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

Hello, everyone. Welcome to the Ironwood Pharmaceuticals Company Presentation. My name is Ethan Taylor. I'm an associate in JPMorgan's Healthcare Investment Banking Group. It is my pleasure to introduce the Ironwood management team and Tom McCourt, CEO of Ironwood Pharmaceuticals. A quick reminder, there will be time towards the end of the presentation for some audience Q&A. So please have some questions ready. And with that, Tom, please take it away.

Thanks, Ethan. I just want to start off by thanking JPMorgan for allowing us to participate in the conference this year. It's been a really wonderful few days. The level of interest that we're getting from the investment community has been really remarkable and really appreciate everybody participating. With me today is Sravan Emany, our Chief Financial Officer; and Dr. Michael Shetzline, who is our Chief Medical Officer, and let's get started. So this is our disclosures. This is showing up. Okay. So these are our disclosures. And for those of you who are not familiar with Ironwood, our vision is to become the leading GI health care company in the industry. And we're really focused on advancing treatments in GI diseases specifically and redefining standard of care. A number of years ago, when we split the organization, a number of us got together and really made the choice to say, we want to assemble an organization that's absolutely focused in GI diseases is what we know very well, and we've been able to really hone our skills. We certainly had a very strong commercial organization. When we launched LINZESS and LINZESS has been a remarkable success for Ironwood. But we also needed to strengthen our development capability, and we're able to attract Dr. Shetzline to the organization, and he has assembled just a tremendous group of talented drug developers from a clinical operations, regulatory and medical affairs perspective. And we're really making tremendous progress towards our vision. And I think we're really well poised of where we are today and 2023, as I'll share, was a very strong year. But 2024 is going to be a transformational year for the organization. We made tremendous strides across a number of our key strategic priorities which starts with maximizing LINZESS, which has been, again, a remarkable success. But when I say maximize LINZESS, it's really about continuing to strengthen the clinical profile of the drug, but also expand the clinical utility of the drug. And this year, we gained approval for pediatric functional constipation in kids 6 to 17. And it's a first drug ever approved. If you can believe that, it's a first drug ever approved for pediatric constipation by the FDA and, of course, bringing the drug to a broader population and certainly generating revenue. In addition, the second priority is advancing -- building and advancing our GI pipeline beyond LINZESS. This year, we acquired VectivBio and apraglutide which is really an innovative GLP-2 that I'll share with -- share some of the information with you today and also securing CNP-104, which we believe could be a disease-modifying agent for primary biliary cholangitis. And finally, we're very thoughtful, and we restructured the organization to become a more profitable corporation, and we're committed to delivering sustained profits and cash flow. This year, we had guided originally to an EBITDA of over $250 million, which we would have exceeded without the purchase of apraglutide, but it was just a tremendous opportunity for us to strengthen our pipeline. And obviously, with the addition of apraglutide in CNP-104, our financial outlook looks very different. While LINZESS is a $1 billion drug, we share that with AbbVie. So we basically secure about a little over $400 million in revenue, which we see growing over time as LINZESS continues to thrive in the marketplace. However, this really offers us an opportunity to move in a very different direction with regard to revenue growth. We certainly look at succeeding $1 billion by the end of the decade and certainly far beyond that as we move into the 2030s. So we think the outline -- the outlook looks very positive. I mentioned 2024 is going to be a very exciting year for Ironwood. We'll continue to certainly execute on LINZESS continues to thrive and grow. We are launching the indication for pediatric constipation, but we have a number of key data readouts, which we believe will create certainly valued not only to patients but to shareholders. That starts with apraglutide. We're finishing the Phase III trial. We expect to report top line data in March, and that's progressing very, very well. We're also finishing up an exploratory trial in Graft Versus Host Disease, which will also be reporting in the -- certainly the first half of the year, hopefully in the first quarter. CNP-104, I mentioned we believe, could be a disease-modifying agent for primary biliary cholangitis. We're just finishing up enrollment in a proof-of-concept study, which will read out probably the middle of the third quarter later this year. So we have a lot going on. And in addition, we have a wholly owned asset in IW-3300. IW-3300 is a second-generation GCC agonist similar to linaclotide that we're testing for additional visceral pay disorders, specifically interstitial cystitis, and bladder pain syndrome. This is a proof-of-concept study. As you can see, it's not really on strategy as we've reorganized and focus the organization. So we're in the middle of exploring opportunities to partner the asset as we move forward. So that brings us to LINZESS. LINZESS is the market-leading blockbuster drug. And as you can see, it continues to grow. To see this kind of linear growth over 12 years is really remarkable. You can see we're still growing at high single digits, low double-digit growth, and we don't see it slowing down. And of course, the lead indicator of health of growth is new-to-brand patients. And you'll see the new-to-brand patients in the green line. As you can see, this is a chronic disease. These patients, as