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

Hello, and welcome once again to the 19th Annual Morgan Stanley Healthcare conference. I'm one of the biotechnology analysts here. My name is David Lebowitz. Before we get started, I'm going to go through the requisite disclosures. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, I'm happy to welcome from Ironwood Pharmaceuticals, CEO, Tom McCourt, COO; Jason Rickard; and CMO, Mike Shetzline. This is a commercial stage company. You've had LINZESS, clearly a successful drug for the treatment of constipation, including IBS-C and chronic idiopathic constipation. Certainly, the company has been going through transition in recent years from the spin-off of Cyclerion. And more recently, with this effort to try and bring new assets into the fold. Could you tell us about the historic evolution of the company and where you are today and how you are trying to generate additional shareholder value?

Sure. So first of all, David, thanks for the opportunity to be here today. We've had a very productive day with investors, and it's always a pleasure to be here. As you know, when we spun off from Cyclerion [indiscernible], we really started to focus primarily in the GI space, where I think we looked at a lot of different options with previous Ironwood, but we knew our wheelhouse was in GI. Certainly, our expertise is there, the capabilities are there. And there was very good alignment with the success of LINZESS. And as you know, LINZESS, I think we'll get into it in a second, but has been very successful, and we're very pleased with what we're seeing both with regard to what we're seeing in its current growth, but also the life cycle of progress that we're making both on strengthening the clinical profile, as well as expanding clinical utility into additional populations, such as a pediatric population and possibly the OTC space. So LINZESS is continuing to evolve very nicely. We've seen strong linear growth. And certainly, with that focus in GI, we've looked very, very broadly at the landscape. In GI, we've identified a number of very interesting emerging technologies with significant unmet medical need that the team is currently evaluating and certainly we're also always open to looking at or considering transformational deals that we set publicly if that makes sense to shareholders but I think for also creating shareholder value certainly the core pillar of that strategy is: one, continue to drive the growth of LINZESS but also increase the margin profitability of the brand which we've made tremendous progress in growing it from roughly 45%, now we're at 70% and we've continued to evolve the marketing mix to refine where we're investing whether it's personal promotion, consumer and payer which is continue to drop significant cash to the bottom line. So we feel as though the brand is running very well, increasing efficiency and productivity and certainly second, we want to be able to leverage internal capabilities and expertise more effectively and more efficiently in the GI space. And so certainly, the second pillar is around how do we continue to build out the pipeline in a very thoughtful and appropriate way. And then the third is really around we become a profitable company. We're collecting a good deal of cash to make sure that we bring value back to the shareholders. Certainly, we're looking at retiring debt as well as the stock repurchase program that we've identified that's been approved through the end of next year. So right now, we're really trying to balance those things to figure out how we most effectively bring shareholder value.

Thank you for that. Now the market for constipation has become more competitive but volume growth has seemed to have continued obviously, pricing has had some pressure in recent years. Could you tell us exactly how these new competitors have impacted LINZESS from your perspective? And how that impact will continue going forward?

Sure. Well, first of all, it's like -- let's look at what's the health of the brand, right which is -- the volume, and to your point, demand has been very, very strong with this brand. I mean think about we're in year 10 here, and we're looking at double-digit growth from 12% to 14% on a 3.5 million prescription base. I mean that is really quite remarkable. I mean, there's very few categories and brands where you see this kind of momentum and durability in the brand. So driving growth is absolutely paramount. And when you have a highly prevalent disease, particularly one that's highly symptomatic and not life-threatening, that's a core piece to the overall strategy because patients want to feel better. And the reality is we're pulling in a lot of new patients into the market. About 2/3 of our new patients come right off OTCs. And OTCs are the focus. That's where our source of business is. That's where we need to grow. And we're myopically focused on how do we continue to broaden physician's view of who the appropriate patient is and activate more consumers. Now what we have seen in the marketplace over the last couple of years is a significant increase in the overall activity of patients as far as online searches, as well as huge volumes of patients coming to the LINZESS website on the order of 400,000 or 500,000 unique visitors a month, which is really quite remarkable across any disease category. So the demand as awareness continues to grow, is improving. In addition, we presented data at DDW back in May. This show that -- it looks like the overall prevalence of IBS-C has dramatically increased, which, obviously, all of which is fueling the growth. As far as the competitors are concerned, we're obviously the market leader. We continue to grow market share and build the market, which is not an easy thing to do in the face of 3 new competitors, Trulance, as well as Motegrity and Zelnorm coming into the market, but their combined market share is less than 10%. And Trulance is right around 4%. So we're continuing to take the lead in growing the market. I think certainly, there's been price pressure, to your point, David, with regard to Trulance as well as, obviously, other generics. But keep in mind, we launched into a generic market 10 years ago, and it was all [indiscernible], right? It was all polyethylene glycol, which then went over the counter. And we thrive because of the high level of patient physician satisfaction. People feel better on the drug. So I think what we are seeing on the payer front is on the commercial side, it's been pretty stable with regard to price erosion over the past 3 or 4 years. The area that we're seeing the price erosion comes from is in the Med D space, which, as you know, it's a 2-year bidding cycle in these. So it's taken a while for the Med D plans that kind of catch up with the commercial plans, but we're basically there now. We've had to tighten up a couple of plans this year. We're still in final negotiation for next year. But certainly, we're seeing some stabilization in price erosion on the commercial side and we expect to see similar things on the Med D side as they basically come down to the same level.

