Ironwood Pharmaceuticals Inc (IRWD) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals third quarter 2012 investor update conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator instructions). As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Meredith Kaya. Please go ahead.

Good morning and thank you for joining us for our third quarter 2012 investor update. Joining me for today's call are Michael Higgins, our Chief Operating Officer; and Tom McCourt, our Chief Commercial Officer. We also have Peter Hecht, our Chief Executive 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 to a copy of the press release, you can go to our website, 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, Tuesday, October 16, 2012, and contains forward-looking statements that involve risks and uncertainties. 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 quarter ended June 30, 2012, and any of our future SEC filings. Additionally, please see the important safety information, including the box warning for LINZESS on this slide. For full prescribing information, please visit www.linzess.com. I would now like to turn the call over to Michael.

Thanks, Meredith, and thanks to everyone on the call for joining us this morning. Over the next several minutes, I'm going to walk you through some of Ironwood's recent corporate highlights. And then I will pass it over to Tom, who will discuss our plans for the US launch of LINZESS in more detail.

The past few months have been an incredible period for Ironwood as we've made significant strides toward the launch of our first product in the US and European markets, offering a new treatment option for millions of adults suffering from irritable bowel syndrome with constipation and chronic idiopathic constipation.

On August 30, LINZESS was approved by the FDA for the treatment of IBS-C and CIC, chronic idiopathic the constipation, in adult patients. With this approval, LINZESS is reaching the commercial starting line. LINZESS was approved with a strong label, which Tom will talk more about shortly. Both Ironwood and Forest are finalizing our preparations for its launch in December. LINZESS will be provided at an initial price of $7.10 per day, which supports our objective to maximize access and minimize barriers for the millions of adults with IBS-C and CIC.

To take a brief step back, I'm proud to say that LINZESS was discovered in our laboratories by our Ironwood scientists back in 2003 who were pioneers in the discovery and development of GCC agonists, and the recent approval of LINZESS demonstrates our continued leadership and expertise in this area.

Through the hard work and determination by the teams at both Forest and Ironwood, we now have an approved medicine that can help highly symptomatic adult IBS-C and CIC patients. In addition to the benefits it can provide to these patients, LINZESS also represents a significant milestone for us at Ironwood and for our shareholders. Throughout its development and now with FDA approval, LINZESS has provided a means for us to attract and motivate talented employees and partners and continue to access the capabilities necessary to deliver differentiated medicines to patients and generate value for our shareholders.

Now shifting our focus from the US to Europe, in September we and our partner, Almirall, received a positive recommendation from the CHMP, the advisory board to the European regulatory authorities, recommending approval of linaclotide for adults with IBS-C. If approved, linaclotide will be marketed under the brand name Constella. We are particularly pleased with the CHMP's description of Constella as a GCC agonist with visceral analgesic and secretory activities. The CHMP recommendation is one of the final steps in the review of our MAA in Europe, and the European Commission typically follows their recommendation, although it is not required to do so. We expect to get the European Commission's decision before the end of 2012.

If approved by the European Commission, Ironwood is eligible for up to $20 million in milestone payments upon the launch of Constella in each of five key European territories -- Germany, the UK, Italy, Spain and France. While we and Almirall have not provided specific time lines for launch in these territories, you can expect the launch of Constella on a country-by-country basis. We and Almirall continue to work closely together to develop a comprehensive strategy that we hope will enable broad access to Constella for the millions of adult patients in Europe with IBS-C while also taking into account the challenging economic conditions in Europe.

Our Japanese partner, Astellas, continues to advance linaclotide through clinical trials. Last month, they dosed their first patient in a double-blind placebo-controlled dose-ranging Phase II clinical trial of linaclotide in more than 500 adult Japanese patients with IBS-C.

