Ironwood Pharmaceuticals, Inc. (IRWD) Q3 2022 Earnings Report, Transcript and Summary

Hello. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Third Quarter Investor Update Call. [Operator Instructions] I would now like to turn the call over to Mr. Matt Roache, Director of Investor Relations. Please go ahead, sir.

Thank you, Lisa. Good morning, and thanks for joining us for our third quarter 2022 investor update. Our press release issued this morning 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, 2021, 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 not 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 CEO, will review our strategic priorities and provide an update on the commercial performance of LINZESS. Mike Shetzline, our Chief Medical Officer, will discuss our pipeline; and Sravan Emany, our Chief Financial Officer, will review our financial results and guidance. Today's webcast includes slides. So for those of you dialing in, please go to the Events section of our website to access the accompanying slides separately. With that, I'll turn the call over to Tom.

Thanks, Matt. Good morning, everyone, and thanks for joining us today as we share our third quarter results. As we approach the end of the year and look back on the progress we've made across our strategic priorities, we are very pleased with the strides we have made to advance treatment in GI diseases redefine standard of care and bring important medicines to GI patients. As we move forward, we remain committed to unlocking new opportunities for LINZESS and strengthening our portfolio with innovative GI assets as well continuing to deliver sustained profits and cash flows. I'll begin with a brief overview of our strategic priorities on Slide 6. Our strategy begins with maximizing LINZESS. In the third quarter, we are pleased to report the brand delivered double-digit extended unit prescription demand growth year-over-year and for the first time, exceeded 1 million total prescriptions in the quarter, a remarkable achievement. Based on the continued strong performance of LINZESS through the third quarter, we maintain our full year net sales guidance of low single-digit percent growth. Going forward, we believe there is still a significant opportunity to reach appropriate new adult patients and drive additional prescription demand growth. Second, we are seeking to build an innovative portfolio, both through the development of our internal assets and through the in-license acquisition of external assets that target serious organic GI disease that we believe will position our company for continued growth. In the third quarter, we advanced our pipeline programs highlighted by the exciting positive top line data from the Phase III trial of LINZESS 72-microgram in pediatric patients age 6 to 17 with functional constipation. Results of the study add to the body of data supporting the safety of LINZESS in this population and brings us one step closer to being able to potentially expand the clinical utility of LINZESS to this critically but underserved patient population as an estimated 4 million to 6 million 6- to 17-year-old children and adolescents in the U.S. suffer from functional constipation. Mike will discuss the top line data in a few minutes, and we look forward to sharing more detail on the potential market opportunity at a future investor update. We, along with AbbVie, are planning to submit a supplemental NDA by the end of the year. Next, the Phase II proof-of-concept study for CNP-104 for the potential treatment of Primary Biliary Cholangitis continues to progress, and we are continuing study start-up activities for IW-3300 Phase II proof-of-concept study in patients with interstitial cystitis and bladder pain syndrome. And finally, we continue to generate profits and ended the third quarter with $574 million in cash and cash equivalents on the balance sheet. We're pleased with the progress across our 3 strategic priorities and believe that we will continue to position ourselves for growth moving forward. Now let's turn to some additional details on the commercial performance of LINZESS on Slide 7. LINZESS continues to see high utilization among health care practitioners, further reinforcing our position as the #1 prescribed branded medicine in the U.S. for the treatment of adults with IBS-C and chronic constipation. In both the third quarter and on a year-to-date basis through September, LINZESS extended unit prescription demand increased 10% year-over-year, in line with our full year expectations. In the quarter, total prescription share for LINZESS continued to lead the market and exceeded 44% in quarterly TRx share, a 1.6 share increase versus the third quarter in 2021. Importantly, this performance was driven by an acceleration in new prescription volume, a key indicator for potential future growth. In fact, an all-time high was achieved for new prescription share of 38% and new-to-brand volume increased 9% compared to the third quarter in 2021. The foundation for this excellent LINZESS performance is driven by the strong clinical profile, high patient satisfaction, our focused investment in both consumer and professional promotion and class-leading formulary access to help support health care practitioners and patient access. Finally, we're committed to advancing opportunities to broaden the clinical utility of LINZESS and help more patients in need of treatment as evidenced by the recent positive Phase III data in our 6- to 17-year-old pediatric program functional constipation. As part of our commitment to leadership in GI, I'm also excited to share that recently, we attended the American College of Gastroenterology, or ACG meeting, which included a symposium on updated IBS treatment guideline and other recommendations. We're proud that in June, LINZESS was the only therapy to receive a strong recommendation for the treatment of adults with IBS-C in the updated AGA treatment guidelines, a powerful reinforcement that LINZESS can help adults living with the highly frustrating symptoms of IBS-C. We couldn't be more excited about the strong position we're in today and the opportunities ahead of us. I would like to say a very big thank you to all Ironwood employees who have laid the foundation for our continued momentum and strong execution against our strategic priorities as we continue to help make a real impact in patients' lives. I would now like to hand it over to Mike, who will discuss our pipeline programs. Mike?

