Ironwood Pharmaceuticals Inc (IRWD) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ironwood Pharmaceuticals Second Quarter 2018 Investor Update Conference Call. (Operator Instructions). As a reminder, this conference is being recorded.

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

Good morning, and thanks for joining us for our Second Quarter 2018 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 statements slide as well as under the heading Risk Factors in our quarterly report on Form 10-Q for the quarter ended March 31, 2018, and in our future SEC filings. All forward-looking statements speak as of the date of this presentation, and we undertake no obligation to updates such statements.

Also included, are non-GAAP financial measures, which should be considered only a supplement to and not a substitute for or superior to GAAP measures. For a reconciliation, please refer to the table at the end of our press release.

Joining me for today's call are Peter Hecht, Chief Executive Officer; Tom McCourt, Chief Commercial Officer; Chris Wright, Chief Development Officer; and Gina Consylman, Chief Financial Officer. Bill Huyett, Chief Operating Officer; and Mark Currie, Chief Scientific Officer; will also be available during the question-and-answer portion of the call. We'll 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.

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

Thanks, Meredith. Good morning, everyone, and thanks for joining us.

The second quarter was an eventful period for Ironwood. We demonstrated continuing commercial execution with our market-leader LINZESS, delivered on multiple aspects in our pipeline and made significant progress towards separating the company into 2 nimble, focused, more productive and better positioned organizations. We also announced this morning that we have terminated our U.S. licensing agreement with AstraZeneca, following a review of the test market data.

Let me comment briefly on the plans for separation and the lesinurad decision. The upcoming separation is an important step in our company's journey, one that we believe is the best way to accelerate growth, expedite new therapeutics to patients and unlock value for shareholders. We're designing both companies to have strong financial profiles at the launch and to be set up for sustained growth in addition and market leadership. We anticipate the capital structures of each new co will be built from a combination of cash on hand, various financing tools and potential partnerships that we are exploring. With that said, I would like to be clear that we do not expect ongoing funding between the 2 companies following the separation.

Turning to lesinurad, Tom will provide more details shortly. I would just like to take a moment to commend him and the team for their passionate commitment to these products and to patients and for driving with urgency to a well-informed, data-driven decision.

The decision to terminate was not taken lightly, but we are confident it is the right decision and it enables us to allocate capital to the highest return opportunities and to drive growth.

With that, let me turn the call over to Tom to provide more detail.

Thank you. As Peter mentioned, we had a strong second quarter with many key advancements made across our business, including continued LINZESS growth and multiple developments within the pipeline. Chris and I will discuss these in more detail, but I would like to begin by commenting on our lesinurad decision.

In early 2018, we initiated a robust study to explore a comprehensive set of marketing-mix options for lesinurad in select test markets. Our objective was to find a path to value creation for lesinurad based on scaled investments and/or an optimized marketing mix to drive higher promotional response. After assessing the lesinurad market test results in late July, we concluded that the data did not show the level of response needed to support further investment by Ironwood. Therefore, we believe that it's in the best interest of our business and our shareholders to terminate our agreement and focus on creating high value through our existing GI portfolio opportunities. We are working to maintain appropriate availability of lesinurad for patients and physicians during the termination period. The full lesinurad team has brought sound expertise and creative commercial skills to support this franchise over the past few years, and I'm grateful for the tremendous effort that everyone in our team has put behind this product.

Looking ahead, following the completion of the separation expected in the first half of next year, new Ironwood will become a profitable company, exclusively focused on its industry-leading capabilities in GI diseases with multiple first-in-category assets, each with long expected IP coverage and the potential to help millions of patients with serious and chronic disorders.

Now turning to LINZESS. Performance was strong during the second quarter. The prescription volumes up 14% year-over-year.

Early in the second quarter, we launched the new, highly successful Yes Linzess DTC campaign, which was a driving force behind this growth. As a branded prescription market leader in this category, we believe LINZESS has a long runway before reaching its full potential and with millions of patients still suffering, we are critically assessing ways to expand the number of appropriate patients treated with LINZESS. This includes the recently initiated Phase IIIb trial, studying the effect of linaclotide and bothersome abdominal symptoms, including bloating, discomfort and pain associated with IBS-C.

Survey data suggest that as many as 2/3 of adult IBS-C sufferers experience symptoms such as abdominal bloating and discomfort every week and is a common reason patients seek care.

