Ironwood Pharmaceuticals - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $90.5M versus $117.6M in Q4 2023 as lower U.S. LINZESS net sales and commercial margin compressed collaboration revenue; GAAP EPS was $0.02 and adjusted EBITDA was $33.8M, capping FY’24 at $351.4M revenue, $1.8M GAAP net income and $100.6M adjusted EBITDA.
• IRWD reiterated 2025 guidance: U.S. LINZESS net sales $800–$850M with high single‑digit Rx growth more than offset by Medicare Part D price headwinds; total revenue $260–$290M; adjusted EBITDA (ex‑SBC) >$85M; new adjusted EBITDA definition excludes stock‑based comp beginning 1Q25.
• Structural reset underway: ~50% workforce reduction to streamline to apraglutide, with $20–$25M restructuring charges (mostly 1H25) and $55–$60M annual opex savings (net $40–$45M profit benefit).
• Apraglutide: rolling NDA initiated; submission completion targeted for Q3 2025 (from prior Q1 2025 commentary), bolstered by STARS Extend data showing 27 apraglutide‑dosed patients achieving enteral autonomy to strengthen the package.
• Balance sheet: year‑end 2024 cash $88.6M; revolver balance $385M; management highlighted ~$254M total liquidity (cash + undrawn revolver) and intent to remain in covenant compliance while paying down debt.

What Went Well and What Went Wrong

What Went Well

• LINZESS demand remained resilient: Q4 Rx demand grew 12% y/y to 56M capsules and 11% for FY’24 to 212M capsules; new‑to‑brand volume grew 11% in Q4 and 14% for FY’24, supporting durable brand leadership despite pricing pressure.
• Apraglutide clinical momentum: STARS Extend analysis now shows 27 patients achieving enteral autonomy with longer exposure, reinforcing the clinical profile and supporting inclusion of additional extension data in the NDA.
• Cost discipline and profit delivery: Achieved FY’24 guidance with adjusted EBITDA of $100.6M and delivered Q4 adjusted EBITDA of $33.8M while repaying $15M of revolver, demonstrating cash generation and expense control into year‑end.

Management quotes

• “We believe that 2025 marks the beginning of a transformation for Ironwood… streamlining our business operations and advancing the clinical development of apraglutide”.
• “Our confidence in apraglutide continues to grow… these results show a continued increase in clinical benefit over time, with 27 total apraglutide‑dosed patients achieving enteral autonomy”.

What Went Wrong

• Pricing headwinds compressed brand economics: Q4 U.S. LINZESS net sales declined 19% y/y to $223.0M, commercial margin fell to 64% (77% in Q4’23), and U.S. brand collaboration net profit fell 33% y/y to $135.2M—driving a 22% y/y decline in Ironwood’s collaboration revenue to $88.4M (despite a +$7.2M gross‑to‑net reserve adjustment).
• 2025 outlook shaped by price reform: Guidance assumes high single‑digit LINZESS Rx demand growth but expects it to be more than offset by Medicare Part D redesign headwinds, weighing on net sales and IRWD revenue conversion.
• R&D leverage lag until 2026: Management does not expect R&D to decline y/y in 2025 given extension and CMC work for apraglutide, suggesting opex leverage from R&D likely begins in 2026, not 2025.

Transcript

Operator (participant)

My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Fourth Quarter 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. Thank you. I would now like to turn the call over to Greg Martini, Chief Financial Officer. Please go ahead.

Greg Martini (CFO)

Good morning, and thanks for joining us for our Fourth Quarter and Full Year 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. Mike Shetzline, our Chief Medical Officer, will discuss our pipeline, and I will provide a commercial update and review of our financial results and guidance. Today's webcast includes slides, so for those of you dialing in, please go to the Events section of our website to access the accompanying slides separately. With that, I'll turn the call over to Tom.

