Ironwood Pharmaceuticals, Inc. (IRWD) Q3 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals Third Quarter 2018 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 follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn the conference over to your hosts Ms. Meredith Kaya. Please go ahead.

Good morning, and thanks for joining us for our third quarter 2018 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, 2018, 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. Also included our non-GAAP financial measures which should be considered only a supplement to and not a substitute for the period to GAAP measure. For reconciliation, please refer to the table at the end of our press release. Joining me for today's call are Peter Hecht, Chief Executive Officer; Tom McCourt, Chief Commercial Officer; Chris Wright, Chief Development Officer; and Gina Consylman, Chief Financial Officer. Bill Huyett, Chief Operating Officer; and Mark Currie, Chief Scientific Officer will also be available during the question-and-answer portion of the call. We'll 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. With that, I'll turn the call over to Peter.

Thanks, Meredith. Good morning, everyone, and thanks for joining us today. The Ironwood team continued to deliver strong performance toward our operating goals this quarter, and at the same time, to execute on our plans operation and launch of two exciting companies. Before touching on a few business highlights, I would like to draw your attention to two financial disclosures that impact our reported numbers this quarter. First, during the quarter, Allergan reported to us a $59 million adjustment to LINZESS net sales, touring up estimates to actual subsequent payments made for the three year period between 2015 and 2017. We've recorded our share of this adjustment in the quarter, resulting in a $30 million reduction to collaborative arrangement revenue. This reduction also flows into Ironwood's total revenue. Second, in connection with our terminations of the Lesinurad Licensing agreement, we recorded a full intangible asset impairment of approximately $150 million. Note that there is no cash impact to this impairment. Gina will discuss both topics in more detail in her portion of the call. Turning to the business, LINZESS demonstrated another quarter of double-digit volume growth in the U.S. increasing 12% year-over-year, with net sales of $205 million. Commercial margins and profitability continue to expand nicely. As our partner commented last week, industry wide pricing dynamics are reducing net price. With that said, LINZESS continues to be a growth brand and the branded prescription market leader with many years of expected patent coverage ahead. Our two companies are investing together in several innovative growth strategies. Ironwood believes each of these represent opportunities to drive sales growth overtime that is higher than guided by our partner last week. We're progressing our clinical portfolio as well. With the Phase III readout, now expected from appetite abdominal symptoms study in mid-19, the two pivotal Phase III trials for our persistent GERD drugs IW-3718 now enrolling and Phase II readouts for olinciguat and praliciguat expected in the second half of next year. While executing day-to-day, we're also on track to launch two independent publicly traded companies in the first half of 2019. Upon separation, we expect Ironwood to be a profitable, focused, growing GI company. We expect the new R&D Company to be a development stage biotech advancing five carefully tailored sGC simulators for serious and orphan diseases. We're confident that the separation will unlock value through focused innovation resource allocation, and the both R&D Co. and Ironwood will launch with the resources to drive substantial value to patients and shareholders for many years to come. Before I turn the call over to Tom, I want to thank the exceptional and dedicated teams here at Ironwood, who have been working tirelessly to simultaneously execute on our goals and to position the two companies to thrive. I know I speak for the management team and the board when I say thank you for your commitment energy and sense of urgency. With that, let me turn the call over to Tom.

