Ironwood Pharmaceuticals, Inc. (IRWD) Q1 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Ironwood Pharmaceuticals First Quarter 2021 Investor Update Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Meredith Kaya, Vice President of Finance and Investor Relations. Please go ahead.

Good morning, and thanks for joining us for our first quarter 2021 investor update. Our press release crossed the wire this morning and can be found on our website. 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 annual report on Form 10-K for the year ended December 31, 2020, 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 are non-GAAP financial measures, which should be considered only as a supplement to and on a substitute for or superior to GAAP measures. To the extent applicable, please refer to the tables at the end of our press release for reconciliations of these measures to the most directly comparable GAAP measures. During today's call, Tom McCourt, our President and interim CEO, will review our strategic priorities, highlight today's announcement regarding our new share repurchase program and summarize our commercial performance for LINZESS. Then Gina Consylman, our CFO, will review our first quarter 2021 financial results and guidance. Mike Shetzline, our CMO, will also be available for the Q&A portion of the call. We'll be referring to slides via the webcast. For those of you dialing in, please go to the Events section of our website to access the webcast slide. With that, I'll turn the call over to Tom.

Thanks, Meredith. Good morning, everyone, and thanks for joining us today. We had a solid start to 2021, as demonstrated by strong LINZESS performance, continuing its momentum from 2020. And another quarter of delivering profitability and positive cash flow. We are steadfast in our mission and importantly, remain focused on our goals of driving value to our shareholders by bringing important medicines to patients and building a growing and successful business. Our strategy starts with maximizing LINZESS. LINZESS continued to demonstrate double-digit growth in demand in the first quarter, resulting in U.S. net sales of $215 million or 12% growth year-over-year, and we believe there's substantial opportunity for continued growth moving forward. Second, we're seeking to build an innovative portfolio both through the development of internal assets such as our own IW-3300 for the potential treatment of visceral pain conditions and through bringing in external assets that target serious, organic GI diseases. And finally, we're focused on generating sustainable cash profits and cash flow. We ended the first quarter with nearly $440 million in cash on our balance sheet, an increase of $75 million versus the fourth quarter in 2020. Our strong financial position and our performance to date provides us with the ability to simultaneously invest thoughtfully in our strategic priorities, as we just highlighted, and be in a position to also return cash to shareholders. We announced this morning that our Board has authorized a share repurchase program under which we may purchase up to $150 million in outstanding shares of Ironwood common stock through December 2022. We maintain a disciplined and thoughtful approach to capital allocation and are committed to strategically deploying capital where we believe it can drive the greatest value to our shareholders. The share repurchase program is aligned with that commitment and underscores the strength of our financial position. Now let's turn to the commercial performance. LINZESS performed remarkably well in the first quarter. Prescription demand grew 12% year-over-year, with LINZESS continuing to strengthen its position as the #1 prescription treatment in the U.S. for adults with IBS-C and chronic constipation, with approximately 40% market share in the category. New-to-brand prescriptions increased 24% year-over-year, significantly outpacing the IBS-C and chronic constipation market. This is an all-time high for LINZESS, reinforcing that patients and health care practitioners continue to choose LINZESS. 90-day prescriptions also continue to represent a significant number of total LINZESS prescriptions. In the first quarter, 90-day prescriptions made up nearly 20% of the business. This strong performance reaffirms our confidence that LINZESS has the potential to exceed $1 billion in U.S. net sales with several additional opportunities to drive even further growth. The success of LINZESS to date in the U.S. has come through consistent and strong execution of the commercial strategy that's grounded in 3 core fundamentals: increasing awareness of LINZESS amongst physicians, motivating appropriate patients to seek care and request LINZESS and securing broad payer access. We believe the growth that we've achieved in the first quarter is in part a reflection of the success of this strategy. And the positive experience that physicians have had with LINZESS. In addition, LINZESS remains the class leader in formulary access, important for supporting both existing and new patients. We also believe that the brand continues to demonstrate strong promotional responsiveness. Since the beginning of the year, we've evolved the marketing mix to further support our consumer media strategies. This includes a fully refreshed consumer campaign that launched in early April, which now incorporates the IBS-C overall abdominal symptom data. We expect this new campaign to have a meaningful impact on patients and the brand. Also, our skilled and experienced salesforce have been gaining a high level of in-person meetings with physicians, achieving access comparable to pre-COVID levels. Additionally, there has been significant increase in online searches and clicks for constipation-related terms. And we are also seeing higher traffic to the LINZESS website, suggesting that more patients are seeking treatment options for their IBS-C and constipation-related symptoms. In the first quarter, we experienced a significant increase in the number of visitors to linzess.com with about 400,000 unique visitors a month. This represents a 70% increase year-over-year. Finally, recent survey data also suggests that there's been a significant increase in overall prevalence of IBS-C and chronic constipations in adults in the U.S. New data on prevalence and the burden of illness will be presented at DDW in a few weeks. These data illustrate the growth potential for LINZESS for appropriate patients particularly on the relief of overall abdominal symptoms associated with IBS-C. We're looking forward to the upcoming DDW meeting, where Ironwood and AbbVie will be presenting 7 scientific posters, 4 of which have been developed in partnership with AbbVie, and 4 of the 7 have been named posters of distinction. In addition to the demand catalysts I highlighted, we continue to believe that our investments in telemedicine may help advance access to physician care for GI patients in need and our commitment to exploring life cycle management initiatives present an opportunity to expand the clinical utility for linaclotide. We believe both these efforts will serve as key drivers for continued growth moving forward. Just a few final comments before I turn it over to Gina. As we look forward, we recognize that GI remains a therapeutic area with a significant unmet need with millions of highly symptomatic and suffering patients and diseases that often have limited or no treatment option. We have a strong experienced team with the knowledge and expertise to advance innovative science and build successful brands. I'd like to take a moment to thank all of our employees, patients, caregivers, and advocates in the GI community for their shared dedication to advancing and supporting our efforts in this underserved market. With that, I'll turn the call over to Gina.

