Ironwood Pharmaceuticals Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 8, 2023

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Q2 2023 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.

Operator

Thank you. I would now like to turn the call over to Matt Roche, Director of Investor Relations. Your line is now open.

Speaker 1

Thank you, Sheryl. Good morning, and thanks for joining us for our Q2 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 who 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 to the year ended December 31, 2022, 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 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 reconciliation of these measures to the most directly comparable GAAP measures. During today's call, Tom McCourt, our Chief Executive Officer, will review our strategic priorities and our pipeline and Shravan Imani, our Chief Financial Officer, to provide an update on the commercial performance of LINZESS, discuss the recent addition of apraglenide to our portfolio through our acquisition of Vectabayo and review our financial results and updated guidance.

Speaker 1

Andrew Davis, our Chief Business Officer, is available for the question and answer session following our prepared remarks. Mike Schutzlein, our Chief Medical Officer, is unable to attend today's call as he is out for personal reasons unrelated to Ironwood's business. While we do not know how long Mike may be out, we will provide updates as appropriate. 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.

Speaker 1

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 excited to provide an update on our progress on what has been a transformative quarter at Ironwood. First, I'm pleased to announce that we are increasing our full year LINZESS U. S.

Speaker 2

Net sales and Ironwood revenue guidance based on the strong performance of LINZESS. 2nd, LINZESS received FDA approval to treat pediatric patients ages 6 to 17 years old for functional constipation, further expanding the clinical utility of the brand and its growth potential. Finally, we're excited to have completed the tender offer to acquire Vectabio, including their key GLP-two asset, apraglutide. If successful and approved, we believe apraglutide has the potential to become the new standard of care for patients suffering from short bowel syndrome with intestinal failure and achieve $1,000,000,000 in peak net sales. We believe the continued success of LINZESS Combined with our expanding pipeline has us well positioned to realize our vision of becoming the leading GI Healthcare company.

Speaker 2

Let's turn to Slide 6 for a brief overview of our strategic priorities. 1st, maximize LINZESS. LINZESS continues to see robust prescription demand growth, profitability and widespread acceptance among healthcare practitioners as a leading branded prescription treatment for adults with IBS C and chronic idiopathic constipation. In the Q2, U. S.

Speaker 2

Net sales and prescription demand both increased 9% year over year, demonstrating that the momentum of the brand remains strong. In June, LINZESS received FDA approval for pediatric patients ages 6 to 17 for functional constipation, making LINZESS the 1st and only prescription therapy indicated for the use in this population, which has a high unmet medical need and limited treatment options. We're extremely proud of this achievement for Ironwood, but more importantly for patients. Moving on to our second strategic priority, to strengthen and progress our innovative GI portfolio. In addition to the impressive LINZESS performance in the second quarter, We also significantly enhanced our GR portfolio with the acquisition of Ectobio.

Speaker 2

This acquisition fits squarely within our strategic framework and we believe it represents a critical step for Ironwood to achieve our vision and to deliver value to patients and shareholders. Our 3rd strategic priority is to deliver sustained profits and generate cash flow. We expect the cash flow from LINZESS will support a rapid delevering to below 2x total net debt to EBITDA ahead of the potential epiglutide commercial launch in 2025. As a GI focused biopharma with strong cash flow generation, We believe we are well positioned to maximize LINZESS growth and continue to advance our pipeline programs to create the next growth horizon for the company. Next, I'll review our pipeline programs, which you can see on Slide 7.

Speaker 2

I'll start with an update on the timing of to topline data for the STARZ Phase III clinical program of afraglutide in short bowel syndrome intestinal failure, which continues to be our primary focus in the Vectav Biopipeline and the expected value driver from the acquisition. We recently completed enrollment in the STARS Phase 3 trial with 164 patients suffering from short bowel syndrome with intestinal failure. It is the largest GLP-two study ever conducted in short bowel syndrome with intestinal failure. A big congratulations to the entire STAAR's clinical team and the entire organization for this tremendous accomplishment. Given the medical need and the interest of patients, We elected to enroll all screened patients that made it successfully through the STAR study screening process and honor their commitment to participate in the clinical trial, allowing for more global diversity, which we believe is beneficial to both patients and the global development program.