Thanks, Tom, and good morning, everyone. We continue to make progress across our 3 pipeline programs. I'll begin with the positive top line data that was announced in September from the Phase III clinical trial evaluating linaclotide 72 micrograms once daily in pediatric patients age 6 to 17 with functional constipation. We're really pleased with the positive results of the Phase III trial, which showed that linaclotide improved frequency of spontaneous bowel movements and stool consistency and was well tolerated in the study population. Functional constipation is one of the most common GI complaints in this age group, and we have a significant impact on the patient's quality of life. We're excited about the potential for LINZESS to become the first FDA-approved prescription therapy for children ages 6 to 17 with functional constipation. A brief summary of the top line results is shown on Slide 9. A total of 330 patients, aged 6 to 17, fulfilled modified ROME III criteria for child/adolescent functional constipation were randomized in a 1:1 ratio between linaclotide or placebo. Top line data indicated that linaclotide 72 micrograms showed a statistically significant and clinically meaningful improvement compared to placebo in 12-week spontaneous bowel movement frequency rate or SBMs per week, the primary endpoint. Linaclotide-treated patients demonstrated a greater than twofold least squared main change from baseline in SBMs per week compared to placebo at 1.05. Stool consistency as assessed by the Bristol Stool Form Scale, was a key secondary endpoint and showed an improvement at week 12 with linaclotide compared to placebo. Overall, linaclotide was generally well tolerated. The most frequently reported treatment-emergent adverse event was diarrhea, which occurred in 4.3% of linaclotide-treated patients versus 1.8% in the placebo group, adding additional data to the existing pediatric safety data in this population. Turning to Slide 10. These strong data are encouraging and further our understanding of the safety profile of linaclotide in pediatric patients age 6 to 17 with functional constipation and demonstrate evidence of its potential to provide therapeutic benefit to these patients suffering from this disorder. As Tom mentioned, we, along with our partner, AbbVie, plan to submit a supplemental new drug application by the end of this year. We'll request a priority review based on the data and the unmet patient need. We plan to submit a detailed top line data to the Digestive Disease Week meeting planned for May of next year. Next, IW-3300, a guanylate cyclase-C agonist and a wholly-owned Ironwood asset for the potential treatment of visceral pain conditions, such as interstitial cystitis/bladder pain syndrome or IC-BPS. Since successfully completing the Phase I dosing studies in healthy volunteers earlier this year, we're continuing study start-up activities and plan to finalize the Phase II proof-of-concept study designed this year, and we expect to enroll patients beginning in early 2023. We plan to provide additional details on the study design early next year. And finally, CNP-104 for the potential treatment of primary biliary cholangitis. COUR Pharmaceuticals continues to recruit patients in the clinical study with CNP-104, and we expect to see data in the second half of 2023. I had the opportunity to attend the 2022 Primary Biliary Cholangitis Patient Education Conference for the first time in October where PBC patients, family members and clinicians came together to raise awareness and provide education and support for family members and friends of people diagnosed with PBC. At this meeting, investigators and clinicians alike were excited by COUR's novel nanoparticle platform to potentially help cure this devastating disease. We believe CNP-104 has the potential to significantly shift the treatment paradigm in PBC, targeting the root cause and if successful, be the first truly disease-modifying therapy for patients. With that, I'll now turn it over to Sravan to review our financial performance.

