Ironwood Pharmaceuticals Inc (IRWD) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to the Ironwood Pharmaceuticals fourth quarter 2010 investor update conference call. Today's call is being recorded.

At this time, I would like to turn the conference over to Halley Gilbert. Please go ahead.

Good morning and thank you for joining us for our investor update for the fourth quarter of fiscal year 2010. Joining me for today's call are Peter Hecht, our Chief Executive Officer, and Tom McCourt, our Chief Commercial Officer. We also have Michael Higgins, our Chief Operating Officer and Chief Financial Officer; Mark Currie, our Chief Scientific Officer; and Jim DeTore, our Vice President of Finance, available for the question-and-answer portion of the call.

By now, you should have a copy of our press release which crossed the wire earlier this morning. If you need a copy of the press release, you can go to our website at www.Ironwoodpharma.com to find an electronic copy.

Some of the information discussed in today's call, particularly the information related to linaclotide, is based on information as of today, March 3, 2011, and contains forward-looking statements that involve risks and un certainties. Actual results may differ materially from those set forth in such statements. We do not undertake any obligation to update any forward-looking statements made during this call or contained in the accompanying slides as a result of new information, future events or otherwise.

For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in our press release as well as the risks under the heading risk factors in our quarterly report on Form 10-Q for the quarter ended September 30, 2010 and any of our future SEC filings.

I would now like to turn the call over to Peter.

Thank you, Halley. Welcome to all of you who are joining this discussion. Before we dive into the fourth quarter and recent highlights, I would like to set the stage for this on our next few quarterly investor updates.

To date, we have focused our discussions on the clinical development of linaclotide, our product candidate being developed for the treatment of patients with IBS-C and chronic constipation. As the linaclotide development program winds down and we approach our US and EU regulatory submissions, we would like to utilize this morning's opportunity to frame for you our view of the commercial opportunity for linaclotide. Tom McCourt will lead these discussions focusing today on our view of the potential patient population for linaclotide. We hope you find this information insightful and useful.

As a brief reminder, linaclotide is our internally discovered GC-C agonist being developed for the treatment of patients with IBS-C and chronic constipation. Across the eight Phase II and phase three clinical studies in almost 3700 IBS-C and CC patients, which will support upcoming regulatory submissions in both the US and the EU, linaclotide demonstrated rapid and sustained improvement of both the abdominal symptoms, pain, discomfort, and bloating, and the constipation symptoms that define these chronic GI disorders.

Linaclotide was designed by Ironwood scientists to act locally at the site of action in the GI tract. It has no measurable systemic exposure at therapeutic doses. We intend to launch linaclotide in a convenient once-daily capsule and we have issued composition of matter patents that cover linaclotide until 2025.

We at Ironwood are enthusiastic and passionate about linaclotide as it could present patients and healthcare practitioners with a therapy for a major medical need not yet met by existing therapies.

Later in this call, Tom will discuss our view of the unmet medical need in greater detail.

We are fortunate to work with high-quality collaborators on the development and commercialization of linaclotide in certain territories, mainly Forest Laboratories in the US, Almirall in Europe and Astellas Pharma in Japan and certain other Asian countries. We intend to create a global brand for linaclotide and accordingly, we continue to explore linaclotide's potential opportunity in countries outside of the partner territories.

In November, we and our partners, Forest Laboratories in the US and Almirall in the EU, announced the topline data from the final linaclotide Phase III clinical trial, a 26-week trial assessing the efficacy and safety of linaclotide in over 800 patients with IBS-C. In the trial, linaclotide met all US and EU primary and secondary endpoints, including multiple endpoints assessing its effects on abdominal pain.

Linaclotide has now run the table. It met 66 out of 66 US and EU primary and secondary endpoints in the four Phase III trials assessing its efficacy and safety in patients with IBS-C and chronic constipation.

Focusing for a minute on the 26-week IBS-C clinical trial, we were particularly thrilled to see that linaclotide showed significant improvements in both abdominal pain and complete spontaneous bowel movements in the first week of treatment that were sustained throughout the entire 26-week period.

