Ironwood Pharmaceuticals Inc (IRWD) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Ironwood Pharmaceuticals second-quarter 2014 investor update conference call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Ms. Meredith Kaya, Director of Investor Relations. Ma'am, you may begin.

Good afternoon, and thanks for joining us for our second-quarter 2014 investor update.

By now, you should have a copy of our press release, which crossed the wire earlier this afternoon. 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, Monday, August, 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 March 31, 2014, 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 event section of our website to access the Webcast live, if you haven't done so already.

I'd now like to turn the call over to Peter.

Thank you, Meredith. Good afternoon, everyone.

In the first half of 2014, Ironwood has made strong progress, executing on our strategy to build a leading GI therapeutics Company. Strong performance by our team and our partners is driving meaningful value creation and laying the groundwork for our long-term success.

As a reminder, our strategy is built on the following key tenants: First, maximizing the benefits linaclotide can provide for patients around the world. Second, advancing our robust GI pipeline and GC platform. Third, leveraging our strong commercial capabilities. And fourth, prioritizing our investments in our key value drivers.

As we've said many times before, primary care launches are challenging with millions of patients and thousands of physicians to be reached. But important primary care brands can make a difference for millions of patients and provide great value to shareholders. We're only 18 months into the LINZESS launch, and as we pioneer this category, the brand is approaching profitability.

LINZESS benefits from greater than 95% gross margins and strong intellectual property protection, which we expect to provide exclusivity to at least 2031, giving us at least 17 more years to maximize LINZESS. With LINZESS expected to soon be a profit generating asset and millions of additional appropriate patients still to be reached, this brand has the potential to deliver significant cash flows for many years to come. We have a lot of hard work in front of us, but we are pleased with the success we've seen early on.

Linaclotide is and remains core to our strategy. Beyond linaclotide we are leveraging our demonstrated leadership in guanylate cyclases and our therapeutic expertise in GI, evaluating several product opportunities for the treatment of large, chronic, and symptomatic conditions that target multi-billion dollar markets.

We have multiple opportunities for proof-of-concept data over the next 24 months. And with the strong commercial capabilities that we established so that we could maximize LINZESS in the US with our partner Actavis, we are well positioned to utilize existing infrastructure and resources for additional product launches of internally or externally derived products over time.

Total cash used from operations in the second quarter was approximately $36 million, and we finished Q2 with $302 million in cash. As we execute on our strategy, we will continue to prudently invest in our business and allocate our resources to the areas that we believe will create the most value for our fellow shareholders.

With that, I'll hand it over to Tom.

Thanks, Peter, and good afternoon, everyone.

It's been another strong quarter for LINZESS. Over the last few months, we've seen a clear impact following the launch of our patient awareness efforts. We are still in the early stages of growth for LINZESS, but the fundamentals are strong and demand continues to grow as awareness increases amongst physicians and patients and we continue to make good progress with payers. Importantly, we continue to receive positive feedback from patients and physicians as they gain experience with LINZESS.

In April, we and Actavis initiated a multi-channel direct-to-consumer, or DTC, effort to achieve three goals: To increase awareness of IBS-C and chronic constipation or CIC; to enable more effective patient/physician communication that would strengthen new demand for LINZESS among appropriate patients; and to remind appropriate patients to refill their prescriptions. We and Actavis are highly encouraged by the response we are seeing so far, with an almost immediate impact following the initiation of this effort. Demand for LINZESS has grown by 36% quarter over quarter with over 326,000 total prescriptions filled during the second quarter.

To further illustrate the impact that we're seeing from our patient awareness efforts, the chart on the right side of this slide is the LINZESS trend line prior to launching DTC, compared to the actual LINZESS prescription growth following the initiation of DTC. 15 weeks following the initiation of DTC, there is a 20% increase in total LINZESS prescription above the pre-DTC trend.

Importantly, not only are we seeing strong demand for LINZESS, but our product is growing the entire category of prescription treatment options for IBS-C and CIC, as well as capturing market share within the category. This has been further strengthened by our recent consumer education efforts.

We believe the growth of the category is coming from both new patients seeking care who were previously self-treating with OTC laxatives and patients actively managed by a physician and treated with OTC laxatives. Over two-thirds of adult IBS-C and CIC patients are treated with OTC, representing an enormous opportunity for LINZESS ahead.

LINZESS also gained substantial market share in the category over the past few months. Just in the 15 weeks following the initiation of DTC, new prescription and total prescription market share have increased approximately 2.5 percentage points, representing a 38% increase in new prescription market share and a 36% increase in total prescription market share. We believe this is coming primarily from OTC laxatives.

We continue to establish strong fundamentals across a number of leading indicators, strengthening the foundation upon which we build demand and appropriately accelerate growth in the marketplace. We follow three categories of metrics: the physician's ability and willingness's to choose LINZESS for appropriate patients; the continued improvement in payer coverage; and the demand from patients. We've made great progress across each of these in the recent period.

