Ironwood Pharmaceuticals Q1 2023 Earnings Call Transcript

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May 4, 2023

There are 9 speakers on the call.

Operator

Welcome to the Ironwoods Pharmaceuticals Q1 2023 Investor Update Conference Call. Today's call is being recorded. After the speakers' remarks, there will be a question and answer session. Thank you. I will now turn the call over to Matt Roche, Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Angela. Good morning, and thanks for joining us for our Q1 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.

Speaker 1

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 ks 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, provide an update on the commercial performance of LINZESS.

Speaker 1

Mike Schetzlein, our Chief Medical Officer, will discuss our pipeline and Shravan Imani, 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.

Speaker 2

Thanks, Matt. Good morning, everyone, and thanks for joining us today. I'm delighted to announce our Q1 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 standard of care for GI patients.

Speaker 2

I believe the progress we've made across the organization in the Q1 demonstrate The steps that are taken 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 amongst healthcare practitioners as a leading branded prescription treatment for adults with IBS C and chronic idiopathic constipation.

Speaker 2

In the Q1, LINZESS U. S. Net sales growth increased 8% year over year. Prescription demand growth increased over 10% as compared to the Q1 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 6 to 17 years of age, if approved.

Speaker 2

Next. We are focused on continuing to strengthen and progress our innovative GI portfolio, starting with CMP-one hundred and four, 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. 2nd, IW3300, 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, and we see several attractive opportunities in the market that we believe are accessible and could benefit from Ironwood's expertise and capabilities at GI.

Speaker 2

Our 3rd strategic priority is delivering sustained profits And generate cash flow. We delivered GAAP net income and adjusted EBITDA of $46,000,000 $60,000,000 respectively, and ended the Q1 with $740,000,000 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 Q1.

Speaker 2

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 $250,000,000 in the quarter. Over the Q1, 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 had treated more than 4,500,000 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 recommendation from both GI societies And the strong commercial execution is driving the demand momentum that we continue to see.

Speaker 2

And we expect this momentum to be augmented Mid year should 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 a stronger financial position as we advance Ironwood's leadership in GI. In a few days, we'll be presenting 5 abstracts at the Digestive Disease Week Meeting or DDW, including an oral presentation. These abstracts will highlight new data that reinforce the potential of Lenaclotide 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.

Speaker 2

Before handing it over to Mike to discuss the pipeline programs, I'd like to take a moment to say a very big thank you to Jason Rickard For his leadership and immense 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

Speaker 3

I would now like to hand the call over to Mike. Mike? Thanks, Tom, and good morning, everyone. We continue to make progress across our 3 pipeline programs. I'll begin with our linaclotide peds program on Slide 9.

Speaker 3

We believe the pediatric opportunity, if approved, could expand the market potential for LINZESS as functional constipation affects roughly 6,000,000 6 to 17 year old children and adolescents in the United States. If our sNDA is approved by the FDA, LINZESS would be the 1st 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.

Speaker 3

Next is CMP-one hundred and four 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 dosed with CMP-one hundred and four in the second half of twenty twenty three. 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 CMP-one hundred and four 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 ducts in PBC.

Speaker 3

With respect to IW3300, our wholly owned Ironwood asset for the potential treatment of interstitials, cystitis and bladder pain syndrome, There's a significant unmet medical need in this area as this chronic condition affects millions of Americans. Yet 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 2 study. Interstitial cystitis 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 the crosstalk hypothesis will be tested in humans, and we're proud to be at the forefront of clinical development in this area.

Speaker 3

We're looking forward to providing updates as the study continues to advance. With that, I'll turn the call over to Sravan.

Speaker 4

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.

Speaker 4

Net sales were $250,000,000 in the Q1 of 2023, an increase of 8% 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 Q1 of 2023 were 73% compared to 74% in the Q1 of 2022. Moving to Ironwood revenues. In the Q1 of 2023, Ironwood revenues were $104,000,000 driven primarily by U.

Speaker 4

S. LINZESS collaboration revenues of $102,000,000 Ironwood recorded $20,000,000 of income tax expense, the majority of which was non cash. GAAP net income was $46,000,000 and adjusted EBITDA was $60,000,000 in the Q1. Next, cash and capital allocation. In the Q1, we generated $80,000,000 in cash flow from operations and ended the quarter with $740,000,000 in cash and cash equivalents.

Speaker 4

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 will 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.

Speaker 4

S. Net sales growth of between 3% 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 $420,000,000 and $435,000,000 and adjusted EBITDA of greater than $250,000,000 which includes increased investment to advance our pipeline programs, CMP-one hundred and four and IW-three thousand three hundred. To wrap up, we had a strong start to the year and expect to build on the momentum with potential midyear pediatrics functional constipation indication.

