Ironwood Pharmaceuticals Inc (IRWD) 2018 Q3 法說會逐字稿

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

I would now like to turn the conference over to your host, Ms. Meredith Kaya. Please go ahead.

Good morning, and thanks for joining us for our third 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 statement slide as well as under the heading Risk Factors in our quarterly report on Form 10-Q for the quarter ended June 30, 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 update 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 will turn the call over to Peter.

Thanks, Meredith. Good morning, everyone, and thanks for joining us today. The Ironwood team continued to deliver strong performance toward our operating goals this quarter and, at the same time, to execute on our planned separation and launch of 2 exciting companies.

Before touching on a few business highlights, I'd like to draw your attention to 2 financial disclosures that impact our reported numbers this quarter.

First, during the quarter, Allergan reported to us a $59 million adjustment to LINZESS net sales truing up estimates to actual subsequent payments made for the 3-year period between 2015 and 2017. We've recorded our share of this adjustment in the quarter, resulting in a $30 million reduction to collaborative arrangement revenue. This reduction also flows into Ironwood's total revenue.

Second, in connection with our termination of the lesinurad licensing agreement, we recorded a full intangible asset impairment of approximately $150 million. Note that there is no cash impact to this impairment. Gina will discuss both topics in more detail in her portion of the call.

Turning to the business, LINZESS demonstrated another quarter of double-digit volume growth in the U.S., increasing 12% year-over-year with net sales of $205 million. Commercial margins and profitability continued to expand nicely. As our partner commented last week, industry-wide pricing dynamics are reducing net price. With that said, LINZESS continues to be a growth brand, and the branded prescription market leader with many years of expected patent coverage ahead.

Our 2 companies are investing together in several innovative growth strategies. Ironwood believes each of these represent opportunities to drive sales growth over time that is higher than that guided by our partner last week.

We're progressing our clinical portfolio as well with a Phase III readout now expected from our linaclotide abdominal symptom study in mid-'19, the 2 pivotal Phase III trials for our persistent GERD drug 3718 now enrolling and Phase II readouts for our olinciguat and praliciguat are expected in the second half of next year.

While executing day-to-day, we're also on track to launch 2 independent publicly-traded companies in the first half of 2019. Upon separation, we expect Ironwood to be a profitable, focused, growing GI company. We expect the new R&D company to be a development stage biotech, advancing 5 carefully tailored sGC stimulators for serious and orphan diseases. We're confident that the separation will unlock value through focused innovation and resource allocation and that both R&D Co. and Ironwood will launch with their resources to drive substantial value to patients and shareholders for many years to come.

Before I turn the call over to Tom, I want to thank the exceptional and dedicated teams here at Ironwood, who've been working tirelessly to simultaneously execute on our goals and to position the 2 companies to thrive. I know I speak for the management team and the Board when I say thank you for your commitment, energy and sense of urgency.

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

Thank you, Peter. I'll take a few minutes and highlight the GI franchise that will form the core of new Ironwood upon separation.

LINZESS is the clear branded prescription market leader in this class and continues to demonstrate strong growth in demand in its sixth year. Since launch, our LINZESS commercial strategy has had 3 foundational elements: personal promotion, consumer marketing and payer access. We believe each of these are critical to the brand's success and continue to evolve the marketing mix to focus on the highest ROI opportunities in response to market changes. For example, our most recent DTC campaign, Yes LINZESS, is driving all-time highs in bringing in new to brand patients, adding nearly 10,000 new patients each week, with LINZESS trending nearly 10% above the pre-DTC trend. The LINZESS consumer campaigns have consistently been acknowledged among the best performing across the entire advertising industry in generating incremental business, which is fueled by the large underserved population and the expertise of our commercial team.

We also continue to refine our personal promotion efforts in investment to concentrate our selling efforts on the highest prescribers. And patient access remains one of the foundational elements for the brand's success. We continue to invest in market-leading coverage with greater than 80% of commercial patients and greater than 90% of Medicare Part D patients having unrestricted access to the brand.

Our investment in access has enabled us to grow LINZESS prescription volume at double-digit rates every year since launch, and we expect to continue to invest to maintain this level of payer access in 2019 and beyond. However, increased payer consolidation and competition are making investments in this area more expensive. In addition, there has been a higher utilization in Medicare, which is typically at higher rebates. As a result, we now expect a mid-single-digit decrease in LINZESS net price in 2019 compared to 2018. We and Allergan are investing in several innovative new strategies designed to drive brand growth and profitability. These strategies begin with expanding, strengthening and maximizing the clinical utility of linaclotide.