Thanks, Mike, and good morning, everyone. We had a strong third quarter, driven by continued impressive double-digit LINZESS demand growth. Based on our performance to date, we remain on track to achieve the financial guidance we put forth at the beginning of this year. Please refer to our press release for our detailed financial information. Now LINZESS U.S. net sales were $261 million in the third quarter of 2022, a 3% increase compared to the third quarter of 2021. Strong LINZESS prescription demand growth was partially offset by net price erosion versus the prior year. Year-to-date, through the third quarter, LINZESS prescription demand is up 10% year-over-year and net sales growth is up 2% year-over-year. For the full year, we continue to expect LINZESS U.S. net sales growth in the low single digits driven by double-digit prescription demand. Turning to LINZESS brand profitability. Commercial margin in the third quarter of 2022 was 74%. Moving to Ironwood revenues. In the third quarter of 2022, Ironwood revenues were $109 million, driven primarily by U.S. LINZESS collaboration revenues of $105 million. Next, income tax expense and profitability. During the third quarter of 2022, Ironwood recorded $20 million of income tax expense. GAAP net income was $50 million, and adjusted EBITDA was $69 million in the third quarter of 2022. Turning to our cash and capital allocation priorities. In the third quarter, we generated $69 million in cash flow from operations and ended the quarter with $574 million in cash and cash equivalents. Our capital allocation priorities continue to be focused on investing to maximize LINZESS and actively pursuing innovative, highly differentiated GI assets to add to our portfolio. We continue to take a thoughtful and disciplined approach to capital allocation. We maintain a high bar as we evaluate potential investments and aim to create value for patients and shareholders over the long term. We are in a fortunate and unique position of being a profitable biopharma company with strong cash flow generation. We have deployed roughly $270 million over the past 12 months by leading our $150 million share repurchase program and $121 million principal repayment of our 2022 convertible notes to strengthen our financial position. And we are on track to end the year with greater than $600 million of cash and cash equivalents on the balance sheet. Turning to our 2022 guidance on Slide 13. We are reiterating our full year 2020 financial guidance as we remain confident in the continued strength of LINZESS with expectations of double-digit prescription demand growth. We continue to expect U.S. LINZESS net sales growth in the low single-digits percent. Ironwood revenue of $420 million to $430 million, which includes approximately $10 million in royalty and other revenues and adjusted EBITDA of greater than $250 million.We believe our company is well positioned for continued growth and remain focused on advancing our 3 strategic priorities. We are excited about the opportunities ahead of us to improve the lives of GI patients and deliver shareholder value. I want to close by thanking all of our employees, patients, caregivers and advocates for their shared dedication to advancing and supporting therapies for GI disorders. Operator, you may now open up the line for questions.

[Operator Instructions] Your first question comes from the line of David Amsellem of Piper Sandler.

This is Isaac on for David. First one on the gross to net. Can you give us a sense for how the 2023 payer conversations have been playing out so far? And what should we expect for net realized price next year relative to this year? Secondly, we saw one of our generic peers Viatris recently file an IPR against Bausch on TRULANCE. So theoretically, how do you think about the impact of a potential early generic entrant on LINZESS? And then my last question is on your update. It's really appetite for BD and M&A in this environment, given the state of your capital structure. Would you lever up to some extent for a commercial stage asset or maybe an asset that has visibility into a very near-term launch where you can, of course, leverage your existing sales infrastructure?

Thanks for your questions, Isaac. Let me start by -- I'll tackle the price question, and then we'll go into the generic question. And then overall, I think BD and M&A thought process at the moment. First, on the notion of price, look, I want to be clear, we're -- this is the third quarter call. We're not in a position today to provide guidance for 2023 yet, but hopefully do that at an investor conference in early January. I look forward to doing that at that time, and we'll come back with greater details. What I think we can say is a couple of things. One, we're pleased with the strong growth of LINZESS, and the important driver in our mind of that growth has always been our class-leading payer access. Market access is really important. And the reason we've been able to drive double-digit demand growth has been our ability to make it easily prescribable by the caregivers and easily obtainable by our patients. And so we are very heavily focused in -- on driving ease of access and demand growth. So what I will say is I think we said we're going to have high single-digit price erosion this year in 2022. And that at the start of the year, I think we communicated that we believe that 2023 would be moderated -- less moderate -- or more moderate relative to that high single-digit year-over-year decline. There's nothing in our negotiations that would suggest that is different. We still think it will be better than 2022, but we're not ready to communicate what that is until probably when we give guidance in early January. Okay. And then on the second question about early generic entrant, maybe, Tom, do you want to just comment on that?