Thank you, Peter. I'll take a few minutes and highlight the GI franchise that will form the core of new Ironwood upon separation. LINZESS is the clear brand of prescription market leader in this class and continues to demonstrate strong growth in demand in its six year. Since launch, our LINZESS commercial strategy is at three foundational elements, personal promotion, consumer marketing and pair access. We believe each of these are critical to the brand success and continue to evolve the marketing mix to focus on the highest ROI opportunities in response to market changes. For example, our most recent DTC campaign Yes LINZESS is driving all-time highs and bringing in new to brand patients, adding nearly 10,000 new patients each week with LINZESS trending nearly 10% above the pre-DTC trend. The LINZESS consumer campaigns have consistently been acknowledged among the best performing across the entire advertising industry in generating incremental business, which is fueled by the large understeer population and the expertise of our commercial team. We also continue to refine our personal promotion efforts and investment to concentrate our selling efforts on the highest prescribers. And patient access remains one of the foundational elements for the brand success. We continue to invest in market leading coverage with greater than 80% commercial patients and greater than 90% of Medicare Part D patients having unrestricted access to the brand. Our investment access has enabled us to grow LINZESS prescription volume at double-digit rates every year since launch. And we expect to continue to invest to maintain this level of payer access in 2019 and beyond. However, increase this validation and competition are making investments in this area more expensive. In addition, there has been a higher utilization in Medicare which is typically at higher rebates. As a result, we now expect a mid-single-digit decrease in LINZESS' net price in 2019 compared to 2018. We in Allegan, our investing in several innovative new strategies designed to drive brand growth and profitability. These strategies begin with expanding, strengthening and maximizing the clinical utility of one at the time. We took another important step in this area, when we initiated our Phase III trial to explore the effect of linaclotide bothers them abdominal symptoms, including pain, bloating and discomfort. Survey data suggests that as many as two thirds of adult IBS C responders frequently experienced abdominal bloating and discomfort every week. And it's the primary reason that patients seek medical treatment. This trial is successful, represents an important opportunity to enhance the effectiveness of our promotional campaigns and significantly broaden the addressable patient population. The trial is enrolling faster than we expected and we now anticipate top line data in mid-2019. If data are positive, we hope to be able to begin communicating these potential benefits to physicians and patients soon thereafter. We are also acting our many new opportunities of fuel growth through innovative consumer strategies, such as the use of increased digital and social media to further educate physicians on appropriate patients and drive patient requests. With the changing market landscape, including the withdrawal of approvals of certain large volume prescription generics for the treatment of occasional constipation that are often used for chronic constipation IBS C, we have an opportunity to reach additional patients who will be seeking alternative prescription treatments. MD-7246 previously referred to as Linaclotide delayed release, represents a new product opportunity as an intestinal non-opioid, pain-relieving agent for millions of Americans suffering from all forms of IBS. We expect to initiate a Phase II trial in the first quarter 2019. This trial is expected to enroll approximately 400 patients and is designed to evaluate the safety tolerability, treatment effect and abdominal pain and dose response of MD-7246 in patients with all forms of IBS, including IBS C, IBS M and IBS D. We plan to provide additional details on study design volume initiation. With the strong brand profile, many years of expected patent coverage ahead and multiple investments to drive growth in this market, we are enthusiastic about the growth prospects for LINZESS going forward. We continue to believe LINZESS on a growth path to more than a $1 billion in net sales. But due to the increase pricing pressure, we now believe that this target may be achieved later in 2020. In addition to our U.S. commercial efforts, we are pleased with our global footprint as it continues to expand. We expect OUS Linaclotide to remain a key part of our franchise and an important contributor to total Ironwood revenue. In late August, Astellas obtained approval of LINZESS in chronic constipation and launch shortly after. Now providing the opportunity to bring LINZESS to both IBS C and chronic constipation adult patients in Japan. In China, we and Astra Zeneca are now expecting approval early in 2019, due to the timing of the CFDA review. Turning to 3718. Our two Phase III trials for persistence GERD continue to enroll nicely. Despite advancements in PPIs, there is approximately 10 million Americans with GERD that continued to suffer from frequent and bothersome symptoms such as heartburn and regurgitation. GERD patients tend to be highly responsive to new treatments, if they believe they will feel better, they will actively seek care and demand effective treatment. We were encouraged by our Phase IIb data, which showed a meaningful improvement in both for heartburn and regurgitation, for which there are no approved therapies. We initiated our pivotal trials with 3718 in late June and look forward to sharing updates on the timing of the data as we get further along. With that, I'll turn it over to Chris to discuss our sGC franchise.

Thanks, Tom. I would now like to turn to some of the key developments in the five sGC assets that we expect [ph] strategic core of the R&D Company. Each of these assets was tailored to preferentially modulate the cGMP pathway and the tissues most relevant to the diseases they are designed to treat. In total, we are rolling patients in three Phase II trials and expect to begin a Phase I trial early next year. We are also intending to advance two late stage discovery programs into development. Linaclotide is currently in a Phase II trial as a potential oral once daily treatment of sickle cell disease. By amplifying nitric oxide signaling in both vasculature and highly profuse organs, we believe that Linaclotide may help improve daily symptoms such as pain and fatigue and change the course of this disease in at least three important ways. One increasing blood flow to organs; two, reducing vascular inflammation in cellular addition' and three, reducing the proportion of sickle cells. We expect to report top line data from the Phase II study in the second half of 2019. As described in our press release, we also obtained a valuable insights of about olinciguat's pharmacology from a small exploratory Phase IIa study of olinciguat and achalasia patients. Data from this trial demonstrated the expected pharmacokinetic and pharmacodynamic effects and that the drug was well tolerated in these patients. Praliciguat is currently being developed as an oral once daily systemic sGC stimulator for diabetic nephropathy and heart failure with Preserved Ejection Fraction or HFpEF. In September, we are pleased to announce that the FDA granted fast track designation to holistic life for the treatment of patients with HFpEF, underscoring the potential of our approach in the clear seriousness of this disease. Top line data are expected from both our diabetic nephropathy and HFpEF Phase II trials in the second half of 2019. Because of the large global patient population, we intend to out license praliciguat to a partner with substantial presence in the disease states before entering Phase III trials. IW-6463 is being developed as an oral CNS penetrant sGC stimulator for the potential treatment of serious neurodegenerative diseases. We encouraged by the preclinical data seem to date, which shows the ability of 6463 cross the blood brain barrier, increase cerebral blood flow, improving neuronal health, reduce markers of inflammation and enhanced cognition. We expect to initiate a Phase I study with 6463 healthy volunteers in the first quarter of 2019. As a practicing neurologist, I believe this program represents a potentially significant opportunity for patients suffering from serious neurodegenerative diseases. Finally, we continue to make excellent progress in our liver and lung targeted discovery programs and expect to advance development candidates for each of these programs in the first half of 2019. With that, I will turn the call over to Gina to discuss our financial results.

