Ironwood Pharmaceuticals Inc (IRWD) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals Second Quarter 2017 Investor Update Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded, August 3, 2017.

I would now like to introduce your host for today's conference, Meredith Kaya. Ma'am, you may begin.

Good afternoon, and thanks for joining us for our second quarter 2017 investor update. Our press release crossed the wire earlier this morning 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, 2017, 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. 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.

Thanks, Meredith. Good afternoon, everyone. We had a very good first half at Ironwood, LINZESS is generating strong volume growth as the branded prescription market leader in IBS and CIC and is on track to exceed $1 billion in U.S. sales by 2020.

We continue to develop the uncontrolled gout market with ZURAMPIC and expect DUZALLO, the 6-dose combination of lesinurad and allopurinol, to be approved and launched later this year.

Over the near term, our commercial products, LINZESS, ZURAMPIC and DUZALLO, if approved, are expected to drive a greater than 25% revenue CAGR between 2016 and 2020.

Our investments in innovation continue to deliver as well, most recently with positive 3718 top line Phase IIb results announced a few weeks ago in patients with uncontrolled GERD. The data showed robust signs of a drug effect with clear dose responses; significant reductions in heartburn severity and in regurgitation, a symptom where no drug had shown benefit before; clear separation from placebo over time for both heartburn and regurgitation; and a very encouraging safety profile.

Uncontrolled GERD is another large consumer-driven patient category, and 3718 will be a near-perfect fit for our U.S.-focused commercial capabilities. We intend to develop and commercialize 3718 ourselves in the U.S. and to license to a partner to get the drug to patients around the world.

In addition to moving 3718 into Phase III, we expect to advance DR1 into Phase III later this year for IBS-C. We believe that LINZESS and DR1, if approved, have the opportunity to be the 2 leading prescription products in this large and growing consumer-driven patient category well into the 2030s. This is an incredible opportunity for us and for our partners.

And we have additional exciting assets in the pipeline, including DR2 and our Phase II sGC stimulators, IW-1973 and IW-1701, all of which continue to move forward, with important catalysts expected on the horizon. With these assets, Ironwood has an opportunity, which rarely comes along in biotech, to build a multiproduct company that can deliver innovative new medicines to patients and create sustainable value for our fellow shareholders for many years to come.

With that, I'd like to turn the call over to Tom McCourt.

Thanks, Peter, and good afternoon, everyone. LINZESS continued to strengthen its position as the branded prescription market leader in the large and growing IBS-C and chronic constipation category with a strong clinical profile, high patient and physician satisfaction and broad payer access.

In the second quarter, LINZESS continue to deliver with 19% increase in volume and a 15% increase in total prescriptions year-over-year. We continue to see higher growth in volume relative to growth in prescriptions due to the increasing trend toward 90-day prescriptions.

As I've mentioned before, data suggests that compliance in LINZESS increases substantially with the 90-day prescription as patients with IBS-C are more likely to experience greater abdominal pain relief from LINZESS.

Physicians are recognizing the need for an adequate trial and are prescribing more 90-day prescriptions that, in turn, is increasing the average prescription size. As you can see in this graph, the average size of both new and total prescriptions has steadily increased since launch.

In the second quarter, the average size of the total prescription was over 37 pills and new prescriptions were approaching 40 pills per prescription, which explains the difference between the reported volume compared to the number of total prescriptions for the second quarter.

Importantly, we believe LINZESS can grow and shape this category for many years to come. We are focused on bringing more OTC patients and patients who are not on branded prescription drugs into the branded prescription market. Today, 80% of the time, a patient sees a doctor for IBS-C and chronic constipation, then leave without a prescription, rather, with a recommendation to use an OTC laxative. And when they do receive a prescription, 70% of the time, it's a generic laxative. So our competition is clearly both OTC and generic prescription laxatives. We remain focused on growing the overall IBS and chronic constipation branded market as well as market share by converting appropriate patients to LINZESS and further expanding the clinical utility of LINZESS.