So you commented about getting really share gains from OTC at the end of the day. So when we look at the market, I know people tend to -- have a tendency to always compare the prescription brands together. That's really probably not the right way to look at the market in the long run.

We completely agree, David. This is an OTC play. I mean I look at markets -- analog markets that we know quite well. I mean the best one I can find is the GERD market. When PPIs first came out and the whole market was antacids, right? And so it wasn't necessarily H2s, it was antacids that they needed to pull into the market, which sustained growth. And even back then, as good -- as successful as PPIs and H2's were, still 7 out of 10 patients walking out of the office were on an OTC antacid. We're seeing the exact same dynamic in this market. Right now, somewhere between 7 and 8 patients out of 10 patients coming in and walking out are on an OTC laxative. And they're not satisfied with the treatment they're getting. So that has to be where we have to capture the business. Taking business away from everybody else in the category just doesn't make any sense, particularly as the market leader. So we have to continue to grow and capture the market.

How does one get physicians who are still doing that behavior and prescribing -- putting patients on these OTCs, considering how long these therapies have been out there, how do you get them to change?

I think recognition of who the appropriate patient is. So the reality is we've got a drug that treats both abdominal symptoms and constipation. Initially, we could only talk in terms of pain, but most of these patients actually would describe their symptoms as bloating and discomfort. And we're talking about 70% of all people out of constipation would argue they have also problematic abdominal symptoms. And that's the primary reason why they seek care. So helping docs recognize that, and this is where the expansion of the label to add the additional abdominal symptoms becomes so critical. So we can talk to the consumer, the patient and say, if you have these symptoms, you need to tell your doctor. And what we have learned is if the patient comes in and says 3 things: one, I have both abdominal and constipation symptoms. I've tried laxatives, I'm not satisfied, the probability of us getting the script goes up exponentially. So that's kind of the core dialogue that we continue to need to establish between the patient and the doc because the doc is very willing to honor a patient request. And on top of that, if we can get the patient to specifically ask for LINZESS they're going to get at 85% to 90% of the time walking out of the office. So I think it says a lot to the patient need, certainly, the willingness of the physicians that make the right choice. And certainly, the success we've had in the marketplace with LINZESS.

So with that, could you run to the data from the Phase III about -- that showed the improvement in bloating that was presented last year? And then where does that process stand right now as far as implementing that into your marketing?

Yes. So this is -- we have been measuring these symptoms from day 1. They were in the original pivotal trials. We had discussed with the FDA early on to include them in our claim and in the label. At that point, they wanted to have a real delineation between chronic constipation and IBS, but the reality is it's a very fuzzy line, David, as you know. And over time, we were able to convince the FDA that it is really important for patients and docs. As far as the degree of improvement, they tend to travel -- these other symptoms tend to travel with pain. And so we do see consistently 40% to 50% reduction in these symptoms over time. The threshold that it often been put out is this 30% reduction, and we basically ran those trials again, except the FDA asked for an absolute point reduction, which is really semantic. But to be a responder, you needed to have roughly a 30% reduction in these other abdominal symptoms, which, by the way, we saw in -- across 6 other trials that we had already done. So this was really introducing this new endpoint to the FDA to convince the FDA that this was the appropriate thing to do, which FDA did. So we now have -- we first went out, educated physicians on this, starting the -- towards the beginning of last year. And once we got the physicians comfortable then we started expanding our consumer efforts. So that started towards the middle of last year. So we still have a long ways to go to broaden the awareness of the value of these but it's clearly having an impact in getting more patients to raise their hand. So that's -- which is the most important thing for them to describe those symptoms to the doc.

