Good day, and welcome to the Ironwood Pharmaceuticals Q4 and Full Year 2022 Investor Update Conference Call. Today's call is being recorded. Thank you. I would now like to turn the conference over to Matt Roache, Director of Investor Relations. Please go ahead.

Thank you, Savanna. Good morning, and thanks for joining us for our fourth quarter and full year 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 day 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 begin 2023, our commitment to developing and advancing innovative solutions in the area of high unmet need in GI is as strong as ever. Looking back in the past year, we have made important progress in advancing the treatment of GI diseases while redefining the standard of care for patients. I'm very proud of the Ironwood team, and thanks to their hard work and dedication, we closed 2022 with a lot to be proud of. You've heard us talk about our focused approach based on three strategic priorities, where we seek to maximize LINZESS, strengthen and progress our innovative GI portfolio, and deliver sustained profits and generate cash flow. I'm delighted to say that we continue to drive strong LINZESS prescription demand growth, delivered on our full year adjusted EBITDA guidance, and we made strides across all three of our key strategic pillars. I remain confident in our strategy and believe we are well positioned for even greater success in 2023. Let's begin on Slide 6, with a quick overview of some of the key achievements against our strategic priorities for 2022 and what we expect in 2023. First, maximize LINZESS. LINZESS continues to see strong prescription demand growth, profitability, and widespread acceptance among health care practitioners as the leading branded prescription treatment for adults with IBS-C and chronic idiopathic constipation. In 2022, prescription demand increased more than 9% year-over-year. The brand continued to demonstrate market leadership by achieving an all-time high in new patient starts, which is a lead indicator for its future growth potential, and growing TRx market share, which reached an all-time high of 45% as of the end of December. As we announced earlier this week, we are pleased that the FDA granted a priority review of our sNDA for functional constipation in pediatric patients ages 6 to 17 and assigned a PDUFA date of June 14, 2023. We're particularly excited about the potential to expand the clinical utility of LINZESS to this underserved patient population, and we plan to leverage focused investment to drive growth and improve brand margins over time. Next, strengthen and progress our innovative GI portfolio, starting with CNP-104, the potential disease-modifying treatment for primary biliary cholangitis. In 2022, COUR Pharmaceuticals initiated a proof-of-concept study in PBC, which will assess the safety, tolerability, pharmacodynamic effect, and efficacy. We also kicked off study start activities at the end of 2022 for the IW-3300, Ironwood's wholly-owned GC-C agonist for its potential treatment of visceral pain conditions, such as interstitial cystitis and bladder pain syndrome. We anticipate several exciting opportunities to advance the value potential of our pipeline this year. First, we expect early data in the second half of the year from patients enrolled into the clinical study for CNP-104. Second, we expect to begin patient dosing for a proof-of-concept study in the interstitial cystitis and bladder pain syndrome for IW-3300 in the near term. Finally, we continue to actively evaluate opportunities to strengthen our portfolio, and we see several potential attractive opportunities in the market that could benefit from Ironwood's expertise in GI. Our third strategic priority is to deliver sustained profits and generate cash flow. We delivered on our guidance of over $250 million in adjusted EBITDA and ended the year with $656 million in cash and cash equivalents on the balance sheet after deploying nearly $250 million in 2022 by completing our share repurchase program and repaying the principal on our 2022 convertible notes. We are in a fortunate position of being a profitable biopharma company with a highly skilled and experienced team in the management of gastrointestinal diseases and a strong and growing cash balance. We believe we're well positioned to execute on our strategy as we strive to become the leading GI health care company in the U.S. Now let's talk a bit more about the performance of LINZESS on Slide 7. As you can see on the left side of Slide 7, the performance of LINZESS has been remarkable as we continue to see a robust linear growth trajectory. Over time, the strong prescription demand growth for LINZESS has been supported by a combination of high treatment satisfaction, updated clinical guideline support, and class-leading formulary access. We continue to see an acceleration of appropriate new adult patient starts and anticipate this will be augmented in the future should the FDA approve an indication for functional constipation in patients ages 6 to 17. We believe the pediatric opportunity, if approved, could expand the market potential for LINZESS as functional constipation affects roughly 6 million children and adolescents aged 6 to 17 in the U.S. This is incremental to the need that still exists among approximately 40 million adults in the U.S. that suffer from IBS and chronic constipation. LINZESS is well positioned to be the branded market leader across both its current and potential future indications. Looking ahead, we're confident in our strategy and in our future. We believe the investments we're making in the brand and in our pipeline position our company for long-term growth. I would like to say a very big thank you to all the Ironwood employees who have laid the groundwork for continued momentum and strong execution against our strategic priorities as we continue to make meaningful impacts on patients' lives. I would now like to turn the call over to Mike to discuss our pipeline. Mike?

