Ironwood Pharmaceuticals Inc (IRWD) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals fourth quarter 2013 investor update.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Meredith Kaya, Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for our fourth 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 the information discussed in today's call is based on information as of today, Tuesday, January 21, 2014, 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 September 30, 2013, and any of our future SEC filings.

Joining me for today's call are Peter Hecht, Chief Executive Officer, who will provide introductory remarks; Tom McCourt, Chief Commercial Officer, who will give an update on the commercialization of LINZESS; Mark Currie, Chief Scientific Officer, who will summarize our pipeline efforts; and Michael Higgins, Chief Operating Officer, who will review our financial performance and guidance and then open the call to your questions.

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 the Events section of our website to access the webcast live, if you haven't done so already. I would now like to turn the call over to Peter.

Thanks, Meredith, and good morning, everyone. I have had the good fortune of seeing many of you recently at our Investor Day last month in New York, and at the JPMorgan conference in San Francisco just last week, where we detailed our strategy to build on the successful launch of LINZESS and grow a leading GI therapeutics company. For those of you whom we did not have a chance to meet with or who weren't able to participate in our recent Investor Day, I encourage you to listen to the webcast, which can be found on the Investors section of our website.

Before I start, I would like to take a moment to acknowledge and thank all of the people who have been instrumental in getting us to where we are today. This includes our current and former employees, our fellow shareholders, our Board members, and our partners. I am honored for the support, guidance, and commitment all of you have provided in helping us to deliver on our mission.

2013 was transformational for us at Ironwood. We made important progress across many fronts, starting with LINZESS, which has just finished its first full year of being on the market and is well on its way to becoming a very important product, with the potential to help millions of adult patients with IBS-C or CIC.

We made important progress in our R&D pipeline as well. And through LINZESS and our pioneering work with GC-C agonist, we have developed deep therapeutic and pharmacological expertise, laying the groundwork for us to advance a robust pipeline of GI therapeutic candidates and execute on our strategy.

LINZESS is the core of this strategy. As I just mentioned, the LINZESS launch has been strong. Over 200,000 unique patients have filled a LINZESS prescription from launch through November of 2013, and over 580,000 total prescriptions have been filled. More than 50,000 healthcare practitioners have prescribed LINZESS and net sales approximate $119 million in 2013 and $138 million since the drug launched in December of 2012.

We see tremendous opportunity ahead for LINZESS. And recall, we have patent exclusivity for the composition of matter patent through 2026, with anticipated patent-term extension, and with the potential to expand our LINZESS franchise and extend patent protection for new linaclotide products to mid-2030s.

The successful launch of LINZESS has been driven by the terrific collaboration between our Forest colleagues and the superb commercial team here at Ironwood. We've built robust commercial capabilities, primarily to maximize the potential for LINZESS, and we believe these capabilities are a growing competitive advantage and a platform for growth.

We intend to leverage externally and internally discovered products to grow revenues, build a leading GI company, and create value for our fellow shareholders. We will continue to evaluate external products that fit within our core expertise. Leveraging our therapeutic and pharmacological expertise, we made substantial progress across our robust pipeline in 2013 and are now positioned to advance up to seven GI clinical development programs, with multiple opportunities to generate proof-of-concept data.

While we are focused primarily in the US, we are also passionate about bringing linaclotide to suffering adult patients around the world. To do this, we've formed strategic collaborations with great partners in regions outside the US, and each of them continued to make progress this past year.

Almirall initiated launches of CONSTELLA across the EU, with CONSTELLA available to adult IBS-C patients in nine countries in Europe, including the UK and Germany. Additionally, Forest received approval for CONSTELLA in Canada. We and AstraZeneca initiated a Phase III clinical trial of linaclotide in China, and Astellas recently completed enrollment in its Phase II trial of linaclotide in Japan.

As we execute on our strategy, we are focused on allocating our capital to our priority growth platforms in the most prudent and productive way possible. Over the course of 2013, we saw quarter-over-quarter net cash used for operations go from approximately $90 million in Q1 to approximately $42 million in Q4. This was accomplished through both revenue growth and careful expense management by our team. And, we expect further reductions in our net cash used for operations in 2014, as we continue to focus on our goal of maximizing a long-term, per-share value for our fellow shareholders.

With that, I will hand it over to Tom for a brief commercial update.

Thanks, Peter, and good morning, everyone. As Peter mentioned, LINZESS has been on the market now for just over a year, and we have been able to establish strong fundamentals across the key leading indicators, in line with some of the most successful primary care launches. We are pleased with the progress to date and believe our combined efforts with our physician, payer, and patient customers have resulted in strong uptake and growth of LINZESS prescriptions.

Since launch, more than 580,000 total LINZESS prescriptions have been filled, including 220,000 in the fourth quarter alone, representing 25% growth, quarter over quarter. This was driven by both new patient starts and a strong retail rate. We are still in the early days of growth for this brand, and we will continue to execute on our strategy to fuel the acceleration of LINZESS into the marketplace over the coming months and years. As we continue to share our progress in launch, we will focus on a few key metrics that we feel are the most accurate indicators for success of LINZESS, including physician adoption, payer status, and patient engagement.