Beyond our efforts in the US, Europe and Japan, we continue to explore additional partnerships to enable access to linaclotide to more patients around the world. There has been significant interest in our own partner territories and we have discussions ongoing with potential partners. We also continue our strategic efforts to expand linaclotide's utility by exploring its potential and other indications. We continue to invest significantly in our broader pipeline, where we believe we have the opportunity to bring differentiated medicines to patients. Our discovery research efforts in early development candidates cross multiple therapeutic areas, including GI disorders, central nervous system disorders, respiratory and cardiovascular disease. For example, we continue to advance our second GCC agonist, IW-9179. It is currently being investigated in the Phase IIa clinical trials designed to evaluate the safety of the drug in patients with functional dyspepsia.

Before I pass the call on to Tom, I'll spend a minute on a few corporate and financial updates. In the third quarter of 2012, Ironwood received an $85 million milestone payment from Forest for the approval of LINZESS by the FDA. Including this milestone payment, Ironwood ended the third quarter with $190 million in cash and has used approximately $47 million of net cash for operations in the nine months ended September 30, 2012.

Going forward, as Ironwood and Forest launch LINZESS in the US, Forest will record all LINZESS revenues and the associated cost of goods on their P&L. However, both Forest and Ironwood will incur R&D and SG&A expenses on their respective P&Ls. Then, on a quarterly basis, LINZESS revenues and expenses will be combined and the resulting pre-tax profit or loss will be split 50-50 between the two companies by way of true-up payments.

In order to further investor understanding of our partnership accounting, we will be hosting a call on Tuesday, November 6 to provide an in-depth review of the LINZESS accounting structure. This event will be webcast and more specific details will be provided.

With that, now I would like to turn the call over to Tom.

Thanks, Michael. As we approach the launch of LINZESS in just a couple of months, I would like to spend a few minutes writing some comments on our launch plans and time lines, now that LINZESS is approved.

Our top priority is to fulfill the unmet needs of millions of adults suffering from IBS and chronic constipation. To do this, we have collaborated with Forest to develop a fully integrated launch strategy for LINZESS supported by a strong label that we believe provides us with a highly differentiated brand with a significant commercial opportunity in the US. As we have discussed in previous calls, our teams have examined all primary period launches since 2005. While the uptake and success of these launches varied widely, the more successful launches appeared to have some significant similarities, including the existence of a significant unmet need, often targeting highly symptomatic disorders, and a level of product differentiation that could be easily recognized and supported with clinical evidence.

Our strategy for LINZESS is grounded in these aspects, and to leverage the full market opportunity we feel that it's critical that we concentrate on a few key areas. First, we must identify the appropriate patients who can benefit immediately from LINZESS. There are more than 45 million adult patients in the US is suffering from IBS-C and chronic constipation today. The patients we will be focusing on at launch will be the 10 million adults who are currently in physicians' offices actively seeking care and not fully satisfied with their treatment options.

It is critical that we educate and encourage these patients to more effectively communicate their symptoms as well as treatment history to their physicians. Our teams have closely assessed and understand where these patients are seeking information about both IBS-C and chronic constipation and, importantly, what motivates them to raise their hand and have a discussion with their physician. Therefore, we are making targeted investments in digital destinations across this channel and other points of contact where we know patients will be and can be engaged with our content.

It's important to mention that in addition to these 10 million adults, we estimate there is an additional 15 million adults not currently seeking care who are struggling to self-manage their symptoms and are not satisfied with current treatment. This high-need population will be a secondary target for us to educate, and we believe that our communication efforts will extend to many of these patients in need.

Second, we will work with physicians so that they recognize the full value of LINZESS in its indicated population, ensuring that they are identifying appropriate patients and understand the robust clinical data. It's critical for us to educate and inform the 80,000 physician prescriber base. This group includes both primary care and gastroenterologists who managed the far majority of the IBS-C and chronic constipation patients.

In order to maximize our reach, we have built an integrated sales force effort of approximately 1400 to 1500 sales professionals. The majority will be existing Forest sales professionals who have experience and access to most of the physician target base.

