Ironwood Pharmaceuticals Inc (IRWD) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Ironwood Pharmaceuticals' 1Q 2015 investor update conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Meredith Kaya. Ma'am, you may begin.

Good afternoon, and thanks for joining us for our first-quarter 2015 investor update. Our press release crossed the wire earlier this afternoon and can be found on our website www.Ironwoodpharma.com.

Today's call and accompanying slides include forward-looking statements. Such statements involve risks and uncertainties that may cause actual results to differ materially. A discussion of these statements and risk factors is available on the current Safe Harbor statement slide, as well as under the heading Risk Factors in our Annual Report on the Form 10-K for the year ended December 31, 2014 and in our future SEC filings. All forward-looking statements speak as of the date of this presentation, and we undertake no obligation to update such statements.

Joining me for today's call are Peter Hecht, Chief Executive Officer; Tom McCourt, Chief Commercial Officer; Mark Currie, Chief Scientific Officer; and Tom Graney, Chief Financial Officer, who will open it up to the question-and-answer portion of the call. Our speakers will be referring to slides available via the webcast. For those dialing in, please go to the Events section of our website to access the webcast slides.

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

Thanks, Meredith. Happy Cinco de Mayo to all of you. I feel very good about our execution in the first quarter, as we continue to deliver on our strategy and advance the key value drivers of our business. First, LINZESS continues to be one of the most successful primary care product introductions in years, and the LINZESS brand had another solid quarter of profitability in the US. With increased patient demand, strong operating leverage, IP protection until at least 2031 and further leverages for growth from our ongoing linaclotide development opportunities, we expect linaclotide to create substantial value for many years ahead.

Second, we made encouraging progress within our pipeline during the quarter. It is great to see the growing interest in our development stage assets for many of you in the investment community, as we believe our pipeline is a source of substantial unrealized intrinsic value. We're advancing multiple innovative product candidates that have the potential to benefit millions of people. There are several important data readouts expected later this year and into 2016, and we look forward to sharing our progress with all of you.

Third, we began to execute on a key tenant of our strategy, leveraging our strong commercial capabilities to grow cash generating products in addition to LINZESS. Our clinical sales specialists recently began co-promoting Exact Sciences' Cologuard, an innovative non-invasive test for colorectal cancer screening. We are confident that we can add substantial value to Cologuard and to other products in the GI and primary care space as well, and we continue to look at a number of additional opportunities.

With that, I'll hand it over to Tom McCourt to provide an update on LINZESS.

Thanks, Peter, and good afternoon, everyone. LINZESS growth continued through the first quarter driven by the strength across key fundamentals in our business. Since the initiation of our DTC efforts in April 2014, total prescription market share for LINZESS has grown by over 65% and new prescription share has increased by over 50%.

Data show that LINZESS growth is coming primarily from patients taking OTC laxatives, with over 65% of new LINZESS patients having previously been treated with OTCs. This patient population represents the greatest potential for continued growth, and we're continuing to work hard to bring LINZESS to millions of additional adults suffering from IBS-C and chronic constipation.

We are still in the early chapters of the LINZESS story and the key metrics and lead indicators continue to look strong. Approximately 460,000 LINZESS prescriptions were filled during the first quarter, a 90% increase compared to the first quarter in 2014. As we saw in the first quarter of 2014, prescription growth in the category slowed early in the year, which we believe is primarily due to the seasonality of the market, changes in patient's insurance plans or patients working through annual deductibles. We're anticipating an increase in prescription demand in the second quarter, strengthened by the launch of our new DTC campaign early in early April combined with seasonal market growth.

Turning to patient persistency. We continued to see LINZESS performing approximately 40% to 60% better than Zelnorm and Amitiza on a launch-aligned basis over 12 months, a metric, that in our view, is a key indicator of patient satisfaction.

The physician prescriber base is now grown to over 125,000 health care practitioners. Thousands of these health care practitioners have generated more than 150 LINZESS prescriptions and many have generated over 1,000 since launch. Lastly, we continue to have broad payer access and reimbursement with payers recognizing the clinical and economic value of LINZESS.

As I noted earlier, we and Actavis initiated a new LINZESS patient awareness campaign last month. The new campaign leverages key insights and learnings from the initial campaign with the goal of broadening its appeal and increasing awareness of LINZESS. We believe the simplicity of this ad will better enable patients to communicate more effectively with their physician and increase their requests for LINZESS.