Market growth starts with motivating more patients to see their physician and discuss their symptoms. And market share growth for LINZESS is driven by physicians choosing LINZESS for those symptoms or honoring a specific patient request for LINZESS. The DTC campaigns for LINZESS have consistently demonstrated an ability to drive both market share growth as well as the overall market growth. Our spring campaign drove significant momentum, producing all-time highs for new-to-brand patients, total weekly prescription and market share.

LINZESS was recently recognized as one of the top performing ads across all industries as our marketing team won its first Eppy Award, the preeminent global advertising award for most effective marketing communication programs. We're extremely proud of this accomplishment as LINZESS was the only prescription brand to be recognized this year.

Further, we aim to continually raise the bar through our innovation, including linaclotide DR1 formulation, which is designed to amplify the improvement of abdominal symptoms. If approved, we feel DR1 and LINZESS could drive peak sales to greater than $2 billion.

Turning to our uncontrolled gout franchise. We believe lesinurad represents a clear advancement in care for appropriate patients, and we continue to make progress in developing the market. In the first half of the year, we focused on educating physicians about lesinurad and the importance of managing patients' serum uric acid levels while securing broad payer access for patients. We believe the real workhorse in the uncontrolled gout franchise will be DUZALLO, which we expect to be approved later this year. DUZALLO is a once-a-day combination treatment option that provides a simpler solution for uncontrolled gout patients to reach their target serum uric acid levels. We believe combined peak annual U.S. sales generated by DUZALLO and ZURAMPIC will exceed $300 million.

Before I turn the call over to Mark, I want to quickly touch on the commercial opportunity for 3718, given the results we announced a couple of weeks ago. Uncontrolled GERD is a highly prevalent disorder with an estimated 10 million Americans suffering from symptoms such as heartburn and regurgitation despite receiving treatment for PPIs. This patient population are large consumers of health care resources resulting in a high cost to the system, and there are really no further treatment options beyond PPIs. We've spoken to numerous GERD experts since announcing the IIb data, and they have resoundingly positively responded to the profile in the data and indicated that they believe that these data validate our hypothesis that bile plays a key role in uncontrolled GERD, and that 3718 offers hope that for the -- it would be the first therapy for millions of uncontrolled GERD sufferers, and it may be well on its way.

3718 fits perfectly into our U.S.-focused commercial strategy and, if approved, we intend to commercialize it on our own in the U.S. and find an ex U.S. partner.

Today, we call on around 30,000 of the highest prescribing physicians who are largely the same physicians treating uncontrolled GERD patients, which will make 3718 an extremely efficient call alongside LINZESS. I'm proud of the commercial progress that we've made and what we've built here at Ironwood and our level of collaboration with Mark and his drug development team. 3718 has the potential to be an innovative product that enables us to leverage our commercial capabilities, shape a large consumer-driven category and touch millions of patients' lives.

With that, I'll turn the call over to Mark Currie.

Good afternoon, everyone, and thank you, Tom. I echo your comments about the partnership between R&D and commercial here at Ironwood. It is an exciting time, and we have a number of innovative pipeline assets advancing.

I'll start with 3718. As Peter mentioned earlier, our decision to advance this program was unambiguous. We confirmed our bile acid hypothesis, successfully defined the clinically meaningful degree of heartburn improvement for the uncontrolled GERD patient population, demonstrated a clear drug effect with encouraging reduction in both heartburn severity and regurgitation and identified the optimal dose to take forward into Phase III, all with encouraging safety and tolerability.

For the heartburn responder endpoint, we utilized patient reported outcome measures to define a clinically meaningful degree of improvement. Patients, regardless of treatment, were asked at the end of each week to categorize their heartburn severity improvement. These categorizations were then compared with their magnitude of heartburn severity improvement in the primary endpoint. With this approach, we identified a 45% improvement as an effective threshold for assessing clinical meaningfulness. And importantly, what we observed was that 53% of patients treated with the 1,500 milligram dose of 3718 plus a PPI were responders, experiencing at least a 45% reduction from baseline in heartburn severity for at least 4 out of 8 weeks, including at least one of the last 2.

