Ironwood Pharmaceuticals Inc (IRWD) 2022 Q1 法說會逐字稿

Good morning. My name is Joseph, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals First Quarter 2022 Investor Update Call. (Operator Instructions)

Matt Roache, Director of Investor Relations, you may begin your conference.

Thank you, Joseph. Good morning, and thanks for joining us for our first quarter 2022 investor update. Our press release issued this morning can be found on our website. Today's call and accompanying slides include forward-looking statements. Such statements involve risks and uncertainties that may cause actual results to differ materially. Discussion of these statements and risk factors is available on the current safe harbor statement slide and will be under the heading Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021, 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 as a supplement to and not a substitute for or superior to GAAP measures. To the extent applicable, please refer to the tables at the end of our press release for reconciliations of these measures to the most directly comparable GAAP measures.

During today's call, Tom McCourt, our CEO, will review our strategic priorities, provide an update on the commercial performance of LINZESS; Mike Shetzline, our Chief Medical Officer, will discuss our pipeline; and Sravan Emany, our Chief Financial Officer, will review our financial results and guidance.

Today's webcast includes slides. For those of you dialing in, please go to the Events section of our website to access the accompanying slides separately.

With that, I will turn the call over to Tom.

Thanks, Matt. Good morning, everyone, and thanks for joining us today. I'm delighted to announce our Q1 results this morning. Maintaining last year's momentum were off to a tremendous start this year as demonstrated by the continued strong business performance, initiation of IW-3300 and CNP-104 clinical studies and another quarter of delivering profitability and positive cash flow from operations.

At Ironwood, we remain committed to advancing the treatment of GI diseases and redefining standard of care for GI patients. We're focused on driving value for our shareholders by bringing important medicines to our patients. I believe the progress we've made across the organization in the first quarter demonstrate the steps we're taking to become the leading GI health care company in the U.S.

Now I will begin with a brief overview of our strategic priorities on Slide 6. Our strategy starts with maximizing LINZESS. We continue to be excited by the performance of LINZESS, which has delivered another quarter of double-digit demand growth, and we believe there's more opportunity ahead. Beyond LINZESS, we're making progress on our clinical trials and remain on track with previously shared data readout timing.

We're focused on strengthening our pipeline through our in-license and acquisition of GI -- innovative GI assets, which we believe, will position our company for continued growth. And finally, we continue to deliver sustained profits and cash flow. We ended the first quarter with approximately $593 million in cash and cash equivalents on the balance sheet, and we continued to execute on our Board-authorized share repurchase program. Through the end of March, we have repurchased $118 million in our common stock. You see these achievements in the first quarter as important progress that we believe will support continued growth and success of our company.

Now let's turn to some additional details on the commercial performance of LINZESS starting on Slide 7. It's hard to believe that 2022 represents year-10 of LINZESS being on the market. LINZESS has grown from being the first-in-class GC-C agonist becoming the #1 prescribed branded treatment in the U.S. for adults with IBS-C and chronic idiopathic constipation. As you can see on the slide, LINZESS is a leader in the category with 83% share and 75% total prescription share with gastroenterologists in the branded IBS-C and chronic constipation market.

LINZESS is also the leader in the combined branded and generic IBS and chronic constipation market with 43% total prescription share. Most important, we're proud to have supported nearly 4 million unique patients with LINZESS since the launch of the brand in 2012. Building that last year's momentum, LINZESS prescription demand increased an impressive 11% year-over-year in the first quarter of 2022, as shown on Slide 8 continuing the stretch of 5 consecutive quarters of double-digit prescription demand growth.

In addition, 90-day prescriptions have grown as a percent of total retail prescriptions with an all-time high of 21% at the end of Q1. This has also helped increase the average prescription size of LINZESS to roughly 43 days.

Slide 9 provides a bit more color on what we believe are the key drivers of LINZESS demand over the long term. It starts with a strong clinical profile. LINZESS, as FDA-approved labeling, demonstrated the improvement of overall abdominal symptoms of bloating, pain and discomfort in adults with IBS-C, and we're committed to helping both patients and providers understand the importance of treating these symptoms beyond constipation.

