Ironwood Pharmaceuticals Inc (IRWD) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals Q3 2013 investor update conference call.

(Operator Instructions)

As a reminder, today's conference call is being recorded.

I would now like to introduce you host for today's conference call, Miss Meredith Kaya. You may begin, ma'am.

Good morning, and thank you for joining us for third-quarter 2013 investor update. 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.

Some of information discussed in today's call is based on information as of today, Tuesday, October 22, 2013, 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 and on the current slide with the heading, Safe Harbor Statement, as well as the risks under the heading, Risk Factors, in our quarterly report on Form 10-Q, for the quarter ended June 30, 2013, and any of our future SEC filings.

Joining me for today's call are Tom McCourt, Chief Commercial Officer, who provide an update on the commercialization of LINZESS; Mark Currie, Chief Scientific Officer, who will walk through the top-line results from the LINZESS Phase IIIb clinical trial; Michael Higgins, Chief Operating Officer, who will update you on our efforts to bring Linaclotide to appropriate patients worldwide, as well as review our financial performance for the quarter; and Peter Hecht, Chief Executive Officer, who will wrap up and open the call to your questions.

Our speakers will be referring to slides available via the webcast. For those of you dialing, it may be helpful for you to go to the Events section of our website to access the webcast live, if you have not done so already.

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

Thanks, Meredith; and good morning, everyone. I will begin the call, this morning, by providing you with an update on the commercialization of LINZESS.

LINZESS continues to track well across key leading indicators, including the growth of our prescriber base, the progress we and Forest have made with the payer, our initial efforts in engaging appropriate patients, and the uptake in growth in LINZESS prescriptions. We are pleased with the progress to date and believe that these the data reinforce the clinical profile of LINZESS to prescribers and patients, as well as the substantial unmet need in this category. We believe our combined efforts with patients, physicians, and payers are driving uptake in growth of LINZESS prescriptions.

During the third quarter, approximately 178,000 total LINZESS prescriptions were filled, a growth in prescriptions of over 40% during the last quarter, resulting in over 539,000 have been filled since launch. New prescriptions continue to grow and the volume of refills looks very strong, indicating that many patients are not just trying LINZESS once, but continuing to remain on the therapy. There is still considerable work to be done to continue bringing LINZESS to appropriate patients and accelerating its growth in the marketplace.

Beginning with our physician efforts on slide 5, at the end of September, greater than 40,000 physicians have prescribed LINZESS, which includes over 80% of top-decile gastroenterologists and over 50% of top-decile primary care physicians. We have built a strong prescriber base to date and continue to see approximately 1,000 physicians choosing LINZESS for their adult patients for the first time each week. We are encouraged to see that the gastroenterologists, who began prescribing LINZESS early, are continuing to prescribe to more and more of their patients.

As expected, educating affecting primary care prescribing behavior is a longer-term effort, given the size, the diminishing access to offices, and the complexity of this physician base. We are pleased with our progress and the continued growth we are achieving to date. We believe that our continued efforts, through our joint Ironwood and Forest sales force, combined with our broader patient education outreach, which I will talk about shortly, will accelerate prescribing growth among these physicians.

Approximately 65% of LINZESS growth is coming from either adult patients newly seeking care or adult patients actively managed by physicians with an OTC. We are seeing a significant shift in physician prescribing to more -- to choose LINZESS more frequently because they believe it provides an important benefit to their patients' first OTC treatment choices.

Turning to slide 6, we continue to make important strides in gaining broad formulary coverage for LINZESS. As of September, we estimate about 80% of adult patients covered by commercial insurance plans have unrestricted access to LINZESS. And greater than 60% of patients with commercial insurance have access to LINZESS at a co-pay of $30 a month or less, through direct formulary coverage or our instant savings program. We also continue to make progress in the Medicare Part D plans, which cover approximately 15% to 20% of the target patient population. As of September, approximately 50% of adult patients on Medicare Part D plans are covered, which is substantial progress in the first year of launch.

As you know, the payer environment has become more challenging over the past several years. We and Forest are continuing to work hard to both secure and maintain broad coverage within the commercial space, as well as across government plans, so that we can maximize the benefit to as many patients as possible. While we have made encouraging progress to date, gaining broad payer coverage will be important and an ongoing effort. By establishing a broad informed patient population, as well as a strong prescriber base, and maximizing access to LINZESS through broad formulary coverage, we and Forest have laid the groundwork to expand our efforts on the patient side. And, we intend to amplify the patient education efforts across multiple communication channels, including direct-to-consumer education.

