Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals Q3 2017 Investor Update Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I'd like to introduce your host for today's conference, Ms. Meredith Kaya. You may begin.

Good morning, and thanks for joining us for our third quarter 2017 investor update. Our press release crossed the wire earlier this morning and can be found on our Web site, 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, 2017, 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; Tom McCourt, Chief Commercial Officer; Mark Currie, Chief Scientific Officer; Chris Wright, Chief Development Officer; and Gina Consylman, Interim Chief Financial Officer. Our speakers will be referring to slides available via the webcast. For those of you dialing in, please go to Event section of our Web site to access the webcast slides. I'd now like to turn the call over to Peter.

Thanks, Meredith. Good morning, everyone. Ironwood delivered strong performance during the third quarter of 2017. Total revenues grew by 31% year-over-year to $87 million. LINZESS generated $191 million in total U.S. net sales, up 16% year-over-year, and $111 million in net profit for the brand, up 36% year-over-year. We launched DUZALLO, the fixed-dose combination of lesinurad and allopurinol, and although it is early, we are encouraged by what we are seeing and believe it will be the critical growth driver for our uncontrolled gout franchise. Our partner in Japan, Astellas, continues to see strong initial uptake of LINZESS in IBS-C, making ex U.S. linaclotide value an increasing source of revenue for us, driving greater than $9 million in API sales in the quarter. We reported positive top line results from the Phase IIb trial with IW-3718 in patients with uncontrolled GERD. We believe 3718 like LINZESS has the potential to become a blockbuster, market leading product, serving a large and highly symptomatic patient population. And lastly, we made some prioritization decisions in R&D. Optimizing our linaclotide life cycle strategy and advancing both of our clinical sGC stimulators in select high-value indications, which Mark and Chris will further detail on this call. Over the past year, we've made impressive progress in all areas of the business. We now have multiple commercial products that we expect will together deliver a greater than 25% top line CAGR between 2006 and 2020 -- 2016, sorry and 2020. We believe, this continued revenue growth combined with expanding commercial contribution and prudent allocation of the capital, will propel us to begin generating cash -- positive cash flow during 2018. Further, we are advancing several highly innovative risk reduced development candidates that each have the potential to address serious unmet medical needs and expect continuing business growth and exciting upcoming catalysts to provide the opportunity for meaningful value creation for patients and shareholders alike. With that, I'd like to turn the call over to Tom McCourt.

Thanks, Peter, and good morning, everyone. We are very pleased with the progress we’ve made with LINZESS during the third quarter. It's a branded market leader in the IBS-C and chronic constipation category. Ironwood and Allergan continue to drive impressive year-on-year growth in demand in a very large category. LINZESS generated 18% increase in total volume, and a 13% increase in total prescriptions year-on-year. The difference was driven by the increased use of the 90-day prescription. A $191 million in net sales is generated, representing a 16% increase year-on-year, and we are seeing growing profits and expanding margins. The majority of LINZESS growth continues to come from physicians switching patients from OTC laxatives directly to LINZESS. The 72-microgram dose is also an important driver of incremental growth, as it enables physicians to choose LINZESS for a broader spectrum of patients. We continue to build a large category, with patent protection expected until at least 2033. To date, LINZESS has been prescribed by more than 200,000 physicians for more than 1.5 million patients over the last five years, with a high-level of patient and physician satisfaction. We believe, LINZESS will continue to grow the IBS-C in chronic constipation prescription market, as well as gain market share for years to come, which will be achieved by motivating more patients to take -- taking OTC laxatives to request the effective therapy and specifically request LINZESS. We will be providing physicians with treatment flexibility, as LINZESS is approved for once daily use in two indications with three doses. One for IBS-C and two for chronic constipation, and enabling strong payer coverage with unrestricted access in more than 90% of Medicare Part D and more than 70% of commercial health plans. Ironwood and Allergan are striving to better serve a broader patient population by enhancing…

Good morning, everyone, and thanks Tom. We have made exciting progress across our R&D portfolio with the string of recent pipeline successes allowing us to refine and prioritize our R&D efforts in our areas of expertise, GC-C, bile acids and sGC. This morning, Chris Wright and I will be sharing updates in a few of our key pipeline programs, linaclotide, IW-3718, IW-1973 and IW-1701. Some of you may know Chris already, he joined Ironwood earlier this year as our Chief Development Officer. Chris is a practicing neurologist, and has spent over 20 years in biopharmaceutical industry and academia, part of which was spent leading the development of kalydeco at Vertex. We are thrilled to have him on board, and he is already making a significant positive impact. Now I’m going to turn the call over to Chris to take you through linaclotide and 3718.

