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

Good morning, everyone. My name is Daniel Wolle. I'm one of the analysts on this mid-cap biotech teams at JPMorgan. I'm delighted to continue the conference with Ironwood Pharmaceuticals. It's my pleasure to introduce Tom McCourt. Following his presentation, we'll have a Q&A session. You can either ask the questions to the portal, and I can pass on to the management team, or you can raise your hand over via mic. All right. Without further ado, Tom?

Thanks, Daniel. And my name is Tom McCourt, I'm the CEO of Ironwood Pharmaceuticals, and I'm joined this morning by Sravan Emany, who's our Chief Financial Officer; and Mike Shetzline, who's our Chief Medical Officer. And we're absolutely delighted to be here this morning to share with you the progress that Ironwood's made in 2022 and why we're so excited about the path forward for 2023 and beyond. We are focusing on advancing the organization, and many of you have been on this journey for quite some time as we've continued to evolve and advance the organization. And what we've done over the last couple of years is really focused on restructuring the organization, focusing on kind of where our core growth opportunities are as well as strengthen, certainly, the talent in the organization and the capabilities as we continue to proceed with our core strategy. We certainly have a number of forward-looking statements. So certainly, these are our disclosures. But Ironwood today is now a profitable GI-focused health care company. Our aspiration and vision is to become the leading U.S. GI health care company. We have a very strong track record of success. The launch of LINZESS in 2012 is showing remarkable growth. It is now the market-leading -- a blockbuster brand that continues to thrive, and of course, that just doesn't happen. It's really the result of relentless effort on the commercial side as well as the development side to evolve the marketing mix and really continue to expand the utility of the drug. Over the years, we've focused on strengthening the clinical profile, certainly expanding the clinical utility, which has obviously enabled the brand to grow. We've also continued to focus on strengthening our GI capabilities. After -- over the last few years, we brought on a new medical leader and Mike, who is certainly one of the veterans and one of the best in this space with regard to drug development in the GI space. And he's attracted a number of very talented people to the organization as we continue to advance LINZESS but also our portfolio. We've also, over the past year, really strengthened our corporate development team, which is really going to be critical for our long-term success. We've also really been laser-focused on what we need to do and what we need to do well. And we have very clear and focused strategic priorities that start with maximizing LINZESS. This is a growing brand, and we need to continue to drive demand growth. It is the lifeblood of the product. We'll continue to expand the clinical utility in new indications, which we'll talk a little bit this morning, but also we continue to work with our partner, AbbVie, to evolve the marketing mix. So we're increasing our margins and delivering strong profits to the bottom line. Second, we need to strengthen and progress on innovative GI portfolio. Certainly, that starts with LINZESS as we continue to expand its clinical utility and claims as well as resolve any lingering safety concerns that the FDA has as well as we have brought in a new product, CNP-104, which really could be a game changer. It's a disease-modifying agent for the treatment of primary biliary cholangitis, and we'll talk a little bit more about that later. But if we're right, could really unlock value in the marketplace. And finally, IW-3300, which is a wholly owned asset by Ironwood. It's a second-generation GC-C, similar to linaclotide, focused on visceral pain disorders. And more specifically, we are running a proof-of-concept for the treatment of interstitial cystitis and bladder pain syndrome. And finally, the third core priority is to deliver sustained cash or sustained profits and generate cash flow. And we've made tremendous progress there in accumulating cash. In 2022, we delivered EBITDA of around $250 million. So this is an ongoing execution a task for us, and we're seeing strong execution across all 3 strategic priorities as we position the organization for future growth. In 2022, I mentioned, we continue to see strong demand growth, and in 2022, we actually saw a 10% increase in demand. Now we're talking about year 10 in a brand's life cycle on a base of 3.5 million prescriptions. And to see this kind of growth really speaks to the health of the brand. In addition, we continue to expand the market share and we're expanding the market share even in the face of 4 emerging competitors, which is rarely seen. And we're seeing the all-time highs in new-to-brand which really is the lead indicator for how healthy the brand is as far as ongoing growth. And the mission here is to bring additional patients out of the over-the-counter prescription laxative market into the prescription market. And literally 70% to 80% of our new patient starts are coming right out of that OTC market. As we look at 2023, we are going to continue to invest in LINZESS as this continues to be extremely promotionally sensitive. It's going to require an ongoing effort to continue to drive this growth, but it's becoming a very, very profitable brand. And we'll be expanding the clinical