Ironwood Pharmaceuticals Inc (IRWD) 2017 Q4 法說會逐字稿

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

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

Good morning, and thanks for joining us for our fourth quarter and full year 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 the accompanying slides include forward-looking statements. Such statements involve risk 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 September 30, 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, who will provide a few introductory remarks; and Gina Consylman, Chief Financial Officer, who will review Ironwood's fourth quarter and full year 2017 financial performance and provide 2018 guidance. Bill Huyett; Chief Operating Officer; Tom McCourt, Chief Commercial Officer; Mark Currie, Chief Scientific Officer; and Chris Wright, Chief Development Officer, will also be available during the question-and-answer portion of the call. Peter and Gina 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 like to turn the call over to Peter.

Thanks, Meredith. Good morning, everyone. We appreciate you joining our call today. It was great seeing so many of you at the H&Q Conference last month.

2017 was an important year for Ironwood. We continue to expand the market in the U.S. for LINZESS. Our partner Astellas launched LINZESS in Japan. We introduced DUZALLO in the U.S., and we advanced our permit in late-stage pipeline. This sets the stage for continuing rapid growth in the years ahead.

Some key points on 2017 performance. Total revenue was $298 million, driven primarily by LINZESS U.S. net sales, extending LINZESS commercial margins and growing contribution from both Japanese launch of LINZESS. LINZESS U.S. revenues grew at a slower pace in 2017 than they had in previous years. This was largely due to less inventory build year-over-year and greater investments into access. With that said, LINZESS volume grew strongly at 18% year-over-year and continued to gain market share.

As the branded prescription market leader with a broad and growing moat, we expect LINZESS to generate greater than $1 billion in net sales by 2020 with continuing growth and margin expansion for many years after that. With our pipeline, we reported exciting Phase IIb data with IW-3718 in uncontrolled GERD and very encouraging Phase IIa data in diabetic patients with hypertension with IW-1973, which was recently named praliciguat.

Lastly, in 2017, we substantially strengthened the leadership team with the additions of Chris Wright, Bill Huyett and the promotion of Gina Consylman to CFO. They're each doing terrifically well, and we're pleased to have them onboard.

Turning to 2018. This is shaping up to be an exciting year. We expect to deliver strong top line growth and to decisively advance our innovative product candidates while continuing to exercise disciplined capital allocation. On the revenue front, we're on track to deliver a greater than 25% revenue CAGR between 2016 and 2020, driven primarily by U.S. LINZESS, ex U.S. LINZESS contribution and DUZALLO.

Our R&D team continues to leverage our successful targeted disease approach to develop innovative products that aim to tackle some of medicine's greatest unmet needs, from uncontrolled GERD to diabetic nephropathy to heart failure with preserved ejection fraction and sickle cell disease.

We expect to initiate 2 Phase III programs this year, the first for LINZESS to explore its effect on additional abdominal symptoms, including bloating and abdominal discomfort. The second is the pivotal registration trials for IW-3718, our gastric-retentive bile acid sequestrant for uncontrolled GERD. In addition, we're running 4 Phase II trials at our sGC stimulators, praliciguat and 1701; praliciguat for diabetic nephropathy and HFpEF, and 1701 for achalasia and sickle cell disease.

As we highlighted at H&Q, we're actively engaged in partnering discussions for both 3718 and praliciguat. Our partnering goals are to maximize the values of the -- value of these assets both within and without the U.S. for patients and for shareholders and to identify partners who most closely share our vision for these opportunities given the long IP life that will underpin these collaborations.

Finally, we will continue to follow the data and allocate capital where we see the highest value opportunities for ourselves and our fellow shareholders. All of these efforts should enable us to generate positive cash flow in the fourth quarter of 2018 and positive operating cash flow for the full year 2019.

With that, I'll turn it over to Gina to take you through our financials.

Thanks, Peter, and good morning, everyone. I am going to concentrate on financial highlights from our fourth quarter and full year 2017 results as well as provide 2018 financial guidance. Please refer to our press release for the detailed financial information.

We recorded $94 million of total revenue for the fourth quarter of 2017, up 8% year-over-year from $87 million. For the full year 2017, total revenue was $298 million, an increase of 9% from $274 million in 2016. Keep in mind, revenue benefited in 2016 from approximately $19 million and $39 million in the fourth quarter and full year related to milestones from Astellas.

