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

Good afternoon, everyone. My name is Balaji Prasad. I lead the specialty pharma coverage for Barclays. Thank you for dialing into the Barclays Global Healthcare Conference. We're continuing on with the specialty pharma track of conference. And I'm pleased to introduce the management of Ironwood to you. So we have with us Tom McCourt, President and CEO; and Gina Consylman, Senior Vice President and CFO. Tom and Gina, thank you for taking your time to speak to us. And the format for today would be a presentation session followed by fireside. So I'll hand it over to you, Tom for the presentation.

Thanks, Balaji. And on behalf of Gina and I, and the entire management team at Ironwood, I want to thank Barclays for the opportunity to participate in the conference. We had an extremely productive day today, with some terrific conversations and is very insightful and we learned an awful lot. So thanks again for providing us this forum for us to kind of share where Ironwood is and where it's going. And that's kind of what Gina and I are here to share at least for a few minutes, to give you a little perspective. So I'm going to bring up a presentation. Gina, can you see that? So we're going to kind of talk a little bit about the progress that we've made. As you know, we separated the company about 2 years ago. And we spent the last couple of years really focusing the company, restructuring the company, rebuilding the company and executing. And we've made some terrific progress that we're particularly proud of and would like to share with you. As you know, we have an aspiration of being the leading GI company in the U.S. In order to get there, we recognize we need to be able to provide clear advancements in care and really redefine standard of care for GI patients. And certainly, that's what we've been able to achieve in the IBS-C and chronic constipation category with LINZESS, and certainly, we'll be striving to succeed in additional portfolio modes. We -- I have basically 3 components to our core strategy. First and foremost, maximize LINZESS. LINZESS has been a remarkable growth brand over the last several years, has been remarkably resilient even during the pandemic. But we need to continue to drive its growth. It's a very large market, significant unmet medical need. And we're also with our partner AbbVie looking at additional ways in which we can broaden the clinical utility of the product as well as possibly extend its patent life. And we're going to be doing that through a life cycle management opportunity. And as we align on that and move that forward, we'll certainly provide you greater perspective on what the components have been. This has been a very active program since the time we launched the product 7 years ago, adding multiple formulations, doses, modifications to the product label, including additional product claims, which has allowed us to broaden our promotional message and continue to grow the brand. The second component, which Gina will spend some more time with is really, how we approach building an innovative GI portfolio. We spent the last summer really evaluating the entire GI landscape. And there's a number of innovative treatments emerging in multiple different GI diseases that are clearly in the clinic and could be within our reach. And Gina will talk a little bit about how we're thinking about prioritizing those and approaching those. And the third component, which is really how do we continue to deliver sustained profits and generate cash flow. And certainly, that's an area of significant progress. Under the guidance of Gina Consylman, as we've restructured our debt, reorganized our company and we've been able to accumulate over $350 million in cash. And we're off to a very, very strong start in 2021. So I'm going to move forward with focusing on our first pillar, which is really around driving LINZESS growth. And what you see here on the left is the annual growth curves. And you can see year-on-year, you see a significant lift in demand. We came off, even though the pandemic last year was very challenging, limited many of the promotional things we could do in the marketplace, but we're able to really drive consumer and certainly, pivot to a virtual selling model with our sales force that we're -- so we were able to sustain growth. As you can see here in the black line, we're out of the gate very strong in the first quarter, which is highly unusual in the first quarter, where we generally see a significant dip due to the high deductible plans. So we feel very encouraged by what we're seeing so far. But keep in mind, it's still early days. But in addition to the strong demand growth, we're also increasing market share. And we're increasing market share in the face of another product, Amitiza going generic and 3 emerging competitors. Which says to us is, we're bringing a lot of new patients into the market. About 2/3 of our business comes directly from OTC patients, which is creating the growth in the market. And certainly, we're getting a disproportionate share of that growth. So I think we're in a very strong position with linaclotide currently. And we still have tremendous room to grow. With that, I'm going to turn it over to Gina, and she's going to share some thoughts on our corporate development strategy. Gina?