To complement Forest's strong primary care sales capability, Ironwood has built a sales force of approximately 160 clinical sales specialists who will target gastroenterologists and top decile primary care physicians. Ironwood's recently arrived sales specialists bring a strong record of performance and experience in both primary care and gastroenterology, and we are thrilled to have them on board.

As we have discussed with you before, in our first 12 to 18 months the combined sales efforts will concentrate their efforts on the 20,000 to 25,000 GI docs and early adopting high-prescribing primary care physicians while we will continue to educate and enable a broader population of physicians to adopt LINZESS as they feel more comfortable with the advocacy and safety profile of the drug.

Michael mentioned earlier LINZESS was approved with a strong label that our sales force will use to educate physicians. Importantly, LINZESS demonstrated an improvement in abdominal and constipation symptoms in our clinical trial, as reflected in the label. We are particularly pleased with the documented improvement in abdominal pain, as it is one of the primary reasons why IBS-C patients are actively seeking care. The efficacy and safety of LINZESS in our Phase III clinical trials for IBS-C was further documented in two articles published this month in the American Journal of Gastroenterology.

Further, LINZESS is indicated for the treatment of both IBS-C and chronic constipation in adult men and women without a limitation, unlike the therapy. The proposed mechanism of action, based on preclinical models, is also documented in the label, as it acts locally in the gut through two different ways. It reduces the activity of pain-sensing nerves and accelerates gastrointestinal transit. Third, for our product that offers millions of adult patients the potential relief, early patient experience is critical to drive uptake of LINZESS and growth over time.

It has been shown before that with chronic systematic conditions like IBS-C and chronic constipation, an early positive experience has led to significantly greater uptake and growth over time. Therefore, we will be providing early experience kits in addition to samples to help patients as well as enable physicians to observe the treatment response and evaluate the benefit/risk profile of LINZESS.

Lastly, we will be working closely with payers to secure access and affordable co-pays for millions of adults with IBS-C and chronic constipation. Michael mentioned earlier we have priced LINZESS initially at a WAC of $7.10 a day. We believe that at this price, combined with LINZESS' demonstrated clinical profile and the need for more effective treatment options establishes a very compelling value proposition to payers. The Forest account management team has just completed training and will be soon actively having dialogue with managed care providers to initiate the access and reimbursement process.

While we have a lot to do in the next two months, we are ready and excited to launch LINZESS. Upon approval, we submitted a draft promotional material to OPDP for review. It's generally taking 45 to 60 days to receive feedback from the agency and we are currently awaiting this feedback. We will address our comments within the promotional materials and then train the sales force.

We plan to stock 40,000 to 45,000 pharmacies ahead of launch so that they have significant quantities of LINZESS and available to patients. We will also have inventories on hand beyond that amount that we expect to be using over the first 12 to 18 months.

So we believe the future for LINZESS looks very promising based on the large, highly symptomatic dissatisfied patient population, a strong clinical profile and the well-documented evidence that creates a very compelling case to choose LINZESS. At this point, I'll turn it back over to Michael.

I think we're going to open up for questions.

(Operator instructions) Irina Rivkind, Cantor Fitzgerald.

I just wanted to explore the WAC a little bit. You expect probably some sort of a gross-to-net discount off of that. Could you share with us what you're thinking about there? And also, in terms of the pharmacy stocking, can you talk about what kind of stocking per pharmacy is typical?

I think, as far as the $7.10, obviously that's WAC. We do have contracting strategy in mind. We certainly have not shared that at this point. And obviously, the specifics of that will evolve over time based on, obviously, the need of the payer and the need to drive appropriate access.

As far as the quantities for each, if I understand the question right, Irina, are you looking at the quantities that will be shipped to each pharmacy?

That's right.

Yes. So we haven't disclosed that, but we certainly want to make sure that they have adequate amounts on time so it can handle multiple prescriptions.