utility of the drug in 2023. In terms of strengthening and progressing our innovative pipeline, I mentioned -- we've talked a little bit about the pediatric indication. We filed the supplemental NDA with the FDA in December for functional constipation in children from 6 to 17 years of age, which is really the largest part of the pediatric market, and really needs to be our beachhead as we continue to move forward. We, based on the unmet medical need as well as the strong clinical and tolerability data, have requested a priority review. We've initiated the proof-of-concept study for CNP-104 for primary biliary cholangitis. And in 2022, we initiated -- or we've completed our Phase I trial for IW-3300, and we initiated a proof-of-concept trial for interstitial cystitis and bladder pain syndrome. As we look to 2023, we fully anticipate an approval for the pediatric indication coming midyear, assuming that we get a priority review. We will also see data by the end of the year on CNP-104, which will really enable us to make a decision as to whether we move forward with the licensing agreement or not. But we'll talk a little bit more specifically about that in a moment. And 3,300, we initiated the study late in 2022. We'll be actively enrolling and dosing patients early in 2023. And we continue to actively pursue additional GI assets in the marketplace. We're seeing a lot of activity currently and the team is grinding through those opportunities. In terms of delivering sustained profits and cash flow, I mentioned earlier that we delivered $250 million in EBITDA. We finished the year with almost over $650 million in cash, and that's after we completed a $150 million share repurchase program as well as repaying the initial tranche of our convertible notes to the tune of $120 million. As we look to 2023, we continue to anticipate and see strong EBITDA growth and solid cash flow. So we have the financial strength and resources to be able to continue to move forward with our strategy. This is actually probably my favorite slide in the deck, showing LINZESS' health over time. As you can see, it's a growing market-leading brand with significant opportunity to reach millions of additional patients. On the graph on the left is certainly the demand curve. And as you can see, we have consistently seen robust linear growth over a 10-year period of time. You rarely see brands like this in the industry because they all follow an S-curve, right? Well, we're not, which really speaks to the opportunity still out in front of us. The key drivers for ongoing growth really starts with the strong clinical profile of that we've continued to secure. But we see very high level of patient satisfaction as well as physician satisfaction with the brand. And I mentioned we're continuing to see an acceleration in new-to-brand patients. And those patients are coming out of the OTC market, which enables the product to continue to thrive. We're absolutely delighted to see the updated clinical practice guidelines that came out by the American College of Gastroenterology as well as the American Gastroenterology Association, both of which designated LINZESS as the top choice, and the most strongly recommended treatment for IBS-C based on the clinical evidence and the experience that the experts have had with the brand. We also have class-leading payer access, and this is absolutely paramount to the success of the brand. It's something that we continue to invest in, and it really enables patients to access the drugs at an affordable price. And also it makes it easy for the physician to prescribe the drug. And finally, we'll be expanding the clinical utility into the pediatric population in 2023. And on the right really is an illustration of the magnitude of opportunity in the marketplace. As successful as we've been, we've treated about 4 million patients, which is a lot of patients. But keep in mind, there's still tens of millions of adult patients still suffering from IBS-C and chronic constipation, and they're struggling with the use of OTC laxative, which just are not adequate to relieve their symptoms. In addition, we'll be expanding the clinical utility, as I mentioned earlier, into the pediatric population. The group from 6 to 17 represents about 4 million to 6 million patients. And this is an illustration of just the relentless commitment that both AbbVie and Ironwood have made to drive ongoing net sales growth. And as you can see, we hit $1 billion in net sales in 2021. We exceeded $1 billion in sales in 2022. Our portion of that is about $350 million as we split the profits 50-50 with the partner. As we look to 2023, we certainly don't see the demand growth slowing down. We're anticipating high single-digit growth in demand. And we're going to be able to maintain very, very broad payer access, but with an improved level of price erosion. We really invested to make sure we secured access, which caused about -- between 9% and 10% price erosion on the brand. But as we look at 2023, the price looks far more favorable. And we're projecting net sales to increase by 3% to 5%, which is really healthy growth for a brand in its tenth year. And we're going to continue to refine the marketing mix and investment to broaden the margins and deliver very strong profits in 2023. 