Ironwood Pharmaceuticals Inc (IRWD) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals first-quarter 2013 investor update conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructors will follow at that time. (Operator Instructions). As a reminder, today's call is being recorded. I would now like to turn the conference over to Meredith Kaya. Ma'am, you may begin.

Good morning, and thank you for joining us for our first-quarter 2013 investor update. Joining me for today's call are Michael Higgins, our Chief Operating Officer; Tom McCourt, our Chief Commercial Officer; and Mark Currie, our Chief Scientific Officer. We also have Peter Hecht, our Chief Executive Officer, 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, www.IronwoodPharma.com, to find an electronic copy. During the call, our speakers will be referring to slides available via the webcast. For those of you dialing in, it may be helpful for you to go to our website to access the webcast live if you haven't done so already.

Some of the information discussed in today's call is based on information as of today, Tuesday, April 23, 2013 and contains forward-looking statement 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 and on the current slide with the heading Safe Harbor Statement, as well as the risks under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012 and any of our future SEC filings. 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. Before we get started on our Q1 discussion, we would like to take a moment to acknowledge the events of the past week and express our heartfelt condolences to the victims of the Boston Marathon bombing and its aftermath, as well as their families. We are awed by the selfless efforts of those who risked their lives to protect our community, including the first responders, law enforcement, as well as the medical professionals who provided outstanding care in the Boston area hospitals. We recognize it will take some time for our community to heal and appreciate the expressions of empathy and concern that have been coming in from all parts, including so many of you on the call today. Thanks so much for your concern.

So now onto the business of the call. It has been a transformative quarter for us here at Ironwood. We and Forest launched Linzess last December and we're off to a great start. Tom will talk about it in more detail shortly. Additionally, our partner, Almirall, is preparing to launch Constella in the UK and Germany very soon. We've continued to make progress across other fronts, including our efforts to strengthen the clinical profile on linaclotide and expand its utility in additional patient populations and indications, as well as our efforts to bring linaclotide to patients worldwide.

Beyond linaclotide, our pipeline continues to progress. Mark will touch on that later in the call. And I'll also provide a more in-depth summary of our financials shortly, but first let me turn it over to Tom to provide some updates on our commercial efforts with Linzess.

Thanks, Michael. It has been a busy and exciting few months as we and our partner, Forest, begin to introduce Linzess to the US marketplace. While still early and there is an awful lot to do, we are quite encouraged by the launch executions to date, as well as the initial patient and physician response reinforcing to us the substantial commercial opportunities for Linzess.

Our sales and marketing teams, a fully integrated effort between ourselves and Forest, began promoting Linzess in mid-December, and we've been encouraged by the success the team has had in their access and communication with both gastroenterologists and primary care physicians with a particular focus initially on gastroenterology.

What we are hearing from our sales professionals anecdotally is that physicians are seeing a lot of suffering, dissatisfied adults with IBS-C and chronic constipation patients. And that early experience on Linzess has been favorable amongst both physicians, as well as with patients. This feedback is in line with the prescription data, which most of you have seen, signifying a strong initial uptake of Linzess.

The rate of adoption by both gastroenterologists and primary care physicians appears solid. And we are just beginning to engage and educate patients so they can more effectively communicate their symptoms and treatment history to their physicians. We are also pleased with some of the early positive decisions from a number of key national payors. We are actively moving forward to strengthen the clinical profile of Linzess and expand its clinical utility through additional approved indications and populations. And we are also looking forward to the launch of Constella in Europe with our partner, Almirall, expanding our global access to appropriate patients worldwide.

As I mentioned earlier, the progress we've made to date is encouraging, but it is still very early in the launch. We and Forest are completely focused on maximizing the opportunity for Linzess, and it is critical for us to learn as much as we can in these early days and apply these learnings to our continued launch execution beginning with our efforts to engage the broad physician base. We have been focused on both gastroenterologists and primary care physicians so they can understand the profile of Linzess and can better identify all appropriate patients to be treated with Linzess.

Through our partnership with Forest, we have over 1400 sales professionals who are targeting more than 80,000 physicians with the initial focus on the GI community and early adopting, high-volume, primary care physicians who are likely to establish the trend for future growth. Based on early feedback, physicians are not only seeing a lot of IBS-C and chronic constipation patients in need, they appear to be quite enthusiastic about Linzess as the new treatment option for their dissatisfied patients, which is consistent with previous market research.

One of our key launch objectives is to enable physicians and patients to quickly observe the benefit Linzess can offer. So we implemented an early experience program. The combined sales effort has just completed distributing over 300,000 30-day early experience kits to over 30,000 gastroenterologists and high-prescribing primary care physicians. Each of these physicians received five kits of both strengths to treat both adults with IBS-C and chronic constipation. The 30-day unit provides patients and physicians with an opportunity to critically evaluate the clinical benefits of Linzess. We believe there will be a positive experience, and this experience will support continued treatment of Linzess for these patients and thus increase physician adoption.

Additionally, we continue to provide all physicians with traditional four-day samples of Linzess to initiate and evaluate treatment response. Physicians appear to be eagerly requesting both samples and the early experience kits, which we believe is another key indicator of the demand for Linzess.

We are also launching physician peer-to-peer education programs that involve trained gastroenterologists to speak to local gastroenterologists and primary care physicians to share patient, disease and Linzess-specific information that can enable these physicians to appropriately use Linzess. We plan to conduct 10,000 programs over the next 12 months.

In the initial months of launch, our sales professionals have focused their efforts on the highest potential influential gastroenterologists and high-prescribing primary care physicians as they are the key drivers of uptake out of the gate. We have been encouraged by the steady growth of adoption with Linzess among these physicians, which tells us that both gastroenterologists and primary care physicians are now choosing Linzess for many of their patients.

Slide 8 illustrates a rate of adoption by top decile high-prescribing gastroenterologists and primary care physicians. We've predicted that these physicians would drive the initial uptake of Linzess into the marketplace. And as you can see by this slide, over the first four months of launch, over 50% of top decile gastroenterologists and almost 20% of top decile primary care physicians have already prescribed Linzess. There has also been steady growth in the lower decile physicians. However, there are still thousands of physicians in these lower deciles who represent a significant future opportunity.