Thanks, Tom, and good morning, everyone. It's wonderful to be in a position to report such great financial performance. I have a few updates to provide today. First, I'll walk through the financial performance for Q1, then I'll review our 2021 guidance. And finally, I'll touch on our capital allocation strategy and provide a few closing thoughts. Please refer to our press release for our detailed financial information. In the first quarter of 2021, Ironwood revenues were $89 million, up 11% year-over-year, driven primarily by U.S. LINZESS collaboration revenues of $86 million. Our core business, U.S. LINZESS collaboration revenues increased 21% compared to the first quarter of 2020. Moving to LINZESS. As Tom mentioned, U.S. net sales grew 12% compared to the first quarter of 2020. Net sales growth was driven by robust prescription demand and favorable inventory channel fluctuations. partially offset by net price erosion. We continue to expect mid-single digit net price erosion for the full year. And regarding the channel, we anticipate fewer channel fluctuations for the remainder of the year due to tighter inventory management. We are on track to achieve our U.S. LINZESS net sales guidance of 3% to 5% growth year-over-year in 2021. While we exceeded these growth rates in the first quarter, it is still early in the year, and we will continue to monitor demand, price and inventory moving forward. Turning to LINZESS brand profitability. Commercial margin in the first quarter was 73%. We continue to seek to expand margins over time through growing LINZESS net sales and disciplined investment behind the brand. Now to Ironwood's profitability. GAAP net income was $40 million, and adjusted EBITDA was $46 million in the first quarter. Now let's review our 2021 guidance. In addition to continuing to expect to LINZESS net sales growth in 2021, as I mentioned earlier, we continue to expect total Ironwood revenue of $370 million to $385 million and adjusted EBITDA of greater than $190 million for the year. Moving to cash and capital allocation priorities. In the first quarter, we generated $74 million in cash flow from operations and ended the quarter with $438 million in cash and investments, up from $363 million in the fourth quarter of 2020. Being a profitable biotech company, delivering meaningful cash flow is a fortunate and unique position to be in and a long way from where we were just a few years ago. We are committed to strategically deploying capital where we believe we can drive the greatest value for our shareholders. I am thrilled as CFO that this strong financial position has given us the ability to simultaneously invest thoughtfully in our GI strategy and also return cash to our shareholders. As Tom highlighted, our Board has authorized a share repurchase program in which we can buy back up to $150 million of Ironwood common stock through December 2022. To be clear, this program is aligned with our strategic priorities, and we do not expect it to constrain our efforts to maximize LINZESS, build an innovative GI pipeline and deliver profits and cash flow. To wrap up, we had a solid start to the year. Our strong results are reflective of our investments, and we believe we are in a great position to develop innovative assets in the GI space. Looking ahead, we are focused on advancing our 3 strategic priorities. We have built a strong foundation, and we are excited about the opportunities ahead of us to improve the lives of GI patients and deliver shareholder value. Thanks again for joining us this morning. Operator, you may now open up the line for questions.

