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

Good morning, and thanks again for joining the 40th Annual JPMorgan Healthcare Conference. I'm Eric Joseph, senior biotech analyst with the firm. Our presenting -- first presenting company this morning is Ironwood Pharmaceuticals. And it's my pleasure to welcome CEO, Tom McCourt, to talk to us a little bit about the company. There is a Q&A session after the presentation. You can click the icon there to submit questions, and I'll work them in where appropriate. With that, Tom, thanks very much for joining us this morning.

Eric, thanks for having us. And I just want to thank JPMorgan for the opportunity to present to everybody today. For the last year, it's been an absolute privilege to be the new CEO of Ironwood Pharmaceuticals. And even in the midst of the global pandemic, our commitment to advancing the treatment of GI diseases and redefining standard of care for GI patients has been unwavering. And as long as there is high unmet medical need in GI, we'll strive to develop innovative solutions for patients. And it's a promise, I don't take lightly. If we go to the second slide, this is our safe harbor statement, as we'll be making some forward-looking statements as part of this presentation. I want to remind you of that and ask that you see our SEC filings for more information on Ironwood Pharmaceuticals. So if you go to Slide 3, make no mistake, our vision is ambitious. We aspire to become the leading GI health care company in the U.S., and I have no doubt that we have the expertise and the capabilities to get there. I do want to spend a few minutes talking about several factors that have been critical to solidify our leadership position in the space, while we continue to drive growth and innovation. The first is LINZESS, a thriving, market-leading, blockbuster brand to treat millions of adult suffering from the chronic symptoms of IBS-C and chronic constipation. LINZESS remains a vital part of the organization's success driven by our innovative and skilled clinical and commercial teams and capabilities. As a result, we continue to strengthen its clinical profile, expand its use in utility for physicians and activate and serve patients, with patent coverage until March of 2029. Second, it's the progress we've made in expanding and strengthening our GI pipeline. As we've mentioned before, our pipeline strategy remains focused on prioritizing serious organic GI diseases primarily managed by gastroenterologists. Our pipeline now includes assets for the treatment of primary biliary cholangitis, visceral pain disorders, and an active life cycle management plan for LINZESS. To achieve our pipeline goals, over the past year, we've augmented our corporate development team to identify opportunities that accelerate development within shorter time lines. In addition, we're focusing on innovative clinical assets that already have demonstrated preliminary efficacy and safety. The third factor contributing to our success is our structure for growth and sustained profitability. After the spin-out of the sGC business in 2019, ironwood emerged as a profitable GI-focused health care company. In 2021, we've restructured, streamlined and strengthened the new Ironwood team to continue strong performance in the market. And it's our ongoing commitment to thoughtfully -- discipline -- deploy capital in a very disciplined way to deliver value to our shareholders, which remains core to our strategy. So let's take a closer look at the performance in 2021. So moving to Slide 4. We have made tremendous progress across 3 strategic priorities: maximizing LINZESS, advancing our pipeline with innovative and differentiated GI assets and delivering sustained profits and cash flow. First, maximize LINZESS. LINZESS is an extraordinarily resilient, market-leading growth brand. It's not every day that a brand achieves blockbuster status, and we're thrilled to report that we expect LINZESS to join this elite list of brands, exceeding $1 billion in net sales, which represents a greater than 8% increase year-over-year. This is no small feat, and I want to acknowledge the dedication of our team to make this milestone a reality. In addition, LINZESS demand grew 12% year-over-year, with commercial margins of 74%. Second, our pipeline. We've made significant traction in expanding our pipeline, including a collaboration and license option agreement with COUR Pharmaceuticals to develop and commercialize CNP-104, a potentially transformational treatment for primary biliary cholangitis. This deal will allow us to tap into our GI development as well as our commercial expertise, while providing flexibility to advance other business priorities. We also coordinated a successful acceptance of the IND for IW-3300, which we look forward to progressing in 2022 as a treatment of visceral pain disorders. In addition, we advanced the life cycle management plan for LINZESS with a significant modification in the contraindication language in the product label concerning [ use in ] children, and we advanced the pediatric clinical program as well. Third, we delivered sustained profits and generated cash flow. We reported GAAP net income of $56 million in the third quarter of 2021, and we expect to end '21 with over $600 million in cash and cash equivalents. We also began to implement the share repurchase program of up to $150 million to the stock through December of 2022. $27 million worth of stock were repurchased in December of 2021. On the next slide, I want to talk a little bit about our leadership team, which has significantly evolved in the past year. I'm honored to be at the helm of this very talented team, uniquely capable to advance our mission and usher in a new era of growth and innovation. First, Jason Rickard, our veteran Chief Operating Officer, who has demonstrated very deep skills in manufacturing, supply chain management, human resources and operations. He also effectively served as our interim CFO. Mike Shetzline, our Chief Medical Officer and Head of Research and Development, joined Ironwood just a couple of years ago. He is an MD, PhD gastroenterologist and a recognized expert in GI diseases and clinical development. John Minardo joined the team just a few months ago as our Chief Legal Officer, bringing a great deal of pharmaceutical industry experience across a number of critical functions. Andrew Davis also joined us this past year as our Chief Business Officer, and is providing extensive expertise to shape and improve our corporate strategy and corporate development capabilities. And most recently, Sravan Emany joined Ironwood as our CFO, bringing not only financial operating skills, but also a great deal of knowledge in M&A and capital markets. So let's turn to LINZESS. So let's move to Slide 6. The performance of LINZESS has been amazing. This iconic brand remains the #1 prescribed branded treatment for IBS-C and chronic constipation in adults in the U.S. Even in the face of COVID-19 pandemic and additional competition over the past few years. As you can see from the graph on the left, LINZESS has shown remarkably strong and resilient growth. In fact, we expect to see continued growth in demand for