This compared to 37% for patients treated with PPI and placebo, representing a 16% improvement. We expect that the primary endpoint in the Phase III will be a heartburn responder similar to this, and we'll be working closely with the FDA to appropriately define the primary and secondary endpoints.

In the Phase IIb trial, the primary endpoint was a percent change in weekly heartburn severity from baseline to week 8. As you can see on this time course slide, when looking at heartburn severity on the left-hand side, the 1,500 milligram dose of 3718 plus a PPI showed a 58% reduction in heartburn severity compared to 46% for PPI alone at week 8.

Data showed a clear separation from placebo an effect that continue to increase throughout the treatment period. We also looked at the effects on regurgitation in this study, a highly problematic system for the uncontrolled GERD population. We saw a positive effect here, with the chart on the right-hand side showing a 55% decrease in regurgitation frequency compared to 38% for PPI alone at week 8. We believe this effect could further differentiate 3718 as nothing has been shown to improve this symptom.

We plan to advance 3718 forward as expeditiously as possible, with the Phase III expected to begin in the second half of 2018. Given this is a new space where no drug has been approved before, we want to be thoughtful and coordinate closely with the FDA to design a trial that will give us an unequivocal read on safety and efficacy of this investigational drug. We'll also be seeking to utilize our gastric-retentive formulation to reduce the pill count to 2 pills twice a day in the Phase III.

In addition to 3718 Phase IIb data, we look forward to the following expected catalysts from our mid-to late-stage pipeline in the second half of 2017: the DUZALLO approval and launch, as just mentioned; the Phase III initiation of linaclotide DR1 in IBS-C; Phase IIa results for IW-1973 and for 1701; and 3 Phase II initiation for IW-1973. Delivering on these opportunities will help to fuel our next wave of innovative products.

With that, I'm going to turn the call over to Tom Graney.

Thanks, Mark. I'll spend the last few minutes providing some color on LINZESS performance as well as recapping our financial results and guidance. You can find the detailed financial statements in our press release.

LINZESS continued to demonstrate strong demand in the second quarter with 19% increase in volume year-over-year. Total LINZESS net sales for the second quarter were up 12% year-over-year at $168 million. The difference in growth in net sales compared to growth in volume is largely due to changes in inventory levels year-over-year.

As we saw last quarter, inventory levels came down and they have continued to stay at these low levels through the second quarter. This makes the year-over-year comparison difficult. We can't predict whether this trend will persist throughout the remainder of the year or not. Importantly, our focus remains on growth and demand measured by volume gains and net price.

We are seeing very strong growth in demand. And while there may be fluctuations quarterly in net price, we expect both metrics to be favorable over time.

The LINZESS brand collaboration in the U.S. generated $72 million in total net profits and a 52% commercial margin in the second quarter. With a focused investment into the brand against strong volume growth, we continue to expect commercial margins to expand over time and to exceed 70% by 2020, resulting in a greater contribution to Ironwood's top line.

We ended the second quarter with $273 million in cash. Cash used in operations was $31 million compared to $6 million in the second quarter of 2016. We recorded $65 million in Ironwood total revenue for the second quarter compared to $54 million in the second quarter of 2016 for a growth rate of 20%.

Total operating expenses were $106 million in the second quarter, including $58 million in SG&A expenses and $37 million in R&D expenses.

Turning to our non-GAAP disclosures. We exclude 3 noncash adjustments to arrive at our non-GAAP measures: the mark-to-market adjustment related to the convertible note, warrants and hedges; the amortization of acquired intangible assets; and the change in fair value of the contingent consideration associated with our licensing agreement with AstraZeneca for lesinurad. These 3 adjustments resulted in a net gain of $2 million or $0.01 per share for the quarter. GAAP net loss for the quarter was $44 million or $0.30 per share, and non-GAAP net loss was $42 million or $0.28 per share. We remain on track to achieve our 2017 financial guidance. Detailed guidance is highlighted on the current slide as well as included in today's press release.

