Ironwood Pharmaceuticals, Inc. (IRWD) Q4 2022 Earnings Report, Transcript and Summary

Good day, and welcome to the Ironwood Pharmaceuticals Q4 and Full Year 2022 Investor Update Conference Call. Today's call is being recorded. [Operator Instructions]. Thank you. And I would now like to turn the conference over to Matt Roache, Director of Investor Relations. Please go ahead.

Thank you, Savanna. Good morning, and thanks for joining us for our fourth quarter and full year 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 day 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 begin 2023, our commitment to developing and advancing innovative solutions in the area of high unmet need in GI is as strong as ever. Looking back in the past year, we have made -- we made important progress in advancing the treatment of GI diseases, while redefining standard of care for patients. I'm very proud of the Ironwood team. And thanks to their hard work and dedication, we closed 2022 with a lot to be proud of. You've heard us talk about our focused approach based on 3 strategic priorities, where we seek to maximize LINZESS, strengthen and progress our innovative GI portfolio and deliver sustained profits and generate cash flow. I'm delighted to say that we continue to drive strong LINZESS prescription demand growth, delivered on our full year adjusted EBITDA guidance, and we made strides across all 3 of our key strategic pillars. I remain confident in our strategy and believe we are well positioned for even greater success in 2023. Let's begin on Slide 6, with a quick overview of some of the key achievements against our strategic priorities for 2022 and what we expect in 2023. First, maximize LINZESS. LINZESS continues to see strong prescription demand growth, profitability and widespread acceptance among health care practitioners as the leading branded prescription treatment for adults with IBS-C and chronic idiopathic constipation. In 2022, prescription demand increased more than 9% year-over-year. The brand continued to demonstrate market leadership by achieving an all-time high in new patient starts, which is a lead indicator for its future growth potential, and growing TRx market share, which reached an all-time high of 45% as of the end of December. As we announced earlier this week, we are pleased that the FDA granted a priority review of our sNDA for functional constipation in pediatric patients ages 6 to 17 and assigned a PDUFA date of June 14, 2023. We're particularly excited about the potential to expand the clinical utility of LINZESS to this underserved patient population. And we plan to leverage a focused investment to drive growth and improve brand margins over time. Next, strengthen and progress our innovative GI portfolio, starting with CNP-104, the potential disease-modifying treatment for primary biliary cholangitis. In 2022, COUR Pharmaceuticals initiated a proof-of-concept study in PBC, which will assess the safety, tolerability, pharmacodynamic effect and efficacy. We also kicked off study start activities at the end of 2022 for the IW-3300, Ironwood's wholly-owned GC-C agonist for its potential treatment of visceral pain conditions, such as interstitial cystitis and bladder pain syndrome. We anticipate several exciting opportunities to advance the value potential of our pipeline this year. First, we expect early data in the second half of the year from patients enrolled into the clinical study for CNP-104. Second, we expect to begin patient dosing for a proof-of-concept study in the interstitial cystitis and bladder pain syndrome for IW-3300 in the near term. Finally, we continue to actively evaluate opportunities to strengthen our portfolio, and we see several potential attractive opportunities in the market that could benefit from Ironwood's expertise in GI. Our third strategic priority is to deliver sustained profits and generate cash flow. We delivered on our guidance of over $250 million in adjusted EBITDA and ended the year with $656 million in cash and cash equivalents on the balance sheet, after deploying nearly $250 million in 2022 by completing our share repurchase program and repaying the principal on our '22 convertible notes. We are in a fortunate position of being a profitable biopharma company with a highly skilled and experienced team in the management of gastrointestinal diseases and a strong and growing cash balance. We believe we're well positioned to execute on our strategy as we strive to become the leading GI health care company in the U.S. Now let's talk a bit more about the performance of LINZESS on Slide 7. As you can see on the left side of Slide 7, the performance of LINZESS has been remarkable, as we continue to see a robust linear growth trajectory. Over time, the strong prescription demand growth for LINZESS has been supported by a combination of high treatment satisfaction, updated clinical guideline support and class-leading formulary access. We continue to see an acceleration of appropriate new adult patient starts and anticipate this will be augmented in the future, should the FDA approve an indication for functional constipation in patients ages 6 to 17. We believe the pediatric opportunity, if approved, could expand the market potential for LINZESS as functional constipation affects roughly 6 million 6- to 17-year-old children and adolescents in the U.S. This is incremental to the need that still exists amongst approximately 40 million adults in the U.S. that suffer from IBS and chronic constipation. LINZESS is well positioned to be the branded market leader across both its current and potential future indications. Looking ahead, we're confident in our strategy and in our future. We believe the investments we're making in the brand and in our pipeline position our company for long-term growth. I would like to say a very big thank you to all the Ironwood employees who have laid the groundwork for continued momentum and strong execution against our strategic priorities as we continue to make meaningful impact on patients' lives. I would now like to turn the call over to Mike to discuss our pipeline. Mike?

