Earnings Call Transcript - IRWD Q2 2024

Operator, Operator

Thank you for standing by. My name, Celine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Q2 2024 Investor Update Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Matt Roache, Director of Investor Relations. Please go ahead.

Matt Roache, Director of Investor Relations

Thank you, Celine. Good morning, and thanks for joining us for our second quarter 2024 investor update. Our press release issued this morning can be found on our website. Today's call and the accompanying slides include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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, 2023, and in our subsequent 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, 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 Operating Officer and Chief Financial Officer, will provide a commercial update to review our financial results and guidance. Andrew Davis, our Chief Business Officer, is available for the question-and-answer session following our prepared remarks. 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 slide separately. With that, I'll turn the call over to Tom.

Tom McCourt, CEO

Thanks, Matt. Good morning, everyone, and thanks for joining us today. We continue to make progress across our strategic priorities in the second quarter. Starting with LINZESS, prescription demand remains robust, increasing 11% in the second quarter with continued strength in new-to-brand prescriptions which grew 15% versus the prior year. This marks the sixth consecutive quarter of double-digit new-to-brand volume growth underscoring that patients and providers are consistently choosing LINZESS. While demand is up, LINZESS is continuing to experience pricing headwinds driven by higher-than-expected Medicaid utilization which is impacting our U.S. net sales. As a result, we are revising our full-year 2024 guidance. Sravan will speak more to the specifics on the call later. From a financial perspective, even with the continued LINZESS pricing pressure, we believe we are in a fortunate position with meaningful cash flows generated by LINZESS and a capital structure to support continued execution of our strategic priorities over the upcoming years. Moving to our pipeline. In May, we presented our late-breaking STARS Phase 3 data at the Digestive Disease Week meeting, which was very well received. Since DDW, we've continued to receive positive feedback on Apraglutide's clinical profile from physicians, key opinion leaders, and patient advocacy partners. The positive feedback was reinforced through a recent advisory board meeting supporting our belief that if approved, Apraglutide would be the drug of choice among physicians to treat adult patients with short bowel syndrome who are dependent on parenteral support based on its differentiated profile including demonstrated efficacy, tolerability, and once-weekly dosing convenience. We believe these three distinguishing factors will drive uptake, adherence, and improve quality of life for patients with short bowel syndrome who are dependent on parenteral support. We also continue to make strides in our commercial planning activities for Apraglutide and we are encouraged that patients identified by the recently implemented ICD-10 codes have supported our estimates of between 8,000 and 10,000 adult SBS patients who are dependent on support actually existing in the U.S. today. We believe a significant portion of these patients remain untreated by currently available therapies. The ability to identify these unique patients using ICD-10 codes is an important development to enable a more targeted and informed go-to-market strategy. And we continue to believe Apraglutide is well positioned to address the ongoing unmet needs because of its strong clinical profile including the convenience of once-weekly dosing, the low incidence of both injection site reactions and GI tolerability issues, and demonstrated high rates of compliance as seen in the STARS Phase 3 study. Moreover, we are developing a robust patient service program to help drive uptake and adherence to therapy. We're advancing our launch planning and are confident we are well equipped to commercialize Apraglutide, if approved, with an established sales force with a very strong presence in the offices of GI specialists across the United States. Over the past few months, we've continued to progress toward the Apraglutide NDA submission, a label focused on adult SBS, and expect to complete the filing in the first quarter of 2025. Mike will provide additional details on our submission strategy in a few minutes. Next, CNP-104 for the potential treatment of primary biliary cholangitis. We are on track to share Phase II proof-of-concept top-line results this quarter, which will inform a decision on our option to acquire an exclusive license from COUR Pharma for CNP-104 in the US. Moving to our third strategic priority of delivering sustained profits and cash flow. In the second quarter, we generated $33 million of operating cash flow. Also, in June, we repaid the $20 million principal amount of our 2024 convertible notes upon maturity, using a combination of cash on hand and funds drawn from our revolving credit facility. Looking ahead, we are intently focused on managing LINZESS pricing pressure to maximize profits and cash flow while simultaneously progressing our pipeline to extend Ironwood's growth horizon beyond LINZESS. With that, I'll hand it over to Mike to discuss our pipeline in more detail.