Beginning with physicians, our combined sales force engaged with more than 85,000 physicians last year, resulting in a broad and growing prescriber base of more than 50,000 healthcare practitioners since launch. This includes approximately 90% of high-prescribing gastroenterologists and approximately 70% of high-prescribing healthcare practitioners, largely made up of primary care physicians.

We are very encouraged by the breadth of the prescriber base, and also, that as they continue to gain experience with LINZESS, physicians are expanding use to more and more of their appropriate patients. We believe this increase is largely driven by physician knowledge and satisfaction with LINZESS. Based on market research, over 90% of physician surveys report being knowledgeable and 74% report being highly to moderately satisfied with LINZESS, identifying abdominal pain relief as the primary reason they choose LINZESS.

We also made important progress in 2013 with payers, as we work to maximize access for appropriate patients at a reasonable price. As of December, we estimate that approximately 75% of adult patients covered by commercial insurance plans and approximately 50% of Medicare Part D patients have unrestricted access to LINZESS.

Additionally, through our efforts with the payer and our co-pay solutions, we estimate that 80% of adult patients with commercial insurance have access to LINZESS at a co-pay of $30 per month or less. We and Forest are continuing to make good progress to further improve access and reimbursement for patients with both national and regional plans.

Over the past year, we have made important progress and learned a great deal about IBS-C and chronic constipation patients, including their responsiveness and interest in our digital education efforts and their adherence to treatment. Patient persistency to treatment is a key indicator for treatment satisfaction.

This graph summarizes an analysis of three cohorts of patients: the first starting in January, the second starting in April, and the third in July. It compares the adherence of LINZESS to Zelnorm and Amitiza based on a rigid definition that is measured over three-month intervals. As you can see, the early results of this analysis suggests the adherence of LINZESS is 40% to 57% higher than launch-aligned analogues.

But, we've only scratched the surface of the unmet patient need in the marketplace. Over 45 million adult patients are suffering from IBS-C and chronic constipation, with over 10 million actively seeking care, treated and not satisfied, and an additional 15 million adult patients self treating and not satisfied. Both groups represent a huge opportunity for LINZESS.

Now that we have established a broad prescriber base, secured solid payer coverage, and observed a high level of interest from patients, we feel we have created a strong foundation to further expand our education efforts with patients. We have consistently identified poor patient-physician communication as a barrier to effective care and underscored the importance for patients to play a more active role in their own care.

We believe LINZESS is an ideal candidate for a successful consumer advertising campaign, based on a set of recognized criteria that have previously defined successful consumer campaigns. This includes a highly symptomatic patient population with a clear unmet medical need who can easily self identify with an advertising message and recognize the benefit of a first-in-class treatment option. So, we and Forest will initiate broader direct-to-consumer efforts, beginning in late March, to further educate and inform patients about IBS-C, chronic constipation, and LINZESS, with the goal of enhancing patient-physician dialogue and driving overall request of LINZESS moving forward.

We will continue to make sizable investments into both physician and patient promotion as we evolve and refine our marketing mix, with the total marketing and sales expense in the range of $240 million to $270 million in 2014. As you can see, it has been a strong launch for LINZESS so far, with a significant opportunity for continued growth in the future. We and Forest on focusing on maximizing LINZESS, both within its current indications, as well as in future potential indications and patients where we see a significant unmet medical need.

With that, I will turn it over to Mark to briefly highlight some of these efforts, in addition to reviewing our robust pipeline. Mark?

Thanks, Tom. We were thrilled to host our first Investor Day last month, where we had a chance to share in greater detail the exciting programs that we have in development.

Looking at a snapshot of our pipeline, we have a very robust and focused R&D platform, including up to seven GI clinical development programs, with opportunities to generate proof-of-concept data over the next 24 months. As you can see, we are highly focused on our opportunities with linaclotide, including our effort to enhance the clinical profile of LINZESS, within its current indication, and to expand its utility by seeking additional approved indications in populations, such as: opioid-induced constipation, pediatrics, and potentially in the prevention of colon cancer, which is currently in the early stages of development.

We are particularly excited about our opportunity with linaclotide's colonic delivery, which has the potential to enhance the relief of lower-abdominal pain, and importantly, could result in two product opportunities within a single program. First, for patients with the current LINZESS indicated population, IBS-C and CIC; and second, for patients suffering from GI disorders with severe lower-abdominal pain as a predominant symptom, such as other forms of IBS, ulcerative colitis, and diverticulitis. Assuming success, this program would provide patent protection for these new products through the mid-2030s.

In addition, we are investigating additional GI therapeutic development programs aimed at addressing the unmet needs of the millions of patients suffering from highly symptomatic disorders of the upper and lower GI tract. These include IW-9179, our second GC-C agonist, that is designed to act locally and potently in the small intestine. IW-9179 is currently in a Phase II study for functional dyspepsia, and we also intend to evaluate this program in the area of gastroparesis. IW-3718, a molecule we are studying for the treatment of refractory GERD, is expected to initiate a Phase II clinical study shortly.