Additionally, the American College of Gastroenterology guideline strongly recommends GCC agonists, including LINZESS, to treat IBS-C symptoms and recognize the high quality of evidence supporting LINZESS.

Moving to patient activation. LINZESS continues to lead the IBS-C and chronic constipation branded prescription market and direct-to-consumer promotion with the goal of educating more appropriate adult patients to seek care for IBS-C versus continuing the frustrating cycle of self-managing with OTC therapies. In April, we, together with our partner, AbbVie, launched our newest consumer campaign, which performed extremely well in market research. Of course, patient activation is not possible without the care physicians and other health care professionals. At Ironwood, we are a GI health care company with an experience in highly skilled sales force focused on broadening the use of LINZESS to gastroenterologists and high-volume primary care physicians for appropriate patients.

In addition, our investment in payer access is helping support clinical decisions by health care practitioners. We are proud that after many years, LINZESS has class-leading payer access and is widely available on commercial and Medicare Part D formulary. By looking at key plans, LINZESS is preferred on the top-end commercial plans. It is covered or (inaudible) on the top 7 Medicare Part D plan. Net-net, most patients will have access to LINZESS get chosen by their health care professional.

Finally, we believe we can expand the clinical utility of LINZESS through key life cycle management initiatives, including our ongoing pediatric program. Over time, we continue to refine our marketing mix and the investment in the brand to support brand growth and improve brand margins and cash flow generation. We remain focused on the levers that we believe will drive continued demand growth and, in turn, generate profits and cash flow.

Looking ahead, we're excited about continuing to maximize LINZESS, advancing our clinical programs, strengthening our financial position and growing Ironwood's leadership position within GI. In few weeks, we will be presenting 8 abstracts at the Digestive Disease Meeting or DDW, 2 of which are oral presentations highlighting our commitment to advancing the science as we strive to deliver better therapies for patients suffering from GI diseases. In particular, we'll be presenting new data on the clinical utility of the abdominal score, which is important to help physicians better understand the symptoms, most important to patients suffering from functional GI disorders. We look forward to DDW and sharing data on linaclotide as well as preclinical IW-3300 data with the brightest minds in the GI community.

I would like to say a big thank you to all Ironwood employees who have laid the groundwork for continued momentum and strong execution against our strategic priorities as we continue to help make a remarkable impact on patient lives.

I would now like to hand the call over to Mike who will discuss our pipeline programs. Mike?

Thanks, Tom. I'll start with the linaclotide pediatric program on Slide 11. The clinical studies are ongoing, and we continue to expect the functional constipation study in 6- to 17-year-olds to read out in the second half of this year. The study is utilizing a 72-microgram dose and evaluating the safety and efficacy of linaclotide over a 12-week period in comparison to placebo with spontaneous bowel movement as the primary endpoint. This is an exciting opportunity to potentially expand the clinical utility of LINZESS and assuming positive data and FDA approval, bring a new treatment option to this patient population as there are currently no FDA-approved prescription pediatric therapies for functional constipation.

Thanks to advancing IW-3300, a guanylate cyclase-C agonist and a (inaudible) for the potential treatment of visceral pain conditions, such as interstitial cystitis, bladder pain syndrome and endometriosis. The single ascending dose study completed in the first quarter of this year to test the safety and tolerability in healthy volunteers. Based on the successful completion of that study, we're now planning to kick off the multiple ascending dose study in quarter 2.

Consistent with prior guidance, we expect to start Phase II proof-of-concept study at the end of this year that will focus on pain benefits in IW-3300 for patients suffering from interstitial cystitis and bladder pain syndrome. We're currently working to finalize the study design. We recently had an advisory board meeting on this program and the urologists we spoke with were really excited about the preclinical evidence for IW-3300 and relief of visceral pain in a number of preclinical models.

And lastly, CNP-104. COUR Pharmaceuticals is currently conducting a clinical study of CNP-104, and the data is on track to be out in 2023. The study is evaluating the safety, tolerability, market dynamics and efficacy of CNP-104 in patients 18 to 75 years of age with PBC who are unresponsive to URSO and Ocaliva. The endpoints include pharmacodynamic outcomes such as a change in Alkaline Phosphatase which has been the foundation of prior product approvals.