Okay, and just one final question -- the R&D spending this quarter looked a little bit lower than other quarters in the year. Was that just due to some pushed off expenses, or is this more of a going rate that we should think about?

No, Irina, as we've talked in the past, it's hard for us to provide you with a going rate. So we wouldn't recommend you think about it as an ongoing basis. But things change as you progress, and so our view is that -- in fact, we got the question last quarter about whether or not R&D expenses were up.

There's a couple of things that you should be aware of now. Now with approvals and the high probability of approval in Europe, from a policy perspective, all of the inventory is now -- goes up on the balance sheet. So that has been a change. And so as we build API inventory, where in the past, before we had approval, or we had probable belief of approval, then those were expenses. So that has been a shift. That's probably the most significant single shift quarter over quarter.

But again, things do -- as we've told you in the past, things do vary quarter by quarter, and to draw trend lines is always a difficult thing to do.

Thank you very much.

But the primary change is on the inventory side.

Okay, thanks.

Geoff Meacham, JPMorgan.

Hi, guys, good morning and thanks for taking the question -- I've got one for you on reimbursement and formulary status. If you could just maybe go over, after approval of the marketing materials, maybe what you guys think would be a reasonable time line for getting, let's just say, the majority of private pay reimbursement as something that we should think about in terms of the rollout.

Yes. I think traditionally, obviously we are looking at previous experiences. And I think we see a wave of payers making a decision at six months and 12 months. I think we have an ambitious goal in having the majority of these patients covered lives by the first 12 months in an unrestricted status as well as roughly tier 2 co-pay. So I think we're pushing the envelope and we certainly -- our intention is to get as broad unrestricted access at a reasonable co-pay, somewhere around tier 2, within the first 12 months.

And Tom, based on your market research and your knowledge of this space, what percent what you say would be private pay versus, say, Medicare/Medicaid? I know you may have reviewed this previously in other calls, but it would be helpful now to --

That's a really good question, Geoff. We have been taking a close look at this. As you know, the real sweet spot in the market is really women from roughly 18 to 55. So it favors, really, the private pay customer base, the commercial base, as opposed to Medicare/Medicaid. Not to say that this drug will not be used in the elderly; we believe it's very effective in the elderly. But that's probably going to be more towards 15% to 20%.

But I think that's the patient we will be primarily going after out of the gate. So I think the disproportionate number of patients treated will be in the commercial paid space. Does that make sense?

Yes, it does. And final question maybe for Michael or for Peter, any updates to you guys' commercial strategy in non-partner geographies, such as China? I know you are making some progress there, but I just wondered if there are any updates for this quarter.

So, Geoff, I think the way we phrased it is we continue to make progress. There's multiple parties that are interested, and our belief is that there is significant value. We focused most recently talking about both China and Brazil, and we still believe that there is significant value there. There are multiple parties that are interested, and those conversations are going well. As we've stated in the past, it's always difficult to determine exactly how long those discussions are going to take and when we will close it out. But we are feeling quite bullish that we will be able to move forward with the partnership in the near-term. And our view is that, as we've talked about many times in the past, our view is that we want to be able to capture the long-term upside in some of these markets. And so in terms of the types of deals we're looking at, we're looking to retain significant value but get capabilities in areas where we don't have capabilities ourselves.

Got you, okay, thanks.

Corey Davis, Jefferies.

Two questions -- first, which of the two indications do you expect to have the largest concentration of prescriptions out of the gate, IBS-C or the chronic constipation? And the same question -- over time at steady-state, which one of those two do you expect to have more of the prescriptions?

Yes, it's a great question. And again, we can go back to the previous analogues. But I think, out of the gate, the reason to choose this drug for most physicians is pain relief as well as constipation relief. And so I think, out of the gate, it will be weighted more towards IBS and chronic constipation.

That being said, if you look at where Zelnorm as over the first 12 to 18 months, it was -- they only had an indication for IBS with constipation. It was almost 50-50. So understand that the chronic constipation market is so much bigger, and the lines between IBS and chronic constipation is very grey. I think you're going to see a lot of use in both. But I think the early compelling case to choose a drug is really going to be around pain relief.