You recently did alter the label regarding safety warnings around severe dehydration making those warnings little less restrictive for children. Could you tell us about that change?

Yes. I'm going to hand this over to Dr. Shetzline. I'll just tee it up for the sake. This is something that we have always been confident in the safety of this drug. And based on some previous preclinical studies as well as an old study that was looking at GC-C receptors in children, which was a bit misguided that we have redone the studies, we've been working very closely with the FDA to make sure that they get comfortable so we can move to pediatric program. But Mike, maybe you can talk specifically about what we've been able to achieve with the FDA and kind of how that was supported.

Yes. Sure. So as Tom mentioned, the real [ origins ] of the label in the morning and [indiscernible] was actually the absence of clinical data, not much on the data front. There certainly was this legacy GC-C expression study, which implied that children in the pediatric population could be more sensitive to GC-C agonist, but there's really no clinical data that supported that sensitivity. And of course, unfortunately, there was a neonatal preclinical animal model that showed dehydration and death, which is what resulted in a label. But in that time, we've now completed a clinical study in 7 to 17-year olds in IBS, 6 to 17 year olds with functional constipation and 2 to 5 year olds with functional constipation. And it really has cemented effect that the clinical data does not support a risk of dehydration or death. And in fact, we're seeing -- we don't see the sensitivity clinically either, meaning that the kids are having an exaggerated response to doses of LINZESS. We repeated the receptor expression as study with newer technology and also showed that the receptor expression stays pretty consistent across age groups, even in children less than 2 up to 18. And that was done by showing small bowel biopsies as well as colonic biopsies and measuring GC-C expression. So in aggregate, we took the clinical data. We took the expression data, and there's also some publications in the literature as well as post-marketing data to the agency, and they immediately agreed. We had a very robust and quick turnaround once we got that full data set together, and they agreed to move the label from what was restrictive from a warning perspective at age 18 and a [ contra age 6 ] down to 2. And again, the reason it remains at 2 is not because of any clinical data, it's because the absence of data. We clearly don't have clinical data in kids less than 2. But as what we've learned, we really are confident that as we do further clinical studies, we'll be able to engage the agency further and ultimately get the box removed with the right data set to show them.

To what extent had this being in the label impacted penetration in those particular populations?

I mean it hampered it dramatically. I mean, let's be clear, I just want to make sure we're clear. We're not currently indicated for the pediatric population. But obviously, that's up to the judgment of the health care professional. And keep in mind, there is no drug approved for pediatric constipation, much less IBS-C in kids. So they're kind of flying by the seat of their pants, if you will, utilizing things like MiraLAX and other treatments to try to help these kids. So -- and there's this significant halo effect. I mean, it's -- when you read the language in that box warning, it's scary to say it could hurt them, right? So having that removed, obviously, creates a significant halo effect for the entire brand. But obviously, will set us up for the program moving forward to secure that indication as quickly as possible. But I think -- and when you talk to gastroenterologists who know this space very well, I mean, they're using it in a very broad group of patients. They basically -- 3 out of 4 patients walking into the office get a LINZESS in GI office. It's also helping us identify and educate the most productive primary care physician to get them comfortable as well.

Toward that end, what are the efforts at this point to expand the label to the younger ages?

Mike, do you want to take that?

Yes. So as I mentioned, we have clinical studies completed in IBS and functional constipation. We have an ongoing study in 6 to 7-year olds in functional constipation. We're working with AbbVie, our partners, obviously, to firm up the data set in pediatrics and put together a proposal for the agency. And right now, one of the areas we're focusing on in that, as I said, is the sort of the functional constipation stage. I can't give you a time line right now on when that might play out, but we're planning negotiations with the agency in real time.

