Ironwood Pharmaceuticals Inc (IRWD) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Ironwood Pharmaceuticals Q3 2015 investor update conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to introduce your first speaker for today, Director of Investor Relations, Miss Meredith Kaya, you may begin.

Good afternoon, and thanks for joining us for our third 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 statement and risk factors is available on the current Safe Harbor statement slide, as well as under the heading Risk Factors in our quarterly report on Form 10-Q for the quarter ended June 30, 2015 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 of you dialing in, please go to the Events section of our webcast to access the webcast live.

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

Thanks, Meredith, and good afternoon, everyone. We had another very strong quarter at Ironwood, successfully executing across each of our key value drivers. You'll hear more details from Tom, Mark, and Tom in a few minutes.

Importantly, we believe that the growing contribution from our commercial business and cash on hand enables us to fully fund our current business without the need to raise additional capital. It is through the incredible commitment from our employees, partners, and our fellow shareholders that we've reached this point. And I look forward to sharing our continued progress with you going forward.

With that, I will turn it over to Tom McCourt to provide an update on Linzess and our commercial business.

Thanks, Peter, and good afternoon, everyone.

Linzess showed strong growth in the third quarter, with over 550,000 prescriptions and nearly 40% year-over-year growth. Linzess is a branded leader in the prescription IBSC and chronic constipation market, and is driving total market growth while capturing market share.

As you can see from the chart on the left, the market has grown by greater than 30% since we launched Linzess. The chart on the right shows a more than 80% increase in market share since initiating our direct-to-consumer campaign in 2014.

We are emerging from launch mode, having successfully positioned Linzess in the marketplace. Specifically, more than 150,000 health care practitioners have prescribed Linzess, and data show that prescribing continues to expand with experience.

Further, recent data suggests that over 95% of healthcare practitioners are prescribing Linzess if requested by a patient. This is an industry-leading metric that we believe underscores the level of physician satisfaction, and confidence in Linzess.

We continue to gain broad, payer and reimbursement access for Linzess. As I mentioned last quarter, we had a big win when Linzess was added to the CVS Caremart formulary in an exclusive preferred position beginning January 1, 2016. And we have demonstrated an ability to educate and activate patients through our direct-to-consumer effort, which continues to increase patient awareness and demand for Linzess.

Our focus going forward is maintaining and accelerating the growth of Linzess through three key efforts. Leveraging the favorable market dynamics, tapping new sources of business, and expanding the clinical utility of Linzess within its approved indication.

Over the past year, the market dynamics have become quite favorable for Linzess growth. This slide shows how the key forces in the market have improved for Linzess over the past year.

Our joint commercial efforts have increased patient awareness, expanded physician's view of the appropriate patient, increased physician's willingness to honor a patient request for Linzess. And reduced payer rejections and patient walkways at the pharmacy, due to high co-pays. As we move forward, our commercial efforts will focus on further increasing awareness, and activating patients who specifically demand Linzess, while creating greater urgency for physicians to effectively treat appropriate patients to Linzess, and finally increase our favorable position with payers.

There are tens of millions of adults who continue to suffer from highly bothersome abdominal and constipation symptoms. Data indicates the far majority of these patients are taking OTC laxatives and not satisfied.

We see tremendous growth potential for Linzess, with less than 4% of the IBSC and chronic constipation patients currently being treated with Linzess. And two-thirds of those patients were previously taking OTC laxatives, which is the primary source of business that will fuel continued growth.

As part of our effort to accelerate the growth of Linzess, we strive to raise the bar in terms of what we can deliver to patients. We believe the addition of ongoing development opportunities will strengthen the clinical profile of Linzess. And if approved, expand its clinical utility into additional indications and formulations.

This includes our 72-microgram pills for linaclotide, for which we were delighted to report positive top line results from our phase III trial last month. We believe that if approved, the 72-microgram dose could enhance the clinical utility for physicians to use across a large and heterogeneous chronic constipation population, and drive further brand growth.

We expect to report top line data from the phase II opioid use constipation trial later this quarter. And following those data, we will determine next steps in this program. We are also excited to have initiated the phase II trial with two colonic release formulations that we believe will strengthen the clinical performance, and expand the clinical utility of Linzess, which Mark will discuss in greater detail shortly.

Lastly, our global commercial efforts for linaclotide continue to advance. We recently announced that Allergan acquired the licensing rights from Almirall for the development and commercialization of Constella in Europe, among other ex-US territories.

