Ironwood Pharmaceuticals Inc (IRWD) 2016 Q2 法說會逐字稿

Welcome to the Ironwood Pharmaceuticals 2Q 2016 investor update conference call.

(Operator Instructions)

As a reminder, this conference call may be recorded. I would now like to turn your call over to your host for today's conference, Senior Vice President of Corporate Communications, Lisa Adler. You may begin.

Thank you and good afternoon and thanks for joining us for our second-quarter 2016 investor update. Our press release on this topic 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 quarterly report on Form 10-Q for the quarter ended March 31, 2016, 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 Tom Graney, Chief Financial Officer, who will review our operational execution, financial performance and guidance; and Tom McCourt, Chief Commercial Officer, who will provide an overview of our commercial activities surrounding both our IBS-C and CIC and our uncontrolled gout franchises. Mark Currie, Chief Scientific Officer will also be available during the question-and-answer portion of the call. Peter Hecht, our CEO, is enjoying a well-deserved vacation right now and look forward to connecting with many of you this fall.

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 live.

I would now like to turn the call over to Tom Graney.

Thanks, Lisa. And good afternoon, everyone, and thanks for joining us. The momentum we created in recent quarters continues to propel us forward in the second quarter as we build a top performing commercial biotech company.

Our goal is to create medicines that make a difference for patients and to create value for our fellow shareholders. We are we are grounded in innovation and are advancing four key franchises with multiple blockbuster opportunities.

In the second quarter, we continued to demonstrate strong operational execution. Revenue nearly doubled year over year increasing 96% to $54.4 million. This revenue growth positions us well to advance our four priority franchises and we remain on track to achieve positive cash flow in 2018.

Within our IBS-C and CIC franchise, LINZESS US net sales grew 34% year over year to $150.5 million, driving commercial margin expansion to 52% from 31%. LINZESS remains on track to exceed $1 billion in annual net sales by 2020.

Meanwhile in the second quarter, we added a fourth franchise on controlled gout and are preparing to launch the first product, ZURAMPIC, in October. I'll provide a few updates on our other franchises in a few minutes, but first, I'd like to turn the call over to Tom McCourt, so he can provide more detail on our key commercial activities around LINZESS and ZURAMPIC.

Thanks, Tom, and good afternoon, everyone. LINZESS demonstrated impressive growth in the second quarter, and as Tom mentioned, US net sales grew $150.5 million, up 34% from the same period in 2015. This level of growth was driven primarily by strong demand and strong commercial fundamentals, driving desired patient and physician and payer behavior.

Our commercial efforts generated more than 650,000 LINZESS prescriptions being filled in the second quarter, a 29% increase year over year. And as we've grown our position in the market, we're also seeing a stronger market share growth, with both total RXs and new RXs. We saw 22% increase in total Rx market share and nearly an 18% increase in new Rx market share.

And we have seen strong adherence running 40% to 60% higher than industry analogs, which is generally considered to be a very positive indicator for patient satisfaction. Lastly, on the payer side, through the relentless collaborative efforts with our partner Allergan over the past three years, we have now achieved greater than 90% unrestricted access among Medicare Part D plans and greater than 70% unrestricted access among commercial health plans.

In fact, LINZESS is number one in unrestricted access among branded prescriptions for IBS-C and CIC. LINZESS continues to be the branded prescription market leader for the treatment of adults of IBS-C and chronic constipation. Since launch, more than 5 million prescriptions for LINZESS have been filled by more than 1 million unique patients. It is the number one prescribed brand in the category by gastroenterologists, primary care physicians, nurse practitioners and physician's assistants and as I mentioned, LINZESS is number one in its category in unrestricted payer access.

I want to point out that the 1 million-plus patients who have been treated by LINZESS so far is still just the tip of the iceberg. There is an estimated 40 million potential patients, many of whom we believe are dissatisfied with current treatment options, primarily OTC laxatives, and currently are experiencing symptoms of IBS and chronic constipation. We believe this creates a $10 billion market opportunity for LINZESS, and the market is expanding.

LINZESS and other IBS brands are growing the category, driven by our ability to create urgency on the part of the physician to choose LINZESS, increased awareness and specific patient requests for LINZESS and the expansion of payer reimbursement for LINZESS. And even as the category itself expands, we are seeing our market share increase, as patients move from OTC laxatives directly to LINZESS.

