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

On the Specialty Pharmaceuticals pack for the day, it's my pleasure to have the management team from Ironwood with us. With me, I have Sravan Emany, the CFO; and Mike Shetzline, the Chief Medical Officer. And my name is Balaji Prasad, so I lead the specialty pharmaceuticals coverage for Barclays. Sravan and Mike, thank you for taking the time today to be with us. It's great to do it in person too, so.

Absolutely.

So let me first start with the core franchise rights, LINZESS. It continues to perform very well. It's near tenth year since you launched, and now we have guided to double-digit demand growth, prescription demand growth. So what's driving this trend? And how confident are you of ensuring that this is sustainable. And of course, I -- my apologies also if you have an opening remark to make and please use the option to make the opening comments.

Sure. So first of all, thank you for inviting us, and thank you -- it's great to be here in person in Miami for this. First, I would say we are very excited with the performance of LINZESS, 10 years into launch. For those people that aren't aware, Ironwood Pharmaceuticals were a pharmaceutical company of 1 product in the market, which is LINZESS, $1 billion blockbuster drug that we co-promote with AbbVie, our partner. We have an arrangement where we share 50% of the brand profits. So our revenues are approximately $410 million as of -- in 2021. And we had about $230 -- a little north of $230 million of EBITDA last year. With respect to your question on demand growth for 2022, look, I think there's a couple of things that we can look at in with respect to LINZESS. One, we have the broadest payer coverage from any drug in this class. We are preferred on almost every commercial plan and almost every [indiscernible] plan. So to make it really easy for a patient to get the drug and really easy for a health care provider to actually prescribe the drug. Two, we've got 10 years into the life cycle of the drug. It's a rather well-known drug. The mechanism of action is well known, the health care providers all know about performance of the drug. So we feel confident. Third, we understand what's sensitive in the market, and we only treated about 3.5 million patients of 45 million -- 45 million patient market, person market. So we've got a long way to grow in terms of accessing the broader market. We launched the drug 10 years ago into a market that was treated heavily by generics, and we'll continue to chip away at that over time. So I feel confident about the patient population size providing run before the drug for the near future.

Great. And as I think about your demand drivers for 2022 and the years to come, what are the pushes and takes to these demand drivers? What is it that could propel your -- accelerate your growth further? And why you're at it, could you also discuss the kind of the competitive landscape around this? And what kind of challenges you have.

Sure. So from a competitive landscape, there's generics and there are a handful of other branded drugs or branded generics that exist. I would say we've got north of 40% market share and the other 4 major competitors in aggregate have less than 10%. Drivers of demand for us, again, remains access and making it really easy for patients to be able to get the drug is first and foremost, activating those patients, because it's not necessarily about the first prescription that we write -- or a doctor writes, it's about the refill because these patients are living with this chronic disease. And so from our perspective, whether it's activation in patients and through direct-to-consumer spend or payer marketing -- sorry, or increasing payer access, we view that all one and the same as the way of driving demand.

All right. Great. And as I think about incremental indications and exploring the pediatric opportunity. So how significant is the pediatric opportunity? And as we look at this evolving, what are the next milestones to look out for, for you to realize those?

Do you want me to start and then I'll hand it to you?

Sure.

All right. So from an incremental opportunity perspective, I would characterize it as you've made great progress in the last year with respect to revising the black box indication. That was the first step. And it's lowering the age from under 18 to under 2. The next step is actually running a clinical trial, which Mike can talk about, which is kicking off this year. And then third, I think it's -- from a market size perspective, it's probably another 4 million to 6 million patients.

4 million to 6 million patients incremental.

Yes. So we're real excited about the Peds Program primarily because currently, there's no really approved therapies for constipation disorders in kids. And any of you who've had kids, they can vouch for the fact that pediatric constipation is not something that goes well within the pediatric population. And again, nothing being FDA approved leaves pediatrician sort of in a quandary. Currently, they use things like PEG, but PEG is not approved for pediatric constipation. So we've worked with the agency actually since the launch with a real robust pediatric program. We've done a number of studies. We've done an IBS study in 7- to 17-year olds. We've done a functional constipation study in 6- to 17-year-olds. We just completed a first study in 2- to 5-year olds. And we have our ongoing 6- to 17-year-old study in functional constipation, which would be the basis for a potential sNDA, data permitting. And we're excited about that opportunity because clearly, on the earlier 6- to 17-year-old study, we did see an improvement in bowel movement frequency with LINZESS in pediatric patients with functional constipation. So we worked with the agency to design the 6-to-17 study in functional constipation to potentially serve as the foundation for an sNDA. That study is ongoing. We should be wrapping it up in 2022 and hope to have something to potentially read out by the end of the year. And we'll have more to say then, but we have a lot more to work out with AbbVie, our partners, and obviously see the data that will play out throughout the year.