While Europe continues to be a challenging market, we believe Constella will benefit from Allergan's strong commercial expertise, and broad footprint across Europe. In addition, linaclotide development in China with AstraZeneca and in Japan with Astellas continues to progress nicely.

Turning to our commercial capabilities. We have built a strong commercial organization that has successfully brought Linzess to market. And serves as a foundation to drive further growth, and an ability to support multiple products over time. This includes an experienced top-performing sales team, with both specialty as well as primary care experience.

These sales professionals are calling on roughly 23,000 of the busiest physicians in the market. And it is these physicians who are generating between 60% and 70% of the total Linzess prescriptions.

We are focused on bringing multiple products in over time to maximize the productivity the entire commercial organization. In addition to Linzess and Cologuard, the innovative colorectal cancer screening test that we are co-promoting with Exact Sciences, we are preparing to be again co-promoting Viberzi, a first in category treatment for IBS with diarrhea with Allergan.

Colorguard and Viberzi are nearly 100% efficient with our current capabilities. And we believe it will strengthen the effectiveness of our Linzess selling efforts, while further establishing Ironwood as an emerging leader in GI and primary care. We have the capacity to bring in additional products to generate meaningful cash flows for the Company, and we continue to look for value creating assets to add to our product portfolio.

With that, I will now turn it over to Mark to discuss the pipeline updates.

Thanks, Tom. We continue to make great progress with our innovative R&D effort, with exciting advances across key areas of our pipeline.

Over the next 15 months, we and our Partners intend to file up to three linaclotide regulatory submissions. Expect four phase 2B read outs, and one phase 2A proof of concept readout from our GI franchise, which will inform pivotal trials, and expect important data from our SGC platform.

As Tom mentioned, starting with our linaclotide development program with Allergan, we were pleased with the top line data from our linaclotide 72-microgram phase III trial. We and Allergan expect to submit a SNDA in the first half of 2016. And if approved by the FDA, plan to bring this dose to market in the first half of 2017.

We also initiated a phase 2B clinical trial for linaclotide colonic relief in adult IBSC patients. We are evaluating two formulations in this dose ranging study.

The first formulation is designed to enhance abdominal pain relief in IBSC patients. The second formulation is being evaluated on whether it can enhance abdominal pain relief, while having little to no impact on bowel function. Data expected in the second half of 2016. Lastly, we and Allergan initiated two phase 2 studies of linaclotide in the pediatric population, as part of our post marketing requirement with the FDA.

Turning to our [XUF] opportunities, we and AstraZeneca expect to file the import drug license, or IDL, seeking marketing approval of linaclotide in China in the first quarter 2016. Given some of the recent changes in the IDL review process, we and AstraZeneca are working with the China Food and Drug Administration to determine the expected review timeline, and will update you accordingly.

Additionally, Astellas has completed enrollment in their phase 3 study of linaclotide and IBSC adult patients for Japan. And expect to report top line data from this study later in 2015, and file for the regulatory approval in 2016.

Now moving to our GI platform, we are looking forward to initiating our phase 2B trial with IW-3718 for refractory GERD in early 2016. Additional analysis of the phase 2A data further reinforce our excitement about the potential for 3718 to be an important treatment option for these patients.

For example, exploratory analysis suggests that in patients with ongoing GERD, evident by erosive esophagitis and/or ongoing acid reflux. There was an even more pronounced effect in heartburn relief compared with placebo than we had initially observed in other subpopulations. This supports our phase 2B study design in refractory GERD, and suggests that IW-3718 may have an effect on these patients.

We have also made important progress with our 3718 formulation. It is ready to be evaluated in a phase 2B trial, and we've had productive discussions with the FDA on the clinical path forward.

We continue to expect data from our phase 2A exploratory study with IW-9179 in diabetic gastroparesis in the first half of 2016. Diabetic gastroparesis is a challenging disorder affecting millions of patients with few to no treatment options currently available. A new agent that offers substantial symptom relief for these patients could be [transformative].

And finally, our SGC platform is continuing to advance rapidly. As a leader in cyclic GMP and guanylyl cyclase research, we are working to harness the burgeoning potential of soluble guanylyl cyclase stimulators, and seek to deliver multiple blockbuster drugs targeting severe diseases associated with vascular dysfunction and fibrotic disorders.