Thanks, Mark, and good morning, everyone. As Tom mentioned, we and Allergan made substantial progress this past quarter in further optimizing our linaclotide life cycle strategy. First, we identified a shortened development path intended to obtain additional abdominal symptom claims by advancing a single Phase III trial with LINZESS, which we expect to initiate next year. And second, we plan to advance DR2 as a visceral non-opioid, pain relieving agent for patients suffering from all IBS subtypes. With this refined strategy, we now believe we can achieve our key linaclotide life cycle objectives more quickly and cost effectively without pursuing DR1 and we are discontinuing our efforts on that program. Moving to IW-3718. We are very pleased with the results from our Phase IIb trial in uncontrolled GERD, which strongly validated our bile hypothesis and demonstrated a clear drug effect. The team is moving expeditiously to get this program into Phase III trials and is on track to engage with the FDA on trial design and key endpoints. We believe 3718 represents a significant opportunity with the potential to address a highly symptomatic disease in a large patient population. We look forward to continuing to advance this program with the goal of bringing a new potential treatment option to the millions of uncontrolled GERD patients in need. With that, I'll turn the call back over to Mark.

Thanks, Chris. I'll now turn to our sGC stimulators. We recently initiated two Phase II trials with IW-1973, a lead sGC stimulator. The first Phase II trial was in patients with diabetic nephropathy, a form of chronic kidney disease. Diabetic nephropathy is estimated to affect millions of patients around the world, including an estimated 8 million Americans and is the leading cause of end-stage renal disease. Today despite limited available treatments that slow progression, patients continue to go on to require dialysis or kidney transplantation, and there are few therapeutic options that target the underlying pathophysiology of the disease. We believe, 1973, the ability to boost nitric oxide signaling would help to significantly protect renal function, to improving renal blood flow regulation, reducing vascular and tissue inflammation and inhibiting fibrosis. This Phase II dose ranging trial is designed to evaluate the safety and efficacy of two 1973 doses in patient with diabetic nephropathy. The trial is expected to enroll approximately 150 patients. The primary endpoint is seeking to assess the urinary albumin to creatinine ratio, an indicator of kidney function in diabetic nephropathy. The second Phase II trial is in patients with heart failure with preserved ejection fraction or HFpEF. HFpEF also affect millions of patients around the world, including an estimated 3 million Americans, and it's a highly symptomatic condition, offered -- often associated with high rates of morbidity and mortality. Currently, there are no approved therapies to treat HFpEF, and incidences are increasing due to an aging population and a rise in comorbid condition such as obesity and type 2 diabetes. The latter of which, a third of HFpEF patients have. We believe, 1973 has the potential to provide multi-dimensional impact in HFpEF, by increasing blood flow to the tissues and reducing vascular inflammation in fibrosis, leading to…

