Good day, and welcome to the Ironwood Pharmaceuticals Q1 2023 Investor Update Conference Call. Today's call is being recorded. I will now turn the call over to Matt Roache, Director of Investor Relations. Please go ahead.

Thank you, Angela. Good morning, and thanks for joining us for our first quarter 2023 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, 2022, 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 event's section of our website to access the accompanying slide separately. With that, I'll turn the call over to Tom.

Thanks, Matt. Good morning, everyone, and thanks for joining us today. I'm delighted to announce our first quarter results this morning. We are off to a terrific start to the year, as demonstrated by continued strong LINZESS demand growth, progress of our clinical studies, and another quarter of delivering robust profits and cash flow. At Ironwood, we remain committed to advancing the treatment of GI diseases and redefining the standard of care for GI patients. I believe the progress we've made across the organization in the first quarter demonstrates the steps that we're taking to become the leading GI Healthcare Company in the U.S. Let's begin on Slide 6 with our strategic priorities. Our strategy starts with maximizing LINZESS. LINZESS continues to experience remarkable prescription demand growth and widespread adoption among healthcare practitioners as a leading branded prescription treatment for adults with IBS-C and chronic idiopathic constipation. In the first quarter, LINZESS U.S. net sales growth increased 8% year-over-year. Prescription demand growth increased over 10% as compared to the first quarter of 2022, demonstrating that the momentum of the brand remains strong. We believe there's still a significant opportunity to reach appropriate new patients and drive additional prescription demand growth, including a potential midyear indication for linaclotide in functional constipation for patients six to 17 years of age if approved. Next, we are focused on continuing to strengthen and progress our innovative GI portfolio, starting with CNP-104, a potentially disease-modifying treatment for primary biliary cholangitis. The clinical study is ongoing, and we continue to expect early data assessing the T-cell response in the second half of the year from the patients enrolled in the studies, which will inform the timing of top-line data. Second, IW-3300. We are continuing the proof-of-concept study in patients with interstitial cystitis and bladder pain syndrome. Finally, we continue to actively evaluate opportunities to strengthen our portfolio. We see several attractive opportunities in the market that we believe are accessible and could benefit from Ironwood's expertise and capabilities in GI. Our third strategic priority is delivering sustained profits and generating cash flow. We delivered GAAP net income and adjusted EBITDA of $46 million and $60 million, respectively, and ended the first quarter with $740 million in cash and cash equivalents on the balance sheet. With our unique profile as a profitable GI-focused biopharma company with a strong and growing cash balance, we believe we're well-positioned to maximize LINZESS growth and continue to build an innovative GI portfolio to create the next growth horizon for the company. Now let's turn to the performance of LINZESS on Slide 7. As you can see on the left side of Slide 7, LINZESS performed exceptionally well in the first quarter. As I mentioned a few moments ago, LINZESS prescription demand increased 10% year-over-year and net sales increased 8% year-over-year and generated $250 million in the quarter. Over the first quarter, the adult IBS-C and chronic constipation prescription market experienced strong growth, with LINZESS experiencing an all-time high in new to brand patient volume to strengthen its position in the market as the number one prescribed brand for adults with IBS-C and chronic constipation. Most importantly, we are proud to have treated more than 4.5 million unique patients since the launch of the brand over 10 years ago. The growing number of patients that are actively seeking care and have been treated with LINZESS is evidence of the high treatment satisfaction expressed by both clinicians and patients. We believe these market dynamics, combined with class-leading formulary access, the clinical guideline recommendations from both GI societies, and the strong commercial execution, are driving the demand momentum that we continue to see. We expect this momentum to be augmented midyear should the FDA approve the pediatric functional constipation indication, reinforcing the growth potential for the brand. Looking ahead, we're excited about the continued growth of LINZESS, the advancement of our clinical program, and our stronger financial position as we advance Ironwood's leadership in GI. In a few days, we'll be presenting five abstracts at the Digestive Disease Week meeting or DDW, including an oral presentation. These abstracts will highlight new data that reinforce the potential of linaclotide to treat functional constipation in children and adolescents. We look forward to DDW, where each year, we have an important presence demonstrating our commitment to advancing GI therapies, including expanding the clinical utility of linaclotide. Before handing it over to Mike to discuss the pipeline programs, I'd like to take a moment to thank Jason Rickard for his leadership and contributions to Ironwood over the last 11 years, most recently serving as our Chief Operating Officer and for helping make Ironwood the company it is today. While a change like this is not easy, as an organization committed to maximizing shareholder value, we continue to look for ways to streamline our team and align key functions and resources to meet our current and future needs and support Ironwood through its next phase of growth. I would also like to acknowledge all the Ironwood employees who have continued the momentum and strong execution against our strategic priorities as we continue to help make a remarkable impact on patients' lives. I would now like to hand the call over to Mike.

