intend to vigorously protect linaclotide franchise and are currently evaluating filing patent infringement lawsuits against these ANDA filers. Turning to our third quarter financial results, we ended the third quarter of 2016 with $320 million in cash and investments. Cash used in operations was $645,000 compared to $26 million used in a year ago period. The decreasing cash used in operation is primarily due to higher LINZESS revenue and changes in working capital. We reported $66 million in Ironwood revenue on our P&L for the third quarter, up 67% compared to the third quarter of 2015. Revenue primarily consists of revenue from our LINZESS collaboration with Allergan. Total operating expenses were $94.4 million in the third quarter including $45 million in SG&A expenses and $37.5 million in R&D expenses. SG&A expenses increased this past quarter compared to 2015 primarily due to investment associated with the launch of ZURAMPIC. R&D expenses increased in the third quarter of 2016 as a result of continued advancement of our pipeline, as well as cost associated with the submission of the lesinurad-allopurinol fixed dose combination product and the expansion of our medical scientific affairs team for lesinurad. Turning to our non-GAAP disclosures. We now exclude three non cash adjustment to arrive at our non-GAAP measures. The mark-to-market adjustments related to the convertible note hedges and warrant, the amortization of acquired intangibles assets and for the first time this quarter the changing fair value of contingent consideration associated with our licensing agreement with AstraZeneca for lesinurad. These three adjustments resulted in the charge of $7.3 million or $0.05 per share. GAAP net loss for the quarter was $33.2 million or $0.23 per share and non-GAAP net loss was $25.9 million or $0.18 per share. In the third quarter last year, the GAAP net loss was $47.4 million or $0.33 per share and non-GAAP net loss was $36.1 million or $0.25 per share. LINZESS sales for the quarter were $164 million, up 40% compared to the same period in 2013, driven by strong prescription demand and increased net price. LINZESS brand collaboration in the US recorded $81.5 million in net profit for the quarter compared to $35.8 million in the third quarter last year. In other words, net profit grew $45.7 million on sales growth of $46.9 million. Ironwood recorded $60 million in revenue this quarter from the LINZESS brand collaboration contributing to the overall growth of over 67% year-over-year. As a reminder, we record our share of the brand's commercial contribution as collaboration revenue each quarter. With the continued focus on investment and brand against the backdrop of strong LINZESS revenue growth, commercial margin for LINZESS expanded to greater than 60% resulting in a greater contribution to Ironwood stock line. Moving towards 2016 financial guidance, as a result of our continued financial discipline, we now expect to use less than $50 million in case for operations in 2016, down from our previous guidance of less than $70 million. The rest of our guidance has not changed from last quarter. In closing, with the solid financial profile in commercial products and an exciting innovative pipeline, we are on track to build a top performing commercial biotech company, with the potential to deliver strong revenue and cash flows for many years to come. And with that I'll hand it back to Glenda to begin the Q&A portion of the call.

[Operator Instructions] And our first question comes from Geoff Meacham from Barclays. Your line is now open.

Good morning, guys. And thanks for the question. Peter looks like you are starting to really get some operating leverage out of LINZESS. And this is actually before the ZURAMPIC launch. My question is how you guys are thinking about allocation of resources to push other development programs such as 973 or 1701 to push those faster through the clinic. And then for Mark for those two programs, what should we think about for 2017 in terms of major value creating events. Thanks.

Thanks for the question, Geoff. I'll start and then I'll turn it over to Mark. And he can tell you little bit about the excitement in SGC. It's a really good point. We are seeing growing operating leverage, nice revenue growth from LINZESS really we've seen it since the drug launch at the beginning of 2013. Quarter-over-quarter and year-over-year, nice growth, the commercial margin expanding and really we are just getting going with this brand. Primary care when you breakthrough and we've really nicely broken through now, has long trajectory of growth. We are adding patients every quarter into the market and dynamics of that market place are very strong .And I think we feel very, very bullish about the IBS-C and chronic constipation marketing for the long term. And as you know got durability for that franchise out into the 2030s when the colonic release program comes through and even without colonic release we are out to 2031. So we like that opportunity quite a lot. ZURAMPIC fits in great with that program and gives us the chance to leverage what we build with LINZESS and to grow-- again to grow revenues and build the category of real unmet need with millions of patients in not very crowded market with the focus selling efforts. So we do like the operating leverage and it gives the chance both to grow top line and to bring cash flow positivity in 2018 as we begin to return cash and become cash flow positive. We are continuing to invest importantly in innovation across the pipeline. We have mid stage efforts in colonic release in 3718 and we are very excited about the game changers in SGC. Mark, I don't know if you maybe want to talk about SEC.

