Ironwood Pharmaceuticals - Q3 2024

Transcript

Operator (participant)

Thank you for standing by. My name is Lowella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Q3 2024 Investor Update Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Matt Roach, Director of Investor Relations. Please go ahead.

Matt Roache (Director of Investor Relations)

Thank you, Lowella. Good morning, and thanks for joining us for our third quarter 2024 Investor Update. Our press release issued this morning can be found on our website. Today's call and accompanying slides include 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 on the current Safe Harbor Statement slide, as well as 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 this presentation, and we undertake no obligation to update such statements.

Also included are non-GAAP financial measures, which should be considered only as a supplement to, and not a substitute for, or superior to GAAP measures. To the extent applicable, please refer to the tables at the end of our press release for reconciliations of these measures to the most directly comparable GAAP measures. During today's call, Tom McCourt, our Chief Executive Officer, will begin with a brief overview and discuss the commercial performance of Linzess. Mike Shetzline, our Chief Medical Officer, will discuss our pipeline, and Shravan Emany, our Chief Operating Officer and Chief Financial Officer, will review our financial results and guidance. Today's webcast includes slides, so for those of you dialing in, please go to the event section of our website to access the accompanying slides separately. With that, I'll turn the call over to Tom.

Tom McCourt (CEO)

Thanks, Matt. Good morning, everyone, and thanks for joining us today to review our third quarter 2024 financial results and business updates. Starting with Linzess, Linzess continues to deliver robust year-over-year prescription demand growth. In the third quarter, prescription demand increased by 13%, driven in part by new-to-brand prescriptions, which also grew by 13%. This marks the seventh consecutive quarter of double-digit new-to-brand volume growth, as Linzess remains the preferred treatment option for both patients and providers. While prescription volumes remain very strong, Linzess is continuing to experience pricing headwinds, primarily due to the increase in Medicaid prescriptions as a percent of the overall Linzess business, as we highlighted on last quarter's call.

Moving to our pipeline, over the past several months, we've been working towards an aperaglutide NDA submission with a label focus on adult patients with short bowel syndrome who are dependent on parenteral support and remain on track to complete our filing in the first quarter of 2025. We continue to see significant unmet need and market opportunity in short bowel syndrome, and we're excited about aperaglutide's potential to support short bowel syndrome patients. Feedback from our phase 3 data from the experts in short bowel syndrome supports our belief that if approved, aperaglutide will be the drug of choice among physicians to treat adult patients with short bowel syndrome who are dependent on parenteral support.

Last week, we had the privilege of presenting new STARS phase 3 findings at the American College of Gastroenterology annual scientific meetings, where our STARS safety abstract was the recipient of ACG's Presidential Poster Award, and our subgroup analysis was shared as an oral presentation, which we're very proud of and speaks to the interest in and the quality of the data. These findings, which Mike will discuss in more detail, build on our previously announced positive data from the phase 3 pivotal STARS trial and reinforce aperaglutide's strong clinical profile, including its demonstrated efficacy, tolerability, and once-weekly dosing convenience. Our team is focused on getting aperaglutide to market as soon as possible, and we look forward to providing more updates to our progress in the months ahead.

Moving to our pipeline programs, we routinely evaluate the risk and reward of our investments and seek to prioritize those which we believe drive most value long-term. To this end, we made the decision not to exercise our option to acquire an exclusive license to CMP 104, and we also made the decision to end further recruitment in the IW 3300 phase two proof of concept study in interstitial cystitis and bladder pain syndrome, and will follow the current study population for a full 12-week efficacy assessment, which will inform next steps on the program. These business decisions allow us to focus our efforts on where we believe we can deliver the most value, including the anticipated launch of aperaglutide expected in 2026 and on maximizing Linzess profits and cash flow. Moving to our third strategic priority: delivering sustained profits and cash flow.