As we grow LINZESS, we believe that we can help even more patients through the continued innovations in this category. We announced during the second quarter that FDA accepted the supplemental new drug application for the 72-microgram dose of linaclotide which, if approved, we expect to launch early in 2017. We anticipate it will increase physician prescribing for LINZESS within this very large heterogeneous adult chronic constipation population.

Another innovation in this franchise that we're particularly excited about, that we think could really raise the bar for linaclotide in the treatment of IBC and chronic constipation is linaclotide colonic release. Pain and discomfort are what currently drive patients to seek care from physicians and the Colonic Release is a second-generation product, which has the potential to provide both stronger and faster abdominal pain relief in adults with IBS. If approved, we believe Colonic Release could expand the IBS-C and chronic constipation market, providing physicians another option to treat these patients, and providing patients another reason to be more adherent due to the abdominal pain relief profile.

We have completed enrollment in our Phase IIb IBS-C trial for chronic constipation and expect data in the second half of 2016. If positive, we and Allergan expect to initiate a Phase III trial in 2017. With continued strong LINZESS growth expected into 2031 and patent protection for the Colonic Release, if approved, expected into the mid-2030s, we believe the first two products in our IBS-C and chronic constipation franchise have the potential to generate peak US sales of greater than $2 billion.

Another franchise I want to update you on today is uncontrolled gout. We are gearing up to launch ZURAMPIC in October, an oral therapy for use in combination with xanthine oxidase inhibitor, or XOIs, for the treatment of hyperuricemia associated with uncontrolled gout. Our excitement for this opportunity starts with the patients.

Gout is a highly symptomatic painful form of inflammatory arthritis, caused by hyperuricemia. High serum uric acid levels can lead to characteristic painful flares and some patients are able to lower serum uric acid levels sufficiently, using an XOI, such as allopurinol. However, about 2 million patients in the US suffer from uncontrolled gout, which means they cannot achieve serum uric acid levels below 6 milligrams per deciliter and continue to suffer from frequent flares despite XOI therapy.

These patients have a limited number of treatment options and continue to suffer from multiple flares and are looking for effective treatment. Physicians and payers report a recognition and the need to treat these patients and get their serum uric acid levels to a target of 6 [milligrams].

We also know that there's a limited competition in this promotional space, enabling Ironwood to establish a strong promotional voice in the marketplace. And most of the physicians actually treating gout are primary care physicians, which makes this asset quite efficient to promote alongside LINZESS.

Now, just a bit more detail on ZURAMPIC. Xanthine oxidase inhibitors decrease the production of uric acid. ZURAMPIC complements this XOI therapy by increasing the excretion of uric acid. The combination provides a dual mechanism of action to decrease production and increase excretion.

It's important to know, for an estimated 80% to 90% of patients with gout, insufficient excretion is an important factor contributing to elevated serum uric acid. ZURAMPIC has the ability to increase that excretion, representing a powerful option to further impact serum uric acid. In two clinical trials, ZURAMPIC Plus, the XOI allopurinol demonstrated nearly twofold increase in uncontrolled gout patients reaching target serum uric acid levels of below 6 milligrams per deciliter versus allopurinol alone at month six of treatment.

So ZURAMPIC, in combination with an XOI, appears to be a very logical next step in treatment for these patients suffering from uncontrolled gout. We are on track to launch in October 2016 and excited to leverage our proven commercial capabilities. We're expanding our sales force and expect that with approximately 300 sales specialists in total, we will be able to call on 20,000 to 30,000 high-prescribing primary care physicians.

All of our representatives will be trained on both LINZESS and ZURAMPIC, which we believe will benefit both products, due to the high degree of overlap between LINZESS and ZURAMPIC prescribing physicians, increasing the overall productivity of our selling efforts. We're also preparing an online digital DTC campaign aimed to help patients self-identify and take action.

And we're on track to have discussions with payers to ensure broad access, supported by the strong value proposition that ZURAMPIC offers. As we've said previously, we see the estimated peak sales opportunity in the uncontrolled gout space to be greater than $300 million. We expect this transaction to be cash flow accretive by 2019.

One of the reasons why we're confident we can succeed in this goal is because we were able to access this promising growth asset at favorable terms. We anticipate the first 12 to 18 months will be a gradual ramp as we educate physicians, gain access in reimbursement, and activate patients in primary care.

In closing, we're really excited about the commercial progress in the future and we look forward to continuing to update you as we launch ZURAMPIC and anticipate the launch of our 72-microgram dose of linaclotide in the next nine months. With that, I'll hand it over to Tom.

