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

Good morning, everyone. My name is Balaji Prasad. I'm the Senior Analyst for the Spec Pharma coverage for Barclays. So kick starting the day for the Barclays Annual Global Healthcare Conference, we have the pleasure of having the management team from Ironwood with us. So, Tom McCourt, CEO; and Greg Martini, Vice President, Strategic Finance and Investor Relations. Tom and Greg, thank you so much for joining us today. So, we have around 25 minutes. In terms of the organization, why don't we start with just couple of recaps, you reported a few weeks ago? Maybe a couple of recaps and then we can go into Q&A.

Sure. So as you know, Ironwood is a GI-focused health care company with a lead asset, LINZESS, which is now considered a blockbuster in terms of US net sales. We have really 3 strategic imperatives. First of all, of course, maximize LINZESS. Second, how do we continue to advance our GI portfolio; and 3, generate cash and positive cash flows. And we're delighted with the progress we've made so far. We reported our earnings recently that we advanced our all 3 strategic imperatives. LINZESS continues to thrive, both with regard to demand and generating very strong sales. Second, we are advancing the GI portfolio. First, expanding the clinical utility of LINZESS into the pediatric population. We have an asset in development, CNP-104 targeted at primary biliary cholangitis. And then IW-3300 for visceral pain conditions, particularly of the pelvic region. So, we finished with a very positive EBITDA of over $250 million for the year. And we're sitting on a fair bit of cash, over $260 million in cash. So we have a very...

Sorry, $650 million.

$650 million. Thanks, Greg. And so we have a very strong balance sheet. So we're looking at right now is what is the best way for us to deploy capital. Certainly, we're looking at a number of external assets that are now certainly available to bring into the organization. But the bar is high. We want to make sure it's the right fit and the right deal structure for Ironwood. So, we're very excited about where we are right now as a profitable health care company with a strong balance sheet and certainly a thriving product.

Great. That's a good recap, Tom, and definitely seen progress on all 3 of your strategic objectives in the recent call. And as I was listening in, I mean, there's a question that you get fairly often, I'm sure. You continue to call out the large market opportunity with LINZESS with an estimated 40 million potential patients still remaining. So help us understand how you'll continue to tap into this and expanding into this opportunity?

Yes. I think to your point, first, this is a large, highly symptomatic market. It's a very debilitating disease, and it's very uncomfortable for patients. If successful as we've been, we've treated 4 million patients. So, there's still tens of millions of patients out there suffering. They're struggling with OTC laxatives. They're not satisfied with therapy. And this drug in this marketplace is very promotionally sensitive. So, this is really all about how do we expand physicians view of who the appropriate patient is, and how do we activate patients to raise their hand and say I need help. So, we continue to see very strong linear growth, which -- we're talking about year 10 and 11 here, where you're still seeing linear growth. I had a great good fortune working on a drug called Prilosec many years ago. I haven't seen a drug that's seen this kind of linear growth in demand in a long, long time, which I think speaks to, one, the unmet medical need, but also the high level of treatment satisfaction that we're seeing with the drug. In addition to that, as I mentioned, we filed an sNDA for pediatric constipation, which is another very broad market with a significant unmet medical need. So, we're going to continue to invest in the brand as long as it's a growth brand, and we're certainly constantly refining the marketing mix so we can optimize the bottom line.

Got it. And when you say the pediatric market is another very broad market, can you contextualize the size that you see? And what are the next milestones for us to watch out for as you continue to develop this program?

Sure. So, we estimate there's somewhere between 4 and 6 million kids from 6 to 17. That will be the first pediatric indication we're seeking approval for. And the big difference as we've learned as we have evaluated this market, the big difference between kids and adults is if you have a child that's suffering from chronic constipation, you're seeing the doctor. So literally, 80% of these patients are actively seeking care, and they're not just once a year. It's multiple times a year. So, this is a very available patient population. In addition, there's no currently approved therapies for functional constipation. As crazy as that sounds, these people have been suffering. These kids have been suffering for a long, long time. There's been several agents that have tried to demonstrate efficacy, but LINZESS thus far certainly has the most promising data.

Got it. And you also called out the promotional -- promotionally sensitive nature of this disease. So can you help us understand the efforts for this through 2023? And also as you get closer to the pediatric opportunity, are there any variances in the promotional campaigns that you plan to run between other the pediatric site?