We will continue to educate and engage currently prescribing physicians, aiding them to identify all appropriate patients, as well as those physicians who are likely to be future prescribers of Linzess, particularly in the primary care community. The peer-to-peer programs will enable gastroenterologists to engage and educate the referring primary care physician base on the appropriate use of Linzess and share their personal experience that they've gained to date with Linzess.

As we've described before, there is currently about 44,000 Americans suffering from IBS-C and chronic constipation. Of those, about 15 million patients are actively seeking care and about 10 million patients are actively seeking care, treated and not fully satisfied. These patients are likely looking for new treatments and are in their doctor's office on an average of three to four times a year complaining of their symptoms. These 10 million adult patients consume over 30 million laxative units annually, whether it is a prescription laxative or an OTC laxative, representing a $6 billion opportunity for Linzess.

And keep in mind there is an additional 15 million individuals who are self-treating and not satisfied or that stopped seeking care out of frustration. So all of these patients are also strong candidates for Linzess.

Not surprising, as you can see on slide 10, the majority of Linzess growth is coming from adult patients who are either new patients seeking care, who have previously self-treated with OTC laxatives or are actively managed by their physicians and treated with OTC laxatives.

We are also seeing approximately 26% of patients being converted to Linzess from other prescription treatments, primarily prescription laxative, and about 14% of patients having Linzess added to other additional prescription therapies. These initial data are very encouraging because it shows that we are already seeing significant growth in the size of the prescription market, driven by either new patients seeking care or conversion of OTCs to Linzess.

All this has been driving steady prescription growth over the past few months. As of this week ending April 12, almost 70,000 prescriptions for Linzess were filled, and the volume of both weekly new prescriptions illustrated in the graph by the dotted green line and total prescriptions illustrated by the blue line has seen steady growth. There is also steady growth in the number of prescription refills depicted by the solid green line. We'll be watching the data carefully over the next several months to understand patient persistence and annual days of therapy.

Moving onto our patient education efforts, Ironwood [enforce] our focus on educating patients to more effectively communicate their symptoms and treatment history to their physicians. These patients are high users of the Internet, seeking help and information online. So we have just begun to launch a robust digital platform to connect with patients and the early experience has been very strong. Approximately one million potential Linzess patients have engaged and responded to an e-mail, an e-mail marketing campaign educating them on Linzess and hundreds of thousands have visited the Linzess website after engagement in a banner advertisement.

Importantly, there appears to be a high willingness on the part of physicians to prescribe Linzess as 80% to 90% of physicians report they will honor a patient request for a prescription, and were encouraged to hear the feedback from physicians that patients are already beginning to request Linzess by name.

In previous calls, we have identified the importance of payor access and reimbursement as a potential driver or more likely a barrier for primary care launches. It has been our objective to combine the strong clinical profile of Linzess with a pricing contracting strategy that maximizes payor acceptance and ensures broad access to Linzess for appropriate patients.

Negotiation with payors are well underway. Initially, the majority of managed care payors are providing Linzess, a Tier 3 coverage, with either limited or no restrictions. We've already heard from a number of payors, in fact, with over 80 national and retail plans choosing to place Linzess on formulary.

To date, approximately 75% of patients and commercial insurance can access Linzess with no restrictions, meaning that they can fill their prescription without having to obtain a prior authorization or trying previous therapies.

In addition, approximately 50% of patients with commercial insurance covered by national formularies have access to Linzess at Tier 2 co-pay, which is typically about $30 a month. Some of the payors who have already made formulary decisions include a few of the large -- including a few of the largest pharmacy benefit management groups, or PBM, such as ESI and Medco, as well as Catamaran.

It is important to keep in mind that these PBMs put Linzess on Tier 2 in an unrestricted status on their national formularies, which provide guidance to regional payors who ultimately determine what formulary tier to place Linzess. We are also thrilled to learn that Kaiser recently adopted Linzess under a Tier 2 unrestricted coverage.

We and Forest will continue to work with payors as we seek to obtain broad Tier 2 coverage over time. For those patients not on Tier 2 coverage, we have implemented a Linzess instant savings plan, an automated co-pay assistance program in early February, allowing commercial patients to fill their Linzess prescriptions at a co-pay as low as $30 out of the pocket, similar to a Tier 2 co-pay.

This program includes a network of approximately 41,000 pharmacies, making it available to more than 90% of commercial patients. It is not only convenient and beneficial for patients, but also helpful for physicians as they have become increasingly more sensitive to the cost of prescriptions to their patients. We will continue to work towards ensuring broad access and reimbursement for Linzess to reduce the financial burden on patients.

We and Forest have made a lot of progress in executing the Linzess commercial strategy over the past several months. We have considerable work to do to continue to accelerate the growth in the marketplace. Early adoption by physicians is encouraging, but we will continue to focus on expanding the prescriber base more broadly. We also will continue to work to improve communications between physicians and patients, educating physicians to identify the unmet medical need of patients and educating and enabling patients to more effectively communicate those needs.

We will continue to work closely with payors to secure broad Tier 2 access with little to no restriction to patients and lastly, we are working to strengthen the profile of Linzess in its indicated populations, as well as expanding the clinical utility of Linzess to other approved populations and indications.

It is important to keep in mind that we are just in the initial stages of building our linaclotide franchise over the long term as we expect the patent protections to last from 2026 with patent term extensions. There are a number of critical success factors to understand leverage throughout the stages of lifecycle management and in order to optimize the growth of success.

We have previously talked about Prilosec and Zelnorm as reasonable, but not perfect analogues. These products had varying levels of success, but provide good insights around building the market-leading brand in a GI category. As we examined the growth accelerators, to no one's surprise, it starts with physician adoption and the willingness to continue to prescribe the drug for broader patients, followed by physicians' ability to identify this wide range of patients and appropriate patients.

Patient adherence or the desire on the part of the physician to stay on treatment is critical as it can greatly accelerate growth over time and the ability to attract patients to the product is a critical market builder, particularly in highly symptomatic diseases. Finally, leveraging the opportunity to build upon the key benefits of the drug and expanding utility to other approved indications or patient population is the last critical element to accelerate our growth.