Speaker 4

Our first quarter results reflect continued execution against our strategic Priorities, we remain 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 up the line for questions.

Operator

Your first question comes from Tim Chiang with Capital One. Your line is open.

Speaker 5

Hi, thanks. 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?

Speaker 2

Thanks, Tim. Well, I think you can hear we're quite excited about what we're seeing in the first half of the Q1 of this year. And we're continuing to see this demand growth moving forward. I think we'll see we need a couple more data points to really understand How we think we're going to land the year. So it's the reason why we're kind of staying firm on our current guidance.

Speaker 2

But I think the next This month or so will give us a really good idea. As you know, this market tends to slow down a little bit in the summer and then accelerate growth in the Back half of the year. But we're not seeing that right now. I mean, we're seeing the market grow and we are growing disproportionately Capturing that market. So I think we're in a very, very healthy place for the brand.

Speaker 2

It's interesting, we've seen this growth spike that seems to be coinciding with our new DTC Yes. As well as we've made some adjustments to the physician call plan with AbbVie, which we think is helping augment some of the growth we're seeing. I think we're very optimistic about the pediatric population, as Mike said. There's 6000000 to 8000000 kids out there that are suffering. And I think the big opportunity here, Tim, is the fact that these kids are actively seeking care, which is very different than the adult population where Adults will struggle and try to self medicate.

Speaker 2

But if you have a kid that's really disabled with abdominal symptoms and constipation, You're talking to a doctor probably multiple times a year, which we're going to certainly see what we can do to help. We're going to be We're trying to be very thoughtful about how we're going to allocate the investment and we'll be running a series of pilots with our partner, Abby, to really assess how promotionally responsive this pediatric market is, which really will inform the investment for next year. So I don't know that we'll see a whole lot of growth coming out of this market. I hope we see growth, but I think the real impact will come In 2024 and 2025 as we invest, focus and invest in this market. But at this point in time, Tim, we're really delighted with the performance of the drug.

Speaker 5

Okay, great. That's helpful. And maybe just one question on CMP-one hundred and four. Mike, you talked about T cell response. What sort of threshold do you need to see in this Phase 2 study?

Speaker 3

Yes. Thanks, Tim. Thanks for the question. So as you know, this is the first in human study with this technology in PBC. So we're going to learn a lot.

Speaker 3

It's one of the reasons why we actually did this deal because the science is so strong and we think 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 the nanoparticles with gliadin or gluten inside that reduced the T cell responses with treatment roughly like 88%. So that's It was pretty robust. But the key point is not necessarily T cell reduction, but that it correlates with the biomarkers as well. And in celiac, it actually correlated with epithelial Histology Improvement.

Speaker 3

So we're going to look at the T cell responses. 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 included 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 And for the business case downstream, because we think the science is so strong, there's just great opportunity to

Speaker 2

do that. And Mike, maybe you can comment also Which biomarkers are probably most relevant and how does the FDA look at that as an endpoint as far as drug's response?

Speaker 3

Yes. The biomarkers are pretty fairly established because of prior regulatory engagement because of ersojuicyclic acid and obeticholic And then those programs at the agency focused on alk phos, which is not unreasonable. Alk phos is a primary indicator of Holostasis, which is delayed or stopped bile flow, and that's really what these liver diseases are about, the delayed or stopped bile flow. So Alfas is clearly there. And then we also have things in there for liver function, like bilirubin and other assessments transaminases as well.

Speaker 3

And then importantly, we have in there the biopsy too, because you may recall also that obeticholic acid needed to do a biopsy type And that's because the agency wants to make sure the biomarkers correlate with real improved liver function. And the biopsy is sort of the standard today. That's another reason why we think we're in a great position with this technology because the way the agency uses the biopsy in the other programs is really for objective evidence The drug is working, and not necessarily biomarker driven evidence, and that's where the biopsy plays. But that's why we like the T cells because the T cells will be a really strong objective assessment as well. And to be able to get an early read on such a strong objective assessment that really is the underlying mechanism of how the drug works is quite strong and very powerful in drug development.

Speaker 5

Okay, great. That's very helpful. Thanks, Mike. Thanks, Tom.

Speaker 6

Thanks, Tim.

Operator

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

Speaker 7

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

Speaker 2

Sure. As I mentioned earlier, We're going to be running a series of pilots. There won't be any at this point, there won't be any increase in selling effort. We're really the good news here is This is a fairly concentrated prescriber base. Like 3,000, 4000 docs would generate 30%, 40% of the volume.