We took another important step in this area when we initiated our Phase III trial to explore the effect of linaclotide in bothersome abdominal symptoms, including pain, bloating and discomfort. Survey data suggests that as many as 2/3 of adult IBS-C responders -- respondents frequently experienced abdominal bloating and discomfort every week and it's the primary reason that patients seek medical treatment.

This trial, if successful, represents an important opportunity to enhance the effectiveness of our promotional campaigns and significantly broaden the addressable patient population. The trial is enrolling faster than we expected, and we now anticipate top line data in mid-2019. If data are positive, we hope to be able to begin communicating these potential benefits to physicians and patients soon thereafter. We're also acting on many new opportunities to fuel growth through innovative consumer strategies such as the use of increased digital and social media to further educate physicians on appropriate patients and drive patient requests.

With the changing market landscape, including the withdrawal of approvals of certain large-volume prescription generics for the treatment of occasional constipation that are often used for chronic constipation or IBS-C, we have an opportunity to reach additional patients who'll be seeking alternative prescription treatments.

MD-7246, previously referred to as linaclotide delayed release, represents a new product opportunity as an intestinal nonopioid pain relieving agent for millions of Americans suffering from all forms of IBS. We expect to initiate a Phase II trial in the first quarter of 2019. This trial is expected to enroll approximately 400 patients and is designed to evaluate the safety, tolerability, treatment effect on abdominal pain and dose response of 7246 in patients with all forms of IBS, including IBS-C, IBS-M and IBS-D.

We plan to provide additional details on study design following the initiation. With a strong brand profile, many years of expected patent coverage ahead and multiple investments to drive growth in this market, we're enthusiastic about the growth prospects for LINZESS going forward. We continue to believe LINZESS is on a growth path to more than $1 billion in net sales, but due to the increased pricing pressure, we now believe that this target may be achieved later than 2020.

In addition to our U.S. commercial efforts, we are pleased with our global footprint as it continues to expand. We expect OUS linaclotide to remain a key part of our franchise and an important contributor to total Ironwood revenue.

In late August, Astellas obtained approval for LINZESS in chronic constipation and launched shortly after, now providing the opportunity to bring LINZESS to both IBS-C and chronic constipation adult patients in Japan.

In China, we and AstraZeneca are now expecting approval early in 2019 due to the timing of the CFDA review.

Turning to 3718. Our 2 Phase III trials for persistent GERD continue to enroll nicely. Despite advancements in PPIs, there is approximately 10 million Americans with GERD that continue to suffer from frequent and bothersome symptoms, such as heartburn and regurgitation. GERD patients tend to be highly responsive to new treatments. If they believe, they will feel better, they will actively seek care and demand effective treatment. We were encouraged by our Phase IIb data, which showed a meaningful improvement in both refractory heartburn and regurgitation, for which there are no approved therapies. We initiated our pivotal trials with 3718 in late June and look forward to sharing updates on the timing of the data as we get further along.

With that, I'll turn it over to Chris to discuss our sGC franchise.

Thanks, Tom. I would now like to turn to some of the key developments in the 5 sGC assets that we expect will form a strategic core of the R&D company. Each of these assets was tailored to preferentially modulate the NO/cGMP pathway and the tissues most relevant to the diseases they are designed to treat. In total, we are enrolling patients in 3 Phase II trials and expect to begin a Phase I trial early next year. We are also intending to advance 2 late-stage discovery programs into development.

Olinciguat is currently in a Phase II trial as a potential oral, once daily treatment of sickle cell disease. By amplifying nitric oxide signaling in both vasculature and highly perfused organs, we believe that olinciguat may help improve daily symptoms such as pain and fatigue and change the course of this disease in at least 3 important ways: one, increasing blood flow to organs; two, reducing vascular inflammation and cellular adhesion; and three, reducing the proportion of sickle cells. We expect to report top line data from the Phase II study in the second half of 2019.

As described in our press release, we also obtained valuable insights about olinciguat's pharmacology from a small exploratory Phase IIa study of olinciguat in achalasia patients. Data from this trial demonstrated the expected pharmacokinetic and pharmacodynamic effects and that the drug was well tolerated in these patients. Praliciguat is currently being developed as an oral, once daily systemic sGC stimulator for diabetic nephropathy and heart failure with preserved ejection fraction, or HFpEF.

In September, we were pleased to announce that the FDA granted fast-track designation to praliciguat for the treatment of patients with HFpEF, underscoring the potential of our approach and the clear seriousness of this disease.

