Ironwood Pharmaceuticals Inc (IRWD) 2016 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Ironwood Pharmaceuticals first quarter 2016 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 now like to turn the conference over to Lisa Adler, Head of Corporate Communications. Please begin.

Thank you. Good afternoon and thanks for joining us for our first-quarter 2016 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 form 10-K for the year ended December 31, 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, who will provide an overview; and Thomas Graney, Chief Financial Officer, who will discuss our financial performance and guidance. Thomas McCourt, Chief Commercial Officer; and Mark Currie, Chief Scientific Officer will also be available during 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 website to access the webcast slides. I would now like to turn the call over to Peter.

Thank you, Lisa. Good afternoon, everyone. During the first few months of this year we made great progress building a top-performing commercial biotech company. We delivered strong operational performance across all aspects of our business.

Our first commercial product, Linzess continues on its solid growth trajectory. We now have two Phase IIb programs ongoing in R&D and we efficiently access external innovation with a license agreement that gives us a ready-to-launch product and establishes a new franchise in uncontrolled gout. All of this puts us in a strong position to become cash-flow positive in 2018 at the same time as we execute on at least five US product launches by 2020 and invest in our robust topline.

We continue to drive forward each of our core franchises which are grounded in innovation that represent multiple blockbuster opportunities. Let's start with IBS-C and CIC. Linzess demonstrated impressive growth for the first quarter with US net sales up 44% from the same period in 2015 and commercial margins expanding to 55%.

Linzess is the branded prescription market leader for the treatment of adults with IBS-C or CIC. Since launch, more than 4.5 million prescriptions for Linzess have been filled by more than 1 million unique patients. It is the most prescribed brands in its category by primary care physicians, gastroenterologists, nurse practitioners and physician assistants.

And Linzess is number one in its category in unrestricted access. The strong Linzess growth we are seeing is driven by high levels of physician satisfaction. In market research studies, 89% of responding physicians reported high or very high satisfaction with Linzess.

That very high level of satisfaction was driven by three key performance attributes, effective abdominal pain relief, effective chronic constipation relief and the low incidence of side effects. As we grow Linzess, we intend to continue to innovate and help even more patients in this category. We and Allergan remain on track to launch the 72 microgram dose in early 2017 if approved.

We're also developing Linaclotide colonic release, the second generation product for this market which has the potential to deliver both stronger and faster abdominal pain relief for adult IBS-C patients and to extend the IBS-C and CIC market. We expect data from our Phase IIb IBS-C trial in the second half of 2016 and we're actively preparing to advance into stage III in 2017.

The continued strong Linzess growth expected into 2031 and patent protection for colonic release, if approved, expected into the mid 2030s. We believe our first new products and our IBS-C and CIC franchise have the potential to generate peak US sales of greater than $2 billion.

Turning to refractory Gerd, an estimated 10 million Americans suffering from Gerd continue to experience heartburn symptoms despite treatment with a proton pump inhibitor. There are no approved prescription therapies for this indication making this a highly underserved patient population. The potential to help these patients is the reason we are so enthusiastic about the recent progress we have made in this area.

In the first quarter, we initiated a Phase IIb dose ranging study for IW-3718, our gastric retentive bile acid sequestrant, which is a wholly-owned asset and we expect data in 2017. If positive, that will enable us to roll into a Phase III trial. We believe IW-3718 could generate more than $2 billion in peak US sales.

On April 26, we signed an agreement with AstraZeneca for an exclusive US license to all products containing Lesinurad establishing, establishing an innovative products franchise with IP until at least 2028. This agreement includes FDA approved ready to launch Zurampic for the significant unmet need of hyperuricemia associated with uncontrolled gout as well as a Lesinurad-allopurinol fixed-dose combination which is expected to be submitted for FDA review in the second half of this year.

Our entire team is very excited about this opportunity and it's a great strategic fit for us. There are as many as 2 million patients suffering uncontrolled gout and these patients are highly motivated and seeking new treatment options. This transaction enables us to further leverage our demonstrated commercial capabilities and is precisely the kind of opportunity the Ironwood team is already successfully executing on in IBS-C and CIC.

We expect to launch Zurampic in the middle of the second half of this year and look forward to updating you on our progress. You can access detailed information on this transaction by listening to the conference call we conducted on April 26 which is archived on our website.