The brand introduction phase tends to last the first 12 to 18 months of the product lifecycle. To be successful in the introduction phase, the product must have a compelling clinical profile to grab the attention of the physician who then needs to effectively be educated on the appropriate use of the product. Ideally, there exists an easily identified patient population with a clear unmet need that the patient can effectively serve, creating urgency on the part of the physician to initially choose the product and gain a positive early experience. The positive early experience is likely to lead to broader use in the appropriate patient population over time.

Initial access and reimbursement for the brand should be a minimal barrier to physicians and patients who use the product. This has become a more important obstacle as we've seen access to be more problematic than we saw with Prilosec and Zelnorm. Currently, we are making very strong progress on all fronts.

As we move forward, it's critical to understand that while product education and promotion are important to introduce the product to customers, real world experience rules. To maintain and accelerate growth, the product must clearly demonstrate the benefit and value that will in turn bolster physician confidence, leading to broader use for their appropriate patients. And patients need to experience and recognize benefit to them to continue taking the product. This will be particularly powerful in highly symptomatic disorders such as GERD, IBS-C and chronic constipation as observed with Prilosec for GERD patients, which benefited greatly from strong patient adherence.

Strong demand will help to improve and maintain good payor access and reimbursement and an effective product in highly symptomatic disorders such as IBS and chronic constipation can attract new patients into the physician's office who will request effective therapy and even the specific brand, building the category over time.

We will continue to strengthen Linzess's profile by leveraging existing and new data that will be generated from additional studies to further document improvement in additional abdominal symptoms and to better understand the potential tolerability and safety questions.

There also appears to be a significant opportunity to manage comorbid disorders with fixed combination products. Over 20 million adult patients who suffer from GERD also suffer from either IBS-C or chronic constipation. Patients suffering from these comorbid conditions appear to suffer from more frequent abdominal pain, constipation and heartburn symptoms than patients suffering from individual disorders. A fixed combination of Linzess combined with a PPI may provide these patients with an effective and more convenient treatment option to manage their symptoms.

Our quest is to build the category leader and dramatically grow the category. To achieve a market leadership position, our product must be viewed as the leader for a specific disorder and become synonymous with goals of therapy, which establishes, builds and leads the category. Ideally, the product enhances the science in terms of the understanding of the clinical benefit, but also its pharmacology deepens the understanding of the underlying pathology, paving the way to future therapies.

There are a number of large commercial opportunities to expand its clinical utility for Linzess. We are currently evaluating other indications, including opioid-induced constipation, other forms of IBS, such as IBS mix or even non-constipating IBS and finally functional dyspepsia.

We are also working with the FDA to determine whether to pursue clinical development in pediatric populations. If we are successful in our efforts, these additional indications could serve millions and millions of additional patients.

This greater understanding of the disease, expansion of the clinical utility and follow-up therapies enable the productline and this product to define and raise the standard of care beyond the reach of potential competitors that might emerge over time. We all recognize this is an ambitious goal, but we are optimistic that Linzess can meet this goal given the large number of patients suffering from frequent and bothersome symptoms and who are actively looking for relief combined with a strong clinical profile that can relieve many of their symptoms and satisfy their needs. I will now turn it over to Mark who will provide a brief update on the progress with our GC-C franchise. Mark.

Thanks, Tom. And good morning to all of you on the call. As Tom described, we see a great opportunity to potentially expand the therapeutic applications of linaclotide and our GC-C agonist to patient populations that continue to suffer from functional GI disorders.

At this point, I'd like to update you on our progress and plan to strengthen the existing clinical profile of linaclotide for IBS-C and chronic constipation, raising the bar in terms of efficacy and tolerability parameters. We continue to invest in the underpinning science and clinical profile of linaclotide in our second-generation GC-C agonist, IW-9179. Ironwood is the leader in this area, and we intend to bring forward new GC-C agonists, formulation, therapeutic utilities and fixed dose combinations that could provide treatment for an even broader number of patients suffering from the functional GI disorder.

As a reminder, we initiated a Phase IIb clinical trial last year to further evaluate the effect of Linzess on abdominal symptoms in patients with CIC, and as mentioned in this morning's press release, we completed enrollment earlier this year and expect to report data from this trial in the second half of 2013.

We also expect to initiate additional clinical studies over the next 12 months to better understand the potential of our GC-C agonist in additional GI disorders. Potential opportunities include opioid-induced constipation, other forms of IBS and functional dyspepsia. In addition, as Tom mentioned, there are millions of patients who suffer from GERD and IBS-C or CIC who may benefit from a proton pump inhibitor, linaclotide fixed combination product. To this end, we are exploring and closely examining this possibility, as well as the potential of other combinations, including the combination of an opiate with linaclotide.

With our collaborator, we continue to make exciting progress with respect to gaining a better understanding of the mechanism of action of linaclotide to inhibit visceral hypersensitivity and on pain-sensing nerve in preclinical models. We believe this work will help us further define the potential clinical utility of our GC-C agonist on phases of functional visceral pain.

Some of the advancements in better understanding the mechanism of action of linaclotide on intestinal pain will be described in an oral presentation at the upcoming Digestive Disease Week in May, along with a description of the relationship of changes in the GC-C system and IBS-C patients. Additionally, we will provide other insight into the clinical data from our Phase III program at the Digestive Disease Week meeting.

Finally, we believe this greater understanding of the mechanism of action, disease states and the further characterization of the clinical effect of linaclotide may enable follow-on formulations and product to further advance patient care. With that, I would now like to turn this call back over to Michael Higgins.

Thanks, Mark. Before we get into the details around our financials, I just wanted to provide a quick update on our partnerships with Almirall, Astellas and AstraZeneca and the continued progress we've made with our global partners to bring linaclotide to the millions of suffering patients around the world.

For some time, we've been working with our partner, Almirall, to optimize Constella in Europe, and we are excited to see the Constella launches in the UK and Germany over the next few months. Constella is the only product approved in Europe for the treatment of adults with IBS-C and is described in the European label as having visceral analgesic and secretory activities providing suffering patients in Europe with a new treatment option that can improve the many symptoms associated with IBS-C, particularly abdominal pain and constipation.