Thanks, Tom, and good morning, everyone. We continue to make progress across our 3 pipeline programs. I'll begin with our linaclotide pediatric program on Slide 9. As Tom mentioned, we're thrilled that the FDA granted priority review for the LINZESS sNDA for functional constipation in children and adolescents 6 to 17 years of age, which could potentially lead to a commercial launch in June. If approved, LINZESS would be the first and only prescription therapy to treat this patient population. A new pediatric indication would further reinforce the strong clinical profile of LINZESS. I'm proud of the team's accomplishments as we continue to seek opportunities to broaden the clinical utility of LINZESS and redefine the standard of care for this patient group. We look forward to presenting the Phase III data at the Digestive Disease Week meeting in May of this year. CNP-104, next, for the potential treatment of PBC, which affects an estimated 130,000 people in the U.S. As we've discussed previously, the strong immunology underpinning the CNP program is focused on targeting the specific PDC-E2 antigen responsible for the pathology of PBC. Therefore, there is an opportunity to assess PDC-E2-specific T cell responses, which should be a lead indicator of clinical benefit. We expect to assess T cell responses in patients dosed with CNP-104 in the second half of 2023. This early T cell data will inform the timing of top line and potential option exercise. We're excited about the CNP-104 because it is truly a precision medicine, and it introduces a potentially new game-changing asset for PBC patients, as there are no therapies on the market today that address the root cause of the autoimmune destruction of the bile ducts in PBC. We'll provide updates on the program progress throughout this year. Moving on to IW-3300, a wholly-owned Ironwood asset for the potential treatment of interstitial cystitis and bladder pain syndrome. There's a significant unmet medical need in the area of IC-BPS as it affects an estimated 4 million to 12 million Americans, yet there are very few treatment options currently on the market or in development. In 2022, we successfully completed dosing studies in healthy volunteers, and we kicked off study start activities for the Phase II proof-of-concept study. We're prepared to begin dosing patients in the near term. This study has been thoughtfully designed to evaluate the potential impact of IW-3300 on visceral pain in patients with interstitial cystitis and bladder pain syndrome. This trial will enroll patients with moderate to severe pain in a randomized, double-blind placebo-controlled study over 12 weeks. Patients who receive IW-3300 administered once daily, efficacy will be assessed based on change from baseline in the worst abdominal pain using an 11-point numeric rating scale, along with monitoring of urinary symptoms and other weekly and monthly assessments. We're excited to begin patient dosing and we look forward to providing updates as the study continues to advance. This is the first time the cross-talk hypothesis will be tested in humans, and we're proud to be at the forefront of clinical development in this area. With that, I'll turn the call over to Sravan.