In closing, we are on track to build a top-performing commercial biotech. With our commercial products expected to generate a greater than 25% revenue CAGR between 2016 and 2020 and an innovation engine that continues to advance, we believe we are poised to deliver new medicines to patients and to create sustainable value for our fellow shareholders into the late 2020s and beyond.

With that, I'll turn the call over to Ezra to begin the Q&A portion of the call.

(Operator Instructions) And our first question comes from the line of Ying Huang from Bank of America Merrill Lynch.

This is Amanda on for Ying. So for this quarter, we see that there's increasing demand in LINZESS as seen in the continuous volume growth. Can you give some color or [indiscernible] on the potential cost like the inventory change here or the inventory decrease level? And then also on the formulary, we saw that Express Scripts released their 2018 prescript formulary list. LINZESS is now listed as the preferred alternative to Trulance. Can you provide some color around the formulary discussions with the other payers and what the implication may be for growth to that going forward?

Amanda, this is Tom Graney. I'll take the first part of your question, and then Tom McCourt can take the formulary question. As you noted, we did see continued strong demand growth year-over-year and also sequentially for LINZESS, which we're really pleased with, that certainly validates the size of the market, also the high degree of physician and patient satisfaction on LINZESS, including the 72 microgram which, as you know, we just launched in the first quarter. With respect to changes in wholesale and retail inventory year-over-year, we really can't predict or have much insight into the reasons they may be drawing down inventory or that inventory is not growing as fast as the demand is growing. We remain focused on ensuring that patients get access to LINZESS who can benefit from it. And then once they get access, that access is covered with payer coverage that we think is pitched at the right level for us. And with that, I will switch it over to the formulary question.

Yes. Thanks, Tom. As we said before, job one and one of our top priorities is ensuring broad payer access in reimbursement for our patients. We know that there's tens of millions of patients out there suffering, and it's going to be -- it will continue to be a critical part of our commercial strategy to maintain access. We are delighted with the current level of access reimbursement that we've been able to secure across all the major payers. We are in constant negotiation with them and constant communication with them to make sure that we're aligned and we have ongoing access. And as Tom mentioned, we're critically assessing where we need to be as far as our value proposition to maintain that access. So I think moving forward, we're going to continue to do everything within our power to maintain broad access, which is critical to the longer-term strategy, as we see this as an ongoing growth brand for many, many years to come.

And our next question comes from the line of Geoff Meacham from Barclays.

On 3718 in GERD, I know you guys probably want to make progress in Phase III, but maybe help us with how you're thinking about this. Strategically, it would make a lot of sense to keep ownership of the asset leverage-wise. But down the road, are you thinking about developing more of a global organization like European, Asian sales and marketing? I just want to get a bigger picture sense for that. And I have one more on the LINZESS commercial launch perspective.

Thanks. Let me -- it's Peter. Let me take the first question. 3718 is a really great asset for us. It's really nearly a perfect fit with the capabilities we've built to support the LINZESS launch and growth that we've seen in the marketplace. And we have our eyes focused very much on building a focused U.S. primary care capability, and we expect our focus to stay there for some time to come. And for 3718 and in other large volume, large patient number categories, I don't expect us to go outside the U.S. anytime soon. Certainly, for 3718 specifically, we absolutely expect to find a partner for getting this drug to the millions of sufferers all around the world who we believe may be able to benefit from it. So I think that maybe answers the first question. What was the second one, Geoff?

Yes. So on, I guess, more for Tom on LINZESS demand. I know accessed a decent amount, but I just wanted to get the latest on duration of therapy trends. And then, obviously, you guys have seen a good share trends across the board, but what can you say about overall market growth? Are you starting to see some real leverage on the awareness side of things? And maybe just give us a sense going forward whether do you think that could hit at another tipping point.