More than 81,000 healthcare practitioners have now prescribed LINZESS, establishing a very broad and deep prescriber base. This was further supported by our DTC efforts in which we saw weekly new prescribers grow to more than 1200 per week, up from about 800 per week prior to initiating DTC. Additionally, data are showing that more than 85% of prescriptions are being filled following a patient request.

We continue to see big wins in the payer space and are pleased that they are continuing to recognize the significant unmet medical need in this therapeutic category and the value of LINZESS. During the last quarter, we signed key contracts with CVS Caremark commercial, a national pharmacy benefit manager, covering approximately 19 million lives, as well as United Healthcare, a commercial formulary covering approximately 12 million lives. LINZESS will be available under both contracts at a Tier 2 copay or approximately $30 per month. These decisions were effective July 1 and will provide better reimbursement for patients.

Lastly, as I've been detailing over the last few minutes, patients are responding very well to our consumer awareness efforts, driving demand for LINZESS and persistency on LINZESS is strong. We've shared specific cohort data with you in the past, and LINZESS continues to track well ahead of other launch analogs, including Zelmar.

There continues to be a substantial growth in LINZESS prescription. What we've been seeing over the last several months, supported even further by DTC efforts, is that more physicians are choosing LINZESS, more patients are asking for LINZESS, and the increased awareness and experience by both patients and physicians is resulting in more demand for LINZESS. And with over 375,000 patients having tried LINZESS at least once, and considering there are over 40 million adult patients estimated to be suffering from IBS-C and CIC, we have really only scratched the surface of the opportunity.

We see significant opportunity ahead in both IBS-C and CIC and through our efforts to gain additional approved indications, which Mark will talk about shortly. We believe there is even more opportunity in front of us to help millions of additional suffering GI patients.

We've had a great partnership with the team from Forest over the past several years through our development and commercialization of LINZESS. And we are thrilled with the progress we've made to date. We are looking forward to continuing these efforts with our new partner, Actavis. The combined team continues to work very closely and is completely focused on bringing LINZESS to the millions of suffering adult patients with IBS-C and CIC in the US.

With that, I'll hand it over to Mark.

Thanks, Tom.

We've made progress over the past few months advancing our pipeline of therapeutic candidates. Linaclotide and GCC agonist are core to our R&D strategy, providing us with the opportunity to expand our already deep understanding and expertise in guanylate cyclases, as well as in GI conditions. Our goal is to obtain regulatory approval for other linaclotide indications and formulations and for additional therapeutic candidates for lower and upper GI conditions, including another GCC agonist and a gastric retentive bile acid sequestrant and advance our FGC platform, which has the potential for broad therapeutic utility.

Looking at a snapshot of our current pipeline, I will take a minute to highlight a few updates from the second quarter. First, we and Actavis initiated a development program for linaclotide in opioid-induced constipation or OIC. OIC is a growing problem in the United States due to the rapid increase in the use of opioids.

We are evaluating linaclotide in this area to see if it has the potential to provide relief of the GI dysfunction associated with OIC usage. We expect to begin enrolling patients in a Phase II clinical study later in the current quarter, with data expected in the second half of 2015.

Second, we and Actavis completed the non-clinical part of our pediatric post-marketing requirement for LINZESS, and we are pleased to now be working with the FDA on a plan to conduct clinical studies of LINZESS in pediatric patients.

Third, we and Actavis continuously evaluate our R&D opportunities with linaclotide and aim to efficiently prioritize our resources in what we believe are programs with potential for meaningful value creation. Pending clarity on the clinical and regulatory path, the companies have decided to de-prioritize and suspend our efforts to develop linaclotide in a fixed-dose combination with the PPI.

Fourth, we are making good progress enrolling patients in our Phase II-A clinical study of IW-3718, our gastric retentive bile acid sequestrant for patients with refractory GERD. We continue to expect data from this program in the first half of 2015.

And last, we have identified a second development candidate, IW-1701 in our FGC platform. Given the breadth of potential indications for FGC stimulators, we see value in advancing multiple candidates with different pharmacological profiles.

Our first two FGC candidates, IW-1701 and IW-1973 have the potential to target multiple severe cardiovascular diseases. We expect to advance IW-1973 into clinical development in the first half of 2015 and advance IW-1701 into clinical development in the second half of 2015.

I'd like to take a minute to highlight some of our nearer term opportunities in GI. Focusing on our strategy of building a leading GI therapeutic Company, we are advancing multiple product candidates that each target large unmet needs in millions of patients.

Importantly, the product candidates we are advancing are based on innovative science that should benefit from strong intellectual property protection. I look forward to updating you on our progress on these efforts going forward.

With that, I'll now hand it over to Michael to review our financial results for the quarter.

Thanks, Mark.

It was a strong quarter, and I'll be providing you with a lot of information, so I'd like to start off with four key points from the quarter. First, there was strong demand for LINZESS during the second quarter with over 326,000 total prescriptions filled, an increase of roughly 36% from last quarter.

Second, with an average of about 29,000 LINZESS prescriptions filled each week for the past few weeks, we believe LINZESS brand profitability is within sight. Third, we recorded an $8.9 million write-down in our linaclotide API inventory to net-realizeable value. Fourth, approximately $36 million in cash was used for operations during the quarter, down from approximately $58 million in the first quarter of 2014.