We were also pleased that linaclotide's tolerability profile continues to be consistent with prior trials. Diarrhea was again the most common linaclotide related adverse event. However, only 4% of linaclotide treated patients discontinued treatment over the entire 26-week treatment period due to this AE.

The result of this 26-week Phase III IBS-C trial recapitulates and extends what we saw in our previous Phase III IBS-C and chronic constipation trials. This consistency and robustness of data give us great hope about linaclotide's potential as a therapy for millions of sufferers worldwide.

With the completion of the clinical efficacy portion of the linaclotide development program, we and our partners, Forest and Almirall, are busy preparing our regulatory submissions for the US and the EU. We and Forest are on track to submit our NDA for linaclotide for the treatment of IBS and chronic constipation in the third quarter of 2011.

We have also been supporting Almirall as it prepares an MAA application for linaclotide for the treatment of IBS-C. Almirall is on track to submit an MAA with the EMA in the second half of 2011.

As we discussed in our press release, we and Forest will be making six linaclotide related presentations at the Digestive Disease Week 2011 annual meeting in Chicago this upcoming May. These presentations will be the first time we discuss the full results of both our recently completed Phase III IBS-C clinical trials.

While we remain highly focused on linaclotide, we continue to advance our pipeline, which includes product candidates and research efforts focused on gastrointestinal disease, pain and inflammation, respiratory and allergic disease, and cardiovascular disease. All of our product candidates to date including linaclotide have been internally discovered.

To augment our existing research and development efforts, we initiated a collaboration with Protagonist Therapeutics in January of this year. Under the collaboration, Protagonist will use its drug discovery platform to discover peptides against targets that we identify. We will have full rights to advance these peptides through preclinical and clinical development and if successful, through commercialization.

We ended 2010 with $248 million of cash and equivalents and are targeting ending 2011 with greater than $150 million cash.

I would like to quickly address the footnote that is included in our un-audited financial statement in this morning's press release. We made a reclassification which is reflected in our 2010 year-end statement of operations. Based on our evaluation of the accounting guidance, a tax benefit associated with the sale of our subsidiary, Microbia, in the third quarter has been reclassified from discontinued operations to continuing operations. To be clear, this reclassification has no net impact on our cash or on our bottom line and is simply a shift from one P&L account to another.

Just so you are aware, there will likely be a further filing with the SEC in the coming days and the adjustment will be reflected in our upcoming Form 10-K annual report.

I would like to now turn the call over to Tom who will take us through the first of a multipart series to discuss what we believe to be the commercial opportunity for linaclotide.

Thanks, Peter. As Peter mentioned, over the next several calls, we would like to share some of our insights on the commercial opportunity in terms of how we view the patient, the customer and the market as our Ironwood and our global partners prepare to launch linaclotide. Today, we will specifically examine the patient, the current treatment options and the existing unmet medical need. In upcoming meetings, we will talk more specifically about how we intend to globally commercialize linaclotide if approved.

So let's start by looking at the patients. There is approximately 40 million Americans suffering from either IBS with constipation or chronic constipation. By definition, these populations differ based on the presence and frequency of abdominal pain, which is associated directly with IBS and constipation. Basically, a patient needs to experience abdominal pain at least 25% of the time with an association with constipation to be diagnosed with IBS with constipation who we will refer to as the IBS-C population.

As you can see, it is estimated that 13 million Americans suffer from IBS with constipation with an additional 27 million Americans suffering from chronic constipation. However, in a large epidemiology study recently conducted by [Chaodol] who critically assessed and described the IBS-C and chronic constipation population as a real continuum with all patients suffering from difficult and infrequent bowel movements and varying degrees of abdominal symptoms, which tend to include pain, discomfort, bloating and fullness.

This continuum can be split into three distinct segments, including the 13 million IBS-C patients who met the definition for IBS suffering from frequent abdominal pain and/or bloating and constipation.