It is a very exciting time, with important scientific advancements being made in this field by us and our peers. Just this morning, we announced the initiation of a phase 1B study evaluating IW-1973 in a phase 1A study evaluating IW-1701. And we eagerly anticipate initiating proof of concept studies later in 2016.

For those of you who will be attending the American Heart Association Scientific Sessions this weekend, we will be hosting an event on Monday, November 9 with a key scientific expert to talk more about our SGC platform, and its potential to provide multiple blockbuster treatment. Please let Meredith know if you are interested in attending, or need more information.

With that, I will now hand it over to Tom Graney to discuss our financial results for the quarter.

Thanks, Mark, and thank you everyone for joining us. I will be spending the last few minutes detailing some of the key financial highlights for the quarter. Please refer to our press release for the detailed financials.

Demand for Linzess resulted in $117 million in net trade sales for the third quarter, growth of 47% compared to the third quarter of 2014. The Linzess brand collaboration in the US recorded $35.8 million in total net profit for the third quarter. We recorded $34.8 million on our P&L as collaboration revenue from Allergan, compared to $13.5 million in the third quarter of 2014.

Additionally, on October 1, we and Allergan increased the price of Linzess from a WAC'ed price of $9.24 per pill to its current price of $10.14 per pill. This price increase did not have a meaningful impact on Linzess sales for the third quarter.

Now turning to Ironwood's financial highlights for the quarter. We ended the third quarter with $462 million in total cash and investments. We used $26 million of cash for operations during the third quarter of 2015, compared to $39 million in the third quarter of 2014.

Revenue for the third quarter was $39.6 million, an increase of nearly 134% compared to the third quarter of 2014. The strong year-over-year growth in Ironwood revenue is attributed to the high degree of operating leverage we are seeing with Linzess, as the brand continues to grow. Revenue in the quarter was made up of revenue from our collaboration with Allergan, as well as additional collaboration, royalty, and amortization revenue from our global partnerships.

As Tom mentioned, we were pleased to announce last week that Allergan has acquired the development and commercialization rights from Almirall for linaclotide in Europe, Turkey, and the Commonwealth of Independent states. Under the terms of the arrangement, Ironwood is eligible for launch and sales-based milestones from Allergan, as well as royalty on sales volume of linaclotide in Europe. Of note, royalty payments will no longer be reduced by the price of linaclotide AIP, and our revised royalty structure reflects this adjustment.

Allergan has taken responsibility for manufacturing of API in Europe, as well as associated costs. We accrued $9.4 million in the third quarter for excess inventory purchase commitments, primarily related to our historical supply agreements in Europe.

This charge is recorded in our P&L as a loss on non-cancelable purchase commitments. We have no remaining inventory or unreserved purchase commitments associated with Europe.

Lastly, as a result of our $336 million convertible debt financing completed this past June, we will be recording on our P&L the non-cash unrealized gain or loss on derivatives each quarter. This is related to the change in fair value as we mark to market the convertible note hedges and warrants, which comprise the cost spread overlay. In the third quarter of 2015, this was a non-cash loss of $11.3 million.

In order to provide investors transparency into the economics of our operations and to supplement our GAAP financial statements, we are providing a non-GAAP financial measure that describes our performance by excluding the impact of the mark-to-market adjustments related to the hedges and warrants.

When calculating our non-GAAP results, we excluded the non-cash mark-to-market adjustment on the derivatives related to the convertible notes as this adjustment is primarily driven by market fluctuations.

GAAP net loss for the third quarter was $47.4 million. As a result of this exclusion, our non-GAAP net loss was $36.1 million. GAAP net loss per share was $0.33, and as a result of this exclusion, non-GAAP net loss per share was $0.25.

We recently added a few slides to the Investors section of our website, detailing the accounting treatment of the convertible debt transaction on our financial statements including the non-GAAP measures. I encourage you all to take a look. Finally, turning to our 2015 financial guidance, we remain on track to end the year within our previously guided ranges.

Before I turn it over to Q&A, I want to briefly reiterate Peter's earlier comments. We are at an important transition point in our evolution of the business. The past several years have been focused on building and developing our core capabilities, and launching an important primary care brand, and we have made great progress.

Profitability of the US Linzess brand continues to grow. This combined with our current cash position should enable us to fully fund our current business going forward.

