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

Thank you for standing by. My name is Janine, and I will be your lead operator for today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Corporate Update Call. [Operator Instructions] I will now turn the call over to Mr. Greg Martini, Chief Financial Officer. Sir, please go ahead.

Thank you, Janine. Good evening, everyone. Thank you all for joining us on today's call about our strategic vision for Ironwood moving forward. Following comments from our Chief Executive Officer, Tom McCourt, we will open up the call for Q&A, where he will be joined by Mike Shetzline, our Chief Medical Officer; and myself. Before we begin, I'd like to remind you that today's call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially. A discussion of these statements and risk factors is available under the heading Risk Factors in our annual report on Form 10-K for the year ended December 31, 2023, and in our subsequent SEC filings. All forward-looking statements speak as of the date of our press release, and we undertake no obligation to update such statements. With that, I'll turn the call over to Tom.

Thanks, Greg. Since its founding, Ironwood has been committed to being at the forefront of advancing care for GI patients. While historically, LINZESS has been the key value drivers. And today is the prescription market leader for adults with IBS-C and chronic constipation, we are well positioned to add another potential blockbuster therapy to our portfolio and to create meaningful value for Ironwood with apraglutide and its potential to significantly expand the number of GLP-2 treated patients with short bowel syndrome who are dependent on parenteral support. We believe that the clinical evidence from the STARS Phase III trial, which is the largest Phase III study ever conducted in short bowel syndrome and new compelling long-term extension study data support the potential for apraglutide, if approved, as the first and only GLP-2 once-weekly administration. We are confident in its commercial potential, and we believe we can extend the growth horizon through the 2030s with apraglutide well beyond the patent life of LINZESS. Over the past 2 years, LINZESS has delivered exceptionally strong extended unit TRx and new-to-brand prescription demand growth despite the brand facing significant pricing headwinds from the enacted government legislation with the Medicaid AMP cap repeal and Medicare Part D redesign. As a result, we have decided to approach the business differently to ensure that we can continue to generate profits and cash flow. LINZESS has been the backbone of Ironwood since its inception, and it will continue to be an important part of our business with LINZESS' cash flows supporting our progress towards achieving our strategic objectives and funding the next stage of our growth. We are one of the few biopharmaceutical companies that has discovered, developed and commercialized the blockbuster drug in LINZESS and we continue to think boldly about how to foster innovation and drive success. Earlier this evening, we issued a press release outlining our plans to prioritize the development and commercialization of apraglutide. Additionally, as we evolve our business, we have made the decision to reduce our workforce by approximately 50% on to create a streamlined organization built to drive the success of our upcoming potential apraglutide launch. The majority of the reduction impacts the Ironwood field force as we focus our investments and continue to drive prescription demand growth and profits. In conjunction, we are also in the process of widening down the Phase II study of apraglutide for graft-versus-host disease as we further focus our resources and investments for the future. I would like to express my sincere gratitude to all of our employees affected by the restructuring for their contribution to the success of LINZESS and their dedication to our team and to the executing of Ironwood's important mission. Now turning to apraglutide NDA progress and new data we shared today. We have initiated the apraglutide rolling NDA submission to the FDA and we believe the ongoing long-term extension study, STARS Extend, has generated additional compelling data. The long-term extension study data showing 27 patients dosed with apraglutide have achieved enteral autonomy, which is the ultimate goal of therapy for patients. These data further highlight the potential clinical benefit for short bowel syndrome patients and particularly reinforce that the longer patients are exposed to apraglutide, the less parenteral support these patients may need. Based on the strength of these data, we now plan to include long-term data in our initial NDA submission and expect to complete the NDA submission in the third quarter of 2025. We are confident in the clinical profile and the commercial opportunity associated with apraglutide and potentially becoming the first long-acting GLP-2 to market short bowel syndrome for patients that are dependent on parenteral support, if approved. Looking ahead, we remain focused on a successful apraglutide NDA review and preparing for the commercial launch, if approved. We have an experienced commercial team firmly in place, led by Tammi Gaskins, our newly appointed Chief Commercial Officer, along with other key roles on the team that will provide the support and expertise to commercialize and execute. Apraglutide will require a focused commercial go-to-market strategy targeting short bowel syndrome, a rare disease with a much smaller prescriber base. Based on these factors, we will leverage our existing commercial capabilities to build a more targeted sales force and a robust patient hub service model. Before I turn to our financial guidance in 2025, I would like to quickly recognize Greg Martini, who has been promoted to the role of Chief Financial Officer. Greg has a deep understanding of our business, capital markets and familiarity with our investor community. I look forward to working alongside Greg as we continue to execute on our strategic priorities. I would also like to acknowledge that we finished 2024 extremely strong, and we are on track to achieve our previously provided full year 2024 guidance. We will share more on this in the first quarter results as well as the full year update in upcoming weeks. Now moving to our 2025 full year guidance. We expect LINZESS U.S. net sales to be between $800 million and $850 million. We expect prescription demand to remain strong with high single-digit growth. This strong demand growth is expected to be more than offset by the headwinds associated with the Medicare Part D redesign that went into effect earlier this month. That said, we want to reinforce that the continued strong prescription demand growth bolsters our confidence in the strength of LINZESS over time. We expect Ironwood total revenues to be between $260 million and $290 million. As a reminder, Ironwood recognizes collaborative arrangement revenues from LINZESS as a portion of our commercial profits, which includes an add-back for Ironwood selling and marketing expenses. This 2025 total revenue guidance includes approximately $15 million impact associated with the Ironwood field force reduction and associated selling and marketing expense add-backs in our collaborative arrangement revenues. Given our transition and consistent with broader industry practice, we also are moving to provide adjusted EBITDA, excluding stock-based compensation expense beginning Q1 2025. We expect adjusted EBITDA, excluding stock-based compensation, to be greater than $85 million in 2025. Including stock-based compensation expense, it would equate to roughly greater than $60 million for the year. This adjusted EBITDA guidance includes roughly $40 million of the net benefit from the strategic reorganization in 2025. To conclude, we believe we are taking the necessary steps to start 2025 from a position of strength. We believe apraglutide has the potential to become a second blockbuster therapy for Ironwood and significantly expand the market in GLP-2 treated patients with short bowel syndrome who are dependent on parenteral support. We've made critical decisions in restructuring our business operations to enable long-term growth. We have initiated our apraglutide rolling NDA submission. We have long-term data demonstrating improved outcomes over time that we will now include into the NDA submission, and we have the right team to successfully navigate this next phase of growth for the company. I want to close by thanking all of you for your time today and for the support of our efforts to develop and commercialize life-changing therapies for people living with gastrointestinal and rare diseases. Operator, I'll now open the line for questions.