In the third quarter, we generated $10 million of operating cash flow and delivered $26 million in Adjusted EBITDA. Based on our third quarter performance, we are reiterating our full year 2024 financial guidance. In addition, we amended our credit facility to strengthen our balance sheet, and we repaid $25 million of the outstanding principal balance on our revolving credit facility. From a financial perspective, even with continued Linzess pricing pressure, we believe we are in a good position with meaningful cash flow generation from Linzess and a capital structure to support continued execution of our strategic priorities over the coming years. Looking ahead, we are intently focused on managing Linzess pricing pressures to maximize profits and cash flow while simultaneously advancing aperaglutide toward an NDA submission and commercial launch. Now, let's take a moment to look at some additional details on the commercial performance of Linzess on slide seven.

In the third quarter, Linzess U.S. net sales were $226 million. As I mentioned earlier, Linzess extended units and new-to-brand prescription each rose by 13% in the third quarter, respectively, compared to the third quarter in 2023, reinforcing that patients and healthcare providers continue to choose Linzess in a growing market. The strong volume growth was more than offset by continued pricing headwinds, primarily due to the increase of Medicaid as a percent of our business, driven by a combination of legislative and market factors such as the AMP cap repeal, Medicaid redetermination, and state-by-state changes. That said, since the first quarter of this year, we have seen Medicare as a percent of our business remain relatively stable at the current levels. We continue to closely monitor Medicaid utilization and additional legislative changes such as the 2025 Medicare Part D redesign and its potential impact on Linzess.

We remain focused on maximizing Linzess brand profits and cash flow and optimizing the investments as we seek to mitigate the increased pricing pressures. We look forward to providing additional guidance on 2025 Linzess demand and pricing expectation at the beginning of the year. With that, I'll hand it over to Mike to discuss our pipeline. Mike.

Mike Shetzline (CMO)

Thanks, Tom. And good morning, everyone. I'll start with aperaglutide for patients with short bowel syndrome who are dependent on parenteral support. As Tom mentioned, last week we presented new findings from a subgroup analysis of the primary endpoint of the STARS phase three study at the ACG meeting. The additional data presented showed the positive treatment effects of aperaglutide were consistent across baseline demographics, including gender, age, body weight, region, race, ethnicity, and SBS characteristics such as length of remnant bowel anatomy. These are important results for patients given the established heterogeneity of adults with SBS who are dependent on parenteral support. In addition, moving to slide nine, a poster highlighting an in-depth analysis of the STARS phase three program safety and tolerability data was presented at the meeting, which notably received a presidential poster award from the ACG.

The analysis focused on any treatment-emergent adverse event, or TEAE, and those of special interest in SBS. Importantly, no new safety signals were detected for aperaglutide in this analysis. Of particular note were the TEAEs of special interest, which have been seen with other GLP-2s in SBS, such as injection site reactions and GI hepatobiliary neoplasms, which were similar in the aperaglutide and placebo arms. These data further characterize the safety profile of aperaglutide in this population of patients with short bowel syndrome who are dependent on parenteral support. This type of profile can be meaningful for patients to start and stay on therapy if approved. In regard to our NDA submission, we remain on track with our previous guidance and expect to fully complete the submission in the first quarter of 2025.

We continue to be excited about the safety, efficacy, and tolerability demonstrated by apraglutide in the clinical trial and its once-weekly dosing convenience. Assuming approval, we believe these distinguishing factors have the potential to drive uptake and adherence and help improve the quality of life for patients with short bowel syndrome who are dependent on parenteral support. Moving to IW 3300, our wholly owned asset for the potential treatment of interstitial cystitis bladder pain syndrome, we believe we have enrolled an adequate sample of patients to inform us of next steps and have decided to end further recruitment to complete an analysis of the dataset for the patients currently enrolled. Based on this assessment, we expect to provide an update on the program in the first half of 2025. With that, I'll turn the call over to Shravan.

Sravan Emany (COO and CFO)

Thanks, Mike. I will begin with collaborative arrangements revenue on slide 11. Linzess U.S. net sales, as reported by AbbVie, were $226 million in the third quarter. In the third quarter, Ironwood reported a $5.8 million positive adjustment to collaborative arrangements revenue to reflect Ironwood's estimate of Linzess gross to net reserves as of September 30, 2024. With this adjustment, Ironwood's U.S. collaboration revenue was $89 million in the third quarter. As Tom noted, we continue to closely monitor Medicaid utilization trends and other legislative changes and remain focused on maximizing Linzess profits and cash flows. Moving to slide 12, Linzess U.S. net sales were down 19% year-over-year in the third quarter. On a year-to-date basis, U.S. net sales were down 13% compared with the third quarter of 2023 year-to-date. Ironwood revenue in the third quarter was $92 million, a decrease of 19% year-over-year.