I'm going to start with two additional topics that require a little extra explanation this quarter. One, the decrease in LINZESS wholesaler inventory and the impact it had on net sales. And two, the LINZESS brand approaching profitability.

Let me start with LINZESS net sales. In the second quarter of 2014, LINZESS net sales in the US were $62.7 million, compared with $60.8 million in the first quarter of 2014, a 3% increase quarter over quarter. The current slide illustrates the net value of total prescriptions for the quarter, as compared to LINZESS net sales.

I'll focus on the second quarter, but the same calculations can be applied to the first quarter of 2014 as well. Looking at the graphs, you'll see the total dollarized prescription demand in the light green was approximately $65 million during the second quarter. This is calculated by taking the 326,000 total prescriptions for the quarter, as reported by IMS, and multiplying it by $262, which is the LINZESS WAC price of $7.70 per pill during the period times 34, the average number of pills per prescription of LINZESS.

Gross to net adjustments for the second quarter were approximately 23%, getting you to approximately $65 million in total prescription demand. Using the same calculation method, total prescription demand for the first quarter was approximately $49 million, resulting in a $16 million increase quarter over quarter.

In order to fully understand LINZESS net sales for a given quarter, you also need to understand the change in wholesaler inventory. We ended the second quarter of 2014 with 2 to 3 weeks of inventory, as compared to 4 to 5 weeks of inventory in the first quarter.

As you may recall, the additional weeks of inventory in the first quarter were added by wholesalers ahead of our DTC campaign. Using the midpoint of each of these for calculation purposes, results in a decrease of approximately two weeks of inventory during the quarter.

The $16 million increase in total prescription demand is offset by the two week draw-down of approximately $14 million in wholesaler inventory during the second quarter, resulting in a $2 million increase in LINZESS net sales quarter over quarter. LINZESS net sales will vary quarter over quarter depending on a variety of factors, including patient demand, wholesaler inventory levels, and actual gross to net, but over time we believe they will track closely to the TRX curve.

One additional comment. Effective July 1, we and Actavis increased the price of LINZESS from a WAC price of $7.70 per pill to its current price of $8.43 per pill. This price increase did not impact sales in the second quarter of 2014.

Turning to the remainder of the LINZESS P&L. During the second quarter, total commercial costs and expenses were $79.4 million, compared with $59.9 million during the first quarter of 2014.

The increase in commercial expenses in Q2 was primarily due to costs associated with the initiation of our DTC efforts, including some upfront costs. We anticipate continued fluctuations in total commercial spend quarter over quarter, but remain confident that the 2014 total LINZESS marketing and sales expense guidance will be in the range of $240 million to $270 million.

The 50/50 net profit share resulted in a payment to Ironwood of $1.8 million reported as collaborative arrangements revenue on Ironwood's P&L. Included in this payment was $2.3 million in net profit share adjustment from Actavis, due to a reconciliation of commercial expenses.

As Peter stated upfront, we are approaching profitability for LINZESS. To provide some more detail around this, LINZESS has averaged approximately 29,000 prescriptions per week over the last three weeks. If you dollarize this at the new price of $8.43, line the gross-to-net adjustment in the [mid-20%], and assume 34 pills per bottle, you'll get an amount that, when annualized, is approximately $325 million.

And, as we've said before, we expect to achieve brand profitability in the range of $300 million to $350 million annually. To clarify, we expect this level of revenue will be sufficient to cover total expenses for the brand, including cost of goods, sales and marketing, and R&D.

Now focusing on the Ironwood specific financial highlights for the quarter. Beginning with our balance sheet, total cash and investments as of June 30 were $302 million, approximately $36 million of cash was used for operations during the quarter, compared to $58 million in cash used during the first quarter of 2014, and $42 million in the fourth quarter of 2013. We work to be very disciplined in how we allocate our capital, and, while there will be fluctuations on a quarterly basis, we expect cash use to continue to decline over time due to the disciplined expense management and revenue growth for LINZESS.

GAAP revenue for the second quarters was $6.8 million, including $1.8 million in collaborative arrangements revenue associated with our share of LINZESS revenue in the US. Also included in revenue is approximately $5 million for the sale of linaclotide API to our ex-US partners, amortization from our existing collaborations, and royalty and milestone payments from Constella in Europe.

Cost of revenue for the second quarter was $10.5 million, compared with $1.9 million in the first quarter of 2014. The significant increase in cost of revenue was primarily due to an $8.9 million write-down of our linaclotide API inventory to net-realizeable value.

As we mentioned last quarter, Almirall was unable to reach agreement with the German authorities on a reimbursement price that reflects its innovation and value and made the strategic decision to suspend commercialization of Constella in Germany this quarter. We recorded this write-down of inventory primarily as a result of lower projected sales in the European market, which is mainly due to the suspension.