[Operator Instructions] Our first question comes from the line of Chase Knickerbocker from Craig-Hallum.

Just kind of, I guess, digging through model here and maybe just a little bit more on kind of what's driving the much lower kind of commercial margin in respect to the $15 million, can you just kind of talk through in a little bit more detail on kind of some of those add-backs on your expenses? And so it's kind of just the $15 million with the sales force? Or is there other things that you are getting reimbursed for that are also being cut?

Chase, this is Greg. I appreciate the question. I think as you look at commercial margins for the brand and specifically for 2025, and you think about the net sales number that we are guiding to $800 million to $850 million, a lot of the delta from '24 to '25 is pricing driven, which has a larger impact in terms of the margins than if it was coming from demand and other associated costs in the P&L. So there's a little bit of compression there. And then I think the biggest piece is truly the add back for our sales and marketing expenses that will no longer be getting reimbursed for, which is the $15 million you mentioned.

Got it. And then just to kind of make sure I'm making the right assumptions, kind of a high teens kind of price impact on the overall franchise is kind of what I'm backing into. And then if we look at the apra NDA, can you just talk in a little bit more detail about what's driving the delay there, the kind of 2-quarter delay? Was there kind of incremental ask? Or just maybe go into a little bit more detail there?

Yes. So first, on the pricing, you're thinking about it the right way in terms of high single-digit demand growth and the offsetting portion coming from price erosion to get to the net sales range. So aligned there with how you're thinking about it. Mike, on the NDA?