Does your sales pitch to nonspecialists need to have them be able to differentially diagnose IBS and chronic constipation, or can the pitch be as simple and short as, hey, do you have patients that are constipated? If so, here's your drug.

Yes. I think out of the gate, it's really going to be abdominal and constipation relief. Again, abdominal pain means many different things to many different people. And sometimes, you're on the IBS side of the line, sometimes you are on the chronic constipation side of the line. But I think we really want to focus this and keep this as simple as possible, which is what symptoms are needed to be resolved and what symptoms does this drug target. And I think what we are hearing from physicians, from the market research, is they don't necessarily actively make a definitive diagnosis as to whether that patient has IBS and chronic constipation to choose a therapy. They are really lining up the therapy with what is the primary need and how satisfied has the patient been based on previous treatment.

Last question -- you mentioned pain a number of times. But I've also heard in the past that bloating is also a primary symptom of these patients. Are you more focused on pain -- and I honestly don't remember exactly what's in the label -- because you have more information on the label for that? And over time, do you expect that you could expand the label to include more of the symptoms of CC and IBS?

It's a great question. Just so we're clear, in the label, based on the FDA guidance, it's really pain, abdominal pain. Bloating is not mentioned in IBS or chronic constipation, by definition. I think over time, we certainly want to make sure -- we make sure we can speak to bloating, but obviously we want to make sure we meet the regulatory standards so that we can actually show clear efficacy of it. We think the drug does work in bloating, but we won't be promoting it for bloating, as it isn't in in the label.

Perfect, okay, thanks very much, that's all I had.

Ram Selvaraju, Aegis Capital.

A couple of things -- first of all, can you tell us a little bit about what you believe is likely to be the overall strength and nature of the commercial push on Constella in Europe, i.e., approximately how many sales reps are going to be behind the product there, assuming that Almirall does secure approval near-term in those European territories?

Ram, let me take it; it's Michael. The quick answer there is that we can't provide that level of detail right now. We're working closely with Almirall in terms of establishing the launch plans for Constella across Europe. But we haven't provided that level of detail. So what we will be, along with Astellas, finalizing those plans, and we'll provide more detail in the future. But at this time, we don't have that level of detail available for you.

We can say that Almirall is investing in a way that we are very satisfied with and that they are making the right inroads to get prepared for launch. So we are excited about the potential in Europe. We know there's an uphill battle. There's a lot of work to be done there, but specific details around the size and the structure of the sales force are not available at this time.

Okay, with respect to what you have disclosed regarding pricing, I had a utilization question. What do you expect is likely to be the initial utilization pattern among patients as LINZESS is rolled out? Can you give us an idea of how chronic the utilization is likely to be straight off the bat, how long patients are going to be likely to be on the drug based on initial feedback you've been getting from physicians?

Yes. It's a great question and obviously one of the core assumptions of around how big can this drug be. And again, I think we tend to lean on the analogues. I think up front, I think that knowing that this is a chronic disorder and these people are suffering on a weekly basis well over 100 days a year. So this is a chronic, ongoing symptomatic condition. So it really leans towards chronic therapy.

That being said, we have two guideposts, if you will. We can certainly go back and look at Zelnorm, which was certainly the most successful drug in this category previously. Annual days of therapy were right around 110 to 120. Now, keeping in mind Zelnorm was a nice drug for constipation, it wasn't very good on abdominal pain and 70% of patients discontinued therapy within therapy within the first 90 days because it didn't relieve pain.

So you contrast that to something that does provide chronic relief of pain, i.e., the PPI category, where that's upwards of 200 days a year, those are the guide rails that we have been operating within. So our assumption is certainly north of Zelnorm. Is it all away to the PPI class? Gosh, I hope so. But I think that's where -- we're not going to know until we get into the market and really see how well patients do on the drug in a broad population base. Does that help?