As you know, the environment in Europe, especially for the pharmaceutical sector, is tough right now. As challenges in obtaining adequate pricing and reimbursement of the pharmaceutical products in Europe have grown recently, it has become clear to both us and to Almirall that revising certain aspects of our current partnership may benefit the potential for linaclotide.

We are currently in active discussions with Almirall regarding the various financial incentives and structure of our current collaboration and look forward to reaching a mutually agreeable position that would maximize the long-term potential of Constella enabling our partner to invest appropriately in the successful launch. This could result in a rebalance of certain short-term financial compensation in exchange for additional new sales-based incentives and more favorable royalty structure at certain sales thresholds. We'll update you further at the appropriate time as these discussions continue.

We also recently amended our agreement with Astellas as a result of their strategic decision to focus on their GI franchise in Japan. As such, we regained our rights to linaclotide at no additional cost to us in the other territories where it had been partnered with Astellas -- Indonesia, Korea, the Philippines, Taiwan and Thailand.

In China, we and AstraZeneca received approval of the clinical trial agreement, the first step in clinical development in China. We expect to initiate a Phase III trial in China later this year, leading to a potential top-line data in the first half of 2015 and approval in 2016. Our partner Astellas continues to advance linaclotide in Phase II clinical trial in Japan with data expected in the second half of this year.

Now turning to our financial results for the first quarter of 2013. I'll begin with Ironwood and then follow up with some financials related to our cost-sharing arrangement with Forest around the commercialization of Linzess in the US.

Starting with our cash position, at March 31, 2013, we had approximately $242 million in cash and equivalents. During the quarter, we used approximately $93 million of net cash for operations, which includes $13 million for purchases of API capitalized as inventory. Total Ironwood revenue this quarter was approximately $3.3 million compared with $12.2 million during the same quarter of last year. Included in our revenue this quarter were sales of API to Almirall and Astellas, which I'll talk more about in a moment. And the continued amortization of deferred revenue associated with the Astellas license agreement.

A decrease in collaborative arrangements revenue compared with the first quarter of 2012 is primarily due to the completion of amortization of deferred revenue associated with our collaborations with Forest and Almirall. The decrease in collaborative arrangements revenue compared with last quarter was primarily due to the $25 million upfront payment associated with our collaboration with AstraZeneca, partially offset by increased API sales this past quarter.

Cost of revenue for Ironwood in the first quarter of 2013 was $1.2 million. As a reminder, Ironwood purchases linaclotide API and sells it to both Almirall and Astellas at an agreed-upon fixed transfer price. As a result, Ironwood's cost of revenue consists of the cost to produce linaclotide API and is recognized in the quarter in which we ship the linaclotide API to those partners. We will receive royalties from both Almirall and Astellas based on their linaclotide sales volume in a given quarter minus the transfer price paid for the API included in the product actually sold during that quarter.

Moving to expenses, our R&D expenses for the first quarter of 2013 were approximately $33.5 million compared with $29.5 million in the first quarter of 2012. Included in our R&D expenses for the quarter are costs associated with the continued development of our non-linaclotide pipeline, such as the ongoing Phase II clinical trial for IW-9179 and the ongoing Phase I clinical trial for IW-2143, along with other non-linaclotide development programs we continue to advance.

In 2013, we expect to invest approximately $60 million to $75 million in non-linaclotide R&D, similar to our investment in 2012. The total R&D expense in our P&L includes non-linaclotide R&D, as I mentioned, as well as our continuing investments in linaclotide-related development. As an example, we continue to invest in creating a high-quality nimble supply chain with appropriate redundancy at critical modes. We also continue to seek ways to strengthen the current label of Linzess in the US and explore the use of linaclotide in other indications and patient populations. We expect to initiate additional clinical trials in the US involving linaclotide in the next 12 months. As a reminder, we share development costs for Linzess equally with Forest.

Lastly, included in the $33.5 million expense is approximately $2.2 million in stock-based compensation. The increase in R&D expense compared to last year is mainly due to increased investments in linaclotide development, including our ongoing Phase IIIb clinical trial, increased headcount to support these activities and additional operating and manufacturing costs.

Next, with respect to SG&A expenses for the first quarter of 2013, they were $33.3 million compared with $16.3 million for the first quarter of 2012. Our SG&A expenses during the recent quarter included selling and marketing expenses related to the launch of Linzess in the US, including the cost of our 161 person salesforce. Certain selling and marketing expenses are included in the calculation of net profits or net losses for Linzess associated with our collaboration with Forest.

In addition, we incurred approximately (technical difficulty) million in stock-based compensation for the quarter as part of our SG&A. The increase in SG&A compared to last year is primarily a result of an increase in headcount, mainly the addition of our salesforce, as well as increased infrastructure largely to support the commercial launch and salesforce for Linzess in the US.

In the first quarter of 2013, we recorded approximately $25.4 million in collaboration expense. As a reminder, we acquire share equally in the US Linzess net profit or loss from the sales of Linzess in the US. We present the settlement payments required to adjust our income statement to 50% of the net profit or loss as either collaborative revenue or collaboration expense, depending on whether the settlement resulted in a payable or a receivable from Forest.

During the quarter, the adjustment was $25.4 million payable to Forest and this was recorded as collaboration expense on our P&L. These settlement payments will fluctuate based on the sales of Linzess, as well as the ratio of selling and marketing expenses initially incurred by us and Forest on our respective P&Ls.

Interest expense for the quarter was approximately $5.1 million. This is primarily due to the $175 million debt offering we completed in January, carrying an 11% annual interest rate.

Now in order to try and clarify some of this, let me just point you to slide 28. Slide 28 provides clarity around how we calculate the settlement payment due to either Forest or Ironwood. In regards to the specific accounting, as you recall from the webinar we hosted last November, Forest will book all Linzess product revenues and associated cost of goods sold and both companies will incur SG&A expenses on their respective P&Ls. Linzess revenues and expenses for both companies will then be combined on a quarterly basis and the resulting pretax profit or loss will be shared equally between the two companies by way of these settlement payments.

