Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) Q2 2024 Earnings Call Transcript

Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) Q2 2024 Earnings Call Transcript August 9, 2024

Operator: Thank you for standing by. My name, Celine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Q2 2024 Investor Update Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Matt Roache, Director of Investor Relations. Please go ahead.

Matt Roache: Thank you, Celine. Good morning, and thanks for joining us for our second quarter 2024 investor update. Our press release issued this morning can be found on our website. Today’s call the 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, 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, begin with a brief overview; Mike Shetzline, our Chief Medical Officer will discuss our pipeline; and Sravan Emany, our Chief Operating Officer and Chief Financial Officer, will provide a commercial update to review our financial results and guidance. Andrew Davis our Chief Business Officer is available for the question-and-answer session following our prepared remarks.

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 slide separately. With that I’ll turn the call over to, Tom.

Tom McCourt: Thanks Matt. Good morning, everyone and thanks for joining us today. We continue to make progress across our strategic priorities in the second quarter. Starting with LINZESS, prescription demand remains robust increasing 11% in the second quarter with continued strength in new-to-brand prescriptions which grew 15% versus the prior year. This marks the sixth consecutive quarter of double-digit new-to-brand volume growth underscoring that patients and providers are consistently choosing LINZESS. While demand is up LINZESS is continuing to experience pricing headwinds driven by a higher-than-expected Medicaid utilization which is impacting our U.S. net sales. As a result we are revising our full year 2024 guidance.

Sravan will speak more to the specifics on the call later. From a financial perspective even with the continued LINZESS pricing pressure we believe we are in a fortunate position with meaningful cash flows generated by LINZESS and a capital structure to support continued execution of our strategic priorities over the upcoming years. Moving to our pipeline. In May, we presented our late-breaking STARS Phase 3 data at the Digestive Disease Week meeting which was very well received. Since DDW, we’ve continued to receive positive feedback on Apraglutide’s clinical profile from physicians, key opinion leaders and patient advocacy partners. The positive feedback was reinforced through a recent advisory board meeting supporting our belief that if approved apraglutide would be the drug of choice among physicians to treat adult patients with short bowel syndrome who are dependent on parenteral support based on its differentiated profile including demonstrated efficacy tolerability and once-weekly dosing convenience.

We believe these three distinguishing factors will drive uptake, adherence and improve quality of life for patients with short bowel syndrome who are dependent on parenteral support. We also continue to make strides in our commercial planning activities for apraglutide and we are encouraged that patients identified by the recently implemented ICD-10 codes have supported our estimates of between 8,000 and 10,000 adult SBS patients who are dependent on support actually exist in the U.S. today. We believe a significant portion of these patients remain untreated by currently available therapies. The ability to identify these unique patients using ICD-10 codes is an important development to enable a more targeted and informed go-to-market strategy.

And we continue to believe apraglutide is well positioned to address the ongoing unmet needs because of its strong clinical profile including the convenience of once weekly dosing, the low incidence of both injection site reactions and GI tolerability issues and a demonstrated high rates of compliance as seen in the STARS Phase 3 study. Moreover, we are developing a robust patient service program to help drive uptake and adherence to therapy. We’re advancing our launch planning and are confident we are well equipped to commercialize apraglutide, if approved, with an established sales force with a very strong presence in offices of GI specialists across the United States. Over the past few months we’ve continued to progress towards the apraglutide NDA submission, a label focused on adult SBS, and expected to complete the filing in the first quarter of 2025.

Mike will provide additional details on our submission strategy in a few minutes. Next CNP-104 for the potential treatment of primary biliary cholangitis. We are on track to share Phase II proof-of-concept top line results this quarter, which will inform a decision on our option to acquire an exclusive license from COUR Pharma for CNP-104 in the US. Moving to our third strategic priority of delivering sustained profits and cash flow. In the second quarter, we generated $33 million of operating cash flow. Also in June, we repaid the $20 million principal amount of our 2024 convertible notes upon maturity, using a combination of cash on hand and funds drawn from our revolving credit facility. Looking ahead, we are intently focused on managing LINZESS pricing pressure to maximize profits and cash flow while simultaneously progressing our pipeline to extend Ironwood’s growth horizon beyond LINZESS.

With that, I’ll hand it over to Mike to discuss our pipeline in more detail. Mike?