Thanks, Chris. I would like to begin by highlighting a few important items. First, as Peter mentioned, in the third quarter LINZESS continue to demonstrate robust growth with demand up 12% and sales up 7% excluding the net sales adjustment, the difference simply due to fluctuations in inventory year-over-year. During the quarter, Allegan reported to us a $59 million negative adjustment to LINZESS' net sales representing the cumulative difference between Allegan growth and an estimates made during that three year period covering 2015 through 2017 and actual subsequent payments made. This equates to between 3% and 4% of reported net sales for each of those periods as reported to us by Allegan and is primarily associated with estimated governmental and contractual rebates as reported by Allegan. Upon receiving the information from Allegan, we recorded an approximate $30 million reduction to revenue and accounts receivable, reflecting our half of the adjustment. Total Ironwood revenue in the third quarter was approximately $66 million, down approximate 24% year-over-year, driven primarily by this reduction. Going forward, we expect LINZESS' brand specific true ups will be made by Allegan on a more frequent basis to reduce the potential for multi-year adjustments of this magnitude. Turning to lesinurad, in early August, we provided AstraZeneca with a notice of terminations for the lesinurad licensing agreement. We are currently in discussions with AstraZeneca regarding the transition costs and process and continue to expect to complete the lesinurad transition by February 2019. As previously noted, in connection with the termination, we recorded a full intangible asset impairment of approximately $150 million and a gain on fair value measurement of contingent consideration of approximately $34 million in the third quarter. Lastly, as we prepared to launch our two new independent companies, we are progressing according to plan on establishing capital structure, filling out the leadership teams, carving out the financial statements, completing the physical demerger of company operations and reaching a conclusion on the tax free status. We are making great progress and continue to expect the separation to be complete in the first half of 2019. Turning to our Q3 financial. Ironwood revenues were $66 million in the third quarter, driven primarily by continued LINZESS growth and API sales to Astellas and reduced by the $30 million reduction in revenue I just mentioned. The LINZESS U.S. brand collaboration generated $125 million in commercial profit excluding the full $59 million adjustment to LINZESS sales, reflecting an increase in commercial margin from 66% to 69% year-over-year. Linaclotide, API sales to Astellas were $9.5 million during the third quarter and generated approximately $5.3 million in gross profit. We continue to expect greater than $70 million in API sales to Astellas for 2018 and 2019 combined. Total operating expenses were $235 million, including the approximately $150 million asset impairment driving GAAP net loss for the quarter to $174 million or $1.14 per share. Also included in operating expenses was $47 million in R&D expenses, $55 million in SG&A expenses, and $10 million in restructuring expenses, partially offset by the $34 million gain on fair value re-measurement of contingent consideration. Non-GAAP loss for the quarter was $58 million or $0.38 per share. As you can see on Slide 14, we are reiterating our 2018 financial guidance with the exception of our full-year 2018 restructuring cost which we now expect to be approximately $16 million compared to our previous guidance of $18 million to $21 million. I would like to close by echoing Peter's earlier comment that we have made substantial progress across all aspects of the business. And I would like to thank all of the team here at Ironwood that are working incredibly hard to ensure that we execute on our goals and enable those two businesses to thrive deliver great medicines to patients and create value for shareholders. With that, I will hand the call back to the operator to begin the Q&A portion of the call.

[Operator Instructions] Our first question comes from the line of David Lebowitz from Morgan Stanley. Your line is open.