Speaker 2

We expect the addition of these patients will now result in a top line readout for the STARZ Phase 3 in March 2024. In addition, apraglutide for short bowel syndrome and testophilia received Fast Track designation, which is designed to expedite development of treatments for patients with limited treatment options and can lead to earlier drug approval and faster access. Afroglutide's Fast Track designation further reinforces our conviction in the clinical development program based on the unmet medical need and the potential benefit for patients suffering from short bowel syndrome with intestinal failure, which remains on track for potential launch in 2025. We look forward to providing additional updates as the study continues to advance. In addition to evaluating afraglutide for short bowel syndrome with intestinal failure, We are also evaluating the asset as a potential treatment for patients with Graft Versus Host Disease or GVHD.

Speaker 2

BRAF versus host disease is immunologically mediated and occurs in individuals with allogeneic hematopoietic stem cell transplantation where donor immune cells react against the host recipient. The gastrointestinal tract is among the most common sites that is affected by GVHD and severe manifestations of GVHD if the gut for TEN's poor prognosis in patients after stem cell transplant. We are currently executing a proof of concept Phase 2 study, which is going well and recently completed a preplanned interim analysis. The interim analysis supported continuing the study without any changes. Given the recent acceleration in the recruitment of the study, we expect to complete recruitment in the near term and we expect data on the complete study in the Q1 of 2024.

Speaker 2

Now the CMP-one hundred and four for the potential treatment of primary biliary cholangitis. The proof of concept study is ongoing and given the strong science underlying this therapy, We plan to assess T cell response in patients dosed with CMP-one hundred and four in the second half of twenty twenty three. This will inform the timing of the top line data and 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.

Speaker 2

As there are no therapies on the market today that address the root cause of the autoimmune destruction of bile ducts in PBC. Moving to IW3300, a wholly owned Ironwood asset for the potential treatment of interstitial cystitis and bladder pain syndrome. There is a significant unmet need in this area as this chronic condition affects millions of America. Yet, There are very few treatment options currently in the market or in development. We are currently executing a proof of concept Phase 2 study, which is progressing as planned.

Speaker 2

We're excited about this program as it is the first time the crosstalk hypothesis will be tested in humans. We are proud to be on the forefront of the clinical development in this area. Before I turn the call over to Shravan, I want to acknowledge all the Ironwood employees, including our newest colleagues who have joined us for Vector Bio, who have continued the momentum and strong against their strategic priorities as we pursue our mission to help make a remarkable impact in patients' lives. Shravan, over to you.

Speaker 3

Thanks, Tom, and good morning, everyone. I'm happy to provide additional details on what was a very exciting and transformative quarter for Ironwood, starting on Slide 9. As Tom mentioned a few moments ago, both LINZESS U. S. Net sales and prescription demand grew 9% year over year.

Speaker 3

This strong growth was driven in part by a 15% increase in new to brand prescriptions year over year, reinforcing that patients and healthcare professionals continue to choose LINZESS in a growing market. We believe the strong demand momentum for LINZESS as a result of high treatment satisfaction with both patients and healthcare professionals combined with the support of class leading formulary access, guideline recommendations and focused commercial execution. In addition, as previously mentioned, LINZESS was granted a new indication in June for the treatment of functional constipation, which affects roughly 6,000,000 patients ages 6 to 17 years old in the United States. Since the FDA approval, our talented sales team has been in the field educating customers. Thus far, feedback has been very positive and healthcare professionals are excited by the ability to prescribe LINZESS to help this new patient population.

Speaker 3

In early July, we also began promoting LINZESS to pediatric gastroenterologists in specific geographies and we'll assess future promotional expansion based on market response from these efforts. We look forward to providing updates later in the year as we gain more insights into this opportunity, which will help inform optimal investment and the net sales potential in 2024. Moving on to our acquisition of Vectiv Bio on Slide 10. We are thrilled to have apraglutide as part of our GI portfolio for the following reasons. We have high conviction, napraglutide's clinical program in the short bowel syndrome with intestinal failure based on its mechanism of action, designed for enhanced potency, extended half life and unique convenience of weekly dosing as well as the compelling data to date.

Speaker 3

In addition, The novel design of the ongoing Phase 3 study is set up to evaluate efficacy in both short bowel syndrome with intestinal failure patient populations, which are our stoma and colon in continuity. As a company with a strong network in the GI community, We believe Ironwood is best positioned to maximize the potential value of Afrofluxide for patients and shareholders by leveraging our existing expertise in clinical development, regulatory, medical affairs and commercial execution, as evidenced by the blockbuster success of LINZESS. We believe we will drive significant operating leverage through Ironwood's existing commercial capabilities to support a potential commercial launch in 2025, if approved. As I mentioned earlier, we believe apobutide has the potential to achieve $1,000,000,000 in peak net sales and significantly expand the treated patients in the short bowel syndrome with intestinal failure based on the asset's unique properties. This acquisition has the potential to create an attractive financial profile for Ironwood over the long term, with Afraglutide providing a significant catalyst to extend Ironwood's growth horizon through the 2030s.