The real compelling feature is the objectivity of the immunological outcomes for this study as well as the specificity of the therapy. The parent diagnosis of PBC includes a positive anti-mitochondrial antigen, which is the immune response to the target of this therapy, the PBC-E2 antigen. So clinically, we're identifying the right patients to treat in this study.

We're apparently leveraging our expertise and reputation in the GI community to help COUR advance the study. We're thrilled to collaborate with COUR on CNP-104, which we believe has the potential to significantly shift the treatment paradigm in PBC away from symptom management and be the first disease-modifying therapy for PBC patients.

With that, I'll now turn it over to Sravan to review our financial performance.

Thanks, Mike, and good morning, everyone. I would like to provide a few updates this morning. First, I will highlight our first quarter performance. Then I'll discuss our capital allocation strategy. And finally, I'll review our 2022 guidance. Please refer to our press release for our detailed financial information.

I'll start on Slide 13. LINZESS U.S. net sales were $232 million in the first quarter of 2022, an 8% increase compared to the first quarter of 2021. Net sales growth was driven by continued strong prescription demand, partly offset by net price erosion. In Q1, we experienced more modest net price erosion than anticipated due to a onetime gross to net benefit. From time to time, we may have onetime adjustments related to contracts or estimates as a normal part of the gross to net process that can have a quarterly impact, but that does not alter our full year expectations. Therefore, for the full year, we continue to expect LINZESS U.S. net sales growth in the low single digits, driven by double-digit prescription demand growth.

Turning to LINZESS brand profitability. Commercial margin in the first quarter of 2022 was 74% compared to 73% in the first quarter of 2021. Moving to Ironwood revenues. In the first quarter of 2022, Ironwood revenues were $98 million, up 10% year-over-year, primarily driven by U.S. LINZESS collaboration revenues of $94 million. Turning to income tax expense. During the first quarter of 2022, Ironwood recorded $17.7 million of income tax expense, the majority of which was noncash as Ironwood continues to use net operating losses to offset taxable income for federal purposes and in many states. As a reminder, Ironwood has significant net operating loss carryforwards from prior years. And therefore, the majority of our income taxes will be a noncash expense as we use our net operating losses. Moving to Ironwood's profitability. GAAP net income was $39 million and adjusted EBITDA was $58 million in the first quarter of 2022.

Before moving on, I'd like to point out that beginning in the first quarter of 2022, we adopted ASU 2020-06, the new convertible debt accounting standard, which has the effect of decreasing our noncash interest expense and increasing the number of shares used in the computation of our diluted earnings per share. It's important to note that the adoption of this accounting standard does not affect cash flows or adjusted EBITDA. Please refer to our public filings for additional information on this change.

Now moving to cash and capital allocation priorities. In the first quarter, we generated $64 million in cash flow from operations and ended the quarter with $593 million in cash and cash equivalents. We continue to execute on our Board-authorized share repurchase program of up to $150 million that runs through the end of this year. Through March 31, we have repurchased $118 million of shares. And we've repurchased an additional $16 million of shares through April 30, 2022. Lastly, we have elected to settle the $121 million 2022 -- sorry, 2022 convertible note that matures on June 15 in cash.

With a strong balance sheet and disciplined approach to capital deployment, we are well positioned to create value for our patients and shareholders by maximizing LINZESS and actively pursuing innovative, highly differentiated GI assets to bolster our portfolio.

Next, our 2022 guidance on Slide 14. We are reiterating our full year 2022 financial guidance as we remain confident in the continued strength of LINZESS with expectations of double-digit prescription demand growth. While we had a strong performance in Q1 due to the previously mentioned onetime net price benefit, we continue to expect U.S. LINZESS net sales growth in the low single digits for the year. As such, we continue to expect Ironwood revenue of $420 million to $430 million, which includes approximately $10 million in royalty and other revenues and adjusted EBITDA of greater than $250 million.