Thanks, Tom. Good morning, everyone. We continue to make progress across our three pipeline programs. I'll begin with our linaclotide pediatric program on Slide 9. We believe the pediatric opportunity, if approved, could expand the market potential for LINZESS, as functional constipation affects roughly 6 million six to 17-year-old children and adolescents in the United States. If our sNDA is approved by the FDA, LINZESS would be the first and only prescription therapy to treat this patient population, and this is a population that's in need of better therapeutic options. We continue to work through the sNDA with the FDA and look forward to the June 14 PDUFA date. As Tom mentioned, we'll be presenting pediatric data on the efficacy and safety profile of linaclotide in treating functional constipation in this patient group at the upcoming DDW meeting. Next is CNP-104 for the potential treatment of primary biliary cholangitis, which affects an estimated 133,000 people in the United States. The proof-of-concept study is ongoing and given the strong science underlying this therapy, we plan to assess T-cell responses in patients with CNP-104 in the second half of '23. This will inform the timing of top-line data and the potential option exercise. We expect to provide an update on the program at that time. We're excited about CNP-104 because it is truly 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 this autoimmune destruction of the bile duct in PBC. With respect to IW-3300, our wholly owned Ironwood asset for the potential treatment of interstitial cystitis and bladder pain syndrome. There is a significant unmet medical need in this area as this chronic condition affects millions of Americans, and there are very few treatment options currently on the market or in development. Last year, we successfully completed dosing in healthy volunteers and are currently executing the proof-of-concept Phase II study. Interstitial cystitis and bladder pain syndrome patients are being screened, dosed, and site activations are ongoing and going very well. We're excited about this program, as it is the first time that the crosstalk hypothesis will be tested in humans, and we're proud to be at the forefront of clinical development in this area. We're looking forward to providing updates as the study continues to advance. With that, I'll turn the call over to Sravan.

Thanks, Mike, and good morning, everyone. It is wonderful to be in a position to discuss such great financial performance with all of you. I will begin with an update on LINZESS, which is off to an impressive start to the year. As shown on Slide 11, U.S. net sales were $250 million in the first quarter of 2023, an increase of 8% compared to the first quarter of 2022, driven by strong prescription demand growth of 10% year-over-year. We are excited about the strong start to the year and the continued momentum of the brand. Turning to LINZESS brand profitability. Commercial margins in the first quarter of 2023 were 73% compared to 74% in the first quarter of 2022. Moving to Ironwood revenues. In the first quarter of 2023, Ironwood revenues were $104 million, driven primarily by U.S. LINZESS collaboration revenues of $102 million. Ironwood recorded $20 million of income tax expense, the majority of which was noncash. GAAP net income was $46 million, and adjusted EBITDA was $60 million in the first quarter. Next, cash and capital allocation. In the first quarter, we generated $80 million in cash flow from operations and ended the quarter with $740 million in cash and cash equivalents. We believe we are positioning our company for future success by maximizing LINZESS growth and actively pursuing innovative, highly differentiated GI assets to strengthen our portfolio. We continue to take a balanced and disciplined approach to capital deployment and remain focused on identifying and investing in opportunities that we believe have the potential to create value for our patients and our shareholders over the long term. Next, I'll review our 2023 guidance on Slide 12. We are encouraged by the strong start to the year and reiterate our full year 2023 guidance across all metrics. We continue to expect LINZESS U.S. net sales growth of between 3% and 5%, driven by high single-digit percent prescription demand growth. In addition, we expect to maintain our class-leading payer access. 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 had a strong start to the year and expect to build on the momentum with a potential midyear pediatric functional constipation indication. Our first quarter results reflect continued execution against our strategic priorities. We believe Ironwood is well-positioned for continued growth, and we remain focused on maximizing LINZESS, strengthening and progressing our innovative GI portfolio, and delivering sustained profits and generating free cash flow. We are excited about what's ahead this year, and we'll continue to keep you updated on our progress. 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 the line for questions.

Your first question comes from Tim Chiang with Capital One.

Tom, could you talk a little bit about just obviously, the demand trends for LINZESS are doing quite well. And could you just talk a little bit about how you sort of see the rest of the year playing out for LINZESS? Obviously, it looks like you're going to get a pediatric functional constipation indication. How much additional growth do you think you'll see with that indication longer?