another 7 to 8 years. And this is why, it's driven by Ironwood's ability to [ honor ] its critical customer insights that impact physician and patient behavior. Based on these insights, we have and we will continue to create innovative commercial solutions to effectively activate patients to request more effective therapy, refine our professional promotion efforts to maximize productivity and efficiency, provide class-leading payer access to make it easy for physicians to prescribe and patients to access LINZESS, and advance the LINZESS life cycle management program to strengthen the clinical profile, expand utility and treat new sources of patients in need. While over 3.5 million patients have received LINZESS to date, it's important to point out that there are 30 million to 40 million suffering patients that can be helped. And it's this large suffering population that needs effective therapy and will sustain the ongoing growth for LINZESS. It's really rare to see this kind of sustained growth in year 10, and it's really remarkably similar to my personal experience in the GERD and PPI market. When there exists a very prevalent, highly symptomatic chronic disease with unsatisfied patients, and you have a first-in-class market-leading brand that improves symptoms and has the high level of treatment satisfaction, the brand will continue to thrive. These are the types of markets and brands that can deliver durable growth throughout the life of the brand. Moving to Slide 7. This sustained momentum for LINZESS in the market will fuel the net sales, but demand growth is absolutely critical. LINZESS has consistently demonstrated linear growth since launch, and it continues to experience double-digit growth in demand, generating over $1 billion in net sales, over $700 million in net profit as well as $350 million that comes to Ironwood. As we look to 2022 and beyond, we expect to continue to see and experience double-digit growth in demand. This strong momentum and market leadership position for LINZESS enables us to refine our overall marketing mix and investment, while still drive growth and increase revenues. A key component of the marketing mix to sustained demand growth in the future is an investment in our payer access. In order to secure a class leading payer access, and to enable further growth, we needed to increase a couple of discounts with a couple of key plans. So we project high single-digit price erosion in 2022. However, we anticipate a more modest impact on price in 2023. Given the high level of brand awareness that we've been able to establish, combined with class-leading treatment satisfaction for LINZESS, we have had the opportunity to focus and actually reduce the selling effort and expenses that enables strong brand margins and will actually increase brand profit in 2022. Moving to Slide 8. We're unlocking opportunities for the future. The new opportunities for LINZESS and our expanding pipeline will remain in the spotlight, starting with the LINZESS life cycle management program. We remain focused on advancing our pediatric program for IBS-C and functional constipation, which affects 4 million to 6 million children in the U.S. This represents an important opportunity to expand the clinical utility of LINZESS and create a new source of patients and sales. Our team also strengthened the clinical profile this past year by adding a couple of new additional abdominal symptom claims to the IBS-C indication and the revision in the contraindication. Next, the option with COUR pharmaceuticals to access CNP-104 represents a potential disease-modifying treatment for primary biliary cholangitis and FDA just recently granted a fast-track designation for this asset with the study results expected in 2023. In IW-3300, our wholly owned asset for the treatment of visceral pain conditions, such as bladder pain disorder, interstitial cystitis, both very debilitating disorders in need of more effective therapy, our IND was approved by the FDA, and clinic trials will be initiated in the first quarter of 2022. Slide #9. As our pipeline development efforts speed and gain speed, our corporate development team sets a high bar for evaluating potential assets to ensure that when we decide to invest to acquire an asset, it will deliver both brand -- both patient benefit as well as shareholder value. We've set up very rigorous criteria to guide us in this process, so we make sure we make sound investments. So moving to Slide 10. So what do we mean by serious organic GI diseases? These are diseases that have a well understood pathophysiology mechanism. Importantly, they have a well-defined disease marker or several markers that could be targeted with specific disease treatments to improve care. You can see the diseases that we prioritize, which include pancreatitis, celiac disease, liver disease and a number of rare GI diseases. This leads us to the next part of our story today, our financial guidance. So Slide #11, Ironwood is updating our previous guidance for 2021 and providing guidance for 2022. Ironwood is projecting net sales at the high end of the November guidance and to exceed $1 billion in net sales in 2021. Ironwood is also anticipating both revenue and adjusted EBITDA to finish at the high end of the range. As we look to 2022, ironwood continues to anticipate strong demand growth, with high single-digit price erosion and project low-single-digit growth in sales. However, with the refined marketing mix and thoughtful allocation of capital, we project solid growth in Ironwood revenue as well as adjusted EBITDA in 2022. So 2022, we will be concentrating on driving prescription demand for the future as well as deliver strong brand profits. Slide 12. While GI clearly stands for gastrointestinal, I believe it also stands for Ironwood's ability to grow and innovate. So I'd like to end today's presentation by highlighting a few of our strengths. We have a market-leading brand in LINZESS in IBS-C and chronic constipation, and we expect LINZESS to exceed $1 billion in U.S. net sales in 2021, with continued strong prescription demand growth potential. We also have a highly capable commercial team with deep GI experience across the U.S., with leading GI specialists and PCPs. There exists a number of attractive assets emerging in the GI research area, and we are actively evaluating opportunities to strengthen our innovative pipeline. We also will be advancing as well as exploring additional linaclotide life cycle management opportunities in order to further enhance its value. In a strong balance sheet and cash flows, to enable disciplined capital allocation and reach new patients and deliver value to our shareholders. We have an accomplished management team with strong both GI commercial experience, development experience as well as M&A expertise that will create future value and success for the company. Simply put, we will maximize LINZESS. We'll continue to strengthen the GI pipeline and deliver sustained profits and generate strong cash flows. Thank you for your attention, and I appreciate the opportunity to present. So I will welcome back Eric Joseph, that will join the call and we'll move forward with the question and answer.