We will continue to seek ways to optimize our capital structure, which may include paying down and/or restructuring our debt to achieve a lower cost of capital, or using equity over the coming years for strategic business development opportunities. However, we no longer need to raise additional capital to fund our current business.

We will be laying out more detail around our future financial expectations early next year. Thank you. And with that, I will hand it back to Andrew to begin the Q&A portion of the call.

Thank you.

(Operator Instructions)

Our first question or comment comes from the line of Boris Peaker with Cowen, your line is now open.

Great. My first question is on the 72-mcg dose. I'm just curious, if approved, how do you plan to market it? And based on what you know right now, what fraction of patients discontinued treatment for diarrhea?

Thanks, Boris, this is Tom. As far as our approach to the marketplace, this has always been part of the overall strategy that we have had for the brand. Initially, obviously, we would had launched a 290-mcg for IBSC and 145-mcg for chronic constipation. Anticipating that the far majority of these patients initially treated would be on the more severe end of the spectrum.

And that's indeed what we saw, and physicians and patients certainly report that they are very satisfied with the drug. That being said, we always saw a place for a 72-mcg dose for patients that may have been a bit more sensitive to the drug. And we do believe that based on what we're hearing from physicians, they would expand the utilization of linaclotide with the 72-mcg dose.

What we saw at a high level, as we mentioned in our press release, is first of all, compared to the 145-mcg, overall, we saw a lower rate of diarrhea. First of all, the efficacy primary endpoint was met. And we're very pleased with those data.

As far as the tolerability profile, we saw a lower rate of diarrhea. But more important, even the diarrhea that was reported tended to be a lot more mild than the 145. And we saw a significant reduction in the discontinuation rate.

I see. And when will we see the detailed data report for 72-mcg?

With the emerging competition in the market, we've made a strategic decision not to unveil that until we are ready to come to market.

Okay. So we're not going to see it any upcoming medical meeting in the near future? Just wanted to confirm that.

No.

Got you. So my last question on the competitive front. If Synergy launches their drug at some reasonable discount to Linzess, I'm just curious what your thought process on the competitive dynamic?

Do you think you will maintain your price? Would you price the 72-mcg cheaper just to address the diarrhea market? If you have any thoughts on that topic.

First of all, let's go back to the top line. And that is overall, linaclotide is performing extremely well in the marketplace. Physicians, again, report that they are very satisfied with the clinical performance of the drug. There are a portion of patients who do encounter some diarrhea. But we are seeing the drug perform very similar to what we saw in the clinical trials, in which there is a relatively low discontinuation rate due to diarrhea.

So as we think about 2017 and emerging competitors, we are going to be in a situation where we are clearly the market leader. We'll be indicated for both IBS and chronic constipation, with what we believe will have three doses, which will enable the doc to titrate for almost any kind of patient.

So we like that position in the marketplace. And in addition, we've already established a very strong foothold in the pair, and we are continuing to strengthen that over time. And obviously, we will continue to focus on broad access to patients, based on a very strong value proposition to the pair. So I think we like where we are. We like where we are going, and we think we will be well-positioned as the emerging competitors enter the market.

Great, thank you very much for taking my questions.

Our next question or comment comes from the line of Catherine Hu with Bank of America, your line is now open.

Thanks for taking my questions. The first one is that the colonic release formulations are starting soon. How are you looking at these versus the approved 290-microgram dose in terms of are you looking for non-inferiority, superiority?

And then what is the rationale behind the 30-microgram dose? Because that's significantly lower. Do you have any pre-clinical data to show that will be sufficient? And on another topic, I'm not sure how much you could comment on this. But can you broadly talk about the impact on your Allergan partnership with potential Pfizer Allergan deals?

Thank you.

Mark, can you take the first question on colonic release?

Sure. Thanks for the question. So the study is really set up to really teach us about how the drug can potentially work when it is delivered into the colon. We are very focused on trying to have a drug that has even greater pain relief.

So the comparison will be with the 290-micrograms with the various doses of the delayed release that you cite would go down to 30-mcg and we move up to the 290-mcg. The purpose again is to try to tease out where do we have maximum pain relief? And then what is the effect that we are having on bowel movements?

So for IBSC patients, of course they still want to have relief and have the bowel movement relief, and so that's why we think DR 1 will be the preferred for those patients. But our goal is to have a superior pain relief versus the current treatment.