Great. We'll look forward to that. And the other opportunity that you're also thinking about is the LINZESS OTC pathway. So can you explain where you are currently and updates we can expect to see on what's progress through the course of the year?

Yes. So I think we would argue that there are lots of -- a fair number of analogs for LINZESS to eventually go down the path of an OTC pathway. That's something that we will work on with our partner AbbVie over the course of time between now and LOE. I think 2022 is probably a little early for us to consider evaluating that, given the LOE is March 2029.

Okay. Great. Shifting towards the pipeline, CMP-104. So now to get your take on the market opportunity in primary biliary cholangitis. And as you think about your product, how much of this market is really approachable for your product and what differentiates you?

Yes. I think it's a good question because, as you know urso versus [ IOSA ]. So PBC is primary biliary cholangitis. It's a disease of the liver where the liver bile flow is compromised. So you get the backup of bile acids and that causes liver inflammation, liver injury, ultimately progressing to liver failure and transplant. That's the history of patients suffering from PBC. There are 2 therapies currently available, ursodiol and OCALIVA. And interestingly, the reason they're available is because the medical need is huge. If you look at the data, a responder for urso or OCALIVA is defined as somebody whose alk phos, or alkaline phosphatase, is an index of liver bile flow. If their alk phos gets to be 1.67x normal, then they're considered a responder. Well, by definition, they don't have a normal alk phos. There's still at least potentially 67% above normal, but they're considered a responder. It's a good therapy. Don't get me wrong. But my point is that even when we talk about urso and OCALIVA, they're not normalizing liver function. And it's important to understand because those patients still have underlying liver inflammation and still have potential downstream risks in this chronic disease. And that's why we're really excited about COUR, the CMP-104 asset because for the first time, we're actually going to look at the opportunity to really take a strong stand on stopping the progression of primary biliary cholangitis. This is the first time I've used this word for an asset, the potential opportunity to cure patients, but it really is true because this platform and this approach is so well suited for PBC and so well founded not only in preclinical evidence, but clinical evidence that we really think there's an opportunity here to achieve really good breakthrough therapy for PBC patients. And why do I say that? I'm a physician scientist. I've been in this business for a couple of decades and was in academia as a gastroenterologist for a decade [ or 2 ] before I joined the industry. And this is something that I think we really should be doing, which is grounding deep in the science. So there's a couple of really key features about PBC that make it curable, honestly. One is PBC is diagnosed where patients have to have a positive antimitochondrial antibody. If you have a positive antimitochondrial antibody and cholestasis or liver flow problems, you have PBC. You don't need a biopsy. And the reason that's so well founded is because that antibody is specific for an antigen that these patients have, which is called PDC-E2. It's a pyruvate dehydrogenase complex enzyme and it's the second subunit. It's in the TCA cycle, if you remember from high school. But it's an important part in the mitochondria. Well, the reality is those PBC patients that we're targeting have a positive AMA, they have an antigen problem. The PDC-E2 antigen stimulates their T cells to destroy the liver bile duct cells. It's really that simple. It's an antigen-driven T cell-mediated liver bile duct destruction. And so they have a PDC-E2 antigen problem. Well, the unique feature of CMP-104 is it's a PDC-E2 treatment. It's a nanoparticle that encapsulates the PDC-E2 antigen by encapsulating into the nanoparticle that specially formulated in charge, that antigen is specifically driven to the spleen and liver. In the spleen and liver when those antigens get presented, they're not looked as so -- they're not looked -- they're looked as [ shren ]. So whereas PDC-E2 antigen normally activates T cells to destroy the bile ducts and the PDC-E2 antigen is exposed in the spleen, the T cells in the spleen react with tolerance. They become anergic. They don't become pathologic. They tolerize to the PDC-E2 antigen. This has been proven in proof of technology studies in celiac patients using the nanoparticle encased with celiac antigens, which you all know celiac is driven by gluten, and those deamidated gluten peptides are the antigens responsible for celiac disease. If you put those antigens in the COUR capsule and give it to celiac patients, you actually normalize, you actually decrease the T cell responses by 90%, so the autoreactive T cells decrease 90% and that correlates with improvement in the intestinal epithelial histology. So they improve the histology of the small bowel, which is what the pathology of celiac disease. So we're really excited about the opportunity to test this in PBC patients, because PBC is even more clearly driven by 1 single antigen. That's the PDC-E2 antigen. And we're talking about precision medicine. We're only targeting patients who have a PDC-E2 problem. That's the AMA positive patients in the study. So it's really a unique opportunity to take the specific antigen problem, give them a specific antigen therapy. And the other advantage is that because of the objective measurements we have with the T cell responses, we really believe we can get a clear and decisive and early read. So we currently have the study reading out in 2023. We'll actually measure T cell responses through the duration of the study. But the fact of the matter is we can take it from peripheral blood, we can take out these T cells and measure the T cells that are responsive with PDC-E2 and figure out if patients are having a positive response to this therapy and that should correlate with clinical improvement. We'll also measure how costs -- we'll measure the things that we -- that the agency has already needed from an OCALIVA perspective. So we'll take care of all that. But I think the real exciting feature is the objectivity of the outcome, but the specificity of the therapy. And we think that gives us a unique opportunity for a clear and decisive early read on whether we're going to have POC, proof of commercialization, early. So we're not looking to understand do we have an asset for PBC in 2026. No, we're going to go to 2023.