2017 revenue primarily consisted of $258 million from our U.S. LINZESS collaboration with Allergan as well as $30 million from the sale of API to Astellas. Combined net sales for ZURAMPIC and DUZALLO totaled approximately $3 million in 2017, including an adjustment of approximately $900,000 due to our transition to a sell-in revenue recognition model.

Moving to Ironwood's operating expenses. For the fourth quarter of 2017, total operating expenses were $71 million, including $40 million in R&D and $58 million in SG&A. You might have noticed that we were profitable for the fourth quarter of 2017. This was due to a $39 million gain on the fair value remeasurement of contingent consideration recorded during the period. Contingent consideration represents the fair value of estimated future payments related to our U.S. license agreement with AstraZeneca on lesinurad product revenues.

In the fourth quarter of 2017, we revised our forecast to reflect the slower launch. As such, we decreased our estimated future royalty and milestone payments. The decrease to the contingent consideration liability resulted in a gain of approximately $39 million. For the full year 2017, total operating expenses were $376 million, including $148 million in R&D expenses and $233 million in SG&A expenses, both at the low end of our 2017 guided ranges.

Turning to our non-GAAP disclosures. Remember that we exclude 3 noncash adjustments, the mark-to-market adjustment related to the convertible note hedges and warrants, the amortization of acquired intangible assets and the change in fair value of the contingent consideration. GAAP net income for the fourth quarter 2017 was $12 million or $0.08 per share, and non-GAAP net loss was $22 million or $0.14 per share. GAAP net loss for the full year 2017 was a loss of $117 million or $0.78 per share, and non-GAAP net loss was $139 million or $0.93 per share.

Turning to LINZESS. In the fourth quarter, total LINZESS prescription volume grew 18% year-over-year to approximately 31 million capsules. And for the full year 2017, total LINZESS prescription volume also grew 18% year-over-year to approximately 113 million capsules. This translated into total LINZESS net sales for the fourth quarter 2017 of $195 million, a 12% increase compared to the fourth quarter 2016 and $701 million for the full year 2017, a 12% increase compared to the full year 2016. The gap between volume growth and net sales for both the fourth quarter and full year 2017 was due to a strategic decision to invest more in access and less inventory build compared to the prior year.

Looking ahead to 2018, we expect strong volume growth and low single-digit increase to net price. LINZESS' commercial cost and expenses were $56 million in the fourth quarter, which included $5 million in cost of goods sold and $51 million of sales and marketing expenses. For the full year 2017, commercial cost and expenses were $271 million, which included $17 million in cost of goods sold and $254 million in sales and marketing expenses. LINZESS' brand collaboration in the U.S. generated approximately $139 million in the fourth quarter and $430 million for the full year 2017 in total commercial profits.

For the full year 2017, commercial margin was 61%, up from 58% in 2016. Commercial margin fluctuates throughout the year based upon levels of demand and investment and is historically strongest in the fourth quarter. That was the case again in the fourth quarter of 2017, where commercial margin was 71%.

Total net profit for the U.S. LINZESS brand collaboration, including R&D expenses, was approximately $127 million in the fourth quarter and approximately $372 million for 2017. Importantly, as this slide depicts, LINZESS volume growth and disciplined spend has driven significant operating leverage for Ironwood. From 2014 to 2017, a greater than 30% LINZESS U.S. net sales CAGR drove an approximately 75% Ironwood revenue growth CAGR. We want to remind you of seasonal headwinds in the first quarter to both sales and prescription growth from trade buying patterns and patient behavior, including changing health plans and resets on annual deductibles.

We ended 2017 with $221 million of total cash and investments. Cash used in operations was $9 million in the fourth quarter compared to $19 million in the year-ago period. For the full year 2017, cash used in operations was $100 million compared to $25 million in 2016. Higher cash used for operations in 2017 compared to 2016 is largely related to investments in the commercial launches of ZURAMPIC and DUZALLO, the successful advancement of key pipeline assets and the milestones received in 2016.

In 2018, we expect cash used for operations to be less than $75 million and are on track to generate positive cash flow in the fourth quarter of 2018 and positive operating cash flow for the full year 2019. As with past years, we expect cash use will be highest in the first half and decline through the second half. We also expect R&D expenses to be in the range of $160 million to $180 million, SG&A expenses to be in the range of $230 million to $250 million. The combined Allergan and Ironwood total marketing and sales expenses for LINZESS to be in the range of $230 million to $260 million and net interest expense to be less than $40 million.