The second segment of the continuum is comprised of 19 million patients who did not meet the definition for IBS based on the frequency of pain but continue to suffer from significant bloating, discomfort, fullness and less frequent pain, which we will refer moving forward as chronic constipation plus abdominal symptoms.

The third segment is the 8 million constipation only patients suffering from straining, hard and infrequent stools.

As one more specifically examines these three segments, it is clear that IBS-C and the chronic constipation plus abdominal symptom segments report suffering from very similar symptoms with comparable efficacy.

This graph illustrates the type and frequency of abdominal and bowel symptoms experienced by all three segments. The various abdominal symptoms are identified at the top of the graph and the bowel symptoms at the lower portion of the graph. The IBS-C population is in dark green, the chronic constipation plus abdominal symptom is in light green, and the constipation only segment is in yellow.

As you can see, the IBS-C and chronic constipation plus abdominal symptom segment suffer from virtually identical symptoms with very similar frequency and experience these individual symptoms every two to four days. These are in sharp contrast to the constipation only segment in yellow. It's also important to note that over 70% of the IBS-C population reports suffering from one or more of these symptoms daily.

In addition, the IBS-C and CC plus abdominal symptom patients experience very comparable suffering with more than 50% of patients suffering or reporting suffering symptoms and describe symptoms as extremely to very bothersome. Once again, in sharp contrast to the constipation only segment. In reality, the majority of chronic constipation patients suffer from far more than infrequent schools. And it appears it is the troubling abdominal symptoms that drive patient suffering.

In terms of health-seeking behavior, greater than 15 million IBS-C and constipation plus abdominal symptom patients are actively seeking care. And these patients, see their physicians on an average of three times annually. But there is an additional 16 million patients suffering from troubling symptoms who are not currently seeking care in attempting to manage their symptoms alone with OTC medication.

The chronic constipation plus abdominal symptom segment has a very similar treatment profile to the IBS-C segment. Over 90% of these patients report taking a variety of medication in an attempt to treat both the abdominal and constipation symptoms. These patients often take a number of laxatives episodically or as rescue medication to induce a bowel movement. But the abdominal symptoms generally persist.

As a result, these patients are frequently trying other medications that include H2 receptor antagonists, PPIs and analgesics in an attempt to relieve their abdominal symptoms. But again, they generally have very little success.

It is not surprising that over 70% of patients are not completely satisfied with treatment with over 25% of these patients stating that they are not at all to very little satisfied and 50% reporting to be only somewhat satisfied. Now the primary complaint driving dissatisfaction tends to be the minimal improvement or even worsening of abdominal symptoms and the lack of predictability caused by the laxatives.

This slide illustrates the physician prescribing behavior after a patient leaves a visit. And in spite of the fact that patients are generally not satisfied, physicians have limited treatment options and therefore tend to stay the course either continuing current OTCs, switching to a new OTC or trying a prescription laxative or some other prescription medication.

Even though most of these patients are suffering from a variety of symptoms, physicians generally focus on a symptom they can change, which is most often to increase of frequency of bowel movements with the hope that the abdominal symptoms will improve. Unfortunately for patients, they continue to suffer from abdominal symptoms in spite of the increased number of bowels movements.

This slide summarizes the patient flow we have been discussing over the last couple minutes and identifies the patients we will focus on at launch, which will be the 10 million patients who are suffering from both abdominal and constipation symptoms or actively seeking care, treated, and not satisfied. This high need available population could benefit significantly from a more effective new therapy.

Annually, these 10 million patients consume over 30 million 30-day units of laxative medications in an effort to relieve their symptoms. These 30 million units are comprised of 7 million to 8 million prescription laxatives and an additional 20 million to 23 million OTC laxative units. As we mentioned before, these therapies are generally used episodically or as rescue meds to induce a bowel movement. In addition, these patients are also taking a variety of other medications to resolve their abdominal symptoms.

If one assumes a price comparable to branded prescription drugs in the GI category which tend to range from $6 to$8 per day, which would make the total cost of prescription from $180 to $240, these 30 million units could represent the potential commercial opportunity in excess of $6 billion today.