Successful consumer programs tend to be for disorders that are highly symptomatic and chronic in nature, where the patient can easily recognize and articulate their symptoms, and the product is a first in a new class that can help address a well-acknowledged unmet medical need. We believe LINZESS meets these characteristics. IBS and chronic constipation are both highly symptomatic and chronic disorders, ones where patients can easily recognize and articulate their symptoms, and LINZESS is a first in a new class of drugs that can treat and provide multi-symptom relief for millions of adult IBS-C and chronic constipation patients.

Our initial patient efforts have been through the digital channel and have resulted in encouraging engagement by the adult patient population. We expect to expand our patient efforts during the first half of 2014, encouraging a more productive dialogue between patients and physicians that focus on specific symptoms, treatment history, and LINZESS as a treatment option. As we've said before, we and Forest will evolve and refine our marketing mix and expect to continue to operate within a $250 million and $300 million sales and marketing budget for 2014. We are encouraged by our progress, so far, and track well to previous successful GI launches, such as Prilosec and Zelnorm.

In order to maintain and accelerate growth of LINZESS in this large, highly symptomatic patient population, we need to work with physicians, payers, and patients to advance LINZESS into the current marketplace, enhance its clinical profile within its current indications, and explore opportunities to expand into additional approved populations and indications to help as many patients as possible through the long patent life of LINZESS.

With that, I will now turn it over to Mark.

Thanks, Tom, and good morning.

Our scientists are exploring exciting opportunities, both with Linaclotide, as well as with our broader pipeline. We continue to make encouraging progress on all fronts. I am excited to provide some of the top-level data from our recently completed Phase IIIb study.

The joint Ironwood and Forest team set out to evaluate the effects of LINZESS on abdominal symptoms in adult patients with CIC. This study enrolled rapidly and focused on patients suffering from constipation and a high degree of abdominal bloating. We enrolled 487 patients in this study, all of whom suffered from multiple chronic constipation symptoms, including prominent abdominal bloating. The average bloating score reported by these patients at baseline was 7.1 on a zero to 10 point scale.

As you can see on slide 10, I am very pleased to report that we met our primary, as well as all 27 pre-specified secondary endpoints in this study, with statistical significance. Importantly, Linaclotide was shown to significantly increase bowel movement and significantly reduce abdominal bloating in the chronic constipation patients. Diarrhea was the most common adverse reaction reported and was observed in 5.9% of patients treated with 145 microgram dose, our currently approved dose for CIC patients, and 16.9% of patients treated with the 290 microgram dose of Linaclotide, versus 2.3% in placebo-treated patients. 1.3% and 5% of Linaclotide-treated patients at the 145 and the 290 microgram doses, respectively, discontinued the trial due to diarrhea over the 12 weeks, versus 0.6% in placebo-treated patients. These data are consistent with the results we achieved in our pivotal Phase III clinical program in CIC. The study also greatly extended our understanding of the level and time course of improvement in abdominal bloating seen with Linaclotide in this CIC patient population.

An examination of the effects of Linaclotide treatment, over time, on the weekly CSBM rate, showed a marked improvement occurring in the first week, and the improvement was maintained throughout the treatment period. With respect to abdominal bloating, a statistically significant reduction in bloating from placebo was observed with both doses of Linaclotide, occurring in the first week and continuing to improve over the next five weeks, with the response maintained throughout the remaining treatment period. This effect was significantly different for both doses for each of the 12 weeks.

At week 12, patients treated with Linaclotide at the 145 microgram dose and the 290 microgram dose experienced approximately 45% and 47% decrease in abdominal bloating, respectively, relative to baseline, compared with 31% decrease in bloating in the placebo patients. The data from this study reinforced the consistency we have seen with Linaclotide data throughout its clinical development and enhanced our understanding of the effects of Linaclotide.

These data also provide greater insights into a few areas. First, to better understand the expression and persistence of constipation and abdominal symptoms in adult CIC patients suffering from prominent bloating. Second, to better define the treatment effects of Linaclotide in these patients. Third, to provide an early assessment of the possible effects of Linaclotide on upper abdominal symptoms and insight for potential future development of our GC-C agonist, including Linaclotide and IW-9179 for upper GI disorders. And fourth, to provide the foundation for future publications in this area and scientific rationale for discussions with regulatory authorities for a better understanding of abdominal symptoms.

