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

Okay. Hey, everybody. I'm Marty Auster. I'm the lead SMID cap biotech analyst at Crédit Suisse. You are watching the 29th Annual Crédit Suisse Healthcare Conference. And I've got Ironwood Pharma with me today. I've got CEO, Mark Mallon, and his team. Mark, maybe before we jump into the Q&A, if you could kind of frame Ironwood for us a little bit, catch us up and kind of just maybe give us an overview of the IBS-C market and LINZESS and sort of kind of the Ironwood vision. And we'll jump off there.

Sure. Thanks. First, let me say, Marty, thanks for this opportunity. And thanks to you and Crédit Suisse, and welcome, everybody. We appreciate the opportunity to update you on Ironwood. So as I think many people know, Ironwood is a GI-focused health care company, aimed to be a leader in the GI space. We've been very successful in including in 2020 with bringing an important medicine LINZESS forward for the treatment of IBS-C and chronic constipation. We have basically been relaunching and refocusing the company on GI since April of 2019 when we spun out our research group at Cyclerion and fully focus ourselves on GI. As a snapshot on the priorities for the company and how we're doing against those priorities quickly. Number one has been to grow LINZESS and really create a major value source for shareholders and a big impact for our patients. And we've been very successful at that. And particularly in the third quarter, we had 10% net sales growth. And actually were able to up our guidance for the year to the high single-digit net sales growth. We've also seen strong recovery of new-to-brand with 10% growth versus the second quarter on third quarter. And so we can get into that and why LINZESS is so resilient in the face of COVID. And why we're so excited about the future for LINZESS. The second priority has been we've committed to delivering profit. We actually made a commitment from day one post the spin of this research group out and back in April, and we were profitable that first quarter, and we've had 6 consecutive quarters of profitability. And so we can talk more about how we're doing in that, we think very well. And then Gina will have more to say on that. And then we said that we were focused on developing our internal pipeline and bringing new medicines in to treat patients with gastrointestinal diseases. There's a lot of unmet need there. We did have 2 disappointments this year in our pipeline. But we do think we have still a really sort of unique opportunity in the GI space. There's a lot of unmet needs. There are -- there's definitely more innovation coming through and not so much competition. Because I think many parts of pharma don't focus on the GI space beyond IBD. And we've got unique capabilities in that space. So we have been since we launched looking at inorganic opportunities, and we're continuing to do that with a very high bar to make sure that we're, first and foremost, delivering on LINZESS and also maintaining our commitment to delivery of profits. So that's a quick snapshot of who we are, what our priorities have been and a bit of the teaser, well, not a teaser, but a signal, a reminder of how we've been doing this year.

Okay. So you're a market leader in IBS-C. Could you just kind of frame that market? What -- you've been on the market for a while. You continue to gain share. What's the -- kind of what's the competitive advantage that you've got in the space? How have you differentiated the products?

Yes. So to give you, give people a reminder of the scale. So LINZESS is close to a 40% share in the IBS-C chronic constipation market, right? We were launched 8 years ago with the unique mechanism of both being able to cause a prosecretory effect through linaclotide, which helps with the constipation. But also dampen pain sensations and hypersensitivity in the GI track, which gives it the pain relief and the relief of abdominal symptoms. So -- and we were the first in the class of the SEC agonists. So -- but that's sort of where LINZESS is. From a competitive standpoint, there are several competitors, both in the class, one in the class, Trulance, people are probably aware of others in different classes. But of the newer products, none of them have sort of exceeded a few single points in terms of market share. So they're relatively small compared to where we're at with LINZESS. There is another product that's branded Amitiza. That has been declining since LINZESS launched. And there are generic laxatives that are mostly now in the over-the-counter or a high percentage in the over-the-counter space. What's our differentiation? Great efficacy, both from a constipation standpoint, but in particular, from the management of pain and abdominal symptoms, we're the only, I think, product that sort of has the full suite of abdominal symptom relief and fantastic data in that space. We've got 3 doses that we offer a lot of flexibility to patients and physicians on that. And we just have a tremendous amount of history, a track record as the product has been on the market for 8 years. So physicians' belief and confidence and the comfort in using LINZESS, I think, is unmatched.

So you mentioned the product had been quite resilient, and I know posted a very strong Q3 number in the face of COVID and kind of shifts and kind of patients accessing the health care system. What do you think has driven that? And kind of how have you been able to kind of maintain positive trends at this time?

I'm going to give Gina a chance to jump in here because he's our CFO. Of course, she was watching closely this year. And I think certainly, there's been a couple of really good factors in supporting the brand. Go ahead, Gina.

