Ironwood Pharmaceuticals Q3 2024 Earnings Call Transcript

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November 7, 2024

There are 10 speakers on the call.

Operator

Thank you for standing by. My name is Louella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Q3 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.

Operator

Thank you. I would now like to turn the call over to Matt Roche, Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, Louella. Good morning, and thanks for joining us for our Q3 2024 investor update. Our press release issued this morning can be found on our website. Today's call and 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.

Speaker 1

A discussion of these statements in 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, 2023 and 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 and discuss the commercial performance of LINZESS.

Speaker 1

Mike Schutzlein, our Chief Medical Officer, will discuss our pipeline and Shravan Imani, our Chief Operating Officer and 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 to review our Q3 2024 financial results and business updates. Starting with LINZESS. LINZESS continues to deliver robust year over year prescription demand growth. In the Q3, prescription demand increased by 13%, driven in part by new to brand prescriptions, which also grew by 13%.

Speaker 2

This marks the 7th consecutive quarter of double digit new to brand volume growth as LINZESS remains the preferred treatment option for both patients and providers. While prescription volumes remain very strong, LINZESS is continuing to experience pricing headwinds, primarily due to the increase in Medicaid prescriptions as a percent of the overall LINZESS business, as we highlighted on last quarter's call. Moving to our pipeline, over the past several months, we've been working towards an apraglutide NDA submission with a label focused on adult patients with short bowel syndrome who are dependent on parenteral support and remain on track to complete our filing in the Q1 of 2025. We continue to see significant unmet need and market opportunity in short bowel syndrome and we're excited about epiglutide's potential to support short bowel syndrome patients. Feedback from our Phase 3 data from the experts in short bowel syndrome support our belief that if approved apraglutide will be the drug of choice among physicians to treat adult patients with short bowel surgery who are dependent on parenteral support.

Speaker 2

Last week, we had the privilege of presenting new STARS Phase 3 findings at the American College of Gastroenterology Annual Scientific Meeting, where our STARS safety abstract was the recipient of ACG's Presidential Poster Award and our subgroup analysis was shared as an oral presentation, which we're very proud of and speaks to the interest in and the quality of the data. These findings, which Mike will discuss in more detail, build on our previously announced positive data from the Phase 3 pivotal STARS trial and reinforce apraglutide strong clinical profile including its demonstrated efficacy, tolerability and once weekly dosing convenience. Our team is focused on getting apraglutide to market as soon as possible and we look forward to providing more updates to our progress in the months ahead. Moving to our pipeline programs. We routinely evaluate the risk and reward of our investments and seek to prioritize those which we believe drive most value long term.

Speaker 2

To this end, we made the decision not to exercise our option to acquire an exclusive license to CMP-one hundred and four. And we also made the decision to end further recruitment in the IW3300 with Phase 2 proof of concept study in interstitial cystitis and bladder pain syndrome. And we'll follow the current study population for a full 12 week efficacy assessment, which will inform next steps on the program. These business decisions allow us to focus our efforts on where we believe we can deliver the most value, including the anticipated launch of apraglutide expected in 2026 and on maximizing LINZESS profits and cash flow. Moving to our 3rd strategic priority, delivering sustained profits and cash flow.

Speaker 2

In the Q3, we generated $10,000,000 of operating cash flow and delivered $26,000,000 in adjusted EBITDA. Based on our 3rd quarter performance, we are reiterating our full year 2024 financial guidance. In addition, we amended our credit facility to strengthen our balance sheet and we repaid $25,000,000 of the outstanding principal balance on our revolving credit facility. From a financial perspective, even with continued LINZESS pricing pressure, we believe we are in a good position with meaningful cash flow generation for LINZESS and a capital structure to support continued execution of our strategic priorities over the coming years. Looking ahead, we are intently focused on managing LINZESS pricing pressures to maximize profits and cash flow, while simultaneously advancing epiglutide toward an NDA submission and commercial launch.