Got it. Now certainly, in the last couple of years, there's been a lot of talk about when the intellectual property for LINZESS might actually run out. You've come to some resolutions on those issues. Could you just talk us about where that currently stands right now?

Yes. So every -- we've settled all known ANDAs that have been filed. We settled those for the 290 dose -- 290, 145 dose initially. And it goes -- basically LOE now is March of 2029. Because the 72 microgram was formulated slightly differently because of its sensitivity to moisture. We had to wait for that [indiscernible] to be granted. And then, of course, we settled that as well, just a few months ago. We have protection into March of 2029.

Got it. Now as far as lifecycle management, for the program, what's the strategy going forward?

So, I think, one, to stay in the course to resolve the box is absolutely number one. I think jumping into the pediatric population is clearly the next move here, which is -- we're talking 4 million to 6 million America kids that are suffering. And the difference here is when those kids are suffering, they tend to get health care. So a lot of these kids are in the office. So we think this is a significant opportunity for us moving forward. And of course, the last loop here would be the OTC play, David. And with the elimination of the box being the market leader, this is a large market. I mean, this is clearly a logical next play for us. And AbbVie, we're working through that right now with them as a team to make sure that, that deal can be done and the product can be made available post LOE. But obviously, we need to figure out who we're going to do the deal with and run the clinical trials. So I think those are kind of the key areas right now that we're focusing on to expand the clinical utility of the drug.

Let's move on to IW-3300. Could you tell us about that therapy and where you're looking at it right now?

Yes. This is really exciting and really innovative, David. And I'm going to hand this over to Mike for him to kind of walk us through it. This is a wholly owned asset that we have. It's another GC-CA. And is similar to linaclotide, but it's quite a bit more potent and far more stable. It gives us more flexibility on how we can actually administer the drug. But there's some exciting emerging science around crosstalk that Mike can walk you through. But certainly, we have very good preclinical data that supports us. And we want to move it forward into -- certainly in IND and then in a proof-of-concept study. So Mike, maybe you can kind of share your thoughts on the molecule and the path forward.

Yes. Sure. And 3300 is really quite exciting because it's actually going to allow us, for the first time, to clinically test this cross-talk about this, which has been around in the literature and in the medical community for actually decades. We're well aware that patients when you have left arm pain, you think of your heart or if you have right shoulder pain, you think you might have liver inflammation. But from a pelvic organ perspective, people aren't as aware of what happens in the gut may influence what happens in the bladder or other pelvic organs and reproductive tissues, but it is a well-established epidemiologic phenomenon. And what I mean by that is clearly epidemiologically IBS patients are more likely to have bladder pain syndrome. Bladder pain syndrome patients are more likely to have other pelvic visceral hypersensitivities. And that's well-known clinically, but the actual mechanism around that has always been postulated to be this neuronal crosstalk where inflammation or findings in one organ can really influence the outcome in another organ. And we were able to [indiscernible] to test first, and we're on track to deliver the IND the second half of this year and start the clinical program in early '22 is looking at interstitial cystitis and bladder pain syndrome. And we're using rectally administered 3300 because the colonic sensory afferents are the main driver for this crosstalk hypothesis and by stimulating those colonic sensory afferents we get to influence the other pelvic organs, specifically in the bladder pain syndrome. And we -- the reason we believe that is because of the number of animal models, we've seen this happening quite reproducibly. And it's a range of animal models. We have animal models of radiation proctitis, which incidentally was reported out this week at the urologic meetings. We have animal models in vulvodynia, endometrial pain, [indiscernible] colonic hypersensitivity like functional bowel disease and irritable bowel syndrome. So a number of models show the same thing, that with the use of 3300 when these animal models are put in a hypersensitive state or a higher pain state the 3300 reduces that pain threshold and brings the animals back to normal. So it's quite exciting, a basic science, and we're really looking forward to testing it for the first time clinically. And as I said, it will be in bladder pain syndrome and interstitial cystitis. Primarily because the medical need there is quite significant. There are a couple of products on the market, but honestly, our outreach to urologists in this space, they don't really use those products because they don't think they work. And if you look at the labels on some of those products, they say things like [ SUS ], the bladder epithelium or things like that, the mechanism is not quite clear. So they're quite excited to have an opportunity to try something new in interstitial cystitis and bladder pain syndrome. And actually, most interestingly, when we told them we were doing the study with rectal administration, the drug is very stable, and it's a great formulation and easily amenable to oral administration, but they said there could be an opportunity potentially for rectal administration in some of these pain syndromes because today because of the debilitating symptoms patients get, they use intravesical therapy. So they actually put therapies through the urethra to try to soothe your bladder. So there is an opportunity here potentially with rectal. But again, as I said, it's very easily formulated to oral administration as well.