Thank you very much for taking my question. I'm curious with respect to the pricing adjustments going forward. Has some of that already been implemented to what extent could we see further implemented in the coming quarters?

Yeah David. This is Thomas. If you know we really are pleased with the volume that we're seeing flow through the plants and to maintain that we made some decisions in 2018, with some of the major players to make sure that we should up that access. So basically the contracts are set for 2019 which is the reason why we can project what the impact is likely to be as far as the downside in that price. Obviously these are two year contracts and what we need to be focused on in the near term is be able to drive as much volume as we possibly can through these plans with the access that we have. The other two things that I think is important to understand as far as near term catalyst of growth. One is this removal of generic prescription - excuse me generic prescription peg and which there is about 200,000 prescriptions a month. That will now be up in the air that will be available for us to grab as much of that as we possibly can. And that will probably last for the next 6 months, as that flows through the system which obviously is the market leader and a huge disruptor. I think the second piece is the abdominal symptom claims that we think we will be able to move on towards the middle of next year, to activate a different set of patients that tend to have more discomfort and bloating as opposed to chance of patients. So I do think the decisions that we made to maintain access is a key one for this year and 2019 as well as we look into the future.

Thank you for that. With respect to the added label indications, is there some historic precedent on how that type of I guess addition to the label affects growth is it more of a prevention of deceleration, is it something could that could actually contribute to reaccelerate?

I think it's really as you know most of these patients don't actually call it abdominal pain and they don't really identify with the dominant pain. They call bloating in this comfort. And our ability to go out and communicate both the docs but even more importantly the patients that we can improve those symptom, in a unique manner, enables us to motivate a whole new population that we haven't been able to motivate the raiser and say I want to feel better. So I think we do see this as a growth exhilarate as we expand the strength of the overall brand profile.

Thank you for that. And last question on the pricing true ups what mechanism was in place that triggered this particular true up and I guess why did it happen over a 3 year period, as opposed to more frequently and I guess what how is that process being adjusted going forward.

Sure. This is Gina. I think I can help you with some of those questions. One just a reminder that LINZESS net sales are calculated and reported by Allegan, and we record the collaborative range revenue which is really calculated off our 50% share of the brand in our financial statements. We would team we review the information provided by Allegan to us on a quarterly basis and periodically we also engage an independent accounting firm to review those estimates as well as just a standard part of our process. That review was substantially complete in Q3 and Allegan was able to take a look at all the estimates they made for each of the years in 2015, 2016 and 2017 and then they compare those testament to the payments made and noted that the payments made were approximately $60 million higher than the estimate and that were previously made.

Okay. Thank you for that.

And I was going to say, and lastly we are working with Allegan and discussions with Allegan to make to how the reconciliation is prepared on a more frequent basis.

Thank you for that.

Our next question comes from the line of Vamil Divan from Credit Suisse. Your line is open.

Hi. Great. Thanks for taking my questions. I just want to trying to your comments and just what Allegan was saying last week so I think if I call you said correctly said you should expect the peak sales of a $1 billion it may just take be until beyond 2020, to get there Allegan to mid to low single-digit growth to look for the brand. And such is one of the confirmed you guys agree with that sort of comment that they made and it's just going to take at that pace is going to take longer just to get to the $1 billion that you still, are expecting over time? And then the second question I have is more sorry just one other question and I was just around the decision on splitting up the company and I guess just a little bit more an update I guess and I sort of assume by now we really have a sense of what the CEO and some leadership team would be for the two companies. And so I guess I'm just surprised at the pace maybe a little more sense than when investors should expect to get a little bit more details, would be helpful? Thanks.

Great, Vamil. Let Thomas, can you take the first one?

Sure. So I just want to make sure we're clear that we have a tremendous collaboration with Allegan, Bill and I talk on a regular basis and we both see this as a successful brand that we're going to continue to invest in overtime. I think we both see the importance of driving volume, which is a reason why we made the investment in access that we did. To set aside for success moving forward, that being said, the single digit growth with regard to the reduction in net price is clearly going to affect the overall sales in 2018. But we still see some upside with regard to the volume and this is proving going to be a volume push. I think it's going to be a volume push in 2019, and into the future and as the market leader where we have the best in class pair access, we're going to be driving demand as I mentioned one through taking advantage of market opportunities such as the removal of prescription Peg, I think second will be continued to motivate more and more patients through the expanded symptom claim. But and I think we clearly still see this as the $1 billion brand. I did mention that maybe beyond 2020, due to the adjustment in price but we still have tremendous opportunity to grow. I mean I think it's really important to recognize we still only created 2.5 million patients of the 40 million patients that are still out there. And I don't see any real significant threats with regard to emerging competitors and I think we're completely focused on investing in the future. So I think we both feel very good about where we are and we're going to continue to invest in the brand as it is a growth brand.