Thomas McCourt (CEO)

Good morning, everyone, and thanks for joining us today to review the fourth quarter and full year 2024 financial results and business updates. We're entering 2025 with a streamlined focus on advancing apraglutide and realizing its potential to significantly expand the market in GLP-2 treated patients with short bowel syndrome who are dependent on parenteral support. Recent data from our open-label extension study, which is called STARS Extend, further reinforce and strengthen our confidence in apraglutide's potential to become Ironwood's next blockbuster therapy. Last month, we shared an analysis showing that 27 total patients achieved enteral autonomy, or in other words, achieved independence from parenteral support while on apraglutide. These data are important when thinking about the impact apraglutide can have in this patient population and demonstrate apraglutide's potential to provide patients with either longer periods away from or complete freedom from parenteral support.

Building on these promising results, we're planning to include additional analysis based on exposure time from the long-term extension study into our NDA submission package to support an even more robust, clinically differentiated, and comprehensive data package to the FDA. As we recently announced, we have initiated the rolling submission of our NDA and expect a complete submission in the third quarter of 2025. If approved, apraglutide will become the first long-acting GLP-2 to market for short bowel syndrome patients who are dependent on parenteral support, providing a new treatment option with the convenience of once-weekly dosing. Aligned with this next phase of growth, we have restructured our business to focus on bringing apraglutide to market, strengthening our commitment to advancing care for patients with short bowel syndrome.

We believe these changes we've made position us for future growth, long-term value creation, and ultimately reinforce our commitment to bringing new medicines to patients with rare disease. We have a strong team in place to drive the success of apraglutide if approved. Our commercial efforts, led by Tammi Gaskins, our newly appointed Chief Commercial Officer, and she is supported by an experienced team with expertise in key functional areas of commercialization in both GI and rare disease, and we're actively preparing for a potential commercial launch. Unlike LINZESS, launching a treatment for rare disease like short bowel syndrome requires a targeted approach, and through our extensive market assessment, we now know that this is a much smaller, rare disease-focused prescriber base, primarily located in short bowel syndrome centers of excellence, where the majority of patients are managed.

With these insights in mind, we plan to implement a robust patient support service model, one that ensures seamless care from the point of prescription to treatment authorization, delivery, initiation, and ongoing utilization of apraglutide. While apraglutide is our focus for the future, LINZESS remains a critical part of our portfolio, helping millions of adults with IBS-C and chronic constipation. Even after 12 years, demand continues to grow, further solidifying LINZESS as the prescription market leader. In the fourth quarter of 2024, we saw a 12% increase in prescription demand growth compared to the fourth quarter in 2023 per IQVIA, and 11% prescription demand growth for 2024 year over year. New-to-brand volume growth was 11% for the fourth quarter of 2024 and 14% for the full year. This marks the eighth consecutive quarter for double-digit new-to-brand volume growth, demonstrating that patients and providers continue to choose LINZESS.

For the full year of 2024, we achieved our latest 2024 financial guidance, delivering $916 million in net sales. Based on IQVIA's script data, we are starting to see Medicare utilization, a headwind in 2024, stabilize as a % of our book of business in the second half of 2024. As we look ahead to 2025, we expect to continue to see continued strong demand growth with LINZESS while also anticipating pricing headwinds and therefore have a focused investment to continue to drive profits. We expect the cash flows from LINZESS will continue to sustain future capital needs to fund the next stage of growth for Ironwood, namely the commercial approval and launch of apraglutide for short bowel syndrome patients who are dependent on parenteral support.

Before I turn the call over to Mike to talk about apraglutide and short bowel syndrome in more detail, I want to take a moment to express our gratitude to our colleagues and partners in the physician, healthcare provider, and patient community. February is Rare Disease Month, and as we work towards our goal of developing and commercializing life-changing therapies for patients with GI and rare diseases, we also seek to increase awareness for the people we serve, who are at the center of our work year-round. Without their commitment and your commitment and engagement, we would not have been able to run the largest-ever short bowel syndrome intestinal failure trial with apraglutide. Short bowel syndrome is a devastating condition that we thank you for your trust in us as we work urgently to deliver this important medicine to short bowel syndrome patients who are dependent on parenteral support.