Yes. I think, as you know, this is a huge market, and there's still a large unmet medical need. As far as the market growth that we're seeing, it's growing year-on-year, and we're seeing real healthy growth with regard to the overall market. I think we mentioned earlier the size of the prescription and the duration of therapy continues to look very encouraging, Geoff. And I think the one piece that we have stumbled across is the point at which the first time the doc treats the patient. And the patients that we tend to lose, we lose in the first 30 days. And we believe that, that's generally because they're not treated long enough to really see the real benefit, particularly on the abdominal pain relief. And a lot of these doctors are now moving to a 90-day prescription. And what we see when that happens is the overall adherence increases by 40% or 50%. So it's still beginning to -- it's still continuing to evolve with regard to kind of annual days of therapy, but it's largely dependent on that initial patient experience, which is the reason why we're really encouraging our physicians to start with the 90 days. I think overall, we are still in a very strong growth mode. To see this kind of demand growth year-on-year in year 5 looks very encouraging, yet we still have tremendous headroom ahead of us, not just with regard to LINZESS, but as I see the innovation coming through the pipeline, particularly with DR1 where it looks like we've been able to amplify the benefit on the abdominal symptoms but also maintain a very sound tolerability profile. So in spite of emerging competitor, the share continuous to grow, the market is growing and we're -- I think we're in a very strong position for years to come.

And our next question comes from the line of Boris Peaker from Cowen.

First, I just want to probe a little into LINZESS. I'm just curious, is there a difference in discounting between the 30- and the 90-day prescription? And also from a gross-to-net perspective, where is it now? Which direction is it trending? And are you seeing competition from Trulance?

Boris, it's Tom Graney. I'll take your question. Across all 3 strengths and kind of regardless of the duration of the prescription, our pricing is flat. So I hope that answers your first question. On the second question with respect to gross-to-net, it does fluctuate and sometimes meaningfully quarter-to-quarter as a result of timing of new contract negotiations and, certainly, timing of our price increases. If you look at, for example, the sequential growth we've seen from the second quarter -- from the first quarter rather to the second quarter this year, you will have noticed that our net trade sales grew much faster than our volume, while inventory levels, as we have said, haven't really recovered. So we do see it bounce around quite a bit, and I would say there's not a definitive trend on gross-to-net. What we do focus on is, over time, we expect net price to increase. I guess, it's important also to remember what we've said about long-term, where we're going to get volume -- where we're going to get sales growth, it's coming from volume, and that's really what this brand is all about. It's growing a market, as Tom said. I mean, our market leadership position, it is coming from volume. We've had very strong quality of sales, for sure.

Boris, just one comment on your question on the Trulance coming into this equation with regard to the payers. I mean, keep in mind, I mean we've been working with the payers for some time with the presence of Amitiza, which is also in the same category. So we're certainly not seeing any real pressure there. I mean, keep in mind, I mean we are the market leader. We are in a very strong position. You also need to have demand, not just the price, to make sure the rebates are realized by the payer. So we're going to continue to critically assess it. We'll make decisions in a very thoughtful way, but we're certainly going to make sure patients have access to our drugs.

Great. I just have a quick question on 3718, the GERD drug. Can you just discuss maybe opportunity for reducing the pill burden, specifically can you make a 750-mg pill or maybe even a 1,500 single pill?

Yes, thanks, Boris, this is Mark. So we are actively working, as I indicated in the script, taking and reducing the pill burden to 2 pills a day. And so that would be 2x 750. That, I think, right away when we look at it is within the scope of what we think the gastric-retentive formulation that we currently have without having to change any characteristics of the formulation other than the 5 of the pill so. That we feel very comfortable with. I don't think we're ready to move to 1,500 in one pill at this particular point in time. But obviously, we're going to continue to try to innovate and find ways to ultimately make the best drug for patients. But we're excited about this. What we've seen, 3 pills a day, patients seem to accept that pretty readily. But in our view, we're going to try to continue to innovate to make it even easier for them.

And our next question comes from the line of David Maris from Wells Fargo.

A couple of questions, first on DUZALLO. Have you given us the PDUFA date for that? I know it was submitted in January, but I don't know if we have the exact PDUFA. And can you just walk us through a little bit of your thinking on given the modest sales of ZURAMPIC, how different this is for patients? And then I have a follow-up.