GAAP net income was $4 million, and Adjusted EBITDA was $26 million. In September, we amended our credit facility, providing us with $50 million of additional liquidity and extending the maturity to December 2028, allowing for greater flexibility as we continue to evolve our capital structure and operate our business. In the third quarter, we also repaid $25 million of the outstanding principal balance on our revolving credit facility, ending the third quarter with $400 million drawn on the facility. We ended the quarter with $88 million of cash and cash equivalents, and we continue to believe Linzess cash flows will support our existing portfolio, including the potential aperaglutide launch, further progress our development programs, and repay our debt. Moving to Slide 13.

Based on our third quarter performance, including continued stabilization in Medicaid utilization trends, we are maintaining our full year 2024 guidance that we had issued in the second quarter. We continue to expect Linzess U.S. net sales between $900-$950 million, Ironwood revenue of between $350-$375 million, and Adjusted EBITDA of greater than $75 million. Disciplined expense management remains a priority as we seek to offset top-line revenue headwinds to optimize profits and cash flows. To summarize, Linzess demand growth is robust, and the brand's market leadership position continues to strengthen. Our goal now and for the future is to focus demand growth to maximize Linzess profits and cash flow. In addition, we're making smart decisions in clinical development to focus on therapies with a clear path to market, such as aperaglutide, that fulfill unmet patient needs.

As such, we remain focused on advancing towards approval and commercialization of aperaglutide as soon as possible. The new data presented at ACG are further evidence of aperaglutide's strong clinical profile, not only for the potential treatment of adult SBS patients who are dependent on parenteral support, but also for the significant lifecycle management opportunities that lie ahead. I want to close by thanking all of our employees, patients, caregivers, and advocates for their shared dedication to advancing and supporting therapies for GI diseases. Operator, you may now open up the line for questions.

Operator (participant)

Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Amy Li with Jefferies. Please go ahead.

Amy Li (SVP of Equity Research)

Hey, thanks so much for taking my question. Just two. We noticed that the commercial margin for Linzess is slightly up quarter over quarter. Could we see this continue to expand going forward and help offset some of the pricing headwinds? And then finally, I wanted to get your latest thoughts on the impact to Linzess from Part D redesign in 2025. How much do you actually expect Linzess to eat into the catastrophic phase given the annual WAC is around $6,500? Thanks so much.

Sravan Emany (COO and CFO)

Yeah, thanks, Amy. Good morning. So let me just start by saying we do believe there's going to be a pricing headwind in 2025. We haven't given specific guidance on 2025 at this point. We'll provide guidance full year next year, earlier in the year as we normally do. Just given how this year's kind of gone from a guidance perspective, we want to make sure we give the best possible guidance we can. And I think we'll be in a good position earlier next year. With respect to commercial margins, look, I think we're pleased with where the margins came out in the quarter, and we'll continue to manage, track expenses to draw as much profits out of the brand as we can. But right now, I think what you're seeing is a good predictor of where the brand will be for the year.

Operator (participant)

Perfect. Thanks so much. Your next question comes from the line of David Amsellem with Piper Sandler. Please go ahead.

Natalia Davis (Analyst)

Hey, thanks. So just a couple. Maybe taking a step back on Linzess and just looking at contracting in general, is there the potential for taking a fundamentally different look at contracting with payers as the product moves towards the end of its commercial life? In other words, is there the potential for renegotiation such that you try to get better net economics? Just trying to better understand what you can do to improve the gross to net thinking beyond this year. So that's number one. And then number two, regarding the commercial margins, I mean, is this a case where as the product nears the end of its commercial life, there's going to be less spend associated with Linzess such that you're just sort of managing the brand for profitability? Maybe help us better understand how you're thinking about that.

Not really a 2025 question, but just sort of longer term through the LOE. Thank you.