Total operating expenses, excluding cost of revenue during the second quarter, were $51.4 million, as compared to $57.1 million in the first quarter. Our R&D expenses for the second quarter were $22.1 million, compared with $27.1 million last quarter. And SG&A expenses for the second quarter were $29.3 million, as compared with $30 million last quarter. Consistent with previous quarters, we expect that our operating expenses will continue to fluctuate quarter over quarter.

Finally, our net loss for the second quarter was $60.4 million, or $0.44 per share, versus a net loss of $49.6 million or $0.38 per share in the first quarter of 2014. The $8.9 million write-down in inventory had a $0.06 impact on the net loss per share for the second quarter.

With respect to Ironwood guidance for 2014, we reiterate that we expect our total operating expenses to be in the range of $215 million to $245 million, consisting of $105 million to $120 million in R&D expenses and $110 million to $125 million of SG&A expenses.

In summary, LINZESS demand is growing, investments remain consistent with our guidance, and our cash position is strong. Thank you.

And I'll turn it back over to the operator to begin the Q&A portion of the call.

Thank you.

(Operator Instructions)

Our first question comes from Jason Gerberry of Leerink Partners. Your line is open.

Hi, good evening. Thanks for taking the questions. Just a couple. Just first on the business development front, I know, of recent, you guys have been discussing the potential to add another product to leverage the current sales force. Just wondering if you can give us a little bit of color just in terms of the types of product acquisitions that you might be looking at.

Second, can you just remind us again of the mechanics of the DTC program with the television ads with Actavis, when those ads run through, and when you need to make a decision on whether or not to allocate a portion of the selling and marketing budget towards additional television ads? Thanks.

Sure. Thanks for the question, Jason. It's Peter. I'll take the first question. I think we should always start with LINZESS. We built a commercial capability that we have in place, including very strong selling capabilities, marketing, market access, patient education efforts, primarily to maximize the benefit that we believe LINZESS can offer to patients around the world. And we focused on working very closely with Actavis to make sure we deliver on that.

Having said that, we do believe that over time we can leverage that capability to help patients with additional therapies, and we look quite broadly. We have some interesting things we've been looking at. I wouldn't make any projections on likelihood or timing. Deals are always a life of their own. But we are seeing some interesting projects, and we do believe over time that we'll find interesting opportunities that can create shareholder value and leverage the capabilities that we have.

Tom, do you want to talk about the DTC timing and process there?

Sure, Jason, thanks for the question. As I mentioned, we are extremely pleased with what we're seeing so far, and certainly the response to DTC, both in demand, as well as what we're seeing as far as overall market growth and our ability to capture share.

As far as allocation of investment, we accounted for that in the original budget, and certainly the guidance that Michael had just shared with you. So we certainly see continuing the DTC effort moving forward. Certainly, we will constantly critically assess its performance as part of the overall marketing mix. But right now, we have allocated enough funding within the guidance of $240 million to $270 million to account for the purchase of media between now and the end of the year.

Great. Thank you.

Thank you. And our next question comes from David Maris of BMO Capital. Your line is open.

A few questions. So, I know you have a standstill agreement with your partners in each of your partnerships. Let's say that Actavis or another company approached you and asked if you'd consider a business combination, or maybe I should ask it more open ended. Under what situations could a partner under your current standstill agreements approach you to see if you want to discuss a combination? And what would be your disclosure requirements short of the other company making a formal bid?

And then separately, two other questions. The dual classes of stock and the staggered board, if you could address -- and I know you've addressed it before, but with the consolidating industry maybe some investors are wondering what's next. So maybe if you could just talk about the usefulness of those? And then lastly, an update on the Astellas program? Thank you.

David, can you give us color on the last question -- what about Astellas?

I think at the last disclosure, you had said that the data -- that Astellas was reviewing the data, and they were determining what next steps. I might just have old information, but didn't know if you've updated that since then.

This is Peter. I'll take the first couple. Maybe I can take them together, and then maybe Mark can help you on the Astellas question.

I think I can combine the questions and say: We're very focused on our strategy, to build a leading GI Company. We believe we can deliver drugs to patients that offer real benefit, and that our current strategy has the opportunity to generate outstanding shareholder returns. And, I think, we strongly believe we can best do those things as a focused, tightly aligned, independent Company. We will work to earn the right every day to continue to pursue that mission, but I would I say broadly here, among employees and among our key investors, we feel like we're just getting started and there's a ton of passion for the mission that we're all after, and we're very excited about what we see in front of us.

LINZESS is doing very well, as you've heard. It's turning profitable 18 months into a primary care launch, which isn't too bad. We're advancing a very strong pipeline with differentiated assets, and multiple proof of concepts coming over the next 24 months.

Our innovation team's hard at work. And by innovation, I would say is not just in research innovation, but we've been able to attract some really quite remarkable people in all the functions in the Company: in development, in our commercial capabilities, and really across the board. And I think we feel quite good about where we're at.

With respect to the specifics of the mechanisms in place that you discussed, I think really the main point would be to tell you we've been very transparent and very consistent for many years, since before the IPO, frankly, about what our mission is and how we measure ourselves against our goals and what our ambition is. And a lot of those things serve as good alignment tools. I think investors have the opportunity to see what we're trying to do and can vote with their feet.