Sure. I'll take that. This is Tom. I guess the first question with regard to the PDUFA date, we never really disclosed that officially. What we have said that we'll be launching early in the fourth quarter this year. And everything that we see right now is still on track to do that. So that looks good. As far as ZURAMPIC and DUZALLO, we've always seen ZURAMPIC as really a market builder, certainly, a market preparation for DUZALLO. And that's exactly what we're seeing in the marketplace. We're seeing physicians beginning to adopt it. They're seeing, certainly, the significant benefit as far as getting patients to goal. But as we've said in the past, there's a lot of things we like about this category: highly symptomatic, clear unmet medical need, there's really been no innovation here for quite some time and this is really the clear advance -- first advancement in care. But to that end, it's been a pretty stagnant market. Patients -- physicians are pretty complacent with how they're approaching the patients, but they're certainly begin to recognize the need for more effective therapy. And DUZALLO just makes a very simple solution now, one pill once a day and get twice as many people to goal. So everything we're hearing in market research, they see DUZALLO. Physicians see DUZALLO as a very, very different product than they do ZURAMPIC. And we saw that early on when we did the first research, when we decided to license the rights in. And as we move forward to launch DUZALLO, everything we're hearing from physicians is very favorable.

And our next question comes from the line of David Lebowitz from Morgan Stanley.

The first question on IW-3718. Are you going to be releasing data at some point that stratifies the patients based on the level of bile reflux they actually have?

Yes. So this is Mark, I'll take that question. We've got a very rich -- obviously, at this point, we've got top line data, and it's a very rich data set that we've seen with very clear drug effect. We certainly are looking at the bile acid level in the very small number of patients that we did Bilitec with. So at this point, we don't know what that data looks like yet, but I would expect that across the study, because of the very interesting profile we have of patients that either have very severe heartburn severity or they have erosive esophagitis or a clear demonstration of reflux and including patients that have bile reflux, we would expect that at coming-up meetings in the GI space to be stratifying patients across and making that definition a little more clear.

In addition, will we also see data on the lower doses?

Yes. We'll release the full data set for this study once we do a quite complete characterization of the 500, 1,000 dose versus the 1,500 doses.

And just out of curiosity, how big is the 750-milligram pill for this drug?

Yes. So let's start with the 500. We saw great compliance in this study. And the patients over, I think, 95% of the patients took the drug and then found it either acceptable or just mildly inconvenient. But I think for the largest part, it was very well accepted. The other part is that the pill itself actually doesn't change too much in size versus the 500 versus the 750. So we don't expect to see hardly any change in that. It's a little, but not much, the size of a vitamin-type pill a lot of times is what you would see.

And our next question comes from the line of Anupam Rama from JPMorgan.

It's Eric in for Anupam this evening. A couple of questions. First on LINZESS, I'm wondering how we should be thinking about commercial margin for the second half of the year. Sort of with guidance -- spend guidance being the same, it seems like that would imply a bit of a jump from where we are today in the low 50s. Maybe you can help understand what sort of drives some of the fluctuation in spend here and how we should think about that going forward. And then I have a follow-up.

Eric, it's Tom Graney. I'll take that question. You're right. If you look at kind of the phasing of the sales and marketing spend behind LINZESS, you can see that it is kind of front-end loaded, with our actual spend representing a run-rate north of $300 million, and our guidance is certainly south of that. So we do expect lower spend in the back half of the year. And certainly, as the brand continues to grow, that will bode well for commercial margin expansion over the balance of the year.

We've seen that trend each in the last 2 or 3 years as well.

Okay. Reasonable to expect that going forward as we start breaking out 2018 and so forth.

Yes. So as we've guided, we expect commercial margins to continue to expand. And we will see not only quarterly fluctuations but also seasonal fluctuations in commercial margin. But we have said we expect it to be in the 70s by 2020.