[Operator Instructions]. Our first question is from Jacob Hughes with Wells Fargo.

Gina, if I just look at the first quarter results for LINZESS, 12% growth. And I know you called out rolling through the first quarter, but the full year guidance does this -- or does imply a deceleration through the year? Could you just provide some additional color on that, both the Rx demand side and pricing? I mean, is this conservative? Or do you think it's just realistic?

It's a great question, and it's certainly one that we took a hard look at. We always look at our performance for the quarter and then take a look at the guidance expectations for the year. And certainly, your question is when we asked ourselves as well. So one, we're just thrilled with 12% demand growth year-over-year, especially where we are. I think it's the eighth year post-launch at this point, and just fantastic to see the growth. But I go back to a couple of things, 2 of which, I guess, I mentioned in the script. So one, it's just early, right? It's the first quarter for the full year. And two, I talked about expectations for tighter inventory management this year. So what does that mean? That means if you think about prior years, we would see some seasonal changes in the inventory. We would typically see some burn and actually kind of a significant burn in the first part of the year, and then we would see build in the second part of the year. And if you compare that to what we're expecting this year. So if we expect a more stable inventory balance for the full year, less burn in the early part of the year, so where we are in Q1, for instance, contributes to higher LINZESS net sales growth year-over-year. So the first part of the year, you have higher growth rates, right? And then you think about the second part of the year, where we'll have less build compared to the prior year, and that will contribute to lower LINZESS net sales growth rates year-over-year. So think about that dynamic in combination with, obviously, the demand, which we're really pleased with and then the pricing guidance that we continue to guide to, which is around mid single-digit price erosion for the year.

Okay. Got it. And then just on the buyback in just maybe provide some additional color on how you're thinking about the pipeline beyond 3300. You talked about bringing in some additional assets is the -- could you provide some color on the stage and timing of those assets in light of the buyback and the upcoming convertible debt in next year?

Sure. Maybe I'll start, if that's okay, on the financial part of the buyback, and I can turn it over to Mike and Tom, if they want to jump in on more of the specifics that what we're looking for the assets. But one, I it's just a great quarter. I'm thrilled to be able to announce this. If I think back for the last couple of years, we have periodically received questions about when we would be able to return cash to our shareholders. Up until now, I really didn't think we are in that place. We started with probably a low point of $100 million post-spin and close to $500 million of debt. And all that debt, if you recall, was due at roughly the same time. And so fast forward now, it's just over 2 years post-separation, we have $440 million in cash on the balance sheet. We are guiding to greater than $190 million of EBITDA this year, right, which is a nice proxy for cash generation. And the debt has been nicely spaced between 22%, 24% and 26%. We remain committed to paying off the 22% convert in cash. We've also said that we have expectations for 24% and 26% to possibly pay that off in cash as well. So if you just think about all of that, I think we're in a great position to have this $150 million cash buyback or the stock buyback. And I think it does not impact our ability to continue to invest in our strategy. So our strategy is maximizing LINZESS, building out our pipeline and growing profitability. We have full investment behind LINZESS. You can see that in the numbers for the year, and we're guiding to that for the year. And the pipeline, we're continuing to look at assets to bring in. And I think as we're looking at these assets, by the time we bring the asset in, and I would love to see the asset brought in sooner rather than later, right? And we're all really excited to bring something in this year. But if you think about just the pace of bringing in the assets, I think we're very confident that we can fund these asset acquisitions and still remain profitable.

