Ironwood Pharmaceuticals Inc Q3 FY2023 Earnings Call

Thank you for being here. My name is Aaron, and I will be your conference operator for today. I would like to welcome everyone to the Ironwood Pharmaceuticals Q3 2023 Investor Update Conference Call. I will now hand the call over to Matt Roche, Director of Investor Relations. Matt, please proceed.

Thank you, Aaron. Good morning and thanks for joining us for our third quarter 2023 investor update. Our press release issued this morning is 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 quarterly report on Form 10-Q for the second quarter ended June 30, 2023, in our subsequent SEC filings. All forward-looking statements speak as of the date of this presentation. 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 Chief Executive Officer, will begin with a brief overview. Mike Shetzline, our Chief Medical Officer, will discuss our pipeline; and Sravan Emany, our Chief Financial Officer, will provide a commercial update and 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, and good morning, everyone, and thanks for joining us today. As we approach the end of the year and look back on the progress we've made across our strategic priorities, we are pleased with the strides we’ve taken towards realizing our vision to become the leading GI health care company in the industry. As you’ve come to expect from us over the years, we continue to maximize LINZESS by driving robust demand growth and expanding its clinical utility while generating strong cash flows. We are on track to deliver on our LINZESS net sales guidance of growth between 6% and 8% this year and remain encouraged about the future growth potential of LINZESS based on its continued strong performance in the third quarter. But importantly, this year, we have also strengthened and progressed our GI portfolio in areas of high unmet need. Earlier this year, we acquired VectivBio, including its lead investigational asset in development for the treatment of short bowel syndrome with intestinal failure, which we believe has the potential to achieve $1 billion in peak net sales and extend the growth horizon for our company into the 2030s. We couldn't be more excited about the potential for apraglutide, and just a few weeks ago, at the United European Gastroenterology Week, we presented positive final 52-week data from the Phase 2 STARS Nutrition study in short bowel syndrome with intestinal failure and colon in continuity, which were featured during a late-breaker oral presentation. We believe these data highlight the potential for apraglutide to be the best-in-class GLP-2 analog for the whole spectrum of patients in short bowel syndrome with intestinal failure, including those with colon in continuity and reinforce our high conviction for the STAR clinical program. In addition, we are also excited about the progress of CNP-104, a potentially disease-modifying therapy for the treatment of Primary Biliary Cholangitis or PBC. The design of the CNP-104 program and the structure of the License and Option Agreement with Core Pharmaceuticals are examples of our disciplined approach to building and progressing our development portfolio. The sound scientific rationale for CNP-104 and the specificity of the target, the PDC-E2 antigen, provided an opportunity to review the early effect on T-cell response. This assessment showed evidence of T-cell responses in patients treated with CNP-104, which is very encouraging. Together, these positive developments across our pipeline reinforce our confidence in the tremendous opportunity we have in front of us with multiple programs that have the potential to improve standard of care and improve quality of life for patients managing GI diseases. And we also have key upcoming data that will help clarify our path forward. Our commitment and optimism to develop and advance innovative GI assets is as strong as it's ever been. We believe the positive momentum across our GI pipeline programs, combined with the continued strong performance of LINZESS, uniquely positions us on our mission to be the leader in GI. We're looking forward to a strong finish in 2023 and are very excited about the key catalysts ahead in 2024, which we believe will propel Ironwood's growth and ability to create value for patients and shareholders for the years to come. I would now like to turn it over to Mike, who will review our pipeline in more detail.