Beyond Linaclotide, our scientists continue to pioneer the GC-C space, and their innovative research has resulted in a robust scientific exchange through presentations at scientific conferences and publication of key data in peer-reviewed journals. New non-clinical data have recently been published in three journals -- Gastroenterology, PAIN, and the Journal of Neuroscience, increasing scientific understanding of the mechanism of how GC-C activation is thought to regulate cyclic GMP pathway, specifically the role of extracellular cyclic GMP in decreasing GI pain. We have also had a significant presence at several biomedical conferences, furthering our scientific dialogue with the medical community. Most recently, we had presentations at ACG and continue to receive very positive feedback from physicians around the importance of having this first-in-class therapeutic agent available for their adult IBS-C and CIC patients.

We also continue to study the molecular mechanism of the actions of cyclic GMP on intestinal pain and other visceral sensations. And, we are actively seeking to extend our knowledge from non-clinical studies in this area to the relevant of symptoms described in patients suffering from these conditions. As we stated previously, we and Forest continue to explore potential paths to bring Linaclotide to other patient populations, such as pediatrics, as agreed to in our post-marketing requirements with the FDA, and additional indications such as opioid-induced constipation. We are currently working closely with the FDA to establish an appropriate plan to study LINZESS in the pediatric population. With respect to OIC, we expect to initiate a Phase II dose-ranging study in adult patients suffering from this condition in the first half of 2014.

Again, we look forward to providing a more detailed pipeline update during our upcoming Investor Day in December.

With that, I would like to turn this call over to Michael.

Thanks, Mark. Today, I will be updating you all on two topics -- our progress globally with Linaclotide and an update on our financial performance.

Let's turn, first, to our global partnerships. In Europe, our partner, Almirall, continues to commercialize CONSTELLA. Qualitative feedback from the Almirall sales force and physicians has been encouraging. Adult IBS-C patients are interested in CONSTELLA and have had a positive initial experience. Almirall continues to work closely with the relevant regulatory authorities to establish appropriate pricing and reimbursement in improved countries. They have made important progress to date in this area, including positive reimbursement decisions in the UK and the Nordic countries.

In Germany, the GBA issued a benefit assessment stating that insufficient evidence was submitted to prove the additional clinical benefit of CONSTELLA over comparative therapies. The GBA feels the data from our clinical program, which was designed to evaluate the safety and efficacy of Linaclotide versus placebo for global regulatory standards, did not generate sufficient evidence comparing CONSTELLA to various treatments used in Germany to address the individual symptoms of IBS-C. We and Almirall do not agree with the GBA's position and continue to firmly believe that CONSTELLA can provide additional clinical benefits to adults with moderate-to-severe IBS-C because of its demonstrated effect on the hallmark symptoms of IBS-C, including abdominal pain, bloating, and constipation, as stated in the CONSTELLA label. Almirall will continue to work with GKV to secure as favorable a price as possible.

Now, moving on from Europe. In China, we and AstraZeneca have begun enrolling patients in a Phase III clinical trial for Linaclotide in adult patients with IBS-C. The trial is expected to be completed in the first half of 2015. In Japan, our partner, Astellas, completed enrollment in a Phase II clinical trial with Linaclotide and adult IBS-C patients. And, we maintain full rights in our unpartnered territories, representing additional value-creating opportunities for Linaclotide.

Now, turning to our financial performance, beginning with LINZESS, Forest reported $34.4 million in net sales of LINZESS for the third quarter of 2013, compared to $28.8 million in net sales reported in the second quarter of 2013. As of Q3, gross-to-net discounts were approximately 24%, and we expect them to be in this range going forward. Wholesaler inventory levels now approximate three to four weeks. The LINZESS collaboration produced a total net loss of $28.8 million that resulted in a payment of $6.2 million to Forest, recorded as collaboration expense, after backing out the $8.2 million that we incurred in LINZESS sales and marketing.

Turning to a few Ironwood-specific financial highlights from Q3, GAAP revenues this quarter were approximately $4.9 million, and are primarily made up of two components -- $3.4 million for the sale of API to ex-US partners, and $1.5 million in amortization from our Astellas and AstraZeneca collaborations. Total operating expenses, during the third quarter, were $53.3 million, as compared with $55 million last quarter. Included in our total operating expenses for the quarter are our R&D expenses, which for the third quarter, were approximately $23 million and comprised of the following -- $3.7 million in LINZESS R&D; $6.4 million invested into our supply chain and to support our rest-of-world partners in their development; and lastly, $12.9 million invested into our non-linaclotide pipeline.