That is very helpful. And you said pricing is $7.10 per day?

Yes, the WAC will be $7.10.

Okay, and then a couple of timing-related question -- do you know approximately what the time frame is within which Astellas might be expected to complete that Phase II study where you mentioned they just initiated patient enrollment? And then when do you expect your Phase IIa study with IW-9179 to report data?

Yes. So we are looking at the 9179 to be the second half of next year reporting data out. And the first question I didn't quite understand.

When does Astellas expect to finish that 500-patient study where they just kicked off patient enrollment?

Yes. I don't think that they've disclosed that at this time, so I really can't comment any further.

Okay, thank you.

Rachel McMinn, Bank of America Merrill Lynch.

A couple of questions, but I'm not sure if the first one you will be able to answer. Just given the large amount of inventory stocking that's going to be going on, do you know if Forest is going to be recognizing that inventory in their -- the first quarter of sales, or is that something where we are just going to see a lot of companies are just recognizing just pills that are shipped to patients?

So I don't want to get into too much detail on the accounting, especially not Forest's accounting, right now, Rachel, but in terms of scoring revenue, they do book on an ex-factory basis. So as they ship out, they'll score revenue that way.

You were asking the follow-on question, I think. If you can clarify, again, I don't want to comment specifically on Forest's accounting practices. But I want to make sure I do the best in trying to answer your question.

If they are recognizing ex-factory sales, then it's just whatever they ship out as opposed to the end-user demand. So that -- I just want to make sure that we understand how to interpret their sales versus the demand. So that's helpful.

And then, in terms of the drug actually being available, you have talked about a number of times that you have to get your marketing materials approved before you actually launch it. But will the drug be prescribable couple before December? Will patients be able to access it if physicians are aware that it's sitting on the shelf?

The rules, as you know, Rachel, the rules are the drug is approved today. If the drug is available, the docs can prescribe it. Obviously, we would love to be able to have the opportunity to talk to them and educate them before they make that choice, but as soon as it's shipped, physicians can certainly access the drug.

But is it sitting in pharmacies today? I think you used the future tense, like we plan to stop pharmacies.

Yes, it is not currently stocked, and we will be stocking as we get closer to the actual launch.

Okay. So do you have a specific date in mind?

We haven't given guidance exactly when it would be shipped, but it will be well in advance of our launch in December.

Okay, great. And then Michael, I know I ask this question very regularly, but wanting to get your latest view on cash needs for the Company, if there are any -- if you are looking at any nondilutive strategies over the next year or two, to bring additional cash in.

Yes, Rachel. As we've talked about, our view is that we are in a great spot as we prepare for launch to get the product out there to the patients. So heading into launch, we feel like we are in a great spot. You asked the question just right, is on a non-diluted basis we are looking to access capital in the form of partnerships. We've discussed already the ongoing activities that we have in China and Brazil, or more broadly in South America.

So we continue to look at those, and we look at other ways. We want to make sure that, as we have done in the past that as we look at funding the business and building the business for the long term, that we always have sufficient access to capital. At this stage, though, we feel like we are in a good spot. We are going to evaluate how things play out with the partnerships, and then we will keep everyone informed as we move forward. But at this stage, we are feeling like heading into the launch in a good spot, but I like the way you phrased it. Every time we think about raising capital, we think about it on the basis of what's best for our shareholders and we think about it from a long-term perspective. So you are right; we are sensitive from a dilution perspective. But in no way do we think it's appropriate to put this launch at risk.

So we are going to balance those things, as we believe we've done to date, and we will continue to do that on a go-forward basis.

And is 9179 or other stuff in the mix of potential partnership strategies?

Yes. So certainly, everything that we -- we always want to develop an asset to the point where we can get fair value for it. But all of the assets that we have available are ones where we don't have capabilities. We certainly consider utilizing them to access capital. So, certainly, 9179 is in the mix and all other programs that we have would be in the mix when we get to the appropriate stage where we think we can capture appropriate value for our shareholders.