And then the second DR 2, that is really to drive -- just see if we can achieve a lowering of pain, and a clear pain relief in patients that don't have constipation so that we can broaden out the potential product offering into IBSM patients, into patients with ulcerative colitis that still suffer pain. So we think there's two very exciting opportunities there.

Again, were going down to the 30-micrograms because it's really because you don't get circulating levels of this drug, it's minimally absorbed. We really need to tease out exactly what amount we are getting into the colon. And there's no way to do that without -- in the current dose. It's taken acutely, it's released in the stomach and then slowly breaks down.

So we don't know the exact amount that gets into the colon. So we're going from a dose that we think to be very low, the 30-micrograms, all the way up to 290-mcg. And then diving into how much pain relief can we maximize.

Catherine, this is Peter. I can take the second question on Pfizer and Allergan.

Obviously, we cannot speculate beyond what has been in the press in the last couple weeks. But I would say couple of things. First, we have a very strong collaboration across all functions with Allergan. And we are involved everywhere we need to be in terms of the development manufacturer, regulatory commercialization of the drug. And I would say the partnership execution really is the best it has ever been, since we established the partnership back in 2007.

Obviously, there continues to be a lot of changes in the industry over time, and you have seen that with our Partner over the last three or four years. For us, Linzess is our flagship product, and it is going to be a big source of value for our Ironwood shareholders, at least until 2031, and we expect beyond that. And that is really a key reason we structured the deal the way we did back in 2007 as a 50/50 partnership with equals, where we knew we would be involved and could help shepherd the drugs through any times of turbulence like this.

I would say also, certainly in the near term, Linzess, and the GI franchise more broadly, are obviously very key growth drivers for Allergan. And that is only strengthening with Viberzi launching at the end of November, which we are involved with as a co-promote partner as you know. We have the 72-microgram sNDA going in shortly and launching in early 2017, and the colonic release phase 2B program ongoing, and launch to come in the not too distant future. So I think we are very likely, both ourselves and Allergan, or if it ends up being a different corporate name, to be very focused on growing out the Linzess franchise and staying focused on the GI business for many years to come.

I think we feel quite good about it.

Great, thanks much.

Our next question or comment comes from the line of Jason Gerberry with Leerink Partners. Your line is now open.

Hello, good evening, and thanks for taking my questions. First one, Mark, I wasn't sure if I understood you correctly. But as you think about IW-3718 for refractory GERD, did you specify the trial design? Will this be all comers, or will you focus on the subset that showed the better result, the patients with higher bile acid levels that you pre screened as a subset in the phase 2A?

And then my second question, just thinking about emerging competitors in the marketplace. I was just curious, if you were to have launched Linzess on your own with the 150 reps or so that you have, how much of the market could you reach? I'm just wondering how smaller players, if they do not have a large commercial partner with a primary care presence, how much of a reach issue would they face?

Thanks, David. I will take the first question, then I'm sure Tom will take the second question.

So relative to moving forward now into the 2B, what we are really now focused on because of all of the analysis we have done is enrolling patients that have either erosive esophagitis or clearly demonstrated acid reflux. So we are not focusing only on the bile acid refluxers, and we think that's an important differentiation, in that, we certainly would continue to characterize those patients. But it's really a broader representation of the refractory GERD market based on what our interpretation of the data in the analysis that we've done.

Will bile acid refluxers be a prospective subset in that study?

They will.

Okay.

And I will take the second half of the question. When I think about coming to market, there's three key forces that are driving the growth of the brand.

First of all, it is certainly physician adoption. As I mentioned, we now are over 150,000 docs that have chosen Linzess for their patients. And the overall plan out of the gate was to make sure that we had a broad footprint out there to make sure physicians were comfortable with the profile, and to receive these patients and choose Linzess. And we initially focused on about 89,000 docs together with our partner Allergan, and it was absolutely critical that these physicians are well informed and confident to write the drug.

The second piece is certainly the drug-to-consumer effort. So, once we felt solid about the overall awareness of the product and the comfort with the prescriber, then we really started more aggressively, or more comprehensively communicating with patients to encourage them to go talk to their doctors about their disease and about Linzess, which obviously had a significant inflection with regard to the brand growth.

And the third piece is really around the payer. And we have a partner that absolutely has a terrific account management team, who has been able to establish a payer access level that is amongst the best in the industry. So when you think about a small player like we would have done on their own, it would have been really challenging to be able to have the success that we are experiencing right now in the marketplace.