If successful, the Phase IIIb trial creates an opportunity to deliver a more impactful promotional message that will activate more patients to demand LINZESS and provide physicians with an even more compelling reason to prescribe LINZESS for their patients.

Our delayed-release program is a new product opportunity that has the potential to be a visceral, non-opiod, pain-relieving agent for millions of patients suffering from all forms of IBS.

We recently reached agreement with the FDA regarding trial design and endpoints and are now in the process of finalizing the Phase IIb protocol.

Linaclotide's global presence continues to grow as well. Astellas is commercializing LINZESS in Japan for adults with IBS-C and the brand continues to grow nicely, and it is becoming an important component of Ironwood revenue.

In China, we and our partner, AstraZeneca, anticipate approval of linaclotide later this year with plans to launch shortly after.

Moving to 3718, our gastro-retentive bile acids sequestrant being developed for the treatment of persistent GERD.

We recently initiated our pivotal Phase III program. The primary endpoint will evaluate the reduction in heartburn severity with key secondary endpoints, including improvement in weekly heartburn severity, regurgitation and sleep disturbance. Data from these trials if positive, are expected to support this potential approval.

Persistent GERD affects an estimated 10 million Americans, who continue to suffer from heartburn and regurgitation despite receiving treatment of PPIs, the current standard of care.

If approved, we believe 3718 has the potential to dramatically improve the bothersome symptoms experienced by these patients. As there is limited number of FDA-approved treatment options currently available, this advancement in care complements our promotion of LINZESS, our pipeline and could create a huge opportunity for us commercially here at Ironwood.

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

Thanks, Tom. As Peter outlined, it's an exciting time for our sGC franchise. Our teams are doing a superb job of advancing clinical trials of innovative products that aim to treat highly progressive and serious diseases. We currently have 4 Phase II trials ongoing. Praliciguat is currently being studied for the treatment of diabetic nephropathy and for heart failure with preserved ejection fraction, or HFpEF, and we expect to see data from both studies in the second half of 2019.

Olinciguat is currently being studied for the treatment of sickle cell disease and for achalasia. In June, we were pleased to receive Orphan Drug Designation for olinciguat for the treatment of patients with sickle cell disease.

We also recently closed enrollment in our single-dose, proof-of-mechanism achalasia study and expect to report top line data in the coming months.

In addition to our development programs, the teams are making significant advances in our preclinical sGC tissue-targeted programs. We expect to initiate a Phase I study with IW-6463 in early 2019. 6463 has been shown to cross the blood-brain barrier in preclinical models and represents a potentially significant opportunity in certain serious CNS diseases.

As we become more precise in the targeting of specific organs, we are having success in preclinical programs that target either the lung or the liver. We see encouraging data and are advancing some exciting programs. As a leader in cGMP pharmacology, the future of our sGC franchise is promising. We intend to advance our pipeline to develop medicines that can address the unmet needs of patients suffering from a variety of serious and orphan diseases.

I will now pass the call over to Gina.

Thanks, Chris, and good morning, everyone. Over the next few minutes, I will be detailing our second quarter financial highlights and updating 2018 financial guidance. Please refer to our press release for the detailed financial information.

Ironwood revenues increased 25% year-over-year to $81 million in the second quarter, driven primarily by continued LINZESS sales growth and margin expansion as well as growing API sales to Astellas, our partner in Japan. LINZESS net sales were $192 million, up 14% year-over-year. The LINZESS U.S. brand collaboration generated $115 million in commercial profit, reflecting a commercial margin of 60%.

Linaclotide API sales to Astellas were $9 million during the second quarter and generated approximately $5 million in gross profit. Other revenue, including linaclotide royalties, co-promotion and net sales for DUZALLO and ZURAMPIC totaled $3 million.

Total operating expenses were $121 million, including $39 million in R&D and $68 million in SG&A. The increase in operating expenses this quarter compared to the same quarter last year is primarily due to cost associated with our planned separation.

GAAP net loss for the quarter was $49 million or $0.32 per share, non-GAAP net loss was $43 million or $0.28 per share.

With regard to the lesinurad decision, there are a few financial components that I would like to briefly review. As a result of our decision to terminate the lesinurad licensing agreement, we expect to save approximately $75 million to $100 million in full year 2019 operating expenses, most of which will be within SG&A.