With several important milestones expected over the next 24 months, we look forward to sharing our continued progress with you. With that, I will turn it over to Michael.

Thanks, Mark.

Turning to our financial performance, let's begin with LINZESS, where we continue to see solid growth. Forest reported $51 million in net sales of LINZESS for the fourth quarter of 2013, compared with $34.4 million in net sales reported in the third quarter of 2013, a 48% increase quarter over quarter. For the full year 2013, LINZESS net sales were $118.8 million and total net sales since launch in December 2012 were $138 million.

As Peter and Tom both detailed earlier on the call, LINZESS is on a positive trajectory, which we expect to continue into 2014. Wholesaler inventory levels remained in the 3-to-4 week range during the fourth quarter, where we expect them to stay going forward. Gross-to-net discounts for the quarter were approximately 20%, as compared to approximately 24% in the third quarter. We continue to expect gross-to-net discounts to settle in the mid-20% range over time.

We and Forest also increased the price of LINZESS in early December by approximately 8.5%, from a WAC price of $7.10 per day to its current $7.70 per day. This price increase had minimal impact on LINZESS net sales for the quarter.

The LINZESS collaboration produced a total net loss of $11.7 million in the fourth quarter. In the first three full quarters of launch, we recorded collaboration expense for our portion of the net costs and profits of LINZESS.

I am pleased to say, today, that we have shifted to collaborative arrangements revenue, after backing out the $8.8 million that we incurred in LINZESS marketing and sales expense during the fourth quarter, a payment of $2.9 million is due to Ironwood from Forest. As a quick reminder, we and Forest share the US LINZESS net profit or loss equally and present the settlement payments required to adjust our income statement to 50%, as either collaborative arrangements revenue or collaboration expense, depending on whether the settlement results in a payable to or a receivable from Forest. These settlement payments will fluctuate based upon the sales of LINZESS as well as the ratio of LINZESS commercial expenses incurred by us and Forest on our respective P&Ls.

LINZESS R&D expenses are also shared equally, but presented on our P&L differently. Both Ironwood and Forest present 50% of total LINZESS-related R&D on our respective P&Ls. For more detail on the accounting structure for LINZESS in the US, I encourage you to take a look at the slides from the webinar we held in late 2012, which are posted on the Investors section of our website under the Events tab.

Turning to Ironwood-specific financial highlights, I will first walk through our fourth-quarter 2013 results and then review our full 2013 highlights. Beginning with our balance sheet, total cash and equivalents, as of December 31, were $198 million. Approximately $42 million in cash was used during the quarter and approximately $273 million in cash was used during the year. As Peter mentioned earlier, we saw quarter-over-quarter reduction in our net cash used for operations in 2013 and expect further reductions in 2014.

GAAP revenues for the fourth quarter were approximately $5 million, which included $2.9 million in collaborative arrangements revenue associated with our share of the net profits from the sale of LINZESS in the US, as well as $2.1 million for the sale of API to our ex-US partners, amortization from our existing collaborations, and royalty payments for the sale of CONSTELLA in Europe.

Total operating excesses during the fourth quarter were $51.2 million, compared with $53.3 million in the third quarter of 2013. Included in our total operating expenses are our R&D expense, which for the fourth quarter were approximately $22.5 million, compared with approximately $23 million last quarter. Total operating expenses also included SG&A expense, which for the fourth quarter were approximately $28.7 million, compared with approximately $30.3 million last quarter. We recorded approximately $5.3 million in interest expense for the fourth quarter in connection with the $175 million debt deal we completed early in 2013.

Lastly, we implemented a reduction of workforce earlier this month. This was done in order to align our resources with our strategy to build a leading GI therapeutics company and ensure we are deploying our capital against this strategy in the most prudent and efficient manner. Maximizing LINZESS is the primary tenant to our strategy, and therefore, our field-based sales force and medical science liaison team were excluded from the reduction. The reduction was distributed broadly across G&A and R&D.

In connection with this decision, we expect we will incur aggregate charges of approximately $4 million to $4.5 million related to employee severance and benefits, of which approximately 85% to 95% are expected to result in cash expenditures. We expect the elimination of positions to be complete during the first quarter of 2014.

Turning to full-year highlights, GAAP revenues for 2013 were approximately $22.9 million. Total operating expenses during 2013 were $225.6 million. Total [2013] operating expenses consisted of $102 million in R&D expense and $123.2 million in SG&A expense.

To briefly review our performance against 2013 financial guidance, we expected to spend in the range of $60 million to $75 million in non-linaclotide R&D, and our total non-linaclotide R&D investment in 2013 was, in fact, $56.3 million. Additionally, we guided 2013 joint marketing and sales expenses for LINZESS to be in the range of $250 million to $300 million, and total 2013 LINZESS marketing and sales expenses were $255.5 million.

