Ironwood Pharmaceuticals Inc Q3 FY2022 Earnings Call

Hello. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Third Quarter Investor Update Call. I would now like to turn the call over to Mr. Matt Roache, Director of Investor Relations. Please go ahead, sir.

Thank you, Lisa. Good morning, and thanks for joining us for our third 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. 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 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 and 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. So for those of you dialing in, please go to the Events section of our website to access the accompanying slides separately. With that, I'll turn the call over to Tom.

Thanks, Matt. Good morning, everyone, and thanks for joining us today as we share our third quarter results. As we approach the end of the year and look back on the progress we've made across our strategic priorities, we are very pleased with the strides we have made to advance treatment in GI diseases, redefine standard of care, and bring important medicines to GI patients. As we move forward, we remain committed to unlocking new opportunities for LINZESS and strengthening our portfolio with innovative GI assets, as well as continuing to deliver sustained profits and cash flows. I'll begin with a brief overview of our strategic priorities on Slide 6. Our strategy begins with maximizing LINZESS. In the third quarter, we are pleased to report the brand delivered double-digit extended unit prescription demand growth year-over-year and for the first time, exceeded 1 million total prescriptions in the quarter, a remarkable achievement. Based on the continued strong performance of LINZESS through the third quarter, we maintain our full year net sales guidance of low single-digit percent growth. Going forward, we believe there is still a significant opportunity to reach appropriate new adult patients and drive additional prescription demand growth. Second, we are seeking to build an innovative portfolio, both through the development of our internal assets and through the in-license acquisition of external assets that target serious organic GI diseases that we believe will position our company for continued growth. In the third quarter, we advanced our pipeline programs highlighted by the exciting positive top-line data from the Phase III trial of LINZESS 72-microgram in pediatric patients aged 6 to 17 with functional constipation. Results of the study add to the body of data supporting the safety of LINZESS in this population and brings us one step closer to being able to potentially expand the clinical utility of LINZESS to this critically underserved patient population, as an estimated 4 million to 6 million 6- to 17-year-old children and adolescents in the U.S. suffer from functional constipation. Mike will discuss the top-line data in a few minutes, and we look forward to sharing more detail on the potential market opportunity at a future investor update. We, along with AbbVie, are planning to submit a supplemental NDA by the end of the year. Next, the Phase II proof-of-concept study for CNP-104 for the potential treatment of Primary Biliary Cholangitis continues to progress, and we are continuing study start-up activities for IW-3300 Phase II proof-of-concept study in patients with interstitial cystitis and bladder pain syndrome. And finally, we continue to generate profits and ended the third quarter with $574 million in cash and cash equivalents on the balance sheet. We're pleased with the progress across our 3 strategic priorities and believe that we will continue to position ourselves for growth moving forward. Now let's turn to some additional details on the commercial performance of LINZESS on Slide 7. LINZESS continues to see high utilization among health care practitioners, further reinforcing our position as the #1 prescribed branded medicine in the U.S. for the treatment of adults with IBS-C and chronic constipation. In both the third quarter and on a year-to-date basis through September, LINZESS extended unit prescription demand increased 10% year-over-year, in line with our full year expectations. In the quarter, total prescription share for LINZESS continued to lead the market and exceeded 44% in quarterly TRx share, a 1.6 share increase versus the third quarter in 2021. Importantly, this performance was driven by an acceleration in new prescription volume, a key indicator for potential future growth. In fact, an all-time high was achieved for new prescription share of 38% and new-to-brand volume increased 9% compared to the third quarter in 2021. The foundation for this excellent LINZESS performance is driven by the strong clinical profile, high patient satisfaction, our focused investment in both consumer and professional promotion, and class-leading formulary access to help support health care practitioners and patient access. Finally, we're committed to advancing opportunities to broaden the clinical utility of LINZESS and help more patients in need of treatment, as evidenced by the recent positive Phase III data in our 6- to 17-year-old pediatric program for functional constipation. As part of our commitment to leadership in GI, I'm also excited to share that recently, we attended the American College of Gastroenterology, or ACG meeting, which included a symposium on updated IBS treatment guidelines and other recommendations. We're proud that in June, LINZESS was the only therapy to receive a strong recommendation for the treatment of adults with IBS-C in the updated AGA treatment guidelines, a powerful reinforcement that LINZESS can help adults living with the highly frustrating symptoms of IBS-C. We couldn't be more excited about the strong position we're in today and the opportunities ahead of us. I would like to say a very big thank you to all Ironwood employees who have laid the foundation for our continued momentum and strong execution against our strategic priorities as we continue to help make a real impact in patients' lives. I would now like to hand it over to Mike, who will discuss our pipeline programs.