Fantastic. That's very helpful. Thank you, Mike. And as you partner with COUR on this project, can you discuss the approach that you're taking towards -- the strategic approach towards partnering on what each one of you brings to the table. Also maybe I know that there's still a long-term opportunity, but maybe just also describe the market opportunity for us.

Yes. So Mike, why don't you go ahead and start with the relationship.

We have a great relationship with COUR. I mean I actually came from Takeda to Ironwood and brought the Celiac program to Ironwood up to Takeda because I was so excited about the science and immunology and that's where that positive proof of technology study originated from. So we've had a good relationship with COUR, because I do think the technology is pretty profitable. They wanted to work with us on PBC, primarily because of our GI expertise. So we work with them literally in designing. They're running the study, but we participated in the design of the study, the protocol, the engagements that they've had, the outcomes and all that. Even to the point where we're actually built in biopsies into the study, because we're planning for success and COUR was 100% on board about that because if we can get early biopsy data, you probably know OCALIVA has this sort of long-term commitment for biopsy study that could take 10 years. I mean we can literally get biopsy data that can show decreased T cells in the liver in the not-too-distant future because we're starting early with the clinical trial biopsy approach. So we've had a great working relationship today. The deal is such that it's an option deal for us. We'll take the readout from this first-in-human Phase II study and determine what to do next based on the data.

Great. And maybe just shifting on to the next month in the pipeline, IW-3300. So can you explain to us how -- what you validated this pathway till now? And maybe also just before we go there, what are the current care modality for the strong pain?

Yes. So there just aren't good therapies just for pain. I mean one of the real attractions on why gastroenterologists like LINZESS so well is because of the pain benefit. It's a remarkable feat because most agents, including early IBS functional GI patients, didn't always do well on pain. Even if you know the current state, even in the IBS-D world, where irritable bowel syndrome with diarrhea [ aversely ] -- if you look at the pain data specifically, it's not so robust. So pain has always been a conundrum, but LINZESS and the GCC pathway has been validated in visceral pain, via functional GI disorders like IBS. That's actually what got the extended claim that we got approved for the abdominal pain score, which was pain, discomfort and bloating. It was the fact that the data -- the pain benefit is so robust that the GCC pathway and LINZESS for IBS that the agency approved that labeling update, which no other IBS agents has. But to your question about visceral pain and IW-3300, we're actually taking the same GCC pathway and now looking at how we can influence pain in other pelvic organs. So it's been well established that patients with IBS often have bladder pain syndrome. People with bladder pain syndrome have IBS. They often have endometriosis. They have allodynia. They are all visceral pelvic pain conditions. So there's been a hypothesis because of that epidemiologic overlap that there's a lot of neuronal crosstalk between pelvic organs. So we've actually, in preclinical models, looked at this with endometriosis, bladder pain syndrome, with functional GI pain, with radiation proctitis and in every animal model, we use IW-3300. We see a dose-dependent decrease in their visceral pain. So a real visceral analgesic potentially in those preclinical models. So when I first joined Ironwood and saw that data, I just said this has to be tested in clinical patients because there's no visceral pain therapy. And so that's what started us thinking about how to do that. Now clearly, interstitial cystitis and bladder pain syndrome is not a GI condition, right? It's managed by urologists. But the medical need is huge because there really aren't effective therapies for even bladder pain syndrome. There are 2 products that are approved. One is Elmiron. I put approved in quotation marks primarily because Elmiron is an agent, it's actually a heparinoid molecule. Its mechanism of action is to -- via the bladder epithelium. So they don't really know how it works. And it does have some clinical evidence of pain benefit by pain skills. The other is intravesical DMSO. DMSO is dimethyl sulfoxide. It's actually an industrial solvent. People instill that in their bladder through their urethra with a catheter. That's how morbid or how difficult this disorder is. What's more often used, because the urologists that we talk to tell us that patients don't get a lot of satisfaction with those therapies, it's actually intravesical lidocaine and then other sort of holistic or pelvic massage therapies in those conditions. So that's one of the reasons why we thought this would be a great opportunity for patients. I mean we're clearly a GI-focused health care company. But the mechanism for IW-3300 is working through the colon. By stimulating GCC afferents, GCC containing colonic afferents in the colon, we think we can modulate bladder epithelial pain sensation, and that's what the preclinical evidence has shown. So we're really excited to kick off that program. We started the clinical program Phase I this year, where it's going well, and we are planning to start the Phase II proof of concept study by the end of that year -- at the end of this year. And we'll clearly use metrics as the FDA has already approved with Elmiron, where there are some direct guidances around interstitial cystitis and bladder pain syndrome. But it will clearly be a pain benefit endpoint at a pain scale that's been used by other assets.