Your next question is from Eric Joseph with JPMorgan.

This is Hannah on for Eric. Just a few from us. So first, on GIVLAARI, your asset that you're developing or marketing in partnership with Alnylam. How much of a revenue generator do you think that asset could become for Ironwood? And does the exposure in hepatic disease in that trading community factor to your BD prioritization numbers? And then I have a follow-up to that.

Yes. Maybe, I can -- this is Tom. Maybe I'll take that question. Obviously, this was a really, we think, a sound strategic move for us. One, to be able to contribute to a real innovation in the marketplace, particularly among our customers in GI as well as hepatology. And our primary objective early on was working with Alnylam to identify additional patients, which we've successfully done. What's happening right now is we've identified a pretty sizable pipeline of patients that now we're working with Alnylam to get on to drugs. So these are patients that are highly symptomatic, have been diagnosed, have a positive test for AHP, and we're moving them through. So I mean, still relatively early on, we've certainly exceeded our expectation with the number of patients that we have found that the number of patients that they have put on drug but it's a little challenging to speculate. Overall, how big that opportunity is going to be for us. I think we'll have a better line of sight towards the end of the year as we pull the patient through that we've identified. And then how many more additional patients can be identified through a number of different means that we're deploying with our sales force. And again, I think the other piece of this is really understanding what it takes to succeed in the rare disease space, which is obviously an area that we may be interested. And if it's a GI related disease, and as far as the adjacency of hepatology, I mean, it is clearly an area that may be of interest to us because of the common call point because, as you know, the far majority of patients suffering from hepatic disease are actually managed by gastroenterologists due to the limited number of hepatologists out there. So I think overall, I think we're delighted with the progress we've made. Alnylam has been a terrific partner, and we were really helping an awful lot of patients in a very, very debilitating disease.

Great. That's helpful. And for IW-3300, you had mentioned that you are guiding towards an IND filing within the first half of 2021. So in terms of [ gating ] items to getting that submitted, what are the remaining items on the do-list? And then also, are you able to share what you're thinking of in terms of potential Phase I trial design and endpoints of interest?

Yes. I apologize, you broke up a little bit. So I just want to make sure I understood it. So what I'll do is I'll ask Mike Shetzline, our Chief Medical Officer, to kind of share kind of where we are with the IND in the progress as well as what is the next step on trial design. And then we can come back and talk a bit more about kind of how we're viewing the asset and how we might think about monetizing that asset. Mike?

Thanks, Tom. It's a good question. We remain on track with IW-3300 for the IND submission for the second half of 2021. And as you know, we're actually pursuing that for interstitial cystitis and bladder pain syndrome. And the key point there to recognize is that even though that's -- you may not think of that as a GI indication, you need to understand that from mechanistically how IW-3300 acts is actually in the colon. And it's actually based on the crosstalk hypothesis, which we think we're going to be able to demonstrate, hopefully, clinical data to support that when we get into the clinical program. And how that works is that we know that inflammation or underlying diseases of the gut can actually cause different sensitivity in other abdominal organs like pelvic organs or to bladder. So we really look at targeting IW-3300 to the colon as a real opportunity to help pain syndromes like bladder pain syndrome. So again, we're on track for IND at the end -- or the second half of 2021 in starting a clinical program soon thereafter.