We're quite excited about what we're experiencing in the first quarter of this year, and we continue to see demand growth moving forward. We need a couple more data points to fully understand how we expect to end the year, which is why we are maintaining our current guidance. The next month or so will provide a clearer picture. Typically, this market slows down in the summer but accelerates in the latter half of the year, although we aren't seeing that trend currently. Instead, we are experiencing market growth and capturing a significant share of it. We find ourselves in a very healthy position as a brand. Notably, we have observed a growth spike that aligns with our new direct-to-consumer advertising campaign and adjustments to our physician outreach plan with AbbVie, which we believe is contributing to the growth. We are optimistic about the pediatric population, as there are 6 to 8 million children suffering and actively seeking care, unlike adults who often try to self-medicate. Children with severe abdominal symptoms and constipation are likely to visit doctors multiple times, and we aim to address this need. We plan to allocate our investments thoughtfully and will conduct a series of pilot programs with AbbVie to evaluate how responsive the pediatric market is to promotions, which will guide our investment decisions for next year. While we are hopeful for growth from this market, the significant impact is likely to materialize in 2024 and 2025 as we focus on and invest in it. For now, we are very pleased with the drug's performance.

And maybe just one question on CNP-104. Mike, you talked about T-cell response. What sort of threshold do you need to see in this Phase II study?

So as you know, this is a first-in-human study with this technology in PBC, so we're going to learn a lot. It's one of the reasons why we actually did this deal because the science is so strong, and we feel we really do have an opportunity to understand how the drug may work by looking at the T-cell responses. You may also recall back in the celiac study, they had a pretty robust T-cell response, meaning the using nanoparticles with gliadin or gluten inside that reduced T-cell responses with treatment roughly like 88%. So that's was pretty robust. But the key point is not necessarily a T-cell reduction, but that it correlates with the biomarkers as well, and in celiac, it actually correlated with epithelial histology improvement. So we're going to look at the T-cell responses, and we think we can get a really clear gauge on whether the drug is going to work by the T-cell responses. The absolute percent will remain to be seen, but we're going to have to look at the correlation with the biomarkers in terms of liver function to really understand where that's going to play out in terms of the longer-term clinical benefit. But we're really excited about the opportunity to look at the T-cell responses early to really make an early read for further investment and for the business case downstream because we think the science is so strong. There's just a great opportunity to do that.

And Mike, maybe if you comment also on which biomarkers are probably most relevant and how does the FDA look at that as an endpoint as far as drugs respond.

The biomarkers are well established due to previous regulatory interactions involving ursodeoxycholic acid and obeticholic acid. In those programs, the agency concentrated on alkaline phosphatase, which is reasonable as it is a primary indicator of cholestasis, referring to delayed or halted bile flow, the central issue in these liver diseases. Alkaline phosphatase is clearly a critical factor. Additionally, we consider liver function indicators such as bilirubin and other assessments, including transaminases. Furthermore, biopsy data is included, since obeticholic acid's studies required biopsy-type investigations. This is because the agency aims to ensure that the biomarkers align with tangible improvements in liver function, with biopsies being the current standard. This establishes our strong position with this technology, as the agency utilizes biopsies and other programs to obtain objective evidence of the drug's efficacy rather than relying solely on biomarker-driven evidence. This is the role of the biopsy. We appreciate the utility of T-cells because they will provide a robust objective assessment. Obtaining an early read on such a significant objective measure that reflects the drug's underlying mechanism is greatly advantageous and impactful in drug development.

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

This is Skyler on for David. Can you remind us how you're thinking about the physician target audience for the pediatric opportunity and the potential need to expand sales force headcount to support this opportunity?

As I mentioned earlier, we will be conducting a series of pilots. At this time, there will not be an increase in our selling effort. The positive aspect is that we have a concentrated prescriber base, with about 3,000 to 4,000 doctors generating 30% to 40% of the volume. This allows us to easily integrate these doctors into our existing call list while replacing some lower-performing or less active positions. We will rely on data to inform our decisions. If we observe a significant response, we will reassess the need to increase our selling effort, but that is not our current plan. We are currently reaching out to approximately 35,000 physicians who account for the majority of our business. Therefore, this does not represent a substantial increase in targets, but it will provide us with clear insights into how much effort we need to exert. We will also review not just the selling effort but the overall promotional strategy, which we continue to refine as we balance personal promotion with direct-to-consumer advertising and our direct patient programs.

Your next question comes from the line of Boris Peaker with Cowen.

I guess for CNP-104, I just want to clarify for approval, ultimately, can you get an approval in this indication based on some of these biomarkers like you just talked about, or would you have to do an actual study with a clinical outcome?