Yes, Geoff. So I think if we look at it right it is in context that Peter just described with colonic release in 3718 data, our colonic release end of this year and then 3718 in 2017 we got some really telling data that will help and form our next step to note program. And that in contact with the opportunity with SGC, we certainly thought it now to move forward at our Phase 1 studies and move our lead compound into Phase II studies. 1973 is our lead there, that molecule is advancing in for diabetic complication. We'll have some early reads in next year on the fact pharmacodynamic activity in the diabetic population. So that's our first kind of area of trying to characterize the opportunity in a disease that where there are clearly diabetic complications that are characterized by vascular dysfunction, metabolic dysfunction and then also inflammation and fibrosis. We think that diabetic and property in preserved dejection in heart failure fit into those area. And so we are starting to think through how we would advance those programs but first we will start with characterize within the diabetic population particularly around the vascular effect. From there 1701, we are advancing in for a range of orphan disease opportunities and we expect to be indicating those in much further degree of depth later this year or early next year.

Thank you. And our next question comes from the line of David Lebowitz with Morgan Stanley. Your line is now open.

Hi. Thank you very much for taking my question. Would you be able to comment on the effort of Teva just -- could you just give us kind of brief overview of the patents, what patents are they -- what is their strategy and what patents they are targeting?

Yes. I can take that, David. As you know, it's quite standard there for innovative products to see ANDA filings. Sometimes shortly after the fourth anniversary of FDA approval, it is this part of the standard process. We received two ANDA notifications so far. We expect to receive more overtime. Again it is just part of the process when you are an innovator. As you know, LINZESS is a result of multiple really great innovation that have led to a very broad and strong IP portfolio as Tom mentioned, we have nine organ book listed patents in a very broad and deep patent portfolio overall. And we are now again intend to vigorously defend that innovation. With respect to Teva specifically, I think they've filed on all of orange book list in patents. Again I think that's quite standard.

Okay. With respect to ZURAMPIC, I know understanding it is early in the run, what's the feedback you have been getting from physicians?

Tom McCourt takes a back at that.

Yes. Thanks. As you know, we've been looking for an asset for a long time and we are looking for an asset, one, that tended to be in a highly symptomatic disease where there is a clear unmet medical need. And a treatment that clearly provide an advancement in care. And could synergize with our existing commercial model. And we found that in ZURAMPIC and we the sales force is extraordinarily excited and well prepared. The early feedback we are hearing from physicians is pretty consistent to what we heard in market research when evaluate the compound. And that is one; they clearly see and recognized an unmet medical need in a clearly defined patient population where ZURAMPIC would be appropriate. And the willingness and also the rationale for choosing ZURAMPIC on top of as antioxidant and we are just make sense. So early on I think the signals are strong and encouraging. As I mentioned it is still very, very early. But also on the payer side, we are getting very, very good feedback from the major national plans and we are already at the table with them which also is very encouraging at this point in time. So I think we are very optimistic. I think as I mentioned we see this is a great gradual launch keeping in mind as Peter mentioned, this is going to be very focused commercial effort, really leveraging the physicians that are also LINZESS prescribers to really maximize the synergy of a commercial organization. And these are all also the physicians who are most likely to move quickly. So we are going to get a pretty reasonable read with regard to what we think the commercial opportunity is in the months to come.

Thank you. And our next question comes from the line of Irina Koffler from Mizuho. Your line is now open.

Hi. And thanks for taking the questions. So on the colonic release that we are expecting at the end of the year is that -- would you expect the Phase III to readout before your 30 months stay expires out in 2020? So this compound will be a little bit more visible around that time, that's question number one. And then question two is now that you have these ZURAMPIC reps out in the field and maybe some of them are also calling on the LINZESS physicians, can you talk about how that call is going and any change in dynamics in your collaboration with Allergan on that? Thank you.

Mark, can you take the first part?