I want to take a quick moment and recognize the combined effort by the joint Ironwood and Actavis team for a tremendous success in our initial patient awareness campaign. Last month, the 2014 campaign was chosen by a team of industry experts at DTC Perspectives as one of the Best Advertising Campaigns in 2014, a fantastic accomplishment for the joint team.

With expected patent protection until at least 2031, and over 40 million adult IBS-C and chronic constipation sufferers estimated in the US, we believe LINZESS has tremendous opportunity to benefit millions of additional adults suffering from IBS-C and chronic constipation generating great value for the brand.

In addition, we intend to utilize our excellent commercial capabilities to expand the selling opportunities for LINZESS and grow additional cash generating products. To that end, we are pleased to be co-promoting Cologuard with Exact Sciences. Cologuard is a true advancement in healthcare technology, as a non-invasive test for colorectal screening.

The addition of an innovative product like Cologuard should increase the productivity of our sales force by generating incremental sales for Cologuard as well as creating additional selling opportunities for LINZESS. Our promotional efforts should generate additional revenue for Ironwood with no additional unreimbursed costs. The Ironwood sales force continues to have further capacity for additional proprietary products. The team began promoting Cologuard as a second-position call in late April, and we're eagerly awaiting early results.

Returning to linaclotide for a few moments, we and Actavis continue to innovate with linaclotide, seeking to provide a wide range of treatment options that covers a spectrum of patient needs in this category. We are advancing a once-daily 72-microgram dose for linaclotide for adults with chronic constipation. If approved, we believe the 72-microgram dose and the currently approved 145-microgram dose will accelerate the expansion of LINZESS use with adult chronic constipation patients by providing physicians dose optionality to better manage this large and diverse population.

We're also advancing linaclotide colonic relief, which is designed to provide a more targeted delivery and greater relief of lower abdominal pain, which is the predominant symptom for IBS-C patients. In addition, there is a second product opportunity, which could expand GCCA mediated abdominal pain reduction into additional indications where patients suffering from chronic abdominal pain are not experiencing constipation. This includes conditions such as ulcerative colitis, diverticulitis and other subtypes of IBS, which represents an estimated 17 million Americans suffering and in need of new treatment options.

Lastly, the data from our opioid-induced constipation Phase II study will inform whether linaclotide has the potential to become an important treatment option for millions of patience suffering from the symptoms associated with OIC. These innovations support the potential to maximize brand growth and provide additional benefit for millions of patients suffering from these frequent and highly bothersome abdominal symptoms.

With that I'll turn it over to Mark.

Thanks, Tom. We continue to make great progress across our R&D effort. As Peter mentioned, we are advancing multiple product candidate and expect several important data readout this year and in 2016. This includes five mid- to late-stage linaclotide development program being advanced all or in part by our partners, two mid-stage GI candidates that we are moving forward independently, and two initial compound within our wholly owned sGC platform.

These candidates leverage our core therapeutic expertise in GI and our pharmacologic expertise in guanylate cyclases and build all of our success in bringing LINZESS to the market. Our GI pipeline is focused on highly symptomatic conditions with a high level of unmet need in large patient population and a limited number of treatment options.

We're also building strong intellectual property protection with patent protection from many of our product opportunities expected into the mid 2030s. Additionally, our sGC platform had tremendous potential in multiple therapeutic areas. We are one of only two innovators in the sGC stimulator space with strong intellectual property across several product opportunities.

Beginning with linaclotide, the Phase III 72-microgram clinical trial in adult CIC patients is enrolling faster than we anticipated. We now expect data from this trial in the second half of 2015, and if the data support it, to file an sNDA in the first half of 2016.

Updating the colonic release program, we and Actavis have selected two innovative formulations for our Phase IIb clinical study and expect to initiate in the second half of this year. This study is expected to inform the path forward for IBS-C as well as for other GI disorders with chronic abdominal pain as a predominant symptom.

The first formulation is designed to enhance abdominal pain relief in adult IBS-C patients while continuing to relieve constipation. The second formulation is designed to enhance abdominal pain relief and as such could markedly expand our opportunity to benefit patient suffering from multiple GI disorders outside of IBS-C and CIC.

Lastly, as Tom said, our Phase II clinical study evaluating linaclotide in adult OIC patients remains on track, and we expect to have data in the second half of 2015.