Speaker 2

Now let's take a moment to look at some additional details on the commercial performance of LINZESS on Slide 7. In the Q3, LINZESS U. S. Net sales were $226,000,000 As I mentioned earlier, LINZESS extended units and new to brand prescription each rose by 13% in the 3rd quarter, respectively, compared to the Q3 of 2023, reinforcing that patients and healthcare providers continue to choose LINZESS in a growing market. The strong volume growth was more than offset by continued pricing headwinds, primarily due to the increase in Medicaid as a percent of our business, driven by a combination of legislative and market factors such as the AMP cap repeal, Medicaid redetermination and state by state changes.

Speaker 2

That said, since the Q1 of this year, we have seen Medicare as a percent of our business remain relatively stable at the current levels. We continue to closely monitor Medicaid utilization and additional legislative changes such as the 2025 Medicare Part D redesign and its potential impact on LINZESS. We remain focused on maximizing LINZESS brand profits and cash flow and optimizing the investments as we seek to mitigate the increased pricing pressures. We look forward to providing additional guidance on 2025 LINZESS demand and pricing expectation at the beginning of the year. With that, I'll hand it over to Mike to discuss our pipeline.

Speaker 2

Mike?

Speaker 3

Thanks, Tom, and good morning, everyone. I'll start with apraglutide for patients with short bowel syndrome who are dependent on parenteral support. As Tom mentioned, last week we presented new findings from a subgroup analysis of the primary endpoint of the STARS Phase 3 study at the ACG meeting. The additional data presented showed the positive treatment effects of apraglutide were consistent across baseline demographics, including gender, age, body weight, region, race, ethnicity and SBS characteristics such as length of remnant bowel anatomy. These are important results for patients given the established heterogeneity of adults with SBS who are dependent on parenteral support.

Speaker 3

In addition, moving to Slide 9, a poster highlighting an in-depth analysis of the STARZ Phase 3 program safety and tolerability data was presented at the meeting, which notably received a Presidential Poster Award from the ACG. The analysis focused on any treatment emergent adverse event or TEAE and those of special interest in SBS. Importantly, no new safety signals were detected for apraglutide in this analysis. Of particular note were the TEAEs of special interest which have been seen with other GLP-two in SBS such as injection site reactions and GI hepatobiliary neoplasms, which were similar in the apraglutide and placebo arms. These data further characterize the safety profile of apraglutide in this population of patients with short bowel syndrome who are dependent on parenteral support.

Speaker 3

This type of profile can be meaningful for patients to start and stay on therapy if approved. In regard to our NDA submission, we remain on track with our previous guidance and expect to fully complete the submission in the Q1 of 2025. We continue to be excited about the safety, efficacy and tolerability demonstrated by apragutide in the clinical trial and its once weekly dosing convenience. Assuming approval, we believe these distinguishing factors have the potential to drive uptake and adherence and help improve the quality of life for patients with short bowel syndrome who are dependent on parenteral support. Moving to IW 3300, our wholly owned asset for the potential treatment of interstitial cystitis bladder pain syndrome, we believe we have enrolled an adequate sample of patients to inform us of next steps and have decided to end further recruitment to complete an analysis of the data set for the patients currently enrolled.

Speaker 3

Based on this assessment, we expect to provide an update on the program in the first half twenty twenty five. With that, I'll turn the

Speaker 4

call over to Shravan. Thanks, Mike. I will begin with collaborative arrangements revenue on Slide 11. LINZESS U. S.

Speaker 4

Net sales as reported by AbbVie were $226,000,000 in the 3rd quarter. In the Q3, Ironwood recorded $5,800,000 positive adjustment to collaborative arrangements revenue to reflect Ironwood's estimate of LINZESS gross to net reserves as of September 30, 2024. With this adjustment, Ironwood's U. S. Collaboration revenue was $89,000,000 in the 3rd quarter.