In summary, we have an important year ahead of us. We continue to expect top line growth from our commercial products, initiation of 2 Phase III programs and at least 4 Phase II trials ongoing and continued financial discipline.

With that, I will hand it back to the operator to begin the Q&A portion of the call.

(Operator Instructions) And our first question comes from the line of Jami Rubin from Goldman Sachs.

This is Divya Harikesh on behalf of Jami Rubin. Two questions, if I may. First one on LINZESS. Scripts were up 17 -- 14% in 2017, but sales were up 12%. Against that background, can you comment on your expectations for LINZESS next year, especially if you expect some of that seasonality or -- and trade buying pattern you referred to, to repeat? And do you expect pricing to be net positive? My second question is on the uptake of ZURAMPIC. You mentioned lower expectations for royalties and milestones that led to the gain in contingent consideration. You've kind of reorganized some of the promotion efforts. How should we think about that uptake for that product? And do you still stick by the peak sales guidance of greater than $300 million?

Thanks, Divya. Tom, can you take both of this?

Sure, thanks. I think, first of all, I think, you put your finger on one of the key metrics that we continue to watch, and that's demand. And actually, we grew by 18% year-on-year with regard to overall demand, which is really quite remarkable when you consider we're in the fifth year of launch. It really, I think, one, speaks to the strength of the brand. It also speaks to the opportunity in front of us, but also the sound execution that we've had throughout the year. As far as the delta that we're observing between the 18% demand and the 12% revenue growth, as Gina mentioned, I mean, one of the things that we've consistently said that -- said is that payer access is paramount to the success of the brand. And we need to be able to maintain our position in payer access to ensure that we continue to drive demand the way we have been. So it's something we critically evaluate. This year, we did give up a couple points. But as we look forward, we will continue to critically evaluate those decisions. But we do expect some upward trend in price. We have seen an upward trend in the net price since launch. It does fluctuate quarter-over-quarter. But as we move forward, our anticipation is we do see some buoyancy that will certainly be favorable as far as us getting some benefit out of price. As far as ZURAMPIC and DUZALLO, we're still very encouraged by the opportunity with DUZALLO. First, we still see this as a $300 million brand as far as its peak sales potential. While ZURAMPIC is somewhat underperformed or had certainly not meet -- met our expectations, we learned a great deal about the market in terms of our customer, our patient as well as the payer. First of all, the market itself is a very attractive market. We're talking about 2 million patients who are treated and are still uncontrolled and highly symptomatic. So it's a clear unmet medical need. In addition, there's very limited competition in the space for the foreseeable future. So we really want to be thoughtful about how we proceed as far as our core strategy and our investment thesis. We see DUZALLO as a clear advancement in care, basically doubles the efficacy of the standard of care, allopurinol. And what we've heard back from customers who have begun to adapt the drug is they see very, very strong clinical performance of the drug. In addition, the fixed dose combination takes some of the concern over the renal events off the table as far as monotherapy with ZURAMPIC. So it eliminates one of the key barriers that we've had in primary care. It's a very easy-to-use therapy that's going to basically double the efficacy of the drug. 2018 is really going to be about unlocking the potential of the drug. We're going to be evaluating promotional response to the sales force, certainly the importance of activating patients in a DTC pilot that we'll be conducting. And I think it's also really important to understand the payer perspective. Over 50% of these patients are Med D patients. And as you know, the commercial reimbursement moves faster than Med D. We've been able to secure pretty sound commercial invest -- commercial reimbursement. But we've had very limited reimbursement in Med D, which we believe will expand this year. So I think the bottom line is we're still very encouraged by the brand, we like the market, we like the profile, and '18 is really going to be mapping the course moving forward.

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

Just in terms of the guidance you guys provided for R&D expenses, how do you guys expect these expenses sort of flow on a quarterly basis this year? I mean, obviously, you guys have a number key programs entering studies, potentially in the back half of the year. The R&D expenses, do you expect them to ramp up in the back half?