Thanks, Tom. Now let's get into a little bit detail around key second quarter financial results and guidance. The detailed financial statements are in our press release. As I mentioned at the beginning of the call, we delivered strong operating performance in the quarter.

Starting with our financial highlights, revenue for the quarter was $54.4 million, up 96% compared to the second quarter of 2015. Revenue primarily consists of revenue from our LINZESS collaboration with Allergan, our co-promotion agreements with Exact Sciences for ColoGuard and with Allergan for VIBERZI, as well as additional collaboration, royalty, and amortization revenue from our global linaclotide partnerships. The doubling of revenue this quarter was driven primarily by growth in LINZESS sales and profitability.

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 convertible debt financing completed in June 2015. This is related to the change in fair value as we mark to market the convertible note, hedges and warrants, which comprise our cost spread overlay.

In the quarter, this was a non-cash gain of $3.1 million, which has been excluded from our non-GAAP measures, as it's not related to operational performance. In addition, starting this quarter, we are also excluding from our non-GAAP measures the amortization of acquired intangible assets related to our licensing agreement for lesinurad. This amortization totaled $1.1 million for the quarter.

GAAP net loss for the quarter was $21.7 million, or $0.15 per share. Non-GAAP net loss was $23.8 million, or $0.16 a share. In the second quarter last year, the GAAP net loss was $48 million, or $0.34 per share, and non-GAAP net loss was $47.8 million, or $0.34 a share.

Turning to LINZESS, increased demand in the quarter resulted in $150.5 million in net sales, up 34% compared to the year-ago period. Commercial margins for LINZESS expanded to 52% compared to 31% in the second quarter last year, once again, demonstrating the high degree of operating leverage we are driving with the brand.

The LINZESS brand collaboration in the US recorded $58.3 million in total net profits for the quarter compared to $15 million in the second quarter last year, growth of 289%. Brand commercial contribution increased by $44.7 million, as sales increased by $38.4 million year over year.

While LINZESS revenue increased an impressive 34% year over year, the revenue Ironwood received from the LINZESS brand collaboration is growing even faster, 99% year over year. This is primarily due to the fact that our collaboration with Allergan is a profit split and the profit with the LINZESS brand is growing faster than sales, as we are able to reach more and more patients without significantly increasing our level of investment.

We ended the second quarter of 2016 with $325 million of cash and short-term investments, a decrease of $109 million from the end of the first quarter of 2016. This includes our upfront payment to AstraZeneca of $100 million related to the lesinurad licensing agreement. Cash use in operations was a $6 million in the quarter compared to $26 million used in the year-ago period.

Regarding our 2016 financial guidance, we are updating to reflect the licensing agreement for lesinurad including the investments to support the launch of ZURAMPIC in October. R&D expenses are expected to fall within the range of $140 million to $150 million. SG&A expenses are expected to fall within the range of $170 million to $180 million, and intangible -- and amortization of intangible assets is expected to be $8 million.

Consistent with our guidance following the announcement of the lesinurad license, we continue to expect to use less than $70 million in cash from operations this year. In addition, combined Ironwood and Allergan marketing and sales expenses for LINZESS are expected to be in the mid- to high-end of the previously stated range of $230 million to $260 million.

We are always exploring ways to optimize our capital structure, which may include restructuring our debt. We feel really good about our financial position today and into the future. We believe that growing LINZESS revenues and profits and our cash on hand will enable us to fully fund our current business going forward without the need for incremental capital.

In closing, we have several key value drivers coming up before the end of the year, including the launch of ZURAMPIC and the Phase II linaclotide Colonic Release readout. Also, as we stated in today's press release, we just reported positive top line data from our Phase 1b study IW-1973 and we plan to advance our soluble guanylate cyclase stimulator program into Phase II this year.

We are making great progress towards our goal of generating rapidly growing cash flows as one of the industry's top performing commercial biotechs and are looking forward to updating you on our progress in the months to come. With that, I'll hand it back to Demetrius to begin the Q&A portion of our call.

Thank you.

(Operator Instructions)

And our first question comes from Anupam Rama, JPMorgan. You may proceed.

Hi, guys, this is Eric in for Anupam this evening. Congrats on the quarter. Thanks for taking our questions. Just a quick one on LINZESS. Wondering what you're thinking or expecting regarding the incremental impact on margins from the introduction of the 72-microgram dose?

And looking longer term to 2020 guidance, how are you thinking about peak margin potential relative to other primary care comps? And what are some of the components to getting there? Thanks.