Speaker 4

As Tom noted, we continue to closely monitor Medicaid utilization trends and other legislative changes and remain focused on maximizing LINZESS profits and cash flows. Moving to Slide 12. LINZESS U. S. Net sales were down 19% year over year in the Q3.

Speaker 4

On a year to date basis, U. S. Net sales were down 13% compared with the Q3 of 2023 year to date. Ironwood revenue in the Q3 was $92,000,000 a decrease of 19% year over year. GAAP net income was $4,000,000 and adjusted EBITDA was $26,000,000 In September, we amended our credit facility, providing us with $50,000,000 of additional liquidity and extending the maturity to December 20 28, allowing for greater flexibility as we continue to evolve our capital structure and operate our business.

Speaker 4

In the Q3, we also repaid $25,000,000 of the outstanding principal balance on our revolving credit facility, ending the Q3 with $400,000,000 drawn on the facility. We ended the quarter with $88,000,000 of cash and cash equivalents, and we continue to believe LINZESS cash flows will support our existing portfolio, including the potential apraglutide launch, further progress our development programs and repay our debt. Moving to Slide 13. Based on our Q3 performance, including continued stabilization in Medicaid utilization trends, we are maintaining our full year 2024 guidance that we had issued in the Q2. We continue to expect LINZESS U.

Speaker 4

S. Net sales between $900,000,000 $950,000,000 Ironwood revenue of between $350,000,000 $375,000,000 and adjusted EBITDA of greater than $75,000,000 Disciplined expense management remains priority as we seek to offset top line revenue headwinds to optimize profits and cash.

Speaker 1

To summarize,

Speaker 4

LINZESS demand growth is robust and the brand's market leadership position continues to strengthen. Our goal now and for the future is to focus demand growth to maximize LINZESS profits and cash flow. In addition, we're making smart decisions in clinical development to focus on therapies with a clear path to market such as apaglutide to fulfill unmet patient needs. As such, we remain focused on advancing towards approval and commercialization of afaglutide as soon as possible. The new data presented at ACG are further evidence of apaglutide strong clinical profile not only for the potential treatment of adult SBS patients who are dependent on parental support but also for the significant life cycle management opportunities that lie ahead.

Speaker 4

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 diseases. Operator, you may now open up the line for questions.

Operator

Thank you. Your first question comes from the line of Amy Lee with Jefferies. Please go ahead. Hey, thanks so much for taking my question. Just 2, we noticed that the commercial margin for LINZESS is slightly up quarter over quarter.

Operator

Could we see this continue to expand going forward and help offset some of the pricing headwinds? And then finally, I wanted to get your latest thoughts on the impact to LINZESS from Part D redesign in 2025. How much do you actually expect LINZESS to eat into the catastrophic phase given the annual WACC is around 6,500? Thanks so much.

Speaker 4

Yes. Thanks, Amy. Good morning. So let me just start by saying, we do believe there's going to be pricing headwind in 2025. We haven't given specific guidance on 2025 at this point.

Speaker 4

We'll provide guidance full year next year earlier in the year as we normally do. Just given how this year's kind of gone from a guidance perspective, we want to make sure we give the best possible guidance we can and I think we'll be in a good position earlier next year. With respect to commercial margins, look, I think, we're pleased with where the margins came out in the quarter, and we'll continue to manage track expenses, to draw as much profits out of the brand as we can. But right now, I think what you're seeing is a good predictor of where the brand will be for the year.

Operator

Perfect. Thanks so much. Your next question comes from the line of David Amsellem with Piper Sandler. Please go ahead.

Speaker 5

Hey, thanks. Just a couple. Maybe taking a step back on LINZESS and just looking at contracting in general, is there the potential for taking a fundamentally different look at contracting with payers as the product moves into towards the end of its commercial life? In other words, is there the potential for renegotiations such that you try to get better at net economics? Just trying to better understand what you can do to improve the gross to net thinking beyond this year.