Mike Shetzline, Chief Medical Officer

Yeah. Thanks, Tom, and good morning, everyone. I'll start with an update on the NDA submission for Apraglutide for patients with short bowel syndrome who are dependent on parenteral support. As Tom mentioned, we've made steady progress in preparing the NDA submission. Our plan is to pursue a rolling NDA review. The rolling review allows us to submit completed sections of the application as they become available and continue to engage with the agency as we proceed with the submission process. We expect the rolling review process to begin in the fourth quarter. The early modules will include the non-clinical and clinical components. As we progressed work on the regulatory filing, in conjunction with our commercial planning activities, we decided to make enhancements to the presentation of the vial kit to optimize it for commercial use. As a result, we expect to fully complete the NDA submission in the first quarter of 2025. Moving to slide 8. As Tom pointed out, we continue to receive positive feedback on Apraglutide's clinical profile and believe it has the potential to improve the standard of care for patients living with SBS who are dependent on parenteral support, based on the combination of demonstrated efficacy, tolerability, and once-weekly dosing convenience. In cell-based assays of receptor activation, Apraglutide retained potency and selectivity at the GLP-2 receptor, compared with native GLP-2 and Teduglutide and is uniquely designed to accelerate intestinal growth for improved gut function and absorption. Apraglutide is the only GLP-2 analog to achieve a statistically significant reduction in weekly parenteral support volume with once-weekly dosing. Patients achieved clinically meaningful parenteral support reductions as early as week eight in the STARS Phase III study. In addition, we saw a powerful parenteral support volume reduction with Apraglutide as some patients achieved two and three days off per week. Furthermore, seven patients were able to achieve enteral autonomy by week 24, including patients with a stoma versus none on placebo. Importantly, Apraglutide demonstrated high rates of compliance and similar rates of adverse events were observed between treatment and placebo groups with no malignancies and discontinuations due to GI tolerability issues. We look forward to continuing to evaluate the robust data set from the largest ever GLP-2 study in short bowel syndrome with intestinal failure and plan to disclose further findings at additional medical meetings, including the American College of Gastroenterology meeting in October, where our Phase 3 subgroup analysis was accepted for an oral presentation. Before moving on, I'd like to take a moment to highlight that August is a Short Bowel Syndrome Awareness Month. As part of our unwavering commitment to people suffering from SBS, I want to say a big thank you to this rare disease community of patients, advocates, caregivers, investigators, and health care professionals for their dedicated support and ongoing devotion to raising awareness around the serious and chronic malabsorptive disorder. Moving to CNP-104 on slide 9. This is a tolerizing immune-modifying mono-particle for the treatment of primary biliary cholangitis, which is a rare autoimmune disease that causes the liver's bile ducts to slowly deteriorate and can lead to irreversible damage and scarring of the liver, ultimately requiring liver transplant. As a reminder, the Phase II study is a 42-patient placebo-controlled study evaluating safety, tolerability, pharmacodynamics, and efficacy of CNP-104 in patients with PBC who are unresponsive to UDCA and/or Ocaliva. Top-line results will be based on data through day 120 of treatment. A positive signal of liver function markers in addition to T cell response would further support the potential for CNP-104. Top-line data from the Phase II proof-of-concept study in patients with PBC remains on track and we look forward to sharing top-line results with you later this quarter.