In the first quarter of 2013, Forest recorded $4.5 million in net sales of Linzess in the US. To date, Forest has recorded approximately $24 million in net sales of Linzess. Forest records Linzess revenue on an ex-factory basis, essentially when the product leaves the warehouse. As Tom mentioned earlier, as of the week ended April 12, there have been more than 70,000 prescriptions of Linzess filled since launch. Total cost and expenses included in the partnership, including cost of goods sold, selling and marketing expenses, totaled $71 million resulting in a total net loss for the collaboration of $66.5 million. Ironwood's 50% portion of the net loss is approximately $33 million. However, we incurred approximately $8.5 million in selling and marketing in our P&L. Therefore we owe a settlement payment of $24.7 million to Forest to true up the collaboration.

As previously guided on our last investor update, we continue to expect the total investment in selling and marketing for Linzess to be in the range of $250 billion to $300 million in 2013.

Thank you, and with that, I will turn the call back over to the operator and begin the Q&A portion of the call.

(Operator Instructions). Mario Corso, Mizuho USA.

Good morning. Thanks for taking my questions and congratulations on the launch thus far. A couple things I wanted to ask about. Number one, all the detail is great, but just for some context or perspective, is it fair to think about Linzess thus far -- it seems to me the launch thus far pretty much couldn't have gone any better when I hear about the managed care status, look at the Rx numbers. And do you also think it is fair to think about so far very minimal contributions from the primary care area, as well as the direct-to-consumer marketing? So that seems to be the upside of the next leg.

And then finally, in terms of the quarter and the revenue that Forest booked, I know that there was stocking last quarter. I calculate demand in the quarter at kind of $10 million, $11 million. Do you think that is a fair way to think about where the demand was in the quarter? Thanks very much.

Mario, thanks for the questions. I think we'll get them all. Tom is going to lead off with just kind of the general feeling about the launch, and then I can answer the stocking question.

Thanks, Mario. I think we are absolutely delighted with the progress that we've made. As you know, we've primarily focused initially on getting the GI community out of the gates back. As we know, they will have significant impact on the primary care physician prescriber base, which is also showing steady growth.

But keep in mind, the primary kind of promotional lever that we've pulled so far is just the salesforce. So we've only just begun the broad educational efforts across the medical community, as well as the consumer efforts that obviously are going to continue to drive demand.

I think the other pieces, while we've really had really strong early wins in the payor community, it is still early, and those wins and those changes in co-pay are just being implemented. So I think we are absolutely delighted with what we've seen so far from both the medical community, the response that we've seen online with the patient community and the responsiveness that we've seen with the payor based on the value proposition I think we've put forward.

So I think everything is on track. I think we are encouraged by the volume and rampup in this primary care arena. And I think we look forward to our ongoing execution and learning and growth. With that, I'll turn it over to Michael to comment.

Yes, let me kind of broaden your question, Mario, on the demand side of the equation. You are essentially trying to get an underlying view for kind of the fundamentals. Set aside the revenue that has been booked, which I mentioned on the call and most of you know well. The revenue that Forest books is booked on an ex-factory basis, so you're absolutely right; it is critical to get an understanding over time about how that moves in and out of the wholesalers. And I think the numbers that we've provided with you today I think give some guidance.

I won't comment on your specific demand number, but I would say, Tom commented earlier, and I repeated it, the total number of scripts since launch is in the range of 70,000, and I'd suspect the way you did your calculation took that into account, estimated price and did some calculations there. And I think that's an appropriate way to look at it. That is how we think about the fundamentals and the underlying driver to the business.

Over time, these issues around inventory will kind of normalize themselves as we get closer. The idea is to keep those inventories as low as possible, generally in the two to three-week timeframe. But in a launch period, it is quite difficult to manage that exactly. But I believe you are thinking about it correctly, and I think the demand, underlying demand is really the way to look at that and the way we think about it is based on those prescriptions that IMS reports on a regular basis. Does that get at the heart of your question?

Yes, it does. Thank you.

Matthew Harrison, UBS.

Good morning. Thanks for taking the questions. Sorry, I was on mute. Two questions for you. First, can you help us think through your SG&A spending in terms of -- you have reps that are booked in there, and then it sounds like you are also booking obviously a percentage of the Forest A&P spend or your combined A&P spend. Should we expect that A&P spend, it sounds like what you are saying, to accelerate through the year or is that at a level that makes sense right now?

And then separately, it sounds like you're sort of unwilling to tell us about what the destocking number might have been in the quarter. Maybe you could just give us an update on what you think the growth to net pricing might be. Thanks.

Thanks, Matthew. Let me take on the -- let me see if I can hit them both. The two questions related to kind of essentially selling and promotional expense generally and then again back to the demand side of the equation and the stocking. I think everyone is kind of wrestling with that and trying to understand it. So let me take on both of those and then you can follow up, clarify if I don't hit exactly what you are looking for.

First, with regard to the selling and promotion expense, you're absolutely right in terms of both companies are making investments. I think, in this instance, the right way to think about it is total cost invested, and while there will be fluctuations over the period of time, we feel like we've watched with a very robust investment in selling and promotion and we've talked upfront about what we expect to spend in total in the year. So we are feeling like we are starting with a very robust investment and we've given a range of expenditures of $250 million to $300 million over the course of the year. We think that what we've spent in the first quarter is right in line with what we would expect to see over the course of the year. I can comment further if you like, but I think that covers the first part of the question.

With regard to the second, it is not so much an unwillingness to kind of answer a question. We don't -- that level of detail on the inventory and how that flows through the wholesalers is something that is tough to drill down to that level of detail. I think for us what I've given you and for those of you who cover Forest, they are quite good at managing the inventory over the long term. They really want to get it down to a minimal level. They talked about carrying two to three weeks. But in these very early stages of launch, it is hard to kind of maintain those levels of inventory. So the wholesalers do their best estimates of what is required.

But I'll go back to the comment I made to Mario, and that is the way we look at it right now and the way we think about it is take the underlying demand. the total prescriptions and you can calculate there on the basis of that underlying demand kind of where you might come out in terms of the basic revenue that has been derived by end users.