Sure. Thanks, Mark, and thanks, Marty, for the opportunity today. Like Mark said, the brands has been incredibly resilient in that we've seen approximately 10% growth year-over-year, and that's demand growth. I know we just site the 10% net sales growth for Q3, but I think it's important to note that LINZESS has historically been growing through increased demand, more so than price over time, and we've been able to continue that in 2020. I think it's due to a few different things. And maybe I'll point out some things early for this year and then talk about why I continue to believe LINZESS will grow for the foreseeable future as well. Can you just think about COVID and the impact in 2020 that's had on the brand, at the end of March, we saw some stocking, just like we saw lots of people went out and purchased extra groceries, they filled their prescriptions, et cetera. So we had a little bit of stocking in Q1, at the end of Q1. And then in Q2, in the early days of COVID, we saw a drop-off in our new-to-brand growth. And we saw that drop-off because we don't believe that the patients were able to connect with their physicians in -- for face-to-face visits, and they weren't being prescribed LINZESS for the first time. And so we were able to do 2 things: One, we typically launch a DTC, a new free fresh or our campaign in the spring of every year. We were able to do that this year according to plan. I think it really made a big difference. People are at home. They got to see the message for LINZESS. And hopefully, with the messaging, appropriate patients can better connect -- appropriate patients for LINZESS can better connect with their physicians. And the other thing we did is expand our efforts in telemedicine, and it was very much embraced. Earlier in the year, telemedicine is still an overall, as a percentage of our prescriptions, it's still quite small, but it's something that you can prescribe LINZESS without requiring a face-to-face visit. So it is something that very much worked for physicians and for patients. And it gives us a little bit of flexibility going forward. We have seen an increase in telemedicine in the first part of 2020. We saw it kind of taper down as states opened restrictions, and people are able to do face-to-face. But it gives us, if you think about it, some flexibility as cases are surging again that patients and physicians could continue to embrace telemedicine. And then maybe just one last comment because that was 2 drivers for growth this year. But to keep in mind that we just have the sNDA label approval, the extension for abdominal symptoms, including bloating, discomfort and pain, that we actually only saw that approved in September. So it's one of the ways that we think we'll be able to continue to drive growth, better connect. The describers -- the patients are able to describe their symptoms and better connect with their physicians. And hopefully, being prescribed LINZESS if it's right for them. And it's something that we'll be able to use in our 2021 spring refresh of our DTC, will be the first time that we'll be able to use all of those pieces of the label in the messaging directly to patients.

So given your success you be able to grow the product through kind of COVID and through disruptions of being able to kind of promote to physician offices and patients even going to the office. Does this kind of have any ramification probably you think strategically about kind of what the SG&A restructure needs to look like going forward? And what the -- how promotion-sensitive this is? Or if there is more creative or different ways to promote that might be more effective or as effective, but more cost-effective and maybe drive margins through that over time?

Sure. I can take it. And Mark, you can add some pieces, if you'd like, of course. So one, we're just -- we always have looked at the level of investment and the type of investments that we're putting behind the brand, and we do that every year with our partner. This year is no exception to that. And over time, we have decreased personal promotion, for instance, somewhat. An increase, for instance, investments in DTC. So the goal wasn't to overall pull back in the level of investment. It was just to make sure that we are making the smartest types of investment. And with LINZESS being out in the market for 8 years now, we really saw that we were getting a higher ROI, for instance, are in DTC, more so than on in personal promotion. So we've shifted that over the years, but obviously, fully committed to investing behind the brand. This year is no exception. I would say that the mix -- the change was more pronounced than what we obviously originally intended. But that's only because of COVID and the pulling back of some of the face-to-face visits that our reps did. We -- over time, we -- well, first, we pulled back all the reps, just like most companies did being included. We pulled it back, we had do a remote selling effort. And then as things became or as the country opened up and areas became safer, we were able to allow our reps to go back into the physician's office, for instance, for face-to-face visits. And we've been able to say in Q3, while we started the quarter, mostly on remote, we were able to finish the quarter mostly face-to-face. So we'll continue to do that, and we expect it. And just maybe a small comment related to the brand margins on that. We have -- our current agreement with AbbVie does not include charging remote selling efforts to the collaboration, only the face-to-face efforts are charged to the collaboration. It was one of the drivers for the increased margin in Q3. So we had 2 drivers. We had higher revenue, of course, which is really nice to see. That contributes to the higher margin, but we had some lower costs as well due to the combination of remote selling effort and face-to-face.

The only thing I would add to this discussion, I think, Gina hit all the right points is that -- I think one thing that Ironwood -- even before, and this has been before my arrival, I should say even before my -- it has been the history. It's been with -- as part of the -- with their partners, has been very good in optimizing the mix across the different channels. What to invest from a payer standpoint, what to invest in personal promotion, medical affairs and consumer. And adjusting that mix to really keep the growth growing for the brand and also generate some efficiency. I think what COVID and some of the changes in environment and sort of the new capabilities, if you will, that are coming forward. I don't see them -- over time, they may create transformation, whether it's things like virtual promotion or the telemedicine, I think, in some could have happened faster than others. But I think the key really is going to be companies that know how to: one, they really push and learn how to develop each of those new capabilities, particularly telemedicine and virtual -- sort of the virtual communication with physicians. But again, it's going to be how well do you do that mix? This is not likely to be an all or nothing scenario, it's a complex business. And I think, I haven't seen a company actually I've been involved with that does a better job of really being able to think about how do you sort of surround physicians and patients with the right promotion at the right way and the right place. And so I think these changes, like adding things like telemedicine, adding things like virtual detailing really plays well to the strength of Ironwood. We are committed to really keep sort of pushing the envelope. Indeed learning how to work in those new channels. They're going to be a bigger part of our mix. But the key is just getting that right mix. And that's something we've already been good at it. I think we're going to continue to get better at it.

