Ironwood Pharmaceuticals, Inc. (IRWD) Earnings Call Transcript & Summary

Good morning. I'm David Lebowitz, one of the biotechnology analysts at Morgan Stanley. Before I get started, I have to go through the requisite disclosures. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. I'd like to welcome you all this morning to the Morgan Stanley 18th Annual Global Healthcare Conference. In this session, I have with us from Ironwood Pharmaceuticals, CEO, Mark Mallon; and President, Tom McCourt. This is a company that's been around for a while. They are -- they sell a drug called LINZESS for the treatment of constipation. And I guess before we really dig in overall, if you could just run us through the evolution of Ironwood over the last few years. Clearly, this is a company that's gone through a lot of changes recently and tell us how it plays into the company's mission.

David, thanks very much. First, thanks to you and to Morgan Stanley for hosting us. We really appreciate the opportunity to reach out virtually this year and tell the story of Ironwood. So happy to just give a quick intro for everyone. As a reminder, so Ironwood, as you said, has been around for 20-plus years. Started as an innovative company, had the success in developing linaclotide and -- which became LINZESS. In April of last year, we made -- went through a strategic change, spinning off our research group into Cyclerion, focusing on rare and more severe disease and became a GI-focused company, really aiming to be the leader in GI health care. We had 3 key priorities, basically maximizing LINZESS, which I'm sure, we'll talk quite a bit about in the next few minutes, really developing our late-stage pipeline, which we will also talk about. Right now we're in the middle of delivering on our refractory GERD program for 3718. And then on delivering profitability. We said that we would basically generate profit from day 1, and we've been able to do that with 5 consecutive quarters of profitability. I think we've executed on all three of these priorities. We're having, I think, great progress. And I think, David, with that intro, love to get into your specific questions.

Sure. I guess one question I have before we really start digging into LINZESS is the product LINZESS has always been a part of a 50-50 partnership with Allergan. And certainly, Allergan has undergone some changes over the last few months. Can you tell us how AbbVie coming on board and buying Allergan has affected the partnership for you?

Sure, David. Thanks. The transition to AbbVie has gone very smoothly. I mean, of course, Allergan has been a great partner over the years, but AbbVie has been very enthusiastic about LINZESS. It contributes to a key objective that they had for the transaction, which is to grow sales and profits, and we contribute in both ways. The -- operationally, collaboration has remained strong. All the decision-making committees have been in place. Where we needed to have new members on board, they are. And they're really showing, I think, a lot of enthusiasm in bringing, I think, additional capabilities even beyond what Allergan in things like helping us with what we -- expanding our reach in consumer, they've got a lot of experience on patient support programs. And so we're basically kind of with them collaboratively, thinking about how we can really maximize the full capabilities of AbbVie. So it's been a very positive transition so far.

Sounds good. I guess, whenever there is some sort of M&A activity like this, people always wonder if there is a consideration by the acquirer to decide to spin off some products and whatnot. I guess you don't really get a sense on AbbVie in that regard.

So yes, I mean, you'd have to talk to AbbVie, as a standard response to that is about their plans. What I can say is, they're very excited about LINZESS. They continue to support investments, and I think we're looking forward to working with them. All signs have been -- has been positive.

Excellent. So let's dig into LINZESS. Clearly, this is a market that's been around for a while. And in a lot of ways, LINZESS has come on. It's grown to being the #1 therapy in the space. Can you tell us about how the dynamics of this space have changed since launch and how they are right now?

Sure. Let me turn it over to Tom. Go ahead.

Thanks, Mark. Sorry. And thanks, David. Thanks for the opportunity. This -- as you know, this has been a wonderful adventure for us. And I think it's both -- the market has shifted some, but also our position in the market is shifting. Initially, we came into the market, we wanted to be a highly differentiated drug. So we're really focused on IBS-C and really positioned LINZESS as an abdominal pain drug that also treated constipation, not the other way around. And clearly, those are the patients that the doctors were willing to give us because they're the most problematic patients. And really, that was our beachhead to start. And as we've continued to broaden our prescriber base, we were also focusing on establishing this dialogue between patient and doctor around the symptoms so that they could equate that abdominal pain and constipation drug directly to LINZESS. And that really fueled the growth. And then as we secured fairly broad payer access to the point where we have over 80% unrestricted access across commercial and Med D, we were well positioned then to ignite really the consumer advertising campaign, which, as you know, has been an industry-recognized performance as far as a best-in-class consumer campaign that we've continued to evolve from a very functional abdominal symptom ad to frustration, to a game frame where you could actually claim success with this just LINZESS campaign, which has been highly successful and very motivating to patients. And once we established -- or we're certainly on track to be the market leader, then the focus really needed to be on how do we grow and capture the market at the same time. And in order to do that, we needed to start broadening physician's view for who the appropriate patient was. So we're -- we were really limited about how we could describe the patient around the label of abdominal pain. As you know, we conducted the study to broaden that view to include bloating and discomfort, which we've started to implement since we've had positive clinical trials, we've submitted an sNDA to the FDA, and we're seeing nice results. So we're identifying new pools of patients, patients that we're able to capture in a very, very, large business. Now the things that have changed, I think, over the past couple of years is, one, certainly, we had 3 competitors that came into the market and provided some pricing pressure that we were able to manage well. When you think about it, all 3 of these competitors now have been out for a while, and the combined market share is less than 5%. So I think it really speaks to the strength of the clinical profile of LINZESS, the comfort, the access, and certainly, where -- how we're continuing to evolve and strengthen the clinical profile and broaden the clinical utility of the drug. And I think we're probably going to talk a bit more specifically about COVID in a second, but the other dramatic change that we're seeing is this consolidation of GI practices into these GI supergroups. And we've got now GI practices that have 300, 400 physicians in them. And we've deployed a special role that's working together with these large GI networks to make sure that we're well positioned, the brand is well positioned and how do we more effectively communicate with our most valued customer and their referral base. And I think that's going to continue to evolve. I think the other big advancement or change is telemedicine, particularly in GI. GI was kind of late into the game as far as adopting, but when COVID came and they couldn't do colonoscopy anymore, this became a tremendous channel for them to be able to manage their patients remotely, and they've really embraced it. And Ironwood's got very involved in understanding and leveraging this to our advantage. At one point during COVID, about 1/3 of our business was coming directly out of telemedicine. And it's -- while we're kind of moving at least into the direction of getting back to normal, we're still seeing a significant use of telemedicine, which I think is going to be here for a while. And so we want -- as an organization, we wanted to be able to adapt to the marketplace and take advantage of these channels, particularly with LINZESS, where you have a functional GI disease that's not necessarily seen as life-threatening, but very problematic to patients. You have a treatment that's highly effective with very high patient satisfaction and coverage and can be easily diagnosed and managed over the phone. So this is a natural for this channel, and we're going to continue to nurture that as we move forward and expand the utility of the drug. So we really like where we're at, and we like where the market is going right now.