Yes, hi, thanks Irina. As you know we are very excited about the potential of colonic release and as indicated we think it does continue to expand intellectual property in this area and if we can really improve pain relief that would be exciting for patients. And I think the physicians that treat them. From the prospective when we would expect the product to launch in, we certainly think we would have Phase III data before that readout of the -- before the 30 months stay. So we think we are on track. I don't think we disclosed yet when we expect product launch but we would expect that Phase III data before that.

Yes. I only would add there that if you look at the orange book list in patents we have composition of matter till 2026. We have a very strong formulation patents on the original current linaclotide forms still 2031. And with the colonic release that would extend us out into the mid 2030. So to reiterate Mark's word, we are very excited about the opportunity to expand the market and help more patients with colonic release. But it is not particularly strategy with respect to the near term ANDA challenge. It is more of an opportunity to both expand the market and extend the franchise out in the 2030s.

So Irina this is Tom. So I'll take the call question. And actually no as I mentioned we are calling on about 30,000 primary care docs and these are the busiest early adopting docs and they are also writing all three of these products really. So they are writing LINZESS, they are writing VIBERZI and they are writing ZURAMPIC or they are writing gout product. And within this it is a really continuum of docs right so we tend to have some of those primary docs tend to be high GI writers, some tend to be high gout writers but they write everything. So one of the things that we've been working on and as you know is this galvanized call with LINZESS where we fit LINZESS and VIBERZI together which has been a very impactful, very efficient call. And we are able to slide ZURAMPIC in right behind it because we want to keep them -- we want to keep the sales force delivering that, they galvanize call because it's become such a strong call. And then for the other docs and which they tend to be high gout writers, we lead with ZURAMPIC followed by LINZESS and VIBERZI. So one thing that we've seen over the first several weeks is the sales force is delivering all three calls 90% of the time which is really quite remarkable. And I think it says a lot certainly to the skillful sales force but also you got three very innovative products that docs want to learn and hear about it and certainly they want resources around. So I don't think -- I don't see anything changing with our relationship with Allergan. We very much like having LINZESS and VIBERZI together. And we think it strengthens the overall call with these target physicians. So we love the productivity that we are seeing.

Thank you. And our next question comes from the line of Jason Gerberry from Leerink Partners. Your line is now open.

Hi. Good morning. Thanks for taking my questions. I guess just first question assuming linaclotide launches next year I am curious to get your guys thoughts on if you anticipate the PVM at some point moving the GCC class to a preferred and having one excluded brand and that creating some I guess catalyst for greater rebating and I am just kind of curious if you think that this class could evolve like we've seen other classes like 5 ASAs where there is preferred and excluded brand.

Yes. I mean this is Tom. I'll take the call or take the question. We'll have to wait and see. As you know, we've a very, very strong position with the payers right now. We came in at a very responsible price with the very, very strong value proposition which enabled us to secure very strong access. We continue to expand. I think the other piece is the clinically utility of the drug. So we are kind commented initially with a chronic constipation probably one dose. We've got indications for IBS and chronic constipation. And we are going to soon have three products. So you think about the commercial or the clinical utility of that drug certainly over the next several years. I think we are in a very, very strong position. So, hey, competitions always good and it is good for everybody. It raises the bar; we are going to see a lot more noise in the market which is going to grow the market. And as a market leader you tend to benefit from that. But we are going to play tough in the payer space. We have a great account management team on the Allergan side that we are working closely with. And we are going to do everything we can to maintain our position in the payer but we always -- we have to take it one at a time. It still got a great value for our shareholders. So we want to be responsible with regard to how we are approaching the contracting strategy.

Okay. And if I could just squeeze in a follow up just on ZURAMPIC. I realized it is kind of early days on the managed care front but just curious like in terms of the percentage -- patients who can satisfy the step in terms of a failure of an XOI, what percent currently you are getting access -- can get access to ZURAMPIC now? And what are the big events you point is when that access would improve presumably?

We are still getting our arms around that. I mean obviously a lot of the big plans will put this in third tier automatically. And we are still trying to figure out how many of those are actually signing up for that. And we are probably know what that number looks like out of we get here the next couple of weeks. But I think the most encouraging thing is that we are literally at the table with all 10 of the major payers right now. And they all see the need; they all see the benefits that this logical fixed dose or the combination of an XOI plus ZURAMPIC. And everything we've seen so far there seems to be responding well to how we enter the market and the prices as well as our contracting terms. But again we are wrestling through that right now but the early signs are very encouraging.