Got it. And maybe, Mark, just on 3718, you guys talked a bit about how you saw a dose response. And I'm just wondering, given the tolerability profile is rather benign, just how confident you are that you have a maximally effective dose at 1,500 mg. Speaking of safety, whether there's a potential for higher dosing or are you kind of physically constrained at that point?

Yes. I think what we know is we've got an active drug at this particular dosage level. We think that dosage level bring meaningful benefit for -- potentially meaningful benefit for patients. So we're going to prosecute that as quickly as we can. And as we've indicated, we will continue to innovate in this space. We're the only innovators currently really addressing this patient population. We think it's quite large. And we're looking at a lot of different ways in the future to continue to utilize what we found around the bile acid hypothesis.

And our next question comes from the line of Irina Koffler from Mizuho Securities.

I have a couple of R&D questions and then one on the revenues. So if I understood correctly, is it possible for you to take 2 pills in a GERD drug into Phase III? That's the first question. And the second question is on the DR2 compound. Can you just remind us again what type of pain model you will be targeting there and whether or not there's an FDA pathway or some sort of guidance to help you as you design the program. So that's the R&D question. And then on revenues, there was about $56 million in the collaboration, but there was about another $9 million of other revenues. And can you help us break out a little bit more detail if there was milestones or something else in there?

Great. Mark, can you take the first couple?

Looking at the formulation, the way that gastric-retentive formulation works, we think we can take the go-to-2 pills approach because it's essentially the same pill, it just changes very slightly in size. The release profile we expect to be the same, but we'll be able to test that for sure. But yes, we think we can go directly into Phase III because we're really not changing that formulation other than a little bit on the size. If you look at the DR2, I think what we're looking at with DR2, and this is part of the Ironwood-Allergan collaboration, we're very focused on not on looking at IBS pain, first, thinking on non-constipated IBS pain. And we think that previously, there had been evidence in the IBS guidance that you can get a pain-only label. So we feel pretty good about that. Obviously, we haven't -- we need to go in and do a IIb study and see the effect and then go and talk to the FDA. But that would be our approach, it's using the guidance on getting a pain component of a label for IBS.

And then this is Tom Graney, Irina. Just on the other sources of revenue, we got a couple of million in revenue from our 2 co-promotion agreements, the VIBERZI one and also the trailing consideration we're getting from a Cologuard arrangement that we ended. And then the bulk of the difference is from API sales to other collaboration partners outside of the U.S. for linaclotide.

And our next question comes from the line of Tim Chiang from BTIG.

Just on DR1, have you guys already met with the FDA recently? Just wondering you have -- I mean, do you guys have a pretty good picture on how the Phase III study design will be set up as you approach that date?

Yes, Tim. This is Mark. We are having continuous interactions with the FDA at this stage as we advance towards Phase III. There's a number, obviously, of discussions we have to have. The PRO discussion, the endpoint discussion, the CMC discussion, the pharmacokinetic discussion. So we're in the midst of those, and we certainly will -- once we have settled on what the final path is, we'll update what we -- what the approach will be.

And as I said in the opening remarks, we expect to advance that program into Phase III before the end of the year, and we'll certainly give you more to tell at that time.

Okay, great. And maybe just one follow-up. I wanted to ask you about just how much pricing flexibility you think you have with LINZESS, now you have a new 72-microgram formulation dose, you're getting patients to go to a 90-day pack. But do you guys think you still have flexibility to take up price even from where it is today, which is around $350 a month? I mean, can you talk a little bit about just where you think this weak spot for LINZESS pricing is?

Tim, this is Tom. I kind of go back to the guidance that we've always given that this is something that we're in constant negotiation and communication with the payer because on the bottom line, payer access really has such a dramatic effect on the overall growth and health of the product. So I mean, certainly, our intention is to take appropriate price increases but make darn sure that we're not shooting ourselves in the foot with regard to the overall value proposition. So we certainly are planning to increase price in a very appropriate responsible manner, but we also want to make sure that the value proposition holds up against emerging competitors.