Sure. Well, first of all, we want to make sure we take advantage of our current beachhead because a lot of these kids are primary care [ docs ]. So, we're certainly going to educate the current prescriber base, both the GI community as well as primary care about the opportunity and the availability. Second, we've -- as much as it's a very broad prescribing community, it's also very concentrated. So, there's probably 2,000 or 3,000 physicians that really drive the growth of this market, the pediatric gastroenterologists and very high-prescribing pediatricians. And currently, we're calling on about 35,000 docs. So, we can largely fold these additional targets into our current call list. So it won't require us to expand sales force at this point. We will reengineer the call list to make sure we're optimizing the productivity of the sales rep. And then we're running a number of promotional models and studies to see how promotionally sensitive it is and how do we shift our call list. So, this is an opportunity for us to really let the data guide our decisions as far as our promotional mix.

Understood. And as you also called out that this is the first and only therapy for the pediatric population, always can't help wondering what is there in development, what is the competitive landscape going to look like? What are the very specific challenges to this opportunity?

Yes. The market opportunity is the OTC market. And as good as we have done, and there's been 4 additional agents that have come into the market, 8 out of 10 patients are still walking out of the office with an OTC and are inadequately treated. So, one, this is still a very large market and we're going to certainly take advantage of that, and we're the market leader. So we have over -- almost 45% market share, and we continue to increase our market share even in the face of emerging competitors, which is you rarely see, which I think really, again, speaks to the health of the drug. And I don't see an emerging competitor out there that is a real threat to the agent. So, I think this is really about us staying focused on what we do really well and, again, invest in the brand appropriately to drive ongoing demand growth.

And if I could just add, just specifically the pediatrics opportunity, just like the adult population, the current treatment is typically over-the-counter. So it really is looking at really education of physicians of these prescribers and awareness of LINZESS for these prescribers in this new age group as we start really trying to enter that new demographic.

Yes. Thanks, Greg. And I think the other piece, too, it's almost [ paramount ] how these kids are managed. I mean generally, they use MiraLax, which, as you know, is a low dose bowel prep and they push the dose until they see diarrhea. Well, if you're a small child, that's one thing. But if you're a school-age kid, that's really a problem. So the good news here with the linaclotide data, it's not only is it highly effective as far as improving frequency of bowel movements and straining that the kids experienced, we also had a very, very low diarrhea rate. I mean it's less than 5%, which is really remarkable. So, as we share those data and market research with prescribers, they're very encouraged by the profile of the drug.

Got it. And since we're also at the -- still in the Q1 phase of the year, where we would have seen recent price increases across board or at least with some of brands, can you take us through the pricing dynamics for the year? And what is the gross and the net pricing benefit that you get?

Yes. We -- as you know, last year, we had very strong demand growth, but we had to shore up a couple of Med D plans. So, we guided to high single-digit price erosion, which is what we saw. This year, that's moderated significantly. So, we're really guiding to more single-digit price erosion. There's a couple of commercial plans and Med D plans that we invested in because, really, the game here is access. In this category, you have to make it easy to prescribe your drug, and that's good coverage. And we have very broad payer coverage with the brand, which makes it very easy and accessible to the prescriber.

Got it. And, Tom, one of the things we're also trying to scope across the board is the impact of IRA.

Yes.

And something that I've been discussing with management from the beginning of the year and the verdict is still that there are multiple variations and the impact is not clear. But for us speaking specifically from a LINZESS perspective, so what's the impact that you guys see?

Yes. I think we're studying it like everybody else and of course, we have a very strong partner with AbbVie, who's obviously very focused on this because of the pricing sensitivity they have in their portfolio. But I think we're up to speed and we're fully informed kind of the process, but I think there's still a lot of unknowns. These tend to sometimes you rather plug instruments that do have an effect. That being said, I think it's important to know, so we've been negotiating with Medicare for 10 years. And we're already discounting quite heavily and negotiating with the payers. So A, is there an impact out there? Could be. But I don't think this is the type of brand they're going to be chasing.

Fair enough. Yes. Maybe shifting next towards the pipeline side of things. We spoke of the pediatric opportunity, but there are 2 other legs to the CNP-104. So let's start with your take on the market size gain in PBC? And how much do you think the opportunity is really realizable for CNP-104?