Sravan Emany, Chief Operating Officer and Chief Financial Officer

Thanks, Mike, and good morning, everyone. I'll begin on slide 11. As Tom mentioned earlier, LINZESS continued to deliver impressive demand growth in the second quarter. LINZESS volume grew 11% year-over-year in the second quarter while new-to-brand prescriptions increased 15% compared with the second quarter of 2023. On a year-to-date basis, LINZESS extended units and new-to-brand volume growth increased 10% and 16% year-over-year, respectively, reinforcing that patients and health care practitioners continue to choose LINZESS in a growing market. Next, I'll discuss collaborative arrangements revenue on slide 12. LINZESS US net sales as reported by AbbVie were $211 million in the second quarter. In the second quarter, Ironwood recorded a $17 million adjustment to collaborative arrangements revenue. This $17 million adjustment is comprised of two components; Ironwood increased collaborative arrangement revenues by $30 million related to the 2023 LINZESS change in gross to net estimate that Ironwood previously reported in the first quarter, as this change in estimate is now reflected in the second quarter of LINZESS US net sales as reported by AbbVie. In addition, Ironwood recorded a $13 million reduction to collaborative arrangements revenue in the second quarter to reflect Ironwood's estimate of LINZESS gross to net reserves as of June 30, 2024. With this adjustment, Ironwood's U.S. collaboration revenue was $91 million in the second quarter. Before moving on to our financial highlights, I'd like to take a moment to discuss what is happening with Medicaid in more detail. Over the past few quarters, we have seen growth in LINZESS Medicaid prescription volumes and an increase in Medicaid prescriptions as a percent of our overall LINZESS business. We now believe the higher-than-expected Medicaid utilization which we saw in 2023 will also be higher than expected in 2024 based on a combination of legislative and market factors, which include Medicaid redeterminations having a lower-than-expected impact on LINZESS. While fewer patients are enrolled in Medicaid across the country, we have not seen that correlate to lower LINZESS utilization to date. We have also seen state-by-state changes with some states actively expanding Medicaid enrollment eligibility and some making changes to the Medicaid formulary position. Additionally, as we had shared at the beginning of the year, in 2024 we faced uncapped rebates on LINZESS Medicaid volumes from the AMCAP repeal legislation, which has led to higher rebates on our Medicaid book of business than we had in 2023. While these rebates have played out as expected to date, higher Medicaid utilization trends have further magnified the pricing headwinds associated with the AMCAP repeal for 2024. We continue to monitor these trends closely and remain focused on maximizing LINZESS profits and cash flows and optimizing our investments as we seek to mitigate these increased pricing pressures. Now turning to our financial highlights on slide 13. Ironwood revenue in the second quarter was $94 million, a decrease of 12% year-over-year. GAAP net loss was $1 million and adjusted EBITDA was $28 million. In June, we repaid the $200 million principal of the 2024 convertible notes upon maturity using $50 million of cash on hand and a $150 million draw on our revolving credit facility. The outstanding principal balance on the revolver was $424 million at the end of June. We ended the second quarter with $106 million of cash and cash equivalents on the balance sheet. We continue to believe LINZESS cash flows will support our existing portfolio including the Apraglutide launch, the progress on our development programs, and repay our debt. Moving to slide 14. We are revising our full-year 2024 guidance to reflect additional pricing risk, primarily associated with the higher-than-expected Medicaid utilization trends I just mentioned. As a result, we now expect LINZESS US net sales between $900 million and $950 million, Ironwood revenue of between $350 million and $375 million, and adjusted EBITDA of greater than $75 million. In the second half of 2024, disciplined expense management remains a priority as we seek to offset top-line revenue headwinds to optimize profits and cash flows. To wrap up, LINZESS prescription demand continues to be healthy, but is currently being more than offset by pricing headwinds primarily due to higher Medicaid utilization. Moving forward, we remain focused on maximizing LINZESS profits and cash flows until generic entry in 2029. In terms of our pipeline, I'm excited for the future of Apraglutide where we see an attractive market opportunity and have significant life cycle management initiatives ahead of us. Furthermore, we look forward to providing an update later this quarter on CNP-104 in the potential treatment of PBC. I want to close by thanking all of our employees, patients, caregivers, and advocates for their sheer dedication to advancing and supporting therapies for GI diseases. Operator, you may now open up the line for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Your first question comes from the line of David Amsellem with Piper Sandler. Please go ahead.

David Amsellem, Analyst

Thanks. Just a few. So as you think about 2025 and maximizing the net economics of LINZESS, how do you and AbbVie think about contracting and maybe backing off widespread preferred access as a means of driving a narrower gross to net, perhaps sacrificing some volumes but also driving better net economics? So just help us understand the thought process as we move beyond this year. That's number one. And then number two on CNP-104, help us level set expectations in terms of what you want to see in order to move forward, and then what next steps would look like to the extent that you see an adequate efficacy signal particularly on markers of liver function? Thank you.

Sravan Emany, Chief Operating Officer and Chief Financial Officer

Sure. So good morning, David. Hope you're well. Why don't we start with the second component on CNP-104; I hand that over to Mike and then Andrew will answer the second question regarding the contracting strategy. Mike?