Sure, Sravan. I think it's important -- first of all, we can't comment on, obviously, their IP real estate. But what I can share with you is, obviously, we were able to settle all of our ANDAs in a reasonable manner. And I would expect that all should be able to do the same thing. Obviously, their patent real estate is very similar to ours with regard to substance to matter. I also think it's important to remember, LINZESS has a very strong position in the marketplace, as you know, and we've been playing on a generic market from day 1. When we launched the market leader with generic PEG, certainly AMITIZA has gone generic. There have been several entrants into the market. But this product has continued to thrive. And it continues to thrive because of the strong clinical profile and the very high satisfaction, but also the broad payer access we have. So obviously, we take all threats very seriously, but our job as a market leader is to continue to grow the market and capture a disproportionate share of that to continue to drive the growth because really the lifeblood of LINZESS is demand growth, and we continue to refine our marketing mix from promotion to payer access, to continue to support that growth because we just don't see it changing. Keep in mind, as successful as this brand has been, there's 30 million people out there suffering and with this new pediatric indication, that adds another 4 million to 6 million patients. So we expect to see continued growth in demand, and we just need to be able to maintain that momentum.

Thanks, Tom. And I think the last question around BD and M&A thought processes at the moment. So look, as we've noted in our strategic priorities, one of them is to build out an innovative GI portfolio. And I think we remain committed to that. So as an organization, we certainly have the goal to bring in more assets into the portfolio. We are taking a very disciplined approach, though, on capital allocation and have set a really high bar for evaluating and completing transactions, especially in this environment, and we want to make sure that the deals we do create value. We are actively evaluating opportunities. And I think from our perspective, the third pillar that we have in our overall strategy is around generating profits and sustainable free cash flows. I don't see a transaction that we do jeopardizing our ability to do that or severely impairing our ability to do that. And so I think we're looking for assets, and we'll circle back to the market when and if we can find something that meets our requirements and hurdle rates.

Next question comes from the line of Boris Peaker.

A couple of questions for me. Maybe first on pediatric functional constipation. Curious if you could quantify the size of that market? And also how much of LINZESS current prescription is written by pediatricians? And the second question is on 104. If you can maybe set some expectations of how we should be interpreting that? I do not know what's coming next year, but just to help us kind of bookmark clinical expectations.

All right. Great. Thanks, Boris. Maybe we start with the second question on CNP-104, and then we'll go to the pediatrics, all right. So Mike will answer the first one.

Sure. Thanks for the question, Boris. So in terms of data for CNP-104, there are actually 2 aspects. I mean one, we benefit from regulatory history and precedent here. As you know, their current products on the market in PBC, and they've used the endpoint around alkaline phosphatase. And there are metrics within improvement in alkaline phosphatase that are thought to be clinically meaningful. So clearly, alkalkine phosphatase is one of the endpoints in our Phase II safety, tolerability and pharmacodynamic and efficacy study. So that's what we would do, obviously, for preparing for regulatory interactions. But it's also important to realize that with this new technology, the other key component we're going to look at is the impact on the immune response in patients with PBC. Because again, as we mentioned in prior calls, the science around this is quite amazing, and we now have the opportunity to literally measure the T cell autoimmune response in patients with autoimmune diseases. And PBC is an autoimmune disease driven by really a unique antigen, the PDC-E2 antigen that mitochondrial enzyme complex that we've also talked about earlier. So having the opportunity to take that very objective, tangible readout gives us a lot of power in a sense for being able to interpret the data. And so we are going to look at T-cell responses in this study as well because that will really give us a real tangible index of the drug's efficacy, but also a very likely read in to the clinical benefit downstream. Because as you know, one of the real challenges in PBC or liver disease in general is how these biomarker changes, like alkaline phosphatase translate into histologic or liver function improvement. And the ability to focus on these immune targets really gives us, I think, a nice opportunity for an additional read in to clinical benefit.