With that, I'll turn it over to Mike. Mike.

Michael Shetzline (CMO)

Thanks, Tom, and good morning, everyone. We're pleased to have initiated our rolling NDA submission earlier this year, which we expect to be completed in the third quarter of 2025. I wanted to dive a bit deeper into the opportunity around apraglutide and the compelling data generated from the STARS Phase III clinical trial, including additional data from the open-label extension study STARS Extend. Short bowel syndrome with intestinal failure results from severe organ failure due to a reduction in intestinal function below the minimum necessary for adequate nutrition and fluid absorption, leading to a dependence on parenteral support or the IV administration of fluid and nutrients to maintain health, growth, and survival. Approximately 18,000 adult patients are impacted by this disorder across the U.S., Europe, and Japan. This condition is associated with increased mortality, significant morbidity, high economic burden, and reduced quality of life.

Intervention with parenteral support comes with its own challenges affecting quality of life. Parenteral support can be required for 10 hours a day and six days a week on average. Due to the significant patient burden, reducing the number of days and/or the hours a day per week on parenteral support is extremely important to patients and their healthcare providers. Apraglutide is uniquely designed to accelerate intestinal growth for improved gut function and intestinal absorption. Apraglutide is the only GLP-2 analog to achieve a statistically significant reduction in weekly parenteral support volume with once-weekly dosing. In the STARS phase III study, patients also achieved clinically meaningful parenteral support volume reductions as early as week eight. Additionally, as previously presented, some patients achieved two and three days off of parenteral support per week, and a portion of patients achieved enteral autonomy in the STARS phase III study.

Enteral autonomy is when individuals no longer require parenteral support, a significant life-changing milestone for patients and their families in their treatment journey. We're now seeing even more patients achieving enteral autonomy in our extension study, further reinforcing apraglutide's clinical profile. As Tom mentioned, based on an analysis we shared in January, 27 total patients treated with apraglutide achieved enteral autonomy. Beyond that, we continue to see encouraging trends in parenteral support volume reduction more broadly with longer exposure to apraglutide. We're excited by this growing body of clinical evidence that we believe supports apraglutide's potential if approved to become the first long-acting once-weekly GLP-2 therapy for the treatment of short bowel syndrome. With that, I'll turn it over to Greg to review our financials. Greg.

Greg Martini (CFO)

Thanks, Mike. We ended 2024 in a strong financial position, achieving our 2024 full-year guidance. Our business continues to be supported by strong LINZESS prescription demand. We saw 11% full-year 2024 prescription demand growth and recognized $223 million in LINZESS U.S. net sales in the fourth quarter and $916 million for the full year. Ironwood recorded $88.4 million in collaborative arrangements revenue in the fourth quarter of 2024 and $340.4 million for the full year. As you can see on slide 11, in 2024, LINZESS continued to deliver strong double-digit extended unit and new-to-brand prescription demand growth. The continued strong prescription demand growth bolsters our confidence in the strength of LINZESS over time and the expectation that LINZESS will drive meaningful cash flows moving forward to fund the next stage of growth through the advancement of apraglutide. Turning to slide 12 to review full-year 2024 financial highlights.

Total revenue was $351.4 million. GAAP net income was $1.8 million, and adjusted EBITDA was $100.6 million, which includes stock-based compensation. As a reminder, we have provided 2025 financial guidance for adjusted EBITDA, excluding stock-based compensation expense, and we'll be moving to this new definition beginning in the first quarter of 2025. We ended the full year 2024 with $88.6 million of cash and cash equivalents on the balance sheet. In the fourth quarter, Ironwood repaid $15 million of debt, ending the year with $385 million drawn on our credit facility. Over the past 12 months, in the midst of pricing headwinds in 2024, Ironwood reduced its total debt balance outstanding by roughly $115 million. As of December 31, 2024, Ironwood had access to roughly $254 million in liquidity between the $88.6 million of cash on hand and $165 million undrawn revolver capacity.