With respect to guidance for 2014, we expect our total operating expenses to be in the range of $215 million to $245 million. This consists of approximately $105 million to $120 million of R&D expenses, of which, approximately 45% is for non-linaclotide R&D investments, and approximately $110 million to $125 million of SG&A expenses. In addition, we have revised our guidance for the Forest and Ironwood 2014 marketing of sales expense for LINZESS, which we now expect to be in the range of $240 million to $270 million.

Thank you, and with that, I will turn it back over to the Operator to begin Q&A.

(Operator Instructions)

Ravi Mehrotra, Credit Suisse.

Thank you for taking my questions, and congratulations on a good quarter.

Could you give us some more granularity on the inventory levels for LINZESS and all the gross net discounts you observed in Q4? Thank you.

Certainly. Let me start with the inventory levels. We have been talking for some time, really since early in 2013, that we expected that the inventory levels would level out at the wholesaler level about three to four weeks. That's where we have been for the past couple of quarters, and that's where we've remained. Over the course of the quarter, in order to maintain that three- to four-week level, there are [reserved] purchases by the wholesalers to maintain that level as the TRx growth continues.

With regard to the gross-to-net changes, we've talked for some time about that these gross-to-net adjustments, which are estimates, will level out in the mid-20% range. Last quarter it was 24%. We are down a bit this quarter to 20%. We still expect a little bit of volatility in there until we finalize all of the contract work. But we still expect, over time, that we will level out in that mid-20% range.

Thank you.

Irina Rivkind, Cantor Fitzgerald.

Thanks for taking the questions. I just wanted to understand a little bit more about -- if you could give us granularity on your API sales to partners, and how we can better estimate the timing for that?

And then, the second question is: It is great that the JV has turned profitable, probably earlier than expected, but do you expect it to remain this way as you guys continue through the DTC campaign? Thanks.

First, Irina, with regard to API sales, it is very difficult to give you specific guidance. Those requests come through from our partners as needed. So, we don't have any real clarity on those ones.

They are relatively small at the stage. As they get more predictable as we go forward, I will try and give you a little more color on it. But right now, they come in as needed, and they are going to be a little bumpy for a little bit longer.

Let's see, with regard to -- I apologize -- the other question?

Well, the JV is now profitable, so just wondering if it is going to stay that way as you progress through the DTC campaign?

Yes, sorry. Our expectation is, directionally, that we should continue to trend in the same direction. As you see each quarter, you know how the calculation does, I reviewed it very quickly, but there is an opportunity that it could move back into a loss position.

But our expectation, right now, is that we will continue to be in a profitable position going forward. If it is a quarter-over-quarter flux, there is a chance in a single quarter it might happen, but for the most part, we expect to stay in this zone going forward.

Thank you.

Geoff Meacham, JPMorgan.

Good morning, guys. Thanks for taking the question. My question is also on the DTC campaign. Any specifics on that, in terms of rollout and the strategy for the DTC campaign?

And then, also curious about what the contribution to SG&A the DTC campaign is for this fiscal year? And I have one follow up.

Thanks, Geoff, it's Peter. Tom, why don't you take the first part of the question, and then we'll have Michael talk about the impact on SG&A.

As far as the campaign itself, Geoff, this will be a multi-channel campaign that will include TV, print, and digital. It will literally be initiated simultaneously in late March, as we mentioned.

Also, keeping in mind, we continue to refine the marketing mix across all of our investments and promotion between physician, payer, and patient. And we intend to stay within the range that we mentioned before, recognizing we are going to continue to make robust investments, both on the physician, as well as the patient side.

Michael?

So, Geoff, in terms of the SG&A impact, the number -- as Tom has stated, the number for DTC is incorporated into the total cost -- the $240 million to $270 million that we articulated. That will ultimately flow through because of the way the investments are being made. A significant portion of that is being made at Forest, and we're responsible for it.

So, it will ultimately flow through the collaboration revenue line. It won't flow directly through our SG&A expense line.

Let me just clarify: You were looking for the geography answer, I think, embedded in your question, as well as the numbers?

Yes. That's exactly right.

And then, just a follow up: You guys gave some data on persistence rates in your slide presentation. I am just curious: You are one year out with the launch, and I know you said after about a year, you'd be able to speak more specifically to duration of therapy. I'm just curious if you had any color on that now? Or, if not, when do you feel like you can have enough data to give us that number with some confidence?

Yes, thanks a lot, Geoff. The whole purpose of doing this analysis was to get a relative sense of how we are tracking against the other analogues. We know with the other analogues where with regarding annual days of therapy, as we've mentioned before. Both Zelnorm and Amitiza in a range between 90 to 100 days, depending on when you measured it.

And, of course, it's a little early to still give you an exact number -- what we think annual days of therapy are. But I think, as you can see, we are tracking well ahead of, certainly, our launch-aligned analogues. I believe probably sometime between now and the next six months we'll have a better idea of exactly what that annual day of therapy looks like. But obviously, a lot of that is going to depend on what happens with the DTC campaign, both with regard to new patient starts, as well as its impact on reminding people to refill their prescriptions.