Keep in mind these medications are generally taken episodically and are generally not taken chronically to manage their symptoms. So we believe that in addition to the $6 billion today, there exists a significant upside created by the desire to chronically manage and control their symptoms plus the growth created by new patients seeking help once they understand that effective medications are available.

When a large highly symptomatic dissatisfied patient population is presented with a fair view that can provide effective and sustained relief of their troubling symptoms, new therapies can impact and quickly gain traction.

This slide contrasts the current use of prescriptions in the IBS-C and chronic constipation market in which there is really no currently available effective prescription treatment. And contrasted to a more mature market, i.e. the GERD market, with effective therapy, we feel that the IBS-C and chronic constipation marketing opportunity is quite comparable to GURD. GURD has a very similar prevalence, symptoms occur with similar frequency and with a similar level of bothersomeness. The GERD market demonstrates that once an effective therapy was available to highly symptomatic patients, the market rapidly expanded and grew into a $12 billion market based on annual sales. This rapid growth was initially driven by capturing market share based on providing effective and sustained relief of symptoms.

It was then accelerated by the increased days of therapy by transforming a [largely] episodically treatment patient with antacids and H2s to a chronically treated patient with PPIs. And finally, the awareness of more effective treatment attracted a large volume of patients into the marketplace.

A comparable opportunity exists based on the millions of currently dissatisfied patients suffering from troubling abdominal and constipation symptoms associated with IBS with chronic constipation. And combined with the great Phase III clinical data that demonstrated linaclotide's significantly reduced abdominal pain, improved bowel habits was generally well tolerated and that patients reported a very encouraging level of overall satisfaction on linaclotide, we believe linaclotide shows great commercial promise.

We hope this information provides you a better perspective on the commercial opportunity in front of us. As a commercial team we are now completely focused on bringing linaclotide if approved to millions of suffering patients in need of more effective therapy. In the upcoming meetings, we look forward to sharing more specifics as we prepare for launch.

I will now turn the call over to the operator for questions.

(Operator Instructions) Geoffrey Meacham, JPMorgan.

Hey, guys. Thanks for taking the question. You guys have reviewed the IBS-C data with the Street already, but I am just curious if you can give us a sense as to what maybe we will see that is new at DDW. Is it safety studies? Is it more details on the secondaries, etc.?

Yes, Geoff, this is Mark. There are a couple of areas we are going to highlight. Definitely we will dive into the safety and efficacy from the trials in much more depth obviously than what we provided in the press release previously. And also quality of life for some of the areas we will also be going into. So those are the kind of key highlight areas.

And we also have one that further expands the mechanism of action of linaclotide on decreasing pain. So those are kind of key areas for it.

Got you, okay. And then last question here for the pain benefit obviously that you saw in IBS-C, there is a rationale for moving into other indications. And I am curious what is the sequence of events here? What is the gating factor for you guys to explore other indications? Is it to assess the literature? Is it to look at proof of concept or to design that?

And maybe as a follow-up to that, can you talk about kind of what opportunities that you think with the same benefit you could in fact capitalize on with linaclotide?

First off, we share your enthusiasm for the very clear effects on linaclotide decreasing pain in these patients. And we think that one day it can have applications outside of IBS-C and CC. But I think right now as you can imagine we are highly focused on getting this drug to in the NDA submitted and our goal ultimately to get it to patients. But we keep our focus right now on IBS-C and CC. We certainly will discuss with our partner, Forest Laboratories other potential opportunities and I think you can imagine a number of those what those might be. So that is where we are right now.

Got you. Okay. Thanks a lot.

Rachel McMinn, Bank of America Merrill Lynch.

Yes, thanks. I just have more financial oriented questions. I thought the presentation was very clear, so thanks very much for that. I guess the R&D number, it was basically I guess just trending up a little bit. When we think about 2011 just directionally, all your Phase III studies are done. I guess I just am curious how we should be thinking about that line item?