Looking ahead, we remain focused on advancing our 3 strategic priorities. We've built a strong foundation, and we are excited about the opportunities ahead of us to improve the lives of GI patients and deliver shareholder value.

I want to close by thanking all of our employees, patients, caregivers and advocates for their shared dedication to advancing and supporting therapies for GI disorders.

Operator, you may now open up the line to questions.

(Operator Instructions) Your first question comes from the line of Eric Joseph.

This is Hannah on for Eric. So just first on the pediatric opportunity for linaclotide. You have the trial currently going on with data expected towards the end of this year. Can you talk a little bit about your expectations for the study? What would you consider as a win or label expanding data -- or label expansion enabling data with respect to SBM?

And then on the potential design of a Phase II proof-of-concept study for IW-3300. Just wondering, in general, if we might see any changes in the product in the near term or down the line because while you're initially evaluating a suppository formulation, are there any plans to revisit that? And also, if so, what are the steps to making that happen?

Well, thank you for your questions. I'll hand it over to Mike Shetzline to answer them.

Yes. Thanks for the question. So the peds program, as you may know, is -- was developed on the back of a Phase II study. So we did a Phase II study and actually enrolled about 173 or so pediatric subjects between the age of 6 and 17. And those -- the recruitment criteria for those on their own criteria. So they include the patients having had less than 3 bowel movements per week based on their own criteria. So that's the inclusion criteria. Roughly when patients come into the pediatric study, it is not different than the adult studies. They come in roughly with about 2 or so SBMs per week. That's like the baseline.

So we're looking obviously for clinical improvement. And oftentimes, we see somewhere #1 to 2 -- increase of 1 to 2 SBMs per week and it has a clinically meaningful benefit for patients. So they're kind of the metrics, but please don't lose sight of the fact that there's currently nothing approved for pediatric functional constipation. So we really feel like there's a great opportunity. Obviously, data permitting the discussion with the agency is clearly from that Phase II study, we did see a dose-dependent increase in the criteria around constipation, including SBMs as well as the Bristol Stool Scale Score as well for stool consistency. So certainly, with that data in hand, and we look for -- we look at data -- obviously carefully with our partners and look for a good discussion with the agency. But we're on track to do that in the second half of this year. So hopefully, that answers that question. Maybe I'll stop there to see if I answered the question before I go to the IW-3300 question.

Yes, that answered the question.

Okay. So for IW-3300, again, we're really excited about that program because for the first time, we're going to be able to test this hypothesis that's been in the medical and scientific community for decades, which is across all-time positive (inaudible). So you know clinically, when people have left arm pain, people are worried about cardiac pain, right? That's sort of like this (inaudible) happens in all of us. That also happens in (inaudible) and that's what we discovered with IW-3300 is as a really (inaudible) visceral hypersensitivity agent in all the preclinical models we tested, it reduced the visceral sensitivity.

And so given the colonic action of linaclotide that we know of, we're first testing the rectal administration of IW-3300 just to ensure we have an adequate dose to prove this hypothesis because we'll know with the rectal administration that we're getting adequate exposure, so we certainly feel like we can achieve the dose we need, the cost of hypothesis proves to be valid to show a real clinical improvement in the pain sensation and bladder pain syndrome patients because there's a lot of epidemiologic data that sort of correlates with IBS and bladder pain syndrome.

So we think based on that, the proof-of-concept study is targeting this suppository. We've always known that an oral therapy would be useful in this population and probably preferred and the current chemistry really supports the opportunity for an oral formulation. Again, we're just testing the suppository because of the need to sort of prove this hypothesis in clinical subjects in order to make sure we have adequate exposure.

Real interesting sign by those as we've discussed this with urologists since there really are no good therapies currently available for bladder pain syndrome (inaudible) positively even at the (inaudible) formulation. So we do have -- we have that data, but we do appreciate your point. But from a longer-term vision, there certainly is an opportunity for an oral formulation.

Your next question comes from the line of David (inaudible)

So just had a couple of questions. First, regarding business development and M&A. Can you just give us a refresher on how big of a transaction you could theoretically do? And what is the extent to which you lever up to execute on a transaction? So that's number one.