Total operating expenses also included SG&A expense, which for the third quarter were approximately $30.3 million. Included in this were, $8.2 million in LINZESS sales and marketing expense, that is included in the collaboration expense share with Forest; $7.7 million of additional sales and marketing, as well as rest-of-world support. The additional sales and marketing cost is primarily made up of the unreimbursed portion of our sales force. Finally, G&A costs of approximately $14.4 million were also included in our SG&A line.

We incurred approximately $6.2 million of collaboration expense during the third quarter, as I mentioned earlier. This expense represents the settlement of payment such that 50% of the net profits and loss of LINZESS sales are equally shared. We recorded approximately $5.3 million in interest expense in the third quarter of 2013, in connection with $175 million debt deal that we completed in January. Total cash and cash equivalents, as of September 30, were $242 million, and approximately $58 million in cash was used during the third quarter. Continued growth in LINZESS net sales will have a positive impact on our cash flows, shrinking the overall net collaboration expense and moving towards collaboration revenue over time.

Finally, we previously guided that in 2013, we expect to spend between $60 million and $75 million in non-linaclotide R&D and that we and Forest expect to spend between $250 million and $300 million in sales and marketing for LINZESS. We, now, expect to end the year at the lower end of both of those ranges.

Thank you, and with that, I will turn it over to Peter.

Thanks, Michael.

We remain focused on our mission to bring important medicines to patients, maximize value for our fellow shareholders, and build an outstanding team and culture. As you heard from the team today, LINZESS continues to see a positive reception from physicians and patients, and we are gaining critical information about LINZESS performance that will enable us to continue building this first in a new class of primary care medicines.

We believe we have an important and long-lived asset with Linaclotide. And, our scientists continue to make advancements in its pharmacology that will not only strengthen our understanding of its effects in adult IBS-C and CIC patients, but will also enable us to explore helping more patients over time with Linaclotide and GC-C agents more broadly. Our partners have made important strides in bringing Linaclotide to appropriate patients worldwide over the past few months.

Lastly, we continue to maintain a strong balance sheet, striving to allocate shareholder capital prudently and efficiently, across our key value drivers, to help patients and build per-share value.

Thanks, and with that, I will turn it back over to Kevin to begin the Q&A portion of the call.

(Operator Instructions)

Rachel McMinn, Bank of America.

I had a bigger-picture question. I know you're not really giving revenue guidance for next year, but you have given operating expense guidance. I am wondering if you can provide a little bit more color on timing of when you expect to start DTC? Is that still the first half of the year? And, if things go according to plan, can you give us a general sense of whether you expect the overall collaboration to be positive -- cash-flow positive into -- by the end of next year? Thanks.

Thanks, Rachel. Tom, can you take the first part of the question about timing for GT -- and then, I will ask Michael to talk a little bit on the financial side.

Thanks, Rachel. As I mentioned earlier, I think we wanted to make sure that we had an adequate and broad prescriber base, as well as felt we have done everything we can to secure broad access and reimbursement on the payer side. And certainly, that is progressing very well.

I think, currently, we think by the first quarter or second quarter of next year, I think we feel very good about where we are with the adoption base as well as where we are with regard to our access through the payer, and we will be expanding the efforts at that point. I think all the lead indicators look positive. Physicians' willingness to honor patient requests looks very strong, so I think the product's well poised for expanding patient education. With that, I will turn it back over to Michael.

Rachel, to answer the other part of your question, with regard to the profitability question, as we have stated, and actually, as Tom has reiterated today, we expect, even with the changes that Tom just described, we are going to operate, from a commercial perspective, in the range of $250 million to $300 million in commercial investment. As you know, we plan on doing some investments in life-cycle management, so our expectation remains the same that we believe the product will likely breakthrough into the profitability range when we approach the $325 million to $350 million, from a top-line perspective. No comments with regard to the exact timing of that. Obviously, we will watch it closely, over time, but that is the general range that we see.

That's helpful, but maybe I can get at it a slightly different way. Tom, when you -- after you start DTC, how many quarters or months should we be thinking about before we actually see the pull through in prescriptions to notice a change in the slope of the prescription uptake?