And also just on the marketing side whether we should just assume that line item will continue to track up this year. Maybe you can talk about when you plan on hiring -- building out more of your commercial infrastructure.

Hey, Rachel. It is Michael. Let me take the first part of that and then Tom can talk a little bit about the second portion.

First with regard to the expenses, you are absolutely right in terms of the trend on the clinical side on linaclotide with one exception is that the long-term safety studies as you know continue into 2011. That is going to continue on for some time. You know that is an 18-month period of time post the last patient out.

So those expenses -- that is a lot of patients. Those expenses are continuing. That is one area where you should expect the expenses on the clinical side of the program to continue.

In addition, Peter alluded to the investments in the pipeline from an R&D perspective. We stated for some time we expect to continue to invest in pipeline opportunities and we expect to do that at a similar level in 2011. So those continue.

And then you start to pick up some additional things with regard to as we establish medical affairs, you start to actually late in the year you start to build inventory. There is a whole host of things that we will continue going forward. So I would expect the expenses on the R&D line to continue and trend up as we make some of those investments.

But again, I will reaffirm, we are comfortable with our cash position as we have guided it and we are comfortable with that cash position and the milestones that follow to get us to a point of launching and getting to commercialization with linaclotide.

So all of those in, we do expect obviously this is a big opportunity and we are going to have to make significant investments. But we are feeling quite comfortable about our cash position at the end of this year and as we project forward.

I'm sorry, on the sales side?

Yes, Rachel, it is Tom. As far as the sales -- I mean obviously the biggest expense that we will probably incur in the upcoming year and a half or so will be the salesforce and I think our current thinking is we will bring the management team on, and start looking for just really great talent. I think the attraction that we are seeing right now through the organization is there is not a whole lot of people that have this much excitement going on in the organization and we believe we will attract some really top talent.

So we will be bringing on the sales leadership team towards the middle and the end of the year and certainly preparing to hire a salesforce in the first part of next year.

I think the other piece that I think is a real asset to us is having a tremendously effective partner in Forest who brings just a really strong sales effort to the table and we are certainly going to be working with them closely to make sure that we leverage that together as effectively and as efficiently as we can.

And then Mike, just to follow up on just two other questions. The guidance, does it actually assume any milestones this year in connection with the NDA and MAA filing? And then again, the broader question on cash, if you use approximately $100 million this year, but expenses presumably would be ramping higher in 2012. Can you help us think about how you are going to be managing the balance sheet, whether it is just through the milestones or other sources of funding? Thanks.

Rachel, let me take it in reverse. In terms of our -- as we look forward to 2012 and beyond, I think the combination of cash we have now and the milestones that are coming in we do think will carry us through 2012 and I think that is the best way for me to answer that question. There are additional milestones coming in. And even as the commercial expense ramps as we approach and go through launch, we think the timing of those milestones and all others are such that we will be in a good place without any additional financing to be clear.

Whether we finance or not, is a strategic question but our plan and the guidance we have been giving you doesn't assume any financing. And I apologize. The first part of the question I wanted to just --

Oh, just your cash guidance for this year, does it assume the receipt of any milestones this year? Should we be expecting a milestone either with the MAA or the NDA submission? Thanks.

Yes, so let me restate how we position in a past just so I can give you an answer. We have not, by virtue of the structure of the collaborations and the way we have established those with our partners, we have not explicitly stated the exact timing of any of the milestones. But we have stated that they are tied to kind of typical major events in the development of a program.

So I think it is reasonable to expect that we will achieve some of those and that they will come in during the course of the year. But we haven't provided the explicit guidance under the relationships that we have with our partners. We have been very specific about the totals but not the exact timing of those.

Okay, thanks.

(Operator Instructions). Stanford Rothschild, Rothschild Capital Management.

I just had one question about what appears to a layman to be a possible competitor though I think they are not as far along is this MuDelta. That's the apparently the name of the product, it is not the name of the company.

Could you just repeat -- I'm sorry -- could you just repeat the name of the -- you said it was the name of the product?