Geoff, it's Peter. If I can just add a little extra color, I think, at a macro level, one of the things we are very encouraged by in seeing these data is the extent to which the patients are using the drug as a chronic therapy -- chronic pain-management therapy to a large extent.

And also, from these data, and also the qualitative market research we've done with both patients and physicians, the speed with which the perception of this category, by both physicians and patients, is evolving to one of a chronic pain-management category. So that's very encouraging for us. And, I think, speaks to the response patients are having with LINZESS.

With respect to days of therapy, just a reminder: That is not a hard number ever. It evolves as a brand evolves, as new indications are added. DTC campaigns both bring new patients in, which will affect it on an annualized basis, the number; but also reminds patients with an existing script to refill their prescriptions. So, it's a dynamic metric, but it is one where, I think on a relative basis, we are increasingly encouraged by the relative benefit we are seeing compared to the earlier analogues in this category.

That's helpful. Thank you.

Jason Gerberry, Leerink Partners.

Good morning. Thanks for taking the questions.

As we think about 2014, can you talk a little bit about where you see the majority of your LINZESS patients coming from? Are these largely untreated patients, or are these OTC MiraLAX patients?

And then, on the prescriber base, you talked about roughly over 50,000 prescribers. Where do you want to be with that number -- the prescriber base. Are you looking to significantly expand it, or do you feel like you've pretty much got the right size prescriber base in place now?

Tom?

Yes, as far as the initial source of the patient population, as we mentioned before, the far majority of these patients are being treated, actively treated, with OTC laxatives. What we've seen so far is roughly 65% of the patients that are initiated on therapy were moved right from an OTC directly to LINZESS, with the remainder coming from prescription laxatives.

So, the majority of the patients that have been treated to date are patients that are actively seeking care and have been treated with OTCs that are getting moved, which we feel very good about. It's what we really needed to see in order to believe that the drug will continue to grow nicely.

As far as the physician base, we wanted to make sure we had a broad enough prescriber base that had significant experience with the drug before we initiated broader patient education. I think as we move forward, just like any other category, there will be probably somewhere between 30,000 and 40,000 docs who are going to generate 70% to 80% of the business. And we want to make sure that we are concentrating on them to make sure that we're really maximizing the promotional response.

As I think about moving forward, I think the far majority of these patients will be patients currently treated with OTCs, and I think we're going to continue to see the prescriber base grow. However, I think there's going to be a real core group of 40,000 to 50,000 docs that are really going to drive the long-term growth of the brand.

Thanks.

Does that help?

Yes. Thank you.

Ram Selvaraju, Aegis Capital.

Thanks very much for taking my question. Just a couple of things with respect to what you may be seeing from your partner, Almirall, in Europe. Can you comment on the relative growth of Constella prescriptions in that territory, and how you anticipate that evolving? And can you give us a little bit more color on what Almirall is communicating to you on its promotional activities in Europe as of right now?

Why don't I take a start on that -- it's Peter.

Almirall has done a very good job securing a very strong label for Constella in Europe. The label includes a clear characterization of the product as a visceral analgesic, and they're doing a very good job under difficult circumstances. Europe is not easy these days, as you know, and as we are seeing most pharmaceutical companies manage their way through.

They've launched now in nine countries. They've gotten good price and reimbursement status in most of those countries, and particularly in the UK, they had a positive pricing response, and they are working to roll that out throughout the UK. They are working through the pricing negotiations in Germany with the GBA, and I can't give you any further color on that, but I think they're making good progress there.

I think one thing you ought to expect is: The rollout in Europe will be slower than it is in the US, for a couple of reasons. One is, obviously, the time needed to work through each of the countries, and the pricing and reimbursement status.

The other is, just to remind you, there hasn't ever been an IBS product approved in Europe. So, whereas here, both we and Forest have the benefit of having the market, both on a patient and physician side, be somewhat conditioned by -- particularly by the previous terrific work done by Novartis and Zelnorm, and to some extent by Amitiza as well.

In Europe, in all of those countries, there's no prior experience with an IBS product. So there's a need to do very intensive education with physicians, and particularly, with patients in Europe. We see great promise for the product over time in Europe, but you should expect the kinetics to be slower.

I think the other piece, Peter, that I would add on is: Based on what we saw and what we agreed on in the marketing plans, they are executing very, very well. They are driving good demand, based on the conditions that Peter outlined, within the UK, and certainly early in Germany and Scandinavia. They are very committed to the brand, and we feel very good about the way they are executing thus far.

Okay. That's helpful.

Two other very quick questions. Firstly, with regard to future price increases for LINZESS, can you give us an idea of what motivated the most recent price increase? What factors contributed to that, and the magnitude of that increase? And whether, at this juncture, you are seeing a response from the market that leads you to believe that further significant price increases could be possible, and that these would not have significant impact on uptake of the drug as we go forward?