Thanks for the question. I think, if this behaves anything similar to what we've seen in the past in this category -- obviously, Zelnorm being the best predicate or analog here, we saw fairly rapid response in the marketplace. I think we are going to know, over the first 3 or 4 months, what kind of impact we are having on patients -- being our ability to activate patients, and certainly, the TRx growth. I think we are going to see fairly quick response. And then, the question is, how hard do we push after that?

You would expect to see an acceleration, basically, within a quarter, and is that really the new slope? Or, you would just tailor your expenses to try to accelerate the slope beyond that?

Obviously, we are going to let the data guidance here as much as possible. And again, if this drug responds like we think it is going to respond, we will invest appropriately to accelerate and heighten its growth as fast as possible.

And then, I'm sorry, last question -- depending on what that curve looks like, is there a possibility that you would modify your expense guidance for next year or investment level? Or, is it really like you are committed to stick within that level and whatever you need to do to direct more resources there, you have a firm commitment to stay within your expense guidance?

Rachel, that's always a hard question to answer, but I'll give you this specific one we've done before, making the comment that we did today. Tom and the team working with Forest have done a lot of work, we feel that is the right guidance. Certainly, as things change over time, we will keep you informed, but our -- based upon our best information today, we feel like that is a solid number for you guys use for next year.

Mario Corso, Mizuho USA.

As we think about the bigger picture on the launch thus far, I'm wondering if you could comment on -- when you look at the different elements between payers, primary care, refills, new Rxs, consumers, I am wondering, which of those pockets you think have gone better than you expected, or maybe a little bit more difficult than you expected? Just breaking down those different elements, and how it has gone relative to the way you thought it would go? Then secondarily, the pipeline, as I hear you talk about the mechanisms in pain, I am wondering if you are thinking about that in the context of IW-9179, and wondering if we will see that Phase II data by the time you have your analyst meeting? Thanks very much.

Thanks, Mario. Tom, can you take the first part, and Mark can follow up on the 9179?

Sure, thanks, Peter. Mario, let's break these up into three pieces. First, as far as field-force execution and the impact on the prescriber base -- obviously, we are looking at a lot of lead indicators, the first of which, is can we convince docs to try the drug, and then, continue to use it in a broader population. I think we are clearly seeing that happen over time. I think the breadth of adoption looks good, as we continue to implement our launch plan, and the increase in productivity over time looks really encouraging.

I think the other two pieces that came out of our market research is that physicians clearly see an expansion of their utilization to a broader patient population. And, one of the critical decision points to inform how early we go with the consumer effort is really willingness to honor patient requests, which is a very strong. In fact, as strong as I have ever seen it across multiple launch brands. So, I think, overall, we are doing very well with the physician prescribing behavior in that community.

Second is the payer. I think we think we are tracking ahead of where we had hoped to be, with regard to overall access and reimbursement, and the implementation of the LINZESS instant savings program has had a significant impact in reducing walk aways at the counter. Obviously, it is something that we are going to continue to expand over time, but I think we are -- we think we are in a very good place, particularly in the commercial space. And, I think what has been a nice surprise is the progress we are making in Medicare Part D. Even though it is 15% to 20% of our target population, to be at 50% coverage, at this point in time with Medicare Part D, is also quite encouraging.

Of course, then, on the patient side, we have seen really strong engagement in the digital space. And certainly, the feedback from the patients, overall, has been very positive with regard to their overall treatment satisfaction, as well as, probably one of the best indicators as to how the patients are doing, are the refill rates. As you can see, the refills look very strong, certainly tracking well ahead of Zelnorm, which gives us an indication of how satisfied the patients are.

Net-net, I think we like where we are right now. Keep in mind, we're continuing to implement the launch plan, so we have done well with physicians, we are making good progress with payers, we have learned a lot about our patients, and now, we are in a position to really help patients help themselves. With that, I'll turn --

Where have things been more challenging? Is it primary care?

I think we knew primary care -- Mario, I think we knew primary care was going to be challenging going in, and that, it was going to take more time. I think the good news is we are seeing, certainly, the primary care docs come along. Those, again, like gastroenterologists, those PCPs [that wrote] early seem to increase in overall productivity, but we are adding new primary docs, really, every week. Yes, primary care is a tougher place than it was 5 or 10 years ago. I think we are really pleased with the progress we are making, both with regard to the sales force execution, and their ability to access physicians and affect their behavior.