Yes, MuDelta is the name of the product and it looks like Furiex Pharma, if I am pronouncing it correctly, Furiex Pharma and the product is MuDelta.

I don't think we have that one really on our radar screen right now as far as direct competition. Obviously, MuDelta is an opiate agent. So again, there are very specific differences in the type of effects that we would expect to see than theirs. But we will continue to monitor and we appreciate you bringing that one to our attention.

Well, it is specifically for irritable bowel syndrome.

Let me say more generally, we would enthusiastically welcome more therapies and alternatives to help these patients. The therapeutic category is such that, as Tom really detailed, the therapies available to patients today really only focus on their constipation symptoms and most of those available options make their abdominal symptoms worse. They certainly don't help.

We think there is tremendous opportunity to grow this category and to make a difference for patients. The existing agents are really limited and we think and hope frankly that if linaclotide is successful and shows that the category is as we believe it may be, that it will entice other drug developers to advance a number of other agents into the category and can really make a difference.

It is early days for most of those other compounds. There's really nothing in late stage development today.

And just a quick comment on the MuDelta mechanism. It really is more intended for the diarrheal IBS form. So again, I think Peter is indicating we certainly think that getting a broader message around these patients suffering whether it's an IBS-D patient or an IBS-C, currently just helps the overall understanding and helps motivate the home market we think.

Thank you very much.

Matt Duffy, BDR Research.

Good morning and thanks for taking my question. Nice overview of the market. Wonder if you could give us a little more color on who actually treats the 15 million people who are seeking treatment and what sort concentration do you see within GI and primary care and that sort of thing?

And then also if you could talk a little bit about anything that you have learned from the complete response letter to (inaudible) [ipacks] and how that might affect your filing strategy.

Tom, can you take the first part of that?

Yes, thanks, Matt and then I will have Mark take the second half with (inaudible). As far as the prescribing habit, as you can imagine, this is a primary care drug. However, what we have seen in the past certainly over the first 24 to 36 months, there is going to be a fairly dense group of prescribers. I think what we do know is the gastroenterologists will go out early. There is probably about 6000 gastroenterologists out there that will really kind of drive the uptake.

And then there's about an additional 20,000 to 25,000 primary care physicians that will take the lead, which you can see that they are very, very similar to high potential early adopters. And that was very consistent with what we saw across a number of therapeutic cadres, particularly in GI. Certainly with Zelnorm, and we saw the same phenomenon with Nexium.

So those 25,000 to 30,000 doctors will be our primary target. However, we certainly will call on a broader group than that.

Okay, very good, thanks.

Matt, this is Mark. Relative to what we may have learned yet from the (inaudible) release of its information for the complete response letter for rifaximin, I think at this stage it is still very early but I would just draw you to the fact that really their approaches are very different. Obviously with rifaximin, it's being given for 14 days in a manner that is really consistent with this mechanism of action of being an antibiotic. And that would seem to be some of the interest it sounded like from what (inaudible) released from the FDA as far as durability of that response and what would happen on retreatment from what we have seen from what they have released.

Obviously, with linaclotide, it is being given on a daily basis and we have gone out [16] weeks in chronic constipation and we have gone out 26 weeks in IBS-C on a daily basis and seen great durability of response, as Peter indicated earlier, (inaudible) response occurred rapidly and we see it sustained throughout the treatment.

So I think again, we think it is very different in their approaches and not really that relevant to us and we have obviously also been very closely -- we have had a lot of discussion with the FDA relative to what would be needed for approval throughout the duration of the program.

Great, thank you very much.

(Operator Instructions). It appears there are no further questions at this time. I will turn the conference back over to Peter Hecht for any closing remarks.

Great, thanks very much. And thank you all for joining us this morning, as well as have a chance to discuss our fourth-quarter recent highlights and to hear a discussion about what we believe to be the linaclotide commercial opportunity. As I said earlier, we remain busy and focused on our upcoming regulatory submissions and we look forward to updating you as we advance linaclotide through the market. Have a great Thursday.

And that does conclude today's conference. Again, thank you for your participation.