And then, finally, if you can just talk a little bit about non-GI-tract-related drug candidates in your pipeline? Are you refocusing the R&D effort more towards the GI-tract-focused agents in the pipeline? Is that something we should expect to continue to see going forward or not?

This is Tom. I will take the first one on pricing. First of all, I think we have a very strong value proposition for the brand. And the reason why we came into the market at the price we came is we felt we wanted to establish a very strong value proposition out of the gate. And we certainly let our market research guide us with regard to what we felt the appropriate price should be, which was significantly below where some of the other industry products are.

That being said, we think there's significant room for growth, but we will certainly let the data guide us as we interact with payers moving forward. But we'll certainly let the data guide us as we make future pricing decisions.

Mark, you want to take the second one?

Sure. Yes, thanks, Ram, for the question. Certainly, we -- as indicated from our Investor Day, we are turning our focus much more to our GI projects. If you look through the project that we highlighted, the focus on LINZESS opportunities leading that way, and then our other GC-C agonist, 9179, and ultimately also our other GI opportunity, IW-3718.

Relative to the non-GI, really, our only other major area of focus right now is in the soluble guanylate cyclase stimulator area. We think we have some very interesting molecules there that we are advancing, and we think that will ultimately grow our pipeline with a number of different opportunities. But relative to the other assets that currently are in our portfolio, we are at the stage where we are de-prioritizing those, and focusing mostly on our GI assets at this current time.

Okay. Thank you.

Gary Nachman, Goldman Sachs.

Good morning. A couple of questions. First, on a relative basis, the new Rx's still seem a little sluggish, while the refills do look pretty strong. Do you think the DTC campaign is really the only way to accelerate N-Rx's in a meaningful way to get a real inflection in the news, and roughly, how long you think it'll take to see that?

And then, if the total commercial expenses for LINZESS are coming down a little from what you originally guided, are you spending less than you thought on the DTC program, or as far as scaling back on physician details -- what is causing that slightly lower expectation?

Yes. This is Tom -- I'll take the N-Rx question. As far as the new Rx's, out of the gate, we certainly, like any other brand, and particularly in a category like this, you're going to get the highly visible, high-need patients out of the gate. And over time, obviously we need to broaden the view of who the appropriate patient is for the doc as they continue to gain experience over time.

Certainly, the lead indicators that we're seeing from the physician, with regard to their level of satisfaction, their intent to prescribe more broadly, and their willingness to honor patient requests are extremely encouraging as we look to the future.

No question: The patient's role in this equation is critical. We certainly saw that with Prilosec. We saw that with Zelnorm, where you saw the acceleration, then it slowed down a little bit. And then, as you activated the patient, it obviously started to accelerate again.

And DTC will drive not only new-patient starts, but also remind patients to refill their prescriptions. So I think we feel that the timing is right. We think the investment is right. And we will continue to evolve that marketing mix, as far as the investment.

With regard to guidance, let me just state: As we put out the original $250 million to $300 million a little over three months ago now. And as we go through our planning process, we just refined that, and we felt we could get a little bit tighter on that as we went through the process.

To reiterate, though, our view is: We've got the right mix that we are planning for this year. We think we have a -- we will put on the ground a significant effort from a sales perspective. We'll continue to do that, as you've heard multiple times. And incorporated in this number is what we believe to be the right investment from a DTC perspective.

So, we think we've got the right mix. And we are very confident we can deliver on this range that I just gave to you today.

Okay. And then, just one follow up. On the last reduction of the overall workforce, and not touching the sales force at all, is that something that you would potentially reconsider, especially if you can't get another product into the bag at some point? I guess I just want to gauge how much of a priority is it for you guys? And you mentioned it earlier in your prepared remarks, looking externally for additional products to try and leverage that sales force better? Thanks.

Thanks, Gary. It's Peter.

We've built our commercial capability broadly, and our sales force specifically, with an eye to maximizing the benefit that LINZESS can provide to patients in the US. And I think we feel very good about the way the team has delivered -- the value they've brought to the collaboration. We shared some of those data with you at the Investor Day in December -- and the ability that that team has to educate physicians, gain good access to the offices, and perform at a very high level.

I think that's increasingly clear to us it's becoming a competitive advantage, and a platform for us to grow our Business and build a robust GI commercial business, both with internally and externally derived products. We're feeling very bullish about that whole commercial capability at this time.

Okay. Thanks.

(Operator Instructions)

Juan Sanchez, Ladenburg.

Good morning, guys.

Good morning, Juan.

I only had one question left on the OIC program. Why did you choose to go into Phase II, as opposed to doing a Phase III program? What do you need to learn from this Phase II?

Yes, Juan, obviously this is a new patient population for us, and trying to understand the appropriate dose, whether 145 or 290. So, it's in the level of the investment, obviously, going in and understanding that the effect size that we will see, and then being able to power up the Phase III studies and have discussions with the FDA. So, really that is the reason that it's starting as a Phase II program.

Thank you, guys.

Thanks, Juan.

Greg Wade, Wedbush.

Good morning, and thanks for taking my questions as well.