Thanks, Mark. Good morning, everyone. I'll spend the last few minutes reviewing our financials, including LINZESS third quarter performance, OUS contribution and 2017 financial guidance. You can find the detailed financial statements in our press release. As Tom said, LINZESS demonstrated strong demand in the third quarter, with an 18% increase in volumes year-over-year. Total LINZESS net sales in the third quarter also grew nicely, up 16% year-over-year to $191 million. Our primary focus remains on growth in demand as we expect revenue to grow primarily through volume plus net price realized over time in this large and underpenetrated consumer category. The LINZESS brand collaboration in the U.S. generated $111 million in total net profits and a 66% commercial margin in the third quarter. With continued targeted investment into the brand driving strong volume growth, we continue to expect commercial margin to expand over time and to exceed 70% by 2020, resulting in a greater contribution to Ironwood's top line. OUS revenue, as Peter highlighted earlier, is becoming a meaningful source of revenue for us with a strong early uptake of LINZESS in Japan. Per our agreement with Astellas, we sell linaclotide API supply to them at a contractually defined rate, and we recognize revenue at the time of sale. We recognized approximately $9.5 million in revenue from sales of API to Astellas during the third quarter and $15.7 million in the first 3 quarters of 2017. While API sales to Astellas may fluctuate, we expect them to become an important and growing contributor to Ironwood's top line. As you know, Astellas deduct API sales for linaclotide from their royalty payments to us. For at least the next few years, we expect revenue from API sales to reflect the full value of our relationship with Astellas. We recorded $87 million…

[Operator Instructions] And our first question comes from the line of Ying Huang from Bank of America. Your line is now open.

Hi. Good morning. Thanks for taking my questions. Yesterday, your partner Allegan made some comments around the future growth rate for LINZESS, specifically based at the high single-digit. I was wondering if you guys can provide a little bit comment around that given your projection of the peak sales for LINZESS? And then, secondly, can you talk about, broadly speaking, the formulary access for LINZESS in 2018 and the major payers including PDMs and the big insurance company? And lastly, it sounds like you are not very bullish on the resistant hypertension indication for 1973. What gives you more confidence in the other two indications in the heart failure and diabetic nephropathy? Thank you.

Thanks. Tom, can you take the first two?

Sure. As far as the comment at single-digit growth, high single-digit growth that Bill Meury [ph] made yesterday, I think we differ a little with regard to the rate of growth to a $1 billion, but we are not off by much. I think the important thing to remember is that we are fully aligned of the fact that LINZESS shows very strong growth, that there's a big market out there to capture, and that we are fully supportive of investing in LINZESS as a growth mode. Ironwood continues to be fully committed to $1 billion in 2020 and well beyond when I look at the life cycle management. So I think this is a rate of growth question, but there's a lot of variables out there that we will be better informed of as we move forward. As far as payer coverage, as you know, we -- that is a key part of our marketing mix. As far as the payer access, not just what we invest in promoting to docs, but what we invest in educating patients through a DTC, but obviously payer access and elimination of any barrier is really key to the long-term growth of the brand. And we have really industry-leading access at this point, which has been a huge driver of our overall demand growth. So I like where we are at. I think we are very aligned as far as what we think the long-term potential LINZESS can be, and I think we are fully aligned with regard to the level of commitment we are making to the brand as we grow it. And Mark will take the second question.

Yes, I think our discontinuation on resistant hypertension really reflects that bullish nature and positive excitement for diabetic nephropathy and HFpEF. These are large indication where we think the underlying pathophysiology is uniquely addressed by an sGC simulator and a very limited treatment option with very large patient population. So we are excited to be focusing on those. And really that’s more of the reflection of just our asset allocation and our resource allocation as we examine the pathophysiology and what we think this drug can do.

Operator, we can go to the next question.

And our next question comes from Boris Peaker from Cowen. Your line is now open.

Great. Thank you for taking my questions. Maybe I will just initially follow-up on the question from prior questions, specifically, what gives you greater confidence in LINZESS growth over the next few years relative to perhaps what Allergan is saying? Is it that you are including maybe some of these label expansions that they’re not factoring in? I just want to kind of better understand the disconnect?

Yes, I think, Boris, I think there are -- Bill has his forecast and his assumptions in place, I think we do see ongoing growth of our DTC campaign. I think we are -- you are going to see a very innovative campaign early next year. I think the other piece is the value of these additional abdominal symptom claims. What we do know is patients identified far more with abdominal discomfort and bloating than they do with pain and I think what we’ve seen in the past is our ability to motivate consumers to raise their hand and demand more effective therapy, particularly LINZESS. So I think we are probably a bit more bullish on certainly the performance of what we’ve seen in DTC. I think the other piece is, whether they valued these additional abdominal symptoms that will be coming prior to 2020.