With that in mind, you said at one point, about 1/3 of the new business is coming from telemedicine. Are these patients, patients that have already had colonoscopies and might be getting moved from some other therapy? Or are these -- are doctors foregoing colonoscopies and prescribing LINZESS to patients?

I mean, the majority of these, David-- majority of these patients don't really require colonoscopy unless they have a clear red flag, such as rectal bleeding or weight loss or very severe lower abdominal pain. So the far majority of these patients that don't require colonoscopy, in those patients, they can easily manage. So these are largely patients who are struggling with their symptoms. They've tried multiple OTCs, and they're still experiencing abdominal symptoms with constipation, and the doctor can move quickly to diagnose and treat.

So you had mentioned earlier about abdominal pain, and I know there's an SND underway -- sNDA underway. To what extent are you able to discuss the abdominal pain trials with physicians and use the information? And what do you have to wait to be able to have it on label for?

Sure. So this is all within label. These are additional claims within the IBS-C indications. So it's really -- it's never been about off-label. And when you look at OPDP guidance, it's really about, do you have substantial evidence to support your claim within an indication. So once we got these data, we could start sharing it first with the prescriber. And I think -- and we've kind of introduced it in some of our DTC. It is the problem to be solved. But as we secure final approval and final labeling, it gives us a clear guidance with regard to where we can go next, particularly with the consumer. But I think the physicians accepted it, recognized it. And I think it's why we're seeing this ongoing growth that we continue to see 9%, 10% demand growth year-on-year.

That's helpful. So how has COVID-19 impacted things at this point?

I mean, it's been remarkable, David. I mean you know what's going on with the rest of the market. I mean it's down. LINZESS is up. And I think there's -- again, a couple of reasons for this. One, these are highly symptomatic diseases. They can reach out and contact their doctor remotely to get prescription -- to get a prescription. And I think this whole -- again, this whole -- the opportunity of telemedicine has really helped us. And as you know, this is a very, very large market. And I do think as we continue to push on the consumer side, it's also increasing demand. So I think it speaks to the resilience of the drug in this category and really the strength of the market leadership that we have.

Growth has definitely maintained. Has there been -- I guess, what types of disruptions have you seen?

Well, certainly, personal promotion. We brought down the sales force or paused the sales force for a period of time to make sure that we could safely reengage physicians' offices, and we've done that over time. And we've continued to push on the consumer side so we could certainly help patients help themselves. And over time now the physicians are reengaging us. We -- as you know, we have a very experienced, very talented sales force who know how to get into physicians' offices and deliver a message, and they've been highly resourceful. And even when we were remote, we did use some virtual technology to stay engaged with the physicians' offices through lunch programs or direct Zoom conferences with the offices. So the sales force kept quite active, particularly in the key accounts. And right now, we're almost fully engaged. We're getting to the majority of our really critical customers, and we're seeing -- continue to see really nice growth in response. In fact, where the areas we're seeing the greatest growth is in those territories where we can get the patient -- or excuse me, the rep in the office sooner.

That makes sense. I guess there's certainly the disruptions with the lack of the inability to visit patients for a time, which definitely sounds like it's improving. What about the unemployment situation?

Yes. I mean that -- as you know, we've guided to that. We're having a very strong year. Demand growth is good. Price has been very stable. The one kind of wildcard is what happens as we continue to see unemployment in Medicaid. And we've been watching this very, very closely. We haven't seen a dramatic shift yet, but it is something that we have to pay attention to and, if it happens, prepare for, which could affect our price to some extent. But so far, it's been remarkably stable. But as you know, some of this can be delayed as the claims come through. So we're cautiously optimistic towards the back end of the year coming off a very, very strong first couple of quarters.

I guess, has -- I mean, from what you've been able to ascertain, how have your competitors been able to handle the current environment?

I mean when I look at -- when you look at the data, the rest of the market is losing share. We're gaining share. And again, I think it has a lot to do with both the clinic -- the overall clinical performance of the drug, certainly, the payer access and the ease to use the drug, but also the flexibility of dosing. And so I think we're in a very strong position. When I look at the emerging competitors, they're really undifferentiated, in many cases, do not perform as well clinically. And I think we're going to continue to push that forward to continue to grow the market and capture a disproportionate share of the business.