We plan to reduce our workforce by approximately 125 employees, primarily consisting of our field-based sales employees. We estimate that this will result in aggregate charges of approximately $10 million to $13 million, primarily in 2018, nearly all of which is cash.

In the second quarter, we wrote down approximately $2 million related to lesinurad inventory and purchase commitments. We also expect to record an intangible asset impairment of $150 million and a gain on fair value remeasurement of contingent consideration of $30 million in our third quarter 2018 financial statements.

To review and update our full year 2018 financial guidance, we reiterate the following: SG&A expenses to be in the range of $230 million to $250 million; R&D expenses to be in the range of $160 million to $180 million; the combined Allergan and Ironwood total marketing and sales expense for LINZESS to be in the range of $230 million to $260 million; and net interest expense to be less than $40 million.

We are adding new guidance this quarter related to 2018 restructuring cost, which is now a line item on our P&L. We expect full year restructuring cost to be in the range of $18 million to $21 million in 2018. This includes cost associated with the workforce reductions announced in January and June and the planned reduction we announced this morning.

We are reviewing our cash used from operations guidance as we gain additional financial detail related to the lesinurad franchise termination. We no longer expect to be cash flow positive in the fourth quarter of 2018 due to restructuring costs.

Before I turn it back to the operator, I will just close by saying that this has been a pivotal period for Ironwood, and I believe we have made substantial progress across all aspects of the business. In addition to executing on our core business objectives, we are also working diligently on the separation, which is on track to be completed in the first half of 2019. We believe that each company will be well positioned to drive growth and innovation that will make a difference for patients and create value for shareholders.

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

(Operator Instructions) Our first question comes from Jami Rubin with Goldman Sachs.

This is Divya Harikesh on behalf of Jami Rubin. I had one question. With the termination of the lesinurad program and the rationale makes a lot of sense, do you feel you have -- Peter, this is for you, do you feel you have enough in your pipeline or the pieces in place to drive growth for Ironwood Co.? How are you thinking about capital allocation going forward and looking for potential strategic BD opportunities? Or do you think you have all the pieces in place within Ironwood Co. at this point of time?

Thanks for the question, Divya. We feel great about the assets we have on hand. I think you're asking about post-separation...

Post or pre-separation, as you think about the GI franchise?

Yes, thanks. That company has a great foundation. It's set up to be a market leader in the GI -- in GI primary care space with 3 market-leading or first or only-in-category products that have long patent life and durability in each case out to 2030 or beyond and the opportunity to help millions of patients. And the products go really terrifically well together, both in terms of their strategy and their commercial fit. We think that's a great foundation for growth and the opportunity for attracting further assets.

And our next question comes from David Leibowitz with Morgan Stanley.

Would you be able to run us through the IW-3718 trial and quantify for us what we should be looking for as a benefit that would signal a successful trial?

Sure. So -- this is Chris, thank you for your question. So the 2 pivotal studies that we're executing on currently involve randomized control trial looking at 1,500 milligrams of 3718 with a treatment period of 8 weeks. And so we've been looking for the main endpoint as a 45% reduction in heartburn looking at responder rates. So that's individuals that had a response in 4 of 8 weeks as well as the last 2 -- 1 in the last 2 weeks in the 8-week period. We'll also be looking at a number of other measures, including change from baseline in heartburn, regurgitation, heartburn-free days and also sleep disturbance.

David, it's also important to mention that this is on top of PPI. So these are patients who have suffered from GERD, chronically from both -- primarily heartburn, but also regurgitation, have been treated with PPIs, but continue to suffer. And what we certainly saw in the IIb trial was a significant improvement in both heartburn as well as regurgitation. So as I think about this marketplace, this is, as you know, a really painful disruptive disease and each advancement in care that we've seen in this marketplace creates a significant commercial opportunity.

So will all PPIs be taken into the trial (inaudible) such as generic?

There is no restrictions on a particular PPI in the study. So they'll continue on their standard of care therapy and it has to be stable and then we'll add on either placebo or IW-3718.

And one more question on the changes relating to lesinurad. Going forward, how could we expect SG&A to change and R&D for that matter after all the restructuring charges are completed?

David, this is Gina, thanks for your question. The SG&A expenses should -- you'll see a reduction of approximately $75 million to $100 million beginning in 2019, and we typically provide our guidance for the next year in February of each year. And we do expect most of the savings to take place within SG&A, less so from R&D perspective.