With regard to the gross to net calculation, again, early in the launch, it is kind of difficult to weigh that in. What we've talked about over the past year or more is that ultimately we expect to get in a range of 20% to 25% gross to net, but again early days. It's hard to make those exact calculations. Again, the main point is it's very hard in these early days to exactly calculate these ones and that is why we, as we evaluate the launch of the business, focus on the underlying demand.

Got it. Understood. That is helpful. I guess just a follow-up on SG&A. I guess what I was really trying to get at is the level of SG&A on your P&L. Does that seem to be a level that we should expect going forward or are there components about how the spend is going to be allocated to you versus Forest? Does it fluctuate dramatically and may increase or decrease that number?

Yes, okay, thanks for the clarification. I understand it now. So I addressed only half the equation. On our P&L, really there is two elements you should be aware of. One of them I can give you comfort is the investment in the salesforce is one where we have the 161 reps. They are in place. They are cranking away, and that cost will always show up in the SG&A line.

The piece that is hard -- the question you ask is harder than it may seem because what happens is that the way Tom and Bill and the combined teams work is that they will allocate the other types of commercial investment. They'll allocate that on the basis of the company that is best prepared or readily available, has the kind of experience of dealing in that area. So a specific expenditure one quarter could come through -- an initiative could come through Ironwood, and then two quarters later, there may be another initiative that makes more sense to go through Forest.

In the end, we almost get screwed up in the settlement payment, but it's hard to really predict how those ones will flow. We try and do it. I think the salesforce -- clearly, the majority of that expense is going to hit the Forest P&L and will have a small hit on our P&L on a regular basis. So it is a very good question, but it's hard to answer how that will flow over the course of the year.

All right. Thank you very much.

Geoff Meacham, JPMorgan.

Thanks for taking the question. I want to get your early experience on a couple things. One, the refill rate over time, what's your estimate of the approximation of a refill rate? And then the second part of it is does your early data tell you anything about the rate of diarrhea. Is it similar to the Phase III experience? Has that led to any discontinuations that are different than data that we have seen and then I have one follow-up?

Thanks, Geoff. This is Tom. I think as far as the overall refill rate, it is pretty early to be able to determine what that is looking like. I think we are seeing very good separation between TRx and the new Rxes, and we are seeing a pretty strong refill rate to date. However, it is really, really early. So we've really only had a window of opportunity where we've only had a handful of refills with a relatively small segment of the population. So I think we will have to wait and see really for the next quarter or two to really get a handle on what we think annual days of therapy might look like.

The other piece with regard to diarrhea, we are not hearing much on the diarrhea side from physicians. It is happening from time to time, and I think basically what we are seeing is something consistent to what we saw in the clinical trials where, when it does occur, it tends to be transient, it tends to be mild to moderate, but we are not hearing from physicians or patients for that matter that it is really driving a high level of discontinuation. So we don't think it is going to dramatically affect annual days of therapy. But it's early days. It is something we are watching very, very closely to understand and help physicians and patients better manage.

Got you. And then I guess not to belabor a point on the inventory, but Forest had said last quarter that the $19.2 million was all inventory stocking, and so I'm just curious going forward if you guys expect to update this at all, inventory levels or on the dollar basis and then what would you expect to be a reasonable level of inventory going forward let's say on a weekly or a monthly basis, pick the number?

I think the best way to answer it is really just picking up on your last, the last part of your question. I think on a go-forward basis as we move forward and we get kind of a better understanding of demand, the wholesalers get a better understanding of it, the way contracts are structured is we will end up getting down to kind of a relatively small number of weeks essentially to forecast demand kind of structures. They look forward and they estimate what they need, and they'll bring it in.

So the expectation, if you look back at Forest's history and how they do it, typically once they get a better feel for it, two to three-week ranges is what one would expect once you get to a level where it is more predictable. So that is -- at this stage, that's what I would suggest using as the metric.

Do you guys have IMAs that you are going to sign or do you have them in place today?

Yes, so I won't comment on specific structure and how we deal with the wholesalers. I'll just comment to say that it is a discussion that is focused on. That is a level of detail that probably makes -- I'll pass on it for the moment right now in terms of how the exact interactions go with the wholesalers, but it is something that -- it is certainly something that is considered standard in the industry to do those types of things. But I don't want to comment further on exactly how we are treating it.

Okay. Thanks.

Corey Davis, Jefferies.

Thanks. Do you have a sense of what percent of those 10 million patients you mentioned, or you can use the 15 million number, have true chronic disease versus just getting constipated periodically? Wondering how you think the real world situation compares to the types of patients that you have enrolled in your clinical trials and obviously just getting at the big question of how many of these patients are going to be using it more on a PRN basis and what the average days of therapy are going to be.

Corey, this is Tom. I will take the question. With regard to the chronicity of the symptoms -- could you ask the question again? I'm sorry, I just missed it.

Yes, what percent of the patients, and I'm using the numbers that you used, 10 million that I think you said were treated and unsatisfied, are true chronic, chronically constipated either from constipation or IBS-C versus just getting it on a periodic basis and hence would be more likely to use it on a PRN basis?

Yes, thanks. So when we estimated the 10 million, those were chronic sufferers, and on average, those sufferers suffer over 200 days a year of either chronic constipation or abdominal discomfort. So these are patients that are suffering from chronic recurrent symptoms and are actively seeking care and on average, they are in the office three to four times a year looking for relief of their symptoms.

So we really think that this is a group that there is a huge unmet medical need. They are raising their hand, they are looking for help, and treatment just isn't meeting their needs. So what we've seen so far in our clinical trials is something very consistent to that in that these patients are at baseline suffering from almost daily symptoms and seeing significant relief.

So I think the 10 million is the area that we want to focus on right now as far as those people that are actively engaged and seeking care on a regular basis. I think we also, as I mentioned, see an additional population that will come into the marketplace once physicians and patients realize that there is better relief to be had and certainly we can improve their symptoms. So there is no question that there is a very large unmet medical need here. We've only begun to scratch on the potential and the opportunity to really help patients gain relief of their symptoms.

Secondly, I can't recall if you answered this already, but do you have any idea what the rough split is right now between IBS-C and chronic constipation?