Speaker 3

Additionally, I'd like to provide a brief update on where we are with the Effective Bio transaction closing and the integration. As we previously announced at the end of June, we successfully completed the tender offer to purchase the outstanding ordinary shares of Vectiv Bio for $17 per share in cash, with 98% of the shares being tendered. Following the completion of the tender offer, we began collaborating with our new colleagues in integrating Ironwood and Vectiv Bio business operations, which is progressing well. We are taking the necessary steps to effect a squeeze out merger under Swiss law to acquire the remaining 2% of Vector Bio shares. We expect this process to be completed during the second half of twenty twenty three.

Speaker 3

We will provide additional updates and subsequent filings as steps in this process are completed. Next, I'll provide additional details on our financial performance for the quarter. As shown on Slide 11, U. S. Net sales were $270,000,000 in the Q2 of 2023, an increase of 9% year over year.

Speaker 3

Net sales growth was driven by LINZESS prescription demand growth of 9%. 2nd quarter net price was Favorable as compared to our previously communicated full year mid single digit net price erosion guidance due to favorable channel mix. Turning to LINZESS brand profitability. Commercial margins in the Q2 of 2023 were 71% compared to 69% in the Q2 of 2022. Moving to Ironwood revenues.

Speaker 3

In the Q2 of 2023, Ironwood revenues were $107,000,000 driven primarily by U. S. LINZESS and collaboration revenues of $105,000,000 Ironwood recorded $13,000,000 of income tax expense in the Q2, the majority of which was non cash. Who completed 2 restructurings in the Q2 of 2023. In April, as previously disclosed, we reduced our workforce by approximately 10% of our headquarters to the company's personnel.

Speaker 3

And in June, Ironwood commenced the elimination of certain positions in connection with the VecuBio acquisition. Ironwood recorded $13,000,000 of restructuring expenses and adjustments, primarily comprised of employee severance, benefits and related costs in the Q2. In the Q2, Ironwood recorded $1,800,000 in interest expense and other financing costs and generated $8,800,000 in interest and investment income. GAAP net loss was $1,100,000,000 And adjusted EBITDA was a loss of $1,000,000,000 in the 2nd quarter, driven by a one time charge of approximately $1,100,000,000 related to the acquired in process research and development from the Vectivio acquisition. In the Q2, we generated approximately $35,000,000 in cash flow from operations and ended the quarter with $175,000,000 in cash and cash equivalents.

Speaker 3

The acquisition of Vectiv Bio was funded through proceeds from our revolving credit facility, cash on hand and cash of Vectiv Bio. Moving forward, we continue to maintain our focus on generating sustained profits and meaningful cash flows. Well, now having the potential extend our growth horizon through the 2030s, we expect to generate greater than $175,000,000 of operating cash flows each year ahead of a potential apriplutide commercial launch, if successful and approved in 2025. Additionally, the acquisition of EctoBio is expected to be accretive to earnings per share beginning in 2026. And assuming no additional business development activities, We expect adjusted EBITDA to return to greater than $250,000,000 by the end of 2025.

Speaker 3

We anticipate total net debt to EBITDA for our to the revolving credit agreement of approximately 3x by the end of 2023. And we expect cash flows from LINZESS will support a rapid delevering to below 2x total net debt to EBITDA out of a potential AquaGuard commercial launch in 2025. Moving forward, we'll continue to prioritize investments to maximize the value of LINZESS, progress our development portfolio and manage our capital structure through debt pay down. We'll maintain the flexibility to evaluate additional opportunities for capital development. Next, I'll review our updated 2023 guidance on Slide 13.

Speaker 3

As a result of continued strong performance of LINZESS through the first half of the year, we are increasing our full year U. S. LINZESS net sales and Ironwood revenue guidance. We now expect LINZESS U. S.

Speaker 3

Net sales growth of between 6% 8%, Driven by continued strong prescription demand growth and an improved pricing outlook for the remainder of the year. Accordingly, we now expect Ironwood revenue between $435,000,000 to $450,000,000 We are also revising our adjusted EBITDA guidance to reflect the acquisition of ActiveBio. We now expect a loss of approximately $900,000,000 Which includes a one time charge of approximately $1,100,000,000 from the acquisition. Excluding the impact of the one time charge, Adjusted EBITDA is an approximate representation of our operating cash flows. To wrap up, We had a strong second quarter and first half of the year.