Moving to our vascular and fibrotic franchise, we're leveraged in our expertise in guanylate cyclases to develop multiple FCC stimulators all wholly-owned assets. We believe there are several blockbuster opportunities for Ironwood in this area and we expect to initiate multiple phase II proof of concept studies with our two mead molecules later in 2016.

As you can see, we have made substantial progress so far in 2016 with important advances in each of our priority franchises. Looking ahead, we'll focus of vigorous execution across the portfolio with continued Linzess brand growth, expected approvals of the 72 microgram dose in the US and IBS-C approvals in China and Japan, the Zurampic launch, the initiation of multiple phase IIs in our vascular and fibrotic franchise and data from our Phase IIb studies in refractory Gerd and chronic release. We're really excited about our progress and our future and we look forward to continuing to update you as we focus on innovation and solid execution. With that, I will hand it over to Tom.

Thank you Peter, and thanks to everyone for joining us this afternoon. I will cover some of the first-quarter 2016 financial and performance highlights and review our 2016 financial guidance. Please refer to our press release for the detailed financial statement.

As Peter said, we delivered strong operating performance in the quarter. Beginning with Linzess, increased demand in the quarter resulted in $137 million in net sales, an increase of 44% compared to the same period last year.

Commercial margin for Linzess expanded to 55% for the quarter compared to 39% in the first quarter last year. While commercial margin will fluctuate from quarter to quarter, we expect margins in general to expand as the brand continues to grow. The Linzess brand collaboration in the US reported $58.4 million in total net profit for the quarter compared to $15.2 million in the first quarter last year, growth of 284%.

Brand net sales increased by $42 million year over year while brand net profit increased by $43 million. Once again, demonstrating the high degree of operating leverage we're driving with the brand.

Turning to financial highlights, Ironwood revenue for the quarter was $66 million, an increase of 128% compared to the year-ago period. Ironwood's revenue consists of revenue from our Linzess collaboration with Allergan, our copromotion agreements with Exact Sciences for Cologuard and with Allergan for Fibrogene. As well as additional collaboration, royalty and amortization revenue from our global partnerships.

In the quarter, we received a $15 million milestone payment from Astellas related to the filing for regulatory approval in Japan of which $12.9 million was recognized as revenue. As a reminder, we are recording on our P&L the non-cash, unrealized gain or loss on derivatives each quarter as a result of the $336 million convertible debt financing completed last June. 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 quarter, this was a non-cash loss of $1.6 million and has been excluded from our non-GAAP measures as it is not related to operational performance. There is a comprehensive webinar discussing the accounting considerations associated with our 2015 convertible debt financing posted in the IR section of our website. And I encourage you to review it to ensure that you are capturing all elements of these instruments accurately in your models.

GAAP net loss for the quarter was $13.3 million or $0.09 per share and non-GAAP net loss was $11.7 million or $0.08 per share. In the first quarter last year, the GAAP and non-GAAP net loss was $33.2 million or $0.24 per share. We ended the first quarter of 2016 with $434 million in cash, cash equivalents and available-for-sale securities, a decrease of $5 million from the end of the fourth quarter 2015.

We are always exploring ways to optimize our capital structure which may include utilizing the capital markets to restructure our debt. We feel very good about our financial condition today and into the future and we believe that growing Linzess revenues and profit and our cash on hand will enable us to fully fund our current business going forward without the need for incremental capital.

Regarding our 2016 financial guidance, cash used for operations is expected to be less than $70 million, up from less than $60 million as previously guided. We revise this number as of April 26, 2016, at the time of the Lesinurad deal announcement. We are reiterating a combined Ironwood and Allergan marketing and sales expense for Linzess is expected to be in the range of $230 million to $260 million, the same range as in 2015.

As we stated when we announced the licensing agreement with AstraZeneca for Lesinurad, we anticipate updating our guidance for annual operating expenses for 2016 including R&D and SG&A expenses when we report our second quarter investor update in August. I would like to close with an observation about our growing operating leverage. We are really pleased with the strong growth of Linzess revenue this quarter and with our growing operating leverage as we are able to reach more and more patients with a similar level of investment.