And David, obviously, this is one where -- it's kind of adjacent to GI but obviously, this is something we will evaluate. This is something we should license out, et cetera, but it is a wholly owned asset. So it's -- even though it's a GC-C receptor agonist, it's outside the current agreement with AbbVie.

When could we initially see data from the asset?

Mike, you want to take that?

Yes. So as I said, we're planning to start the clinical program in early 2022. We're actually putting together the IND, which will have the study designs. We're working with external experts to formalize those study designs. I can't give you the exact time line for that. It will depend on [indiscernible] the studies we'll have to do to kick off the proof-of-concept study. So we don't have that date right now.

Got it. Now you recently announced a share repurchase program, but you're also engaged in looking for in-licensing opportunities. How do you weigh out both programs concurrently?

Yes, I'm going to hand this over to Jason to take the lead on it. But obviously, this is something -- capital allocation question is critical for us, right? And I think the exciting thing is we're seeing a lot of opportunity with some emerging technology in GI. But also, this is all -- as we talked about earlier, this is all about shareholder value. So Jason, maybe you can share your thoughts on how you see this playing out as far as the share repurchase program?

Sure. Thanks, Tom. And for a reminder of the folks on the call, the Board of Ironwood authorized up to $150 million in share repurchase through December of 2022. And we think we're in a great position to invest that capital wisely. And our #1 priority is going to be to invest in the brand in a way that Tom has already outlined, to continue to drive both volume growth and the life cycle. We see interesting opportunities in the GI space, on the asset acquisition front. But the bar is quite high for us there, and we want to make sure that whatever we bring in makes sense strategically and commercially, but we do see affordable opportunities. Another element is we have committed to retiring the first tranche of debt on our balance sheet out in 2022 with cash. And then that leaves the share repurchase program. And with $500 million -- just right around $500 million in cash and cash equivalents on the balance sheet at the end of Q2, we don't see these objectives as mutually exclusive. And we can take the opportunity to deploy that capital in the most effective manner for our shareholders, whether it be on the asset acquisition front, in addition to a share repurchase.

Thank you for that. And I got time here for one more question. You recently talked about looking at a number of disorders of the liver as a potential area to pursue. How does it fit with your current standing in the GI space and your contacts with various physicians in that space as far as moving in that general direction?

Yes. And I'll ask Mike to weigh in here as a gastroenterologist and so. But obviously, this is a collaboration between hepatologists and gastroenterologists that manage liver. So we see the call point is highly efficient. And by the way -- and the hepatologists that are there, are generally within a larger GI practice that we're already here calling on. So Mike, maybe you can kind of share your thoughts on that question.

Yes, sure. I think there is a tremendous amount of overlap. I mean it is clear that hepatology [indiscernible] transplant and those kind of things is a subspecialty of its own. But in the practicing community and the general practice gastroenterologists they routinely do some liver as well. And with the progress with hep C therapies and things like that, which are fairly well-established today, the practicing GIs are actually taking that on now because they understand the therapies, there's a lot known about it, and they can do that sort of in their practice. So I think they're willing to step up and do those things because they do treat liver patients. And with a lot of the science and new information we have with the number of liver disorders, we feel it is a huge opportunity. There's a significant unmet medical need there with a lot of these disorders having no established therapies, and that's one of the reasons why we have taken on ourselves as a GI-focused health care company, try to look for assets and things that could deliver a medical therapy for these patients.

And with that, we have reached the end of our time. Thank you so much once again for virtually attending our conference. And hopefully, next year, it will be live. I'm optimistic at this point. Thanks again. Look forward to seeing you soon.

Thanks, David.

Thank you.

Thanks. Goodbye.