Turning to the linaclotide development outside of the US, we and AstraZeneca completed enrollment in our Phase III study of linaclotide in IBS-C for China, with data expected in the second half of 2015. In Japan, Astellas is continuing to enroll patients in the Phase III clinical study for linaclotide in adult IBS-C patients. Additionally, Astellas recently initiated a linaclotide Phase II clinical study for Japan in adult chronic constipation patient.

Moving to our broader pipeline, we are very encouraged by the recent top-line data from our Phase IIa study with IW-3718 in refractory GERD. We saw a clear efficacy signal in the Phase IIa data and look forward to optimizing and refining it. We have made great progress in the development of its commercial formulation, and we intend to work with the FDA to advance IW-3718 into a phase IIb study.

Also, we were pleased to receive a notice of allowance from the US patent office during the quarter for one of our patent application covering IW-3718 formulation and method for its use. This patent, when issued, would add to the growing portfolio of patents and applications we are pursuing for IW-3718. We believe this IP portfolio has the potential to provide robust exclusivity into the mid 2030s.

Turning to IW-9179, we continue to enroll patients in our Phase IIa study for the potential treatment of symptoms associated with diabetic gastroparesis. The study is on track, and we expect data in the first half of 2016.

We also began enrolling in the Phase I study with IW-1973, our first sGC candidate being evaluated for the potential treatment of cardiovascular diseases. Data from this study are expected in the second half of 2015. From this single-dose study we will begin to characterize the pharmacokinetics, cardiovascular pharmacodymanics, mechanistic biomarkers and safety and tolerability of IW-1973. These data should provide insights into their potential clinical differentiation of the effect of IW-1973 on this molecular target.

Additionally, we remain on track to initiate a Phase I clinical study with IW-1701, our second sGC simulator in the second half of this year. Finally, we look forward to multiple clinical studies expected to report out later this year with sGC candidates being advanced by others in the industry. These important data sets should provide important insight that enable us to optimize our development program within the sGC platform.

With that, I'll now hand it over to Tom Graney to discuss our financial result for the quarter.

Thanks, Mark. Really exciting developments in R&D, and thank you, everyone, for joining us this afternoon.

I will be walking through some key financial highlights for the quarter. Please refer to our press release for detailed financials.

Now, that we have entered the third year since the launch of LINZESS, I will be providing year-over-year comparison each quarter consistent with industry practice. We continued to see strong demand for LINZESS, which resulted in $95.5 million in net sales for the first quarter, up approximately 57% compared to the first quarter of 2014. As Tom noted earlier, total LINZESS prescriptions increased approximately 90% for the first quarter of 2015 compared to the first quarter of 2014.

I'd like to point out that the difference in year-over-year growth of LINZESS net sales relative to growth of total LINZESS prescriptions is due to timing and P&L geography. As a reminder, net sales included a higher build of wholesaler inventory in the first quarter of 2014. Additionally, certain costs related to our co-pay assistance program were recorded as sales and marketing expenses in the first quarter of 2014. These costs are now recognized as gross to net adjustments. When you take these two items into consideration, the year-over-year growth in net sales of LINZESS is in line with growth in LINZESS prescriptions.

We recorded approximately $25.1 million in collaboration revenue from Actavis in the first quarter of 2015 compared to $8.4 million in the first quarter of 2014. The LINZESS brand collaboration in the US delivered solid profitability for the first quarter of 2015 with significant opportunity to create substantial value for many years to come.

Quarterly profitability levels will fluctuate due to timing of activities such as DTC and life-cycle management investments. For example, we expect to see heavier commercial investment in the second quarter of this year compared to the first quarter as we launch our new DTC campaign.

Now, turning to Ironwood's financial highlights for the quarter. Revenue for the first quarter was approximately $28.9 million. As Tom mentioned, we began promoting Cologuard in the second quarter. We will record revenue from the co-promote after test kits have been ordered, processed and analyzed, which could take several months. We do not expect the collaboration to have a material impact on our financial results in 2015.

We ended the first quarter with approximately $216 million in total cash and investments. We used approximately $36 million of cash for operations during the first quarter of 2015 as compared to approximately $58 million in the first quarter of 2014 and approximately $38 million in the fourth quarter of 2014, excluding the $15 million milestone payment received during the fourth quarter from Astellas.