Mike Shetzline, Chief Medical Officer

Yeah. Thanks, David. Yes, the primary thing we're looking at really is in the top-line results for the T cell response. We certainly believe that the T cell response and T cell effects will be a leading indicator of clinical benefit, and we'll also then evaluate several markers of liver function. And the linkage, obviously, between the T cell response and liver function is also equally important for us to look at. As I said we're on track to deliver that this quarter. What comes after that is a little bit premature at this stage, right? This is the first-in-human study proof-of-concept study. We certainly look to learn a lot. But again, we did the deal primarily because we thought we'd have a good look at this T cell response and that this T cell response could be a leading indicator for clinical outcomes. So until we get that, we'll have to wait on what to determine to do after that.

Sravan Emany, Chief Operating Officer and Chief Financial Officer

Thanks, Mike. And then Andrew will respond regarding the contracting question.

Andrew Davis, Chief Business Officer

Yeah, David, thanks for the question. I mean, I think the point is net economics definitely are key for us as we look across the book of business from here to LOE. So I think that's fine as we look at our contracting strategy both for next year and the future. We'll really be looking at what the net economics that get driven over the life of the product.

Amy Li, Analyst

Hey, thanks so much for taking our question. On Apraglutide, given the Q1 2025 submission completion timeline, do you still expect launch in 2025? And then also can you give us some color on how you are optimizing the commercial use kit? I know you alluded to it earlier. Is there going to be any formulation changes, format changes? Any color would be super helpful.

Sravan Emany, Chief Operating Officer and Chief Financial Officer

Yeah, sure. Thanks, Amy, good morning. I'll take those questions. Look, I think our view on approval could occur in 2025 or early 2026 depending on whether we receive priority or standard review. I think that standard review will be early 2026 from our perspective. With respect to the kit, look, I think it's common industry practice that what's used commercially is different than what's used in clinical trials. I think we take a very long view on Apraglutide here as we have IP out into the 2040s. And we want to make sure that the launch is as successful as possible. As we conducted human factor trials, we've learned ways to make the commercial bile kit presentation easier for patient use, and we're implementing those changes. So not to get into a lot of detail, but I think the goal here is to make it easier for patients to administer themselves.

Mohit Bansal, Analyst

Thank you for taking my question. I have two questions. First, it appears that the pricing pressure increased more than you expected in the last quarter. You mentioned that you anticipated this pricing pressure would start in 2025, so I thought last quarter was more about 2025 and beyond aligning with your previous expectations. Has anything changed in that perspective regarding how we should view the revenue growth trajectory for 2024 at this point? Second, concerning CNP-104, could you remind us when you observed the healthy voluntary study, what type of T cell responses were seen in those patients, and how that correlates with the sickle patient trial?

Sravan Emany, Chief Operating Officer and Chief Financial Officer

So Mohit, could you repeat the second part of that question? Was the question regarding the T cell response that COUR observed?

Mike Shetzline, Chief Medical Officer

I can provide some information. This is the first human study for CNP in patients with PBC, involving 42 participants. There is no other clinical data set available. You might be referring to an older study conducted with the COUR platform in celiac disease. While celiac is a different autoimmune condition, it is a complex type involving multiple responses. The gliadin peptides responsible for celiac have various epitopes and are influenced by several deamidated gliadin peptides. Additionally, it is possible to challenge T cells with gluten differently than the T cells that are primarily located in the liver for PBC. Therefore, there are distinctions between these two diseases. Nevertheless, we believe our approach is a valid method to explore the potential benefits of this platform technology in an autoimmune disease like PBC. We are employing various techniques to evaluate antigen-specific T cell responses, which is how we differentiate between the two diseases.

Sravan Emany, Chief Operating Officer and Chief Financial Officer

Yes. And then Mohit, with respect to the guidance, look, in Q1 I think as we mentioned, we did anticipate higher utilization for the full year 2024, and that was our best estimate at the time. Since Q1, we've seen higher than even higher than anticipated Medicaid utilization of LINZESS and felt that it was prudent to revise guidance. And therefore, you can see we've meaningfully modified our guidance to account for that even higher utilization. That's driven again by the three things we talked about, which is even though there are fewer patients on Medicaid LINZESS use continues to increase in terms of our business in terms of share. The AMCAP removal is pretty significant. And then there's also just changes that are occurring on the state level with respect to enhanced increased eligibility and then also just formulary changes. So, all of that has just led to an even greater increase than we anticipated at the start of the year for the book of business.

Jason Butler, Analyst

Hi. Thanks for taking the question. Just a couple on Apraglutide. Can you just talk about what the remaining gating items are to submitting the BLA and 1225? And then just as you continue to get ready for launch, what is the work that you're doing? What is the feedback that you're getting from potential prescribers on the data?