Speaker 2

So we can easily fold those docs into our existing call list and trade off those for kind of lower And we'll let the data really guide our decision on this one. So if we see some fairly significant response there, then we'll go back and take a look at do we think we need to increase our selling effort. At this point, That's not the plan. Keep in mind, we're currently calling at about 35,000 physicians, who generate the majority of the business. This isn't a significant increase in the number of targets, but it will really give us a good line of sight with regard Yes.

Speaker 2

How hard do we think we need to push to make to really affect an outcome? And then we'll come back and look at not only the selling effort, but the overall Promotional mix, which we continue to refine as we balance both personal promotion with direct to consumer advertising in our direct to patient programs.

Speaker 7

That's helpful. Thank you.

Operator

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

Speaker 8

Great. Thanks for taking my question. I guess for CMP-one hundred and four, I just I just want to clarify for approval ultimately, can you get an approval on 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?

Speaker 3

Yes. So prior history has Has kind of addressed that with obeticholic acid because they got approval based on the biomarker of improvement in OPFOS. And recall that's also been historic with Ursodeoxycholic acid or erso or that class of compounds. So it has been done usually in that setting as happened in the obeticholic acid case. They get Post marketing requirement to do another study like a liver study, but they're on the market.

Speaker 3

And that's clearly because the benefit with those agents here, 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 CMP-one hundred and four. 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 Actually be a responder in those programs. You can actually get to 1.5 or 1.67 times 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 commitments.

Speaker 3

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.

Speaker 2

So just to sort of clear, Mike, the actual responder endpoint then Is to reduce ElkPhos to a level that's 1.5 times normal? Correct. Right. Okay.

Speaker 8

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

Speaker 3

Yes, I think we'll certainly We'll have discussions with the agency on what the Phase 3 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 a placebo control. Now granted, ERSO standard of care as well as ERSO failures can take obeticholic acid. So we need to manage that.

Speaker 3

Obviously, we want to keep patients being treated. Apparently, the study we're designing is for or so non responders. 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 erso responder or an abeticholic acid responder, again, they still have often an abnormal alk phos And there still is benefit to using this therapy. So standard of care 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 and it being used. Does that make sense, Bruce?

Speaker 8

Yes, great. Thank you very much for taking my question.

Speaker 4

Thanks, Porsche.

Operator

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

Speaker 6

Hey, guys. Good morning. Good morning. Just a Couple of questions. On the pricing headwind in the quarter, I think the implied is it was down 3.

Speaker 6

Could you just talk about dynamics you're seeing for the rest of the year because if there was any benefits, I think Last year you guys had one time gross to net benefit in the Q1 of last year. Is that similar dynamic?

Speaker 4

Yes. So thanks for the question, Jacob. I would start by saying, we're really pleased with the start to the year. 8% net sales growth As you kind of got to was driven by prescription demand of about 10% and the rest is sort of essentially a price headwind. Yes, price and everything else kind of performed in line.

Speaker 4

I would say that look, we have a pretty good set of Into a good line of sight into where our expectations are for price over the course of the year. This is not similar to last year, which had a one time price benefit. This is really about where we ended up for the quarter, this quarter because of contracting and what we aligned for the full year. It's a little better potentially than we anticipated, but I would say that, we said low single digits in terms of Sorry, the mid single digits is sort of the full year guidance implied for price. We'll see where it comes out, but I think we're really pleased with where we are today.

Speaker 6

Okay. And then on the guidance, okay, like The Q1 is a little bit better from an Rx demand standpoint, like the weekly scripts look Yes, about the same so far in the Q2, pricing is a little bit better. So is there anything you're seeing in the back half of the year that's I know it's only 1 quarter in the back. And then like I was at the pediatric functional consultation guide indication. Is that in there for the second half as well?

Speaker 4

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 a trend yet. I mean we want to see a little bit more data before we can Come back to you and give you any change in guidance if at all. But we're pleased with the momentum we have in the Q1.

Speaker 4

And On the price pieces, as I was trying to just put a finer point out, like it can fluctuate from throughout the year. Q1 was more moderate than we experienced In the course of 2022 and 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 heard it on the call, excitements here on LINZESS performance.

Speaker 4

And if we have something to tell you in the Q2 and we continue to see performance like this, we may come back to you, give you an update

Speaker 2

Yes. 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. And this is the reason why again, we're running these pilots to really understand how promotion responsive this group is. And we'll have a lot more information by the end of Q3 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.

Speaker 2

I think we have a pretty good line of sight. I think the one thing we've learned in this market, this category Is one these kids are actively seeking care, as I mentioned. But also these physicians end up to be quite pediatricians end up Following clinical practice guidelines and standard of care. And this is one where 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.

Speaker 2

And 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.

Speaker 6

Okay. Thanks guys. Appreciate it.

Operator

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

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