And our next question comes from Geoff Meacham with Barclays.

This is Jason on for Geoff. I'm just curious -- 2 quick questions for the LINZESS franchise, if you could comment a little bit more on the efforts underway to really build the market, I appreciate that kind of this was a little bit overshadowed by the decision to terminate the agreement. And then -- insofar as gout goes, looking at your test markets, I'm curious -- could you shed a little bit more light onto what it was that came out of that test that was really instrumental in driving your decision? And perhaps, what was there that perhaps was not there beforehand that you didn't see during the development of the franchise that could have informed the decision?

Thanks. Let's take the gout decision first. As far as what we saw over the last 18 months, as you know, we've been on the market roughly 18 months, we saw a nice opportunity here both in the market and we clearly saw lesinurad as an advancement in care. We initially launched with ZURAMPIC, which we really saw as a market primer for DUZALLO. As we launched DUZALLO, the update was quite a bit slower than we expected and we were really struggling to evaluate or understand why the market was -- or why the product was so slow. So we wanted to really understand what kind of promotional offer would really be required to really accelerate its growth. And so we identified a number of test markets in which we had varying levels of promotion, both on the consumer side as well as the physician side. And as we invested and pushed it hard, we certainly saw some promotional response, but it just wasn't adequate to look at a product that we could -- that we were confident that we can continue to invest in and grow. So I think the big piece -- the big 3 takeaways is: one, we like the market, the uptake was slow and as we pushed it harder, the growth just didn't accelerate to justify ongoing investment. As far as lesinurad -- as far as LINZESS is concerned, I mean we still see ourselves in growth mode and this is a very strong alignment with our partner Allergan that we're going to continue to invest in this market, it continues to grow very nicely. Keep in mind, we've treated a little over 2 million patients, but there's another 30 million Americans out there that are continuing to suffer, and we're looking at other ways in which we can activate patients and motivate physicians to treat patients more broadly. And we're focusing really on 3 areas: One is certainly, how do we look at activating the consumer and additional ways beyond just conventional DTC -- TB DTC? The second is, how do we strengthen the clinical profile, which is really what this recent Phase IIIb trial is all about? So we can talk about the benefits of treating abdominal bloating and discomfort, which are really key symptoms to patients. And third, how do we expand the clinical utility of linaclotide, which is what the delayed release program's all about. So we're very encouraged by the ongoing growth, but it's even more striking as I look at the opportunity in front of us.

And our next question comes from Ying Huang with Bank of America Merrill Lynch.

I have first one on the R&D program for the HFpEF for IW-1973, you decided to discontinue the low and medium dose and only continue to trialing HFpEF with high dose. I was wondering what led to that decision? And then secondly, since now you're discontinuing the lesinurad commercialization program, do you have any intention to go out and seek other potential commercial opportunities for your sales force to utilize?

Chris, can you take the first.

Sure. So with regard to the HFpEF study changes, we're -- we felt that as we move forward into the 2 different companies, the R&D Co. and new Ironwood, that we wanted to focus primarily on accelerating time to POC data, and on that basis, we made the changes in the study that were mentioned.

[As Terrance says], how we look at the utilization of the sales force moving forward. Obviously, this decision will impact the workforce that we have, both internally and externally. So we certainly see that being downsized to some degree. As far as how we look at future opportunities, the core business is very tight. We will continue to focus in GI assets primarily that both gastroenterologists and primary care physicians utilize. And we continue to evaluate a number of candidates that could be an additional very nice fit into the current portfolio.

And our next question comes from Eric Joseph with JPMorgan.

Just a couple from last year. Just wondering if you could provide or let us know how we should be thinking about commercial margin in the second half of the year for LINZESS? And also, what's some of your latest thoughts on longer-term commercial margin, if it's still around 70% peak long term and what sort of the levers are to get there? And I have a follow-up on delayed release.

Sure, this is Gina. I'm happy to take the first part of your question regarding the LINZESS margin. As you saw for the quarter, it was about 60%, which was up nicely year-over-year. And it will -- well, it will continue to fluctuate quarter-to-quarter. We do expect it to increase over time and we are still guiding to the greater than 70% by 2020.

Got it, got it. And on the DR2 formulation, I'm just wondering if you could maybe provide a bit of color around the commercial opportunity there? And how that distinct from what's currently addressed by the branded constipation or diarrhea products, including LINZESS [effects], et cetera? And what -- in the Phase IIb, what allowances are made for use of those therapies either in combination with DR2 or as rescue therapy?