And as we look to the future, we are only going to fuel that at a higher level. So we like where we are at. We like what Mark and the team are doing as far as raising the bar and expanding the clinical utility. This is not just about one product, this is about a platform that we think we are going to build off of and grow off of for years to come.

Great, thank you.

Our next question or comment comes from the line of Gary Nachman with Goldman Sachs. Your line is now open.

Tom, have you and Allergan started planning for the Linzess promotional spend in 2016? Do you think the budget will be similar to 2015? And would you expect to continue these same levels of DTC? How will you be structuring Viberzi into the sales call? What level of detailing for your reps will it have compared to Linzess and Cologuard?

Thanks a lot.

We are actually in final throes of the finalizing the commercial plan for next year with Allergan. As I mentioned before, we have been able to establish a very favorable market dynamic.

In which we have physicians broadening their view of the appropriate patient and willing to honor a patient request, and we have continued to expand our payer access and eliminate that as a barrier. I think the most encouraging piece is our ability to connect and educate and motivate the patient to go in and talk to the doc, which is what is going to drive ongoing growth.

And we are just getting ready to evolve our consumer campaign to a really exciting level, with a new concept, with a very strong message, specifically targeting and encouraging patients to specifically ask for the drug, knowing that we can pull through the drug. And I think the level investment will be roughly comparable to what we saw in the past years as far as overall spend, I think the marketing mix will resolve over time. So I think we like where we are at. Again, we like where we are going, and we have a perfectly aligned partner, which we are both in a very good place.

As far as Viberzi, we are extremely excited about Viberzi for a couple of reasons. One, you're talking about basically doubling the investment in the marketplace as far as increasing awareness of the need for effective therapy for abdominal pain and bowel dysfunction. And these are perfectly synergistic products covering a broad spectrum of patients.

And we have actually developed what we are referring to as the galvanized call, which really is focusing on treating a broader population of IBS, targeting an underlying pathology, and fitting these two products side by side in the bay. And whether we leave with Viberzi and finish with Linzess or leave with Linzess and finish with Viberzi, it is one cohesive call. And we just left the managers meeting last week, and we are getting ready for the launch meeting, and the managers absolutely got it.

So we really are excited about the execution in the field level, what we are going to be doing around medical education and overall disease, as well as product awareness across the brands. I think this is going to be a very, very exciting time for both organizations.

Gary, I just wanted to make sure there was no ambiguity on one point. When Tom talked about doubling the investment, he's talking about Allergan doubling their investment.

Viberzi is 100% efficient to us with no additional investment on our part on any of that marketing or selling expense. So you should expect to see Linzess marketing and selling expense in the same rough ballpark as this year and last year, and no additional dollars on our books for Viberzi.

Okay. That's helpful. And then one quick follow-up for Mark.

What is the timeline for opioid-induced constipation? If the phase 2 data are positive we are going to see those soon. What are the criteria to determine if you would actually move into phase 3? When do you think we would know that?

So as you indicate, we're coming in towards the end of the year and we back data before the end of the year. We certainly think that we will do a full analyses.

I think for OIC, we really need to understand the competitive position based on the data, how it fits with the competition. And that's where, again, I think Tom might want to comment before we would move on and try to fit with what we think the real competitive situation would be.

Yes, I think about it in three pieces here. One of which is, how big is this market, really? And I think the recent entrants into the market are going to help inform how promotionally responsive is the market, and how big is the market or how big could the market get? So I we really want to understand the market opportunity.

The second piece really is, how differentiated and how strong is the profile? And is it a differentiated product, or a comparable product? Or can we identify a differentiator with this platform?

And I think certainly the third piece is as we think about how we could position the product in the market; what kind of investment would be required to really get this up and running? The great news is we could easily fold it in to our current commercial strategy, and drive growth. But I think it is really going to come down to the first to, which is, it this market real? Is it going to grow? And two, do we think we have a competitive product?

Okay, thank you.

Our next question or comment comes from line of Marc Goodman with UBS, your line is now open.

Hello, this is Ami Fadia on behalf of Marc. Just following up on the linaclotide question on OIC.

When the data comes out, what are we looking for? And just going in, what do you see as the potential differentiating factor for this product relative to competition? And then I have another question.

Sure. So I think the first step is just to look at how much of a change from baseline do you see in the bowel movement number. So that's the early bar of what is that to look at.