Thanks, Mike, and good morning, everyone. I'll start with an update on LINZESS' performance. LINZESS U.S. net sales were $260 million in the fourth quarter of 2022, a decrease of 7% compared to the fourth quarter of 2021. Strong prescription demand growth of 9% was more than offset by price and inventory channel fluctuation. For full year 2022, as shown on Slide 11, LINZESS U.S. net sales were $1.002 billion, a slight decrease as compared to full year 2021. While full year net sales growth came in lower than our expectations for 2022, primarily due to inventory fluctuations in the retail channel, we remain confident in the long-term growth potential of LINZESS based on the strong prescription demand that we continue to see. Turning to LINZESS brand profitability. Commercial margins in the fourth quarter of 2022 were 74% compared to 76% in the fourth quarter of 2021. For full year 2022, commercial margins were 73% versus 74% for full year 2021. Moving to Ironwood revenues. In Q4, Ironwood revenues were $107 million, driven primarily by the U.S. LINZESS collaboration revenues of $105 million. For the full year, Ironwood revenues were $411 million, with LINZESS U.S. collaboration revenues of $399 million. In the fourth quarter and for the full year, Ironwood recorded $23 million and $77 million of income tax expense, respectively, the majority of which was noncash. GAAP net income was $49 million in the fourth quarter and $175 million for the full year. Adjusted EBITDA was $69 million from Q4 and $252 million for the full year. Throughout the year, we remained focused on our commitment to deliver strong profits and cash flows by driving continued robust LINZESS prescription demand and demonstrating disciplined expense management. As a result, I'm pleased that we were able to achieved our initial adjusted EBITDA guidance of greater than $250 million that we issued at the beginning of 2022. Next, cash and capital allocation. In the fourth quarter of 2022, we generated $79 million in cash flow from operations and $274 million for full year. We ended 2022 with $656 million in cash and cash equivalents after deploying nearly $250 million during the year by completing our share repurchase program and repaying the principal amount of our -- on our 2022 convertible notes. We believe we are positioning our company for future success by maximizing LINZESS growth and actively pursuing innovative, highly differentiated GI assets to bolster our portfolio. We continue to take a balanced and disciplined approach to capital deployment. We remain focused on identifying and investing in opportunities that we believe will create value for our patients and shareholders over the long term. Turning to our 2023 guidance on Slide 12. As previously stated in January, we expect LINZESS U.S. net sales growth of between 3% and 5%, driven by high single-digit percent prescription demand growth. In addition, we expect to maintain our class-leading payer access with mid-single-digit price erosion. We expect Ironwood revenue of between $420 million and $435 million and adjusted EBITDA of greater than $250 million, which includes increased investment to advance our pipeline programs, CNP-104 and IW-3300. To wrap up, we believe Ironwood is well positioned for continued growth, and we remain focused on advancing our 3 strategic priorities of maximizing LINZESS, strengthening and progressing our innovative GI portfolio and delivering sustained profits and generating cash flow. We have a blockbuster brand in LINZESS that continues to deliver impressive demand growth, with the potential to expand the market with a pediatric functional constipation indication beginning this year, if approved; an emerging pipeline with anticipated exciting milestones ahead; a strong balance sheet with over $650 million of cash and cash equivalents; and an accomplished management team with strong GI, commercial, drug development and M&A expertise. We are excited about the work ahead of us as we strive to make a difference for patients living with GI diseases and to deliver shareholder value. Operator, you may now open up the line for questions.

[Operator Instructions]. Our first question will come from David Amsellem with Piper Sandler.

I just had a few. So first, with the guidance in mind, can you talk about your level of confidence that you'll see more stable -- a more stable trajectory for net realized price per Rx? And just talk about the dynamics that are driving more stability or less in the way of erosion in 2023 versus 2022? That's number one. And then, secondly, can you talk about your work on LINZESS regarding children under the age of 2 or 2 and under? And just how you're thinking about making progress towards the eventual removal of the box warning? That's my second question. And then just lastly, how do you frame up the pediatric opportunity, the 6 to 17? And particularly, what I'm getting at is what's your view on the extent to which that could drive accelerated growth in volumes post approval?