Sure. Well, I think everybody knows, primary biliary cholangitis is a really difficult disease. About 130,000 patients suffer from it. There's treatment out there that can improve symptoms but doesn't solve the problem. And the problem is really an antigen antibody problem, right? So virtually everybody with PBC has the PDC-E2 antigen, which then stimulates the production of these activated T-cells that then attack the bile ducts and destroy the bile ducts, which then reduces the ability to clear bile. Now the current synthetic bile acid can increase flow, but it doesn't fix the problem. The problem is these activated T-cells that continue to destroy bile ducts. So what CNP-104 does is it actually takes the PDC-E2 antigen, encapsulated with a nanoparticle and then preferentially goes to the spleen and basically tolerizes the body. So it actually reduces the production activated T-cells, which is a root cause of the problem. So, this is probably one of the best examples of precision medicine we've probably seen in recent years and actually has the opportunity to cure the disease. So, we're very excited about it. It's certainly a very strong strategic fit for us because most of these patients are managed by gastroenterologists. So, we're already there. We're already very present. And I think it would be a great fit into our portfolio.

Great. When I met you 2 months ago to discuss again, of course, updates on this asset and see that you were very excited about it. But also, can you just remind us the stage of development the asset is currently in, the next steps that we need to look out for? And as you look at the benchmarks of success when you evaluate early data that you've seen on the T-cell response, how should we think about it?

Yes. So, this is a very kind of unique situation because you have such a strong surrogate marker in the T-cells, which tend to respond, I mean, based on other diseases that you utilize this technology and basically reduce these activated T-cells, that can happen in a matter of weeks. So, we think that will be the lead indicator that we will be focusing on first to get a lead on, are we having a clear pharmacodynamic effect? Now we're in Phase II. But with that data, it's not just about is the drug safe and we're treating PBC patients, we'll also have efficacy data with T-cells as well as ALK+ and certainly liver histology data. So the first set of data we'll be able to inspect will be these activated T-cells, which we hope to see later this year.

Got it. And on the second pipeline, IW-3300. So again, both IC and BPS, how have you validated this pathway till now? And as you look at visceral pain management, what are the current [indiscernible]?

Bladder pain syndrome and interstitial cystitis are, again, very highly symptomatic, very debilitating disease. And there really isn't any really effective therapy. And this monotherapy [Technical Difficulty] and physicians don't like using it or intra-vesicular lidocaine, which is pretty invasive way to treat patients. So, there really isn't anything out there to treat the pain symptoms. And just to remind you CNP-104 is another GC-C agonist similar to linaclotide, but it will be testing the hypothesis of cross-talk. And basically what cross-talk is an intervention at the spine where the bladder and the pelvic lesion, as well as the corn innervate the spine at the same time and [indiscernible] GMP has an effect on pain figments of the brain. So, we've seen in several animal models that when we create the visceral hypersensitive model, it actually reduces pain sensations in the animal models. So, we are going to be testing this cross-talk hypothesis by delivering the drug into the co-end, but we will be measuring the effects on bladder pain and interstitial cystitis. So, I mean, this is a large population. About 8 million to 10 million of patients are suffering and this will be a very, very elegant solution for these patients that are suffering, not to mention it's obviously very safe and well tolerated.

Got it. And as you continue to develop this, what are the expectations around the data that you want to see to decide if you want to invest in the product or not?

Yes. I mean, this is a straight-up pain model. So, this is an 11-point numerical scale, very similar to the model we use in IBS pain relief. So, we'll certainly be looking for separation from placebo with regard to the overall evaluation of worst daily pain. And that will really give us a very strong read in Phase II with regard to its potential benefit to those drugs.

Got it. Sorry.

Bless you.

Yes. As we look at the BD and the $650 million of cash that you have on the balance sheet right now, of course, you have called out multiple times that you're actively pursuing opportunities. And so take us through the thoughts around the BD both for early stage and mid-stage assets and how do you look to add to complement assets into LINZESS?