Perfect, thanks so much.

Greg Wade, Wedbush.

Michael, can you tell us how many of the approximately 160 salespeople you had on your books in Q3? And then in that vein, if you could just drill down into the income statement for the quarter, what were costs associated with the linaclotide effort versus your own efforts? Thanks.

So Greg, with regard to the sales force, we talked a little bit about the structure before. The only portion of the selling effort that was in our investments in Q3 and earlier was the regional structure. So we have leadership structure of the sales team that's been on board that. Over the course of the year, we've built the team out. Tom and his team have done an incredible job of getting the team in place and getting ready for the sales force.

But the sales force, the reps that Tom was alluding to earlier, were not on board prior to the end of Q3. So they are not included in that at all. So those were all based on offers that went out. And they are starting in Q4.

In terms of the breakout between linaclotide efforts and other efforts, we have talked in the past about our -- I won't drill down to the specific breakdown between the two, but I will reiterate our position that, in total for the year, we still expect our non-linaclotide efforts to be in the $70 million range. So I can give you that clarity, that we are still trending in that direction we continue to believe that that's an important investment.

As we move forward and get more clarity on the other portions of the P&L, we will break down things in a little more detail going forward. But for right now, I can just reiterate that portion of it, to give you a little bit of help in that area.

Thanks, Mike.

David Friedman, Morgan Stanley.

I just wanted to see if you could talk a little bit about the types of DTC marketing you are planning, either in terms of channels and timing as well, whether that's something that you would expect to be spending on right away from launch.

Thanks, David, it's Tom; I'll take the question. We are going to go pretty aggressively right out of the gate in the digital space. As I mentioned earlier, we have been looking at this group for the last 18 months as far as where they are going to get information, where can we connect to them. As you know, it has become a very, very efficient place to engage patients, particularly patients actively seeking care who are obviously the most easily to motivate to get them to raise their hand. And the volume of traffic in fairly narrow syndicated sites which are available to us as far as the media buy looks very efficient. So we are going to make a pretty strong play in the digital space as well as in the physicians' offices, which is going to be the initial investment. And then, based on what kind of promotional response we see there, we will start looking at additional channels.

As far as -- I think the question is, do we get to network TV? We will certainly make a database decision on that -- data-driven decision on that. I think it looks very encouraging. I think there's a lot of models out there, particularly Zelnorm, where when the TV was turned on, that market tripled in a short period of time. But we certainly want to make a fully informed decision before we make that kind of an investment. And it's something, obviously, Forest and we have been talking about for some time.

Great, thank you.

Juan Sanchez, Ladenburg.

Could you please talk to potential commercial milestones you might get from Forest? And if that's the case, what would be a prudent timing for those?

We haven't disclosed the specific detail on it, but there is an additional sales model still, and it's available on Forest. That's -- from an achievement of our objectives, it will be a happy day when we get to that level of sales, but there's an additional $100 million in milestones that are available under the Forest agreement.

Got it, thank you, Mike.

(Operator instructions) Patti Bank, DISCERN Securities.

Can you just talk a little bit in more detail about the samples in terms of the quantities that you are going to put out there? I assume it's maybe like a two-week and a four-week type pack. And then, along with that, just -- I know, Tom, you've talked before about this being maybe an S-shaped launch. Do you still believe that? And then, how long do you think before we see a normalized run rate, given the samples for them to work through?

Thanks, Patti, great question. I think, again, one of the things that we know for a fact, in these kinds of disorders the most important thing we can do is get patients to realize they feel better and docs to recognize that their patients are feeling better. And the quickest way to get them there is to get them on drug, which is obviously the whole rationale behind the early experience kits as well as the samples.