David, thank you for the questions. Look, I'll start with the -- your first question on price. Your second question regarding the children under the age of 2, I'll hand to Mike. And then we can -- I think we'll -- we may have you restate the third question, which I think Tom will answer. Okay. With respect to the -- for 2023, as you know, LINZESS is a high volume and valued prescription brand. We are really excited that we're in the 11th year of the drug's life cycle, and we're still growing high single digits with the drug. And so we've made significant investments over the course of the last several years with payers to establish and maintain the class-leading payer access that we have. And in 2023, we did not need to make the same level of investment to maintain that access as we did in 2022. As you know, we continually evaluate price and volume trade-offs. We strive to maximize performance of LINZESS and try to generate profits for the company and for the brand. And so as a reminder, LINZESS is preferred on 10 out of 10 of the top commercial programs -- commercial plans and covered on, I think, 7 out of the 7 top Medicare Part D plans. So as we've entered the negotiations over the past year, I think we entered -- 2022 came in line from a price perspective, where we thought we were going to be based on expectations. We need to have visibility just based on the volumes and our negotiations with payers. And so just where we sit today, we feel pretty good about that mid-single-digit erosion for 2023.

I think the bottom line of that, Sravan, is we have great visibility to the contracts. So we saw that last year. We predicted high single digit. We came in within probably 0.5% of what we expected. I think we have similar confidence here where we didn't see as much aggressive price erosion in the contracting process. So we're projecting mid-single digits. So I think we do have fairly -- things can happen, but I think we have reasonable confidence that we're going to be in the mid-single digits.

Mike?

Yes, sure. So in regards to the question you had about the younger kids, including the less than 2, but also around the box in general. It's good to recall that the original institution of the label when the drug was originally launched, that box warning was due really to the theoretical risk of adverse events in kids under the age of 18. We, then, work with the agency with the post-marketing requirements and our clinical studies to put together a plan to generate that data. And as you saw in 2021, we had a significant box revision, which took the warning from 18 and below, pretty much encompassing all the populations, down to just 2 and below, which is where it currently is. And that's just because we've had the opportunity to generate data in those pediatric populations. And you can see that's actually what got the 6- to 17-year-old sNDA that we submitted at the end of last year and the priority review we just talked about during the call. So we have a very robust data set in peds. To your point directly, we're continuing additional peds studies. We have an additional study gone in 2- to 5-year-olds. That's part of our working with the agency. And we're also planning a study in less than 2 year olds, from 6 months to 0, with our partners, AbbVie. We certainly believe with the generation of further clinical data, we have a path in discussions with the agency, to continue to have the label manifest to real clinical profile of LINZESS, which, to date, has been very safe and well tolerated.

And maybe I'll take the -- this is Tom. I'll take the pediatric opportunity. And obviously, to Mike's point, we have great confidence in the safety and tolerability of this drug. And the clinical data on the pediatric -- out of the pediatric Phase III program is really remarkable. One, it clearly demonstrates efficacy. But what's been -- what striking was how well the drug was tolerated, which is a real challenge with currently available therapeutic options. When I look at the pediatric opportunity, we talk about the 6 million patients that are suffering chronically from functional constipation. But one of the things to keep in mind, which is different from kids, from adults, is the seeking-care behavior. That if you've got a kid that's really suffering, you're going to go see a doctor. So the percent of care-seeking patients is a much, much higher percent, and they generally present multiple times a year, not just 1 or 2x. So it's a very available population. We also know that while there's a lot of pediatricians out there, it's a pretty concentrated prescriber base. So we think that we can get to a lot of the top prescribers with our existing selling efforts. So we talk about this concentrated promotional effort because we really want to first understand how promotionally sensitive the drug will be in the marketplace, which will then inform further investment. So we're not just looking at personal promotion, we're also looking at other communication channels in which we can educate these physicians on a better choice for managing their patients. And everything we've seen in market research looks very encouraging with regard to the target product profile and the clinical profile of the drug and the willingness to try. As I look at the upside over time, obviously, we hope to get the indication in June. There's going to -- there could be some upside in 2023 as we really evaluate the promotional response. But the real value creation, we believe, will start in '24 and '25. But I think we all believe that based on the size of the population, the unmet medical need and the clinical profile of the drug, that LINZESS will be well positioned to help an awful lot of kids.