I think some of the things we know about the differentiating factors relative for linaclotide and chronic constipation and IBSC, so far we've seen great efficacy, and we've seen really great safety with the molecule, so that's where we always start from. And linaclotide has been so consistent with those aspects, and the --.

I think the other piece is, we want to make sure we have a very competitive profile. The other piece that we really want to understand is the impact of patients that had pre-existing constipation, which is a large portion of these patients, who were all excluded from the other studies in patients that were treated for opioid induced constipation, which could be a significant differentiator for linaclotide in this overall population that we would manage. But I think we want to make darn sure we have a competitive profile on its own in OIC. And I think we will work with Mark and his team to understand what impact does a pre-existing constipation state have on clinical outcomes.

Could you remind us of what is the composition of patients in the study? Was it all in between pre-existing or versus opioid-induced constipation?

Yes. No, they are all opioid-induced constipation patients.

They are all opioid-induced constipation, okay. The second question was on the marketing and sales spending for Linzess. It looks like you might be running towards the low end of the guidance range. Is there any variability we are expecting going into the fourth quarter? Or is there any step up in expense that we expect in the fourth quarter?

No, I think you've got your finger on it very closely. I think we are probably running on the lower end of the guidance that we've given previously, and we don't see any dramatic change in the fourth quarter.

Got it. And maybe one other question, if I can squeeze it in. What did you get this quarter from Exact Sign?

Hello, Ami. This is Tom Graney. We got approximately $2 million in collaboration revenue from Exact.

Got it. Okay, thank you.

Our next question or comment come from the line of Matthew Harrison with Morgan Stanley, your line is now open.

This is Vikram on for Matthew. So we had a couple of questions.

The first one, picking up on the 3718 program. I know you mentioned that the trials are set to initiate in early 2016. Would you have any expectations around when data might be available?

We haven't actually detailed that yet. Obviously, we'll need to get in and start to get some experience on the rate of enrollment before we would do that.

Understood. And then as a follow-up to be Allergan discussion. Do you have any expectations or any thoughts you could share about how the recent Allergan repurchase of assets might change the EU sales ramp going forward?

I'm not sure, Vikram, if I understand the question.

Can you ask that again? We are all confused.

So the question is, given the recent Allergan repurchase from Almirall, how do you think that's going to impact sales going forward? If you have any thoughts around that.

So I think we have all recognized that this is a very challenging marketplace right now. However, as we look to the future, and having such a strong partner with Allergan, both with regard to their commercial expertise, but also their footprint across Europe. I think in the longer-term, we are very encouraged by what we think the upside opportunity could be.

But we are going to work side by side with them and figure it out. There is no question there's millions of patients that are suffering, and in need of more effective therapy, and we're going to do our best to get it to them.

Okay. And then one last question if I could. So I know you mentioned that the phase 1 studies announced this morning, I think the end goal there is to inform the phase 2 programs, obviously. But could you share any more detail about what we're looking for or what you might be looking for specifically in terms of the data readouts in the first and second half of 2016?

So obviously a very exciting area. We're seeing a lot of movement obviously. We're moving our molecules forward, we will get data from some of the competitor studies coming up. So a key time for us.

We are very focused on moving through phase 1 in both the 1A and 1B with 1973, and getting through the 1A and 1701 as quickly as possible so that we can start to think and move forward into proof of concept studies in patients in 2016.

If you look at the things we are hoping to get from the 1A and 1B studies, it's around the biomarker demonstrating that we're having proof of mechanism with our compound. We've already shown that for 1973, and the single-dose study, we certainly look to reproduce that in the 1B study. And also looking at key pharmaco dynamic markers around really demonstrating the drug working on the cardiovascular system.

And then the third would be looking at the distribution of the molecule as far as the volume distributions. We think that is one of our key differentiators for this class of molecules that we have, that it would get out to the tissues and actually can get to the site past the vasculature to control things such as the fiberglass proliferation, and also protect the tissue in the parenchymal cells. So exciting time for us with FTC.

Mark's mentioned it's a very exciting area. One of the opportunities we have is to learn not only from our own molecules, but from what is going on in the space more broadly. There will be some interesting data next week on a FTC compound in reduced ejection fraction heart failure from there.

And there will be data over the next six or eight months in a number of different indications, both with FTC stimulators and with PDE5 inhibitors, which work in a different place in the pathway, but are relevant in a range of indications from muscular dystrophy to cystic fibrosis and other indications. So we are very excited to see the performance of our own molecules, and to learn from what else is going on in the field.