Great. And then I think on the pediatric, maybe, Tom, why don't you address this one.

So as far as the size, as we've mentioned, this is not really prevalent disorder. Basically we estimate 4 million to 6 million kids suffer from functional constipation from 6 to 12, which is really, I think, the real kind of attractive market target that we have. I mean these are highly symptomatic diseases and it's one of the top reasons why a parent takes the child to see the physician. And all they have available to them really is MiraLAX, which isn't even approved in kids, and which basically liquefies stools. So it's a little tricky to manage these patients. I mean what we've seen in market research so far is a very, very positive response to the clinical profile, particularly the tolerability profile, which is very encouraging. And of course, it isn't going to require an additional dose. It will be basically the 72-microgram dose which can be sprinkled on food or dissolved in water. So it will be very easy to administer it, unlike the liquid MiraLAX. As far as current utilization, there is some use out there, particularly with the pediatric gastroenterologist, but it's a very concentrated prescriber base overall. But there isn't much utilization to date. There's been a couple of publications around this. But I think this is a real upside opportunity. We're still kind of evaluating it. And this is where I think we're really going to let the data guide us to see how promotionally responsive the market is, which certainly we know it's very promotional responsive for adults. We expect the same thing for kids. And then we can really determine what level of investment is going to be required. But we don't see a dramatic increase in the investment, it's really refining the marketing mix in terms of who we're targeting and what communication channels are we going to leverage to educate physicians and drive patient demand.

[Operator Instructions] Your next question comes from the line of Daniel Wolle with JPMorgan.

Two questions. First, in the prepared remarks, you mentioned an exploration of new prescription observed in 3Q. What's driving that growth? And second, given that PBC is an autoimmune disease, historically, why do you think it's going to be a challenging indication that has not highly -- that has been highly responsive to conventional immunosuppressive drugs?

Yes. So maybe, Mike, you can tackle the second component there on PBC.

Sure. I think it's a really good question. We -- you're talking about the sort of inability to date at least for available immunosuppressive agents to really wrestle with the pathology in PBC, and I think we've learned a lot about the immunologic processes in the last 3, 4 decades. I mean a lot of those approaches have gotten great therapies, whether they're anti-TNFs or more specific cytokine approaches, but the reality of a lot of pathology is it doesn't interplay with those pathways. And certainly, for autoimmune diseases, it is a little bit of a different approach sometime in terms of the pathology. So all I can say is that your statement is accurate, right? Those immunotherapies have improved beneficial in PBC, and it's probably likely to the unique features of that autoimmune disease which is driven by a very specific subtype of T cells, CD4 and CD8 T cells that respond to the specific PDC-E2 antigen. So it's a very focused sort of immune attack. And it's actually focused just on the bile duct epithelial cells. And given that focus, the more other reaching immune suppressive agencies haven't been able to impact that enough for clinical benefit. But that -- the flip side of that is that's what makes those diseases so right, if I could use that word, for the approach that COUR has taken with the nanoparticle technology because that is a very specific approach that gets to target a specific antigen that could be or in this case, is the root cause of the disease like PBC. And that's what I mentioned that PDC-E2-antigen. So I think the flip side is really a positive in the tolerance platform because it gives us a very focused attack for the pathology of PBC, and that's why we're quite excited about that program.

Yes. And I think Tom in his remarks was pretty clear. I think that we were -- again, there are 3 things that are really driving new to brand growth. And I think they're the foundation of what's made LINZESS so successful long run. It's a strong clinical profile. There's real strong customer satisfaction with the drug. There's focused investment that we have on the consumer side and also on the professional side in terms of brand promotion, and then lastly, I think the thing we've been talking about all along on our call, which is leading formulary coverage, well, it's class leading. And it helps support our providers and then our patients as well. I don't know, Tom, if there's anything else that you think , but I think those are the big drivers of new-to-brand growth in the quarter.