I guess the other thing I might add, Mario, is the other area is the payer, where I wouldn't say we're surprised. The payer space has gotten a lot harder in the last 5 years or 10 years than it was. We went in with our eyes open on that. I think, as Tom said, we are at or ahead of our own expectations, but there is no question that, compared to launches in previous years, payer space is a much more challenging space.

Mario, I will take the question on the pipeline, in particular, around the mechanism of action of pain, and our study there, relative to Linaclotide, GC-C, and cyclic GMP, and then, relevant to 9179. I think, first off, we're very excited about this because we are seeing what we think are really breakthrough findings on the basic science level and the regulation of the enteric nervous system with simulation by GC-C and cyclic GMP. The first places, we think, obviously, to exploit that or utilize that, really, evolve around Linaclotide. We have, obviously, a number of different indications we can go after relative to other functional GI disorders that have pain in their component or major symptom as part of their symptomology. We think there's more opportunity for Linaclotide, either in the current formulation that it is in, or in future formulations, and we look forward to taking you through some of those ideas at the Investor Day.

With respect to 9179, we, again, are very excited about this molecule. It extends our leadership in the GC-C space. It is a molecule that is very potent. We'll be revealing a number of data around the activity of the molecule, it's activity in the upper GI animal model. We will also be looking at its data from some of our early clinical studies in normal volunteers. My expectation is we would not be at the stage to be able to talk about the data from the exploratory functional dyspepsia at that time, but we will take you through what our thoughts are, and where we think 9179 can address pain, particularly for upper GI pain in patients, functional dyspepsia, gastroparesis -- those type of disorders that we think this molecule has really been tailored for.

Marc Goodman, UBS.

First, outside of the payer issues, if there are any, can you talk about what pushback your salespeople are telling you that -- for patients not staying on drug, or what you're hearing from doctors, just curious about that? And then, second, on the DTC, is the commercial completely done and sent off to FDA yet? Just help us give us a timing of when that will be done, thanks.

With regard to the pushback, I think, again, the gastros are doing very well, and their prescribing behavior is growing nicely. We are not really hearing anything out of gastros that is concerning to us. I think the pushback, on the primary care side, really becomes an ongoing educational effort to make sure that they understand the product, they identify the appropriate patient, and I think, out of the gate, they have a fairly narrow view of who the appropriate patient is. Obviously, they're going to use it in the more refractory patients, and once they get some positive experience, they seem to continue to progress.

Again, I think we knew that the primary care environment was going to take some time. I don't think we are seeing a lot of pushback, other than, really, trying to get the doc, the primary care doc, to get some experience with a broader patient population. I think we are going to continue to push on that and expand that prescriber base over time. I think, again, the lead indicator is those early adopters and to see what is going on with their overall productivity, which is encouraging.

On the consumer side, we have a number of concepts that we have taken through market research, they are responding very well. We are making a final decision on a concept, and obviously, at that point, we will submit it to the FDA. We have not submitted it as of yet. Which, certainly, still keeps us on track for a first-half launch of the consumer campaign next year.

You think turnaround from FDA is three, four months? How should we be thinking about that?

At this point, it is hard to determine that. Right now, if we -- the rules with FDA is, if you submit one add, they will turn it around in somewhere between 45 and 60 days.

Ravi Mehrotra, Credit Suisse.

I am going to remain on the big-picture perspective. You talked a little bit about how the refills are calling to chronic usage, can you take us through what you perceive are the best leading indicators to show that you are getting across this use-it-chronically message, which you have talked about for a long time? Thank you.

Again, we are encouraged by the volume and growth of the refills, and certainly, we are tracking cohorts of patients over time to really understand what's the overall adherence. Certainly, the real question isn't -- and we have got about seven or eight months of data that we have been tracking the initial cohort of patients. The real question on my mind isn't do they fill 4 or 5 times, it's do they fill it 8 or 10 times over the 12-month period. So, I think we are very encouraged by the refill rates. We are very encouraged by the feedback we are hearing from patients. And obviously, we are going to need to continue to track these cohorts to really understand what annual days of therapy look like.

I would add, Ravi, if it is okay, that one thing we have seen from our market research is, even early in the evolution of this category and the evolution of LINZESS, both physicians and patients are perceiving the disorder to be a chronic disorder and the therapy to be a chronic therapy. And, the primary driver, on both sides, is the abdominal symptoms -- the pain and other forms of abdominal discomfort. I think we are very encouraged, as well, by the changing perception in both of those communities that this is not a laxative or a laxative problem, this is a chronic pain and visceral hypersensitivity problem and that this is an agent that can be helpful there.