Mark, can you take the question about Astellas?

Sure. So, yes, we continue to actively work with Astellas. As you are aware, we had just gotten to see a very early glimpse of the data from that program before the last call. We've now seen more data, and feel it's very compelling with respect to the pharmacology. All the key endpoints were trending in the positive direction.

We clearly saw effect on the bowel habits of constipation, bowel movements. We also saw clear effects on reducing abdominal pain. Right now, that's about as far as we can comment, other than we continue to actively plan for advancing to Phase III, and work very closely with our partner, Astellas.

Great; thank you very much.

Thank you. And our next question comes from Gary Nachman of Goldman Sachs. Your line is open.

Hi. Good afternoon. First, it sounds like you think LINZESS inventories will probably stay in that 2- to 3-week level. Is that right? Or could it bounce around, and just wanted to confirm your thinking on that?

And why did the inventory levels come down so much if demand is high, as a result of the DTC campaign? If you could just give us a little bit more color on what may have caused that shift in the quarter?

Gary, it's Michael. Let me take the inventory piece. Maybe, Tom, if you want to comment a little bit on the demand side, because that's the key to the whole equation. Then I'll come back and reconcile inventory levels, and give you download on that, second.

Again, I go back to what we saw in response to the DTC. We saw clear inflection point shortly after we initiated the consumer awareness program, and to the point of seeing a 36% increase in overall demand quarter over quarter. So the demand was quite strong, which obviously set up the second part of the equation that I think Michael will speak to in terms of what effect that might've had on inventory level, based on what the buy in would be.

So, now let me get at the inventory. I do think your comment about 2 to 3 weeks -- I think what we're saying is we've been in the approximately three weeks is kind of the way we phrase it. The reason I still want to approximate is, as you know, it fluctuates, and the exact timing of an order could swing that easily at any point in time. But I think using three weeks as a baseline, that's where we are this quarter. That's where we were back in the fourth quarter.

As we stated, the reason that we saw that bump in the first quarter had to do with preparation for the change in demand, which was hard to predict at that time. So they took in more to make sure they were ready for it. We're actually happy about it. Now they've come back, and they've normalized.

I think you should expect around three weeks is in the right zone, and that's where we'll see. But you absolutely can see a little bit of flux around that as we go forward.

Okay. The $79 million or so of commercial expenses for LINZESS to get to the $240 million to $270 million for the full year -- that run rate is obviously going to come down. Just tell us where that's going to come out of. Sounds like it really won't impact the extent of the commercials that you've been planning, but I just wanted to clarify that.

And then, maybe for Mark, just on that fixed dose combo with a PPI, when do you think you'll have clarity on the regulatory path, and do you actually have discussions with the FDA around it already? Thanks.

Let me comment on the expense piece. As we generally -- we really try and emphasize is that the quarterly numbers -- they are a little bit chunky. And we try and focus on the full year because we've initiated -- there's some start-up costs when you initiate any program. The ongoing costs are lower than that. But we continue to expect, as Tom has said, to invest significantly in the DTC program.

But our confidence level comes in because the start-up costs aren't there. Then, you can adjust other parts of the overall plan. As Tom has said many times, we'll continue to refine that mix, but we're not talking about dramatic changes. We still will continue to invest in detailing. We'll get the right mix on the DTC side of it, but we'll balance it out in the next quarter and through the rest of the year to stay in that $240 million to $270 million range.

Mark, you want to take the second half of that?

Well, on the fixed dose combination, yes, I think for us it's more now on an issue of prioritization. We're so excited about the colonic delivery, and putting more and more efforts into that particular area. We think the return on our investment there will be a great return.

Relative to the fixed dose combination, we haven't gone to the FDA with it. We reviewed it with a number of different regulatory consultants that have a great deal of FDA experience. And with some of the things that were going on in the overall area around safety of the PPIs and where that currently exists, we think it's best for us to not make those investments clinically right now, but to continue to watch, and if anything changes, we'll certainly update the investor community.

Okay. Thank you.

Thank you. Our next question comes from Mario Corso of Mizuho. Your line is open.

Yes, thanks. A couple things I wanted to ask about. So, on the DTC program, is there active investment right now, or is there a lull? Are you planning -- buying more? Are you presently buying more? Just wondering the specifics there.

And then with Actavis now fully owning Forest, what do you see there? Do you see any disruption coming, or do you see any new distractions or removal of distractions on the marketing side as it relates to LINZESS?

And then finally, with the sGC program, what do you think about a partnership at this point? You're moving forward on your own, clearly. But that landscape has had some big deals. I'm just wondering how you're thinking about that? Thanks very much.

I think we've got them all, Mario. Why don't I take the second one, first, about Forest, and then transition into Actavis. And then, maybe, Tom, you can take the question about the DTC campaign and its ongoing effort. And Mark, to the question on sGC.

With respect to Forest, I guess I'd say, Mario, as we told you for a number of years, we have a very close collaboration between the two teams. We're coming up on seven years next month, and I would say both companies work very hard to be good collaborators. It's in our DNA in both cases.