This is Gina. Thank you for the question. I would say that right now, the R&D expenses we have guided to a slight increase in 2018 versus our 2017. And really, that's a factor of the success that we've had in the pipeline. And while we don't give specific quarterly guidance, I can tell you that the increase in '18 over '17 is really related to the fact that we expect to initiate 2 Phase II trials, one related to linaclotide, a second related to 3718, and then, obviously, the continued ongoing Phase II trials throughout 2018.

And Gina, maybe just a follow-up. Could you just sort of comment on your comfort level with the existing capital structure of the company? And obviously, you do have some debt on the -- at the company, and your cash levels are pretty good. Are you pretty comfortable with the current debt levels?

Sure. I can tell you that I think we ended 2017 on an incredibly strong note. We ended with just over $200 million in cash, which sets us up incredibly nicely for a strong 2018 in order to fulfill all the goals that we have set forward as a company. In addition to that, we are committed to our cash flow guidance, and we expect to turn to a positive cash flow both on an operating and a total basis in the fourth quarter of 2018. And we expect that to continue on an operating basis for the full year of 2019. So I think I feel pretty good about where we are and about our expectations for meeting guidance.

And maybe just one last question, Gina, for you. I noticed that the sales expenses for LINZESS are ratching -- ratcheting down a little bit year-over-year. Is there a way to sort of delineate why the expense guidance is going down? It seems like about, what, $20 million to $30 million versus 2017?

Tom, could you take that?

Sure, Tim. This is Tom McCourt. I think we've continued to evolve the marketing mix to really maximize the growth of the brand. I think it's important to be clear that we and Allergan both see this very much as a growth brand. We're investing, I think, very appropriately both with regard to field sales as well as consumer advertising. And I think the other piece is we are clearly going to continue to raise the bar. As market leader, that's what we have to do, right? So stay focused on our core strategy, which is really grow the market really from OTC into LINZESS. And also how do we continue to raise the bar with regards to the clinical performance of our drug? The first is going to be the addition of the abdominal symptoms claim, which we believe will allow us to speak to a broader patient population to drive a new source of business. In addition, the delayed release program will expand the clinical utility drug beyond just IBS and chronic constipation into other forms of IBS as far as its ability to relieve abdominal pain and additional abdominal symptoms. So I think both organizations are fully committed to LINZESS as a growth brand. It's critical to both organizations that LINZESS continues to thrive, and we're expecting a very bright future as we expand the utility of the drug.

And our next question comes from the line of Vamil Divan from Crédit Suisse.

So one, just could you break down the revenues and prescriptions for DUZALLO and ZURAMPIC combined? Can you break down either the sales or the prescriptions for the 2 products individually for the fourth quarter? And then second, I'm just curious on 1973. Have you made any adjustments to your 2 Phase II trials that are ongoing based on the data that you received in December for the trial in patients with diabetes and hypertension?

Chris, can you take the second question first, the question on trial design and execution?

Sure. So as you know, those 2 -- we have 2 studies ongoing with 1973, and one is in the HFpEF, heart failure with preserved ejection fraction. The other is in diabetic nephropathy. And we received the data from a 14-day study in hypertension and diabetes sort of towards the end of last year, and that really just supported our plans to move forward in these 2 indications. We saw really interesting and exciting changes in metabolism, lipid metabolism, glucose metabolism and this is sort of -- this is on top of the standard of care in these patients. And so those effects are really supportive of us moving forward in the 2 studies that we have ongoing, and we've not made any adjustments on the basis of that data.

Tom, can you take the second?

Sure. As far as the relative split with regard to ZURAMPIC and DUZALLO, as you know, ZURAMPIC has been a rather slow uptake. What we have seen that DUZALLO is growing 2x to 3x faster than what we saw with ZURAMPIC, which obviously is a very encouraging sign to us. That being said, what we're really going to focus on this year is what do we really need to do from an overall promotional mix to accelerate the growth. But we have not seen much cannibalization of ZURAMPIC by DUZALLO, and what DUZALLO is providing is we're certainly seeing a much broader group of prescribers adopting DUZALLO and they're adopting it faster. And the growth is also far more encouraging than what we saw with ZURAMPIC.

Okay. And then I could just squeeze one more just on the LINZESS, the additional trial that you're mentioning, the Phase III for the additional abdominal symptoms. When -- just if you can give a little better sense of when that's starting and we might actually get data from that trial.

Chris?