Tom McCourt (CEO)

Yeah. So I think as I think about where we are and where we're going, I mean, we're at a point right now where the market is in a very, very strong place, or sorry, the product is in a very, very strong place in the marketplace. The dominant player, it continues to gain share even in spite of some emerging competition. I think we're at a point now where, as we've mentioned earlier, we need to really look critically at how we continue to increase profits and cash flow. As I look at the overall investment in the brand and I look at market access and contracting as part of that, the question is, how do we balance ongoing growth, investment in promotion, and contracting? We're critically looking at all those.

There's no question at this point in time the objective is to increase the margins and the profitability, so right now, we're looking at everything from what we spend in media to our selling effort and how we contract to really maximize what we can push to the bottom line, and there's no question we will look at, we continue to look at other contracting strategies to really maximize that, including things like copay assistance, so I think all of those things right now are on the table, and we're working very closely with AbbVie, who is absolutely aligned with us to say it's time to really start looking at increasing profits and cash flow.

Operator (participant)

Your next question comes from the line of Jason Butler with Citizens JMP. Please go ahead.

Jason Butler (Managing Director and Senior Biotechnology Equity Research Analyst)

Hi. Thanks for taking the question. Just another on Linzess. When you look forward through to LOE, how do you think about the drivers of demand growth? And obviously, promotions being one of them, but I guess I'm thinking more in terms of things like breadth and depth of prescriber base and not just market share, but the patient profile of those receiving the drug. Thank you.

Tom McCourt (CEO)

Yep. I'll take that as Tom. I think there's probably three pieces to that. When you're the market leader, this is all about growing the market and capturing disproportionate share. And we've been doing that for the last several years. But we're at a point right now where the momentum is extremely strong, both with regard to the market dynamics, but also the presence of the brand. So what we have seen over the past couple of years is there's significantly more people seeking care. Obviously, in part, that's due to increased awareness of the disease that has been driven by years of DTC campaigns. And also physicians' view of who the appropriate patient is, which is also something that we spend a great deal of time educating physicians on as far as who is the right patient and is the patient appropriate for the drug.

And of course, adding the pediatric indications expanded that significantly. And as we move forward, certainly we want to continue to drive demand, but we want to do that in a far more efficient way, which we're looking at, and also other lifecycle management plays such as OTC, which clearly is on the horizon and something that we are working with AbbVie on to really understand kind of when that happens and how it happens because it is a very large market, and these tend to be very durable brands over time over the counter. So I think when I look at that, I think Linzess is in a very strong position to continue to grow. And I think we can, and I think the momentum itself will continue to carry it in the years to come. And we really need to focus on profits and cash flow.

Jason Butler (Managing Director and Senior Biotechnology Equity Research Analyst)

Great. Thanks, Tom. And then I just had one on aperaglutide. You're obviously continuing to focus on presenting data at medical meetings. Can you maybe talk about the other aspects of the commercial readiness work that you're doing now and have planned for the coming months during the regulatory review?

Tom McCourt (CEO)

Yeah. This has been ongoing for the last six to nine months. You just don't turn on a switch and go to market, as you know, and everybody on this call knows. This really focuses on how do we prepare the market, how do we prepare the brand, how do we prepare the organization. And we are very diligent in moving all of those things forward, including we're already out there in medical meetings with a disease awareness program about what is short bowel syndrome and what are the current limitations of therapies. And as we prepare the market, obviously, Mike and his team are working towards pulling together the best possible label we can.

And then, of course, we have some significant things we need to create as far as core capabilities in the organization, particularly things like a patient service hub, which really is going to be critical for pulling patients through the system, both with regard to getting them on the drug, but also keeping them on the drug, which is something that I think we'll be sharing in the upcoming months with regard to our go-to-market strategy, but also the potential value of aperaglutide, not only its attractiveness as the drug of first choice, but also the durability and the likely adherence to therapy, which then increases the overall value of each patient that's treated. And the team is working on those. And as we complete that work and move it forward, we'll be sharing that with you in the months to come.

Jason Butler (Managing Director and Senior Biotechnology Equity Research Analyst)

Thank you, Tom, and thanks for taking the questions.