We are also pleased with the growth in Ironwood total revenue which reflects progress in leveraging our commercial capabilities and advancing Linaclotide with our global partners. We look forward to further maximizing our commercial capabilities with Zurampic to create additional shareholder value. With that, I will hand it back to Latoya to begin the Q&A portion of the call.

(Operator Instructions)

Jami Rubin, Goldman Sachs.

This is Derde on behalf of Jamie Rubin. A couple of questions. You have launched a DTC program. Just wanted to know your thoughts on how should we should think about expected impacts relative to previous years. Secondly, I noticed IW 1709 the topline data timeline has been pushed out to second half 2016 from first half. So any comments on what's causing that delay? Thank you.

This is Tom McCourt. As far as the DTC campaign, we are delighted with the early indicators of its overall performance. This, as you know, has been an evolution of the campaign, which has certainly been a progression. As the first campaign, we saw very significant lift of well over 22% off the pre-DCC trend. The second campaign which was more focused on chronicity of symptoms, which provide us an additional lift on top of that. And this campaign which is really leveraging the core insight around patient frustration, the early signs show a third incremental lift; and it's extremely rare that you see consistent increases off the pre-DTC trends. So we're very encouraged by the early signs and it has certainly continued to add to the growth of the product.

With respect to 1701, again, we are very excited about this program. It is on track, we expect to be moving into Phase Ib very soon.

Anupam Rama, JPMorgan.

Thanks so much for taking the question. Given some of the recent speculation related to the real world safety of Linzess, I am wondering if you could comment on what you're hearing from physicians, how the safety tolerability profile commercially compares to the clinical trial setting and how frequently you communicate with the FDA on LINZESS' commercial safety? Thanks so much.

Thanks for the question. Maybe I will start, and then Tom, you can talk about the commercial experience and Mark can talk about FDA. Let me just start by saying patient safety is our first priority. We and our partner Allergan take it very seriously.

We have been continuously monitoring Linzess' safety together with our partners and regulatory authorities around the world for many years. And today we have now over 7000 patients who have participated in placebo controlled trials worldwide. And there are greater than 1 million unique patients in the US, so we've sold more than 4.5 million prescriptions since March.

I want to just say emphatically that the adverse event profile observed is consistent with the approved label. And we and Allergan thoroughly reviewed the insinuations from the recent Shore report and those conclusions are false, misleading, deceptive and pretty clearly financially motivated.

We are very confident in the safety and efficacy of Linaclotide. We are excited about the opportunity in front of us to bring the benefits of this drug to millions of additional patients in the US and around the world. I just want to make sure to clarify any questions on that. Tom, Anupam's was asking specifically about feedback we are hearing from physicians about real-world experience with safety.

Sure. As far as the physician's impression, they reported a very, very high level of satisfaction with the drug and then certainly confidence in particularly the safety of the drug which obviously speaks to the more than 190,000 physicians who have now chosen Linzess for their patients. We've had a handful of questions that have popped up around this particular communication. The sales reps were extremely well poised and prepared to answer the questions and the feedback that we get from physicians is consistently positive. And certainly reporting a very strong willingness to expand their use to additional patients. Mark, maybe you can talk specifically about the correspondence and communication with the FDA.

Yes, so we obviously are very often in communication with the FDA. We provide the update to the database from the call center on a regular basis; we also file any severe adverse events within 15 days of that adverse event being determined and coming into the center. Those interactions are pretty much continuous and we certainly update them on a regular basis throughout. So from our perspective, they are regular community.

Great thanks so much for the color and thanks for taking our question.

Geoff Meacham, Barclays.

Good afternoon, this is Carter on for Geoff. Peter, I appreciate your emphatic comments on the adverse events report. Maybe just to put the issue to bed one last time, do you expect any additional one-off communication with the FDA on the matter? And then, separately, on the margin side for Linzess, you had strong, really good improvement over the past two years, should we still anticipate the commercial cost to be sort of volatile quarter to quarter or we entering more of a stable run rate? Thank you.

Yes. Thanks for the question Carter. As I indicated, we are routinely in communication with the FDA around the pharmaco vigilance database. Both ours and the fares database. So, from our perspective, nothing had changed before or after the report.

Carter, it is Tom Graney. Thanks for the question on margin; I will take that. We do see, and expect to continue to see, the margin fluctuate quarter to quarter really as a function of where we pulse our DTC investment based on when during the year we think we're going to get the best return on investment. And also the phasing of the R&D investments behind Linaclotide. As you can imagine, those investments will vary quarter to quarter based on the stage of development we are in the lifecycle management.