And just a talk philosophically about how you think about gaining capital from M&A? And then secondly, I just wanted to get a refresher on the critical cap items for an OTC version of linaclotide. I know it's something that's been talked about in the past, but just a refresher on what needs to happen to get to a point where there could be a low-dose OTC version of the product?

Thank you, David. There was some background noise. So I'll just -- I think the first question is regarding around BD and our approach to BD in size and scale. The second one was around OTC and sort of the gate staging items before we can actually achieve that. Is that correct?

That is correct. Yes. Sorry about the background noise. Yes.

Yes. No problem. I just wanted to make sure we got the questions right. Mike, why don't you address the OTC point first and then -- because I think that's probably a little simpler than the BD one and I'll answer that.

Yes. So we're having ongoing discussions with our partner, AbbVie, because obviously, we think there could be a huge opportunity for an OTC version of LINZESS given the fact that we have an extensive safety and tolerability database to share the drug is extremely safe and well tolerated, as well as highly efficacious. So we initiated those discussions, and we're progressing. We think there's an opportunity because there are regulatory metrics in that space in terms of other things like (inaudible) OTC.

So we definitely think there's an opportunity. We think they may evolve around the concept of occasional constipation because you know as these transition (inaudible) to put them in patient-friendly language and have obviously an extensive safety database. So we think based on (inaudible) based on the current data we have with LINZESS and the medical need sort of out there, we think there's a huge opportunity. We are initiating those discussions (inaudible), and we can give you more details as they materialize.

Mike, maybe you can take -- this is Tom. Maybe you can take a minute and talk a little bit about the whole issue of the box warning and why that's kind of key step as we move forward. The team has made tremendous progress already on kind of what is the path forward to get that result.

Yes, certainly. So obviously, again, as I mentioned, the safety and tolerability is a key element for the (inaudible). And as you know, last year, we had a great milestone event with the agency in the removal of the large majority of what the warning and contraindication present on the prior LINZESS label. The prior label actually included the age of population subjects 18 and under. Through the last years of our post-marketing studies in pediatric patients, we generate a significant amount of data in pediatric patients, primarily along the ages of 2 to 18.

As you know, we've done a study in IBS patients from 7 to 17. We've done a study in functional constipation in patients 6 to 17. And we've also recently completed a functional constipation study in 2 to 5-year old. We submitted all that data to the agency and in their review -- when we submitted that, we also proposed the modification to the warning and contraindication, and the agency was very supportive, and that's what that the current label which really only restricts the 2 years and below age category.

Please note, we're currently not approved for pediatric patients. This was obviously based on the warning language that was originally proposed in a label that was based on preclinical data and nonclinical data. So with this delivery on clinical data in 2-year-olds to 18-year-olds, we were able to drastically remove a lot of the language in that population, but it still remains for 2 and below.

And we think that's critical obviously because the goal eventually is to remove the entire warning. And we do think going forward, as we generate more data in the pediatic population, we'll have ongoing discussions with the agency, and we do feel that, that is quite possible because the real point here is that it now is proven what was a theoretical risk based on preclinical data at launch with a significant amount of pediatric data we have, which was that pediatric patients might be sensitive to GC-C agonist and have an adverse event with oversecretion or dehydration and very bad (inaudible) diarrhea, and we have not seen that in pediatric patients. In fact, what we've seen is that the dose that's needed in pediatrics are actually into what we use in adults. That's why the dose which we're focusing on functional constipation study is actually 72 micrograms for that Phase III program.

Great. And with respect to our business development activities, I'd say, look, we're very focused on creating value here for shareholders at Ironwood. The bar for pursuing a transaction from our perspective is very high. As you're pretty much well aware, David, in this environment from a market perspective, capital and cash preservation is very important. We still very -- we take this stewardship of the fact that we have $250 million this year or so of EBITDA that we're going to produce roughly $600 million of cash on our balance sheet. We want to be stewards of all of that.