Yes. This is Tom. The -- as we think about the commercial opportunity, this is almost a pure pain drug that will treat, not only lower abdominal pain but also bloating and discomfort. And as you know, other than linaclotide, there really isn't many -- there really isn't any effective treatments for lower abdominal pain. So the fact that we have a drug that clearly demonstrates an improvement in abdominal pain, which we believe we can amplify by delivering it into the colon and avoid any effect on bowel habit, really is a very, very unique opportunity that would be attractive to tens of millions of patients, basically all forms of IBS, now recognizing you also have to treat their bowel habit. So this would be their primary treatment for relieving abdominal symptoms and they'd use another therapy that would either manage their constipation or diarrhea. And again, it certainly could be used on top of LINZESS to amplify the pain effect, but we see this as just a much, much broader drug that can relieve pain. As you know, it's very well tolerated and it's quite safe. So we really like this opportunity as we move forward.

Eric, did you have a specific question about the design of the Phase IIb study and use of concomitant meds that Chris should take, I wasn't sure about that.

Yes, Peter. That's exactly right. I'm just wondering in the Phase IIb, whether the plan is to study DR2 at least in some patients on background concomitant meds, either constipation or diarrhea OTC branded? How -- yes, yes.

That's exactly the approach. So individuals have to be on stable doses of their regular medicines for either constipation or diarrhea. And we'll add on top of that the DR -- linaclotide DR and assess effects on pain and obviously look to see if there is any changes in bowel habits as well.

We're very pleased to -- we're quite pleased to have progressive conversation with FDA on this. It's a novel category and it's taken some time to get good alignment and understanding on the right way to advance the medicine, but it's a great opportunity for patients and we're very excited to be able to move forward now.

And our next question comes from Irina Koffler with Mizuho.

I was just wondering if there is going to be any change to the staggered board when you spin-off the R&D company? That's question one. And then maybe you can update us on the progress of your partnering discussions for the early stage assets in the R&D Company?

Irina, it's Bill Huyett, thank you for your question. Taking those in turn, we'll be announcing the governance structure broadly, including board membership and board structure over the coming months based on the designs for the new companies and things we've heard from all of our investors over the past few months. With respect to the partnership discussions, they are ongoing. As you might imagine, the crystallization of the strategy for the R&D Company has led to modifications and improvements and simplifications in some cases of our licensing discussions. We're broadening them, not only on the HFpEF and DM, we've discussed in a few prior calls, but also in some of the other compounds that Chris discussed earlier. So these discussions have been energized by the separation process.

If I could add a follow-up, which is about SG&A expense. So I noticed that guidance didn't change for SG&A expense for the year, but yet you're cutting elements of the gout program and the staff. So why wasn't that piece lowered as well?

Irina, this is Gina. We did take a look at the SG&A guidance and decided to keep it the same as what we originally guided to in February because while we expect some savings related to the gout franchise, we are incurring additional costs related to the separation.

And our next question comes from Boris Peaker with Cowen.

First, I want to ask about the capsules you mentioned that there's significant uptake in those. I'm just curious, is that cannibalizing the original formulation? And also, with the uptake of capsules, is there some stocking associated with it?

Which -- yes, are you talking about the extended...

Yes, yes.

Okay. I think there's 2 things here. As you mentioned, as the size of the prescription grows, obviously that has an effect on the total prescription volume. So that's a reason why we're seeing the actual units sold as a -- obviously, it's a clear indicator of growth and that's where the 14% year-over-year growth comes from. The second, and Gina can comment more specifically on this, but we did see some drawdown in inventory for the quarter below where it has been in the past, which obviously had some effect on revenue. But I think net-net, we saw this as a very, very strong quarter and it was -- the growth in the financials have been almost solely -- or largely driven by demand. Gina, if you want to comment further on the inventory?

Thanks, Tom. Actually we -- it sounds correct that we saw a modest change in the inventory, but certainly we're within our normal range and there is not a lot to add. There was a nice volume uptake that would -- corresponded nicely with the increase in net sales for the quarter.

Great. And my second question, I'm just curious, for the GERD drug, which is obviously going with the new Ironwood, what was the rationale for keeping it with new Ironwood instead of just keeping it with the R&D Co.?