Thanks, Tom, and good morning, everyone. We continue to make progress across our three pipeline programs. I'll begin with our linaclotide pediatric program on Slide 9. As Tom mentioned, we're thrilled that the FDA granted priority review for the LINZESS sNDA for functional constipation in children and adolescents aged 6 to 17 years, which could potentially lead to a commercial launch in June. If approved, LINZESS would be the first and only prescription therapy to treat this patient population. A new pediatric indication would further reinforce the strong clinical profile of LINZESS. I'm proud of the team's accomplishments as we continue to seek opportunities to broaden the clinical utility of LINZESS and redefine the standard of care for this patient group. We look forward to presenting the Phase III data at the Digestive Disease Week meeting in May of this year. CNP-104, next, for the potential treatment of PBC, which affects an estimated 130,000 people in the U.S. As we've discussed previously, the strong immunology underpinning the CNP program is focused on targeting the specific PDC-E2 antigen responsible for the pathology of PBC. Therefore, there is an opportunity to assess PDC-E2-specific T cell responses, which should be a lead indicator of clinical benefit. We expect to assess T cell responses in patients dosed with CNP-104 in the second half of 2023. This early T cell data will inform the timing of topline and potential option exercise. We're excited about the CNP-104 because it is truly a precision medicine, and it introduces a potentially new game-changing asset for PBC patients, as there are no therapies on the market today that address the root cause of the autoimmune destruction of the bile ducts in PBC. We'll provide updates on the program progress throughout this year. Moving on to IW-3300, a wholly-owned Ironwood asset for the potential treatment of interstitial cystitis and bladder pain syndrome. There's a significant unmet medical need in the area of IC-BPS, as it affects an estimated 4 million to 12 million Americans, yet there are very few treatment options currently on the market or in development. In 2022, we successfully completed dosing studies in healthy volunteers, and we kicked off study start activities for the Phase II proof-of-concept study. We're prepared to begin dosing patients in the near term. This study has been thoughtfully designed to evaluate the potential impact of IW-3300 on visceral pain in patients with interstitial cystitis and bladder pain syndrome. This trial will enroll patients with moderate to severe pain in a randomized, double-blind placebo-controlled study over 12 weeks. Patients who receive IW-3300 administered once daily, efficacy will be assessed based on change from baseline in the worst abdominal pain using an 11-point numeric rating scale, along with monitoring of urinary symptoms and other weekly and monthly assessments. We're excited to begin patient dosing and we look forward to providing updates as the study continues to advance. This is the first time the cross-talk hypothesis will be tested in humans, and we're proud to be at the forefront of clinical development in this area.