We are reiterating our guidance for the full year of 2015 in which we expect our total operating expenses to be in the range of $220 million to $250 million. This includes approximately $105 million to $120 million in R&D expenses and $115 million to $130 million in SG&A expenses. We also continue to expect the combined Ironwood and Actavis total 2015 marketing and selling expenses for LINZESS to be in the range of $230 million to $260 million.

With continued growth of LINZESS revenue and prudent manage of operating expenses as reflected in our guidance, we anticipate delivering significantly increased operating leverage going forward.

Before I turn it over to Q&A, I want to quickly summarize the advancements we've made in the first quarter. First, LINZESS continues strong growth in patient demand, and we've only scratched the surface. There remains significant opportunity ahead. Second, we have a number of important catalysts within our pipeline with up to 10 clinical studies expected to be ongoing this year and five data readouts, including the positive Phase IIa data with IW-3718.

Third, we're gaining early experience with Cologuard and expect to further leverage our commercial capabilities by accessing additional cash flow generating products. We are committed to bringing important new medicines to patients and value to our shareholders.

I look forward to updating you on our progress throughout the year. Thank you, and with that I'll hand it back to Crystal to begin the Q&A portion of our call.

Thank you.

(Operator Instructions)

Our first question comes from Geoff Meacham from Barclays.

Afternoon, guys, and thanks for taking the question. I want to ask you about the recently launched DTC campaign, and I have a couple follow ups as well. What do you guys view as a success? Is it an IRR benchmark versus the last campaign or is it something like just new starts on therapy or even new prescribers?

This is Tom. As you know, we had a very strong performance of the initial campaign in which we saw a 20% lift off the pre-DTC trend. As you move forward, obviously that growth gets built into your new baseline trend, so part of it is how you utilize DTC to maintain the ongoing growth of the brand. Hopefully, you see an additional incremental lift off the baseline trend prior to initiating the new DTC. The things that we're looking closely are one, what kind of lift do we see off the pre-DTC trend? Two, a lift in new-to-brand patients. Three, certainly, what we're seeing in the lead indicators both with regard to new Rxs, as far as volume, but also what we saw last time around is a lift in total Rxs, as the ad also reminded people to refill their prescription. We're going to be monitoring all of those moving forward, but we're quite encouraged. It's early days of the lead indicators with regard to web traffic look very strong, and certainly the first couple of data points look encouraging. But certainly the upcoming weeks are going to tell us a lot more.

Got you. Then Tom, in terms of persistence rates, what are the sensitivities to that, if there are any, among, say, different geographies or areas where you've invested more commercially? Just trying to get a better sense for if you see fairly even persistent rates across the US? Then, what the levers are to maybe extend that even further? Thank you.

The overall biggest driver in persistent rates is really patient response and how satisfied patients are in therapy and certainly when they stop therapy, symptoms return, which we believe is probably the single, biggest driver for adherence. We started pulling apart some of those data with regard to the, certainly, the patient demographics. It's early days, but we certainly see stronger compliance with the younger population than we do with the older population. It isn't dramatically different. Again, I think everybody would agree that Zelnorm had a very strong performance with regard to its performance in the market as well as adherence rates, and the fact that we're running 40% to 60% above them I think is very encouraging. As we tear through the data, as we learn things, we'll certainly share that as we move forward. It's still early days for those data, but top line, the data looks very encouraging.

Okay, thank you.

Thank you. Our next question comes from Irina Koffler from Canter Fitzgerald.

Hi, thanks for taking the questions. If we look at this quarter, JV commercial spend, it suggests that we may hit the lower end of the spending in your guidance, down at the $230 million level.' Can you talk about if the spending is expected to increase throughout the year on the DTC? Also, are you expecting to continue DTC promotion next year?

This is Tom again. As far as the overall budget, this quarter as Tom mentioned earlier, we suspected that the growth in the market would slow, which is exactly what we saw, due to the plan changes and just the seasonality of the disease. So, in the first quarter, we significantly pulled back in our DTC investment so we could certainly maximize the return of our investment. As we launch the new campaign, or as we have launched the new campaign, obviously, our spend in the second quarter and third quarter will be stronger, and which is likely -- it's certainly going to drive the growth of the brand.

As far as future investment, I think this is one where the data will guide our decisions. Certainly, everything we've seen so far, DTC has looked very strong, and as long as we continue to see the response in our investments, we're going to continue to invest. I think it's going to be roughly at the same level that we've seen in the past.