Thanks, Tom. As Tom just mentioned, building out our innovative GI pipeline is a key part of our strategy. We did a lot of work in 2020 to hopefully successfully execute in 2021. Part of that work included, just building out our extended corporate development team, working with external advisers, to complete a GI landscape assessment. And where we do identify greater than 100 GI assets of interest and all of those assets fit into the criteria that I'd like to just walk through today. So we get a lot of questions on this particular area. So I do want to just pause and go through each of the 5 items individually for a minute. One, we're just going to -- we are planning on staying within GI. That's a pretty -- I guess, it's not surprising. But just to emphasize, that's where our expertise is. Even after the restructuring that we completed in the fourth quarter of 2020, we were very thoughtful about it and make sure that we still have the resources across the company in order to successfully execute on this strategy. And I would also just point out, while we did do a restructuring, we still do have 100 sales reps. And those 100 sales reps are currently calling on GE. So this -- number one, still makes sense for us to just stay concentrated in this space. Two is organic. And organic is as opposed to functional. And I think, we talked a little bit about this earlier -- at some earlier conferences. And just to clarify what that difference is, a functional disease can have symptoms, but they're not necessarily associated with identifiable or measurable changes. And that's different for organic. And that's one of the reasons we're focusing there, because we think that we'll hopefully be able to better treat the disease then and hopefully, increase our probability of success as we advance the programs through the clinic. Three is innovation. Innovation is really important to us. What we're not looking to do is go out there and pursue the next me too opportunity, where we just probably add some marginal revenue, something else, something to the top line, but really not make a meaningful difference for patients. 1 out of every 5 Americans suffers from a GI disease, and we believe that, with the expertise that we have in-house, in targeting the innovative assets that we do have the ability to really make a difference for these patients. Number four is our stage of assets that we're looking at. We are going a bit earlier stage than what we had typically looked at. So right now, we're going earlier state. But to clarify, that still means in the clinic. We're not going too early. But definitely, it's different than what we have done before. Prior to 2021, we were focused on late staging commercial assets only. We decided to widen the funnel for a few different reasons. One is, we do believe that if we go a little bit earlier, hopefully, we can find -- have a better shot of finding that innovative asset. Two, really with the rightsizing of the sales force, it allowed us to change our focus a bit. And that now we have 100 reps. They are selling LINZESS right now, and they also have a co-promote with Alnylam, and they're promoting GIVLAARI as well. So right now, we don't have the urgency to add another product to a much larger sales force. And it gives us the opportunity or the flexibility to go a bit earlier stage. We might have a win here as well. Hopefully, earlier stage would be -- maybe at a more reasonable valuation that we would be able to successfully compete in as well. And number five is profitability, just -- sorry, one last one...

Sorry...

That's okay. I'm talking about profitability. This has been given for the last 2 years for us. We had about 20 years or so of running at losses, using cash and then, obviously, raising capital on a regular basis to fund our operations. We heard loud and clear from our shareholders the desire to move to profitability and to avoid possible dilution. We've made that commitment. We've had 2 years of profitability and cash generation, post our separation. And we just guided to even greater adjusted EBITDA in 2021, which we'll talk about in a second. But to clarify, if we do go a bit earlier stage in some of our asset acquisitions, we understand that, that could drive the profitability down, maybe, perhaps year-over-year, but there's an overall commitment to profitability and not to lose money. And then I have one last slide, Tom, if you advance. Great. Thanks. So I'll just maybe do some quick closing comments on our 2021 financial guidance. We are expecting to grow EBITDA and cash generation, like I just mentioned, for our third straight year. And we're doing that through growing revenue. And just fiscal discipline. Our LINZESS U.S. net sales are expected to grow 3% to 5%. That is made up of high single-digit demand growth for the expectation, offset by mid single-digit price erosion. Our total Ironwood revenue at 370 to 385 includes, obviously, the profit split from our LINZESS collaboration with AbbVie. And it also -- that includes about $10 million from royalties and co-promote revenues. And then our adjusted EBITDA of greater than $190 million for 2021 is a pretty good proxy for cash generation for the calendar year as well. So with that, I'll hand it back to Balaji. And I just want to say thank you for the opportunity to be included here and the opportunity to present. And we can turn it back over for questions.

Great. Thank you. Apologies about the video, though, looks like we hit into some glitches for the day. So maybe your last slide would be a good place to pick up. I can start from there. So 2021 net sales guidance of 3% to 5%, it definitely implies a deceleration of growth from 2020 while volume seem to be like, you should set to go around high single digits. So could you maybe give us a bit more color around this guidance, the volume of pricing erosion dynamics? And how long do you expect this to persist?

Gina?