Got it. Great. As a start, you think of starting your Phase II proof of concept, what will the trial design look like? What is the FDA guidelines around this? Is it sign dependent or symptom dependent? How does it...

Yes. So we're currently working on that, okay? And we're working with external urologists. Again, I'm a gastroenterologist, I didn't really do a lot of bladder pain syndrome myself. I know the [ eppy ] on the overlap, like I talked to you about [indiscernible] or external experts. We don't have the final design. We'll get there in the near term. But it will be a symptom-driven study. I can speculate, okay, likely be on a 12-week side because chronic therapies usually require a 12-week study. I can say that the Elmiron data looked at a 6-point pain scale for the bladder pain patients and then a 3 points sort of discomfort scale, they've been used. There's been a lot of time between that approval and today and a lot of other things out there. So we're working with the DRO community too, to sort of figure out what the best PR could be. So all that's still in development, but we'll certainly have that tightened up to actually kick off the program at the end of this year.

Got it. Great. I'll look forward to that during the course of the year. Maybe it's been -- Sravan, I mean the LINZESS being your sole commercialized product, I'm sure you will be thinking about how doable their product portfolio and how do you prioritize on really -- so can you think explain your thoughts around BD and maybe the class that you're looking to build on.

Sure. So we do -- from a capital allocation perspective, we've got $600-plus million cash on our balance sheet as of the end of the year. We've got a $150 million share repurchase program, which we announced late last year, which at the date of our earnings call we were $78 million through. And so where we balance between returning capital to shareholders and then if we find an attractive asset, we will pursue it. I think the challenge is -- and I think those assets have to be in GI, which is we've stated those areas that are of interest to us, whether it's celiac, pruritus, pancreatitis, rare liver disease, there's a wide range of potential assets that are out there that are below sort of the radar of a large cap pharma, but are meaningful to our $400 million of revenue. And the hope is that over the course of the next several years, we can replace the contribution that is LINZESS with a diverse portfolio of assets on our own. That's our strategy. The key is to find assets that make sense, and the bar is very high given the performance of LINZESS and the amount of revenues and profitability it has today.

Great. Probably that with 1 minute left that brings me to the last question. Something that I've been asking every management team is about current macro concerns. So I just want to get an update from you in terms of basically any kinds of market dislocation that you may be phasing, given the supply chain side or inflation, labor, so any updates there?

Yes. I think from a -- thinking about our cost of goods, we've got long-term contracts in place. So we feel pretty good for the near term with respect to our cost to produce the product. Like everybody else, it's a tight labor market, but we think that we've done a pretty good job managing through those expenses this year. So I think relative to others, I think notwithstanding what's going on in the broader market, we feel pretty confident in our ability to deliver the plan that we stated at the beginning of the year in the face of any headwinds that exist.

Thanks for that. So with that, we come to the end of the session. And Sravan and Mike, thank you so much for your inputs and for -- it's a pleasure to have you in conference, and I wish you a very productive rest of the conference.

Thanks for having us. Appreciate it.

Thank you.