Thanks, Tom, and good morning, everyone. We continue to make progress across our 3 pipeline programs. I'll begin with the positive top-line data that was announced in September from the Phase III clinical trial evaluating linaclotide 72 micrograms once daily in pediatric patients aged 6 to 17 with functional constipation. We're really pleased with the positive results of the Phase III trial, which showed that linaclotide improved frequency of spontaneous bowel movements and stool consistency and was well tolerated in the study population. Functional constipation is one of the most common GI complaints in this age group, and we have a significant impact on the patient's quality of life. We're excited about the potential for LINZESS to become the first FDA-approved prescription therapy for children ages 6 to 17 with functional constipation. A brief summary of the top-line results is shown on Slide 9. A total of 330 patients aged 6 to 17 fulfilled modified ROME III criteria for child/adolescent functional constipation and were randomized in a 1:1 ratio between linaclotide or placebo. Top-line data indicated that linaclotide 72 micrograms showed a statistically significant and clinically meaningful improvement compared to placebo in the 12-week spontaneous bowel movement frequency rate or SBMs per week, the primary endpoint. Linaclotide-treated patients demonstrated a greater than twofold least squared mean change from baseline in SBMs per week compared to placebo at 1.05. Stool consistency, as assessed by the Bristol Stool Form Scale, was a key secondary endpoint and showed an improvement at week 12 with linaclotide compared to placebo. Overall, linaclotide was generally well tolerated. The most frequently reported treatment-emergent adverse event was diarrhea, which occurred in 4.3% of linaclotide-treated patients versus 1.8% in the placebo group, adding additional data to the existing pediatric safety data in this population. Turning to Slide 10. These strong data are encouraging and further our understanding of the safety profile of linaclotide in pediatric patients aged 6 to 17 with functional constipation and demonstrate evidence of its potential to provide therapeutic benefit to these patients suffering from this disorder. As Tom mentioned, we, along with our partner, AbbVie, plan to submit a supplemental new drug application by the end of this year. We'll request a priority review based on the data and the unmet patient need. We plan to submit detailed top-line data to the Digestive Disease Week meeting planned for May of next year. Next, IW-3300, a guanylate cyclase-C agonist and a wholly-owned Ironwood asset for the potential treatment of visceral pain conditions, such as interstitial cystitis/bladder pain syndrome or IC-BPS. Since successfully completing the Phase I dosing studies in healthy volunteers earlier this year, we're continuing study start-up activities and plan to finalize the Phase II proof-of-concept study design this year, and we expect to enroll patients beginning in early 2023. We plan to provide additional details on the study design early next year. And finally, CNP-104 for the potential treatment of primary biliary cholangitis. COUR Pharmaceuticals continues to recruit patients in the clinical study with CNP-104, and we expect to see data in the second half of 2023. I had the opportunity to attend the 2022 Primary Biliary Cholangitis Patient Education Conference for the first time in October, where PBC patients, family members, and clinicians came together to raise awareness and provide education and support for family members and friends of people diagnosed with PBC. At this meeting, investigators and clinicians alike were excited by COUR's novel nanoparticle platform to potentially help cure this devastating disease. We believe CNP-104 has the potential to significantly shift the treatment paradigm in PBC, targeting the root cause, and if successful, be the first truly disease-modifying therapy for patients. With that, I'll now turn it over to Sravan to review our financial performance.