Sure. I can start and then -- sure, Tom, you can add some color, if I miss anything. So what -- you're right. 2021, we are off to a fantastic start. We are coming off a really strong year in 2020. But if I think about what it was like a year from now, a year ago, we were pulling a guidance in Q1, and then we finally restated guidance and increased our guidance. And then finally beat it for 2021. So LINZESS has just proved to be very resilient. And a year ago, we weren't quite sure what was going to happen with COVID. And I think we quickly adjusted. Tom and the team get a lot of credit for that and thinking through how to adjust from, for instance, from in-person calls to our remote selling effort in order to stay connected with our physicians. And so that really drove strong volume growth in 2020. We see that continuing in 2021. We have guided to high single-digit demand growth in 2021. And we are optimistic that, for instance, the increased DTC that we're already doing in the beginning of the calendar year will help continue to drive that strong volume growth. We have said that we are expecting some price erosion this year. That is different from 2020, where we saw some price depreciation, which was really a nice change of pace for us. But the short answer is, price erosion is the norm, and it is what we expect moving forward for a few different reasons. Just payers expect higher rebates on a regular basis. There is competition out there. But I think the difference between where we are now and where we were just a few years back when we saw higher price erosion, is that we now know that we can make very thoughtful plan design changes for formulary coverage, still maintain broad, affordable access for our patients. And not take a significant hit to price. So I think we do a better job right now of balancing the access for our patients in that price. But price erosion is probably here to stay.

Yes. And I think this is where it's absolutely critical, obviously, for us to drive demand. And as you can see, as Gina mentioned, we're out of the gate very, very strong. And we got to continue to strive to unopen new sources of business through different channels and different patient populations. And the good news is, we've been very successful in identifying and unlocking those potentials. So we will continue to drive forward as a growth brand. We're fully aligned with our partner, AbbVie, in that investment, in that approach.

Sure. Great. Gina, you spoke about increasing the DTC campaigns and investments behind the brand. So how do you think about sustaining those investment behind the brand over the foreseeable future, considering that you have settled with all the generic filers of, though, albeit for 2029. So what are your thoughts around investing into the medium-term and longer term?

Yes. I think we're aligned with AbbVie and that LINZESS was a growth brand. We want to -- and we're committed to fully investing behind the brand. I think the only thing that you should focus are for potential changes on investment, it's just the types of investment, right? We're just evolving. I think we're in our ninth year now post launch, and we continue to just change the mix. So for instance, I talked a little bit about from in-person promotion to remote selling efforts. But there's also a switch between just in-personal promotion and higher investment in DTC, right? If there's a higher ROI there, it makes sense to do that. And we started doing something new or newer to us last year with the telemedicine. I think that's an area for us to focus on as well. 2020, for instance, we just saw such high demand that we have a different pattern on the spending for DTC. In 2021 typically, we pull back in the first few months of every calendar year because there's high deductible plans. More and more Americans are on these high deductible plans. The deductibles are actually higher themselves. And we normally just see a pullback in activity. But given the high demand that we saw in 2020, we decided to invest in DTC early in the year in 2021, and I think that's already paying off as we just continue to monitor the prescriptions early in the year. So it's not a pullback. It's not a goal to save money on an investment. It's really about fully investing behind the brand, getting the right mix. And then we believe that margins will still continue to expand with the growing revenue.

Great. That's very helpful. And as I look at the market dynamics and the competitive landscape, can you maybe take us through the change you've seen since generally, companies enter the market or since Bausch acquired Trulance. So how has this evolved since then? I did see that you had a slight pointing to the various market shares, now they have changed. So just to get a thought on it.

Yes. I think it's important to kind of step back and look at where we started and where we are. And when we entered the market, the market leader was generic MiraLAX polyethylene glycol. They had about 50% of the market. And lactulose had about 30% of the market. And Amitiza was the branded market leader. And within 18 months, we caught Amitiza and surpassed them with regard to volume. And then, of course, MiraLAX was pulled out of the market. And then we've had some new entries into the market with Trulance, which is a follow-on molecule to LINZESS and two promotility agents. And during this period of time, LINZESS has continued to describe -- to drive growth, as you've seen in the slides. The two significant changes that are occurring in the market, one is Amitiza going generic. We haven't seen much of an impact on that, other than to Gina's point. It's an opportunity for the payers to kind of knock-on the door and have another conversation about price. But it really hasn't affected volume at all. In fact, I think we've seen a windfall of volume during this period of time as Amitiza is swinging over to generic. And it's obviously a very different profile than is linaclotide, which is why linaclotide has been so successful in the marketplace. Certainly, Bausch has been there for several years now. And it's currently at less than 5% market share. I mean it's going to continue to grow. It's obviously put some pressure on the price with the payer. But I think what we need to do is focus on the fundamentals of being a brand leader. And that is, grow the market, expand the clinical utility of the drug, strengthen the clinical profile, which we have consistently done with this brand and obviously capture disproportionate share. And certainly, that strategy has worked for us as we continue to strengthen our position in marketplace.