you pick up patients, they're treated chronically, so you need a healthy group of new-to-brand patients that continue to sustain growth. But if you look at what's happened to this drug over the last 1.5 years, we've actually seen an acceleration in new-to-brand patients. And you're talking about a drug that's been in the market now 11, 12 years. And again, to see this kind of growth is really quite remarkable. And we continue to strengthen a market leadership position. We have a dominant market share of almost 50% of the market. And that's even in the face of 4 new competitors that came in. So that rarely happens that you continue to gain market share in the face of competition, but the growth isn't coming from the market, the growth is coming from the OTC space. And literally 70% to 80% of our new patients are coming off OTCs into the prescription market. So as a market leader, our #1 job is how do we continue to grow the market and capture a disproportionate share of that business, and we've been able to successfully sustain that. As successful as we've been, we've treated 5 million patients. There's still tens of millions of patients out there, which is the reason why the growth continues. I think there's 3 things that really drive the growth of this product. One is certainly the size of the opportunity that's a very prevalent, highly symptomatic disease. Patients suffer and this makes people feel better. And when you have that equation, you can generally win. The second part of this is the high level of treatment satisfaction that patients and physicians report, which obviously is a great place to be. But third is also payer access. We invest significantly in payer access. We literally have 80% to 90% unrestricted access across all commercial and Med D plans. And that's a big part of our investment in the brand to sustain the growth that we realized. I talked earlier about expanding the clinical utility of the drug. Last year, in June, we were -- we secured an indication for pediatric constipation, functional constipation in kids from 6 to 17. And that represents about 6 million additional patients. And I think anybody here that's had a child that suffered from chronic constipation knows how distressing this is the kids. But I think the other interesting dynamic in the market here is literally if you have a kid that is suffering for chronic constipation, you're talking to your doc. And I think to have a product that's available, covered and accessible to patients, it looks very, very promising. We also secured this indication with an existing dose. It's actually approved with a 72-microgram dose, which is actually an adult dose. So it didn't require us to come to market with an additional formulation. It just simply expands the opportunity for the brand to grow. So I think LINZESS is in a very good spot. We're very encouraged by the ongoing health with regard to its demand growth. And certainly, we're delivering high margins as we continue to refine the marketing mix over time. That brings us to apraglutide, which is, we think, a potentially best-in-class GLP-2 analog for the treatment of short bowel syndrome with intestinal failure. It's really a remarkable product, and it really expands our position in the GI marketplace. Apraglutide, as I mentioned, I think, does have the opportunity to be the new standard of care for the treatment of short bowel syndrome with intestinal failure. And based on really the pharmacokinetics and pharmacodynamics of the product, it's far more potent, it's much longer acting. It enables a once-a-week injection as opposed to daily injections that are required with the existing therapy. And it also provides us an opportunity to leverage our GI expertise across both development and commercial. And we see the potential to exceed $1 billion in net sales as a peak. Those of you who aren't familiar with short bowel syndrome with intestinal failure, but it's a very debilitating disease. These are patients that have large dysfunctional intestine, largely due to a bowel resection. They require literally many of these patients' daily parental support. And these people are in IVs 10 to 15 hours a day. So you can imagine how disruptive this is to patients' lives, but are also associated with pretty significant increase in morbidity and mortality. There's 2 phenotypes or subtypes of short bowel syndrome with intestinal failure, one; these patients have a stoma. So this is post-surgical resection, and there's actually an open stoma. So they're dumping fluid constantly. So as well as nutrients. So they really have to be supplemented both with regard to high volumes as well as nutritional supplements. The second group is referred to as colon in continuity. And these are patients that do have some reminant colon, so it can absorb some fluid, but still require a significant amount of parental support. And these are, as you can see, very different anatomically, but how these patients respond to therapy is also very different. And we've learned an awful lot about how to manage these patients with the innovation of Gattex. And it also informed us how to study the product more effectively to fully characterize the clinical benefit of a product. The STARS Phase III trial is the largest study ever conducted in this population, involving 164 patients, recognizing that this is a rare disease. And the study design, which is a once-a-week injection, as I mentioned, really focuses on a predefined established endpoint that was used previously with the FDA, which is a 24-week endpoint where we're evaluating the reduction in parenteral support. The design of the study was done in such a way we stratified these patients in stoma and colon in continuity that could be evaluated. The primary endpoint is an aggregate endpoint of the combined population at 24 weeks. But it also allowed us to examine these patients a little differently because the stoma patients, they're consuming much larger volumes. So there's a much larger dynamic range to show a reduction in parenteral support as opposed to these