Speaker 5

So that's number 1. And then number 2, regarding the commercial margins, I mean, is this a case where as the product nears the end of its commercial life, there's going to be less spend associated with LINZESS such that you're just sort of managing the brand for profitability? Maybe help us better understand how you're thinking about that. Not really a 2025 question, but just sort of longer term to the LOE. Thank you.

Speaker 2

Yes. So I think as I think about where we are and where we're going, I mean, we're at a point right now where the market is in a very, very strong place or I'm sorry that the product is in a very, very strong place in the marketplace. The dominant player, it continues to gain share even in spite of some emerging competition. And I think we're at a point now where as we've mentioned earlier, we need to really look critically at how we continue to increase profits and cash flow. So as I look at the overall investment in the brand and I look at market access and contracting as part of that, the question is, how do we balance ongoing growth, investment and promotion and contracting?

Speaker 2

And we're critically looking at all those. There's no question at this point in time, the objective is to increase the margins and the profitability. So right now we're looking at everything from what we spend in media to our selling effort and how we contract to really maximize what we can push to the bottom line. And there's no question we will look at we continue to look and other contracting strategies to really maximize that, including things like co pay assistance. So I think all of those things right now are on the table and we're working very closely with AbbVie who is absolutely aligned with us to say it's time to really start looking at increasing profits and cash flow.

Operator

Your next question comes from the line of Jason Butler with Citizens JMP. Please go ahead.

Speaker 6

Hi, thanks for taking the question. Just another one to ask. When you look forward through to LOE, how do you think about the drivers of demand growth? And obviously promotions being one of them, but I guess I'm thinking more in terms of things like breadth and depth of prescriber base and not just market share, but the patient profile of this receiving the drug? Thank you.

Speaker 2

Yes. I'll take that. It's Tom. I think there's probably 3 pieces to that. When you're the market leader, this is all about growing the market and capturing disproportionate share.

Speaker 2

And we've been doing that for the last several years. But we're at a point right now where the momentum is extremely strong, both with regard to the market dynamics, but also the presence of the brand. So what we have seen over the past couple of years is there's significantly more people seeking care. Obviously, in part that's due to increased awareness of the disease that has been driven by years of DTC campaigns and also physicians view of who the appropriate patient is, which is also something that we spend a great deal of time educating physicians on as far as who is the right patient and is the patient appropriate for the drug. And of course, adding the pediatric indications expanded that significantly.

Speaker 2

And as we move forward, certainly we want to continue to drive demand, but we want to do that in a very far more efficient way, which we're looking at. And also other life cycle management plays such as OTC, which clearly is on the horizon and something that we are working with Appian to really understand kind of when that happens and how it happens because it is a as you know, it's a very large market and these tend to be very durable brands over time over the counter. So I think when I look at that, I think LINZESS is in a very strong position to continue to grow. And I think we can and I think the momentum itself will continue to carry it in the years to come. And we really need to focus on profits and cash flow.

Speaker 6

Great. Thanks, Tom. And then I just had one on Afroglutide. You're obviously continuing to focus on presenting data at medical meetings. Can you maybe talk about the other aspects of the commercial readiness work that you're doing now and have planned for the coming months during the regulatory review?

Speaker 2

Yes. This has been ongoing for the last 6 to 9 months. You just don't turn on a switch and go to market as you know and everybody on this call knows. This really focus on how do we prepare the market? How do we prepare the brand?

Speaker 2

How do we prepare the organization? And we are very diligent in moving all of those things forward including we're already out there in medical meetings with the disease awareness program about what is short bowel syndrome and what are the current limitations of therapies. And as we prepare the market, obviously Mike and his team are working towards pulling together the best possible label we can. And then of course, we have some significant things we need to create as far as core capabilities in the organization, particularly things like a patient service hub, which really is going to be critical for pulling patients through the system, both with regard to getting them on the drug, but also keeping them on the drug, which is something that I think we'll be sharing in the upcoming months with regard to our go to market strategy, but also the potential value of apraglutide, not only its attractiveness as the drug of first choice, but also the durability and the likely adherence to therapy, which then increases the overall value of each patient that's treated. And the team is working on those.