And Mike, as far as the POC. So what would that look like?

Yes. Thanks. Thanks for the reminder. So the design is, obviously, we'll get safety and tolerability data first, but we're really trying to move rapidly to a POC, proof-of-concept study. And the proof-of-concept study will be in bladder pain syndrome patients. So we're going to look at an endpoint of relevance to bladder pain syndrome patients. We work with external experts to get granular on those endpoints. And we're going to have a design, obviously, sometime later in the year as well that we can present the health authorities to start the clinical program.

Yes. I think as far as the asset itself, as the team thinks about this, obviously, it's a wholly owned asset. We know the drug. Certainly, we know how it acts. We know the drug is safe. We know we can manufacture it. We have confidence we can deliver at the site of action. And certainly, the preclinical data has been very, very positive with regard to this crosstalk mechanism that Mike spoke with. And with a modest investment, we can get to at least a proof-of-concept and at that point, we can make a decision as to where we go with the asset, whether we out-license it or do we develop ourselves but obviously, this is a valuable asset, and we certainly want to make the most of the opportunity.

[Operator Instructions]. Your next question is from David Lebowitz with Morgan Stanley.

Sorry, I was on mute. My question is on cadence to the sales for the quarter. Clearly, volume growth was pretty good in the quarter. I know that the first quarter is typically a down quarter. Fourth quarter last year was quite strong. How can we expect that the cadence to go as the year goes. I know that it tends to get stronger as the year progresses. Will we expect that trend to continue will it be quite as sharp as it was last year? Because last year, the first quarter versus the fourth quarter were quite substantially different. So how should we expect to look at it this year?

David, this is Tom. Maybe I'll take a whack at it. And this is a really -- one, it's really remarkable. What we're seeing, to your point, there traditionally has been clear seasonality in the drug where due to the high deductible plans, we see a dip in January and February, usually, March and April and May, it starts accelerating. It slows down over the summer and then accelerates in the back end of the year. And certainly, the pandemic, I think, has made a difference here. There's no question. I think we saw a very strong fourth quarter. But as you mentioned, we saw an extraordinarily strong first quarter. And the question is why? And where is that source of business coming from? And as I mentioned, we're seeing a tremendous amount of traffic in -- certainly, on the Internet, but also to our website, I mentioned we're seeing like 400,000 unique visitors a month. That's up 70% from where we were a year ago. In addition, we collaborated with the University of Michigan and Cedars-Sinai to connect a rather large GI survey, which replicated a survey we did 5 years ago with them and there's a clear increase in the prevalence of the disease. So it looks like this buoyancy of the overall prevalence looks encouraging. But as Gina mentioned, we're excited of what we're seeing. We've clearly seen an inflection point in demand, particularly with new to brand. But we're certainly cautiously optimistic as we're looking forward.

Yes. David, if I could just quickly add, just keep in mind, my inventory comments that I mentioned earlier, right? We won't -- obviously, net sales is a combination of demand, price and inventory movement and we won't see the same -- at least we're not anticipating, right, at this time, the same level of burn in the first part of the year and the same build in the second part of the year to contribute to where we have typically seen higher net sales in the fourth quarter due to some build.

We have no further questions at this time. I would turn the call back to presenters for closing remarks.

Well, I just want to close by, certainly, thanking all of you for joining us today. And it's been a terrific first quarter. I think -- I know I speak on behalf of the management team that we've stayed true to our promise to shareholders. We've executed well on the core strategy that we outlined 2 years ago. As Gina shared with you earlier, but I think we're extremely optimistic with regard to what we're seeing and what we're doing. And I think we're looking forward to following up with you at the end of next quarter to see kind of where we are and I think we'll have a much better line of sight of what the year will look like. So thanks for your time.

This concludes today's conference call. You may now disconnect.