Okay. And Mark, you had mentioned in terms of competition, Amitiza is one of the things, and it's a smaller minority player in the market. I believe that's going to have generic availability next year. Is there anything -- do you see any kind of price pressure or any sort of kind of progression through generics and any disruption to LINZESS trends from that? They'll be pretty much [indiscernible]

So I think, as Gina often that payers are looking for a -- always looking for it to use every event they could use to put pricing pressure on this. So certainly, I think if -- to be candid, right, payers will try to use this to exert, say, higher discounts from us. But we think the ability to do that will be limited. Amitiza, first of all, was at about, I think, at 12 -- low teens, down maybe to about a 12% share in the marketplace versus our 40% share. It's been declining literally since LINZESS launched. And so it's a lot harder to try to, one, switch patients to a different class of drug, particularly when that's declining and has some real limitations versus LINZESS in dosing, in terms of side effect profile and just its overall effectiveness in both constipation relief and in the relief of abdominal symptoms. So we don't take it lightly. We're thinking about what we have to do to prepare for that. It's one of the reasons why we're cautious when we think about people have -- I mean, I'm happy -- we're happy about that we have stable price or maybe some price appreciation this year, but that's not something we would -- we need to be cautious looking forward because there are events like Amitiza that will put some further -- could put price pressure on us again. But I think we're well positioned. We don't see this as a major impact. We're going to be ready for it. And we have a lot of tools at our disposal to defend our position.

And in terms of other growth drivers on the product with some geographic expansion opportunity with your partnership with Astra in China and Astellas in Japan. Can you kind of frame the revenue opportunity that could kind of come out of those partnerships?

So we haven't guided to -- give guidance sort of on the ex U.S. sales. In China -- I mean, sorry, in Japan, Astellas of course, reports their sales on a continuing basis. They -- Gina, I'm trying to remember now.

I think it's $30 million, they had about $30 million. I mean, it's plus or minus exchange rate for the 6 months ended 9/30.

Yes. So that's sort of the $60 million product. It's growing. Well, I think it will continue to grow the prevalence of IBS-C and CIC in Japan, is not too dissimilar from the U.S. So I think the opportunity there will be sort of proportional to the size of the populations and also, of course, the pricing in Japan is less. And in this case, I think, quite a bit less than the U.S. For China, we're talking IBS-C. We think the patient numbers are on the same par as IBS-C plus CIC in the U.S. So similar numbers of patients. Where they're aiming, AstraZeneca is working to get it on the NRDL hopefully, in this quarter. We'll have to see because that's the real trigger to see significant sales growth. And when that happens, again, we see it as a pretty significant opportunity, although the pricing again is lower there. So similar number of patients, similar takeoff once they have NRDL, but the lower pricing is the way to think about China. As a reminder also, remember, we had both of those agreements were sort of set up in profit sharing with investments in marketing and sales. Certainly, the AZ was in Japan, we had -- we were selling API as part of the agreement. Those agreements were where we worked, where we actually pulled forward some of the value through upfronts in 2019 and then converted them into royalty deals, so that we could focus fully on the U.S. And I think sort of get out of the business of trying to support the marketing of our products in Japan, in China, where our partners are obviously very, very well positioned to do.

And can you remind me just in terms of the U.S. IP situation? I think all the litigation there has been settled. But what is the status there at this point? And what is the context?

I'll let Gina give you...

[indiscernible]

By the way, before I do that, before you speak, Gina, because I was a little bit slow in the introduction. So I'm always so excited to talk about LINZESS, [ I blew by ] buybacks. So of course, as I mentioned, Gina is our CFO and been doing a great job on that. But she's also our Head of Corporate Development, and I suspect we'll get to a couple of questions in that area, where she is also...

We are about to, yes.

Yes. So -- but before we get to the corporate development, we'll get to the always fun area of IP. So Gina.

Sure. So -- and that's probably a quick answer. So we have -- we're very confident in the strength of our IP. We have patents for LINZESS from that range from 2024 to the early 2030s. Most recently, about a year ago, we were actually able to settle all the outstanding ANDA litigation. We had 5 settlements middle last year. And the earliest potential generic entry then would be January of 2029.

Okay. So there's about a little over an 8-year window before that first generic entry potentially, which is the segue into your kind of corporate strategy. And you had a couple of setbacks this year with 3718 and 7246 in IBS-D and then in GERD, refractory GERD. And so kind of how are you thinking about what path to take the company on now with a pretty healthy kind of lifespan for LINZESS in front of you generating cash flow? What do you think is strategically, what is the vision of how to kind of evolve Ironwood?

I'll say a few words to describe to you...

Mark, I think you are on mute. [Technical Difficulty]

Hello. Can you hear me okay?

No. [Technical Difficulty]