Irina Rivkind, Cantor Fitzgerald.

I wanted to turn to Europe for a minute. We are booking API sales to Almirall, but we haven't started seeing any royalties yet on those sales. Can you help us understand when you expect to book sales royalties in Europe? And also, whether or not you expect to get the $17 million in milestones from Almirall associated with the country-by-country approvals? Thank you.

Irina, it's Michael. Let me take the royalty question first, then I'll touch on milestones. We are booking royalties, as we mentioned in the last call. We are booking them one quarter in arrears in order to properly account for everything and allow for the timing. You will see -- we didn't call it out as an individual line item because it was less than $100,000 in royalties from Q2, which were booked in Q3. We will be calling that out as we go forward, and those have already started. So, that's the first question.

Secondly, with regard to milestones, at this stage, we are not projecting any additional milestone payments this year, but we continue to work with Almirall, and they are working quite hard to get approvals and get the appropriate reimbursement in different countries. Hopefully, over time, we will be able to see additional milestones from Europe. But, right now, we are working hard on the countries where we have approval.

And then, I have a follow up on R&D spending for next year. I know you mentioned a range for what you expect to spend on SG&A. Directionally, should we expect a slightly smaller R&D expense next year? I think you said you expected the OIC trials, et cetera, to cost less than the bloating trials, so I'm wondering how you're thinking about the budget for next year?

Irina, we did -- you are right, we did explicitly call out on the commercial side because we wanted people to understand how the investments would work now that we are talking in more detail about DTC. It is early to be talking about 2014, and we are not providing any specific guidance, from an R&D perspective, at this time. We will, over time, give you more clarity as we get a little closer.

Geoff Meacham, JPMorgan.

This is Anupam Rama in for Geoff Meacham. Just a quick question on the positive CIC data you have today. Just wondering about the strategy of how to take advantage of this. Is it quickly putting it at a medical meeting, publication, or is going straight to the FDA trying to get a label update? Thanks.

First off, thanks for acknowledging the data, and we are very excited about it, obviously, came in very clear. Relative to the use of it, we are still in the early stage of doing all the analysis, so that was the top-line data. There's a lot of data in this study that we really are interested in going through and taking investors through, particularly on Investor Day, particularly around other symptoms that are there -- the upper GI symptoms. This study actually involves a lot, and a lot of interesting points for us to look at, so we will be sharing some of that in the Investor Day coming up.

Relative to where we will go, certainly, we intend to advance it forward into medical conferences first. We will be [looking] as the data gets -- as we continue to mine the data, manuscripts should be anticipated throughout 2014. We would be planning, I think, at least one, maybe, additional manuscript from this very extensive study. And then, with respect to regulatory authority, again we think this information provides strong foundation to go and talk about the other symptoms besides abdominal pain and constipation. We want to expand it into the symptoms such as bloating and the rest of the secondaries, so we think the study provides a strong scientific rationale to go and have that discussion with regulatory authorities, and we certainly plan to do that.

I think the other piece -- hi, this is Tom. The other piece to keep in mind, and really, as Mark mentioned, the bloating data is critical. One of the things that we are learning in the marketplace is when physicians can move beyond straining and infrequent stools to other intestinal symptoms, it is a huge driver of choice for LINZESS. I think, as we advance that, certainly having the abdominal pain data is critical, but to help understand -- or physicians and patients to understand the fact that they can see benefit for these other symptoms is critical, but obviously, we will be working with FDA, closely with FDA, to make sure that we are doing that in the appropriate manner.

Gary Nachman, Goldman Sachs.

First, on the $250 million to $350 million in DTC -- commercial spend for 2014, if you increase DTC, then what will that come at the expense of since the spending will be flat from 2013? Should we assume that physician details will come down next year, and do you think that is a risk as you are trying to expand further in primary care?

It's a really good question. Our overall strategy from day one was to initially go out as broad as we can to get as broad of adoption as we possibly could in both the gastroenterology as well as primary care marketplace. Over time, the intention was always to tighten up our focus on the most productive prescribers to really maximize growth and efficiency for the sales force. That has always been the strategy, and we are certainly following that initial strategy, which obviously is likely to bring down the number of first physician calls, certainly. Which, obviously, we will get to a point where we are driving growth in a more productive, efficient way, and also, we will make an appropriate investment in the consumer patient side, as far as the media spend.