Thanks, Mike, and good morning, everyone. I'll start with an update on LINZESS' performance. LINZESS U.S. net sales were $260 million in the fourth quarter of 2022, a decrease of 7% compared to the fourth quarter of 2021. Strong prescription demand growth of 9% was more than offset by price and inventory channel fluctuations. For full year 2022, as shown on Slide 11, LINZESS U.S. net sales were $1.002 billion, a slight decrease compared to full year 2021. While full year net sales growth came in lower than our expectations for 2022, primarily due to inventory fluctuations in the retail channel, we remain confident in the long-term growth potential of LINZESS based on the strong prescription demand we continue to see. Turning to LINZESS brand profitability. Commercial margins in the fourth quarter of 2022 were 74% compared to 76% in the fourth quarter of 2021. For full year 2022, commercial margins were 73% versus 74% for full year 2021. Moving to Ironwood revenues. In Q4, Ironwood revenues were $107 million, driven primarily by the U.S. LINZESS collaboration revenues of $105 million. For the full year, Ironwood revenues were $411 million, with LINZESS U.S. collaboration revenues of $399 million. In the fourth quarter and for the full year, Ironwood recorded $23 million and $77 million of income tax expense, respectively, the majority of which was noncash. GAAP net income was $49 million in the fourth quarter and $175 million for the full year. Adjusted EBITDA was $69 million from Q4 and $252 million for the full year. Throughout the year, we remained focused on our commitment to deliver strong profits and cash flows by driving continued robust LINZESS prescription demand and demonstrating disciplined expense management. As a result, I'm pleased that we were able to achieve our initial adjusted EBITDA guidance of greater than $250 million that we issued at the beginning of 2022. Next, cash and capital allocation. In the fourth quarter of 2022, we generated $79 million in cash flow from operations and $274 million for full year. We ended 2022 with $656 million in cash and cash equivalents after deploying nearly $250 million during the year by completing our share repurchase program and repaying the principal amount of our 2022 convertible notes. We believe we are positioning our company for future success by maximizing LINZESS growth and actively pursuing innovative, highly differentiated GI assets to bolster our portfolio. We continue to take a balanced and disciplined approach to capital deployment. We remain focused on identifying and investing in opportunities that we believe will create value for our patients and shareholders over the long term. Turning to our 2023 guidance on Slide 12. As previously stated in January, we expect LINZESS U.S. net sales growth of between 3% and 5%, driven by high single-digit prescription demand growth. In addition, we expect to maintain our class-leading payer access with mid-single-digit price erosion. We expect Ironwood revenue of between $420 million and $435 million and adjusted EBITDA of greater than $250 million, which includes increased investment to advance our pipeline programs, CNP-104 and IW-3300. To wrap up, we believe Ironwood is well positioned for continued growth, and we remain focused on advancing our three strategic priorities of maximizing LINZESS, strengthening and progressing our innovative GI portfolio, and delivering sustained profits and generating cash flow. We have a blockbuster brand in LINZESS that continues to deliver impressive demand growth, with the potential to expand the market with a pediatric functional constipation indication beginning this year, if approved; an emerging pipeline with anticipated exciting milestones ahead; a strong balance sheet with over $650 million of cash and cash equivalents; and an accomplished management team with strong GI, commercial, drug development, and M&A expertise. We are excited about the work ahead of us as we strive to make a difference for patients living with GI diseases and to deliver shareholder value. Operator, you may now open up the line for questions.

Our first question will come from David Amsellem with Piper Sandler.

I just had a few. So first, with the guidance in mind, can you talk about your level of confidence that you'll see a more stable trajectory for net realized price per Rx? And just talk about the dynamics that are driving more stability or less in the way of erosion in 2023 versus 2022? That's number one. And then, secondly, can you talk about your work on LINZESS regarding children under the age of 2 or 2 and under? And just how you're thinking about making progress towards the eventual removal of the box warning? That's my second question. And then just lastly, how do you frame up the pediatric opportunity, the 6 to 17? And particularly, what I'm getting at is what's your view on the extent to which that could drive accelerated growth in volumes post-approval?

Thank you for the questions. I will start with your first question about price. For your second question regarding children under the age of 2, I'll let Mike address that. We may ask you to restate the third question, which I believe Tom will answer. Regarding 2023, LINZESS continues to be a high volume and valued prescription brand. We're thrilled to be in the 11th year of the drug's life cycle and still see growth in the high single digits. We have made significant investments over the past few years with payers to establish and maintain our leading payer access. In 2023, we did not need to invest at the same level to keep that access as we did in 2022. We constantly evaluate the trade-offs between price and volume, aiming to maximize LINZESS's performance and generate profits for both the company and the brand. As a reminder, LINZESS is preferred in 10 out of 10 of the top commercial plans and is covered by all 7 of the top Medicare Part D plans. When we entered negotiations over the past year, our pricing expectations aligned with what we anticipated. We need visibility based on the volumes and our dealings with payers. Currently, we feel optimistic about experiencing mid-single-digit erosion for 2023.

I believe the key takeaway here is that we have strong visibility into the contracts. Last year, we predicted high single-digit growth and came within about 0.5% of our expectations. We have a similar level of confidence now, as we didn't experience significant price erosion during the contracting process. Therefore, we're projecting mid-single-digit growth. While uncertainties can arise, we feel reasonably confident that we will achieve mid-single-digit results.

Mike?