Okay. Then, I have a question on rest-of-world spending and support. It looks like you spent somewhere between $12 million and $16 million this quarter on promotion in the OUS market. Given that you're not really getting much in the way of royalties out there, how are you looking at the spending and what justifies it and when would you decide maybe to pull that spending?

Thanks for the question, Irina. This is Tom Graney. That spending actually isn't against promotional spending. It's in support of our registration and clinical trial development for market entry into OUS markets, along with our -- in support of our partnerships outside of the US.

Okay, thanks. Then, just one last one. Would you expect Actavis to shift promotional spending towards eluxadoline if that drug is approved away from LINZESS at all?

This is Tom again, Irina. We certainly -- we're in, obviously, ongoing communication with Actavis. I think what I can say is we're absolutely aligned with LINZESS as a core part of their growth strategy. It's obviously one of their fastest growing brands right now. It's one of the critically important brands for the future. We see no risk at all with regard to a distraction with Eluxadoline.

In fact, I think we see an opportunity with Eluxadoline as we have another product in the IBS category that's focusing on abdominal pain relief, so it's going to amplify the share of voice and the focus on the key symptom that clearly differentiates LINZESS from other treatment options, so I think we see ongoing collaboration. We see LINZESS being continues to be a top priority with Actavis, and I think we're absolutely aligned with the overall strategy. I think we're delighted with the partnership.

Okay, thank you very much.

Thank you. Our next question comes from Mario Corso from Mizuho USA.

Good evening, thanks for taking my questions. Just a few things I wanted to touch on. You mentioned early web traffic on the new DTC program. I'm wondering if there's anything you can quantify in that regard, or any other metrics? Then on gross to net, anything that you can talk about there in terms of at least a trend in Q1 and maybe how that may trend over the course of the year, anything you're seeing on the managed care or contracting front? Then, in terms of the pipeline, related to LINZESS and whether it's the colonic formation or opioid-induced constipation, the low dose, anyway to frame how you see those being additive commercially? If LINZESS is X, do you think those things together add 20% to X or something like that or equal to X, just trying to think about how commercially important those things may be? Thanks very much.

Thanks, Mario. We'll try to keep track of the questions. Tom, can you take the first question?

Sure. As far as -- we haven't shared any specific information with regard to web traffic, but what I can tell you is it is a very sensitive indicator and predictor of what follows as far as the correlation with what we saw with TRx growth the first time around. We saw an immediate impact in the first campaign. We saw an immediate impact in this campaign. The traffic has always been high, but we saw a significant spike since we've launched the DTC. Obviously, we'll have to wait and see if that translates into the TRx growth over time, but we'll certainly get a good look at that over the next few weeks.

Give you a quick break. Tom Graney, you get the question on gross to net.

Yes, thanks for the question. Since launch, we've really viewed access as an important part of our commercial strategy, and we've made significant progress in expanding coverage and reimbursement in terms of covered lives. It's a tradeoff that we make between price and access, and really consider it part of our marketing mix, just like any other investment. So, we constantly monitor and refine our strategy. It will fluctuate over time, so we will keep an eye on making sure that we're creating as much value as we can in total for the brand. We don't necessarily look at it in discrete elements like gross to net, but thanks for the question.

Mario, this is Tom again. Let me take them one by one, just to frame them up as how I think about them commercially. First with regard to the 72 microgram, as you know, the response that we're seeing from clinicians is very strong. We've had over 125,000 docs that have chosen LINZESS for a variety of patients. The 72 microgram has always been part of our core strategy. We wanted to see how physicians responded to the initial clinical profile, which has been very favorable. What we did see, which we did expect to see, is a lot of physicians see this as an effective but very potent drug and are using it in more severe patients.

What we expect to see with 72 microgram is a broadening of utility in other patient types over time, which is what we expect, is what we're hearing, certainly in market research; and we're very encouraged and excited to get 72 microgram into the marketplace.

As far as the colonic release, this is really a game changer as far as raising the bar. What we're trying to do is improve the overall clinical profile of an already great product in providing better pain relief, faster pain relief in a molecule that's very well tolerated, which really makes this a better IBS-C and chronic constipation drug. Which we believe will deepen its penetration into the market and likely expand its overall persistency in patients that respond to the drug. That's the first piece.