And I think there's no question with the Actavis acquisition and integration, we have seen a fair amount of turnover. You guys are seeing some of it at the executive level, but we're seeing it across functions and across leadership. Having said that, LINZESS is a top priority for both companies, and we're both working very hard to maintain and re-establish any new connections, and to minimize any distractions or disruptions. I think that's true in the marketing side.

You asked specifically on marketing, but I would extend that again. We have a very broad collaboration in the life cycle management area, and in development and regulatory, across the financial organizations. It's a very close collaboration. I think there is a lot of work going on in Actavis on integration. We're feeling quite good about re-establishing all of those connections, if any have been disrupted.

Tom, do you want to talk some about the DTC ongoing effort?

Mario, I just want to echo some of the comments Peter made. As you know, Bill Meury has been a key integration point between us, and he and I have active conversations on a regular basis to make sure that the integration's going as good as it possibly can.

And as far as the field activity, which is a big part of this partnership, the sales force is largely working shoulder to shoulder, and that's not dramatically changing. So, I think we feel pretty good about how things are evolving. Certainly, it has its challenges, but we're certainly proactively trying to manage that very effectively.

As far as the media question is concerned, we do have an active media plan through the end of the year. So, generally, you heavy up early on with regard to the media buy, and then over time, as you get more and more information based on how effective is it in a marketplace, you start adjusting it. We've learned a great deal in a very short period of time with regard to not only its impact, but how to best connect with our primary customer. That enables you to further refine and improve the efficiency of the media buy. But we're going to continue to invest as long as it makes sense, and right now it's having a very strong impact, so we feel very good about it.

If I can follow on just a little bit, I think we've known really from the outset that this ultimately is a patient-driven disorder, and one where the primary demand comes from the patient who's suffering highly symptomatic symptoms. And we also knew, as we took you guys through some data early in the year, that despite very vigorous digital and other efforts through 2013, we had high single-digit patient awareness of the drug. And we've got a long ways to go still.

You can see the positive impact that the initial efforts are having. There's enormous potential still to reach new patients. I think we'll be investing in an ongoing way appropriately in patient education for a long time to come.

One of the things that's interesting, again, you guys know this from so many of your companies, but marketing's become more and more of a science and less of an art over the last number of years with access to so much data. So, I think the specifics of where we invest and when and how, we'll continue to optimize and learn. You should expect this to be an ongoing part of the marketing mix going forward.

Mark, you want to talk about the sGC?

Sure. So, first off, thanks for the question, Mario, and it's indeed exciting times to be working on guanylate cyclases and cyclic GMP. Obviously, with the success we've had with LINZESS and its effect on GC-C, and then with Bayer with their riociguat molecule, Adempas, as the marketed brand for sGC.

So, looking at sGC, we really view it -- and I think if you look at the Merck/Bayer deal that recently -- quite large deal and quite exciting -- I think we and Merck and Bayer also look at it in a very similar way, which this is a platform opportunity -- very large opportunity from a therapeutic point of view. And we're interested in maximizing the real benefit for patients in this area.

So, certainly from potential relative to Ironwood making its investments in this area, but also potentially finding partners that share this opportunity -- the view of this opportunity as a platform opportunity, and to expand it to other therapeutic indications outside the cardiovascular area. That's about as far as we can comment for now. But we do think this is a very exciting area.

Thank you. Our next question comes from Geoff Meacham of JPMorgan. Your line is open.

Good evening. This is Carter on for Geoff. Most of my questions have been asked already. Could you provide the gross-to-net discount for the quarter? I believe from your comments it sounds like you're still thinking that's going to end up in the sort of mid-20% range?

With the broadening of the prescriber base, can you maybe give us a sense on how the mix between gastro's and PCPs has changed? Thank you.

Yes, why don't I take this; it's Michael. Why don't I take the gross-to-net. You're right, we do expect it to be in the mid-20%s over time. For this quarter, as I stated in the comments, it's about 23%.

As far as the -- this is Tom. As far as the prescriber base, we have 90%-plus of the gastroenterologists have written and tend to be quite productive as a prescriber base. The new prescribers are largely coming from primary care and other specialities, to be quite honest.

I think the really key insight that we're seeing is the high willingness for physicians to honor a patient request. As I mentioned, over 85% of patient demand is being honored. And that's largely driving the broadening of the prescriber base.

As far as the concentration of the prescriber base, gastroenterologists are writing still a large portion of the prescriptions, probably somewhere in the range of 30% and 40%, considering it represents about 9,000 prescribers. And they continue to grow, as the primary care prescriber base grows as well.

Thank you.

Thank you. Our next question comes from Ram Selvaraju of Aegis Capital. Your line is open.

Thanks very much for taking my questions. These are primarily geared towards the earlier stage pipeline, and how the formulation and route of administration pharmacokinetic profile of the cardiovascular-targeted candidates differ from the pharmacokinetic profile, route of administration for LINZESS, per se. And what studies you've already done to look at the distribution of the soluble guanylate cyclase candidates in the cardiovascular context, please -- if you could give us some color on that? Thank you.