Yes, it is very, very early right now. I think my impression that we are getting is probably the majority of these patients who tend to suffer the most are people that tend to have both constipation and abdominal symptoms, whether they experience it and call it abdominal pain or whether they call it some other symptom that is related. It is really those types of patients that are raising their hand and asking for help and who really seem to be disabled and I think that Linzess can really provide benefit.

Okay, great. Thanks for your help.

Irina Rivkind, Cantor Fitzgerald.

Thanks for taking the questions. The first one, I just wanted to address partnership milestones. I just want to make sure I understand. So you guys mentioned briefly something about restructuring the agreements at Almirall, and I was just wondering if the 4 million per country milestone still stood and then also if you could comment on Astellas and whether or not prior milestones that were mentioned for that market are intact.

And then the second question is regarding your cash balance. It looks like you guys have money for maybe another couple of quarters, especially if you start spending on additional programs to explore Linzess. So I was just wondering what your thoughts are around financing and the nature of the potential financing event. Thanks.

I'll take those on. The first one is you asked the perfect question with regard to Almirall. It is, so just as a reminder for those folks who may not be as familiar, our current structure with Almirall has $20 million in total milestones that are payable as we've talked about for a while. We expect those would be paid out over a period of time between 2013 and '14. But you're exactly right. In terms of the wording I used is that is one of the items that is up for discussion with Almirall. So I would say in terms of what we are looking at for revenues out of the Almirall relationship in the coming 12 months, I would say those are the revenues that are at risk at this moment based on the conversation we are having.

We're really thinking about it as actually reinvesting in the business and getting the long-term return. We are being fairly pragmatic about the opportunity in Europe, and we feel giving Almirall the best chance to launch the product is in our best long-term interests. So that is why we are thinking about those milestones. Kind of the barrier right now in Europe is pretty high, so we want to be able to invest appropriately in the business.

So you are absolutely right; those are the ones that are at risk in the conversations that we are having right now. And it is still -- it's not done yet. We are having a conversation. But since it is -- many folks were building in that the dollars were coming in, we wanted to just clarify that there was a discussion underway.

With regard to Astellas, the relationship, the territories that we regained were at no cost to us and all of the milestones, everything was built into the original agreement that you are familiar with is still intact. So no change there.

With regard to cash, I guess -- I think the best way to respond to cash-related questions is that we, as you know in January, we did an offering of $175 million. At the time, we said we were in a great spot to execute on the launch. We still have $242 million in the bank, and we feel like we are still in that spot, we're still in a position to execute on the launch.

And as always, though we keep an opportunity, we keep our eyes open and think about what the business needs are and we will kind of access capital as we think is appropriate based upon the business realities. That combines a whole bunch of things, including the revenue growth, but we feel like we are in a good spot and we will keep an eye on it and we will keep you informed.

And if I could just ask a follow-up about the speaker programs that you are initiating. You mentioned 10,000 programs. How many of those have occurred so far in the first quarter? Thanks very much.

This is Tom. I'll take the question. We've booked a number of programs. To date, if I recall, we are into it by about 1000 programs with an additional 2000 programs that have already been booked. I think the one thing that we are seeing is there is a great interest in the attendance of the programs. They've been very, very strong. So certainly the lead indicators as far as interest and demand are very encouraging, and I think we are seeing it playing out in the marketplace.

Raghuram Selvaraju, Aegis Capital.

Thank you so much for taking our questions. Can you hear me? Just a couple of quick things to help us understand better the revenue trends so far. Can you give us approximately what the value per script is? You said about 70,000 scripts. What's the value per script?

So you're asking the combined question, which is the numbers we've disclosed externally are on the gross pricing. So per prescription, essentially the gross price that we're charging is $7.10, so we're in the $200 range on a gross basis. We haven't provided a gross to net specific calculation, but I've mentioned that we are in the range of 20% to 25%. We will expect that over time. As Tom alluded to earlier, we are in the negotiation phase of contracts. We have some of them signed. We are in negotiations on others. So that's a number that we use as a general guidance based upon our experience and based upon our activity to date. But it's hard to apply those. But those are the numbers that you need to use to make that -- broadly make that calculation. It is not a direct connection to the question you are asking, but I think those are the numbers we've provided previously (multiple speakers).

Okay. And then just clarification regarding the milestone on a per country basis for the European launch. So what you have said is that those are currently under discussion, but they could be revised going forward?

Correct.

Okay.

The total payments expected over the next year in the -- if there was a launch completed in the next 12 months, it is basically the big five in Europe and the way the contract is structured, it is $4 million for each of those. So depending on the timing of those launches and how everyone has treated it, those are the ones that we're having discussions about at this point.

Okay. And then could you just reiterate your 2013 guidance with respect to R&D and total spending?

So we have not provided a total spending guidance. We've provided two elements that we feel are critical for everyone to understand. The first one is total commercial expenditures for Linzess. So this is not an Ironwood-specific number. It is a combined number that the combined Forest and Ironwood teams will execute to. That number totals $250 million to $300 million. And the other one that we provide, because we feel it's important for investors to be aware that we're investing in the future, and that is specifically non-linaclotide R&D investments we are estimating in the range of $60 million to $75 million as we did last year. So we're in that same zone. Those are the two numbers that we've provided.

Finally, can you back out for us the costs associated with the Phase IIIb study that is currently ongoing, from which I believe you said you expect to report results in the second half of this year and help us to understand how R&D costs directly related to linaclotide are likely to evolve over the course of the remainder of this year?

Yes, so that's a level of granularity -- we've given kind of the broad numbers and those numbers fluctuate, so we don't think it is useful to give very specific numbers on an ongoing basis that way as we forecast forward. But you've got most of the elements. Those numbers will change over time, but that is the level of granularity we don't typically provide exact cost of clinical studies.

Okay, last question. Do you plan to initiate any additional postmarketing studies over the course of the remainder of 2013? And if so, what would those be?

Yes, we do intend to initiate some Phase IV studies. We haven't disclosed those with our partner, Forest. So at this stage, I can't disclose the specifics. But there will be a couple of studies initiated in the 2013 timeframe. I should emphasize, though, these are typically more the size of exploratory studies. These are not large registrational studies at this stage. They are not very large studies I think that maybe there is some misunderstanding on.