Top line data are expected from both our diabetic nephropathy and HFpEF Phase II trials in the second half of 2019.

Because of the large global patient population, we intend to outlicense praliciguat to a partner with substantial presence in these disease states before entering Phase III trials.

6463 is being developed as an oral CNS penetrant sGC stimulator for the potential treatment of serious neurodegenerative diseases. We're encouraged by the preclinical data seen to date, which shows the ability of 6463 to cross the blood-brain barrier, increase cerebral blood flow, improve neuronal health, reduce markers of neuroinflammation and enhance cognition. We expect to initiate a Phase I study with 6463 in healthy volunteers in the first quarter of 2019. As a practicing neurologist, I believe this program represents a potentially significant opportunity for patients suffering from serious neurodegenerative diseases. Finally, we continue to make excellent progress in our liver and lung targeted discovery programs and expect to advance development candidates for each of these programs in the first half of 2019.

With that, I will turn the call over to Gina to discuss our financial results.

Thanks, Chris. I would like to begin by highlighting a few important items.

First, as Peter mentioned, in the third quarter, LINZESS continued to demonstrate robust growth with demand up 12% and sales up 7%, excluding the net sales adjustment, the difference simply due to fluctuations in inventory year-over-year.

During the quarter, Allergan reported to us a $59 million negative adjustment to LINZESS net sales, representing the cumulative difference between Allergan's gross-to-net estimates made during the 3-year period covering 2015 through 2017 and actual subsequent payments made. This equates to between 3% and 4% of reported net sales for each of those periods as reported to us by Allergan and is primarily associated with estimated governmental and contractual rebates as reported by Allergan. Upon receiving the information from Allergan, we recorded an approximately $30 million reduction to revenue and accounts receivable, reflecting our half of the adjustment.

Total Ironwood revenue in the third quarter was approximately $66 million, down approximately 24% year-over-year driven primarily by this reduction. Going forward, we expect LINZESS brand-specific true-ups will be made by Allergan on a more frequent basis to reduce the potential for multi-year adjustments of this magnitude.

Turning to lesinurad. In early August, we provided AstraZeneca with a notice of termination for the lesinurad licensing agreement. We are currently in discussions with AstraZeneca regarding the transition costs and process and continue to expect to complete the lesinurad transition by February 2019.

As previously noted, in connection with the termination, we recorded a full intangible asset impairment of approximately $150 million and a gain on fair value remeasurement of contingent consideration of approximately $34 million in the third quarter.

Lastly, as we prepare to launch our 2 new independent companies, we are progressing according to plan on establishing capital structure, filling out the leadership teams, carving out the financial statements, completing the physical demerger of company operations and reaching a conclusion on the tax-free status. We are making great progress and continue to expect the separation to be complete in the first half of 2019.

Turning to our Q3 financials. Ironwood revenues were $66 million in the third quarter, driven primarily by continued LINZESS growth and API sales to Astellas and reduced by the $30 million reduction in revenue I just mentioned. The LINZESS U.S. brand collaboration generated $125 million in commercial profit, excluding the full $59 million adjustment to LINZESS net sales, reflecting an increase in commercial margin from 66% to 69% year-over-year.

Linaclotide API sales to Astellas were $9.5 million during the third quarter and generated approximately $5.3 million in gross profit. We continue to expect greater than $70 million in API sales to Astellas for 2018 and 2019 combined.

Total operating expenses were $235 million, including the approximately $150 million asset impairment, driving GAAP net loss for the quarter to $174 million or $1.14 per share. Also included in operating expenses was $47 million in R&D expenses, $55 million in SG&A expenses and $10 million in restructuring expenses, partially offset by the $34 million gain on fair value remeasurement of contingent consideration. Non-GAAP net loss for the quarter was $58 million or $0.38 per share.

As you can see, on Slide 14, we are reiterating our 2018 financial guidance with the exception of our full year 2018 restructuring costs, which we now expect to be approximately $16 million compared to our previous guidance of $18 million to $21 million.

I would like to close by echoing Peter's earlier comments that we have made substantial progress across all aspects of the business, and I would like to thank all of the teams here at Ironwood that are working incredibly hard to ensure that we execute on our goals and enable those 2 businesses to thrive, deliver great medicines to 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 the line of David Lebowitz from Morgan Stanley.

I'm curious with respect to the pricing adjustments going forward. Has some of that already been implemented? To what extent could we see it further implemented in the coming quarters?