So prior history has kind of addressed that with obeticholic acid because they got approval based on the biomarker of improvement in alk phos. That has also been historic with ursodeoxycholic acid or Urso that class of compounds. So it has been done usually in that setting has happened in the obeticholic acid case. They get a post-marketing requirement to do another study like a liver study, but they're on the market. And that's clearly because the benefit with those agents, they improve cholestasis. So patients do better and they should be on them, and they're good products, but they don't address the root cause of the disease like we do with CNP-104, and that's also evident in what a responder is for obeticholic acid because the alk phos is the biomarker, but you don't have to normalize alk phos to actually be a responder in those programs. You can actually get to 1.5x or 1.67x normal, which still means you have roughly 50% or 67% of your liver function potentially abnormal because your alk phos is elevated to that degree. So alk phos has been accepted by the agency for a marker for success and does usually come with post-marketing agreements. And that's why we like the objectivity around the T-cell response because getting an early read on that, I think, gives us a real good insight into the opportunity more longer-term.

Clear, Mike. The actual responder endpoint that is to reduce alk phos to a level that's 1.5x normal.

Correct.

And for an ultimate pivotal study, could you get approved really on a placebo control, or do you think you'd have to use an active control in this space since it's the standard of care?

Yes. I think we'll certainly, we'll have discussions with the agency on what the Phase III design would look like. Again, we don't have any data to date to have those discussions. But as soon as we get that, we will. We do anticipate that there's an opportunity for placebo-controlled now granted Urso standard of care as well as Urso failures can take obeticholic acid. So we need to manage that. Obviously, we want to keep patients being treated. Currently, the study we're designing is for Urso and nonresponders. So we do have to cross that bridge when we get there. But I think that's really another unique feature of this asset because even in the setting of an Urso responder or an obeticholic acid responder, again, they still have often an abnormal alk phos and there still is benefit using this therapy. So standard of care or not included, we still think we have an opportunity to show a benefit even in patients who may be a responder to the other agents being used. Does that make sense, first?

Your next question comes from Jacob Hughes with Wells Fargo Securities.

A couple of questions. On the pricing headwind in the quarter, I think the implied it was down three. Could you just talk about the dynamics you're seeing for the rest of the year because if there was any benefit? Because I think last year, you guys had one-time growth in that benefit in the first quarter of last year, is that a similar dynamic?

I would start by saying I'm really pleased with the start to the year. The 8% net sales growth was driven by prescription demand of about 10%, with the remainder coming from price increases. Overall, performance was in line with expectations. We have a good sense of our price expectations for the year, which differs from last year's one-time price benefit. This quarter's results reflect our contracting efforts and alignments for the full year and might be slightly better than we anticipated. We previously indicated mid-single digits as our full-year guidance regarding price. We'll see how it develops, but I'm very satisfied with our current position.

And then on the guidance, okay, like the first quarter is a little bit better from our demand standpoint, like the weekly scripts look about the same so far in the second quarter. Pricing is a little bit better. So is there anything you're seeing in the back after the year that's giving you some pause in terms of the guidance? I know it's only one quarter in the back. And then how much of the pediatric functional constipation indication is that in there for the second half as well?

So look, yes, so let me start by saying, look, I think we're really excited about where we are this year. And I think we want to see 1 quarter doesn't make transient. I am going to see a little bit more data before we can come back to you and give you any change in the guidance at all. But we're pleased with the momentum we have in the first quarter. And on the price piece, I was trying to just put a finer point, I'd look it fluctuate from throughout the year. First quarter was more moderate than we experienced in the course of 2022. If this sustains itself, I think we'll be able to come back to you and give you a better sense. Our guidance does and has always contemplated any contribution from pediatrics. So look, I think we're really happy with where we are. I think you've heard it on the call; excitement is here on LINZESS's performance. If we have something to tell you in the second quarter and we continue to see performance like this, we may come back to you to give you an update.

I think we're cautiously optimistic, and this is why we're kind of being a little careful this year with regard to the upside of the pediatrics. This is the reason why, again, we're running these pilots to really understand how promotional response this group is. And we'll have a lot more information by the end of the third quarter with regard to what we think we're going to see because I think we'll see a quick response, one way or the other. I think we'll have a pretty good line of sight. I think the one thing we've learned in this market, this category is one, the kids are actively seeking care, as I mentioned. But also these physicians end up to be quite pediatricians who follow clinical practice guidelines and standard of care. This will be the only drug actually approved for functional constipation. We think that's a real asset because traditionally, pediatricians don't like prescribing drugs off-label for kids. To have a drug that's approved for these kids, I think it could be a real advantage. But stay tuned, and we'll certainly keep you updated as far as what we see in the market as we launch the new indication.

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