Sravan, I think that's spot on. I think the other thing to keep in mind is we presented data at DDW a year ago, showing that the excellent prevalence of IBS-C has increased pretty significantly coming out of the pandemic. Nobody really understands why. I think it's certainly a lot of the stress, which we know does trigger IBS symptoms. It's probably inherent in that. So I think we're seeing, one, an increased number of patients presenting to the physician's office. And to Sravan's point, we continue to refine our marketing mix, both on consumer activation and primarily consumer activation that's been very successful as we continue to evolve that market mix, particularly in the digital space, where we know there's a real heavy traffic, but patients looking for some help. So I think to Sravan's point earlier, I think this is about a lot of suffering patients, more suffering patients, actually seeking care. Two, we've got a very strong brand that's easy to prescribe, and we also know that this drug continues to be very promotionally sensitive and as we push it grows.

Next question comes from the line of Tim Chiang with Capital One.

Mike, I had a follow-on question on CNP-104. Is this targeted -- would you classify this as a targeted potential medicine? I mean is there a specific biomarker you're going after in PBC?

Yes. First, I think -- Tim, that's really a great question because it's also one of the things that makes this really so scientifically amazing, because the whole root cause of PBC is that mitochondrial antigen, the PDC-E2. Patients with PBC, if I could say it this way, have a PDC-E2 problem. The problem with that is their immune system reacts to this host antigen PDC-E2 and takes that and destroys bile duct cells with that. So it's a native protein in the mitochondria, PDC-E2 that the patient's immune system looks at as an enemy or a foe and it reacts to it and kills the bile duct cells. That really is the hallmark of PBC-- and that's what makes it very unique and to your point, a very targeted opportunity. So it really is this antigen because you diagnose PBC by looking for an antimitochondrial antibody in patients. That's one of the diagnostic criteria for PBC. And that antimitochondrial antigen is the body's response to PDC-E2 in patients with PBC. So they have an altered immune response to this host antigen, and it's a very unique antigen that really lets us target that antigen in these patients. So I agree with this principal approach you're addressing, which is this is kind of almost quintessential precision medicine. You're giving a PDC-E2-directed therapy to patients with a PDC-E2 problem. .

Okay. No, that's helpful, Mike. In your study, is there actually an assay that you guys are or COUR’s using as part of the trial?

Well, we're collecting serum samples for the trial, and we have endpoints around T cell responses. And to your point that those are driven by unique assay, that will query the T cells and their response to the PDC-E2 antigen. So yes, a unique assay to gauge the T cell responses to PDC-E2.

Okay. No, Mike, that's very helpful. And then, Sravan, I noticed that the commercial margins on the LINZESS JV, I think they recovered, right? They were around 74%, do you think this is sort of the ballpark range as to where the commercial margin will sit for the remainder of the year?

Well, thanks, Tim, for the question. I'd say, look, I think we're super pleased with the commercial margin year-to-date. Year-to-date through the third quarter, commercial margin sort of in line with where we were in 2021, and we expect full year commercial margins to also be roughly in line with last year. So we continue to focus and refine the marketing mix as Tom had talked about earlier in an effort to optimize brand profits, and commercial margin, as you know, can fluctuate like we had in the second quarter last year when we talked about the -- sorry, second quarter earlier this year, we talked about the reasons that it fluctuated and why it's back to 74% this quarter.

I think the other piece of that, Tim, too, is we believe this pediatric market is a sizable opportunity. We're still evaluating it. But we don't see that -- even though it's -- there's a lot of overlap with the existing targeted physicians, we'll probably identify some high potential pediatricians that will trade off because they could be higher potential docs. But we don't see a dramatic change in the overall investment in the brand, even though we're adding another 4 million to 6 million patients that we'll be targeting. So we're running a series of pilots out of the gate, both with regard to professional promotion to see how promotional responsive it is as well as there's a very, very innovative channels out there, both, targeting parents of kids as well as pediatric physicians that it will also be piloting. But again, I think this is where the data will really help guide us with regard to what is the right level of investment to drive ongoing growth.

At this time, there are no further questions. This concludes today's conference. You may now disconnect.