And look, I think we -- our approach is to be value investors. We can find opportunities in a market that's potentially dislocated to create value, we'll do it. But I think it requires -- it's got to really work for us. And I think you've seen commentary from other CEOs during the recent 2 weeks of earnings calls, talking about where expectations are from sellers and how they potentially haven't moderated again. And so I would just point you to that.

From a size and scale perspective, I would also say, look, it really just depends whether or not we see value, right? It depends on opportunity set and whether or not we think we have the right capabilities to execute.

I think the other thing, Tom, I might want to comment and maybe Mike comment, is that we're seeing a lot of opportunities -- attractive opportunities. I mean, CNP-104 is a classic example of a potential game changer in a very high unmet need market where we could really make a difference in the marketplace and certainly make a difference for Ironwood. So I think we're encouraged with what we're seeing. Sravan has done a tremendous job with dealing with the capital markets and his expertise in the capital markets. And I think the bottom line is, as Sravan mentioned is the bar is high. And we just want to make sure we're making very good, thoughtful goals as we proceed.

Your next question comes from the line of Tim Chiang.

Tom, could you talk a little bit more about this pediatric study? How many patients have you enrolled in this pediatric study? And I'm sort of wondering, assuming the data is positive, would this data -- would you go to the FDA and see if the data could be leveraged to remove the Black Box warning from your current label in the pediatric setting? I know it's pediatric patients less than 2 years of age that the Black Box refers to.

Yes. So thanks for the question. Good clarification. So the current study that I'm addressing that we think can increase the clinical utility for investors that study in functional constipation in 6 to 17 year olds, and it is a Phase III study that we designed in collaboration with the FDA with the ultimate goal of potentially submitting an sNDA for approval of functional constipation in 6 to 17 year olds, so that is the goal. That study is currently ongoing. It's a large study because it actually includes some safety data in IBS patients, we have roughly about 460 patients and so there are other details around clinical trials (inaudible) is actually a 12-week study and it's a change from baseline in spontaneous bowel movements over a 12-week period using the weekly sort of average SBM frequency, and again, it's a change from baseline. So it's compared to their baseline, which is a 2-week running period where they obviously have to be established with their own criteria of less than 3 SBMs per week.

So we do think that we could have a clinically meaningful effect and statistically positive effect in that study that there is a very real opportunity to have a discussion with the agency or a label change to include indication and functional constipation in pediatric patients. Now that's data permitting, study is still ongoing. We'll pull all that together in the end of the latter half of this year. We also obviously will have that discussions with AbbVie, but we're clearly on the same page strategically with AbbVie with that approach. That's the current focus on the functional constipation component.

How that relates to the warning? We already don't have the 6 to 17 year olds in the current warning -- in the current early box warning language. As you mentioned, and as I clarified, that only pertains to 2 years and below population. So we'll aggregate all of our pediatric data on board to have further discussions to ultimately get that part of the label removed and if pediatric data helps, then we'll likely need to have data into less than 2 years too to have that discussion for complete removal.

Your next question comes from Boris Peaker.

Great. Many of my questions have been asked, already answered, but maybe just a little more on LINZESS. I'm just curious, how much room do you think there is to cut on marketing expenses without significantly impacting revenue? I mean, is that a discussion that you're having with AbbVie in the current kind of environment?

Yes. So Tom, do you want to try and answer that?

Yes. Boris, I mean, that's an ongoing discussion. We have continued to throttle back particularly on professional promotion, which is a big -- the second biggest expense line on the brand P&B. And the thing that's remarkable is the strength of the market leader position is still enabling the brand to grow even though we've dramatically pulled back on personnel promotion, we constantly evaluate that and we will be taking another look at it, probably midyear to see will we continue to kind of throttle back on that expense.

And I think the other piece is we're also looking at the media buy. One of the real advantages of having AbbVie as a partner is they have such strength with regard to media discounts, which has really helped the bottom line, but we'll continue to look at that as well. So I think there's opportunity to continue to expand the markets -- margins and make a more profitable brand, and we'll continue to refine that with our finance colleagues across the 2 organizations.

There are no further questions at this time. And that concludes today's conference call. You may now disconnect.