Our next question will come from Daniel Wolle with JPMorgan.

Two questions for me. One, on CNP-104. Can you clarify for us what you will see versus what the Street will see when early data reads out in the second half 2023? Is this an internal readout where you announce to opt in assuming positive data on T cell response? Or will you be able to release the data to the Street? And then second question is, if we are going to see some data, will it just be on T cell response? Or is there potential to include changes in serum outcome and phosphatase levels? I guess, my question is, is it possible to see serum outcome, phosphatase level changes data this year?

Yes, I can address that. Thanks for the opportunity to clarify. Just to be clear, too, as reported in clinicaltrials.gov, the trial is always planned to extend in 2024 -- until 2024. What we're trying to do is we're trying to add clarity by acknowledging the opportunity to get data in the second half of '23 that will inform us on the timing for the full study readout of the top line data. So in addition, our objective in any of the clinical programs is to use all the data we can to inform business decisions as early as possible. So in the second half of '23, we expect to see the early data focused on T cell responses from enrolled patients. And based on the strong science around CNP-104, we really think that the T cell response is potentially a lead indicator for clinical responses. And you mentioned specifically, alk phos. Alk phos is a liver biomarker, right? And again, it's not -- it is still a biomarker. And for products approved with alk phos, they often have to do post-marketing commitments to actually show that the alk phos provides a meaningful benefit to patients. We actually think the underlying pathology of PBC, driven by the PDC-E2 antigen, is more specifically addressed by looking at the autoreactive T cells. And so that's what we focus -- what we're really trying to focus on in the second half of '23. As I mentioned in the prepared remarks, we really expect to see early data on the T cell responses in the second half of 2023. And it will inform us on the timing. But at that point, we'll give you an update on the status of the program.

Okay. So just to clarify, is this an internal readout? Or will you be able to release that T cell response data to the Street?

Yes. Again, we're going to make an early assessment as a small group in a very controlled fashion just to make internal business decisions. When we see the data and we understand the relevance at that point, we'll make a decision to update the program further and decide what to do.

Our next question will come from Tim Chiang with Capital One.

Mike, I wanted to follow up on some of the comments on CNP-104. I think in prior discussions we've had, you've made the comment that, I guess, in preclinicals, there's been, what, about a 90% reduction in T cell response that you've seen. Is that right? Or -- I mean, obviously, there's some preclinical data out there on CNP-104. And I wanted to ask you, what leads you to think that this should have a very, very positive reduction in T cell counts here?

Yes. So that's a good question. And there is preclinical data. There is a preclinical, there's an animal model for PBC, which COUR has interrogated that does show that with the treatment with CNP-104, you get a reduction in those autoreactive T cells in an animal model. But the 90% number you referred to is a number you've heard me say in regards to the proof of technology study in celiac disease that was run by Takeda actually. That uses the COUR platform and the nano particles there encapsulate a gluten, and then it gets degraded to deamidated gliadin peptides. That's the autoantigen in celiac. In celiac patients, and this is published in Gastro in June of 2021. The celiac patients, the 2 treatments over an 8-day period in celiac patients, saw a 90% reduction in the autoreactive T cells in celiac patients. And that also translated into a meaningful improvement in gut epithelial structure, the histology. So again, that's the sort of downstream effect of reducing those autoreactive T cells. So as we said and you may have heard me say before, too, if we see a similar response in PBC, that would be quite impressive and potentially game-changing for the opportunity to help patients with PBC. But that's where we see the data. The preclinical evidence is in PBC directly. The clinical evidence you hear about the 90% is from a celiac study done by -- that's published by another company.