Sure. So we're planning a Phase III study looking at abdominal symptoms in patients with IBS-C as part of a claim extension that I think Tom mentioned earlier in terms of that supporting activating new patients. In terms of the timing of that particular study, we're right now in -- we have planned meetings with the FDA and we're just reviewing our plans with them. And so we'll know later in the year about the exact start date. So -- but we anticipate it to be the first half of this year.

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

A few questions. First on the potential for ex U.S. LINZESS, maybe if you could give us an update on the progress in Japan. The second, later this year, the share class collapses. Can you walk us through what that means, if anything? And what is the status of the standstill agreement with Allergan? And then you touched a little bit on pricing with LINZESS. Can you just tell us what the overall either corporate or LINZESS gross to nets were last year versus this year?

Tom, can you take the first question?

Sure. Thanks, David. With regard to Japan, Japan is out of the gate very strong, actually faster than we even had hoped it was. And the demand is growing very, very nicely. And one of the things that will happen this year, when you launch in Japan, there's a limitation for treatment duration to 2 weeks, which then collapses after the first year. So it almost ungates the potential for the brand. In addition, we're moving forward with -- in addition to the IBS-C claim, we're moving forward with the chronic constipation indication as well. So Japan historically has been a very strong market as far as GI diseases, and I think we're realizing that. So I think -- and we're seeing real revenue come back from that market. I also want to remind you, we're also waiting for final decision in China that will also be coming soon with regard to us launching in China, which also is a quite attractive market. So I think as we move forward, not only has U.S. been a very strong market for us and LINZESS has thrived, but the Rest of World will continue to contribute in a much bigger way certainly to our bottom line. Gina, do you want to take...

I can take the gross-to-net question. We -- while we don't disclose the gross-to-net numbers specifically, we can tell you that -- and it's really consistent with what we've said in prior periods is that what we focus on is the value and the net price and volume growth over time. And as we've said before, the price can fluctuate year to year, quarter to quarter. But what we firmly believe is that in 2018, that we will see a modest price increase in the net basis. And we feel good about where we've landed in the access position for 2017. I think we talked a little bit about that gap between the 12% and 18%, but feel good that we're set up for a 2018 modest price increase.

And David, I'll take the question on the dual class and the standstill. We do have a dual class voting structure. It expires at the end of this year. It's really just one component of a consistent tapestry. I think if you look at our mission and vision and on our related business principles, et cetera, that are on our website. Consistent with that, also, we do have standstills with each of our partners, AstraZeneca, Astellas and Allergan that run for the length of the intellectual property associated with linaclotide. The dual class was really fit for purpose. It was designed to help us really as one of the first biotechs to be commercializing a primary care product to break through on the investments that are required to become a profitable primary care product, which it's now done nicely. So I think it's done its purpose.

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

My question is on maybe the overall R&D spend going forward. I mean, you have a number of programs in development that would have an expensive, certainly development programs picking up through Phase III such as 3718 and 9730. I'm just curious, do you have plans to license those? Or you're still committed to bringing them to market on your own?

Bill, do you want to take that one?

Yes, this is Bill Huyett. We're good at partnerships. We recognize where they add value. We operate them productively. As you point out, we have some big opportunities in that pipeline for delivering patient care in really big markets. We want to realize their full potential. We understand that we're not going to do that alone and are looking for partners on all those products that bring functional capabilities, disease expertise, geographic depth that complement our own and as in our existing partnerships, a way of working that harnesses the joint innovation and challenge that we can provide for each other. I'll also point out that those partnerships are a potential source of change to our capital structure that Gina had commented on a bit earlier.

But you don't have any specific time line or point where you'd like to really bring a partner onboard before committing a significant amount of capital? Or what's the...

We are in active discussions on all these products right now with a range of partners globally.

Got you. And my last question, on the gout franchise, also in kind of spirit of partnerships. I mean, you're -- you've been investing some in the marketing and sales of this franchise. Is there potentially maybe some other company out there that may have the ideal sales force for selling your gout franchise that maybe would make sense to put it in their bag and to just derive some licensing revenue from it than having to invest in the franchise on your own?