Yes, David, this is Tom. As you know, we really are pleased with the volume that we're seeing flow through the plans. And to maintain that, we made some decisions in 2018, with some of the major players, to make sure that we sured up that access. So basically, the contracts are set for '19, which is the reason why we can project what the impact is likely to be as far as the downside in that price. Obviously, these are 2-year contracts and what we need to be focused on in the near term is be able to drive as much volume as we possibly can through these plans with the access that we have.

The 2 things that I think is important to understand as far as near-term catalysts of growth. One is this removal of generic prescription -- excuse me, generic prescription PEG, in which there is about 200,000 prescriptions a month that will now be up in the air that will be available for us to grab as much of that as we possibly can and that will probably last for the next 6 months as that flows through the system, which obviously is the market leader and a huge disruptor. I think the second piece is the abdominal symptom claim that we think we will be able to move on towards the middle of next year to activate a different set of patients that tend to have more discomfort and bloating as opposed to constipation. So I do think the decisions that we made to maintain access is a key one for this year and '19 as well as we look into the future.

With respect to the added label indications, is there some historic precedent on how that type of, I guess, addition to the label affects growth? Is it more of a prevention of deceleration? Is it something that could actually contribute to reacceleration?

I think it's really, as you know, most of these patients don't actually call it abdominal pain and they don't really identify with abdominal pain. They call it bloating and discomfort. And our ability to go out and communicate, both the docs, but even more importantly to patients, that we can improve those symptoms in a unique manner, enables us to motivate a whole new population that we haven't been able to motivate to raise their hand and say, "I want to feel better." So I think we do see this as a growth accelerator as we expand the strength of the overall brand profile.

And last question. On the pricing true-ups, what mechanism was in place that triggered this particular true-up? And I guess, why did that happen on over a 3-year period as opposed to more frequently? And I guess, what -- how is that process being adjusted going forward?

Sure. David, this is Gina. I think I can help you with some of those questions. One, just a reminder that LINZESS net sales are calculated and recorded by Allergan and that we record the collaborative arrangement revenue, which is really calculated off our 50% share of the brand in our financial statements. We routinely review the information provided by Allergan to us on a quarterly basis. And periodically, we also engage an independent accounting firm to review those estimates as well. It's just a standard part of our process.

That review was substantially complete in Q3, and Allergan was able to take a look at all the estimates they made for each of the years in 2015, '16 and '17 and then they compared those estimates to the payments made and noted that the payments made were approximately $60 million higher than the estimates that were previously made. And then lastly -- and I was just going to say, and lastly, we are working with Allergan and in discussions with Allergan to help have the reconciliations prepared on a more frequent basis.

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

I just want to try and to -- try and get your comments on LINZESS versus what Allergan was saying last week. As I think if I caught what you said correctly, you said you still expect the peak sales of $1 billion, it may just take until beyond 2020 to get there. Allergan was saying sort of mid- to low single-digit growth outlook for the brand. I just want to confirm, do you guys agree with that sort of comment that they made and it's just going to take -- at that pace, it's going to take longer just to get to that $1 billion that you still are expecting over time?

And then the second question I have is more -- sorry, let me just -- one other question and then -- was just around the decision around splitting up the company. And I guess, if we can get a little bit more of an update, I guess, I sort of assume by now, we would at least have a sense of who the CEO and kind of the leadership team would be for the 2 companies. And so I guess, I'm just surprised at the pace, maybe you can give a little more sense on when investors should expect to get a little bit more details would be helpful.

Great, Vamil. Tom, can you take the first one?

Sure. So I just want to make sure we are clear that we have a tremendous collaboration with Allergan. Bill and I talk on a regular basis, and we both see this as a successful brand that we're going to continue to invest in over time. I think we both see the importance of driving volume, which is the reason why we made the investment in access that we did to set us up for success moving forward.

That being said, the single-digit growth with regard to the reduction in net price is clearly going to affect the overall sales in 2019, but we'd still see some upside with regard to volume, and this is truly going to be a volume push. I think it's going to be a volume push in 2019 and into the future. And as the market leader where we have the best-in-class payer access, we're going to be driving demand, as I mentioned, one, through taking advantage of market opportunities such as the removal of prescription PEG. I think, second, we'll be continuing to motivate more and more patients through the expanded symptom claim, and I think we clearly still see this as a $1 billion brand.

I did mention that it may be beyond 2020 due to the adjustment in net price, but we still have tremendous opportunity to grow. I mean -- I think it's really important to recognize, we've still only treated 2.5 million patients of the 30 million, 40 million patients that are still out there, and I don't see any real significant threats with regard to emerging competitors. And I think we are completely focused on investing in the future. So I think we both feel very good about where we are, and we're going continue to invest in the brand as it is a growth brand.