Hi, Eric, thanks for the call -- question. This is Tom Graney. With respect to the impact 72 [micrograms] may have on our margins going forward following the launch in 2017, as we've always talked about this brand in terms of what's attractive to it -- about it for us is the high degree of operating leverage.

This is a high gross margin brand and we've had very stable levels of investment year over year since launch. We do not expect that the fundamentally change with the launch of the 72 microgram. As you know, this is a very heterogeneous population and we're looking forward to bringing this new dose to physicians and patients so that we can continue to expand the utility of LINZESS in the marketplace.

So really, it's a growth story more than a margin story. Certainly, as we'll continue to grow the brand and manage expenses, you would expect, over time, margins to increase.

Just one other comment, Tom, just to be clear. I mean, when we bring 72-microgram into the marketplace, it will simply slide in as part of our message, our core, promotional message. So you're not going to see incremental direct marketing expenses that you would see with launching a separate type of line extension.

It's really going to be a core set of the overall story in which we now have a drug that can treat both IBS and chronic constipation and we have three doses that can enable a physician to tailor therapy to the specific needs of a patient.

And just with respect to your question about 2020, certainly, we expect the brand to continue to grow, as we've guided toward $1 billion target by 2020. We would not expect our investment profile to fundamentally change between now and then. Certainly, we look at our investments carefully and want to make sure that we're resourcing the brand appropriately to take advantage of the growth opportunities, but again, as I mentioned, with the high gross margin to start with, we're in a really good position.

Great. Thanks for taking the questions.

And our next question comes from Jami Rubin with Goldman Sachs. You may proceed.

Hi, Usha on behalf of Jami Rubin. Firstly, I just had a question on your SG&A guidance. That increases around $40 million, $45 million and that's, I guess, attributed all to ZURAMPIC. I just want to understand, does this -- how does -- what exactly goes into this spend?

If you can just provide some context around how you would be spending this money and as well as put this in context of the annual expenses to be less than $75 million. Is that for 2017 or is that for the first 12 months post launch? I just wanted to confirm that with respect to the previous guidance. Thank you.

Sure. Thanks for the question. This is Tom Graney. I'll start off with the answer and then kick it over to Tom McCourt to give a little bit more color. You're correct; the increase in guidance primarily reflects the integration, pre-launch and launch costs associated with ZURAMPIC, which as we've mentioned, we're launching in October.

We did bring in this asset in June and as a result, have been ramping up appropriately ahead of the launch in October. With respect to the $75 million annual guidance we gave related to ZURAMPIC for commercial spending, we gave that guidance back in April when we announced the transaction. And really, the intention there was to help inform people about the level of investment we saw on an annual basis. We have since built that into this 2016 guidance and we look forward to sharing our 2017 guidance on the fourth quarter call.

I think, Tom, that's spot on. And I think, as I think about bringing this to market, I mean, one of the real attractions of ZURAMPIC for us was, the strong overlap that we're seeing between LINZESS and ZURAMPIC prescribers. So, we could enable us to slightly grow the sales force, which not only is going to be able to enable us to call on the high ZURAMPIC prescribers, who are also writing LINZESS, but also it's also going to strengthen our LINZESS-selling efforts as we prepare to launch the 72-microgram.

So, to Tom's point, I think we see this as a very reasonable investment. I think we see this as a very efficient play. I think we're going to focus initially on the most productive high prescribers and see how promotionally responsive it is and obviously, that's going to guide our investment as we move forward.

Okay. Thank you. I just had a quick follow-up. With respect to your online DTC for ZURAMPIC, I'm guessing that's included in the guidance as well. When do you expect to begin promoting this ZURAMPIC online?

Yes, I mean, the online is a very, very attractive vehicle. I mean, what we've learned from our market research thus far is, the point of change will be when people have flares and when people are hurting, they are very active online looking for information and help. So we think this is going to be a very efficient vehicle to educate these patients in need of a choice to enable them to get many of these uncontrolled patients to goal.

So we will initiate this very shortly after launch. Everything has been pre-cleared with the FDA. We feel very good about moving into this space and one of the other things I mentioned is because there isn't a lot of promotional activity, it isn't going to require an enormous promotional investment to capture a large share of voice. So another reason why we think ZURAMPIC is a very efficient, logical next step for us as an organization.

Good. Thank you.

And our next question comes from Ying Huang, Bank of America, Merrill Lynch. You may proceed.