Yes, sure. So regarding the question you had about the younger kids, including those less than 2, but also around the box in general. It's good to recall that the original institution of the label when the drug was originally launched, that box warning was due really to the theoretical risk of adverse events in kids under the age of 18. We then worked with the agency with the post-marketing requirements and our clinical studies to put together a plan to generate that data. And as you saw in 2021, we had a significant box revision, which took the warning from 18 and below, pretty much encompassing all populations down to just 2 and below, which is where it currently is. And that's just because we've had the opportunity to generate data in those pediatric populations. And you can see that's actually what got the 6-to-17-year-old sNDA that we submitted at the end of last year and the priority review we just talked about during the call. So we have a very robust data set in pediatrics. To your point directly, we're continuing additional pediatric studies. We have an additional study gone in 2- to 5-year-olds. That's part of our working with the agency. And we're also planning a study in less than 2-year-olds, from 6 months to 0, with our partners, AbbVie. We certainly believe with the generation of further clinical data, we have a path in discussions with the agency to continue to have the label manifest to the real clinical profile of LINZESS, which, to date, has been very safe and well tolerated.

This is Tom. I'll discuss the pediatric opportunity. We have strong confidence in the safety and tolerability of this drug, and the clinical data from the pediatric Phase III program is impressive. It clearly shows efficacy, but what's particularly notable is how well the drug is tolerated, which is a significant challenge with existing therapies. Regarding the pediatric opportunity, there are 6 million patients dealing with chronic functional constipation. It's important to note that children typically exhibit different care-seeking behavior compared to adults; if a child is suffering, parents are likely to consult a doctor. As a result, the percentage of patients seeking care is much higher, and these children usually visit doctors multiple times a year. This creates a readily accessible population. Additionally, while there are many pediatricians, the prescribing base is fairly concentrated, allowing us to reach many top prescribers with our existing sales efforts. We emphasize a targeted promotional strategy to assess how responsive the drug will be in the market, guiding our future investments. We are not only focusing on personal promotions but also exploring other communication channels to educate physicians about better management options for their patients. Market research has been very encouraging regarding the target product profile, the clinical profile of the drug, and physicians' willingness to try it. Looking ahead, we hope to receive the indication by June, with potential upside in 2023 as we evaluate the promotional response. However, we believe significant value creation will begin in 2024 and 2025. Considering the population size, the unmet medical need, and the drug's clinical profile, we believe LINZESS will be well-positioned to benefit many children.

Our next question will come from Daniel Wolle with JPMorgan.

Two questions for me. One, on CNP-104. Can you clarify for us what you will see versus what the Street will see when early data reads out in the second half of 2023? Is this an internal readout where you announce to opt in assuming positive data on T cell response? Or will you be able to release the data to the Street? And then second question is, if we are going to see some data, will it just be on T cell response? Or is there potential to include changes in serum outcome and phosphatase levels? I guess, my question is, is it possible to see serum outcome, phosphatase level changes data this year?

Yes, I can address that. Thank you for the opportunity to clarify. Just to be clear, as reported in clinicaltrials.gov, the trial is planned to continue until 2024. We are aiming to provide clarity by recognizing the opportunity to obtain data in the second half of 2023 that will guide us on the timing for the full study readout of the topline data. Additionally, our goal in any clinical programs is to utilize all available data to inform business decisions as early as possible. In the second half of 2023, we expect to see early data focused on T cell responses from enrolled patients. Given the strong science behind CNP-104, we believe that the T cell response may serve as a leading indicator for clinical responses. You specifically mentioned alk phos, which is a liver biomarker. While it remains a biomarker, products approved with alk phos often have post-marketing commitments to demonstrate that alk phos provides a meaningful benefit to patients. We believe that the underlying pathology of PBC, driven by the PDC-E2 antigen, is more precisely addressed by examining the autoreactive T cells. This is our primary focus in the second half of 2023. As I mentioned in my prepared remarks, we expect to have early data on T cell responses in the latter half of 2023, which will inform us on the timing. At that point, we will provide an update on the status of the program.

Okay. So just to clarify, is this an internal readout? Or will you be able to release that T cell response data to the Street?

Yes. Again, we're going to make an early assessment as a small group in a very controlled fashion just to make internal business decisions. When we see the data and we understand the relevance at that point, we'll make a decision to update the program further and decide what to do.

Our next question will come from Tim Chiang with Capital One.

Mike, I wanted to follow up on some of the comments regarding CNP-104. In our previous discussions, you mentioned that there was approximately a 90% reduction in T cell response observed in preclinical studies. Is that accurate? There is some preclinical data on CNP-104 available, and I would like to know what makes you believe this will lead to a significantly positive reduction in T cell counts.