This is Bill Huyett, and I will now question on the CEO process. Our board's been pleased I think with the number and quality of candidates for the CEO roles, as you'd expect they're taking their time to make sure that they make that choice when the demands of these two CEO roles and those candidates carefully and so we're ready to hit the ground running when these companies launch and we are in progress relative to our timeline on that.

Okay. Thank you.

Our next question comes from the line of Geoff Meacham from Barclays. Your line is open.

Hi, this is Jason on for Geoff, thanks so much for taking our call. Just a few clarifying questions, in terms of the multi-year adjustments, can you clarify what that looks like going forward with Allegan, I'm just curious is that - you see that as a quarterly thing or should we expect that as an annual sort of impact on the P&L. And then again you mentioned a volume push forward for LINZESS, does this mean that you think that most of the pricing concessions or are finished or do you think moving forward as the new label indication comes online, that they're going to be greater price can concessions moving forward into more of the midterm? Thanks so much.

Hi, Jason. This is Gina. I'm going to take the first part of your question and probably turn it over to Tom for the second part. But to clarify we are working with Allegan for more frequent adjustments to the brands. I would also note that it's typical of Allegan and probably any other company making question that estimates are recording sales, to make estimates on a quarterly basis and the trim up and subsequent periods and unfortunately with the lag some of those payments don't come through for 6 to 9 months or so. So we expect it more frequently but just know that the payments will often lag the estimates.

In term so the price pricing pressure I mean clearly we've seen the mechanics across the industry, that there has been this increase in pricing pressure. I mean it's hard to predict what the future is going to look like, I think we're in a pretty stable position with regard to the contracts that are in place over the next couple of years. But one of the one of the challenges that we face from time to time is what plans to consolidate, and when plans consolidate obviously it defaults to whoever has the best contract price which we're still vulnerable to. So I think we're going to do our best to hold the line on price and I do think we still believe peer access is paramount I think we've seen over and over. When you don't have access, what happens to your brand as far as your ability to thrive in the marketplace, so I think we're going to continue the strength of the value proposition as you mentioned, I think we're going to do our best to hold the line on price but there are going to be some the periodic changes due to the I think the consolidation the ongoing consolidation the health plans.

Great. Thanks so much for the color.

Our next question comes from the line of Eric Joseph from J.P. Morgan. Your line is open.

Hey, guys. Thanks taking my question, I thought I would just ask one on delayed release looking to the start of the Phase II study in the first quarter of next year. At this point provide a little color around sort of the design and timelines whether you're evaluating sort of multiple doses what sort of pain impact you're looking for? And in terms of cost does this simile fall under the Allegan cooperation agreement or is this are entirely Ironwood? Thanks.

So let me take the last question first. I mean this is and I'm going to collaboration, we agree on a joint commercial and joint development plan year-to-year and obviously currently that that's in the plan. So at this point, we're - things can change but right now it's point of the joint venture, excuse me the collaboration. As far as the studies, I'm going to hand the specifics over to Chris in a second. But I think the really key thing to remember here is we think we have a drug that release pain in a way, we have never seen nobody's ever seen before. And we have never been able to push the dose to the level that we can push it with this release mechanism because of the limitation of diarrhea. So I think the exciting thing for me is the commercial leader is the opportunity to say how far can we push the analgesic in fact across all forms of IBS, it's certainly a little less actually tied as demonstrated really strong release of abdominal pain overtime. But we haven't seen that yet IBS D and we've seen really no drug to relieve pain in IBS M, so this is a very large market with a big unmet medical need, I think we everything we see so far is promising, but I don't think we really have recognized the full potential as far as a therapeutic benefit. And I'll turn it over to Chris maybe you can talk specifically about the endpoint in the trial design.

So the trial as a randomized control placebo study, I was looking at three different doses of the delayed release compared to placebo. I'm with 100 patients per arm. The treatment duration will be about 12 week treatment study and as we go forward anticipating study in the first quarter of next year and we'll be able to provide you with more details on the study design and end points at that time.

Got it. Thanks for the color.

Our next question comes from the line of Jessie Li from Bank of America. Your line is open.