The second piece is the second opportunity that we talked about where this drug can be used in other diseases where there's significant abdominal pain in patients that don't have constipation. We're broadening the clinical utility into somewhere between 15 and 20 million of additional patient types that we currently don't have access to.

As I look at the three components of our life-cycle management, we're looking at a broad application and broadening the clinical utility of drug, but also strengthening the clinical profile, which is certainly going to expand use but also raise the bar from emerging competitors.

Thank you.

(Operator Instructions)

Our next question comes from Gary Nachman from Goldman Sachs.

Hi, good afternoon. I definitely appreciate the seasonality effect in 1Q, but the LINZESS prescriptions did slow down from Q4 more than we expected. So are you getting to a point where you think it just harder to pull in new patients from the OTC laxatives even with the new DTC campaign? Why haven't you converted more from other prescription treatments, if LINZESS is a better product?

I think the first piece is, let's talk about the market and we'll talk a little bit more specifically about what we get. Very broadly, we actually saw the entire market go down in the first quarter, pretty significantly where we were up. It is something that we've seen over the last two or three years, where the first quarter as far as the overall market growth is either flat or down, but in spite of that we still saw an increase. Keep in mind, we also pulled back our investment in DTC during that period of time, which we know is a strong driver of our growth and we wanted to make sure that we were investing it when we'd see the greatest impact.

As far as the source of business, we are really focusing on converting OTCs. It's where the greatest opportunity is. It's where we want the source of business to come today and in the future. That has been our focal point of our strategy and our execution, not on a switch strategy. So, I think we're encouraged that the strategy's working and for it to sustain long-term growth, the business has to come from OTCs.

As far as the question around are we tapping out on patients, we certainly don't see any evidence of that. We've only really scratched the surface. We've created 500,000, 600,000 patients out of the literally tens of millions of patients that are out there.

We're learning. We're going to evolve our promotional efforts, targeting different patient segments that we haven't tapped into yet to grow the product over time. I think this is classic marketing in which you focus on where you think your initial core source of business is. As you learn, how do you tap into new sources of business that you haven't found? We're very encouraged, and we're going to keep on pushing it forward.

Okay, that's very helpful. Just to follow up on LINZESS, any changes in inventory levels in the quarter? I think you had some buy in last quarter. Then, after the Cologuard co-promote you said there's room to put other products in the bag.

What types of assets are you looking at? Would they be more like co-promotes or acquisitions? Do you think, if you have a couple of more things for the sales force, would that take away from the effort on LINZESS? Thanks.

Okay, thanks for the question. This is Tom Graney. I'll take the inventory question. We saw during the first quarter inventory remained within the target two to three week range that we had expected, consistent with where we were in the fourth quarter.

As far as what we're looking at as far as products that we're putting in the bag, I think first of all, let's be clear. LINZESS is the number one priority. Until we find an asset that's going to outperform LINZESS, it is and will remain our number one priority. And, we would only identify products that would complement that promotional effort, which is exactly what Cologuard is doing. We're already seeing that the reps are getting more time. There's more selling opportunities for LINZESS than -- I think that's moving ahead very nicely.

In terms of additional products, we're looking at a lot of different things right now. One of the exciting things for us is when you have a new entry and build a new category, you've done things very few other companies have ever done and it attracts interest by a number of product companies.

So we're looking at a lot of different things right now. The bar is high. I think we're less interested co-promotion like relationships. I think we're more interested opportunities where we can extract greater value over time.

I think that's our focal point. We have a lot of things on the table right now, and we're working through it to see what is our best next move.

Great, thanks.

Thank you. Our next question comes from Anupam Rama from JPMorgan.

Hi guys, this is Eric in for Anupam. Thanks for taking our questions. Just a couple on 3718. Just wondering what some of the gating factors might be to getting a commercial-ready formulation? Is there potential for seeing a once-daily dose there? How should we be thinking about the size and target population and endpoints for the forthcoming Phase IIb? Thanks.

Yes, thanks, Eric. Relative to the formulation, again, we think we've made great progress and really on the verge of that commercial formulation, so we're feeling great about that. The end point, I think, relative to what we're thinking there, and then I'll turn the other part of the question relative to the market to Tom.

On the end point, we're focused, again, back on what we are seeing where the drugs appeared to have its greatest efficacy in that IIa study. Those are the classic GERD endpoints. We're excited about those because most of those have been well trodden and we understand those from a regulatory point of view, to some degree. That's really the strategy forward on that point, so I'll let Tom dive in on the market.