Speaker 3

We believe we have strengthened our position to become the leading GI Healthcare company. We are well positioned for continued growth and we remain focused on maximizing LINZESS, strengthening and progressing our innovative GI portfolio in delivering sustained profits and generating cash flow. We're excited about the several key development milestones ahead of us and we'll continue to keep you updated on our progress in the second half of the year. 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 the line of Tim Chiang with Capital One. Your line is now open.

Speaker 4

Hi, thanks. I've just got a few questions. I think maybe the first question is on the improved pricing for LINZESS. Could you just sort of comment what the dynamics are for LINZESS in the second half of the year, how things have changed a little bit from the first half of the year for LINZESS?

Speaker 3

Yes. So thanks, Tim. Good to hear from you. So I think from a pricing perspective, the 1st few quarters we've Favorable pricing relative to our initial guidance and expectations. And I think as we disclosed, that's due to favorable channel mix.

Speaker 3

First half pricing trends have been improved our outlook for the full year. And as you can imagine, when you have the volume of LINZESS, A slight shift in the mix is going to have meaningful change. And so I think that's essentially where we're at.

Speaker 4

Got it. And then maybe just a follow-up on apraglutide. I mean, obviously, you've adjusted the timeline for

Speaker 3

to the

Speaker 4

top line readout. Is there any change in is it really just screening related? Is that the Reason for the push out on the release of the ACOP data?

Speaker 3

Yes. So I think all we said is, I think the key here, Tim, we elected to enroll all the patients that made it successfully through the STARS study and the screening process. And so as Tom mentioned, we have a commitment to those patients and the commission commitment to those sites. And in order to maintain the global diversity of the trial, we believe this is beneficial for the patients and, our overall global development opportunity. And so, we're excited that the trial enrollment is completed And we've got 164 patients.

Speaker 3

And with that, I think we'll have something to report out in the Q1 of next year.

Speaker 2

This is Tom. I think this is a discussion that we had obviously with the Vectiv team. And The process of screening these patients is pretty robust and challenging. And we're asking patients to go through an awful lot during the screening to process. So we felt obligated to really include them into the trial.

Speaker 2

We felt it was absolutely the right thing to do. We had good alignment with Vectiv on that. Plus, it certainly strengthens the overall diversity of the study as we think about a global program, as we think about the future filings of the product. So We are absolutely delighted with where the program is at. Certainly, everything looks right where it needs to be.

Speaker 2

And I think we have great conviction and confidence in the clinical development program at this point.

Speaker 3

And 2 final points on top of that, which is one, that it's an extra 20 patients in the trial and study. And then 2, notwithstanding the extra 20 patients, we still expect to have a 2025 launch and there's no impact from our perspective on the timing of our commercial launch.

Speaker 4

Okay, Got it. No, that's the details are very helpful. Thanks.

Operator

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

Speaker 5

Good morning and congratulations on strong LINZESS results.

Speaker 3

Thanks, Boris.

Speaker 5

I guess I just have two questions, one on LINZESS And the other one on the GLP too. So on LINZESS, can you comment where the sales growth is coming from? Is there a particular demographic that you're seeing expansion, an uptake or maybe any kind of specific type physician, general practitioners versus GI doc or is this kind of across the board. And on the GLP-two side, my question is why what are your thoughts on the generic GAAP tax? Why we haven't seen 1?

Speaker 5

And when we may be seeing 1.

Speaker 3

Andrew, why don't you kind of take the first crack? Yes.

Speaker 6

So on that first Question on LINZESS, it's really across the board that we're seeing growth. And so we're excited by that. And as we said in the prepared remarks, We're seeing continued growth in the market and we're continuing to see physicians choose LINZESS when those patients present.

Speaker 2

I mean, Boris, the other part I think part of that too is certainly the pediatric indication was a strong endorsement of the overall profile the drug, which I think has a significant halo effect. I'm sure we'll better understand what think the upside potential is for pediatrics is still early, but Andrew and the team are taking it really evaluating how promotional response is to really understand how hard we can push or how hard we should push on the investment side. But I think this is I mean, as you know, it continues to be a remarkable drug to see this kind of linear growth and even acceleration in growth, particularly with the new to brand. To see a 15% increase in new to brand At this point on the base business that we have, this is pretty remarkable.