The only thing I'd add is forecast for the future and then we got to play the game. What really matters is, we are completely aligned on the investment against the brand today. We are both very bullish about the near and long-term prospects of this brand and our opportunity to grow it for the long-term and we are investing fully behind it. Then we will see how it plays out.

So just to follow-up on that. So, for LINZESS this year, you note a 13% increase in scripts and a 16% growth in revenue. So I’m just curious is the additional revenue growth due to just order timing or -- and also what are the discounts, let's say, this year relative to a year-ago?

Well, I think, first of all, I think -- it isn't just -- I think, it's important to recognize this is not just TRxs, it's overall volume. And we saw an 18% increase in overall volume because we've seen an increased growing size of the prescription itself. So to be in year five and have an 18% increase, is a very impressive place to be. So I like where we are at right now with our demand growth. The other things with regard to price, will fluctuate from quarter-to-quarter. I think the bottom line is, historically, we’ve seen -- we’ve taken modest price increases and we benefited from the price over time. This does fluctuate from time-to-time, but as we look forward, we still see benefit from price. And, of course, we are always making a trade-off with the payer to make sure that we maintain a strong value proposition and broad access. For a market this big, you got to have that and we are constantly making investments decisions really to support demand growth, which is really where our long-term growth is going to come from.

Great. And my last question and it's in gout. I'm just curious, what’s your sales expectations for DUZALLO relative to ZURAMPIC? How do you anticipate the launch of DUZALLO to really go?

Just to remind everybody, I mean, we've always seen the workhorse here as DUZALLO. We’ve been out in the market now for a year with ZURAMPIC. We’ve learnt a lot, particularly, physicians are a little complacent, how they manage these patients. They’ve been managing them the same for 25 years, which has required us to push them a bit to say, hey, these people that aren't controlled and continuing to flutter, you got to do better. Now one of the obstacles that we’ve been wrestling with in the market is the renal tox warning with monotherapy where they will get to allopurinol 300 and then they’re not to go and they’re making the next choice, which will be ZURAMPIC, and the concern is what if they forget to take their allopurinol, am I putting my patient at risk? And this is where the fixed-dose combination takes that off the table. So now you’ve got one pill, once a day, one co-pay that's twice as effective. And what we’ve seen in the market so far is, it's only been a couple of weeks, but physicians clearly see this as a different drug. And we’ve only got a week of scripts really, and we saw a nice bump, but we’ve a lot of work to do here in continuing to move the prescriber to a place where they need to be as far as more effective therapy. I think it's something that -- the fact that we are going to be here all alone for an extended period of time, we think is achievable. And we are going to be very thoughtful with regard to how we invest moving forward. And the piece that I -- Boris, I need to see, is how promotionally sensitive the DUZALLO really is to really inform where we go next, but I think overall we like the market. I think we -- everybody sees DUZALLO as an advancement in care, and we’ve got a lot to learn and a lot to do in the marketplace, but we still see this as a certainly a peak sales of $300 million. Keep in mind, we need somewhere between 6% and 8% of the patient population to get there. So when I look at this market, I look at the brand, I think it's quite achievable.

Great. Thank you very much for taking my questions.

Thank you. And our next question comes from Geoff Meacham from Barclays. Your line is now open.

Hi, everyone. Good morning. It's Paul Choi filling in for Geoff. Thank you for taking our questions and congratulations on the quarter results. So I’ve one commercial question to start with, and it's just -- and I recognize it's early stage with regards to DUZALLO, but are you seeing any evidence of increased adherence relative to the two drugs being taken separately based on historical results, any feedback or metrics you could provide there would be appreciated?