Okay. Great. So I guess just picking up first on LINZESS performance for the full year and also some of the guidance you laid out. Of course, we'll learn a little bit more in the coming weeks. But I guess, how should we be thinking about sort of the commercial -- where do commercial margins arrive in fourth quarter? And as in the guidance that you laid out for '22 with continued, seems like, growth or better performance on commercial margins. Is there any I guess, lumpiness that we should be looking out for quarter-to-quarter on that front in terms of how you're spending on that brand?

Thanks. Really, it's -- the one thing that's changed, as you may recall, is the management of the inventory. And we've been working very closely with AbbVie where it will be a very consistent level of inventory. Normally, we experienced some seasonality where they would -- we burn off inventory in the front end of the year and build inventory in the back. And what's happened is it's really steady. So they have maintained really steady inventory levels, which makes the revenues far more predictable as we move forward. So this really is focusing now on demand growth. And as I mentioned, the momentum of the brand is pretty remarkable. And even though that we have continued to kind of throttle back on our professional promotion efforts because there's such broad awareness and high level of treatment satisfaction with prescribers, we haven't needed to push as hard on the professional promotion side, which has allowed us opportunity to refine and reduce the overall -- or refine the market mix and reduce the overall spend on the brand. So even though we'll experience some price erosion in 2022, the overall profitability of the brand will outpace the growth in net sales. So the brand is becoming extremely healthy and durable. And, Eric, we don't see a major competitor out in front of us, between now and really patent expiration. So we have another 7, 8 years of growth and profitability out in front of us.