2023 is going to be an exciting year for us from a clinical development perspective. We have a number of new clinical milestones that we anticipate achieving. It starts with certainly LINZESS. I mentioned earlier, we're very confident in the pediatric submission to the FDA. The data is very, very strong. And what's been remarkable in the clinical trials was the tolerability data. This is an area and it's been a concern with the FDA in the pediatric population of excessive diarrhea and hydration. But in the clinical trials, we actually saw less than 5% diarrhea, which is really remarkable. So based on the unmet medical need and certainly the strong clinical data, we believe will be granted priority review for a midyear approval. We also submitted a great deal of the Phase III data for the Digestive Disease Week meeting in May, which comes right before, hopefully, the approval of the drug, which gives us an opportunity to share those data with thousands of gastroenterologists as we kind of turn into the wind and introduce this opportunity to clinicians. Ironwood and COUR are working very closely on CNP-104. I mentioned, we see this as a disease-modifying agent for primary biliary cholangitis. Those of you that are familiar with this disease know how debilitating and how progressive this is that at times leads to requirement of liver transplant. It affects about 130,000 individuals in the U.S. And we're in a proof-of-concept study right now that we believe will read out by the -- readout or we'll certainly have data to inform a decision moving forward by the end of the year. And finally, IW-3300. This is a second-generation GC-C agonist similar to linaclotide. It's a wholly owned asset by Ironwood, and we are focusing on interstitial cystitis and bladder pain syndrome, which affects about 4 million to 12 million Americans in the U.S. Those of you who are familiar with this disorder, it's extremely painful and there's really not many effective therapies out there. So this is a significant opportunity to help patients. I want to take just a couple of minutes and dive a little bit deeper into this pediatric opportunity. LINZESS could be the first and only FDA-approved prescription therapy to treat functional constipation. Initially, the indication will be for pediatric patients, 6 to 17. We have an ongoing program for younger kids, but we chose to file this because there is such a significant unmet medical need. Those of you that have had children that have suffered from chronic constipation or functional constipation know how distressing this can be to kids. One of the things that we've observed as we dug into the market is the far majority of these patients are actively seeking care. If you have a child that is struggling with constipation and has fairly significant abdominal discomfort and bloating, you're talking to your clinician. And it isn't just once a year, it's multiple times a year. So it provides a very, very available patient population for LINZESS to help. We -- as I mentioned, we are expecting the approval midyear, and this is at a 72-microgram dose. So therefore, we do not have to come up with a new formulation or a new dose. This is currently on the market. Parents can simply break open the capsule and sprinkle LINZESS on food or put it in juice, whatever the child prefers to eat, which is a challenge with polyethylene glycol. Those of you who have taken polyethylene glycol know it's not particularly pleasant. And you might be able to get it down your child once, but try to get it down a second and the third time. So as we continue to move forward, one of the other things that we've discovered is while there's a lot of pediatricians out there managing the disease, it's a fairly concentrated prescriber base. There's about 2,000 or 3,000 pediatric gastroenterologists or pediatricians who are really managing a disproportionate share of this business. So we see our ability to be able to fold these 2,000 to 3,000 physicians into our existing call plan. We're currently calling about 35,000 physicians. So we'll continue to assess the promotional response in this space. We anticipate physicians responding very favorably. We've certainly seen that in market research. And then we'll continue to refine our selling model to make sure that we're expanding and driving overall productivity of the sales force. CNP-104 is an extremely exciting technology, and introduces the potential for truly a game-changing therapy in primary biliary cholangitis. And it's really almost a clear example of precision medicine. And currently available therapies really don't address the root cause, which is an autoimmune response that destroys bile ducts in the liver, which then leads to progressive liver disease and damage and, inevitably, liver transplants. And certainly the currently available therapies can slow the progression of the disease and provide some relief of symptoms, but it just doesn't address the root cause. And the root cause is a very specific antigen, the PDC-E2 antigen, which is present in literally all patients that suffered from PBC. And it's this antigen that triggers these activated T cells to be generated and then attack the bile ducts and destroy the bile ducts, which leads to the damage. So CNP-104 is actually a PDC-E2, a targeted therapy for a PDC-E2 problem. And so what we've done is, we've taken the antigen, the PDC antigen, and encapsulated it with a nanoparticle. And when administered, it preferentially goes to the spleen and actually tolerizes the immune system. So the body reduces the concentration of activated T cells, which do not -- no longer attack the bile duct. So you can see this could potentially be an enormous disease-modifying agent and almost cure the disease. So we're very excited to see what the data looks like later this year. This