This is Amanda this evening. Congrats on the quarter. So I was wondering if you could give us a little bit more color on the trajectory for LINZESS continued growth and market share extension and how you're capturing the conversion from over-the-counter drugs to LINZESS.

And then for ZURAMPIC end, if you can give more comments on the preparation for the launch in terms of the incremental sales force expansion and colors around discussion with payers and pricing as compared to Uloric. Lastly, I was wondering if you could give more color on your thoughts on that delay in the synergy of products in development for you guys?

So I'll try to catch you up on all of those questions. First, with regard to the trajectory of LINZESS, we're seeing very, very strong fundamentals with regard to lead indicators on ongoing growth of LINZESS. As I said, we're seeing the market grow, the size of the market grow and our market share grow in a very strong way, both with regard to certainly new RXs, new Rx share, and total RXs.

So the foundation for growth of this brand looks very good. In addition, the consumer campaign is working very effectively in driving new patients in to seek care and we're seeing a nice increase in new patient starts.

And of course, reminding everybody, we need to constantly find new sources of business and new patients to raise their hand as we continue to grow the product. So we like the current growth trajectory of the product. We don't see anything dramatically changing in the upcoming months and quarters. So we're feeling very good about LINZESS right now.

As far as ZURAMPIC is concerned and the investment, we're in the process right now of interviewing and identifying sales candidates and extending offers, but we won't be bringing in -- officially bringing in the sales force until we get a little closer to launch.

So -- but we're looking at expanding our sales force from roughly 160 to about 300 sales representatives, which allows us to expand our reach into primary care from about 14,000 docs to about 25,000 or 30,000 docs, which are the most productive early prescribers that we think are in the marketplace and are also tend to be very promotionally responsive.

As far as the payer is concerned, based on the discussions, we have done extensive market research with the payers and AstraZeneca, previous to us acquiring the asset, had done extensive market research. And the things that we're hearing back from the payers is, one, they really recognize that there's a high need population here, and these patients that have been on XOIs, whether it's Uloric or whether it's allopurinol, and continue to suffer from flares and not treated to goal.

And they see that need and they've been very clear that, there is a place for ZURAMPIC on the formulary. We'll be working with them to bring a very strong value proposition to the table, which obviously encompasses the strong clinical profile as a logical next step for these patients as well as the price. We haven't announced the price as of yet.

We'll do that as we get closer to launch. But keep in mind, we will optimize the value proposition of the payers because job one is to secure access and reimbursement because if we can't do that, we really can't get drug to patient. So we like where we're at right there and I think we -- it's -- we still have a lot of work to do, but it looks very promising.

As far as the synergy delay, I mean, I don't have much to comment on that. Obviously, it's not particularly good news for them. Keep in mind, we like where we're at in the marketplace right now. We're the market leader because the drug has performed well clinically and we're seeing very strong patient and physician satisfaction.

In addition, the payers have recognized the value we've brought to this equation and we've had very, very strong payer access. So, we're in a market and I think very solid shape with an indication for both IBS and chronic constipation we will have these three doses that will enable physicians to tailor therapy to patients and of course, I think we'll be able to serve the needs of those patients.

And I think just as a quick follow-up, as you noted some, we also completed the enrollment on our IBS-C study and that study enrolled very quickly and we're looking forward to having data later this year.

Thank you.

And our next question comes from Tim Chiang, BTIG. You may proceed.

Hi, thanks. Has there been any update on the SDC stimulators, Mark? And, also, when -- is there any more information that we should get -- I mean, what kind of information are we -- should we expect from the Colonic Release linaclotide Phase IIb study? Is it going to be top line data? How much granularity will you be able to provide?

Sure. Thanks, Tim. So what we are -- let's first start with the SDC program. We made great progress. We, as we indicated, we completed the [Phase] 1B and have the data from the 1973. We are excited to say we're moving on to Phase II.

We've essentially confirmed and extended what we've seen previously with the [Phase] 1a data. So all looking good there. We're in the process of defining exactly what the next stages of our POCs and which POCs we will advance and we'll update you on that later this year.

With respect to the Colonic Release, yes, again, we expect data later this year. We will be certainly focused in on the key elements of complete spontaneous bowel movements and the improvements there and also with abdominal pain.

And as -- we expect the top line data to be able to demonstrate clearly the comparison of placebo with the current marketed LINZESS in a comparative way with the two formulations, delayed release one and delayed release two. That will provide more detail relative to the comparison by being able to look at those over the period of time of the trial that was 12 weeks.