Yes, it's early days with regard to DUZALLO. What I can tell you about ZURAMPIC is we are seeing -- we saw -- we are seeing very high adherence. And the refill rates are particularly strong with ZURAMPIC. So I certainly would expect at least that good with DUZALLO, but I think it's not hard to believe that when you have an easy drug like this to take and have eliminated some of the pill burden to these patients who are probably taking multiple therapies. They probably have other metabolic disorders. I think, it will be supportive of stronger adherence, but I think the thing that is most striking to me and I've had a couple of rides in the field is how different the prescriber sees the DUZALLO from ZURAMPIC. And it's just such a logical next step beyond allopurinol 300, which keep in mind, is about 70% to 80% of the market. So -- and of that half of those people are not to goal. So it's a really logical next step. And I think we are very encouraged by what we’ve seen so far.

Great. And a couple of pipeline questions if we could, for Mark, maybe starting with 3718. Since your last call, have you had any incremental feedback from the FDA regarding endpoints and clinical trial design that you could share any color on how the agency is thinking about it or anything you can add there?

So it's Chris. I'll take this question. So we are really excited about the results for 3718. And it's been -- we’ve looked at the data in much detail and it's a very consistent and important clinical effect that we are seeing. We are working very hard, this is the top priority for the teams to move this forward as quickly as we can. And right now we have FDA meetings that are planned at the beginning of next year. So we anticipate in the first half of next year we will be doing -- having our discussions in more detail with the agency around endpoints and CMC and the like. So right now, we haven't received additional feedback, but we will plan on getting that at the end of Phase II, a series of end of Phase II meetings starting at the beginning of next year.

Okay, great. And then, maybe one on 1973, with regard to the HFpEF trial. Should we think about the stratification by New York Heart Association as potentially allowing for patients at a earlier stage or maybe less symptomatic being eligible? Are you primarily thinking about later stage patients as being the addressable opportunity here?

Yes. So I think we will give more details on those designs as we move forward. I think for us right now, we are just getting that study initiated and going. For clinical design, we tend to more focus on at least moderate patients, not so much mild so that we can see an impact on -- and an effect.

Great. Thanks for taking our questions and congrats on the quarter.

Thank you.

All right. And our next question comes from Jami Rubin from Goldman Sachs. Your line is now open.

Hi. This is Divya Harikesh on behalf of Jami Rubin. Thanks for taking our questions. I just have a question on the additional abdominal claims. Is -- what really drove the decision at this time to not pursue DR1 and go with additional claim, was it based on discussions with the FDA on the level of differentiation? And you stated a shortened development path. How soon can you get this claim versus what it would have required for DR1? And lastly, my question on this is does the opportunity change at all with just a claim versus a follow on life cycle product? And what is the IP on LINZESS look with these additional claims? Has it still taken out to mid-2030s? So, sorry, I think there are four questions there on the same topic.

We will see what we can do. And at least the first two and the last one, I think we may have lost number three. Let's see how we did. Mark, you want to start?

Yes, I'll start. So I think what we’ve been working towards for a long time is really being able to bring the abdominal symptoms into our label. And in our discussions with the FDA, we were able to define a path that allows us to do that. And when we looked at it, we could do that faster with bringing forward it to LINZESS. And we could then also expand with the DR2 and go into a much larger population for IBS overall pain. So we -- when we looked at it in the forward resource allocation, really came down to we could get what we wanted we thought for LINZESS and get it faster. We are not ready to comment on exactly when we expect that to occur, but we -- as we indicated in the press release, we will start that study next year, the Phase III study. And then on the DR2, our excitement there being able to address a much larger IBS population, really drove that decision forward -- then focusing the effort there versus DR1.

Can you -- as long as you are going, can you talk about IP and differentiation of DR2?

Yes. So as Peter is suggesting, with DR2, we really bring a whole new IP life to our program. It takes it out to mid-2035 or beyond and really of a highly differentiated product opportunity. So, again, that’s part of that, we look at it how strong that differentiation is and what we saw in our previous study that we reported the DR1 and DR2 data with.

Divya, do we cover them all?

Yes. I was actually referring to the opportunity how that changes when you pursue an additional claim versus a follow-on DR1 product. So talking more on the DR1 opportunity, now that you -- it would just be an additional claim versus having a new product? And you’ve made the reference to it being or like Nexium and Prilosec, so just in that context has anything changed at all?