colon in continuity patients, which is mainly a nutritional need. And it takes a bit longer for them to fully respond to therapy. So what we were able to do is add a couple of additional endpoints. One is certainly with the stoma patients at 24 weeks, but also a secondary endpoint at 48 weeks with the colon in continuity, so they could also contribute to the endpoint. What we've seen in previous trials is really an inability to show an improvement in CIC patients where this trial design really is specifically focused on not only showing a positive endpoint but also efficacy in the CIC population. I think as we think about what does success look like for us is really a positive trial with the aggregate endpoint with a once-a-week administration. Everything we're hearing from caregivers, physicians, patients, that is a very, very attractive alternative to what's currently available. So we do see this as a potentially best-in-class therapy. It would be the first that only wants weekly administration that could cover the entire spectrum of these patients and provide benefit. As we think about the target product profile, we certainly would expect to see a reduction in parental support across both stoma and the CIC population. Certainly, the long half-life enables once-weekly administration, we certainly have a number of quality of life metrics that we believe will respond. And we're also looking at specifically how many days off that these patients will be in this trial, including complete elimination of parental support. We reported some data in a small open-label trial last year which was part of the STARS nutritional focused study, which was specifically in the CIC population, where we showed a 40% reduction in parenteral support at 24 weeks and over a 50% reduction at 48 weeks. But we also saw a few patients are actually able to get completely off parental support. And certainly, with the power of the study that we're running right now, we hope to see some additional data. But just to be clear, what we see as success is basically, let's hit the primary aggregate endpoint and certainly having a once-weekly injection for these patients available. There's certainly an opportunity -- a sizable opportunity to secure additional patients to get to $1 billion, we probably need about 20% of this market. What we know about Gattex is penetrated about 20% of the market is a large market open. These patients are very identifiable because of the consumption of health care. And we believe not only can we expand the utility of GLP-2 with apraglutide, but also improved persistency. What we know from the data on Gattex is about 50% of these patients discontinue within the first 12 months, and that's really caused by a perceived lack of efficacy or just the difficulty of a daily administration. So I think this looks extremely promising as we look forward to reporting those data here in the upcoming months. I'll move to CNP-104. I mentioned earlier that we see this as a potential disease-modifying agents for primary biliary cholangitis. This is a really interesting science. Those of you that are familiar with PBC, it is an autoimmune disease where the body reacts to one specific antigen. It's this PDC-E2 antigen that's present in these patients, which triggers an autoreactive T cell development that attacks the bile ducts and actually destroys liver bile ducts which then leads to liver failure. Currently, there's no therapy that actually targets a root cause. There's a number of therapies available that are primarily focused on symptomatic relief. But what we've done with this technology as we licensed in the rights to this technology utilizing a nanoparticle, which encapsulates the antigen and that when administered preferentially goes to the spleen, which tolerizes the body. So it basically reduces the production of these activated T cells that are destroying bile ducts and hopefully eliminates the bile duct destruction and improves liver function. And so we're in the process of testing that in a proof-of-concept study. I mentioned it's almost fully enrolled. We'll see data in the third quarter. But we -- one of the real attractions to this asset with some of these potential surrogate markers, one of which is what is the T cell response look like. And we are able to take an interim look at the response, and we saw a very favorable response in T cells. And the open question now is, does that translate to an improvement in liver function and we'll be reporting those data in the third quarter. So you can see, we have a lot going on. This is going to be a very exciting year for us. As far as our financial guidance, last year, we originally guided to low single-digit net sales growth. We revised that guidance midyear to increase it to 6% to 8% net sales growth due to the increase in volume that we saw and some favorability in price. And we'll deliver somewhere around $435 million to $400 million in revenues. As we look to next year, we do see the ongoing demand growth to be in the high single digits. One of the things like many other companies were encountering is this legislative change in Medicaid where the A&P cap was lifted. So we did have some additional price exposure. The other commercial and Med D plans were fairly stable with regard to discounts, but we do have some exposure that we're still trying to estimate what that looks like. So we thought it was prudent to guide to low single-digit net sales growth, which still throws off $435 million to $450 million in revenue. And we're back on the positive side of the ledger with regard to EBITDA in which we will guide to $150 million. So I think we're very well positioned with regard to a transformational year for the company. And I think we're -- again, we've made tremendous progress with not only LINZESS, but strengthen and advancing our pipeline and certainly being very prudent of our capital allocation and continue to deliver sustained profits and cash flow. So that's it. I'd like to thank all of you for your attendance, and I'll open it up for questions. Thanks. Ethan?