I think we're very bullish on this molecule and the commercial opportunity. When you think about this, this is a very well-developed market with very clear metrics of performance for patients, which is all around heartburn relief. These patients that continue to have heartburn are easy to identify. Based on the clinical data that we're seeing, the initial clinical data [set] looks very encouraging.

We're probably talking somewhere between 8 and 10 million Americans still suffer from heartburn two or more days a week. If you have a product that not only improves heartburn but also some of the earlier regurgitation data looks also very interesting, we have a very different kind of product than anybody else. Again, it's a first-in-category product. It's innovative. It's absolutely aligned with our target physician population in that these are largely -- this will largely be gastroenterologists and very high decile busy PCPs, so it fits into our commercial strategy very well as far as synergies. So, we're very excited about 3718.

Great, thanks.

Thank you. Our next question comes from Catherine Hu from Bank of America.

Thanks for taking my questions. I just have two. One is on the 72 microgram you spoke about earlier, about broadening to less severe patients. Can you just give us an idea how large this segment is, is it about 20%, 30% of the overall target market? Are these patients actively seeking treatment in their physicians office?

Then, just can you talk more about the EU, any updates on how that region is doing in terms of reimbursement uptake? And what you think can be done to accelerate the uptake in that region? In terms of China and Japan, now that we are moving into getting Phase III results in the next few quarters, how should we think of the uptake in these regions? Should we think of it more as mirroring the EU or the US? Thank you.

This is Tom. I'll take 72 microgram. I think what we've learned so far, as I mentioned, physicians are very pleased with the overall clinical performance of both the 290 and the 145. The chronic constipation population, as you know, is very large and extremely diverse. What we've seen initially with the docs choosing their chronic constipation patients, is they are seeing the product as effective and fairly potent. They have focused primarily on the more severe patients, which is exactly what you would expect to see.

We've always felt that a lower dose will be helpful, whether you call it mild to moderate, moderate to frequent. I think having the additional lower dose available I think provides docs with additional opportunity for patients that may have more mild disease. Of course, we're talking about millions and millions of patients, so we think it's a very sound investment to bring the 72 microgram forward to treat a broader set. But more importantly, to give physicians another option for patients that they're treating, so we do see it an opportunity to expand the market.

Peter, do you want to take EU?

I think I will. Thanks for the questions, Catherine, and welcome aboard. With respect to Europe, I would start by saying the product, which is called Constella there, has a terrific label. It's the first drug indicated for IBS of any kind in Europe, and it's described clearly as a visceral analgesic on the label; however, it's a new category as the first IBS entrant. We knew it would take time to build awareness, both with physicians and with patients. We knew there was also the additional challenge in Europe relative to the US that DTC advertising is not allowed for pharmaceutical products in Europe. So, we always expected the product to launch more slowly.

The demographics is quite similar in Europe in terms of suffering number of patients and degree of suffering, so we're optimistic about the longer term opportunity. What's going on, on the ground, not much has changed with respect to Germany. That's the biggest challenge that our partner Almirall has faced there. They've gotten negative input from Germany in terms of their ability to launch at an appropriate price, and that's clearly having a negative impact on their ability to grow revenues and get the drug into European markets.

They're working very hard on the launch and they're now in at least 10 countries. I think a couple more are coming soon. They're having good success in a number of those countries, so we continue to watch and they continue to work very hard.

With respect to China and what to expect there in terms of market penetration, I do think it's a little early to say. We have a very good partner there in AstraZeneca. They're great in the GI space, in general. They are very strong in China with Prilosec and Nexium, and it's a big market.

It is also in the case of China, as it is in Europe, that there hasn't been an approved IBS product there. I think that leaves the question open a little bit. Again, the demographics in terms of level of suffering and frequency of suffering is quite similar. Awareness among the GI docs in China is pretty good actually, and we and our partner, AstraZeneca, are working to further advance that through medical education efforts even pre-launch. I think it's a little early to predict the kinetics of growth there, but we do think there's a substantial opportunity.

Great, thank you very much.

Thank you.

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Management for any closing remarks.

I'll just say thank you all for your time and attention today. We're here for the rest of the day. If you have questions, you can be touch with Meredith, and we're happy to follow up. We appreciate your time and attention. Thanks very much.

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