Thank you. And our next question comes from the line of Anupam Rama from JPMorgan. Your line is now open.

Hi. This is [Eukul] on a call for Anupam. Thanks for taking our question. Just regarding the IW-3718 Phase IIb trial, what threshold or delta and activity are you looking to move that -- are you looking for it to move that program forward to Phase III? And what placebo response should we be looking for?

Yes. So really on -- it is a little more complicated I think than that to be honest. So certainly we will have the primary endpoint around heartburn severity but we also expect ultimately to have responder analysis integrated in for the Phase III studies based on our interaction with the FDA. So I think what we -- the responder analysis tends to put the placebo responses down fairly low. Add to most of other response but I think we look at it obviously we are looking for a clinically meaningful change in heartburn severity in this study. And then be able to use that change to power through power up what would we look at for the responder analysis. So I can't give you a specific we are looking for x versus y, nobody has ever done this study before for what will be placebo response in this population. We certainly expected to be there. You see it in previous heartburn study but this is a very specific population that we are going after. A very large population of unmet need but at this point we certainly continue to look for more on clinical meaningful response.

Thank you. And our next question comes from the line of Yingpeng from Bank of America. Your line is now open.

Thanks for taking our question. This is Amanda on for Yeng. So two questions. We see that year-over-year LINZESS prescription is about 30% or 26% but sales were up for 40%. So wonder its net price change accounts for difference there? And then secondly, I want to know you guys know about the PDUFA date for 72 mcg LINZESS?

Hi, Amanda. This is Tom Graney. Thanks for the question. I'll take the first one and then Mark will take the second one. You are right. We are very pleased with the operational performance of LINZESS year-over-year. We continue to see strong prescription growth which we've said all along really should be the yardsticks we measure against in term of both physician and patient satisfaction as we continue to grow the market as Tom said and bring it more patients send from the OTC segment of the marketing to the prescription market. So again another really strong quarter of 26% TRX growth. We don't really breakout the component of price which is as you know made of both list price and also gross to net adjustment. Those gross to net adjustments will change overtime as we alter our [Technical Difficulty] from rebating and co-pay standpoint. But also when we hone our estimates of around return reserves and other accounting judgment and estimates that are also built into gross in that. We have taken a 16% price increase in the last 12 months that's certainly is helped to improve our net price over this period. But we really don't go into much more detail than that.

Yes. On the 72 mcg PDUFA date expectation, we haven't provided the specific date. We expect the approval to support an early 2017 launch.

Thank you. And our next question comes from the line of Boris Peaker from Cowen. Your line is now open.

Great. So I'll start with paragraph IV. I am just curious why do you think they filed it now? Is there any specifically unique about the timing of filing now versus later?

Boris, no, it is completely standard there. They can't file until last till four years after the first approval. So the drug was approved August 30, after 31 I can't remember I think it was 31s in 2012 the 30th of 2012. So 31st is one of its birthday, again I am confused. And so four years with the end of August. And so that was the first they could file. And we get notified a little bit after that. And they always file as soon as they can.

Got you. And LINZESS pricing I mean you mentioned that there was a reasonably aggressive price increase just over the last 12 months. And I am just curious in terms all the discussions of pricing and so forth. What is your pricing strategy maybe over the next year or two?

Yes. This is Tom. I'll take the question. This is something that we think a lot about with regard to the value proposition for the brand and because we have such strong access with the payer, it something that we are quite thoughtful with. As you know we came in at a very aggressive price point, well below AMITIZA when we launched to really secure strong access reimbursement and really over the last four years we are kind of catching up to where kind of the more optimal price point is in. And I think as we move forward, it is something we are obviously very sensitive to. Certainly we haven't disclosed what we think the price increase will be over the next year or pricing strategy over the next year. But I think obviously with the current environment, I think most everybody is kind of tampering their thinking about how aggressive they move our price. So I think the first thing that we are focusing on is absolute access to the drug which is our primary objective and we can't compromise that so we are going to be very thoughtful about how we take price increases moving forward.

Got you. And my last question is on ZURAMPIC, specifically on the combo pill. I am just curious did you meet with the FDA before filing? And if so, what was the specific agency's feedback? I am just curious how did they look at a product where the labels already say they should be combined? What are kind of the key considerations?