Thank you for the wonderful presentation. Can you elaborate on the PS reduction algorithm in the STARS study? Is it the same algorithm for CIC in stoma patients? And how do you think that the Gattex would have done if they use a different algorithm in the CIC patients.

Mike, do you want to take that?

Sure. Yes. So the parenteral support volume reduction algorithm that's used in the STARS Phase III study was actually the same algorithm that was used in the STARS nutrition study. Okay? And what that does is, in principle, as Tom mentioned, there's 2 groups of SBS patients, the stoma and the CIC. For the CIC patients, to actually participate in the primary endpoint, they have to first have a greater than 10% urinary output increase. And as Tom mentioned, one of the big challenges with the colon in continuity population is they have a lower volume need. They need more nutrition than volume. So what the algorithm does is if anybody achieves a greater than 10% urinary output, they can have a parenteral sport reduction. But if you're a colon in continuity patient, you can have a less than 10% urinary output and still participate in weaning if your nutritional parameters are very good. So your body weight is good, your nutritional status is good, your oral intake is good, your urine output is reasonable. Again, it might be less than 10%, but that's part of the algorithm as well. And if all those parameters are met, then the colon in continuity patient can be reduced.

Great. And then there's a second part to this question. What kind of PS reduction do you think is achievable in the stoma versus CIC patients.

We're actually -- look, the way we powered the study and designed the study is very akin to what was looked at with Gattex, right, because the Gattex approval is based on the same concept of parenteral support reduction. So we're looking at numbers very similar to Gattex and it's statistically powered around that. We feel like if we hit the primary endpoint, we have a commercially viable and successful product.

Thank you. We have another question related to apraglutide. How do you expect to differentiate from the competition?

Sravan, do you want to take that?

Sure. So I think as Tom laid out in the presentation, I think having a once-weekly therapy on the market would be best-in-class by itself. But I think we have the potential with the secondary end points here to show differentiation in the CIC patient population, where there's no clinical trial that's shown statistical significance for those patients before.

Yes, I think the other piece of that, as far as the commercial dynamic is in the CIC population where there may not be on 7 days of parental support. They may be on 3 or 4. It's hard for these patients to stay on daily injections where this once-a-week injection administration is far, far more attractive and they can certainly benefit and they're more likely to be persisting on a therapy. And we do think that's a very sizable commercial opportunity for us.

Terrific. Thank you. So related to CNP-104, what data will you disclose with the top line readout in the third quarter.

Mike, do you want to take that?

Yes, sure. So the science is really what's attracted us to CNP because obviously, the science behind tolerance today really gives us an opportunity to look more deeply into the pathogenic T cells and then how that could correlate with improvements in liver function. So as Tom mentioned, we did take an early look at the end of last year and did see favorable T cell responses. And what that means is we can actually antigen specifically test those T cells. So we can take the antigen responsible for PBC, which is the PDC-E2 antigen and then test those T cells to see if there's a reaction there, and we start to saw favorable responses in that. So that's the first early look metric. Now what we're looking for in quarter 3 is we'll get the downstream sort of clinical benefit, hopefully, from that reduction in T cell responses. So we're really looking for improvements in liver function. We have the traditional markers in alk phos. We're looking for bili and transaminases, but also we have other indices of improved liver function as well from other tests that we have a part of the study. So that's what we're really trying to look for on quarter 3.

I think this is a great illustration of precision medicine. I mean think about the specificity of the target and the antigen and really actually has the opportunity to cure PBC if we're right. And I think it's going to be very interesting to see what the improvement in liver function will look like at the end of the trial.

Thank you. So turning now to LINZESS. Can you talk a little bit about your expectations in 2024? And then maybe what's driving some of that really strong new-to-brand prescriptions in that acceleration that you've seen in the past year?

Sravan, do you want to take that.