is, as I mentioned, a clear example of precision medicine. And we're going to be able to very closely monitor not just the safety and tolerability of the drug but also be monitoring alkaline phosphatase, which is certainly the recognized leader for liver health, but we'll also be able to measure the activated T cells. And we've seen a proof of technology in this technology in the celiac space, where literally within a couple of weeks, you see a decrease -- a dramatic decrease in T cells. And we're hoping to see a very similar response as we move forward with the program, and we'll certainly keep you posted as the data emerges. I mentioned earlier, we really strengthened our corporate development team. This is obviously a critical part of our strategy, core to our ongoing growth. Our goal is to identify assets in diseases that are primarily managed by gastroenterologists and hepatologists, which then create our next growth horizon in GI. We have a two-pronged strategy. Certainly, we're seeing a number of opportunities out there as first-in-class or first-mover advantages as well as differentiated plan or products. And we're -- as I mentioned, we're following a two-pronged strategy first. We're looking at transformational M&A deal with commercial stage products that really leverages our current capabilities, both on the commercial and development side, which also provides the opportunity to accelerate our revenue growth and broaden our foundation as we continue to pull the pipeline through. In addition, we're looking at a number of clinical stage in-license opportunities or assets that we can acquire very similar to what we've been able to do with COUR, which I think is a great model in which we identified an area of a very specific and significant unmet medical need with a clear target, but importantly, very clear decision points as to whether we move forward with a licensing opportunity or not. Cash flow is absolutely critical to our long-term success. As you can see, over the last 3 years, we've seen dramatic increases in the cash available to the organization. We finished this year with about $650 million in cash. But keep in mind, over the last 18 months, we deployed $270 million to strengthen our balance sheet. First, with a $150 million, a share repurchase program, and also paid off $120 million in debt from our convertible notes. So I think we're going to certainly be very thoughtful in our capital allocation both with regard to investing in LINZESS, advancing the pipeline, but also in the past, you've seen that we're returning capital, and it's something we will constantly be evaluating and trading off as we move forward as the bar is very, very high for us as far as acquiring additional assets. We're updating our 2022 financial guidance and providing guidance for 2023. You can see our guidance -- our previous guidance on the left. I mentioned we saw a very strong demand growth. So we saw a 10% increase in TRx growth. And I also mentioned that we saw -- we invested in payer access. So we had a 78% -- or 8% or 9% erosion in price. We also saw some fluctuation in our inventory, particularly in the retail channel. But the work in -- our leadership are really focused on managing expenses. So we delivered our bottom-line number of $250 million. And I'm extremely proud of the leadership of this organization to control the things that we can control, which is certainly driving demand, securing access for patients and docs and managing our expense line, so we can deliver profits to the bottom line. As we look at 2023, it certainly looks more promising. We anticipate a high single-digit growth, as I mentioned, more favorable pricing position, and we're projecting 3% to 5% increase in net sales which equates to $420 million to $450 million, and we're projecting greater than $250 million in EBITDA. But keep in mind, the EBITDA number also includes a significant investment to continue the pediatric program in the younger kids, which is an obligation that we have to the FDA. And hopefully, we can further expand the clinical utility of the drug. In addition, we'll be investing in CNP-104 program as well as the IW-3300 program. So we believe we're well positioned to deliver future shareholder -- existing and future shareholder value. We have a market-leading brand that continues to thrive. It's highly profitable, and we're going to continue to broaden margins and deliver profits. In addition, we'll be expanding the clinical utility, which provides upside in demand growth for the brand. And we have a highly capable team both on the commercial side as well as the development side with real expertise in GI which we will continue to leverage certainly with LINZESS, but also the pipeline, and as we look at additional opportunities to license an additional asset to build our portfolio. We do have a number of catalysts in 2023 with LINZESS, CNP-104, and certainly the ongoing program with 3,300. And we have a very strong balance sheet that we will continue to be thoughtful as far as capital allocation as we move forward to maximizing LINZESS, strengthening and progressing our innovative portfolio and delivering sustained profits and cash flow. On behalf of the leadership team, we're absolutely delighted in the progress we've made. You think about where this organization was 3 or 4 years ago and where it is today, in which now we are a very profitable, growing, healthy organization, and we're extremely excited to continue to shape the future and certainly continue to keep you posted on our progress. Thank you.