This is Bill Huyett. I'll answer the question on the -- you had on the CEO process. Our Board's been pleased, I think, with the number and quality of candidates for the CEO roles. As you'd expect, they're taking their time to make sure that they make that choice weighing the demands of these 2 CEO roles and those candidates carefully. And so that we're ready to hit the ground running when these companies launch, and we are on progress relative to our time line on that.

Our next question comes from the line of Geoff Meacham from Barclays.

This is Jason on for Geoff. Just a few clarifying questions. In terms of the multi-year adjustments, can you clarify what that looks like going forward with Allergan? I am just curious, is that a -- you see that as a quarterly thing or should we expect that as an annual sort of impact on the P&L? And then, again, you mentioned a volume push forward for LINZESS. Does this mean that you think that most of the pricing concessions are finished? Or do you think moving forward, as the new label indication comes online, that there is going to be greater price concessions moving forward into more of the midterm?

Jason, this is Gina. I'm going to take the first part of your question, then I'll probably turn it over to Tom for the second part. But to clarify, we are working with Allergan for more frequent adjustments to the brands. I would also note that it's typical of Allergan and probably any other company making gross-to-net estimates and recording net sales to make estimates on a quarterly basis and to true them up in subsequent periods. And unfortunately, with the lag, some of those payments don't come through first 6 to 9 months or so. So we do expect it more frequently, but just note that the payments do often lag the estimates.

Yes, in terms of the pricing pressure, I mean, clearly, we've seen the mechanics across the industry that there has been this increase in pricing pressure. I mean, it's hard to predict what the future is going to look like. I think we're in a pretty stable position with regards to the contracts that are in place over the next couple of years. But one of the challenges that we face from time to time is when plans consolidate. And when plans consolidate, obviously, it defaults to whoever has the best contract price, which we're still vulnerable to. So I think we're going to do our best to hold the line on price. And I do think we still believe payer access is paramount. I think we've seen over and over when you don't have access, what happens to your brand as far as your ability to thrive in the marketplace. So I think we're going to continue to strengthen the value proposition as you mentioned. I think we're going to do our best to hold the line on price, but there are going to be some periodic changes due to, I think, the consolidation -- the ongoing consolidation of the health plans.

Our next question comes from the line of Eric Joseph from JPMorgan.

I thought I would just ask one on delayed release looking to the start of the Phase II study in the first quarter of next year. Can you, at this point, provide a little color around sort of its design and time lines, whether you're evaluating sort of multiples doses? What sort of pain impact you're looking for? And in terms of costs, does this similarly fall under the Allergan's collaboration agreement or is this borne entirely by Ironwood?

Yes, so let me take the last question first. I mean, this is an ongoing collaboration. We agree on a joint commercial and joint development plan year-to-year, and obviously, currently, that's in the plan. So at this point, we're -- things could change, but right now, it's point of the joint venture -- or excuse me, the collaboration.

As far as the study design, I'm going to hand the specifics over to Chris in a second. But I think the really key thing to remember here is we think we have a drug that relieves pain in a way we have never seen -- nobody has ever seen before. And we have never been able to push the dose to the level that we can push it with this release mechanism because of the limitation of diarrhea. So I think the exciting thing for me as the commercial leader is the opportunity to say how far can we push the analgesic effect across all forms of IBS?

Certainly, linaclotide has demonstrated really strong relief of abdominal pain over time, but we haven't seen that in IBS-D and we've seen really no drug to relieve pain in IBS-M. So this is a very large market with a big unmet medical need. I think we -- everything we see so far is promising, but I don't think we really have recognized the full potential as far as the therapeutic benefit. And I'll turn it over to Chris, maybe he can talk specifically about the endpoint and the trial design.

So the trial is a randomized controlled placebo study where we're looking at 3 different doses of the delayed release compared to placebo with 100 patients per arm. The treatment duration will be about 12 -- it's a 12-week treatment study. And as we go forward, we're anticipating starting the study in the first quarter of next year and we'll be able to provide you with more details on the study design and endpoints at that time.

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

This is Jessie on for Ying. I have 2 questions. First, is the decision not to further develop achalasia related to the Phase IIa data or is there a more strategic reason? And the second question is, can you give us more color on partnership discussion for IW-3718?

Chris, can you take the first question?