Mark, maybe just a follow-up. You guys are the dominant company in the IBS and CIC space. I mean, what enhancements do you think the Colonic Release formulation could provide? And how do you think that could basically spur uptake above the linaclotide franchise? I mean, what's so important about this formulation that maybe the market doesn't get yet?

Yes, Tim, I'll start with why we think the -- what the rational and the objectives of the study and then I'll turn it over to Tom. Certainly what we're trying to do is target the active portion of linaclotide to the colon, where we think there -- most of the abdominal pain and obviously, also some of the constipation is affecting the patient.

So our goal is to increase that pain relief and also give ourselves a chance to shift the balance from having fluid secretion in the upper intestine to more in the later small intestine and then offer more and greater pain relief is the key objective. Certainly, there are a number of different possibilities that we can have out of the study, but that's the first step is if we can raise the bar on pain relief. And Tom, you --

Yes, Tim, I think what we've learned in this marketplace is, the primary driver where patients seek care is pain and discomfort. And linaclotide was a huge step forward in providing relief to these patients, but what we do see with the pain relief is it does take several weeks to optimize the effects of pain and the magnitude of pain.

And, what Mark and his team have better understood is, much of the pain seems to be radiating out of the colon and as you know, as the molecule goes down the intestinal tract, a lot of it gets chewed up. So we wanted to be able to deliver more of the drug to the site of action where we think the organic pain is generating for -- from so we can deliver greater and faster pain relief.

So as far as the impact in the marketplace, obviously, one, we would have a far more compelling advancement with regard to the pain relief, possibly better tolerability, possibly expanded clinical utilities. I think the other piece that we've learned, while the adherence to therapy is quite good with LINZESS, the primary reason why patients do discontinue therapy is that they don't see a rapid improvement of pain.

They see a rapid improvement of bowel habit, but they don't see a rapid improvement in pain and we think if we can improve that pain relief profile, we could get more patients and keep them on drug longer.

So we see that as growing the overall market. I think the last piece is, obviously, the extension in IP. So, we have a significant extension in our IP, so the patients that we can get on or move over to drug over time, we'll be able hang on to for years to come.

Okay. That's very helpful. Thanks. Thanks, you guys.

And our next question comes from Jason Gerberry, Leerink Swann. You may proceed.

Hi. Good evening. Thanks for taking my question. I guess on the 1Q call, it was a little too early to maybe talk about sort of the benefits from the CVS formulary. Kind of curious if you can comment at all to what extent that's been a tailwind on utilization and now that your competitor, AMITIZA, seems to be back on equal footing as co-preferred product and how that might be a headwind in, say, 2017.

Sure, thanks. As we said from the very beginning, our primary objective has always been to access and provide unrestricted access in a preferred position on as many formularies to as many patients as we can. Certainly, as you know, we've had great success in that, which is a big part in what's driving the ongoing growth of the brand.

From January on, there was a switch made at CVS Caremark in which we were in an exclusive position and, we captured significant share because it was -- they were obviously transferring a lot of medically switching AMITIZA to our brand, but keep in mind, the primary source of growth for the brand isn't from AMITIZA, it's from OTC laxatives.

So even though we got a nice little bump there from that automatic switch program, the far majority of our growth is coming directly from OTCs and we are in that category -- in that environment, we're capturing disproportionate share, regardless of where AMITIZA sits on the formulary. So our focus has always been on OTCs; it will continue to be on OTCs.

We just want unrestricted access for our patients and we're willing to take our chances in the marketplace as far as our ability to promote competitively and grow the market and gain share.

Okay. And if I could just ask a follow-up. So just on 72-microgram, what's specifically going to be the positioning with this one? Is it more the focus on the tolerability and flexibility that it provides? Just want to make sure I'm crystal clear on how exactly it's going to be positioned?

Yes. I think -- great question. I think for us, 72 microgram has always been part of the life cycle plan. As you know, we launched initially with 290 microgram and 145 microgram for IBC and chronic constipation and physicians had always told us that they would like to have another dose, a lower dose for people that tend to have more mild disease or more -- maybe more responsive to the drug.

Just to be clear, diarrhea has not been a problem here. The far majority of these patients tolerate the drug extraordinarily well. They're very pleased on the drug. We see the drug behaving very similar to what we thought we would see based on the clinical trials, in which there's a small percent of patients, 4% or 5% of patients who are unable to tolerate the drug. I think there will -- I think the 72-microgram may help those patients, but I think the growth opportunity for the 72-microgram is really around -- offering another option for physicians to look at a more mild patient.