Thank you.

Juan Sanchez, Ladenburg.

Good morning, guys. A couple of questions. The first one is if the current constipation trial is positive, what kind of label modifications do you think we should expect? Second question is on cost of goods going forward, if you could give us an update on some guidance if we model say two or three years down the road at which level do you think cost of goods for Linzess might be at? And the third question will be on the level of content, whether or not this level of (inaudible) is going to last for a while or that is going to come down at some point slowly?

Thanks for the question. This is Mark Currie. Yes, we, again, expect that study to report out in the second half of this year, the chronic constipation study you alluded to. We haven't disclosed what specific endpoint we would be trying to have added onto the label. This study addresses a number of areas as I think we've described previously, particularly focused on abdominal symptoms and those are some of the areas that we expect to further explore and have discussions with the FDA around. But for right now, we haven't disclosed specifically what we're trying to accomplish on that study.

I'll take the cost of goods question. Before I do that, let me just do a quick public service announcement. We recognize we've gone over our allotted time and we are going to have to limit to a few more questions, but for those who still have follow-up questions, will be available afterwards, so feel free to reach out and let us know.

With regard to cost of goods, over the coming years, we've talked in the past about that we are in the high pharma range and we've guided to about 10% cost of goods and we expect we can get into the single-digit range as we increase on the -- as the volume increases, we think we'll get some efficiencies over time and I think, Tom, you are going to take the sampling question.

Sure. I think one of the things that we've learned in these categories that have highly symptomatic diseases, whether it is GERD or whether it is IBS or chronic constipation, is seeing -- for the physician and the patient to observe and realize symptomatic relief really drives broader and deeper prescribing. So the fact that we can leverage samples to really initiate trials, observed treatment response to ongoing prescribing and broader prescribing is obviously one of the most critical and most powerful resources that we have in our promotional bag. So I think it is something we will constantly evaluate, but I think based on previous experience, I see a fairly aggressive sampling program as we move forward. So we can continue to initiate therapy on a very, very large population base.

Got it. Thank you, guys.

David Friedman, Morgan Stanley.

Thanks for taking the question. It is just on the dyspepsia program. I was wondering if you could just talk a little bit about how you have designed the second-generation molecule to be different than linaclotide and then what you are going to look for to choose to either bring a novel compound or linaclotide forward in that indication.

Yes, David, thanks for the question. So I think we actually have a lot of optionality with our GC-C program, including 9179, the compound currently under study in functional dyspepsia and linaclotide. There obviously is a very large patient population that are suffering from functional GI disorders that are very complex. You have patients that have chronic constipation and functional dyspepsia, GERD with functional dyspepsia, GERD with IBS-C and on down the line.

So again, trying to dial in the pharmacology and really understand what will give us the best tool to be able to provide the patient with relief, those are the types of things we are focusing on. 9179 has been designed in a way that restricts its activity to the upper GI area, particularly the duodenum and the jejunum to a large extent. It has a metabolic handle on it that allows us -- controlling that activity. So that is really the difference between the two molecules. It is where it works and how long it works. So that is where we are with those two programs. Again, we expect both molecules ultimately in the GI -- in our further guanylate cyclase franchise to again address this very large patient population out there in a number of different areas.

Thank you.

Greg Wade, Wedbush.

Thanks for squeezing me in. Michael, so in the quarter, you guys burned about $93 million in cash. $33 million of that would be associated with the effort around commercialization of Linzess. Based upon the Company's guidance of around $60 million to $70 million in R&D, that would suggest that could be $15 million to $17 million on the R&D side. That leaves an awful lot of cash burn. Can you just help us to understand where that money is going? Thanks.

Let me just broadly define. I think in terms of the expense side, I think it is laid out specifically on the P&L that we released -- with the release this morning, with the press release. I think the additional piece that you should be aware of that is something we call out specifically has to do with inventory and essentially the non or the balance sheet-related items. So that is in the range of $13 million, as I mentioned earlier.

So it is really the expenses of operating the business. Broadly it's the combination of the investments we've made there, plus some of the balance sheet items. So you're walking down the list; I don't want to do a full reconciliation on the call, but it is really the combination of those P&L items with some of those balance sheet items that I just alluded to. Happy to give more clarification. Given the time right now, to do a full reconciliation is a bit challenging real time, but I think you'll see on the P&L, it is really those P&L items and then it is specifically those non-P&L items, the balance sheet items that I just alluded to.

Let me just squeeze in one for Tom. Tom, it looks to us like there is a bit of a sawtooth pattern in terms of week-over-week script growth. Is there a corresponding promotional effort that explains this or is it just something else? Thanks.

First of all, thanks, Greg. I think what we are seeing is extremely good responsiveness to our promotional messaging with regard to growth. I think there is a lot of things if I look at daily TRxes that are causing it to bounce around. But I think if you look at the study, basically mean growth line, it looks very, very encouraging. I think part of it is probably TRx reporting. Certainly there were some dips in the two holiday periods, which responded very quickly following those periods, but I think overall we are on a very, very strong growth trend. And again, our primary focus out of the gate was concentrated on the GI community and the top decile PCPs. And that prescribing base we certainly see broaden over time. I hope that answers the question, Greg.

Thanks, Tom.

Thank you. I would now like to turn the conference back over to Michael Higgins for closing remarks.

Thanks again for all of you for joining us. Sorry we've gone over time here a bit. As you heard from the team this morning, we continue to make very significant progress across all aspects of the business. As you heard from Tom, while it is still early, we and Forest are really encouraged by the Linzess launch and the positive response we are getting from physicians, patients and payors. We continue to explore development opportunities to strengthen the clinical profile of Linzess and expand the utility. And we really continue to work on our global partnerships in bringing to linaclotide to suffering patients around the world.

We've made important investments in our broader pipeline, as well, with both linaclotide and our non-linaclotide programs. These continued advancements are really entirely due to the efforts of our team who bring passion, enthusiasm and dedication to the Company every day. And we really appreciate your interest in the Company and look forward to keeping you informed as we move forward with the Company over the coming weeks, months and years. Thanks again for your time. Take care.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.