Sure. Thanks for the questions. So our olinciguat achalasia study is a small proof of mechanism study in a disease state that's known to have a low NO levels. And so we're excited to look at this particular population as a really a proof of mechanism evidence that we're hitting our target type of study. And we were excited to see that we saw decreases in the integrated relaxation pressure in the esophagus that we're able to confirm that we had a q.d. dose based on the PK and that the molecule was well tolerated in that study.

So we decided to focus on sickle cell disease primarily because we believe that we can make the most impact in that opportunity and that was the rationale for not moving forward with further achalasia studies at this time.

Bill, can you talk about the partnering?

This is Bill. On 3718 partnering. First, just a reminder, we mentioned last quarter that the intent given the separation and the focus of our new R&D company is the full outlicense of 3718 to a partner that has the development and commercial footprint that's most appropriate to that product. Second, we continue to be in discussions with potential partners on 3718 and they are excited about the design of the trials for the 2 indications. Third point is, we are not counting on a partnership before separation. We're making sure that our capital structure is resilient enough that if we have to wait until after the separation, we can do that, but we're confident in the partnering interest in that compound.

And just to be clear, if there's any ambiguity, that was all about praliciguat, that partnering dynamic. I think that's what you're asking about? Were you asking about praliciguat or about 3718?

3718.

Okay. So that was the...

3718. Yes.

--

Okay. Bill's answer was a praliciguat answer. Tom, do you want to talk about 3718?

Yes, sure. So I think 3718, we're having multiple conversations. I think ex U.S., I mean, obviously, that is something we would outlicense completely. I think with regard to the U.S. market, which obviously is the largest market, obviously, that's something we want to be actively involved in. It's where we really bring the greatest values, where we can have the greatest impact, but I think we will look at companies that can augment what we have if it's the right kind of arrangement in the U.S. So I think we're looking at the partnership either ex U.S. or in the U.S. as a value creation engine for the organization as we move forward.

And 3718 and the delayed-release -- for any confusion -- those all stay with Ironwood in the separation.

Our next question comes from the line of Boris Peaker from Cowen.

First one, I just want to ask on LINZESS. The marketing message regarding abdominal pain relief, I'm just curious how you anticipate that to play out given that I'd imagine most prescribers of LINZESS have already kind of a personal impression and experience with the drug. So how do you change their perspective and make them view the drug differently than what they're used to viewing it over the years?

Yes, I think this is -- I think for the prescriber -- I think most prescribers, and we've seen this in market research, Boris, the prescriber sees the benefit with regard to not only abdominal pain but bloating and discomfort. The real opportunity is speaking to the patients that are not seeking care, that are looking for relief of bloating and discomfort. So to be able to have those hooks, if you will, those claims to communicate to patients that not only can they improve their pain, but their bloating and discomfort can get better as well, we believe will activate a broader patient population than we're currently getting.

Got you. So this is more of a DTC strategy more so than direct-to-physician strategy?

Yes, absolutely. I think that's where the majority of the growth will likely come from. But any time that you can strengthen the clinical profile of the drug, it obviously feeds the overall satisfaction on the prescriber -- from a prescriber perspective. And again, it's one of those triggers to choose a brand. The opportunity to own a symptom such as bloating or discomfort is a very, very powerful tool. So as soon as the patient describes the symptom, bam, what is the knee-jerk reaction for prescribing? So I think linking how patients communicate to physicians choosing therapy is really where you want to be, and I think we have a very unique opportunity here to really own that bridge.

Got you. And my second question is on 3718. I'm just curious, how much do you estimate the 2 Phase III studies to cost in totality to Ironwood? And what's the time line for top line data readout?

You want to take the top line?

The time line, so at this stage, we only recently began the study and we haven't commented on the ultimate time line in terms of data. So we look forward, as the study progresses and we understand the recruitment rate better to provide an update later next year.

And Boris, we haven't broken out study costs for any of our studies specifically. We have guided that we expect a stand-alone Ironwood to be a profitable company next year, and we've given, I think, pretty clear parameters on the study design itself. It's about 1,200 patients total. It's an 8 week study. It's not a particularly intensive per patient study in terms of monitoring and per patient expense per study, but we don't break out cost per study.

Our next question comes from the line of Irina Koffler from Mizuho.

I wanted to delve further into this MiraLAX situation and just wanted to understand, are you preparing actual tools for your sales force to try to capture some of that script volume? Do you have certain internal targets drawn up as to what percent you think you can get? Or what do you really expect will happen to those prescriptions? Will they be diverted to the OTC MiraLAX? That's question one.