Yes, I think this was largely a commercial decision because it fits so well with our current portfolio. When you look at the prescriber base, Boris, on this, it's essentially the exact same prescriber base across gastros and primary care, which we learned a lot about, if you remember when we promoted Nexium, when we first launched the company as far as understanding this prescriber base. And then in addition, obviously, the delayed release linaclotide, again, overlaps this prescriber base almost virtually perfectly. So you think about how much more productive a single sales reps would be basically selling 3 drugs to 1 doc and we wanted to keep the continuity together. Keep in mind, we will still have a very strong development team with the new Ironwood organization as well as our regulatory and medical affairs group that are really the best in the industry, particularly in GI. And I think -- we think we're very well poised to succeed with 3718 in the marketplace.

And our next question comes from Vamil Divan with Crédit Suisse.

This Michael Morabito on for Vamil. The first question I had is, just wanted to get a little bit more clarity on the licensing plans for the sGCs. Now that you've mentioned that you plan on having nonoverlapping boards between the 2 companies, do you still intend to license both of those products ex-U. S. prior to spinning out the new R&D Co. and prior to data reading out from those trials? And secondly, just specifically for Peter, at what point will you be able to provide investors with the guidance on which company you plan to remain with, if either one?

Michael, it's Bill Huyett. On your first question, we intend to outlicense 1973 praliciguat. Our intent -- when we first discussed, it was perhaps interpret by some as centered on ex-U. S. As we've focused the strategy of the R&D Company on the severe, rare orphan diseases, it's become quite clear to us that a full licensing of that compound is the right path forward. On the others, we're entertaining a variety of ideas ex-U. S. and for the United States, all designed to make sure that each molecule reaches its greatest potential and then our shareholders capture the lion's share of the value for doing that.

And with respect to the question on me, Michael. We've announced the substantial portions and leadership teams for both of the new cos, and actually, they are making great progress getting up and going within the context of our current company. I would say my role is an important one here to make sure that we continue as a unified team to execute on our 2018 operating plan, deliver on our goals as one company and execute on a high-quality separation as a unified team. So I'm sticking with -- to that and serving in my current role with great pleasure. I do expect to consider future roles at some point near term and we'll update you on that and CEOs for both companies and boards as soon as we get them clarified.

Okay. And I just have one quick follow-up also, do you have any new guidance on when you do anticipate becoming -- do you -- actually let me rephrase, do you anticipate Ironwood becoming cash flow positive prior to spinning out R&D Co.?

Michael, this is Gina. Our current guidance is that new Ironwood will become a profitable company in its first year of launch. Clearly, we don't expect that for the R&D Co. -- company initially. And then the other guidance related to our fourth quarter of this year and whether we would be positive cash flow or not, and the only change to that guidance is, is that we are now guiding to a negative cash flow in the fourth quarter just due to the restructuring cost that we expect to incur.

(Operator Instructions) Our next question comes from Tim Chiang with BTIG.

I do have one question just on linaclotide delayed release. Is it possible that post your discussion with the FDA on this trial that you would also enroll patients that have been on linaclotide? Or could it be possible that you might even have a linaclotide arm to compare the delayed-release benefits to the standard product that you have?

So -- Tim, it's Chris Wright. Thanks for the question. So currently, the trial design does not involve including linaclotide and that may be something that we want to look at, at a later phase to understand how this on top of linaclotide has impacts. But right now that's -- we're focused on understanding how DR2 impacts pain across all subtypes of IBS.

Okay. And maybe just one follow-up, Peter. Obviously, you're putting much more of your focus on LINZESS, I think that's a good decision, dropping lesinurad. Could you talk a little bit just about how you see the product evolving over the next 2 to 3 years? Obviously, you've got a number of additional trials to try to maximize the value of the product, how do you see your relationship with Allergan as well? Do you see this relationship getting stronger over the next 2 to 3 years?