Hi, I'm this is Jessy on for Ying. Thank you for taking the questions. I have two questions. First, if the decision developed achalasia, related to the Phase III data or is it a more strategic reason? And the second question is can you give us more color on partnership discussion for IW-3718 then?

Chris can you take the first question?

Sure. Thanks for the question. So our achalasia study is a small group of mechanisms study and disease state that's known to have a low levels. And so we are excited to look at this particular population as a I really approve of mechanism evidence that we're hitting our target type of study and we're excited to see that we saw decreases in the integrated relaxation pressure in that we were able to confirm that we had a dose based on the PK and that the molecule was well tolerated in that study. So we decided to focus on sickle cell disease primarily because we believe that we can make the most impact and that opportunity and that was the rationale for not moving forward what further escalation studies at this time. Bill, can you talk about partnering?

This is Bill. On 3718 partnering, first just a reminder we mentioned last quarter that the intent given the separation and the focus of our new R&D company, is the full out license of 3718 to a partner that has the development and commercial footprint that's most appropriate to that product. And second we continue to be in discussions with potential partners on 3718 and they are excited about the design of the trials for the two indications. The third point is we are not counting on a partnership before separation, we're making sure that our capital structure is resilient enough that if we have to wait until after the separation we can do that. But we're confident in the partnering interest in that compound.

And just to be clear if there's any ambiguity that that was all the prolific way that partnering dynamic, I think that's why you're asking about it. Are you asking about praliciguat or about IW-3718?

IW-3718.

Okay, those answer was praliciguat answer. Tom, do you want to talk about IW-3718?

Yeah. Sure. So I think 3718 we're having both of conversations I think ex-US I mean obviously that's something we would all license completely. I think with regard to the U.S. market which obviously is the largest market. Obviously that's something we want to be actively involved in its where we really bring the greatest value is where we can have the greatest impact. But I think we will look at companies that can augment what we have if it's the right kind of arrangement in the U.S. So I think we're looking at the partnership either ex-US or in the in the U.S. as a value creation engine for the organization as we move forward.

And 3718 and the delayed release to for any confusion those all stay with Ironwood in the separation.

Our next question comes from the line of Boris Peaker from Cowen. Your line is open.

Great. Thanks for taking my questions. First one, I just want to ask on LINZESS. The marketing message regarding abdominal pain relief, I'm just curious how you anticipate that to play out given that what imagine most prescriber at LINZESS have a right kind of personal impression and experience with the drug. So how do you change their perspective and make them view the drug differently than what they're used to viewing it over the years?

Yeah I think this is - I think for the prescriber, I think both prescribers that we've seen this the market research force, the prescriber sees the benefit with regard to not only abdominal pain but bloating and discomfort. The real opportunity is speaking to the patients that are not seeking here, they're looking for really a bloating and discomfort. So to be able to have those hooks if you will those claims to communicate to patients that not only can they improve their pain but their bloating and discomfort can get better as well. We believe will activate a broader patient population than we're currently getting.

Got it. So this is more of a strategy and more so than direct to physicians strategy?

Yeah, absolutely. I think that's where the majority of the growth will likely come from but any time that you can strengthen the clinical profile of the drug, it obviously that is the overall satisfaction on the prescriber from a prescriber perspective. And again it's one of those triggers to choose a brand. The opportunity to own a symptom such as bloating or discomfort is very, very powerful tools so as soon as the patient describes the symptom pain what is the knee jerk reaction of prescribing. So I think leaking how patients communicate to physicians choosing therapy is really where you want to be and I think we have a very unique opportunity here to really own that bridge.

Got it. And my second question is on 3718. I'm just curious how much do you estimate the two Phase III studies to cause cost in totality and what's the timeline for top line data readout?

The timeline show. At this stage, we only recently began the study and we haven't commented on the ultimate timeline in terms of data so we look forward as a study progresses any understand the recruitment rate better to provide an update later next year.

And Boris we haven't broken out Study costs for any of our studies specifically. We have guided that we expect a standalone Ironwood to be a profitable company next year and we've given I think pretty clear parameters on the study design itself it's about 1200 patients total, it's eight week study, it's not a particularly intensive per patient study, in terms of monitoring and per patient expense per study. But we don't break out cost per study.

Okay. Thanks for taking my question.

Our next question comes from the line of Irina Koffler from Mizuho. Your line is open.