So let's be clear. This is a new product. DR2 is the new product. And because we are going to focus on relief of abdominal pain and probably other abdominal symptoms across all forms of IBS, we basically added 20 million additional patients to our indication set. So we have IBS-C and chronic constipation today, many of those people still have abdominal pain that this drug could be the DR2 could be added to. But more importantly is the fact that I can add it to anybody that’s having lower abdominal pain associated with IBS, which is basically 20 million of patients that we currently don’t have in our indication set. So DR2 is clearly, broadly the clinical utility of the drug, which provides a tremendous opportunity for us. I also want to comment on the importance of the abdominal symptoms. And as Mark mentioned, we’ve been talking to the FDA about this for a long time. What we know in the marketplace is the big differentiator for LINZESS versus anything else is this improvement of abdominal symptoms, particularly abdominal pain. The challenge that we face is many patients don’t identify with abdominal pain. They identify with bloating and discomfort. And to have those two additional claims and be able to speak to the patient as far as benefiting those benefits, dramatically strengthens our clinical profile and we believe, it's going to drive tremendous growth, particularly behind the patient. As far as -- think about how we will continue to evolve our direct-to-consumer campaigns and the value that we can communicate with the patient and our ability to motivate patients. So this addition of the abdominal symptoms in the near-term, and the -- I don’t want to understate the importance that the team has done to accelerate that time line. And also for us to focus on the biggest value creator out in front of us, which is DR2 in this category.

Great. Thank you so much.

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

Hey, guys. Just a quick question here following on the last one. So I’m just a little confused about our prior understanding was DR1 would potentially take the IP out to 2035, like the prior question suggested. But I’m little -- still a little confused about how DR2 would extend the life cycle management for the constipation indication alone. I understand that -- like what are the -- I guess, how do you go about that from a clinical development standpoint? And is this more of a broadening of indication long-term versus just a singular focus? I guess, I’m still a little confused?

Yes. Anupam, this is Mark. So, yes, we currently view DR2, as Tom indicate, that we can expand out through other indications, other forms of IBS, which, again, right now is -- I think, it's still a great opportunity for improving patient outcome. The other thing I think relative to when we are weighing the advantage of accelerating the abdominal symptom and getting those so that they can be on the LINZESS label sooner, really when you look at the value creation that allowed us to really say, okay, let's go forward without it quickly as we can, get that for current LINZESS IR, and then let's expand with DR2 out into the other forms of IBS and for patients that have IBS, constipation that are still suffering from abdominal symptoms and certainly pain.

I just want to make sure we are clear on -- we are not -- we think that this will encompass DR1. The reason why we developed DR1 is we wanted to amplify the pain benefit. That was the primary objective that we had with DR1 to deliver more drug into the colon to amplify the pain benefit, which we saw. So it's really the IBS-C patients that we were focusing on to say, how do we strengthen the performance, the clinical performance of the drug. We believe that there is an opportunity here with DR2 to take that and we can still combine those two treatments and say could you still have DR1 within DR2, which makes it a lot more efficient and broadens the clinical utility of the drug. So it's not that we are running away from the IBS population, we are trying to figure out how do we most effectively treat that population in the most efficient productive way and expand the clinical utility. So that’s how we, kind of -- we landed on this, Anupam.

Great. Thanks for taking my question.

[Operator Instructions] And our next question comes from David Lebowitz for Morgan Stanley.

This is Sara Slifka for David. Thanks for taking my question. Another question about the IP situation with the DR1 discontinuation. Can you provide any update on current IP litigation? What’s the status of apparent lawsuits, how many are there, and where in the process they are?

Yes, certainly, we acknowledge that we have several ANDA filings. We don’t give details on that. Obviously, we are -- we believe, we have a very strong IP that we intend to protect out into the 2030s with current LINZESS.

Got it. All right. Thank you.

And at this time, I’m showing no further questions in the queue. I would like to turn the call back over to your host for any further remarks.

Thank you very much, Stephanie, for hosting the call today. We appreciate and thank you all for your time. We will be here throughout the day. If you have follow-up questions, please get in touch with Meredith. Have a great day. Thanks, everybody.

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.