Tom, I wonder if you might just help us to focus in on some of the metrics you'd be looking at with respect to evaluating the DTC program, and when you expect the data from that analysis to be mature enough to make some assessment as to whether it's working? Thanks.

Thanks, Greg. Yes, I think, like you, I think we are going to focus primarily on new patient starts. That is, by far, the most sensitive lead indicator on seeing what impact it has out of the gate. Obviously, we will be monitoring refill rates as well, but for the DTC to really bring value, we need to be able to see a nice growth in new patient starts.

As far as how quickly we see the response and the magnitude of the response, obviously it is always variable. We can certainly look at analogues, such as Zelnorm, to give us some idea of how quickly we might see that, recognizing that their market has changed significantly since then.

But I believe we should see, certainly, an impact within the first two to three months, as far as some kind of inflection. The magnitude of the benefit will take a bit more time to really understand how dramatic the overall increase in growth will be.

Then obviously, based on that, we will continue to assess the level of investment. One of the key questions we want to be able to answer as we launch is: What is the right level of investment to really expand the overall awareness, keeping in mind that right now we have a very low relative level of awareness. We are right around 9% to 10%. And when you consider that, there is a tremendous opportunity for us to really grow the top of the funnel to really drive patients in to raise their hand and ask for the therapy. We should get a pretty good indication in the first two or three months as to whether it's working or not.

Should we expect that any change in the slope of the curve this year is as a result of DTC? Thanks.

Again, assuming that we start in March, late March, we would expect to see some impact in the new Rx growth curve within the first two to three months.

Thanks.

Does that answer your question, Greg?

Yes, I was just curious as to whether there was anything else going on that can contribute to a change in the growth dynamic this year.

David Friedman, Morgan Stanley.

Thanks for taking the question. The question is on the part of the R&D expense that was supply chain and rest-of-world support. I was wondering if you could maybe describe how much of it is supply chain versus rest of world? And then, if you can provide any more detail on the trajectory of each segment over time?

David, let me take that. We don't provide that level of granularity down to the individual line item, but I can tell you directionally that the supply-chain component is an important and, early on, an expensive element to getting up and running. And until you get everything validated and operational, and products approved, things flow through R&D.

Once you get the -- you move further down the process, then you end up, it becomes a balance-sheet item. So, we would expect, over time, that supply-chain component would continue to go down.

And the rest-of-world support, we're working hard to ensure that we are getting a good return on every one of those investments that we are making. In the territories where we have royalties, we are working very hard to make sure we only make those investments that provide a nice return to us. In China, and specifically where we have a partnership -- the costs there, relative to the clinical studies, will continue to be maintained for a period of time.

So, we don't give the level of granularity, but I hope directionally that helps a little bit. The supply-chain numbers will diminish over time, and the others we will manage very tightly.

That is helpful. Thanks.

Patti Bank, DISCERN Securities.

Good morning -- just a brief question for Tom. Tom, with Bill Meury taking over for Elaine Hochberg at Forest on the sales and marketing side, can you just give us any light on any changes or nuances that he brings to the table there?

Yes, I think -- thanks a lot, Patti. First of all, I think it's really important -- we've developed a very, very good working relationship with Forest, and obviously, Elaine was a big part of that.

On a day-to-day basis, Bill and I, of course, work pretty closely together. We talk almost daily. So, the two of us have a pretty unified view of what we think -- where the brand is going and how we get there. So, again, I would expect a continued great collaboration with Bill now taking added responsibility, and certainly look forward to really growing the brand together with him.

And then, just a quick question on a different topic. On the commercial payer side, can you give us any more color maybe on any major wins that you've had there -- maybe examples of big plans? And on the ones that are not on board, do any of those have restrictions that they wanted to see the drug in the market for a year and get experience?

Patti, it's a great question. As you know, we've made really good progress at this point in time to have 75%, 80% unrestricted access in the commercial full place and space. And of course, there's a number of plans, mainly regional plans, where we are continuing to try to pull access through. The Med D plans, as you know, are a little slower.

There's a couple of big plans out there we're in active negotiation with right now. We have about 50% access there. And we've got two or three sizable plans that we are really working hard to land to broaden access, keeping in mind that the far majority of our business is on the commercial side of the Business.

There's very few step edits and prior authorizations at this point. Obviously, those that are in place, we're working very hard to remove through active negotiation. But at this point in time, I think we are very pleased with the progress that we've made in collaboration with the Forest account management team.

Okay. Thanks.

David Maris, BMO Capital Markets.

Good morning. First, can you remind us what data releases you hope to have in the first half of this year?

And then, secondly, Forest has been very clear, on its conference calls, that LINZESS is very important to the future of the company. But maybe you can talk a little bit about why you think the Aptalis deal and the cost cuts and the rest, that your partner's announcements are a net positive or they're concerning for you, or how should investors be thinking about it? I think I can see it both ways, but wanted to hear from you what your thoughts are.

Sure, David. Mark, why don't you first take the question on the pipeline news?