Tom McCourt (CEO)

Thanks, Jason.

Operator (participant)

Your next question comes from the line of Mohit Bansal with Wells Fargo. Please go ahead.

Mohit Bansal (Managing Director and Senior Equity Research Analyst)

Question. And I have two, if I may. One is that can you help us understand the seems like the $30 million charge you took in the first quarter, seems like a lot of that is reversing. Can you help us understand the dynamic here and why it is not impacting the guidance? Because it seems like a positive impact. And then the second question is regarding the I mean, it seems like the fourth quarter, if I do the math, fourth quarter, you're expecting a decent bump in your share of profits, not as much as the top-line number for Linzess. Can you help us understand the dynamic that will play out here for fourth quarter here? Thank you very much.

Sravan Emany (COO and CFO)

Yeah, so Mohit, I don't necessarily understand the second question. Could you repeat that?

Mohit Bansal (Managing Director and Senior Equity Research Analyst)

If I look at the guidance for Linzess, it is $350-$375 million for your co-promotion profit. You did about $252 million so far in nine months. It seems like there is a bump. There is an inflection in fourth quarter. Can you help us understand what is causing the inflection?

Sravan Emany (COO and CFO)

Yes.

Mohit Bansal (Managing Director and Senior Equity Research Analyst)

It doesn't seem okay. Thank you.

Sravan Emany (COO and CFO)

Yeah. So first of all, Mohit, it's cyclical, right? And the brand's been historically cyclical that the fourth quarter tends to have more of the profit than other quarters. So that's the answer to the second question. With the first question, the first question was tied to just the adjustments we've taken. I would say that, look, there has been a small divergence about when and timing for the recording of these gross to net adjustments with respect to AbbVie, and they will even out over the course of the full year. But that's all you're seeing is just timing differences at this point in time.

Mohit Bansal (Managing Director and Senior Equity Research Analyst)

Got it. Helpful. Thank you.

Operator (participant)

Your next question comes from the line of Natalia Davis with Inserim Health Research. Please go ahead.

Natalia Davis (Analyst)

Hi. Thank you for taking my question. Just on costs, should we expect to jump in SG&A associated with the pre-launch costs for aperaglutide? And how should we think about R&D going into 2025 compared to the current year? Thank you.

Sravan Emany (COO and CFO)

Yeah. First of all, thanks for the question. I think, as I mentioned earlier, we'll give guidance on 2025 as we normally do next year. Just know that we have an existing sales force part of the rationale for acquiring aperaglutide and buying an asset that we think we could take commercial is the fact that we already have significant commercial infrastructure. We'll give guidance on where we think we will be next year for spend and launch and profitability when we give guidance.

Natalia Davis (Analyst)

Great. Thank you.

Operator (participant)

Again, if you would like to ask a question, press star one on your telephone keypad. We will pause for just a moment. Okay. Your next question comes from the line of Leerink Partners. Please go ahead.

Matt Calparan (Analyst)

Hey, guys. This is Matt Calparan from Feston Crushie. Thanks for taking my question. Just on apraglutide, how large of a sales force do you need here, and how will this work between the current Linzess team and apraglutide? Will the Linzess team start selling apraglutide as well, and if so, how overlapping or not is the prescriber base? Thank you so much.

Tom McCourt (CEO)

Yeah. I think this is the real strength that we bring to the table here is we have a very tenured and experienced sales force in gastroenterology. They continue to do a fantastic job with Linzess, as you well know. And there is a great deal of overlap with regard to which offices. There may be slightly different prescribers, but it's largely the same offices. Now, there will be some additions to that, such as large academic centers and some other areas that we would focus. But keep in mind, this being a rare disease, this is also far fewer prescribers than we're currently calling on. So I think we feel very strongly that we can easily fold apraglutide into our existing selling effort and be able to get up and running very quickly because of the strong access we have from day one.

So I think it is one of the real towering strengths that Ironwood has and brings to the table in this space.

Matt Calparan (Analyst)

Great. Thanks for the insight and taking my question.

Tom McCourt (CEO)

All right. Thank you.

Operator (participant)

We do not have any more questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.