How do they look -- what is the outlook like Beyond '22, right? You're anticipating, I guess, more price stabilization, at least less price erosion in '23 by the sounds of it. At the same time, what are the implications there for volume growth? Is it -- do you kind of net out at the same kind of low to mid-single-digit range in terms of revenue growth? Or just how to think about sort of the volume impact beyond 2022?

Yes, I'll start and I'll hand this over to Sravan Emany who's our new CFO. But the way we look at this right now is this is absolutely a volume demand gain. And it is the lifeblood of the brand for it to continue because if we compromise our access in a couple of these big plans, it isn't just the new prescriptions that you get at, it's the refills. And those prescriptions, you never get back. So it's really critical that we maintain this class-leading access. That being said, we are guiding to low-single-digit increase in net sales. But the bottom line, as far as the profitability, will be greater than that. We'll provide you more guidance as we move forward. And as far as the investment, it's quite predictable how to drive this market. We certainly see -- we see a dip usually in January and February because of the high deductible plans. But then it begins to accelerate. Demand accelerates in March and April, it kind of levels off in the summer and that accelerates again in the back end of the year. And this has been remarkably consistent over the last 7 to 8 years. But, Sravan, if you want to comment beyond that with regard to your view of the health of the brand and kind of what you're seeing as far as 2022 financials.

Thanks, Tom, and thanks, Eric. Nice to meet you virtually. I would say a couple of things. One, we haven't given [ 20 ] long-term guidance yet for the company. We did provide in the 8-K that was filed on Monday and in this presentation that Tom just went through, some of that, it's about 2023. And our perspective there is that, while we are -- just where we stand today based on our existing contracts and based on where we see what's up for renewal, we don't anticipate price erosion to be significant in 2023 as it is in 2022. And we'll give more guidance as the year progresses, and at some point in the future, get potentially a long-term guidance, we're not sure about.

Okay. Okay. And in terms of just overall life cycle management of the product and any potential label, any -- the potential for additional label expansion. I know that pediatric studies were perhaps part of that plan. Is that still something investors should be anticipating in terms of -- or are there any additional life cycle management opportunities to expand label and ultimately drive broader use of the product?

Sure. And I'll hand it over to our Head of Medical, Mike Shetzline here in a second, but this pediatric population is a large population. And currently, there's no drug actually approved for pediatric constipation. Mike, I think [ you just lost mic ], I apologize. But we do see this as a significant opportunity. I mentioned there's about 4 million to 6 million patients that are suffering. The big difference with the kids is they seek care. If you have a child that's struggling with constipation and abdominal discomfort, you're going to go see the doctor. And so these are very, very accessible patients. And from all the market research we've done so far, the physicians are looking for something that's approved because currently, there's just nothing approved. So we do see this as a sizable opportunity. Probably the [ one, a half ] for us was the dose. We were all expecting to have to go to a lower dose with children. But as we've moved our clinical program forward, it doesn't look like that's the case. It looks like the dose will be probably 72 microgram, which is a current formulation and dose that we have available. But -- so it won't require a new formulation or a new dosage rank. So we think that these are very accessible patients. And we think it will really boost the overall revenue of the brand. Mike, maybe you can comment a little bit as a gastroenterologist what you see in kids or what you saw in kids on a regular basis as well as kind of any comments you wanted to make on the clinical program.

Yes, sure. Thanks, Tom. I mean, certainly, pediatric constipation, functional constipation, IBS with constipation is a fairly common condition in the pediatric population. And today, unfortunately, there's actually no approved therapies. Whatever pediatricians choose to use is currently off-label. So clearly, in our engagement with the pediatric GIs, they really welcome an opportunity to have a therapy certainly with the FDA stamp of approval on it to help them better manage this problem for kids. And we're really great to have the opportunity with LINZESS because it's the safety profile clearly bears out an opportunity to treat patients in the pediatric population. And the data we generated to date actually supports that. As Tom mentioned, we did a major label revision last year based on the pediatric data. Again, we're not currently approved in pediatrics, but it does support our ongoing development opportunities in pediatric populations. And right now, the safety and pharmacodynamic responses we're seeing in kids support the use of adult dosage forms. We're primarily studying 72 micrograms in the current pediatric program, but also looking at other doses across the functional constipation and IBS with constipation.