And then the second question is, it looks like you're starting a number of Phase I trials in your sGC portfolio in the beginning of 2019 ahead of the spin-off. So I was just wondering, can you walk us through the mechanics of where those costs or expenses will reside? Will they go to the other company? Or will they sort of be billed against commercial Ironwood for a portion of the year?

So, Irina, I'll take the first one gladly. And this removal of generic PEG laxative or prescription laxative is something that is kind have been -- was kind of delayed. So as you know, when a drug goes over-the-counter, there is a period of time that its grandfather that the parent prescription drug is to be removed from the market, if it's the same dose, which is exactly what's happened here. So -- but it's been on the market for the last 5 years, even the 6 years since PEG has gone over-the-counter and actually, it's the market leader.

So there is basically about 200,000 prescriptions that are filled every week for prescription PEG, which now as the patients come in, they will not be able to refill it. So obviously, we have a number of things in place with regard to point-of-purchase to educate patients that if they want a prescription therapy alternative, LINZESS is available. But the other piece is, there is 100,000 new prescriptions that are written every week, and of course, that piece we're taking directly to the point of care for the reps to educate the physicians that this is no longer available and certainly that we have LINZESS, which has very broad payer access for their patients.

In addition, there is going to be a number of digital plays to target patients that we know have been purchasers of MiraLAX in the past and, obviously, we'll be intensely concentrated on the high prescribers and there is a group of about 13,000 to 15,000 physicians who are generating the far majority of the business, all of which we're calling on. So I think we do see this as an incredible window of opportunity for us to take advantage of this with this disruption in the marketplace.

This is Bill. On your second question on the timing, a step back half a step, one of the goals of the separation is that both of these new companies will be able to move more quickly and more decisively on their strategies. And just as in new Ironwood, the sGC organization is pushing ahead quickly in these 2 new trials that you referred to are an example of one of the benefits already from our summer announcements of the separation move. With respect to the accounting, they will be borne by current Ironwood up until the date of separation, after which, of course, will be borne by the new sGC company. So there is no shifting of any expenses prior to the separation date and the carve-out financials that will be in the -- registration documents will reflect that.

Our next question comes from the line of Ram Selvaraju from H.C. Wainwright.

Just 3 very quick ones. Firstly, I wanted to know if you could provide a more detailed breakdown of the specific DTC advertising activities that you expect to be in Allergan's purview versus your purview for LINZESS going forward. Secondly, if you could maybe comment on how you expect your commercial infrastructure to evolve to account for 3718 in the United States? And thirdly, if you could maybe explain to us more granularly the mechanism via which you expect the delayed-release linaclotide to provide a benefit in IBS-D specifically, because that seems to me to be a bit counterintuitive given what we know about the mechanisms so far?

Okay. Tom, do you want to take the first couple?

Yes. Okay, let's start with DTC. So first of all, this is a surround sound campaign that encompasses general awareness TV, digital, social media, print, and this is a collaboration. So this isn't just us, this is us and Allergan together that work to develop all -- everything for the brand, both on the commercial side as well as the development side.

As far as -- let me grab DR for a minute, while we're in the collaboration, so the opportunity is really relieving pain, specifically relieving pain in all forms of IBS, which is actually the #1 driver for patients seeking care. I mean, the reality, when you look at the clinical data, particularly in IBS-D, both XIFAXAN and VIBERZI don't have tremendous relief of pain, where if you have an intensive analgesic or a drug that could relieve a pain related to, excuse me, visceral hypersensitivity, I mean, I can use this across the board. So I can use it to treat the pain and I can use a laxative or an antidiarrheal to treat the bowel habit.

So I think this is a very unique offering to enter the market as this pain reliever for people that suffer from visceral pain. And of course, we also see an extension into other G.I. disorders such as people that may have chronic pain related to inflammatory bowel disease or diverticular disease, again, they tend to be viscerally hypersensitive and that's exactly the way we think the drug works. So we do think it's very unique in the marketplace. And I'll let Chris comment, if he wishes on anything beyond that, but before I do that, let me tackle 3718.

So 3718, I think, again, what would we need to add to our commercial capability and that's where the partnering idea becomes attractive. Because we don't have a broad account management team to secure payer access and reimbursement and you're talking about a one-off brand that you're going to have to distribute, et cetera. So that's where a potential partner becomes very attractive, but we'll critically assess how much we're going to have to build as far as infrastructure on the commercial side.

I do believe we have what we need on the brand management side. We certainly have what we need, I think, largely on the promotion side, but I think the real open question, are the other entities with regard to payer, account management and certainly, wholesale and distribution, which are capabilities that we would have to put in place. So I'll turn it over to Chris, if you want to comment at all on DR.