Yes. Yes. Thanks, Chase. So we absolutely have the largest and most robust data of any SBS-IF trial ever completed to date and certainly think that data is strong in and of itself. But what we noticed through 2024 is with longer exposure to apraglutide, we're seeing more and more patients reduced their parenteral support needs but most importantly, actually achieve enteral autonomy. We're actually seeing a fairly robust number of patients achieving enteral autonomy. And we actually have a large number of patients coming in to the open-label trial. So we think that's a great opportunity for labeling. As you know, it's a single pivotal program. So how -- the data we put in the submission now is going to be really critical to what gets in the label. And we think the ultimate goal for these patients is enteral autonomy and we want to take every opportunity to think that submission as strong as possible. So that's why we propose to do that and move the time line to quarter 3.

Chase, I think -- this is Tom. The other thing that I think about is, as you know, you have one shot at creating kind of the overall approach and pressure with the FDA. We've had ongoing dialogue with them, which has been very helpful and constructive. And it really comes down to what is the final label look like that we can promote off of. And having these additional data that we could further differentiate the brand in the product label as we think about moving forward, really differentiates the brand as we think about our go-to-market strategy, whether it's kind of filling the unmet medical need that's there for GATTEX as well as any kind of emerging competitor.

And then just last for me, started to sneak so many in, but a lot here. You obviously had a potential competitor received negative feedback from FDA in SBS. Can you talk to kind of the incremental conversations that you've had with the FDA that you just mentioned and kind of speak to the confidence in your filing? Again, anything else that they asked for or just kind of speak to the confidence that you have an approvable filing when it's fully submitted in Q3?

Yes. I think this is a great question. I mean that's actually one of the advantages we have with the Fast Track Designation. I mean the Fast Track Designation because of our program really gives us an opportunity to have a lot more engagement with the agency. And we certainly have taken that on. So we have a great back and forth in a good dial again. And that certainly does help us put the best formation on the table. And that's why we think there's an opportunity here with the enteral autonomy data to fulfill that, and that's why we like to push that on to quarter 3.

Our next question comes from the line of Jason Butler from Citizens JMP.

I appreciate all of the details you've given this afternoon. Maybe first a follow-up on apraglutide. Have you actually had any discussions with FDA yet about including the longer-term data in the label? Or what are the kind of -- it sounds like the key data point you're trying to get in there is enteral autonomy. Are there other data points that you'd look to pull from the long-term data?

Yes. We have -- as I mentioned, we have ongoing dialogues. So as we have that dialogue, points come up with the agency guides us on in terms of what to include. They've always been interested in enteral autonomy. As you know from our clinical trial design, we had enteral autonomy in there. So it's something that we have talked about. And we look at '24 and the data we're having, it's fairly impressive. And so we want to take that opportunity to include it.

Great. And then on LINZESS, can you give us a sense of the overall change from '24 to '25 in details for the product with your field force reduction? How do you just feel about the promotional sensitivity of having less people out in the field versus making up for that in, for example, digital outreach?

Yes. This is Tom. This is something that, as you know, we have -- every year, we continue to refine our marketing mix. And certainly, that's guided by data. And keep in mind, if you may recall, when we launched this brand, we launched with about 1,400 reps and 1.4 million calls. And we've throttled and we continue to throttle that back now to a point where we're in the range of 300,000, 350,000 calls. Last year, we were at about 450,000. So this isn't a dramatic change in the amount of coverage we're getting. And we're still -- I mean AbbVie will still be calling on the most productive GEs in primary care, but a lot of the growth now is really coming from the consumer advertising. It not only obviously motivates more patients that go talk to the doctor. And of course, we have very broad awareness of LINZESS at this point, but it also reminds patients that go refill their prescriptions. So as we think about overall marketing mix, we're spending a much larger percent on digital as well as direct-to-consumer advertising as opposed to personal promotion, which is really consistent with how the brand evolves over time. Once you've established a dominant position in the marketplace, very broad awareness, we have very broad payer access. So this is really a natural evolution of the brand investment and strategy that certainly we're fully aligned with our partner.

Great. And then just last question for me. Specific for the Med Part D redesign, do you think that you'll reach stability in terms of net pricing from that component in 2025?

Yes. So with Med Part D redesign going into effect this year, we'll obviously have to assess what the impact is as we play out throughout this year. But as we anniversary this in '26, we do not expect the savings level of impact as we will have in '25.

Our next question comes from the line of Faisal Khurshid from Leerink.