Sure. Thanks, David, for the question. Yes, we are planning to have a pretty detailed release of information around our chronic constipation, bloating study that we reported top-level data back in the Fall. But we intend to have much more detailed data around that program coming up in the major GI conference, hopefully, at DDW.

And also, the other areas in our 9179, we intend to update our progress there, particularly around -- and this is in functional dyspepsia -- particularly around the enrollment of patients, and also the characteristics of those patients. It's a fairly small exploratory around the data, so it is not a pivotal decision-making study around data, as much as of the effect of the drug, but really teaching us about the functional dyspepsia patients and the characteristics of those patients as we look at the enrollment criteria.

And then, David, let me take the question about Forest. I guess I'd say we have been very pleased by the collaboration, really, from its inception in 2007. We have had a great working relationship across all of the functions.

I had a very strong relationship and partnership with Howard Solomon, and we are thrilled to see the progress and excitement at Forest since Brent has taken over. He and I are building a quite strong relationship as well. And again, Tom and Bill -- Tom said they talk almost every day. I think Tom and Bill probably talk 6 to 7 times a day, and that's true really across the Organization. We operate, to a very large extent, as a single, unified LINZESS effort.

With respect to Aptalis specifically, I think anything that reinforces Forest's commitment to LINZESS, anything that helps the Forest sales reps have better relevancy with their customers and get more mind share and time in the physicians' offices to talk about LINZESS, anything that grows LINZESS is good for them. It's good for us. It's good for LINZESS. And most important, it's good for the patients who can benefit from the product. So, we see a lot of positives there.

It's been very pleasing for us to see LINZESS evolve and grow, and become a very big part of the future story of Forest, and a key growth driver for them. The collaboration all along has prioritized LINZESS as highest priority at Forest. But to hear very clear external communication from Brent and the leadership team that LINZESS is priority number one for them at Forest is always helpful. So, we've been very pleased.

Great. Thank you very much.

Mario Corso, Mizuho USA.

Good morning. Congratulations on the good performance.

Thanks, Mario.

Just a couple of quick questions. On gross to net, we've seen it bounce around a bit the last two quarters, and you've talked about mid-20%s over time. For 2014, should we assume mid-20%s, or would it be something more likely in the range of the last couple of quarters, of 20%, 24%?

And then, on the direct to consumer, I'm wondering -- I don't know if you mentioned anything about the duration of the direct-to-consumer advertising. Should we be thinking about it as you're purchasing air time and online space for that two- to three-month assessment period, and then you have to decide if you re-up after that? Thanks very much.

Michael, can you take the gross to net?

Yes. Quick response: I think the mid-20%s is still the right place to be, Mario. The question that's really more difficult to answer is: Do we get there immediately, or does it take a couple of quarters to get there?

I think ultimately that's where we're going to get, and it really depends -- as you know, that calculation is based on estimates on our projections of what the mix is going to look like. But I still feel quite comfortable that that's the right range over time. And, yes, for 2014, I'd use that as the appropriate range.

Tom, DTC --?

Yes. Thanks, Mario. With regards to the commitment on the investment of DTC, as you know, traditionally you buy media in 90-day blocks to really maximize the efficiency of the media buy. And certainly, we will make the initial investment in -- probably in that kind of a purchase, and it'll give us enough time to really understand the impact of the DTC.

And then, moving forward, as we have a better understanding of the overall response and the ROI on the investment in media, we can start stretching that out to get more desirable, efficient media buys over time. But I think for the most part, we are really going to let the data guide us with regard to the immediate purchase, as well as purchase over time.

Rachel McMinn, Bank of America Merrill Lynch.

Yes, just two questions. On the price, I wanted to ask -- you mentioned that this didn't really have much of an impact on the fourth quarter. Were there specific terms that extended that? How should we model that? Is that going to be a full impact on the first quarter or kind of more gradually, if you have particular context around that?

And then, just to double check on inventory stocking, you mentioned it is in the normal range, but was there any buy in -- it is typical for companies -- wholesalers to buy in ahead of a price increase. So I'm just wondering how confident you are, based on the data that you have, that there is no one- or two-week extra bump up in the quarter? Thanks.

Rachel, let me take that. With regard to price, the price change has been implemented. So I think you can use that on a go-forward basis as you're calculating. So I think you should use the new pricing.

With regard to the inventory levels, specifically at the wholesale level, there is quite detailed reporting that is available, and we are quite confident that we are in that three- to four-week range. To be clear, as the volume goes up and as TRx's continue to increase, in order to maintain the inventory necessary to meet demand, the absolute volume of inventory goes up on a quarterly basis. And so those numbers, every quarter, will continue to contain some level of inventory as the demand goes up. But, no, we are very confident in the range that we've given you from a wholesaler perspective.

Thank you.

I would now like to turn the call back to Peter for any further remarks.

Thank you, Danielle, for your help this morning. And thanks to all of you for participating and listening in. We'll be around the rest of the day, so contact Meredith if you'd like to follow up with any additional questions. Again, many thanks, and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.