Thanks, Tom, and good morning, everyone. I'm delighted to provide an update on our pipeline programs, starting with our progress in Short Bowel Syndrome with Intestinal Failure, or SBS-IF, on Slide 8. Short Bowel Syndrome with Intestinal Failure results from severe organ failure, due to reduction in intestinal function below the minimum necessary for normal nutrient and fluid absorption, leading to dependence on lifelong parenteral support or intravenous administration of fluid and nutrients to maintain health, growth, and survival. SBS-IF is associated with increased mortality, significant morbidity, high economic burden, and reduced quality of life. On Slide 8, we highlight two distinct patient populations within SBS-IF that have different metabolic needs. They are stoma and Colon-In-Continuity, often referred to as CIC. Patients with stoma often have a higher degree of fluid loss and dehydration than those with Colon-In-Continuity, since the lack of colon makes sufficient fluid re-absorption more challenging. These patients are often dependent on lifelong parenteral support and may require parenteral sport infusions for up to 10 to 15 hours a day for seven days a week. Patients with Colon-In-Continuity typically require more nutritional support than absolute fluid volume. Colon-In-Continuity patients, due to the presence of a functional colon, may have a better opportunity to achieve enteral autonomy, which is the elimination of parenteral support altogether. SBS-IF patients with CIC represent greater than 50% of the SBS-IF market and are a distinct patient population currently underserved by available treatments. Now to Slide 9. As Tom mentioned, we're excited about the positive final 52-week data from the open-label Phase 2 STARS Nutrition Study. STARS Nutrition is the first ever dedicated study designed to evaluate the clinical benefit of a GLP-2 analog specifically in short bowel syndrome with intestinal failure with Colon-In-Continuity. As you can see on Slide 10, parenteral support volume reduction reached a statistically significant 40% at week 24, and the effect was maintained with a 52% volume reduction at week 52. And as shown on Slide 11, all patients were clinical responders, defined as those achieving a parenteral support volume reduction of at least 20%. At week 52, seven of the nine patients, or 78%, achieved at least one day off parenteral support. At week 52, patients gained 2.1 days off parenteral support per week compared to a mean of 5.2 days per week at baseline—a significant improvement which allows patients more independence. Apraglutide, which was found to be well tolerated, had an acceptable safety profile. These data are a strong testament to the durability of the effect of apraglutide on improving intestinal absorption and reducing parenteral support dependency in CIC patients and reinforces our high conviction in the Phase 3 study. Moving to Slide 12, the STARS Phase 3 study is the largest GLP-2 trial ever conducted in SBS-IF with 164 patients and has been designed to evaluate efficacy in both stoma and colon-in-continuity patient populations. The STARS Phase 3 study's primary endpoint, which includes some CIC patients, is the relative change from baseline in weekly parenteral support volume at week 24. We believe apraglutide has the potential to improve the standard of care as the only once-weekly GLP-2 therapy for SBS-IF if successful and approved. We're looking forward to the top line data expected in March 2024, and we'll keep you updated as the study continues to advance. On Slide 13 is an expanded view of our portfolio. In addition to evaluating apraglutide for short bowel syndrome with intestinal failure, we're also evaluating the asset as a potential treatment for patients with graft-versus-host disease, or GvHD. Graft-versus-host disease is immunologically mediated and occurs in individuals undergoing allogeneic hematopoietic stem cell transplants, where donor immune cells react against the host recipient. The gastrointestinal tract is among the most common sites affected by GvHD, and severe manifestations of GvHD tend to have a poor prognosis in these patients. Enrollment is completed, and data is expected from this open-label Phase 2 study in the first quarter of 2024. Now for CNP-104 for the potential treatment of primary biliary cholangitis. PBC is a slowly progressive and debilitating rare disease driven by an autoimmune response to the PDC-E2 antigen, in which autoreactive T cells destroy the bile ducts, the underlying root cause of the disease. This may result in profound fatigue and pruritus, as well as other symptoms, and can lead to irreversible damage and scarring in the liver, ultimately requiring liver transplant. As Tom mentioned, given the strong science behind this clinical program, we had the opportunity to assess peripheral T cells. We completed an early assessment, which showed evidence of favorable T cell responses in patients treated with CNP-104, supporting the mechanistic rationale for this asset, which we believe could potentially impact disease progression in PBC. We're encouraged by the T cell response, and we expect top line data results in the third quarter of 2024. As a reminder, the primary endpoint in the Phase 2 study includes safety, tolerability, plus change in alkaline phosphatase. We're excited about CNP-104 because it is truly precision medicine and introduces a potentially new game-changing therapy for PBC patients, as there are no therapies on the market that address the root cause of this progressive liver disease. Moving on to IW-3300, a wholly-owned Ironwood asset for the potential treatment of interstitial cystitis and bladder pain syndrome, in which there’s a significant unmet need. This condition affects millions of Americans, yet there are very few treatment options currently on the market or in development. We're currently executing a proof-of-concept Phase 2 study which is progressing. We're excited about this program as it 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. Over the past couple of years, we've evolved Ironwood into a leading GI company with a robust pipeline that addresses serious organic GI diseases with high unmet patient need. We're looking forward to an exciting and potentially transformational year for Ironwood with several catalysts in 2024, highlighted by the top line data from the STARS Phase 3 study in March in short bowel syndrome with intestinal failure and top line data from the ongoing Phase 2 study in CNP-104 in the third quarter of 2024. With that, I'll turn it over to Sravan to review LINZESS’s performance.