And maybe just one last point. Even with the launch of Trulance as your competitor, I mean, are you guys basically seeing the overall market for IBS-C and CIC treatment expanding, especially for LINZESS?

I think we can -- this is Tom again. We continue to see good healthy growth of the market overall. And certainly, that's not just, certainly, due to the addition of Trulance. I mean, certainly, the overall -- if you look at the number of ads on TV today for this category, whether it's IBS or chronic constipation, people are investing in the category because it's such a big category, and there's room for multiple players. And certainly, we're getting some good buoyancy from the growth of the market. But keep in mind, even in the face of competition, we're continuing to increase our market share, which says an awful lot, I think, about the brand itself, the level of satisfaction we've been able to establish with our customer and, certainly, the effectiveness of the commercial effort. So I think we still sees this as a real healthy growth brand, and we're going to continue to invest behind it.

I would just add, Tim. As Tom said earlier, while we've increased our market share substantially this year, it's still true that 70% of patients getting a prescription are getting a generic, and 80% of patients aren't getting a branded prescription therapy at all. So it's very important to focus on where the real volume is and where the real competition is. It's really not a competition and a zero-sum game between branded prescription drugs. It's an opportunity to grow the number of branded prescriptions.

And our next question comes from the line of Jami Rubin of Goldman Sachs.

This is Divya Harikesh on behalf of Jami Rubin. Just want to get some more clarity on the inventory fluctuation. Given -- I understand you have limited visibility into the levels, but is there a risk that you have -- any view on where inventory levels are now? Is there a risk that, that gap between the prescription growth and inventory and the net sales increases as they go on? Or should we just consider similar gap as we've seen in the first 2 quarters. To the extent that you can provide some more insight there, is it because the retailers are managing the inventory much more carefully that you're facing this kind of trend this year? And my second question is on your sGC platform, you have readouts from 2 studies. Would be curious to know what your next steps would be after those readouts. Is it that you wait for those studies in the different indications for each of the molecules? Or would you proceed to the next step, to a later stage Phase IIb or III study based on the data you've seen in that particular indication?

Divya, this is Tom Graney. I'll take the first one, and then Mark will take the sGC question. With respect to inventory, I guess one way to look at it is so we've seen volume grow in capsules, 19% year-over-year. And what we've seen in the channel is that the actual units in the channel have grown at very low-single digits, and that's really what's driving this disparity. Without really having operational insight into how both at the wholesale or retail channel they've been able to maintain service levels while, at the same time, pulling down inventory, it would be a little inappropriate for us to speculate on, directionally or timing-wise, where that will go. But also, LINZESS has been on the market now for 5 years, and there's just a tighter range in forecasting in terms of what demand is ultimately going to be. So I think those things are at work. And the important thing from a modeling standpoint is to remain focused on the underlying demand and also net price over time.

Okay, great. So relative to the sGC molecules, 1973 and 1701, with upcoming data for 1973 in the diabetic hypertensive population, a couple of things we focused on there that we thought would be very useful for our future studies, one is the safety and tolerability in the diabetic population. We intend to go into a number of diabetic indications with diabetic nephropathy as an example. And so from there, we wanted to make sure we've characterized that safety and tolerability specifically in that population we started a diabetic nephropathy study. From that perspective, then we move to -- we also want to understand how the drug is working in this particular population, particularly on the cardiovascular endpoint, blood flow and blood pressure. And so we'll have that characterized. And then we'll also be looking at key biomarkers relative to inflammation signals and metabolic signals in this patient population. So we think the early studies will be very useful. They're setting up the Phase IIb study we intend to do. And we'll -- like you indicated, they really are kind of a transition study going from a normal volunteer to a diabetic to now the more -- the patients that have more complications such as the diabetic nephropathy study.

And I'm not showing any further questions at this time. I would now like to turn the call back over to Peter Hecht for any closing remarks.

Thank you, Ezra, for your help today and thanks to all of you for joining us on the call. We'll be available this evening and tomorrow morning, so please reach out to Meredith if you'd like to follow up with any additional question. We appreciate your time. Thanks.

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