Okay. Thanks.

And our next question comes from Irina Koffler, Mizuho. You may proceed.

So It sounds like you're going to have more reps in the primary care offices with ZURAMPIC and LINZESS being promoted together and you also guided to the higher range of spend with the allergy and co-promote. And I was just wondering if some of your ZURAMPIC reps are going to be in the same offices as the Allergan reps and whether the increased sales effort is just going to be additive or are you going to, in some cases, sub out for their reps and potentially gain more share in the co-promote split? Thanks.

Yes, Irina, as you know, this is a 50/50 arrangement with us and Allergan and upfront, we agree on an overall call election, with regard to the volume of calls that will be delivered to our targets and then we agree on how we'll split those. And as you know, our current model is an overlapping model as it is, where Allergan is targeting roughly 70,000 docs and currently, we're targeting 23,000 of those on top of it and those are the busiest, most productive prescribers and together, obviously, it's worked very, very well.

As far as, our -- we'll certainly have an increased number of calls and probably -- possibly an increased percent of those calls, but that's something, we're working through right now with Allergan side by side. So I think, again, we'll have primary LINZESS targets and we'll have primary ZURAMPIC targets, but this target population, as I mentioned, which makes this so attractive, is the fact that the core group that we're calling on, these 20,000 to 30,000 primary care docs, are writing a lot of both drugs.

Okay. Got it. And then a follow-up, if I may. So on your guidance for the R&D increase, I understand that you need additional SG&A to promote ZURAMPIC, but what's the funding for extra R&D spend this year for? Thank you.

Hi, Irina. It's Tom Graney. Thanks for the question. In addition to changing the range, we also tightened the range. Previously, it had been a $15 million range. So we tightened that down to $10 million, and as you know, it's higher than our original range.

As part of the agreement with AstraZeneca, we brought in the fixed dose combination of lesinurad and allopurinol, which we're really excited about. So we're moving as quickly as we can to make sure that the development program for that is on track to file for the NDA of the fixed dose combination in the second half of this year. So that's really what that's about.

Thank you.

And our next question comes from Matthew Harrison with Morgan Stanley. You may proceed.

Hi. This is Cyrus on for Matt. A couple of questions. So you may have mentioned this earlier, but for the Chronic Release, when should we expect to see data from that?

Yes, later this year.

Later this year. And then for your GERD study, what do you guys view as a favorable result in your Phase IIb?

Yes, we're focused on improving heartburn symptoms, so in particular heartburn severity. Again, that's the primary endpoint for that study.

Okay.

And next question comes from Geoff Meacham of Barclays. You may proceed.

Afternoon, guys. Thanks for the question. I just got a couple. The first one on ZURAMPIC, what are some of the lessons you guys have looked at, lessons to be learned from other gout launches, just thinking with respect to duration of use and maybe what you could do differently from a competitive standpoint? And I have one follow-up.

Sure. This is Tom. I'll take the call, Geoff. This has been a category in which it's been -- it's very different subsegments of patients. I think that's the one thing we're learning. I think this group of patients -- the patients that tend to have infrequent flares tend to be less compliant.

Those patients that have frequent heartburn -- frequent flares do tend to be quite compliant because obviously, they're trying to take medication to avoid future flares. So the compliance with those patients actually looks fairly high because I think most of them believe that by taking their XOI, they will reduce it, but they still have flares.

So it's a pretty motivated, fairly compliant population and, this is a -- I think we see this as a very logical next step for these patients, to be added on particularly on top of allopurinol which, as you know, it has a disproportionate share of the market. Generic allopurinol has about 90%, 93% of the market.

And obviously, we want to be the next logical choice for those patients that are on allopurinol or not to goal. But I think as far as adherence and compliance, obviously this is going to be an educational effort to make sure that patients understand that they need to get to goal.

I think the one other thing that we've learned is patients -- many patients are unaware that there's actually a threshold that they need to get to, that being 6 milligrams per deciliter, which is a very simple test to run in the physician's office. So, getting patients to that goal and helping them understand if they can keep their serum uric acid levels under 6 milligrams, they're going to have a much better probability of reducing the total number of flares.

Got you. And then higher level question -- and that's helpful, Tom. When you have LINZESS and now ZURAMPIC, is there capacity in the sales and marketing organization for yet another product? I'm just looking out, say, two, three years time with the real leverage that you have with respect to a primary care and the GI audience. Thanks.