Sure. So I think you had a question on why it might work in IBD and based on the mechanism. And so, actually, directly related to the mechanism, linaclotide has effects not only on secretion but also directly on pain. And the secretion effects are pretty much localized only to the upper intestine. And so by the time you get the delayed release into the colon, you no longer have effects on secretion, but you do still have effects on pain. And so that's why we believe that we'll have an -- we could have an impact on IBS-D pain or IBS-M pain in addition to IBS-C pain.

Our next question comes from the line of Patrick Trucchio from Berenberg Capital Markets.

This is (inaudible) for Patrick. I have 2 questions. First question, in terms of the split, we understand much effort is being made to prepare for the business split, but could you just tell us when you expect to provide updates regarding the capitalization plan for the new R&D Co. and the full management team for both businesses and the governing structures, including any revision to the takeover provisions in new Ironwood's bylaws?

We've had a chance over the last 6 months to listen to virtually all of our investors on what they'd like to see on many of the things that you listed out. We're in the process of finalizing all of those things and will be releasing them over the coming few months.

And I have additional one. Just in terms of SG&A in 2019, can you just give us some general idea of whether it will go up or go down versus 2018?

This is Gina. I am going to answer from the new Ironwood perspective, in that we provided 2 areas of guidance related to this. One, new Ironwood will be profitable beginning in 2019; and two, we had previously guided with the lesinurad termination that we would be reducing our OpEx by approximately $75 million to $100 million, and we -- part of that was finalized in Q3 where we completed the reduction in force with the sales force late in September.

(Operator Instructions) Our next question comes from the line of Tim Chiang from BTIG.

I don't know if anyone asked this question, but what do you guys think of this new product that potentially hits the market, that's prucalopride? I think Shire had a positive panel review. I think it's a 5-HT4 agonist. I think it's probably going to get approval for chronic constipation. Do you think it's a potential competitor to linaclotide? Or do you think it will be even complementary to linaclotide in the CIC market?

Tim, this is Tom. Obviously, I know this molecule very well. It is a very different drug. I mean, this is a pure promotility drug with a very different mechanism of action. As you mentioned, it'll only be indicated for chronic constipation, mainly because it has a very limited -- we know promotility agents have a very limited effect on abdominal symptoms.

I think this is going to get some use. I think it's largely going to be in the G.I. specialty area. I think they're going to look at these patients that appear to have delayed motility as the primary cause. And I think it's likely going to be used behind LINZESS, but obviously, the indication is for chronic constipation. So I do think we're going to see some use. I mean, do I see this as a major competitor? I mean, I think everybody is a major competitor, just like we viewed Trulance, et cetera, but I do think it may very well expand the market in a way that we haven't seen before because of the nature of the mechanism.

And maybe, Tom, just a follow-up. I know we talked at length about the true-ups and whatnot. I guess, could you just sort of comment on your relationship with Allergan? Has it gotten better, has it gotten worse over time? I mean, certainly, you guys are on year 6 of this joint venture. How do you sort of view the next 6 years with the JV?

Yes, I mean, as you know, the JV has been wildly successful. I think it's been a standout in the industry as far as the level of collaboration and coordination and alignment that we've had. I've had the great good fortune to work with Bill Meury and Jerry Lynch who saw things very similar to us with regard to the vision of the brand. I think we had an open -- we continue to have a very open dialogue. I talk to both of them extremely frequently to make sure that we're fully aligned. So some of these accounting question or the true-up, it's going to happen from time to time. But what I can assure you is our core relationship and our alignment and commitment to LINZESS as a growth brand is certainly very secure. We make decisions together, and I think we still see a bright future moving forward.

I don't see any major changes between our -- my relationship and Bill and Jerry's relationship. So I'm very optimistic about what the next 5 to 10 years will look like.

And just to expand briefly on that, we actually started the partnership in September of 2007. So we're in our 11th year and it's partnership across virtually every function in our company. And what Tom said on behalf of the commercial team, I think you'd find it through in the supply chain area and quality and development. We work very closely in all aspects of managing the partnership and working closely to maximize the value of the asset for our shareholders and maximize the value of the patients' benefit around the world frankly.

We have no further questions at this time. I will now turn the call back to Mr. Peter Hecht for closing remarks.

Thank you, Charlie, and thanks to all of you for participating this morning and for listening in. We'll be here through the day, if you have questions, please follow-up with Meredith Kaya as she is here to coordinate and her contact information's available on the press release. Thanks very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day. You may disconnect.