I think we may need to kind of clarify a few things. Let's talk about our GC-C formulations and linaclotide formulations for LINZESS first, so that we get that clarified. So, those formulations, particularly the colonic delivery, we're using very established methods and technology for being able to target a molecule so that it starts to become active and release lower down into the small intestine, and then it's delivered into the colon.

So, that effort is ongoing, and essentially it's very different than our current product, which is an acute relief. That molecule, LINZESS, comes out in the stomach, and then it spreads throughout the small intestine and large intestine as it goes down the intestine. So, let's just make sure those are two concepts there.

Relative to soluble guanylate cyclase with the very broad distribution of expression of that molecular target -- so that target's in the cardiovascular system, for sure. You can find it in blood vessels. You can find it in smooth muscle cells. Also, it's outside the cardiovascular system that we're also interested in.

So, making molecules that have very broad volume of distribution, so that we can get out to potentially targets such as fibroblasts that are outside the core cardiovascular system, is one of the very interesting areas we're pursuing, so that we can potentially have antifibrotic activity in addition to the cardiovascular effect. Having molecules with much longer half lives than the current product out there. So, again, for us it's more about time to design molecules that have pharmacology that will be extended, sustained action, and also have a much broader volume of distribution so that they can target potentially fibroblasts or metabolic targets that are outside the cardiovascular system.

Okay. Just to clarify: Do you have a specific disease indication at this time that would shift those parameters into which you are planning to conduct clinical development in a more formal way, or is that still to be decided?

Yes, so, there's actually several. You can think of the fibrotic diseases. You can think about IPF, so potentially going outside the cardiovascular system and getting to the fibroblasts there.

There's certainly several hypothetical ones that we're examining, and trying to understand which might be the best. Certainly, renal fibrosis relative to potentially and sustained hypertension where fibrosis and renal failure start to develop, and also hepatic fibrosis. All of those are potentially in the mix. But, again, we'll target cardiovascular diseases first, and then move from there outside the cardiovascular diseases to the more speculative targets as we move forward.

Thank you.

Thank you. Our next question comes from Boris Peaker of Cowen. Your line is open.

Thank you for taking my questions. Just wanted to know, in terms of commercial, as the DTC efforts gain traction, how does the severity of the new patients compare to the initial adopters?

It's a great question. I think initially, clearly, we were getting more severe patients. I think the biggest transformation that is likely to drive that change is going to be the patients themselves asking for more effective therapy. And so, they are largely -- not only do physicians, the physicians are clearly broadening their view of who the appropriate patient is, but also patients themselves, by activating and informing those patients to more effectively communicate their desire and needs, is going to also broaden into more mild to moderate patient population.

And how do you see that changing the average duration of treatment? Or maybe there is a bimodal model, however you'd like to look at it?

I don't think we know the answer to that yet. Certainly, based on previous experience that we had, that I personally had with Zelnorm -- what we saw there was there was not a dramatic change in the annual days of therapy, for instance, when we saw more mild to moderate disease because these patients still suffer over 100 to 120 days a year. So they may not be -- the symptoms may not be as intense, but they're still very bothersome, even in what we would consider mild to moderate disease, which is really going to be the driver of persistency and adherence.

My last question (multiple speakers) -- go ahead, sorry.

I just want to follow on a little bit and say: Although it's tempting to have a sort of simple equation that you can reduce this to, days of therapy is a complicated thing. It's a very large, heterogeneous patient population, and multiple things are happening at once. It's not just that you're broadening the patient type, but you're reminding patients to refill their prescription and that has an impact on days of therapy, and there are a number of other variables moving. So, we'll watch together with you.

Great. And my last question: You mentioned in response to a prior question that there is now more general practitioners prescribing. I'm just curious if that's having any kind of impact on reimbursement, particularly partly combination of less severe patients but also maybe general practitioners either not having the expertise or desire to dedicate the effort to gaining reimbursement?

Yes, I think, as you know, we've made really good progress with the payer. And, for the most part, we came in with a very strong value proposition with payers, and we were able to secure pretty broad access and reimbursement. And that continues to move in a very positive direction. And I think there's really a handful of large payers that we haven't been able to kind of button things down on.

But we're not hearing any real objections from the payers. They clearly see that there's an unmet medical need. They clearly see that the physicians don't have what they need to manage these patients, and, for the most part, are really positively responding to our efforts to contract in a more formalized way.

Great. Well, thank you very much for taking my questions.

Thank you. And our next question comes from Irina Koffler of Cantor Fitzgerald. Your line is open.

I had one on the clinical and one on commercial. On the clinical, it looks like you recently strengthened your label warnings against pediatric usage. I'm trying to reconcile this with the idea that you also are planning pediatric trials even though the label now says not to use the drug in kids. Could you help me understand that?

The second question is on your joint commercialization plan with Actavis, at which point do you expect to have sign off on your plan for next year, and are you expecting any reduction in the joint spending next year from 2014? Thanks.

Mark, can you take the first question?