Thanks, Mike, and good morning, everyone. We had a strong third quarter, driven by continued impressive double-digit LINZESS demand growth. Based on our performance to date, we remain on track to achieve the financial guidance we put forth at the beginning of this year. Please refer to our press release for our detailed financial information. Now, LINZESS U.S. net sales were $261 million in the third quarter of 2022, a 3% increase compared to the third quarter of 2021. Strong LINZESS prescription demand growth was partially offset by net price erosion versus the prior year. Year-to-date, through the third quarter, LINZESS prescription demand is up 10% year-over-year, and net sales growth is up 2% year-over-year. 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. Turning to LINZESS brand profitability. Commercial margin in the third quarter of 2022 was 74%. Moving to Ironwood revenues. In the third quarter of 2022, Ironwood revenues were $109 million, driven primarily by U.S. LINZESS collaboration revenues of $105 million. Next, income tax expense and profitability. During the third quarter of 2022, Ironwood recorded $20 million of income tax expense. GAAP net income was $50 million, and adjusted EBITDA was $69 million in the third quarter of 2022. Turning to our cash and capital allocation priorities. In the third quarter, we generated $69 million in cash flow from operations and ended the quarter with $574 million in cash and cash equivalents. Our capital allocation priorities continue to be focused on investing to maximize LINZESS and actively pursuing innovative, highly differentiated GI assets to add to our portfolio. We continue to take a thoughtful and disciplined approach to capital allocation. We maintain a high bar as we evaluate potential investments and aim to create value for patients and shareholders over the long term. We are in a fortunate and unique position of being a profitable biopharma company with strong cash flow generation. We have deployed roughly $270 million over the past 12 months by leading our $150 million share repurchase program and $121 million principal repayment of our 2022 convertible notes to strengthen our financial position. And we are on track to end the year with greater than $600 million of cash and cash equivalents on the balance sheet. Turning to our 2022 guidance on Slide 13. 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. We continue to expect U.S. LINZESS net sales growth in the low single digits percent, 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. We believe our company is well positioned for continued growth and remain focused on advancing our 3 strategic priorities. 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 for questions.

Your first question comes from the line of David Amsellem of Piper Sandler.

This is Isaac on for David. First one on the gross to net. Can you give us a sense of how the 2023 payer conversations have been playing out so far? And what should we expect for net realized price next year relative to this year? Secondly, we saw one of our generic peers Viatris recently file an IPR against Bausch on TRULANCE. So theoretically, how do you think about the impact of a potential early generic entrant on LINZESS? And then my last question is on your update. It's really appetite for BD and M&A in this environment, given the state of your capital structure?

Thank you for your questions, Isaac. Let me address the pricing issue first, followed by the generic question. Overall, I will also share some thoughts on business development and mergers and acquisitions. To start with pricing, I want to clarify that this is the third quarter call, and we are not in a position to provide guidance for 2023 just yet. We hope to offer that at an investor conference in early January. I look forward to sharing more details at that time. What I can say is that we are pleased with the strong growth of LINZESS, which we believe is largely driven by our leading payer access. Market access is crucial, and our ability to facilitate prescriptions for caregivers and ensure our patients can easily obtain the product has contributed to our double-digit demand growth. Therefore, we are focused on enhancing accessibility and driving demand. We previously indicated that we expect high single-digit price erosion for 2022. At the beginning of the year, we communicated that we anticipated 2023 would see a more moderate decline compared to the high single-digit year-over-year decrease. Our ongoing negotiations do not suggest any changes to that outlook; we still believe it will be better than 2022. However, we are not prepared to disclose specifics until we provide guidance in early January. Now, regarding the question about early generic entrants, Tom, would you like to add your thoughts?

Sure, Sravan. It's important to note that we cannot comment on their IP real estate. However, I can say that we managed to settle all our ANDAs successfully, and I believe others should be able to do the same. Their patent situation is quite similar to ours. Also, LINZESS maintains a strong position in the marketplace, as we've been operating in the generic market since day one. Since we launched the leading product with generic PEG, AMITIZA has gone generic as well, resulting in multiple market entrants. Despite this, our product continues to perform well due to its strong clinical profile, high satisfaction rates, and wide payer access. We take all competitive threats seriously, but as market leaders, our focus is on growing the market and capturing a larger share to drive growth. The lifeblood of LINZESS is demand growth, and we continually improve our marketing strategies to support this, as we see no signs of changes in the demand. It's important to remember that a significant number of people are still suffering, and with the new pediatric indication, we expect to add another 4 to 6 million patients. Therefore, we anticipate continued demand growth and aim to maintain that momentum.