In 2025, we remain focused on delivering sustained profits and cash flows to fund the advancement of apraglutide and repaid debt to strengthen our balance sheet. Moving to financial guidance on slide 13. We are reiterating our 2025 guidance at this time. This includes U.S. LINZESS net sales between $800 million and $850 million. We expect LINZESS prescription demand to remain strong with high single-digit prescription demand growth. This strong demand growth is expected to be more than offset by pricing headwinds associated with the Medicare Part D redesign that went into effect earlier this year. We expect Ironwood revenue between $260 million and $290 million. As a reminder, Ironwood recognizes collaborative arrangement revenues from LINZESS as a portion of commercial profits, which includes an add-back for Ironwood selling and marketing expenses.

We expect adjusted EBITDA, excluding stock-based compensation, of greater than $85 million, which reflects a roughly $55 million decrease from 2024 operating expenses, primarily within SG&A, driven by the reorganization actions announced last month. In summary, we have taken actions to continue to generate profits and cash flows, pay down debt, strengthen our balance sheet, and support the advancement of apraglutide in 2025, and to position the company for long-term growth. We are increasingly encouraged by the positive body of clinical evidence that we believe supports apraglutide's potential to meaningfully change the treatment paradigm for short bowel syndrome and become our second blockbuster therapy. We are working diligently to complete our NDA submission by the third quarter of 2025, and pre-launch planning is well underway to support the commercialization of apraglutide upon approval by the FDA.

I want to close by thanking all of our employees, patients, caregivers, and advocates for their shared dedication to advancing life-changing therapies for patients with GI and rare diseases. Operator, you may now open the line for questions.

Operator (participant)

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you're called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star one to join the queue. Your first question comes from the line of Chase Knickerbocker of Craig-Hallum. Your line is now open.

Chase Knickerbocker (Senior Equity Research Analyst)

Good morning. Thanks for taking our questions. Just first for me, I get it's kind of early after just taking these headcount changes, but can you speak to the confidence you have in any initial learnings now that you've went to more virtual-based marketing, at least personally with yourselves, around the confidence you have on high single-digit volume growth this year without that in-person promotion from the Ironwood side? Thanks.

Tom, do you want to take that?

Thomas McCourt (CEO)

Yeah, sure. Thanks, Chase. As you know, we still have a very solid marketing mix supporting and driving the growth of LINZESS. We still have a number of AbbVie sales personnel in really the key offices. At this point, it's a lot of the consumer advertising that's probably driving the ongoing growth. Certainly, when we look at ROIs, it tends to look very, very positive. This is something that we've continued to refine over time. If you think about where we were three, five years ago, we basically cut our selling effort more than by half. We've also pulled back on the media buy, the increase of the bottom-line profit of the drug. We have not seen any evidence that demand is slowing down. We're seeing that so far out of the gate. It's early.

The numbers, as you know, do not always line up year over year. We are still seeing very, very strong momentum on the brand. I think as long as we can maintain broad payer access, I do not see that slowing down. When you have a brand in a market that has almost 50% market share, it is really hard for an emerging competitor to really capture share around you or away from you. We are actually continuing to see either maintaining or increasing our market share, even in the face of multiple competitors over the last four or five years. I think we feel very confident in the single-digit demand growth. We will be certainly watching what is going on with our payer mix to really better understand what kind of exposure we have as the year goes on.

I think we feel very confident in the guidance we've given, that it's very achievable, and hopefully, we'll do everything we can to exceed it.

Chase Knickerbocker (Senior Equity Research Analyst)

That's great, Tom. Thanks. Greg, maybe just a couple on the model. First, if we think about kind of the cadence of cost saving, should we be kind of assuming that Q1 has a fairly full kind of recognition, at least on a run rate basis, of kind of those cost savings? Just second, on the R&D line, as these kind of trial activities start to roll off, I mean, when should we be kind of modeling a decrease in R&D? Is it back half of 2025? Is it in 2026? Just help us think about expenses.