Yes. Thanks. So the really -- this is not -- this is a combination where you basically using the bridging strategy, the clinical studies were already done so taking and filing with previous PK data and bridging that PK data into the clinical study. So I think it's a relatively simplified study and require very few interactions with the FDA.

I think one piece to comment here Boris is, is obviously this is just a right thing to do for the patient. And when you think about these drugs should be given together and it basically guarantees now that they are given together. So not only is that the right thing to do for the efficacy and safety profile of the drug but obviously the economics for the patients and the payer also quite favorable. So we moved very quickly on this. Certainly AstraZeneca had done a lot of the lifting early on. They saw the need and the value and we are basically following that strategy which I think is spot on.

Thank you. And our next question comes from the line of Jamie Ruben from Goldman Sachs. Your line is now open.

Hi. Good morning. This is Divya Harikesh on behalf of the Jamie Rubin. Just following on from the pricing discussion earlier. Just wanted to get an understanding you must have had discussions with payers on the contract for 2017. Is there any change that you are seeing with respect to access or rebate levels with respect to 2016? If you can give us some color on that. And how is that helping with respect to your discussions with ZURAMPIC access as well? And secondly when you think about your SGC compound and taking that forward into Phase II, at what point do you consider partnering option and at what point does spend become too much for you to take on individually versus partnering it out given the breadth of opportunities there?

Tom, can you take the first question on ZURAMPIC access for 2017?

Sure. And as you know we've had -- the last really three years we've had very, very strong and consistent access as far as unrestricted access at very strong and reasonable co-pays. And that's pretty stable. I mean there is going to couple of sizeable wins that we had last year but as we are going through the ongoing negotiations, we don't see any dramatic changes. I think for the most part and in most of the plans they are going for kind of a two or three product position in the categories rather than a single sole and exclusive which I think we think is probably the right thing to do. We wanted to make sure that we have a good position and fair position in the payer and we don't see that changing overtime. As far as what we are seeing on the ZURAMPIC side. Again, one of the really kind of strong premises that we hold here at Ironwood is the importance of the strong value proposition. And it is a reason why LINZESS was embraced and we were able to secure access with the payer. And we feel very much the same way about ZURAMPIC based on the clinical profile the unmet medical need and the value that it can bring. So I think that is kind of the brand that we want to have in terms of how we approach the payer. But I think we feel good about where we are with LINZESS. We think 2017 looks good and so far the early signs in ZURAMPIC look very encouraging.

Yes. And regard to the SGC program, first of all, we appreciate the enthusiasm and its acknowledgment it had very broad opportunity that we are very excited about and some very big market. We, our strategy is certainly right now we are designing and planning to execute on some very focused pay two program that will again we think inform where the drug has its greatest potential. And then really have in mind the long-term study that going out to the Phase III program in rest of the world. It certainly has a point in there we will engage partners potentially when you get out to those large pay 3 programs in rest of the world opportunity. But we actively -- we continue to actively discuss with potential partner that are interested in this space. And when we think there is the value recognition that we are seeking and the partner that we are really seeking that have the rest of the world capability. That's really what's the next step would be.

Thank you. [Operator Instructions] And our last question comes from the line of Tim Chiang from BTIG. Your line is now open.

Hi. Can you guys hear me? Hi, Peter. Hi, Mark. Hi, Tom. So my question is really actually more big picture. It seems like there is some speculation out there that actually Takeda might be interesting in buying Salex. How do you guys think from these the big Japanese companies in the GI segment? I know is that you guys have a relationship with the Astellas, with LINZESS should be on the market for IBS-C sometime next year. So how do you sort of view the big Japanese company as players in the US market for the GI space?