Yes. We -- as you know, by design, we went out and got some very tenured, experienced sales reps who have had a legacy of promoting multiple products successfully. And right now, we are promoting, as you know, both linaclotide and VIBERZI side by side and ColoGuard. And right now, we're actually delivering three calls almost 85% of the time. So as you know, LINZESS is doing well, VIBERZI is doing well, and we're executing well against ColoGuard and we think we're going to be able to slip ZURAMPIC into the call panel very efficiently and we still think there's room for improvement.

At some point, we're -- as we get another asset, we probably look at what we would do with VIBERZI in that position. Obviously, if we come up with an asset that creates greater value, obviously, that's going to affect that decision. So I think the really neat thing for us, right now, is to be able to really promote, actually four very, very innovative products.

LINZESS being a first in category product and a breakthrough product; VIBERZI, first in category, breakthrough product; ColoGuard, a clear advancement, and now ZURAMPIC, first in category advancement in care. We really feel good about where we are right now.

Got you. Okay. Thanks a lot.

And our next question comes from Boris Peaker, Cowen. You may proceed.

Great. Thanks for taking my questions. Just on ZURAMPIC, I'm just curious how important to the long-term strategy or adoption of this drug, from your perspective, is the allopurinol combo pill?

I'll take that, Boris. I think it's critical. I think, one, these drugs have to be taken together. You have to take ZURAMPIC with an XOI, so we want to make that as convenient as we can for the patients.

We want to make it as cost-effective as we can for the patients. So it is a very logical next step. We can reduce the pill burden, we'll have one co-pay and it seems like a very nice fit. When we conducted the market research with both physicians and payers, they looked very, very favorably about it.

And obviously, we will anticipate a step at it in the payer equation because these patients have to have tried allopurinol and we want them to continue to take allopurinol and this is just a far more convenient way for them to take both drugs at once.

Now, in your research, have you -- I'm just curious what the feedback was from physicians in terms of even just prescribing monotherapy ZURAMPIC in terms of their concern of patients just not being compliant on allopurinol and the potential consequence of that? That's obviously before the combo pill would be available.

Yes, I think it's something we're going to have to very actively monitor and obviously, promote very assertively that the two have to be taken together. We'll be providing patient educational materials to patients with all of our starter packs. It will be on every prescription bottle that will be filled, that it has to be taken with an XOI.

So we'll be very assertive with that, but we also want the flexibility that they can take it with either XOI, right? So whether it's allopurinol or Uloric. So if these patients are to go on either brand, we want them to be able to have the flexibility to use ZURAMPIC in addition to those XOIs.

Got you. Now, I'm also curious in terms of looking at other drugs in gout, Probenecid is actually an approved urate OAT1 inhibitor, which is mechanistically similar to ZURAMPIC. It just as different kinetics. I'm curious what we can learn from that drug being on the market for a long time in terms of your ZURAMPIC strategy?

Well, so I'll take it from a development point of view and then have Tom take it from the commercial. So from a science and development side, obviously, Probenecid, if you look at it, it's not a very collective molecule. It hits all the major transporters, or drug transporters, and commonly used organic anion acid transport inhibitor.

So in reality, it's not used very much for gout. It is highly reserved back before any use. So I think, again, it's -- it wouldn't be that it would be a molecule used to a high degree, I think because of it's non-selectivity. Tom?

I think there would be -- there is some significant drug interaction. It's been viewed as kind of a messy drug in the past. I think the message that we have around this drug is we do -- it is a -- it's more selective, on the transporter than we've seen with Probenecid, so I think we will -- and by the way, when that was first utilized, they were using this monotherapy and combination therapy and all kinds of things. I think what we're being very specific on is who gets this drug and this combination of drugs, which I think is really going to be critical to the success of the brand and certainly, the fixed dose combination.

Great. And my last question, I don't recall if you mentioned it or not, but do you plan to give sales guidance for ZURAMPIC for 2017?

Hi Boris. It's Tom Graney. Thanks for the question. We will be giving our traditional guidance, our annual guidance following the fourth quarter call. We will not be giving revenue guidance by product at that point. We will be giving our traditional expense line item going forward into 2017.

Great. Thank you very much for taking my questions.

Thank you.

I would now like to turn the call back to Mr. Tom Graney, Chief Financial Officer, for any further remarks.

Okay. Thank you and thanks, everyone, for joining us today. Our teams are available if you want to connect either tonight or tomorrow, so please reach out to Lisa or Mary, and we'll follow-up with any additional questions. Thanks again and have a good night.

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