Great. Thanks for answering the questions.

Bank of America.

Hi guys, it's Aston on for Ying. Thanks for taking my question. So first, what is the average duration of Linzess treatment in patients starting to look like? Has it been improving lately or is it somewhat stabilized? And then, do you have any other plans to end license commercial assets after the Lesinurad deal? Thank you.

This is Tom. I will take the question with regard to patient adherence. The patient adherence we're seeing has been quite consistent. As you know, or we've talked about before, we've been following four separate cohorts of patients since we launched the product. What we're seeing is, pretty consistently, these patients are running at a 40% to 50% higher rate of adherence than what we have seen with other analogues, i.e., prescription laxatives as well as an Zelnorm and Amitiza So we are very encouraged with the consistency of the adherence we are seeing and it is actually perked up a little since we initiated DTC, obviously due to the reminders of their symptoms and the need for refilling the prescriptions. I'll take the question on additional end-licensing opportunities. I hope you can tell how pleased we are to welcome Zurampic into the Ironwood family. It fits right within our core capabilities on the commercial side and we're looking forward to the launch of that product and bringing it to the many suffering patients where Zurampic really is filling an unmet need in the marketplace.

As far as additional opportunities, we do have what we feel is a strong and differentiated commercial capability and capacity especially in the primary care space. So to the extent that we can end-license additional assets that are already of commercial stage where that would create a value-creating opportunity for us, we're certainly going to continue to look for assets that fit that mold. However, we have a very high bar in terms of ensuring that anything we bring in does fit with our commercial strategy and is providing an opportunity for us to create long-term shareholder value. In addition to that, likewise, the precommercial assets that we look for innovation externally to bring into the Company is also an area where we will continue to look. But, as I said, the bar is pretty high in terms of value-creating potential.

Thanks, guys.

Marc Goodman, UBS.

This is Sami on behalf of Mark. A couple of questions on Linzess. Could you give us an update on what type of benefit you saw in the quarter for LINZESS from the CVS contract that was won around the turn of the year. And with the DTC advertising and the other sales effort, where do you see the IBS-C market expand to over the course of this year? And also lastly, just in the quarter, was there any inventory stocking or investing? Thanks.

Tom, why don't I take the first two and you can handle the stocking question. So first, we, as you know, as of January 1, we had a huge win with CVS Caremark. We have seen really strong growth within the plan which obviously is fueling part of our growth as we move forward as the other plans, that we have, have done consistently. As far as the DTC campaign, again, our primary focus, as the market leader, is on growing the category and capturing disproportionate share. And that is solely the focus of the DTC campaign to focus on patients who are now taking OTC laxative treated and not satisfied, and it seems to be working quite well.

But, I think, as we move forward, our primary focus will be on those OTC users to grow the market. And of course the value proposition of our brand is very strong and we have a very high willingness of physicians to honor patient requests. So it's important to keep in mind, we've still only scratched the surface in this market. While we've had over 1 million patients treated, we've only had 1 million patients treated and there are still over 30 million Americans out there in need of effective therapy.

And just on the stocking question, thanks for the question, you can imagine we and Allergan watch this very carefully to ensure that we are able to have enough product in the channel to provide good service levels. What we see is some fluctuation from quarter to quarter, but for the first quarter we were within our expected range.

Thanks, can I just ask a follow up on the CVS contract? Maybe if I could reword my question. Have you seen the full benefit of what you think this contract would bring or have we yet to see part of it? And if you could quantify that for us in some way, that would be helpful. Thanks.

So I mean it's relatively early days. We are seeing steady growth. So no, we have not realized the full potential of the move in CVS as far as having a preferred status in that plan. So we're going to continue to focus on that plan and the users of that plan or the physicians who are members of that plan to continue to drive growth. And the second question as far as the financials, we have not provided specific guidance at a planned level with regard to what we think the economics are specifically to that. But I think you know that this is one of the largest plans in the country; and to have a preferred status in a plan that size, puts us in a very strong place to continue to drive growth.

Thank you.

Irena Koffler of Mizuho.