Okay. Okay. So anything else, Mike, I guess with all that being said, I guess, when should we be thinking about a formal label update, I guess, kind of putting together data that you currently have in hand versus studies that are underway?

Yes. So we're working with AbbVie and the FDA in real time. We've just completed the program in 2- to 5-year-olds. We completed a program 2- to 5-year-olds with functional constipation, 6- to 17-year-olds in functional constipation and 7- to 17-year-olds of IBS with constipation. We've gone through planning another study with the agency's help at this stage with our partners, AbbVie. We hope to have more data through 2022 and a good plan formalized that we can share by the end of this year.

Okay. Okay. Great. Maybe you can talk a little bit about the program -- the agreement that you have in place with COUR Pharma for PBC. We've highlighted the market opportunity here and perhaps investors are a little bit familiar with that indication. But perhaps less so how CNP-104 might differ with what's current standard of care and sort of the unmet need with -- going to get this wrong -- and may be met by obeticholic acid currently.

Yes. We're extremely excited about this, and this is -- I'm going to hand it over to Mike. He's really the true expert here. I mean it's something Mike has been watching for quite some time as far as; one, this is a horrible disease, as you know. That really has been very effective therapy. And this could really be a transformative product for the treatment of primary biliary cholangitis. So Mike, maybe you can share your thoughts on kind of the current state of treatment, but also this innovation and kind of what could happen for patients if this pans out for us?

Yes, sure. So first, I mean, PBC, primary biliary cholangitis, is the disease of cholestasis where you sort of impede or have trouble with BioFlo. So to your point, Eric, there are a couple of therapies that are used in this space ursodeoxycholic acid as well as Ocaliva. Those are bile-acid mimetics or they're just synthetic bile acids. So they basically just increase BioFlo, their choleretics, [indiscernible] increasing fluid flow in congestive heart failure. So they do okay with their patients, help them with symptoms. It's actually a good therapy. It's been a welcome therapy for PBC patients because there's really nothing else out there. So symptomatic improvement is good. It does help in some longer-term approaches as well. But the reality is neither URSO nor Ocaliva treat the underlying cause of PBC which is the autoimmune destruction of bile duct cells. For some reason, patients with PBC preferentially destroy their own bile duct. It's an autoimmune disease. And that destruction happens through what's called the PDC-E2 antigen. It's a specific antigen that these patients have that actually when the T cells react to that, it destroys their bile ducts. And the reason we're extremely excited about this program is because when you talk about precision medicine, PBC is currently diagnosed with a positive antimitochondrial antibody. 90% to 95% of PBC patients have this antibody. This antibody is specifically directed against the PDC-E2 antigen and COUR's technology actually uses the PDC-E2 antigen in a nanoparticle to encapsulate the antigen to preferentially deliver it to the spleen and liver. Preferentially delivering into those locations, the T cells interpret that antigen presentation differently than when it's expressed in a periphery and cause what's called energy or tolerance. So the T cells then can potentially lose their ability to attack the bile duct cells and look at that antigen as friend and not foe. This is why we really think this is a game-changing opportunity because I don't use this term often in my career, I haven't used it in my career until this event, meaning this asset. We have an opportunity to potentially cure PBC patients. If we can tolerize PBC patients to the antigen that's driving their bile duct destruction, we should make a significant impact on their disease progression. So that's the clear differentiating piece for this approach, the COUR nanoparticle technology approach to what's currently on the market. And we've had a lot of great enthusiasm from hepatologists who treat PBC patients because they recognize that the current therapies just aren't getting them there so this could be a game changer.

Mike, one of the things that would be helpful, too, is the current trial design, what will we learn and when would we possibly see data? I know they're just kicking off the study right now. But maybe you can share with Eric and the group here, kind of what we hope to see at the end of this next study? And how is that projected into the future trial?