Hi. Thanks for taking the questions. I wanted to delve further into this MiraLAX situation and just wanted to understand, are you preparing actual tools for your sales force to try to capture some of that script volume, do you have certain internal targets drawn out as to what percent you think you can get or what do you really expect will happen to those prescriptions will they be diverted to the OTC? Question one. And then the second question it is - it looks like you're starting a number of Phase I trials in your sGC portfolio in the beginning of 2019 ahead of the spinoff. So I was just wondering can you walk us through the mechanics of where those costs are expenses will reside, will they go to the other company or will they sort of be built against commercial Ironwood for a portion of the year? Thanks.

So Irina I'll take the first one gladly. And this removal of generic pain laxative, our prescription laxative, it's something that it's kind of been was kind of delayed. So as you know, when a drug goes over the counter there's a period of time that it's grandfathered that the parent prescription drug is to be removed from the market if it's the same dose which is exactly what happened here. So but it's been on the market for the last 5 years even the 6 years that since paying his lot over the counter and actually is the market leader. So there's basically 200,000 prescriptions that are filled every week, for prescription peg which now is the patients come in they will not be able to refill it. So obviously we have a number of things in place with regard to point to purchase to educate patients that if they want a prescription therapy alternative LINZESS is available. But the other pieces there's 100,000 new prescriptions that are really written every week and of course, that piece we're taking directly to the point of care for the raps to educate the physicians, that this is no longer available and certainly that we have LINZESS which has a very broad payer access for their patients. In addition, there's going to be enough a number of digital place to target patients that we know have been purchasers of MiraLAX in the past. And obviously will be intensely concentrated on the high prescribers. And there's a group of about 13,000 to 15,000 physicians who are generating the far majority of the business all of which we're calling on. So I think we do see this is an incredible window of opportunity for us to take advantage of this with this disruption in the marketplace.

This is Bill. On your second question on the timing, step back, half a step, one of the goals of the separation is that both of these new companies will be able to move more quickly and more decisively on their strategies and just as in new Ironwood the STC organization is pushing ahead quickly and these two new trials that you referred to are an example, one of the benefits already from our summer announcement of the separation move. With respect to the accounting, they will be borne by Ironwood up until the date of separation after which of course will be borne by the new sGC company. So there is no shifting of any expenses prior to the separation been and the call about financials that will be in the registration documents more reflect that.

Thank you.

Our next question comes from the line of [indiscernible]. Your line is open.

Thanks so much for taking my questions, just three very quick ones. Firstly, I wanted to know if you could provide a more detailed breakdown of the specific DTC advertising activities that you expect to be in Allegan's preview versus your preview for Ferland that's going forward. Secondly if you could maybe comment on how you expect your commercial infrastructure to evolve to account for 3718 in the United States. And thirdly, if you could maybe explain to us more granularly, the mechanism via which you expect a delayed relief for Linaclotide to provide a benefit in IBS B specifically, because that seems to me to be at a counter-intuitive given what we know about the mechanism so far? Thank you.

Okay. Tom, you want to take the first couple?

Yeah. So let's start with the DTC, so first of all, this is a surround sound campaign that compass is general awareness TV, digital social media print. And this is a collaboration so this isn't just us, this is us an elegant together that we're to develop all everything for the brand both on the commercial side as well as the development side. As far as let me grab for a minute while we're in the collaboration so the opportunity is really relieving pain, specifically relieving pain in all forms of IBS, which is actually the number one driver for patients seeking care. I mean the reality when you look at the clinical data particularly in IBS D, both side acts in a vibrantly, don't have tremendous relief of pain, where if you have a tensile analgesics a drug that can relieve pain related to the visceral hyper sensitivity, I mean I can use this across the board. So I can use it to treat the pain and I can use a laxative or an anti-diarrheal to treat the bowel habit. So I think this is a very unique offering to enter the market as this pain reliever for people to suffer from visceral pain. And of course, we also see an extension into other GI disorders, such as people that may have chronic pain related to inflammatory policies or diverticular disease again they tend to be this really hyper sensitive and that's exactly the way we think the drug works. So we do think it's very unique in the marketplace, I'll let Chris comment if you wishes on anything beyond that. But before I do that, let me tackle 3718. So 3718, I think again what would we need to add to our commercial capability and that's where the partnering idea becomes attractive. Because we don't have a broad account management team to secure payer access in reimbursement. And you're talking about a one off brand that you're going to have to you know distributed et cetera. So that's where a potential partner becomes very attractive but will critically assess how much we're going to have to build as far as infrastructure on the commercial side. I do believe we have what we need on the brand management side, we certainly have what we need I think largely on the promotion side but I think the real question are the other entities with regard to Payer Health Management and certainly wholesale and distribution which are capabilities that we would have to put in place. So I'll turn it over to Chris, if you want to comment at all in DR.