Greg Martini (CFO)

Yeah. Thanks, Chase. In terms of the cost savings actions that were taken last month, first quarter, we won't see the full impact because these actions were taken at the end of January. You will really start seeing that full run rate in Q2 for the rest of the year. As you think about R&D, really, R&D for 2025 would not expect to see a decline really year over year, specifically with apraglutide and the ongoing extension study, and also some of the CMC activities that we are continuing to complete as we move forward and prepare for a commercial launch. The 2026 is where we would start to see some of that inflection in terms of overall R&D spend. We will provide more details on that as we get closer to 2026.

Thomas McCourt (CEO)

I think it's important to mention, Chase, too, on the long-term extension. As Mike mentioned earlier, I mean, as we continue to actively follow these patients, we're seeing ongoing reduction in parenteral support and even enteral autonomy. I think this is a really solid investment for us to really further understand the potential benefit that these patients can occur over time. Certainly, that obviously strengthens the overall profile of the drug.

Chase Knickerbocker (Senior Equity Research Analyst)

Got it. Last thing from me, Greg, I'll hop back in queue. Can you just kind of speak to the confidence around maintaining compliance on the covenants around the revolver? It gets a little bit complex. I think it would be kind of helpful to walk through a little bit of the detailed math on some of those add-backs if you'd oblige. Thank you.

Greg Martini (CFO)

Yeah. Absolutely. Thanks, Chase. I think just broadly speaking, we have a high degree of confidence in our outlook of 2025. With our financial guidance, we will be able to continue to maintain covenant compliance throughout the year and have a very high degree of confidence there. We did adjust the adjusted EBITDA definition, as I noted in the prepared remarks, to give a little bit more clarity about some of the key adjustments we have with those debt covenants, specifically with stock-based compensation. There are other add-backs, and I can't necessarily go through all of them in detail, but there are other add-backs that do give us additional room and comfort with being able to achieve those covenant amounts for our debt throughout 2025.

It is something we're very much focused on and very focused on disciplined expense management to continue to drive profits and cash flows with those covenants in mind.

Chase Knickerbocker (Senior Equity Research Analyst)

Thanks, guys.

Operator (participant)

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

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

Hi. Thanks for taking the question. Just had one on the long-term data for apraglutide. Can you maybe speak to the patient characteristics of those patients reaching or achieving enteral autonomy? I guess, were you seeing this from both CIC and stoma patients? How does this compare to the double-blind period of the study where I think it was about seven patients achieved enteral autonomy? Have any of those patients maintained enteral autonomy for the entire period? Thank you.

Michael Shetzline (CMO)

Yeah. Thanks, Jason. Thanks for your question. In terms of the patients achieving enteral autonomy, we really benefit from the fact that we have completed the largest ever done phase three program in SBS-IF. SBS-IF, as you know, is a very heterogeneous syndrome patient disease. Having that large patient population really gives us an opportunity to look at a broad spectrum of the patients and their outcomes. To direct your question to enteral autonomy, we certainly are seeing patients achieve enteral autonomy on both stoma and CIC. We'll actually roll out the details on the whole population. That's one of the things we're putting together for this submission because we know that's an important question for all of us in terms of understanding the critical benefit to this patient population. It's fair to say that it is in all of the secondaries.

We presented some of this data last year too. In all the secondaries that look at subpopulations across SBS-IF, we really do always see a numerical benefit with apraglutide. We really do think the patient population that we're targeting is the right one, meaning the broad patient population with short bowel syndrome and intestinal failure. In terms of the double-blind data, you probably recall that initially we saw enteral autonomy achieved at 24 weeks, and that actually included stoma patients as well. By the end of 48 weeks, we had roughly 10 patients achieve enteral autonomy. The 27 comes from adding in the STARS Extend data, which is the 012 study, which is the extension study.