Yes, this is Tom. Right -- as I mentioned earlier, right now, we really want to understand what does it take to really move the needle. We've had limited promotion with regard to the sales force only. We're going to introduce a full marketing mix in a number of test markets to really understand what does it take to move the needle and accelerate growth. And at that point, I think, we're going to have to critically look at, okay, what is the path forward? So how do we enable this drug to succeed? Do we do it alone? What level of investment? Is there other options? I think we'll be looking at all of those as we come into the back part of this year as we have the readouts from the test market to really inform what is the right decision for the company as we move forward.

Boris, it's Peter. Just one point of clarification to make sure there's no ambiguity. While what Bill said is absolutely correct, which is we're actively discussing partnerships on both of the lead molecules and we're working to maximize value of those products. All of the financial guidance that Gina gave in terms of cash used for the year, cash balances, our expenses, et cetera, are assuming we're not partnering. We're confident and comfortable in our ability to execute on planning, get to cash flow positive in the fourth quarter and be operating cash flow positive in 2019 exclusive of partnerships. So that's on top of that.

And our next question comes from the line of Ying Huang from Bank of America.

This is Amanda on for Ying. So with regard to LINZESS with Synergy receiving full label now, I want to hear about how you're thinking about a positioning for LINZESS. And also, on the pipeline itself, in addition to the additional abdominal pain indication for LINZESS for the delayed release, can you comment on the timing for the trial?

So this is Tom, I'll take the first question with regard to Trulance's new indication. We've always said, as the market leader, we need to behave as the market leader. And we've got a very strong brand, which is built on high level of patient and physician satisfaction and very, very broad payer access. Our focus has to be growing and capturing the market. I think our view of really Trulance and other emerging competitors, we don't see anything that differentiates them from us on top of the -- on certainly a very strong clinical profile, plus the fact that we have multiple doses that enable the physician to tailor therapy to the patient. But I think the focus that we need to continue to have is, one, grow the market, capture the market and raise the bar beyond the reach of the competition. And that's what we're going to be continuing to do as we move forward.

And Chris, on time lines for abdominal symptoms? For DR.

For DR. So time lines for abdominal symptoms, we're just in the process of completing our protocols and addressing the FDA. And we anticipate starting the abdominal symptoms Phase III trial before -- in the first half of this year. As far as the delayed release program is concerned, that's really an exciting opportunity to expand our ability to treat pain in all forms of IBS. And we anticipate having regulatory interactions towards the end -- the middle of the year and we can update you after those discussions about the exact timing of the trial.

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

This is Ishmael on for David. If we could just talk a little bit more on these things, could you run us through the outstanding patent suits, what's their status, and which is the first-filer? How has the transition from 30-day scripts to 90-day scripts been going? At the end of the day, how do you think the scripts will balance out between the 2 different lengths? And could you run us through your market analysis of the gout market again? And what did you learn that led to realigning the workforce? And how should we look at revenue growth for the franchise going forward?

This is Mark. I'll take the first question around the ANDA. So just as a reminder, we have 10 patents listed in the Orange Book that we think are very strong. And our partner, Allergan and Ironwood are very aggressively defending those patents. We have that -- we indicated announced an agreement with Sun Pharmaceuticals. And we think, again, that reflects a very strong patent situation for us and position. So at this time, we won't comment on other ANDA filers, but we, again, are very aggressively pursuing protecting of our patent.

As far as the second question. First, the 9430 program that we've initiated, we initiated that earlier this year, which has been highly successful in getting patients to request a 90-day supply. What we're seeing is an increasing size of the average TRx. So as I look at new prescriptions, we're breaking through basically a 40-pill count per script and it's obviously pulling up the total prescriptions as well, which I think is really, really important for us and also for patients. Not only is it affordable for patients, but for patients that really realize the full benefit of the drug and then realize the benefits, particularly in the abdominal symptom relief, they really need to take the drug for at least 60 days. And what we've seen is, if we can get -- if the patient's at 60, their adherence -- overall adherence, grows by almost 50%. So it's tremendous momentum in the market, and it certainly continues to strengthen our market leadership position. As far as DUZALLO, as we mentioned, we're -- we've redeployed some of our commercial resources with regard to the sales force specifically. They'll be focusing on the highest potential high prescribing physicians, and we'll be evaluating the impact of increased call frequency on overall physician productivity. I think the other piece is in the test markets, we're going to be launching a local DTC campaign in a number of test markets to see what impact that has. But I think the most important piece is our ongoing progress with the payer. As I mentioned, Med D is a big part of the commercial equation here that we need to solve for. We're making good progress on the commercial side. But over '18, our focus will be expanding access in the payer space. And so I think we're going to learn a lot over the next 6 months, which is going to really help inform what is the real potential for the brand. But right now, we feel -- we still feel very positive about the brand.