Thanks, Mike, and good morning, everyone. I'll begin on slide 15. In the third quarter, LINZESS delivered another quarter of impressive volume growth increasing 8% versus the third quarter of 2022. New-to-brand prescriptions were strong once again, growing 16% year-over-year, reinforcing that patients and healthcare professionals continue to choose LINZESS in a growing market. We believe there is a significant opportunity to reach appropriate new patients, drive additional prescription demand growth, including the roughly six million children and adolescents aged six to 17, who suffer from functional constipation. Since the June FDA approval in this pediatric population, we have been promoting LINZESS to pediatric gastroenterologists in specific geographies, and we'll continue to assess future promotional expansion based on market responses from these efforts; and we have received great feedback so far. Additionally, at the recent North American Society for Pediatric Gastroenterology, Hepatology & Nutrition Annual Meeting, we met with a number of healthcare professionals. We're excited by the ability to prescribe LINZESS to help this pediatric age group, which is very encouraging. We look forward to providing updates as we continue to gain more insights into this opportunity, which will help inform the investment level and net sales potential in 2024. Next, I'll provide a brief update on the VectivBio transaction. The integration of Ironwood and VectivBio business operations is ongoing and progressing as planned. As we continue to integrate, we remain focused on ensuring business continuity, learning from our new colleagues, and progressing apraglutide expeditiously. As a reminder, third quarter financial results, notably operating expense and cash flows, include the first full quarter impact from the VectivBio acquisition. We also continue to take the necessary steps to effectuate the squeeze-out merger under Swiss law to acquire the remaining 2% of outstanding VectivBio shares. We expect this process to be completed by the end of this year, and we will provide additional updates once this process is completed. Next, I'll provide additional details on our third quarter financial performance starting with LINZESS. As shown on slide 16, US net sales were $279 million, an increase of 7% year-over-year, driven by strong LINZESS prescription demand growth of 8% versus the prior year quarter, in line with our full year guidance. Commercial margins were 72% compared to 74% in the third quarter of 2022. Ironwood revenues were $114 million, driven primarily by US LINZESS collaboration revenues of $110 million. Ironwood recorded $18 million of income tax expense in the third quarter, the majority of which was non-cash. In addition, Ironwood recorded $10 million in interest expense and other financing costs and generated $2 million in interest investment income. GAAP net income was $14 million and adjusted EBITDA was $49 million. In the third quarter, we generated approximately $33 million in cash flow from operations and ended the third quarter with $110 million in cash and cash equivalents after repaying $75 million of the outstanding principal balance on our revolving credit facility in cash. As of the end of September, the outstanding drawn balance on the revolver was $325 million. Moving forward, we continue to maintain our focus on generating profits and meaningful cash flows. We will prioritize investments to maximize the value of LINZESS, progress our development portfolio, and manage our capital structure through debt paydown while maintaining the flexibility to evaluate additional opportunities for capital deployment. Next, I'll review our 2023 guidance on slide 17. We are reiterating our full year 2023 financial guidance as we remain confident in the continued strength of LINZESS. We continue to expect LINZESS US net sales growth of between 6% and 8%, Ironwood revenue between $435 million to $450 million, and an adjusted EBITDA loss of approximately $900 million, which includes a one-time charge of approximately $1.1 billion from the acquisition of VectivBio. Excluding the impact of the one-time charge, adjusted EBITDA is an approximate representation of operating cash flows. To wrap up, we are pleased with our third quarter results and we are looking forward to a strong finish to the year. We are well-positioned for continued growth and remain focused on maximizing LINZESS, strengthening and progressing our innovative GI portfolio, and delivering sustained profits and generating cash flow. We are excited about continued strong LINZESS performance and the key pipeline catalysts ahead of us, which we believe will help launch Ironwood's next phase of growth. 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, let me now open up the line for questions.

Thank you. Our first question comes from the line of Jason Butler. Your line is live.