As a reminder, you can either send the questions to the portal or you can raise your hands. Maybe I'll start with the first question. We're going to get some questions on the preliminary 2022 results. And you briefly mentioned fluctuation in inventory. But maybe can you walk us through why some of those numbers came in below expectations?

Sure. Sravan, you want to take a shot at that?

Sure. So I'll start by saying hi everyone. I'm Sravan, the CFO of Ironwood. The -- from a -- as Tom mentioned, demand growth, double digits, in line with our expectations. Price, high single-digit price erosion, in line with our expectations. As you know, we have a fair amount of -- and then the remainder was essentially inventory fluctuations that occurred at the retail level, which we have no control over, which was a headwind this year that was essentially the difference between us hitting our guidance and where we landed. And there's -- some pharma companies, as you know, can exert some amount of influence over their wholesaler inventory, the retail inventories, just another level beyond that, that we just don't have control or influence over. So to Tom's point, everything we could control this year, everything that we could have influence on, it was in line with expectations.

Yes. I think it's also important to remember, when you're dealing with a brand that has 3.5 million prescriptions, 2 or 3 days of inventory represents real money. And that slight fluctuation, depending on whether the retailers draw off inventory off the wholesalers, really can be meaningful, and we certainly saw this early on. We really anticipated it to kind of catch up by the end of the year, but it didn't. But as we move forward, obviously, as long as the demand is strong, certainly, the inventory levels are going to have to be maintained to avoid stock outs, which obviously is bad for everybody.

And Daniel, one last thing is fluctuations happen both positively and negatively over the life cycle of the company. A lot of it is timing. And so some years, we've benefited from it in the past and some years, we've faced headwinds. But if you look over the long run, the demand generally lines up with the bottles we've sent out in terms of LINZESS. So to Tom's point, we've double-digit demand growth, we feel really positive about where the amount of units we're actually shipping at the end of the day.

I'll continue but -- for the pediatric opportunity why not deploy a new sales force to cover the pediatricians with the launch right away?

I'm sorry, say the question again, Daniel. I didn't quite...

For the pediatric population, why not launch a new sales force to cover pediatric GIs or pediatricians who actually might be seeing those patients?

Sure. So I think it's really about ensuring that we increase the productivity of the sales force. I mean the reality is we have a new set of prescribers that are already in the geographies that we're in. So those patients -- those physicians are very accessible in those geographies. And essentially, what we're doing is trading off lower potential primary care physicians with higher potential pediatric physicians or pediatric gastroenterologists. And we may expand the selling effort, but we want to make sure we're making a very sound decision. So the first question we wanted to answer is how promotional responsive will this target physician base be. And based on that, we'll continue to figure out how we evolve the selling model. We already have about 400, 500 reps between both Ironwood and AbbVie out there. So we certainly have the sales muscle on the street to pull these high prescribers in without having to go to an additional expense on the P&L, which would then compromise certainly our profits on the bottom line, but we can continue to drive growth.

Assuming potential approval in mid-2023, how much contribution to the U.S. LINZESS sales should investors expect? And when you gave that guidance for 2023, do you assume contribution? Or does that not factor in the...

Sravan, do you want to take that?

Yes, I'll take that. Our guidance does assume contribution from pediatrics in 2023, just given the timing of our launch and how we plan to approach the market in the back half of the year. I think pediatrics will be more of a 2024-through-2029 story for Ironwood in terms of heavy contribution or meaningful contribution. But this year, our guidance does encapsulate any contribution from pediatric sales.

Ultimately, considering the 4 million to 6 million potential addressable patients, how could the ramp look like? And I guess you mentioned 2024 as the main year. But -- and how much of a contribution to LINZESS growth should investors expect from this opportunity?