Thanks, Tom. And I think the last question around BD and M&A thought processes at the moment. So look, as we've noted in our strategic priorities, one of them is to build out an innovative GI portfolio. And I think we remain committed to that. So as an organization, we certainly have the goal to bring in more assets into the portfolio. We are taking a very disciplined approach, though, on capital allocation and have set a really high bar for evaluating and completing transactions, especially in this environment, and we want to make sure that the deals we do create value. We are actively evaluating opportunities. And I think from our perspective, the third pillar that we have in our overall strategy is around generating profits and sustainable free cash flows. I don't see a transaction that we do jeopardizing our ability to do that or severely impairing our ability to do that. And so I think we're looking for assets, and we'll circle back to the market when and if we can find something that meets our requirements and hurdle rates.

A couple of questions for me. Maybe first on pediatric functional constipation. Curious if you could quantify the size of that market? And also, how much of LINZESS current prescription is written by pediatricians? And the second question is on 104. If you can maybe set some expectations of how we should be interpreting that? I do not know what's coming next year, but just to help us kind of bookmark clinical expectations.

All right. Great. Thanks, Boris. Maybe we start with the second question on CNP-104, and then we'll go to the pediatrics. So Mike will answer the first one.

Sure. Thanks for the question, Boris. So in terms of data for CNP-104, there are actually two aspects. I mean one, we benefit from regulatory history and precedent here. As you know, there are current products on the market in PBC, and they've used the endpoint around alkaline phosphatase. And there are metrics within improvement in alkaline phosphatase that are thought to be clinically meaningful. So clearly, alkaline phosphatase is one of the endpoints in our Phase II safety, tolerability, pharmacodynamic, and efficacy study. So that's what we would do, obviously, for preparing for regulatory interactions. But it's also important to realize that with this new technology, the other key component we're going to look at is the impact on the immune response in patients with PBC. Because again, as we mentioned in prior calls, the science around this is quite amazing, and we now have the opportunity to literally measure the T cell autoimmune response in patients with autoimmune diseases. And PBC is an autoimmune disease driven by a unique antigen, the PDC-E2 antigen that mitochondrial enzyme complex that we've also talked about earlier. So having the opportunity to take that very objective, tangible readout gives us a lot of power in a sense for being able to interpret the data. And so we are going to look at T-cell responses in this study as well because that will really give us a real tangible index of the drug's efficacy, but also a very likely read into the clinical benefit downstream. Because as you know, one of the real challenges in PBC or liver disease in general is how these biomarker changes, like alkaline phosphatase, translate into histologic or liver function improvement. And the ability to focus on these immune targets really gives us, I think, a nice opportunity for an additional read into clinical benefit.

Great. And then I think on the pediatric, maybe, Tom, why don't you address this one.

So as far as the size, as we've mentioned, this is not really a prevalent disorder. Basically, we estimate 4 million to 6 million kids suffer from functional constipation from 6 to 12, which is really, I think, the real kind of attractive market target that we have. I mean these are highly symptomatic diseases and it's one of the top reasons why a parent takes the child to see the physician. And all they have available to them really is MiraLAX, which isn't even approved in kids, and which basically liquefies stools. So it's a little tricky to manage these patients. I mean what we've seen in market research so far is a very, very positive response to the clinical profile, particularly the tolerability profile, which is very encouraging. And of course, it isn't going to require an additional dose. It will be basically the 72-microgram dose which can be sprinkled on food or dissolved in water. So it will be very easy to administer, unlike the liquid MiraLAX. As far as current utilization, there is some use out there, particularly with the pediatric gastroenterologist, but it's a very concentrated prescriber base overall. But there isn't much utilization to date. There's been a couple of publications around this. But I think this is a real upside opportunity. We're still kind of evaluating it. And this is where I think we're really going to let the data guide us to see how promotionally responsive the market is, the same as we know it’s very promotionally responsive for adults. We expect the same thing for kids. And then we can really determine what level of investment is going to be required. But we don't see a dramatic increase in the investment; it's really refining the marketing mix in terms of who we're targeting and what communication channels are we going to leverage to educate physicians and drive patient demand.

At this time, there are no further questions. This concludes today's conference. You may now disconnect.