Hi. Thanks for taking the question, and congrats on the quarter. Just three for me. First one was, can you speak to what, if any, impact the label expansion had on LINZESS in the quarter and what you're seeing into the fourth quarter? Second, on apraglutide, can you speak to how improvements in enteral autonomy can help with pricing leverage or reimbursement? And then just lastly on CMP-104, can you speak to the magnitude of the T-cell responses and how that might speak to the predictive value for clinical outcomes? Thanks.

Yeah. So I'll answer the first one, Jason, and then I'll hand it over to Mike to get the second and the third. With respect to our 2023 guidance, we're extremely excited to be able to offer LINZESS as the first and only approved prescription therapy for pediatric patients suffering from functional constipation for patients ages six to 17. Our sales guidance of 6% to 8% for the full year includes any impact from the pediatric indication. So it's in the guidance that we've already given. And as a reminder, I think we stated this before, we expect minimal contribution from pediatrics in 2023 as we focus on these promotional pilot programs, and as we kind of assess where we're at, and we'll come back at the start of next year when we give guidance for 2024 as to what we think the opportunity size really will be for next year. Mike, do you want to take the question?

Yeah. I think the question was on the enteral autonomy for the apraglutide program. I think it's an important question because patients who suffer from SBS-IF and require parenteral support actually have a huge economic burden with their disease because they have to connect themselves to this IV administration of fluid and nutrients, oftentimes, as we said, for multiple hours in a day for seven days a week. So your question is on enteral autonomy, but we need to remember that even reducing that requirement by a day or two is a significant economic improvement because these things happen every day; it's a huge burden on the patient, but also a financial burden. On achieving enteral autonomy, where you remove completely the need for parenteral support, is where this becomes curative related to parenteral support need, because you no longer need to tether yourself to the IV fluid administration every day. So that's why we think it's a very important consideration in this population. It's also important to understand that prior products haven't really focused on the Colon-In-Continuity patient population, and with our approach, we think we have a great opportunity in that population to potentially achieve enteral autonomy.

And then lastly on CMP-104, can you speak to the magnitude of the T-cell responses and how that might impact predictive value for clinical outcomes?

The other part of the question I thought I heard was how does this lend to really the pricing opportunity. And obviously, the value proposition here is very strong. One, as Mike mentioned, this is a really burdensome disease. These patients are very costly to manage. And there's certainly a price point out there already established with the currently available therapy, which is sizable. So I think we're looking at bringing a very strong clinical profile to the table that can basically manage probably a broader patient population in a more significant way. Which obviously is going to put us in a pretty good position as far as where we would enter the market and how we've been enter the market. And maybe Mike, you can talk specifically about the T-cells?

Yes, sure. So it's a good question. And I can tell you what we can tell you, okay from a T-cell response magnitude. I mean remember, as Tom alluded to this as well, the reason we did this deal was because of the strong science behind the clinical study and the chance to assess the potential opportunity by analyzing peripheral T-cells. And recall, this is a peripheral T-cells looking for a disease that's confined to the liver and the bile ducts, so we completed the early assessment which showed evidence of T-cell responses which really support the mechanistic rationale for CMP-104, which we believe could potentially impact disease progression. But it's a very small, unblinded review, which was to determine if we could see this effect on T-cells. So while we're encouraged by the early look and by the favorable findings, we do need to remember that as a reminder, the primary endpoint for the Phase 2 has safety and tolerability as well, as well as alkaline phosphatase, and we're really looking forward to that data set to better understand what these changes in the peripheral T-cells mean on clinical endpoints.

Thanks, Jason.

Thank you for the questions. Our next question is from the line of David Amsellem with Piper Sandler. Your line is live.

Hey thanks. So, just had a couple of commercially oriented questions on apraglutide. Can you just remind us of the size of the CIC patient subgroup relative to the stoma subgroup? That's number one. Number two is what is the approximate, if you have this patient footprint or number of patients that are on Gattex, and what's your estimate of the patients that have cycled through it over time? That's number two. And then lastly, just the latest thoughts on how are you thinking about pricing of apraglutide to the extent that a generic of Gattex materializes? Thank you.

I will begin by addressing the first question. Our current estimates suggest that the market is evenly split between stoma patients and CIC patients, with a total market size of approximately 17,000 patients. In terms of the patient population treated with Gattex, we believe around 2,000 patients in the US have received this treatment. Regarding pricing, Tom has already provided some insights. The pricing for Gattex is already established. As for the potential of a generic, we plan to present a compelling data package in the coming months that we believe will be competitive. However, we think generics may not be a viable option due to the limited patient population, evidenced by the fact that only 2,000 patients have been treated with Gattex in the US. This isn't a major asset in a heavily managed disease state, and there's not much volume to expect significant price reductions.