I have one on apraglutide and one on LINZESS. So on apra, could you just talk to sort of the benefits of kind of getting rid of the LINZESS field force? I think previously, you were planning to leverage for apra and hiring sort of like a new specialty field force and why you think that's the kind of better strategy here or the advantages of that?

Yes. I mean, this is something we've been blessed with a very good sales force and they've been primarily in GI offices and primary care. As we've studied the market, we look at where are the patients and where are the customers, they tend to be in large academic centers as well as the large GI practices. Certainly, the large GI practices we've had in presence. As far as the academic centers, that's an area that we really need to establish our relationships. And so when I look at the emerging selling model, certainly, we see the need for an MS cell-like role that helps educate the thought leaders and the academic solutions. And I think the other piece is we're looking at a more specialty rep that not only understands how to sell, but also how to leverage things like a patient hub service model. which is something that we are actively putting in place, which really holds the hand of the patient and the physician. Once we secure people, how do we continue to maintain adherence to therapy. So it is a significant change with regard to the capabilities but also the skill set. Now keep in mind, we're not looking at a huge footprint, right? We're talking -- we previously had, what, 30,000 and 40,000 targets. Now we're looking at 2,000 or 3,000 target prescribers that probably generate 70% to 80% of the business. So it allows us to really get focused on how do we have the greatest impact as we prepare to go to market as we launchand as we get people on the drug and keep people on the drug, it requires a different kind of selling promotional model. Does that make sense?

Yes, that makes a ton of sense. And then one on LINZESS. I guess, am I premature but to the extent that you're able to comment, how are you thinking about the IRA impact after getting selected? I know you're kind of taking a big net price hit this year. So I guess, yes, how are you thinking about '27 with the IRA impact then?

Yes, Faisal, thanks for the question. So acknowledging, obviously, that LINZESS was selected in the latest round for future negotiations. We'll have to ultimately see how that evolves as those discussions occur over the coming year or so. Ultimately, I think as we look forward, this doesn't -- LINZESS is already a heavily discounted product within Medicaid. And so it's not something we see as a significant change in our business moving forward. Really, the focus right now is on 2025, and we'll assess the IRA as we move forward.

Yes. I think not only Medicaid but Medicare. We do heavily discount to all Medicare plans today. So it will be interesting to see what the negotiation looks like. We think -- we don't think it's going to have the huge impact that these 2 previous changes have made but obviously, we'll be actively negotiating that directly with them.

That's helpful. If I can just slip one more in. Just quickly, how are you thinking about balance sheet management going forward now with these changes?

Yes. So I think balance sheet and cash flow and generating consistent profits and cash flow is definitely a big factor as we made some of these decisions making sure that we have sufficient resources focused on investing in apraglutide to really resources appropriately to get through the NDA submission and prepare for a successful commercial launch. So balance sheet is definitely a focus and with a consideration in these decisions.

[Operator Instructions] Our last question comes from the line of Mohit Bansal from Wells Fargo.

Just wanted to understand the areas of cost restructuring. Is it more sales force driven? Or do you expect some cuts in R&D as well? That's the first question. I have a follow-up.

Yes. Thanks, Mohit. So the majority of the impact here is on the LINZESS Ironwood sales force. Any other impact here was really supporting function and/or resources that were tied to more or less to LINZESS' Ironwood sales force. I would say broadly small refining across the organization, but really driven by the sales force.

And is it fair to assume that there is probably a natural decline in R&D spend, given that you are winding down some operations and Phase III trial is also done at this point?

Yes. So if you're comparing to 2024, I would expect 2025 would have a slight reduction for R&D in '25.

Got it. And one last question. How should we think about the cadence of revenues over the year? Do you see this IRA -- or sorry, Medicare Part D redesign impact taking pretty much in the first quarter and then it is more business as usual? Or is it more like it is over the period of year you think could have some impact, some sales impact?

Yes. So we don't typically provide quarterly expectations. But I think just overall, I would say that we don't expect changes in this Med Part D redesign to significantly alter what we've seen from a seasonality historically. I think as we look at how this plays out throughout the year, we'll have much more certainty as we get into the latter half of the year on really what the true pricing impact is and hopefully be able to communicate that even further.

Got it. Super helpful. Congrats, Greg, on the promotion.

Thank you. That concludes our conference call. Thank you for joining today, and you may now disconnect.