Thanks, Tim. We continue to be very excited about really LINZESS as a foundational product for growth for Ironwood today and for new Ironwood. It's really still in the early stages of growth with a long runway and many years to go. We have IP exclusivity out for quite a long ways, you'll -- you see in our announcement this quarter, we just settled the second ANDA out in 2030. And it's the clear market leader with a long ways to go and grow. It's a very high-margin product and it's benefiting a great many people, but with a huge number of folks who, frankly, still haven't even heard of the drug. So I think Tom and the commercial team have tremendous opportunity to continue to open up new categories and new section -- segments of the market and grow that category for many, many years to come. You've heard from us about the abdominal symptoms claim and how we think that can be a helpful catalyst for growth. You heard about DR and really -- what's really a completely different product concept for abdominal pain. I think there's really a long ways to go. And you asked about Allergan, that partnership is now 10-plus years in and continues to be very strong and in lot of ways continues to strengthen over time as we know each other better and trust and work together over every function in the company. I expect it to continue to grow and strengthen over time, I don't see any reason not to. We're very well aligned across strategy and investment. So I think there's every reason to be bullish about the product and the partnership.

And our next question comes from Patrick Trucchio with Berenberg Capital.

This is actually [Francoise] on for Patrick. At a recent congressional hearing, HSS (sic) [HHS] Secretary Azar said that we may need to move towards a system without rebates where PBMs and drug companies just negotiate fixed-price contracts. Can you tell us first, do you think a system like this is feasible? And secondly, how do you see such a system may affect the formulary position of LINZESS, particularly as new competition enters the market over the next few years?

Yes. I think there's probably 3 pieces of this question. First, on the rebate front, this still comes back to negotiating to a net price. The question is, who do we negotiate with? And that's largely determined by the value proposition we have for the brand. And we have said from the day we walked into this marketplace, our #1 priority was to secure broad access across all payer groups to really enable us to drive broad and long-term demand. So I think this is going to continue to evolve. I think people will be debating what the right model is. But I think at the end of the day, it really comes back to a patient with an unmet medical need, an advancement in care and a value proposition for the brand. And I think that's something we've been able to consistently establish with our partner.

I think the other piece, as far as the emerging competitor, I think again, one of the advantages of being the category leader and the market leader and we are in a situation, we're continuing to raise the bar with regard to the profile of the brand, the clinical utility brand, dosing options. I think it's going to be challenging for emerging competitors to enter the market. It was a lot harder to enter a market now than it was 5 years ago and I think we're going to continue to see that particularly in GI and primary care. So I think what we need to focus on is really continuing to make sure we're optimizing our value proposition for the payer, work with the payer, make sure we price responsibly and at almost all costs make sure we have broad access and reimbursement for our patients and docs.

All right. I have one other question actually on a separate front. Do you expect SG&A expenses to be up or down in 2019, given the savings from exiting gout?

This is Gina. We are planning to provide guidance for the 2 new companies in February of next year when we typically provide our year-end update.

All right. I just have one more question regarding the split. Investors often ask us about how this will unlock value. Can you tell us about what examples the board provided where business splits unlock value? And second, can you tell us what changes, if any, are planned for the anti-takeover positions in either R&D Co. or in new Ironwood?

This is Bill. The board reviewed a number of separations inside and outside biopharma in reaching its decision that this would be clearly value creating for shareholders and the themes of all those were the simplicity focus of the strategies of the 2 companies and the resulting organizations and cost structures. And without commenting on the individual examples, we're already starting to see, as we develop our separation plans and the organizations that will deliver on those strategies, the sorts of things that we and the board discussed as part of the separation process. With respect to board governance membership, our board is working closely on -- with us on their leadership of the selection of board members, the determination of the governance practices of the 2 companies and we'll be announcing those over the coming months.

And our next question comes from Ram Selvaraju with H.C. Wainwright.

This is Julian on for Ram. I was just curious how should we be thinking about the recent approval of a generic Voltarol in the context of 3718?

I guess why don't I take that, this is Tom. The novelty here isn't so much colesevelam, it's the delivery system. The thing that we -- you have to keep in mind is, in order for this to work to be able to minimize esophageal exposure bile, the bile acid sequestrant has to remain in the stomach and basically ties up the bile. The challenge, which is Welchol, is your stomach empties every 1.5 hours. So you really only have a very brief coverage of bile as soon as -- it's very much like antacids, where I can treat the acids in the stomach, but as soon as the stomach empties and it fills back up again, you still have acid in bile. So the real novelty here is this gastro-retentive formulation of colesevelam that enables the success of this therapy.

This concludes today's Q&A session. I would now like to turn the call back over to Peter Hecht for closing remarks.

Thanks, Imani, and thanks, everybody, for your time this morning. We'll be here and available all day if you have follow-up questions. If you do, please just reach out to Meredith or to [Gary] here in our offices. Thanks, again.

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.