Great, Tom. Maybe just shifting eastwards, looking at China and Japan and the market opportunity over there. So could you give an update on Astra's LINZESS commercialization in China? And on longer thoughts around this brand. And also the same with the Japanese opportunity, how -- what kind of potential is there with this market?

Maybe I can take a high-level view, and Gina can certainly jump in here. Certainly, Japan and China are very sizable pharmaceutical markets. And obviously, this is a prevalent problem in both these markets. Obviously, it takes longer to get these drugs to market, and they tend to be a lower price point in these markets. We've made good progress in Japan and showing steady growth. China, once we've got the drug approved, it's got to be listed on certainly the reimbursement list, and then it's got to be pulled through the provinces across China. AstraZeneca has done a terrific job in our collaboration with them to get the drug approved. We've got the drug listed. And obviously, now as we get the drug distributed through the providence in reimbursement, they can really push. And obviously, they're the leader as far as the GI space in China. And we're very encouraged, having them as a partner, but it's going to be a slow grow. I mean both these markets are growing slowly but steady. And certainly, we have IP till 2032. So we have still a lot of room for growth here. And we'll be working with AstraZeneca to certainly share our learnings in the market as they continue to move forward. Gina, if you want to make any further comments?

I think you covered it. Maybe just to add for everyone, the $10 million that I referenced in the guidance included in our revenue does include royalties from AstraZeneca and Astellas, really everything outside our U.S. profit share with that be.

Got it. Thanks, Gina. Still have a couple of minutes. So I'd probably like to focus on the commercial pipeline side and following the readouts that we saw with 378 and 346. How are you thinking about the next area of pipeline development and growth? And maybe could you also just focus a bit more on IW-3300 in visceral pain and discuss the opportunity that you see in the space?

Gina, why don't you take the pipeline question as far as the portfolio. Then I can maybe take 3300.

Sure. Maybe I can just expand. I mean I talked a little bit during the presentation time about the framework that we're looking at. I can just say, we're very busy working through this list. It's a robust list. The team is engaged. We're working across the management team. We're working very closely with our Board. I would also note this approach of hopefully being able to successfully execute on multiple assets. I would love to see one, if not more in 2021 is the strategy that I don't think changes, regardless of the fact that we have a leadership transition right now. This is a strategy that we aligned on with Tom and Mike Shetzline across our team. Worked very closely with our Board, and we haven't missed a beat. We've continued along the path. And I'm still really excited about the list of assets we're filling through right now.

I mean Gina, I mean it is -- I mean, it's really remarkable how much innovation is going on across multiple GI diseases. I mean we hear a lot about inflammatory bowel disease, et cetera. But there's just so many other disorders that are underserved that we see as opportunities that hopefully we can play a role in. With regard to 3300, this is a solely owned asset of ours. It's just kind of a second-generation GCC agonist, similar to linaclotide, but it's far more potent and far more stable, which allows us flexibility with regard to delivery and administration. And what we -- what we're attempting to do here is really validate some really sound animal modeling that we did with 3300. There is -- there exists this concept hypothesis called crosstalk, where actually, the colon and the bladder and the pelvis regions tend to talk to each other. And basically, what happens is, they both -- their nerve fibers intervene at the same place in the same area in the spinal column. So as cyclic GMP is generated from the stimulation of the GCC receptors, it downregulates signaling to the brain. And because it's in the same region as the bladder and the pelvis, we see a similar effect in reduction in pain perception in these animals that are viscerally hypersensitive. So essentially, you can administer the drug into the intestinal track into the colon and improve the symptoms of the bladder and the pelvis. So we're testing that hypothesis in humans. We're filing an IND for 3300 towards the end of this year. We hope to have it filed and in the clinic, in early next year. This is a very exciting area of science, and this is a hugely underserved population. There's really nothing that works for real bladder pain or pain related to endometriosis. So obviously, this is a solely owned asset. We're probably -- we're trying to get this to proof of concept. And at that point, we'll decide what to do next with this, whether we monetize it, partner it, et cetera. But it's an attractive, exciting area and an asset that we currently own.

Got it. Tom, that sounds extremely interesting, and I look forward to seeing the development on that asset and the hypothesis playing out. But again, thank you and Gina very much for your time and for your insights. Very interesting to see these play out. Apologies for the video, which decided to take off. I wish you both a -- conference, also. Thank you again.

Thank you.

Thanks. Thanks for the opportunity.