Mike, I've heard you say in the past that if we do see a dramatic reduction in T cells, it's clearly a strong indicator of what you would expect to see as far as overall clinical response with regard to probably the impact and alk phos and bio cell or bile duct destruction.

Yes, exactly. Because we really think we -- based on the science, that this approach, CNP-104, and targeting the specific autoantigen of PBC, which is the PDC-E2 antigen, that, that is targeting the root cause of the pathology of PBC, which is the bile duct destruction. The T cells, the autoreactive T cells destroy the bile ducts. If we can decrease those T cells, then we should reduce or potentially eliminate the bile duct destruction of PBC patients. And again, the celiac data from proof of technology and proof-of-concept in patients actually showed that they're decreased in autoreactive T cells. I mean celiac patients did improve gut epithelial histology.

No, that's helpful, Mike. Maybe just one follow-up then. The dosing in the celiac study, is that comparable in the dosing that you're running in the PBC study? I mean is there anything comparable there?

Yes. I think it's a great question, and that's why we're studying 2 doses in the current PBC patients. So I think, clearly, there's a reason to make the association. But I do think it's also fair that different diseases may have a different pharmacodynamic response to doses. So we're clearly open-minded in terms of as we do this study to be cognizant that we want to find the right dose in PBC patients. And that similarly, I'm sure what's happening in the celiac space as well.

[Operator Instructions]. Our next question will come from Boris Peaker with Cowen.

One question on CNP-104. You mentioned that the market is about 130 patients, if I heard you -- 130,000 patients, if I heard you correctly. Can you break that down based on disease severity? And if there is any particular subgroup that 104 will be targeting?

Yes. So I think it's a good question. I think as with most liver diseases, this aspect of disease severity is important. And in fact, you probably know that with obeticholic acid, the label is indicated around aspects of liver disease severity in terms of not being advised in patients with cirrhosis or decompensated liver disease. So our program, because it's obviously innovative and new in patient populations, is starting with more early liver disease patients with PBC. But the reality is the underlying mechanism should be broadly applicable to all patients with PBC. Because, again, we're targeting the immunology behind the bile duct destruction. In using semisynthetic bile acids and other approaches, you could see a reason. And as demonstrated with some of the semisynthetic bile acid labeling, that there might be a reason to have concern with some more severe liver disease patients. But if we're -- if the science plays out and we're able to reduce those autoreactive T cells, that should be applicable to the broad population of patients. Now, again, we're in proof-of-concept study. We got a long way to go getting data. But again, that's why we like the program because it's really grounded in the science of the real root cause of PBC.

Great. And my second question is, maybe you could comment on your thoughts on the impact of Inflation Reduction Act on LINZESS?

Sure. Boris, this is Sravan. I'll take that. Look, as with any proposed legislation, we'll follow the developments closely here. We're working with our partner, AbbVie, to assess any potential impact on our business. At this stage, it's still -- I think, a wide number of unknowns around certain aspects of this legislation. And thinking about the potential impact here to LINZESS, it's important to note, we've been working with Medicare Part D for years. And for many years, the core aspect of our strategy has been to ensure broad coverage and patient access. So from a negotiation standpoint, from a discounting standpoint, none of this is new to us. And so I think we're -- we'll come back to you when we have a better sense of what that looks like. But right now, I think that's what we can say.

And I think we're reasonably confident. I mean, we're providing very significant discounts currently to Medicare. I mean -- which is the reason why we're seeing some price erosion here because we are working closely with the Medicare payers as well as the commercial payers to ensure very broad payer access. So -- could it have some impact? Yes. But I think of all the brands that are out there that they're going to be focusing on, we're already in the game and actively negotiating with the major payers. So we'll have to wait and see, but I think we feel pretty good about the position we're in.

And with no further questions, we will conclude today's conference. Thank you for your participation, and you may now disconnect.