Speaker 2

And as we complete that work and move it forward, we'll be sharing that with you in the months to come.

Speaker 6

Thank you, Tom, and thanks for taking the questions.

Speaker 3

Thanks, Jason.

Operator

Your next question comes from the line of Mohit Bansal with Wells Fargo. Please go ahead.

Speaker 7

Question and I have 2 if I may. One is that can you help us understand the seems like the $30,000,000 charge you took in the Q1 seems like a lot of that is reversing. Can you help us understand the dynamic here and why it is not impacting the guidance because it seems like a positive impact? And then the second question is regarding the I mean it seems like the Q4, if I do the math, Q4 you are expecting a decent bump in your share of profits, not as much as the top line number for LINZESS. Can you help us understand the dynamic that will play out here for Q4 here?

Speaker 7

Thank you very much.

Speaker 4

Yes. So Mohit, I don't necessarily understand the second question. Could you repeat that?

Speaker 1

So like if I look at

Speaker 7

the guidance, it's for Linzweige, it is 3.52 to 3.75 for your co promotion profit. You did about $2.52 so far in 9 months. So it seems like there is a bump, there is an inflection in 4th quarter. So can you help us understand what is causing the inflection? It doesn't seem okay.

Speaker 7

Thank you.

Speaker 4

Yes. So first of all, Mohit, it's cyclical, right? And the brand has been historically cyclical that the Q4 tends to have more of the profit than, other quarters. So that's the answer to the second question. With the first question, the first question was tied to, just the adjustments we've taken.

Speaker 4

I would say that, look, there has been a small divergence about when and timing for the recording of these gross to net adjustments with respect to AbbVie and they will even out over the course of the full year. But that's all you're seeing is just timing differences at this point in time.

Speaker 7

Got it. Helpful. Thank you.

Operator

Your next question comes from the line of Natalia Davis with Interim Health Research. Please go ahead.

Speaker 8

Hi. Thank you for taking my question. Just on costs, should we expect to jump in SG and A associated with the pre launch costs for APRA? And how should we think about R and D going into 2025 compared to the current year? Thank you.

Speaker 4

Yes. So first of all, thanks for the question. And I think as I mentioned earlier, we'll give guidance on 2025 as we normally do next year. But just know that we have an existing sales force, part of the rationale for acquiring Afroblutide and buying an asset that we think we could take commercial is the fact that we already have a significant commercial infrastructure. But we'll give guidance on where we think we will be next year for spend and launch and profitability, when we give guidance.

Speaker 8

Great. Thank you.

Operator

Your next question comes from the line of Leerink Partners. Please go ahead.

Speaker 9

Hey, guys. This is Matt Kalper on for Festool Kashy. Thanks for taking my Krusheath. Just on, apraglutide, how large of a sales force do you need here and how will this work between the current LINZESS team and apraglutide? Will the LINZESS team start selling apraglutide as well?

Speaker 9

And or if so, like how overlapping or not is the prescriber base? Thank you so much.

Speaker 2

Yes. I think this is the real strength that we bring to the table here is we have a very tenured and experienced sales force in gastroenterology. They continue to do a fantastic job with LINZESS as you well know. And there is a great deal of overlap with regard to the where we which offices, there may be slightly different prescribers, but it's largely the same offices. Now there will be some additions to that such as large academic centers and some other areas that we would focus.

Speaker 2

But keep in mind, this being a rare disease, this is also far fewer prescribers than we're currently calling on. So I think we feel very strongly that we can easily fold, EPRA into our existing selling effort, and be able to get up and running very quickly because of the strong access we have from day 1. So I think it is one of the real towering strengths that Ironwood has and brings to the table in this space.

Speaker 9

Great. Thanks for the insight and taking my question.

Speaker 4

All right. Thank you.

Operator

We do not have any more questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Ironwood Pharmaceuticals Q3 2024
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