That brought that number up, obviously, to a very meaningful number of 27, which really, in aggregate, is a pretty robust outcome if you look at other comparator products in terms of how many patients are achieving enteral autonomy. The patients who achieved enteral autonomy in the double-blind period carry on into the extension program. We are really seeing good fidelity. Once patients achieve enteral autonomy, they maintain it.

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

Great. Thank you for taking the question.

Operator (participant)

Your next question comes from the line of Amy Li of Jefferies. Please go ahead.

Hi. This is Kathy on for Amy. Congrats on the quarter. I guess I was wondering, as we think about the timing of the Medicare Part D redesign impact, is it fair to assume that the impact to LINZESS revenues won't be until the second half of 2025 since LINZESS is low-cost and it takes time for patients to get into catastrophic coverage?

Greg Martini (CFO)

Yeah. Thanks, Kathy, for the question. I think the key for us is our full-year guidance obviously takes into account our expectations for this redesign for the full year. I think there is an element of timing here where we will have to see how prescription demand trends and ultimately the tiering within Medicare Part D plays out over the course of the year. I do think each quarter we move forward, we'll have better insights into what the potential price exposure is. We feel very confident that our guidance range appropriately accounts for the trends and the expectations we have for the year.

Okay. Great. Thank you.

Operator (participant)

Your next question comes from the line of Faisal Khurshid of Leerink Partners. Please go ahead.

Matthew Cowper (VP of Equity Research)

Hi, guys. This is Matt Cowper for Faisal Khurshid. Thanks for taking my questions. Just a couple for me. How should we be thinking about the launch expenses for apraglutide, both in terms of magnitude and timing, and what levels are contemplated in the 2025 adjusted EBITDA guide? Second question, just what options exist around the 2026 convert and how is the company thinking about managing that? Thank you.

Greg Martini (CFO)

Thanks, Matt. I can take both of those. In terms of the commercial launch expenses, we have been working on commercial planning activities from 2024 and will continue that into 2025. I would say at this point, they are not significant expenses within the overall P&L, and we would expect to see a bit of a ramp up as we get closer to launch in 2026. We will provide additional details on exactly what that spend looks like as we get closer to that timing. In terms of the 2026 convertible notes, this is something that we continually evaluate our capital structure in the context of our overall forecast and outlook. We are very much focused throughout 2025 on strengthening our balance sheet with the intent on driving profits and cash flows to repay our existing debt.

We will provide additional details as we make decisions on any further actions on our balance sheet. At this point, we really want to focus on driving cash flows to repay our outstanding debt.

Matthew Cowper (VP of Equity Research)

Got it. Thank you.

Operator (participant)

Your next question comes from the line of David Amsellem of Piper Sandler. Please go ahead.

David Amsellem (Managing Director and Senior Research Analyst)

Hey, thanks. I joined late, so maybe you already addressed this. Can you just talk more broadly about the cost structure? It's not so much about your ability to launch apraglutide, but the extent to which you can extract more savings. I know you had the recent restructuring, maybe talk more about how you're thinking about further streamlining just given the state of the capital structure. Thanks.

Greg Martini (CFO)

Yeah. Thanks, David. In terms of cost structure, I think we feel very good about our outlook, as I mentioned, in terms of 2025 and the actions we've taken to really focus on profits and cash flows in '25. As we move forward, we'll continue to evaluate other alternatives to really prioritize investments focused on those investments we think will drive a best long-term value. That includes the Ironwood P&L as well as the overall LINZESS brand investment in conjunction with AbbVie. At this point, I think we've communicated everything that we can at this time on what we plan to do for 2025, and we'll continue to evolve that as we move forward in 2026 and beyond.

David Amsellem (Managing Director and Senior Research Analyst)

Okay. Thank you.

Operator (participant)

Ladies and gentlemen, that concludes our Q&A session and today's call. Thank you, everyone, for joining. You may now disconnect.