Sure. So as I mentioned, we're primarily a GI-focused company and there really isn't a GI company out there anymore, right? I mean we've got companies that have drugs for inflammatory bowel disease or one-off, but there really isn't kind of a consolidated GI group. And that's what we really aspire to be. So, we're looking at both GI, emerging GI assets or commercially available GI products in both GI and hepatology which, as you know, is a very strong adjacency to GI. We're seeing a lot of activity there with regard to available assets. The challenge that we've seen over the last couple of years is a valuation of the company that even though their stock has traded down significantly, everybody was last year was trying to figure out kind of what is the real value of our company. Do I look at my 52-week high, and I'm down 35%, 40%. But now there's been a run here 9 months, 12 months where -- that is where the values of these companies are. And of course, I think as the market continues to get tight, cash is going to be tough to get. So, I think people are becoming a bit more realistic with regard to the value of the company and we're trying to be poised to take advantage of that. Now that being said, the bar again is very high as far as the value of the asset. We're looking for highly differentiated products in serious GI medical conditions. But we also need to make sure that the deal makes sense for us. So, I will say at this point, we're generally evaluating 3 to 5 assets almost continually. And we just want to make sure we're making the right next move.

So with the more realistic reset on valuations, then is it more of a near-term event?

Well, it's a very binary outcome but we hope so. We've been in active negotiation several times. But again, we have to make sure it works for us.

Got it. And maybe just a quick comment on how do you expect OpEx to trend through the year, especially as you think about the spending incrementally on promotions?

Yes. I think this is one that we continue to evolve the marketing mix. You'll recall when we first launched LINZESS, this was -- we went after a very broad physician population. Most of the investment was in physician promotion, then we went to the consumer, then we kind of reengineered the marketing mix, tightened up our focus, went from roughly 90,000 targets to about 50,000 targets. Now, we're at about 35,000 targets. But we haven't seen any kind of slowdown in demand growth. So, these are really the more productive promotions, lots of targets. And we'll continue to hone that, particularly with the pediatric indication coming in, as well as consumer effort, which, as you know, with the evolving media changes, we're adapting to that. But as far as the overall spend, we see that very stable because we have -- as you know, we have very good margins on the brand, and we certainly want to nurture that. That being said, we are making some investments in the pipeline. We'll be finishing it, certainly finishing up the pediatric program. We certainly will be investing in CNP-104 and 3300. So, we're still guiding -- we're guiding to over $250 million in EBITDA, but we're going to be increasing our investment in the pipeline itself.

Got it. Tom, I think I spent last Friday calling a few of my companies asking them about their exposure to SVB. And it probably is less critical now as it was versus Friday, but I'll still put the question out there. So any exposure to SVB?

Yes. For us, I mean, we have relationships with multiple banks, right? Early on, I mean, they were a very significant bank to Ironwood. But since Greg and our CFO came on board, we've largely diversified into large banks. So the far majority of our cash are with the larger banks, as well as mainly in securities. So, we feel that it was very protective. Certainly, we had some money there because we do operations with CVC. But we've obviously moved all of our cash out of there. So, we haven't skipped the beat with regard to operations because we've had such available cash at the other banks. So, I think, hey, this was a tough one for the industry. I think it created a lot of turmoil. We monitored it very, very close with regard to how we would communicate, but fortunately, it got resolved.

Yes. And I would just even finer point there. We have looked at exposure from an SVB perspective. And as Tom said, we are diversified across many large financial institutions. We're monitoring the progression of the banking sector actively, and we continually look at the allocation of our capital across those institutions to make sure that we do have a risk mitigation.

Okay. Great. So no impact on operations at any stage.

Yes. Exactly.

Okay. And maybe just lastly, very quickly on the macro side. I mean, again, last year, we went through a multitude of issues; supply chain, inflation, labor. And we discussed that in last year's conference. So how are things evolved since then and what stage are we now?

I'll start with the pandemic, right? I mean it changed our business model. And where most brands went through kind of a very dark period where they were losing market share and growth, LINZESS continued to thrive. And it thrived because, one, this large unmet medical need, but how we continue to operate. That certainly has evolved into a hybrid workplace model, which we've been able to adapt to, which is working for us. We're constantly evaluating it. But our employees are actively engaged. We've had very limited turnover at the organization. And the company is thriving financially. So, I think we feel very good about where we are right now in terms of the quality of the people that we have, certainly the progress we're making across all of our strategic imperatives and a very strong balance sheet.

Fantastic. Tom and Greg, thank you so much for your time here. And it's great to have you all here, and I wish you a very productive conference.

We're looking forward to it.

Thank you.

Thank you.