As far as -- and the early experience kits are actually 30-day units. There's actually a stockpile. And the sample units will be four-day sample units. But as you know, when physicians walk into a sample closet, they tend to grab a handful of samples, which we think generally is probably going to be around three units, or roughly 12 days of therapy. But we also believe that it will generally be accompanied with a prescription. If the physician is convinced that the drug is appropriate for the patient, generally they get them going. And if the patients feel better, they have them fill the prescription.

And this is what we certainly saw -- we've seen in other GI categories, both with regard to PPI. This is exactly what we saw with Zelnorm. So I think getting as many patients on drug as we can, as fast as we can, is what's really going to drive the uptake curve.

As far as how long that will take, I think it will move fairly quickly. I don't think it's going to be the experience of the drug; I think the -- or sorry. I think what we've learned from the market research is physicians are responding very, very well to the profile of the drug and the willingness to prescribe looks very high. I think the real barometer will be what the co-pay looks like and the restriction we see from payers and how quickly we can resolve that. But certainly, we have a lot of -- we're planning on a lot of patient assistance with regard to co-pay, etc., to try to eliminate that barrier as fast as we can.

But I think the uptake curve is really going to be affected by how the payer responds to the drug. I think, as far as physicians' adoption, I think that will look very encouraging. Does that help?

It does. And then just, I guess, a follow-up to that -- my understanding is that most of these patients are managed by PCPs. You obviously need to have the GIs leading the charge. So can you give us some barometer as to what you see as the portion of the business coming from GIs maybe up front versus 18 months down the road?

That's a great question, Patti, and I think part of it is productivity, the prescribing productivity. And what we do know is gastros are much more productive prescribers than PCPs. But there's 8000 to 9000 of them versus 70,000 in primary care.

But I think out of the gate, I think you are going to see a significant portion coming from gastroenterologists. That being said, we are pretty confident that 70% to 80% of the growth over the first 18 months will come from 20,000 to 25,000 physicians. Probably close to 20,000 of them are going to be primary care physicians.

I think the other piece here is getting the gastros out of the gate fast has a huge influence on the prescriber base. So that's the primary reason -- one of the reasons why we are going to spend quite a bit of time with gastros, to make sure they're comfortable with the drug and they are educating their referral base on what's appropriate as far as this patient population.

And I think the last piece that we've learned in this category as far as gastros and PCPs is gastros tend to push these patients back to primary care because they are not doing a lot of procedures on these patients and they really want primary care to manage these patients. They will be the educational fulcrum to make that happen, but I think you are going to see a large proportion of gastros get out of the gate early. And certainly, the early adopting PCPs, that remaining 20,000, will go on fairly quickly as well.

I think, over time, obviously the gastros will get diluted out as you get broader prescribers in PCPs.

Perfect, that's helpful, thank you.

Matthew Harrison, UBS.

I just wondered if you had any comments on Forest's revised guidance where they put out $25 million for the rest of their fiscal year, from LINZESS. And do you have any sort of expectations around how much of that is stocking versus demand?

Matthew, no; we don't really -- we can't comment specifically on Forest's position on that. I do know that we have a great relationship with them and they keep us informed as to things that are relevant for LINZESS. So we are certainly aware of that, and they are -- we'll state and kind of comment to the specifics of why they put the number out there the way they did.

I'll say for our purposes that we view -- we are not -- we view that the launch trajectory this early with the product is very difficult to predict. So we are not planning to put out specific guidance ourselves. But I think Forest mainly was responding to the fact that they had put out early guidance before the FDA review time had been extended. So I think they were simply correcting that from a time line perspective. But you will have to speak to them specifically about their comments on their guidance. I'll just say for our purposes, we feel extremely excited and bullish about the product. Nothing has changed since our last conversations about that. But we are not going to be putting out specific guidance ourselves.

Okay, thanks.

Well, thank you all for your time. We appreciate it. It's been a great quarter and we are -- as we say here, we're just at the starting line again. So we're looking forward to getting ready for launch, and we will keep you guys informed as we go forward. Thanks for your time.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect and have a wonderful day.