(Operator Instructions) And our next question comes from the line of Geoff Meacham from Barclays.

The first one on LINZESS. The operating leverage you guys have seen is -- has been pretty impressive in the right direction. But do you think you could change the slope of the demand curve overall if you had a higher investment? I'm not just sure of the sensitivity it is to DTC. And then another one on 1973. HFpEF could obviously be a program with a pretty fast development cycle. I know data dependent, but if you don't partner out, do you -- I just want to get a sense from you guys as to how aggressive you could be looking to a pivotal study in this unmet need indication.

As far as basically accelerating the growth, obviously, it's something we're focused on constantly. You're going to see a very different kind of DTC campaign that we'll be launching in April this year, which is going to enable us to get into multiple other communication channels. So we do believe that we've established a very strong position in the marketplace based on patient-physician satisfaction as well as payer access, and we've broadened that patient funnel pretty wide. And now it's really about how do we continue to motivate more patients to raise their hand. Part of that's going to be the expansion of the DTC effort this year. I think the other piece, as I look forward, is being able to activate more patients by letting -- educating them that there's other abdominal symptoms that they will benefit from as well as broadening the clinical utility of the drug. So I think we're, as far as the overall spend is concerned, I think we like where we're at right now with regard to the consumer, the allocation of consumer investment, trading off with regard to professional promotion, which, as you know, has evolved dramatically over time.

Chris, can you take the question on HFpEF?

Sure. So thanks for the question. You're quite right about HFpEF as being a more potentially accelerated time line to approval. What we're really excited about for HFpEF in particular is that we're targeting, primarily sort of the functional consequences of the disease and the symptoms. It's a highly symptomatic disorder, where people have a lot of shortness of breath, difficulty with exercise intolerance. And so our Phase II study is designed to test just these endpoints. So we're looking at the functional capacity from the perspective of 6-minute walk test and also looking at exercise intolerance with an objective measure, the CPET, cardiopulmonary exercise testing. And they really think that based on those end points, and we know that the 6-minute walk test has been an acceptable end point for regulatory agencies for other indications, we really think that we can move quickly into a Phase III study that doesn't have to be initially a very long outcome study, cardiovascular outcomes, and they'll be able to look primarily at these key symptoms that are highly bothersome to patients. So I think it is a great opportunity to help many patients in a -- with a quick development path that's -- with fewer patients involved in the overall development than you would for a cardiovascular end point study.

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

Just a quick one on IW-3718. I know there's pivotal that's expected to start in the second half '18. How much of a discussion is there on the definition of uncontrolled GERD in your discussions with the FDA? And what are some of the gating factors to initiation here?

So we're really excited about starting our Phase III study in the second half of this year. We have the great results from our Phase II study showing that 58% of the patients responded with regard to heartburn severity relative to patients that were receiving PPIs alone. We also saw some effects on regurgitation, which were sort of unprecedented at least from an earlier study. So in terms of defining the nature of the disease and the uncontrolled nature, I think we've had some discussions with the FDA and earlier as part of our Phase II program. And they're, I think, pretty aligned with the kind of definition that we chose for our Phase II study. That said, we're having meetings coming up in the next few months. And there, we'll be able to define more carefully with them based on our Phase II data what the population looks like and what the endpoints will be. And so once we have those meetings that are coming up in the first half of this year, we'll start the study in the second half of the year. The other thing that's interesting is that the KOLs have been really helpful for us as well in terms of being excited about the outcome of the study and also in terms of thinking about the particular patient population. And so we've gotten guidance around them around that, too, which we'll be discussing with the FDA. And then lastly, we'll have a lot of really, really interesting data to show at this upcoming DDW in June. And so I would say, look out for that for more information on the results of the Phase II study. It is going to be really quite exciting.

And at this time, I'm showing no further questions.

All right. Well then, in that case, thank you, Bruce, for facilitating. And thank you all for your time and interest this morning. We're here all day. If you have any follow-up thoughts or questions for us, please reach out to Meredith. And have a great day. Thanks for the time.

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