Yes, that's a good question. There is preclinical data and an animal model for PBC that COUR has investigated, which shows that treatment with CNP-104 results in a reduction of autoreactive T cells in that model. The 90% number you mentioned comes from the proof of technology study in celiac disease conducted by Takeda, which utilized the COUR platform. In this study, nanoparticles encapsulated gluten, which was then degraded into deamidated gliadin peptides, the autoantigen for celiac disease. According to a publication in Gastro from June 2021, celiac patients undergoing two treatments over an 8-day period experienced a 90% reduction in autoreactive T cells, leading to significant improvements in gut epithelial structure and histology. If we observe a similar response in PBC, it would be quite impressive and could be transformative for helping PBC patients. The preclinical evidence is specific to PBC, while the clinical evidence regarding the 90% reduction comes from a separate celiac study published by another company.

Mike, I've heard you say in the past that if we do see a dramatic reduction in T cells, it's clearly a strong indicator of what you would expect to see as far as overall clinical response with regard to probably the impact on alk phos and bile duct destruction.

Yes, exactly. We truly believe, based on the science, that our approach, CNP-104, which targets the specific autoantigen of primary biliary cholangitis (PBC), specifically the PDC-E2 antigen, addresses the underlying cause of the pathology of PBC, which is the destruction of bile ducts. The autoreactive T cells are responsible for this destruction. If we can reduce those T cells, we should be able to decrease or potentially eliminate the bile duct damage suffered by PBC patients. Additionally, data from celiac disease studies demonstrated proof of technology and proof-of-concept in patients, showing a reduction in autoreactive T cells, and celiac patients displayed improvements in gut epithelial histology.

No, that's helpful, Mike. Maybe just one follow-up then. The dosing in the celiac study, is that comparable in the dosing that you're running in the PBC study? I mean, is there anything comparable there?

Yes. I think it’s a great question, and that’s why we’re studying two doses in the current PBC patients. So I think, clearly, there’s a reason to make the association. But I do think it’s also fair that different diseases may have a different pharmacodynamic response to doses. So we’re clearly open-minded in terms of as we do this study to be cognizant that we want to find the right dose in PBC patients. And that similarly, I’m sure what’s happening in the celiac space as well.

Our next question will come from Boris Peaker with Cowen. Yes. I think it’s a great question, and that’s why we’re studying two doses in the current PBC patients. So there’s a reason to make the association. However, it’s also fair to consider that different diseases may respond differently to doses. We are open-minded as we conduct this study, aiming to identify the right dose for PBC patients, and I expect similar considerations are occurring in the celiac space as well.

One question on CNP-104. You mentioned that the market is about 130,000 patients, if I heard you correctly. Can you break that down based on disease severity? And is there any particular subgroup that 104 will be targeting?

Yes, that's a good question. As with most liver diseases, the severity of the disease is crucial. You may be aware that with obeticholic acid, the label indicates it is not recommended for patients with cirrhosis or decompensated liver disease. Our program is innovative and begins with patients who have early liver disease associated with PBC. However, the underlying mechanism should be relevant for all PBC patients since we are addressing the immunological aspects involved in bile duct destruction. By utilizing semisynthetic bile acids and other methods, there are valid concerns regarding severe liver disease cases. Nevertheless, if our science verifies that we can reduce autoreactive T cells, this should apply to a wider population of patients. We are currently in a proof-of-concept study and still have a significant amount of data to gather. This is why we are optimistic about the program; it is firmly based on the science of the primary cause of PBC.

Great. And my second question is, maybe you could comment on your thoughts on the impact of the Inflation Reduction Act on LINZESS?

Sure. Boris, this is Sravan. I'll take that. Look, as with any proposed legislation, we'll follow the developments closely here. We're working with our partner, AbbVie, to assess any potential impact on our business. At this stage, I think it’s still a wide number of unknowns around certain aspects of this legislation. And thinking about the potential impact here to LINZESS, it’s important to note, we’ve been working with Medicare Part D for years. And for many years, the core aspect of our strategy has been to ensure broad coverage and patient access. So from a negotiation standpoint, discounting standpoint, none of this is new to us. And so I think we’ll come back to you when we have a better sense of what that looks like. But right now, I think that’s what we can say.

And I think we're reasonably confident. We're providing very significant discounts currently to Medicare. I mean, that's the reason why we're seeing some price erosion here because we are working closely with the Medicare payers as well as the commercial payers to ensure very broad payer access. Could it have some impact? Yes. But I think of all the brands that are out there that they're going to be focusing on, we're already in the game and actively negotiating with the major payers. So we'll have to wait and see, but I think we feel pretty good about the position we're in.

And with no further questions, we will conclude today's conference. Thank you for your participation, and you may now disconnect.