Okay, thank you. And I'm not sure if there's time. But if there was time for one last question.

The last one we had was around your expectations on China shifting gears a little bit. So I see that in your pipeline, you've mentioned that you are looking to file for a CFD approval in the first quarter of 2016.

Do you have any preliminary thoughts on when your market launch may be achieved? And beyond that, what kind of market size do you expect for China, broadly speaking? If you have any thoughts on that?

So on the market launch or in the approval, again, we just don't know, we're going to submit. We are in discussions. As we indicated, there have been changes in the process announced through China FDA.

So we will, again, once we know more, we will certainly share that information. But at this point, we really can't give any guidance on when the approval would be.

I think all of us across the industry are very optimistic with regard to what's going to happen to China over time as far as market potential. Which is the reason why everybody really wants to understand the market and to be a part of the market. We are fortunate enough to have with AstraZeneca probably the strongest partner in that arena, particularly when it comes to GI and how they've been able to successfully commercialize, certainly, their PPIs across China.

So again, I think the opportunity is going to evolve over time. I think we are extremely well positioned with probably the best partner we could possibly choose to commercialize the product. And I think depending on the pathway based on the IDL and the review process, obviously, we are going to be looking to push that as fast as we possibly can. Because clearly, the data was, as you know, very positive from the -- on the phase 3 program in China.

Okay. Great. Thanks a lot.

(Operator Instructions)

Our next question or comment comes from line of Geoff Meacham with Barclays, your line is now open.

Hello. This is Carter on for Geoff. Thanks for taking our question.

First I just had a follow-up on the -- a lower pace of commercial spend in 3Q. Is this, speaking strictly on Linzess, what this related to -- I think on the last call you mentioned a potentially slower cadence of the DTC spend in the quarter. And then ramping that up as you get to the fall.

It is still -- does that hold? Is that still the case? And have you ramped up those activities?

This is Tom. You are spot on. We did similar to what we followed the strategy from last year. As the market slowed down, it just didn't seem like a sound investment to invest a lot when the market is slowing over the summer.

So we pulled back on the investment over the summer, and we've started increasing our investment in maybe for the fall. And right now, we are seeing really nice activity folks with regards to lead indicators as far as web traffic. But also, the lift that we are starting to see in new prescriptions and total prescriptions.

Great, and than just a quick follow-up and then I'll get off. Just to understand the stage gates to filing the 72-microgram dose? Thank you.

I'm not quite sure I understand the stage gating? Can you --?

Sure. What is beyond, now that you have the data in hand, are there any other steps beyond putting that into the filing?

Great. Yes, I think it's really now just bringing all the data together, a lot of work obviously to do that. We had the top line, and now it is much more details and bringing all that data together. So as we indicated, we will be planning to get that submission in in the first quarter.

And there's a big push on here.

Thank you.

Our next question or comment comes from the line of Anupam Rama with JPMorgan. Your line is now open.

It's Eric in for Anupam. Thanks for taking the question. Just a quick pipeline question on 9179.

Just hoping you could help us understand how you are defining success in the phase 2 readout in the first half of next year? And what level of symptom improvement would you need to see to move forward with that program? And assuming you achieve that, how should we be thinking about the next steps in development? Do you do a larger phase 2, or advance to phase 3?

Thanks.

Thanks.

So obviously, this is a first attempt to look at GPC active molecule in 9179 for gastroparesis. So this first study is an exploratory study. We are looking broadly at the gastroparesis symptoms, the key symptoms of nausea, vomiting, bloating, upper abdominal pain, and early satiety.

So really it is more of, at this stage, let's find out what the drug does to these symptoms, similar to the approach we took with IW-73718 when we did the refractory GERD. Advancing forward will really come down to what impact we have on those symptom measures. They are very key for these patients.

And from really going across the symptom analysis, without knowing exactly yet which symptoms we might work, or whether we work on potentially all or none. We will wait until we see that data to decide whether we advance on into a phase 2B study.

Great, thanks.

At this time, I'm showing no further questions. So with that said, I will turn the conference back over to CEO, Mr. Peter Hecht, for closing remarks.

Thank you, Andrew, and thanks again to all of you for your time and attention. We will be around this evening and tomorrow, so reach out to Meredith if you would like to follow up after the call with any additional questions. Have a good evening.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.