Sravan Emany, Chief Operating Officer and Chief Financial Officer

Yes. Great. Mike, do you want to tackle that one in terms of outstanding remaining items of trial?

Mike Shetzline, Chief Medical Officer

Sure. Yes. We've made steady progress in preparing the NDA, with a strong focus on the quality of the data package. The early modules we're currently working on will include both non-clinical and clinical components. We've been advancing the regulatory filing alongside our commercial planning activities. Additionally, we've provided more information regarding the optimal approach to pursue the vial. We've decided to enhance the presentation of the vial to improve its commercial viability, and we are in the process of finalizing the commercial supply chain and the documentation supporting the CMC components of the application. We expect to complete this by the first quarter of 2025.

Sravan Emany, Chief Operating Officer and Chief Financial Officer

And then, with respect to the feedback, Mike on the clinical profile from physicians and other key opinion leaders.

Mike Shetzline, Chief Medical Officer

Yes, we've received excellent feedback from external stakeholders, including prescribers and key opinion leaders. They are quite impressed that we are the first and currently only once-weekly treatment to successfully meet the primary endpoint in SBS-IF, which is a significant achievement. Our tolerability profile has also been received positively. As Tom shared, we held an advisory board meeting with numerous externals and prescribers, and the reception was very favorable. There is a lot of enthusiasm, and we aim to maintain that engagement with prescribers and the community while pushing forward to submit for market entry as soon as possible.

Tom McCourt, CEO

Jason, this is Tom. I’ll ask Andrew to join in as well. As we consider our next steps, we are focused on preparing the market and our organization for a successful launch. We have already started some disease awareness initiatives aimed at identifying patients and ensuring they are enrolled in our support programs to start therapy quickly and maintain their treatment. One crucial piece of information that has become available is the new ICD-10 codes, which help to identify many of these patients and confirm their numbers. This data will also inform our go-to-market strategy, which was previously unavailable. As our commercial team refines this strategy, we aim to enhance disease awareness, proactively identify patients and their locations, and align these efforts with our commercial resources, including the sales force already working in many of these offices and the patient support services that will be essential for driving business growth. Andrew, do you have any additional comments?

Andrew Davis, Chief Business Officer

No. I think you nailed it. I think we're excited here, Jason. I think we're getting great feedback.

Tim Chiang, Analyst

Thanks. Mike, could you discuss how much interaction or discussion you've had with patient advocacy groups regarding Apraglutide for short bowel syndrome? What kind of responses have you received so far? Also, have you begun discussions with payers about Apraglutide?

Mike Shetzline, Chief Medical Officer

Yes. Thanks, Tim. Go ahead, Sravan.

Sravan Emany, Chief Operating Officer and Chief Financial Officer

I apologize. Go ahead.

Mike Shetzline, Chief Medical Officer

Yes, we have a strong connection with patient advocacy groups. This disease has been highly vocal and has had a long-standing advocacy from patients, starting decades ago with the Oley Foundation. There is a lot of great networking happening among patients. The feedback we have received from them has been very positive, with many participants in our trial. Compliance in our trial has been high. Participants have mentioned how convenient the drug is to use, as they do not experience some of the adverse effects that other agents may cause more frequently. Overall, this has been a very positive experience. The fact that it is administered weekly is a significant advantage. If someone is not on parenteral support every day and only needs it four or five days a week, taking medication daily can be burdensome. The weekly administration greatly enhances the usability for the SBS-IF community. In general, the response has been overwhelmingly positive.

Tim Chiang, Analyst

Okay. Great. And Sravan, I have one follow-up, just on the LINZESS JV. Commercial margins, I think they were what, 62% this quarter. Do you think that number can stay around that figure in the back half of this year?

Sravan Emany, Chief Operating Officer and Chief Financial Officer

Yes. So look, from a commercial margin perspective, I think since the spin, Tim, the company has been very focused on maximizing the brand profit and then improving it as much as possible. I think we had opened this year with the guidance that we thought would be close to 70%. I think our guidance reflects our best estimate in terms of our profit as of now and where we sit today. Well, I think the point of that is that we've adjusted our guidance down to $900 million to $950 million of net sales for LINZESS accounting for increased Medicaid utilization throughout the back half of the year.

Operator, Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.