I think there is a low likelihood that we will see a generic. Although there has been an end of file, no one has really taken action on it. We will need to continue maintaining our REMS program. There are many steps involved in launching and supporting a generic. Additionally, with about 50% of patients discontinuing therapy on Gattex within the first year, this highlights the limitations of the drug. Transitioning to a medication that shifts from daily injections to once-a-week dosing, and which is more potent and longer-acting, could significantly benefit a wider patient population, especially those with CIC.

Thank you.

Thank you for your question. Our next question is from the line of Boris Peaker with TD Cohen. Your line is live.

Great. A couple of questions for me. First on 104, just curious why aren't you disclosing the T-cell data? Or maybe another way to ask it is when will we see the actual T-cell data? And then on apraglutide, if we look at Zelanepaglutide, they showed 14% of patients that become independent of parenteral nutrition. I'm just curious how important is that in terms of assessing the apraglutide data?

Thank you, Boris, for your questions. I'll address the first one, and then Mike can provide additional insights. Our plan has always been to run this trial to completion before discussing any results, and we expect that this will take place in 2024. Currently, we anticipate having a readout in the third quarter of 2024 for the trial, at which point we will present a more comprehensive data set regarding the primary endpoint. Mike, do you have anything else to add?

Yes. So for the enteral autonomy question, it's a good question. Clearly, there was enteral autonomy achieved in the CLEPA program that's in the public domain. And you may have seen from our presentation at the UEG meeting, on the SAR nutrition data that we had enteral autonomy achieved in the nutrition study as well. We expect it to be a higher percentage than the 14% that glepaglutide has published. But nonetheless, it's a small open-label study, so we're just looking forward to the Phase III data to better define those outcomes for the patient populations we have in the STAR study.

Great. Thanks for taking my question.

Thank you for your question. Our next question is from the line of Tim Chiang with Capital One. Your line is live.

Thanks. You know, since we're almost done with 2023, and obviously you're doing still quite well with LINZESS, I sort of wanted to get your thoughts on how you sort of look at growth rates for LINZESS for next year? Obviously, you'll probably provide some guidance at the beginning of next year, but how do you guys think LINZESS is situated at this point?

Thanks, Tim. Good to talk to you. I think, as we've said already, we're excited about the performance of LINZESS right now and the volume growth we've had in 2023. The fact that we're in year 11 of the drug still driving high single-digit demand growth is just a great outcome. And so we think that there are a lot of untreated patients that continue to be in a growing market. So we're excited about that. With respect to future guidance, I think we'll give guidance at the appropriate time, which is next year in the early part like we always did.

Yes. I think, Tim, this is Tom. Well it's been really remarkable over the last three years how steady the growth year-over-year has been. And certainly this year has actually been stronger than we've seen in a long time. And what's probably the most important lead indicator here is the volume increase in new-to-brand patients. We're at a 15%, 16% increase year-over-year, which is always probably the best predictor of future growth. So we're certainly not signing up for a 15% increased number for next year. But certainly it's looking very, very strong. And certainly, we're still assessing the upside from the pediatric indication. There's no question we're seeing some growth there, and we really to really understand kind of how much we should be investing in that growth opportunity. But I think things look bright, and I think we're very confident in what we'll see next year.

Maybe just one follow-up. Obviously, we all get a lot of questions about the GLP-1s but the weight loss drugs. Have you seen any impact? I mean, is there any impact to LINZESS from these LP-1 drugs for weight loss?

Yes. I mean, yes, it's a fair question, and we do get questions on it as well on our side. I mean because, as you know, I mean the GLP-1s are definitely being heavily used. And it's also true that obese patients also suffer from constipation quite regularly. So there is a lot of overlap in use. I mean, the actual impact, so that you really want to get at, it's hard to nail that down at present, but we certainly appreciate the question. There may be some things there, and we're looking into it, but we don't really have a direction right now to how to impact that.

Okay. Great. Thanks.

Thank you for your question. And ladies and gentlemen, that will conclude today's Ironwood Pharmaceuticals Q3 2023 investor update conference call. Thank you all for joining. You may now disconnect.