Sure. So I think you have a question of why it might work and IVD, and based on the mechanism and so actually directly related to the mechanism when appetite has effects not only on secretion but also directly on pain. And the secretion on facts are pretty much localized only to the upper intestine and so by the time you get the delayed released into the colon, you no longer have effect on secretion. But you do still have effect on pain and so that's why we believe that we will have we could have an impact on IBS D pain or IBS M pain in addition to IBS C pain.

Great. Thank you very much.

You're welcome.

Our next question comes from the line of Patrick Trucchio from Behringwerke Capital Markets. Your line is open.

Hi, good morning. This is [indiscernible] for Patrick. I have two questions. First question in terms of the split, we understand much effort is being made to prepare for the business but just tell us when it's back to provide updates regarding capitalization plan for the new R&D Co, and the full management team for the both businesses and the capital structures including any revision to the takeover provisions in new Ironwood? Thank you.

We've had a chance of the last 6 months to listen to virtually all of our investors on what they'd like to see on many of the things that you listed out. We are in the process of finalizing all of those things and we'll be releasing them over the coming few months.

Okay. Thank you. And have additional one, just in terms of SG&A to the team, can you just gave us some general idea here whether it will go or go down versus to 2018? Thank you.

Hi. This is Gina. I am going to answer from the new Ironwood perspective, in that we've provided two areas of guidance related to this. One new Ironwood will be profitable beginning in 2019. And two, we had previously guided it with the look in your terminations that we would be reducing our OpEx by approximately $75 million to $100 million and we part of that was finalized in Q3 where we completed the reduction in force with the sales force late in September.

All right. Thanks you, guys.

[Operator Instructions] Our next question comes from the line of Timothy Chiang from BTIG. Your line is open.

Hi, thanks. I don't know of anyone asked this question but what do you guys think of this new product that potentially hits the market that's propeller pride I think had a positive power view, I think it's agonist, I think it's probably going to get approved for chronic constipation. Do you think it's a potential competitor to linaclotide or do you think it'll be even complimentary to know linaclotide in the market?

Hi, Tim. This is Tom. Obviously I know this molecule very well. It is a very different drug, I mean this is a pure promotility drug with a very different mechanism of action. As you mention, it will only be indicated for chronic constipation mainly because it has a very limited. We know promotility agents have a very limited effect on the abdominal symptoms. I think this is going to get some use. I think it's largely going to be in the GI specialty area. I think they're going to look at these patients that appear to have delayed motility as the primary cause. And I think it's likely going to be used behind LINZESS, but obviously the indication is for chronic constipation. So I do think we're going to see some use. I mean do I see this as a major competitor? I mean I think everybody is a major competitor just like we viewed Trulance et cetera. But I do think I think it may very well expand the market in a way that we haven't seen before because of the nature of the mechanism.

And maybe Tom, just the follow-up, I know talked at LINZESS about the true ups and whatnot. I guess could you just sort of comment on your relationship with Allegan, as I've gotten better as I've gotten worse overtime I mean certainly you guys are in year 6 of this joint venture. How do you sort of do the next 6 years with the JV?

Yeah I mean as you know the JV has been wildly successful. I think it's been a standout in the industry as far as the level of collaboration and coordination and alignment that we've had. I've had the great good fortune to work with Bill Murray and Jerry Lynch who saw things very similar to us, with regard to the vision of the brand. I think we had an open - we continue to have a very open dialogue I talk to both of them extremely frequently to make sure that we're fully aligned. So there are some of these accounting question or the true up, it's going to happen from time to time. But what I can assure you is our core relationship and our alignment and commitment to LINZESS a growth brand is certainly very secure, we make decisions together and I think we still see a bright future moving forward. I don't see any major changes between our - my relationship and Bill and Jerry's relationship. So I'm very optimistic about what the next 5 to 10 years will look like.

And just expand briefly on that. We actually started the partnership in September of 2007, so we're in our 11th year and it's a partnership across virtually every function in our company, and what times said on behalf of the commercial team I think you find it through in the supply chain area and quality and development, we work very closely in all aspects of managing the partnership and working closely to maximize the value of the asset for our shareholders and maximize the value of the patients benefit around the world frankly.

Okay. Great. Thanks.

We have no further questions at this time. I will now turn the call back to Mr. Peter Hecht for closing remarks.

Thank you, Charlie, and thanks to all of you for participating this morning and for listening in. I will be here through the day, if you have questions please follow-up with Meredith Kaya, as she's here to coordinate and her contact information available on the press release. Thanks very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day. You may disconnect.