Yes. So again, one of the pillars of a strategic approach to the pipeline is being taken assets that have very clear pathology, clear mechanisms from an asset perspective may give us an opportunity for clear decision. That's what this current trial design addresses. So it's a first [indiscernible] study, but it's a Phase II study. It's going to look at safety, tolerability, pharmacodynamics and efficacy. There are established markers for efficacy in PBC. They were actually used for the Ocaliva approval, and we certainly can track them objectively through our clinical study. If you look in [indiscernible] the kind of time lines for completion of the study is going to be 40 patients. We'll get it into the mid-2023, but we'll actually be able to capture data in real time through 2022. And given the objective measures we have for potential improvements in liver function, meaning alkaline phosphatase, which was a principal component of [indiscernible] approval, but also very specifically, we can quantify the T cell responses. So we can actually quantify the destructive T cell responses versus the nondestructive or the active T cells. And that gives us a real opportunity to gauge whether this therapy is going to make an impact for patients long term. And that's why I really like the program. We're not in here to sort of play games in development for 5 or 7 years to see if we have an asset in 2026 or 2027. We're here to find out in a year or 2, do we have an asset that has a commercial opportunity, but more importantly, can change the lives of the patients. And we should know that, in this study, given the objective assessments we have [indiscernible].

So Eric, you can see why we're so excited about this. And of course, it's right in our wheelhouse. And certainly, what Mike and his team brings to the table, to help COUR, not only in the trial design, but also operations of the study, we're very enthusiastic. And of course, this disease is largely managed by gastroenterologists. So I mean, it fits dead center of our core strategy. And this was a very affordable option that we secured. And I think, to Mike's point, we'll have a very, very good line of sight as to whether we move forward or not in a very short period of time.

Maybe it would be helpful just to have you remind us the terms of the agreement with COUR, should you decide to opt in into the asset?

Sravan, do you want to take that?

Sure. So we will -- we structured this with a handful of milestones, which was about $6 million upfront, which we paid last year. Milestone associated with the FDA Fast Track Designation, which the company announced on Monday that they had received of $2 million. $4 million for the start of the trial, and then we'll fund this current trial for $37.5 million -- sorry, for $7.5 million, which is the R&D funding. And that's what we have at this point in time. When we have a sense of what the next stage will be, we'll consider what the remaining economics are from [indiscernible] funded. We do have [indiscernible] in place for that amount. And that amount is about $35 million. If we want to exercise the option to move forward, we have that negotiated in place. But we'll [indiscernible] back on that once we have the results at the end [indiscernible].

Correct. Great. And notwithstanding your excitement for this asset. And of course, it's certainly something to keep your hands full in the development. But just curious to know whether this agreement should be a model for -- well, really, what the appetite is for additional business development, I think, over the near to midterm, and whether this COUR agreement might be a model for any potential deals that might emerge?

Yes, Sravan?

Yes. Why don't I take that first, Tom?

Sure.

Look, Eric, I think there are a couple of things first. I think from a capital allocation perspective, we'll do what's in the best interest of shareholders [indiscernible]. And I think right now our strategy, as you've heard Tom talk about is to drive and continue to maximize LINZESS because that will continue to drive cash flows. And with those cash flows, we are going to deploy in 2 forms. One is to continue to build out this pipeline and continue to drive -- build the best GI company we can in the United States. The drugs that we're looking or the assets that we're looking at, if we can find deals like this, which like COUR, specifically, where we can have a point of view on whether or not success we have or whether the drug will work pretty early on and with the low amount of commitment financially, we'll pursue those types of opportunities where possible. The other piece of it is we're not going to pursue big binary events with where we are. That said, we've got a fairly sizable balance sheet that we can put to work to build out our portfolio. We think we have the opportunity here with some [indiscernible] which mean Tom, Mike and the rest of the team to be a consolidator in GI specifically. And there are a lot of assets out there that could benefit from our commercial team, from our medical expertise. And so we think we're uniquely positioned in the space. At the same time, they're going to be balanced. And so we have a $150 million share repurchase program in place [indiscernible] last year. And in 2021, we've already repurchased $27 million worth of shares against that $150 million. So we're going to be balanced about this, and we'll do what maximizes value. Each deal, as you know, Eric, is sort of -- is unique and has to make sense for us as much as it makes sense for the other part.

Okay. All right. Well, thanks for that, gentlemen. Tom, Sravan, Mike, Jason, really appreciate the time this morning, and thanks for joining us, and thanks, everybody, for joining the session.

Thanks, Eric.