I think the numbers that we have given in the past, we feel, will encompass both of those efforts. Obviously, there is still very broad-scale investments into the primary care, and we believe it is a right level of spend to maximize the growth of the brand.

Okay. And then, in terms of the bloating data, from a commercial standpoint, if it is ultimately published, or you get some of that data on the label, you said it is critical -- could you give us a little bit more on that? How important is that, specifically with primary care physicians, to get over the hump, let's say, or payers, is it going to matter there? Then, on inventories at 3 to 4 weeks, is that a steady-state here, or could it come down a little bit more in the next quarter?

I will take the bloating question, and I will pass over the second question to Michael. I think what we have seen in market research, bloating is really important to patients, and bloating spans both chronic constipation and IBS. It is really a critical symptoms for patients. They self identify with it, it is burdensome, and it is extremely problematic. And obviously, the fact that, certainly, LINZESS appears to reduce bloating significantly, is valuable to patients. It is also a key reason to choose the drug from the physician side.

I think, from a payer perspective, it certainly strengthens the overall value proposition as to why this brand clearly is unique in the marketplace, and certainly, strengthens our ability to secure ongoing reimbursement because it is a clearly differentiated brand. I think bloating is a significant contributor to the overall profile of the drug, and certainly, should help us grow the brand over time. With that, I will turn it over to Michael. You want to handle --?

On the [wholesale] question, the quick answer is, yes, we are approaching steady state. There is always the chance for fluctuation, but we think we are in the right zone now, and that could -- your question was specific, is there room for that tightening up a little bit over time? There is room for that to be tightened up a little bit, but we are in a steady state, and we would expect to be in that zone going forward.

Juan Sanchez, Ladenburg.

Couple of questions, what will be the right timing for a potential price increase. It's still early, but if we think forward, when do you think is appropriate to raise prices here? The second question is, in the current constipation trial, the 290 microgram dose, did that dose meet the primary endpoint, or it didn't?

Juan, let me take the pricing question first because I have a quick response to that. In terms of the comments on any change with regard to pricing is we certainly don't comment on that in advance, so I don't have anything to add at the moment. I will turn it over to Mark to talk a little bit more.

Juan, 290 microgram did hit the primary endpoint and all the secondary endpoints.

Got it. Thank you, guys.

Juan, the reason we presented the data that way is because the 145 dose is the only approved dose for chronic constipation, so the primary endpoint was, in the chronic constipation population, through the recapitulation of that primary endpoint with the approved dose.

Could you potentially use this data to include the 290 microgram dose in a future label, or --?

Yes, think it is too early to say right now, Juan. Again, we still are reviewing all of this data.

Yi Chen, Aegis Capital.

My question has already been answered, thank you.

Jason Gerberry, Leerink Swann.

Just a couple of clarification points. On the DTC, I know you said you haven't really decided on the concept fully yet, but given the timelines that you have provided, is it fair to say that you might have the concept decided by Investor Day? Just curious if you'd commit to potentially sharing more of the details on the DTC program at Investor Day? Then, the follow-up question is around Europe. Not having Almirall launch milestones in the remainder of this year, if you could provide any color on what's going on with the launches in Italy, France, Spain? Thanks.

Mark, can you take the first question on the DTC?

Sure, Peter. As far as the DTC, the primary purpose of our Investor Day is really to focus on our progress -- how we see the long term, with regard to our development process, and certainly, where we are going to go in the future as well as what we've learned so far. It will be really focused on the clinical profile and strengthening the clinical profile. As far as the consumer campaign, as I mentioned, we are on track to launch in the first half of next year, and we are certainly excited with the progress we've made so far, and it has been a great collaboration with Forest.

With regard to Europe, our partners at Almirall are working hard on a pan-European strategy. The rollout of that on a country-by-country basis, we do not comment on the specifics or the exact timing of that. But, for sure, we believe this product has potential to benefit patients throughout Europe, and they're working through it on the most effective way to operate the business.

I'm not showing any further questions at this time. I would like to turn the conference back over to our host for closing remarks.

Thanks, Kevin, and thank you all for participating. We appreciate your input and interest. We will be around the rest of the day, so please contact Meredith if you would like to follow up with any additional questions. And, most importantly, of course, go Red Sox.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.