Speaker 3

Yes. And so we're just seeing these new patients, they continue to seek care. And then I think the OTCs is a strong profile, remains the same, right, clinically huge patient satisfaction. I think the things that have made LINZESS a That's over the last 11 years, Boris. I think they have continued here.

Speaker 3

And then Andrew, do you want to take a crack at the Gattox Yes.

Speaker 6

So on generic addicts, I mean, tough to say what's going through another pharmaceutical manufacturer's mind on what they're doing strategy wise. But at the end of the day, Peptides are not always easy drugs to make and easy drugs to bring to market. I think there's a number of kind of market dynamics for generic to make it challenging. So We haven't seen it yet. I think maybe not the most unexpected outcome for us at this point.

Speaker 2

Yes. And of course, I mean, As far as we're concerned, it's nothing but good news. When you look at kind of where Addix is and when you look at the profile of apraglutide with regard to its potency and its half life. I mean, this really could be a significant advancement in care for patients.

Speaker 5

Great. Well, congratulations again and thanks for taking my questions.

Speaker 1

Thanks, Morgan.

Speaker 2

Thanks, Morgan.

Operator

Your final question comes from the line of David Amsellem from Piper Sandler. Your line is now open.

Speaker 7

Hey, thanks. So on the GATX generic question, I know it's hard to make. It's a peptide and all that. But I guess my question here is, to the extent that GATEX Lou's exclusivity. How are you thinking about payer dynamics for apaglutide?

Speaker 3

How are

Speaker 7

you thinking about pricing for apraglutide. So just help us understand the commercial implications of the loss of exclusivity for GATX. And then secondly, For the Stargaze study in acute graft versus host, to the extent that you do have proof of concept, Is that something you intend to take forward or is that something you'd look to partner out given that it's outside the GI realm? How are you thinking about that? Thank you.

Speaker 3

Yes. Andrew, why don't you start with the first one?

Speaker 6

Yes. So on the generic, GATX question, I think maybe it's a little bit early in where we are in terms of for us specifically guide on price. But I think I can say that this is certainly something that we considered and modeled out when we did the transaction. So Regardless of if there's a Gattex generic or there's not, I think we feel quite comfortable about the investment we've made here and the strong opportunity there is for apaglutide in the future.

Speaker 3

And with respect to the Stargaze trial, look, I think where we're at is we just recently to complete the preplanned interim analysis and support to continue the study without any changes. Where we are with the study and the recruitment, we'll probably, as Tom mentioned we'll have something in the Q1 to kind of report out, in terms of data. And at that point in time, I think depending on the in where the trial is. I think we'll and what the data says, we'll evaluate options.

Speaker 2

Yes. I think the big part here is what is Where is the greatest opportunity for value creation? And obviously, that's something that we'll critically assess. I mean, I don't think we're at this point, we're tied to any specific outcome we'll evaluate. I think a lot of it has to do with what the profile ends up looking like as to how assertive we would be in this space.

Speaker 2

But I think we're very data driven, we're very evidence driven and we'll certainly make a good choice. And we're I mean, this is a huge unmet medical need. Keep in mind, the biggest problem here is the GI problems associated with this. And When that occurs, obviously the GI community is involved and consulted. So they certainly would play a role.

Speaker 2

Even though they don't directly often care for these patients, they're often consulted on these patients.

Operator

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

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Key Takeaways

  • Ironwood raised its full‐year guidance for LINZESS U.S. net sales to 6–8% growth and now expects Ironwood revenues of $435–450 million in 2023.
  • LINZESS received FDA approval for treating pediatric patients (ages 6–17) with functional constipation, making it the only prescription therapy in this population.
  • Completed the tender offer to acquire Vectivio and its GLP‐2 asset apraglutide, which has Fast Track designation, is in Phase 3 (STARZ) enrollment, and could reach $1 billion peak sales.
  • Pipeline progress includes completion of STARZ Phase 3 enrollment with 164 patients and an expected topline readout in March 2024, alongside ongoing proof‐of‐concept studies in GVHD, PBC, and IC/BPS.
  • In Q2, LINZESS net sales grew 9% year‐over‐year, generated $35 million in operating cash flow, and Ironwood targets deleveraging below 2× net debt/EBITDA by 2025 ahead of a potential apraglutide launch.
A.I. generated. May contain errors.
Earnings Conference Call
Ironwood Pharmaceuticals Q2 2023
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