Hi, thanks for taking the question. I have one on DTC and one on the co-pay environment. I guess on DTC, how many more waves can you guys do over time to have people still paying attention to them and having inflection results and does it get stale over time after a brand is fairly mature? And then the second question is, are you seeing any impact from the Takeda zero co-pay campaign for the Amitiza brand? Thanks.

Thanks Irena, this is Tom. As far as the DTC campaign, really highly effective DTC campaigns, the primary objective is to focus on segments of patients that you can reach out to, to get them to self-identify and activate them. And that's exactly what we have done over the first three campaigns and we're going to continue to do as long as that continues to drive incremental growth. Keep in mind over time the DTC campaign gets baked into the baseline trend; but to be able to maintain that level of growth, you've constantly got to find new patients and activate new patients to continue to drive the growth. So as we continue to torture the market research, identify new patients that we can speak to and activate, as well as remind patients refill their prescriptions, we're going to continue to move forward.

As far as the fatigue of the campaign, it's also something that we constantly monitor because you really do need a fresh campaign to break through the clutter on TV and other communication channels to get people's and patients' attention and making sure that the creative clear, the communication is concise and it's motivating the patients and we have been delighted with the success we have had so far. As far as the co-pay assistance program, we really haven't seen any effect to date with regard to the zero co-pay program of Tekada's, although it's early days and it's something that we will continue to monitor.

Thank you.

Boris Peaker, Cowen and Company.

Great, my question initially is around Lisinurad. I just want to get a sense of how much do you plan to invest in that franchise and when do you anticipate that particular franchise to become cash-flow positive?

Boris, I'll take the first question. Out of the gate, as you know, we're going to focus primarily on the high-prescribing early adopters and we think that prescriber base is somewhere between 20,000 and 30,000 physicians and there is a great overlap with that in Linzess. So we are already calling on roughly 14,000 of those target physicians. So we're going to have a very focused commercial effort focusing on these high-volume early prescribers.

The initial investment that we have mentioned is going to be less than $75 million; that would encompass both sales and marketing expenses. We're going to watch the promotional response very carefully to inform where we go in the future. Because keep in mind, the primary focus of this asset certainly is to improve the productivity of our commercial effort, but also make sure that it's creating positive cash flows. And Tom, maybe can talk to specifically on what we're thinking about as far as a positive return.

Sure. Thanks Tom. Boris, one of the attractive things we liked about bringing in Zurampic, in addition to everything Tom talked about, is actually the economics of the deal for us. We feel like we were able to access a highly differentiated product very efficiently with the cash we had on hand. As you heard from Tom, we're going to be very thoughtful about our investments over time. A lot of the contingent consideration is backend loaded, which also is pretty attractive for us. So to answer your question, we're looking for cash flow breakeven or accretion rather in 2019 for the product.

Got you. And I just want to understand, lastly, on the synergy, you talked about the synergy between Lesinurad and your LINZESS franchise and Allergan's sales force obviously. But Lesinurad is going to be targeting primarily rheumatologists and LINZESS is more of a GI specialist, GI doctors. Can you just talk a little more about what specific synergy should we be aware of?

Sure. Actually the majority of the prescribers are actually primary-care physicians. So there are a small number of rheumatologists 2000 to 3000 rheumatologists that are highly influential and certainly very productive prescribers. And we're going to call on those. Very similar to the GI community where you have roughly 9000 gastroenterologists who are writing a significant portion of the business and they are very productive. But really the growth potential for both LINZESS and Zurampic really resides in a very focused group of primary-care doctors and that's the 20 to 30 high volume early prescribers that we've been talking about and there is a good deal of overlap.

So to have both Linzess and Zurampic side by side in a bay for the sales rep to be able to manage within their territory, it certainly drives the growth across that target physician population. But probably, more important, it really increases the overall productivity of the sales rep. So we're trying to maximize the value that all of our assets create, obviously the sales force is a key one; and this really gives us the opportunity to do that in the sweet spot in the market which is these high potential, early-adopting primary care physicians.

Great, thank you very much for clarifying that. Thanks for taking my questions.

At this time, I'd like to turn the call back over to Peter Hecht for closing remarks.

Thanks again and thank you all for your attention. We will be around this evening and tomorrow so please reach out to Lisa or Mary if you would like to follow up after the call with any additional questions. And have a good evening.

Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.