Thanks for the question, Tim. We have a very good relationship with Astellas. We worked with very closely with them to develop and prepare for commercialization in Japan. That Phase III program in IBS-C is completed and the drugs under review in the Japanese regulatory agency. We should hear pretty soon and this is a reminder the Phase III chronic constipation studies in Japan are ongoing. And again we've had a very close and positive relationship with Astellas. They are responsible for commercializing the drug in Japan. We will receive royalty from them for their successes and efforts in Japan. That's the extent of our relationship with them. And they don't participate with us here in the US. With respect to Japanese companies participating in GI in US, we don't really have much particular insider view. We feel great about the work we are doing in US both with LINZESS and with ZURAMPIC and our ability to focus on this subset of primary care opportunities where you have very large patient population, real unmet need, symptomatic disorders, not very competitive spaces and most important molecules that are either first in class compounds or best in class compounds are really differentiated molecules. And some important way where we can leverage the capabilities we build here with very strong marketing expertise, great ability to leverage insights with the customers, with patients to work collaboratively and effectively with payers, payers to offer a great value proposition to all participants in the value chain and to maximize access. And the focusing our effort to help get these drugs to lots of patients. We see a number of other opportunities like that. For instance, in uncontrolled or refractory GERD, we've talked about with IW-3718, the opportunity again a very large patient population, very well served mostly 40 million or so patients taking PPI, getting a lot of benefit but they are leaving in the order of 10 million patients really suffering from incomplete resolution of their symptom. And if we are successful in the Phase IIb with our bio acid sequestering hypothesis, that's a perfect fit for us in this sort of focused primary care. And it really leverages the strategy we are taking in the US. We think it is quite unique and we love our competitive positioning there. And when we think about the Japanese pharmas, it is really our ability to take to leverage the capability so that they migrate to us in ex US markets. We are focused in primary care commercialization and generally in commercializing in US. And markets where we are going to commercialize in US we feel very good about our ability to successfully participate and compete. Outside the US, we don't intend to commercialize, that's where we interface with the Japanese pharmaceutical companies.

Thanks for the color, Peter. And maybe just one last question in regards to the financial guidance. I mean obviously you guys are -- then you are going to use now less than $50 million of cash this year. It seems like you guys are being very focused in terms of managing expenses and as we head into 2017, certainly it would -- I would think that R&D expenses are going to rise, your SG&A expense is probably around the same. But then how does the fact -- and how does your relationship with Allergan strengthen? I wanted to say in 2017. Do you think it will strengthen potentially with more partnerships on some of our pipeline products?

Hey, Tim. This is Tom Graney. I'll take the first part. And then I'll let Tom comment on our relationship with Allergan. As you know our focus in operating the business is to make sure we deploy capital in the most value creating way and we take that responsibility very seriously. In that respect, we do take a very disciplined approach to how we invest both on the commercial side and the R&D side. And we will always do that. With respect to 2017, we will follow our normal process there and provide expense guidance across the range of the P&L when we have our fourth quarter earnings call in February. So look forward to sharing some insights with you on that. Tom you want to [Multiple Speakers]

Yes. This is Tom, Tom McCourt. As far as relation, as you know this has been a tremendous collaboration. And it is something we both companies worked very, very hard at. And as you know, I interact with Bill Meury an awful lot to make sure we are absolutely aligned and where we are and where are going. I know I can speak for Bill and saying that we both see this as a very much -- we are still in the growth mode. And while you are in a growth mode, you are going to continue to invest in the brand as long as that makes sense when you are in this kind of a growth curve. So I know the both organizations are committed certainly to the near term investments as a brand. In addition, the 72 mcg as well as the colonic release program was very, very exciting. And if the data look positive and it can blow this market wide open. So I think we are both very excited and very optimistic about where we are. We are continued to be in the growth mode. We are going to invest responsibly and together. And I feel very, very good about the relationships that we have now. And I can't think of anybody in the industry we should be partnering with.

Maybe to wrap that up, if that's okay, Tim, I'd say for both ourselves and Allergan, LINZESS is a very important and fast growing product. I think we are quite comfortable with the longer range guidance that we've given that LINZESS will be greater than $1 billion product by 2020. And as you said with respect to the operating leverage and financial prudence, we expect to be cash flow positive in 2018 as we've said a number of times. Adding ZURAMPIC in, again we've said before we expected ZURAMPIC to be accretive by 2019 and to be greater than $300 million product at peak. If you just take those pieces and piece them together over the next -- just over the next four or five years as the pipeline comes to fruition, I think you will see that we are likely to be one of the fastest growing companies among all of the commercial biopharma companies. And if you look at where we are today, we are trading at less than 6x revenue multiple. So I think there is a lot of opportunity for growth in shareholder value over the next coming years. And with that we would like to thank you all for joining us today. And thank Glenda for operating for us. We are available throughout the day. So please reach out to Meredith if you like to follow up on the call with any additional questions. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.