Sure. So, relative to the pediatric label, we really have just updated the pediatric label; it's not strengthened any. It's just more detailed, relative to the mechanism of action of the death that we saw in the very -- the one-week neonatal mice. And, actually, what we're very excited about is now that we have really worked out the first PMR that we have completed with the FDA, we're now at the stage where we're finishing up kind of the planning stage for what our pediatric trials will look like.

So, for us, it's an exciting time. We think we'll be starting to begin those studies not in the not too distant future. And it was really that change in the label and the information that we provided the FDA relative to the neonatal mice study that will allow us to move forward. Again, for us, it's a chance to go ahead and start studying in patients, and particularly pediatric patients, and understand the risk and benefit for the drug, and potentially move forward as a product there.

Tom, can you talk to the commercial plan for 2015?

We're in active discussion with that right now, as the team plans that out for next year. Obviously, this was a -- Irina, as you know, it's a shift in how they approach their budgeting process. So, we're putting this together actually earlier than we have done in the past.

As far as what you can expect to see on the expense side, we're still in the investment mode. We're still building awareness and educating and helping physicians recognize the benefit of the drug. And we clearly see a tipping point out there amongst physicians -- as they gain experience, their use begins to accelerate. But you've got to get them to that point in which they -- it becomes almost routine as opposed to the need to actually think about: Is this an appropriate patient for LINZESS? And, obviously, we will continue to refine the marketing mix in terms of: What does the call plan look like, what is the investment in physician promotion, as well as the consumer piece?

So, I think it's a bit early to expect that we'll actually reduce the expenses. I think we're going to really let the data inform where and how much we should invest. But so far, certainly looking at the promotional response that we're seeing, on the physician side as well as the payer side, they're still very positive and very promotionally responsive. And I think we're going to let the data guide our decision as far as what the appropriate investment should be.

Michael, can you add a little bit of color on overall guidance for investment against the brand?

Sure. I think, as Tom said, the team, right now, is focusing on the specifics of the plan for next year and the exact numbers on the commercial side. Mark and team are also spending time on the commercial side.

But as I mentioned in my comments, our expectation is all in, we still think that $300 million to $350 million all-in, in expenses for the entire brand, is still the right guidance, the right range. And so we are still feeling comfortable with that. That at least gives you some parameters for the all-in investment. How that is allocated across the different components, the team will determine that as we go forward.

Again, to reiterate, that $300 million to $350 million captures all selling and marketing expenses, investments in R&D to support life cycle management, and cost of goods. That's an all-in number. I think you should be comfortable with that number for at least the foreseeable future.

Okay, thank you very much.

Thank you. Our next question comes from David Nierengarten of Wedbush Securities. Your line is open.

Thanks for taking the question. So, to follow up on an earlier question, if you just take roughly your revenue per script according to -- you had roughly 240,000 scripts in Q1 and 320,000-some in Q2 -- your revenue per script drops roughly 20%. So, is that because of the milder patients being prescribed and maybe being on 10 days of therapy a month versus 25 or 30? Or how are you thinking about that? Can you put a fine tuned number on the increase in less severe patients and their days of therapy, or is that still -- you're still working that out?

David, it's Michael. Let me comment first, because I think you're combining two things that probably shouldn't be combined. So, Tom can speak in detail to kind of the transition of patients, but I think you're combining a comment we made about transitioning to mild to moderate with the actual revenue. You're calculating something in terms of the revenue per script. You're not factoring in the change from an inventory perspective. So, I think what you did is you took the net sales number as reported, and you divided by the total number of prescriptions, which is the reason I spent a lot of time describing how inventory impacted.

The part of the equation you're missing from this quarter is that there was a significant drawdown in inventory reduction in more than two weeks for the quarter. So, I think that's why your numbers are off. I think, if you'd like, we can comment further on the change in the movement to mild to moderate patients, but I think that's the sole reason for your change in the math there.

Just to be clear on the financials, though, because I want to make sure we're not leaving any confusion. There was not a substantial change in revenue per prescription over the course of the first and second quarter. They're quite comparable.

During the first and second quarter, the WAC price didn't change. The gross-to-net number was close, and the pill count was quite close. So, those are the three components that are going to make up price per script.

Starting July 1, we and Actavis did take a price increase. So, you'll see a higher dollars per script going forward than you saw in the second quarter. I hope that clarifies.

Maybe I didn't take into account the inventory build in Q1 on that, but I did do it in Q2. But, all right. And so, going forward, though, you expect the days on therapy to change? That's fair to say then?

So, I don't know that we know that days of therapy will change. Again, our previous experience in, certainly, this category, is even the moderate and many of the milds, mild patients are quite adherent to therapy. Again, I think it's something we will continue to monitor moving forward, but the adherence has been very strong to therapy to date. But we'll certainly have more information as we move forward.

At this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Hecht for any closing remarks.

Thank you very much for your help today, Vincent. Thanks to all of you for your participation and your attention. We'll look forward to speaking with you more fully over the next couple of days and over the quarter.

You know where to find us if you have further questions, and again, thank you very much. We're looking forward to an exciting second half of the year. Have a good evening.

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