Mike Shetzline: Yeah. Thanks, Tom, and good morning, everyone. I’ll start with an update on the NDA submission for apraglutide for patients with short bowel syndrome, who are dependent on parenteral support. As Tom mentioned, we’ve made steady progress in preparing the NDA submission. Our plan is to pursue a rolling NDA review. The rolling review allows us to submit completed sections of the application, as they become available and continue to engage with the agency as we proceed with the submission process. We expect the rolling review process to begin in the fourth quarter. The early modules will include the non-clinical and clinical components. As we progressed work on the regulatory filing, in conjunction with our commercial planning activities, we decided to make enhancements to the presentation of the vial kit to optimize it for commercial use.

As a result, we expect to fully complete the NDA submission in the first quarter of 2025. Moving to slide 8. As Tom pointed out, we continue to receive positive feedback on apraglutide’s clinical profile, and believe it has the potential to improve the standard of care for patients living with SBS, who are dependent on parenteral sport, based on the combination of demonstrated efficacy, tolerability, and once-weekly dosing convenience. In cell-based assays of receptor activation apraglutide retained potency and selectivity at the GLP-2 receptor, compared with native GLP-2 and teduglutide and is uniquely designed to accelerate intestinal growth for improved gut function and absorption. Apraglutide is the only GLP-2 analog to achieve a statistically significant reduction in weekly parenteral support volume with once-weekly dosing.

Patients achieved a clinically meaningful parenteral support reductions as early as week eight in the STARS Phase III study. In addition, we saw a powerful parental support volume reduction with apraglutide as some patients achieved two and three days off per week. Furthermore, seven patients were able to achieve enteral autonomy by week 24, including patients with a stoma versus none on placebo. Importantly, apraglutide demonstrated high rates of compliance and similar rates of adverse events were observed between treatment and placebo groups with no malignancies and discontinuations due to GI tolerability issues. We look forward to continuing to evaluate the robust data set from the largest ever GLP-2 study in short bowel syndrome with intestinal failure and plan to disclose further findings at additional medical meetings, including the American College of Gastroenterology meeting in October, where our Phase 3, subgroup analysis was accepted for an oral presentation.

Before moving on, I’d like to take a moment to highlight that August is a Short Bowel Syndrome Awareness Month. As part of our unwavering commitment to people suffering from SBS, I want to say, a big thank you to this rare disease community of patients, advocates caregivers, investigators, and health care professionals for their dedicated support and ongoing devotion to raising awareness around the serious and chronic malabsorptive disorder. Moving to CNP-104 on slide 9. This is a tolerizing immune-modifying mono particle for the treatment of primary biliary cholangitis, which is a rare autoimmune disease that causes the livers bile ducts to slowly deteriorate and can lead the irreversible damage and scarring of the liver, ultimately requiring liver transplant.

As a reminder, the Phase II study is a 42-patient placebo-controlled study evaluating safety, tolerability, pharmacodynamics and efficacy of CNP-104 in patients with PBC who are unresponsive to UDCA and/or Ocaliva. Top line results will be based on data through day 120 of treatment. A positive signal of liver function markers in addition to T cell response would further support the potential for CNP-104. Top line data from the Phase II proof-of-concept study in patients with PBC remains on track and we look forward to sharing top line results with you later this quarter. With that I’ll turn it over to Sravan.

Sravan Emany: Thanks, Mike, and good morning, everyone. I’ll begin on slide 11. As Tom mentioned earlier, LINZESS continued to deliver impressive demand growth in the second quarter. LINZESS volume grew 11% year-over-year in the second quarter while new-to-brand prescriptions increased 15% compared with the second quarter of 2023. On a year-to-date basis LINZESS extended units and new-to-brand volume growth increased 10% and 16% year-over-year, respectively reinforcing the patients and health care practitioners continue to choose LINZESS in a growing market. Next I’ll discuss collaborative arrangements revenue on slide 12. LINZESS US net sales as reported by AbbVie were $211 million in the second quarter. In the second quarter, Ironwood recorded a $17 million adjustment to collaborative arrangements revenue.

This $17 million adjustment is comprised of two components; Ironwood increased collaborative arrangement revenues by $30 million related to the 2023 LINZESS change in gross to net estimate that Ironwood previously reported in the first quarter as this change in estimate is now reflected in the second quarter of LINZESS US net sales as reported by AbbVie. In addition, Ironwood recorded a $13 million reduction to collaborative arrangements revenue in the second quarter to reflect Ironwood’s estimate of LINZESS gross to net reserves as of June 30, 2024. With this adjustment, Ironwood’s U.S. collaboration revenue was $91 million in the second quarter. Before moving on to our financial highlights, I’d like to take a moment to discuss what is happening with Medicaid in more detail.

Over the past few quarters we have seen growth in LINZESS Medicaid prescription volumes and an increase in Medicaid prescriptions as a percent of our overall LINZESS business. We now believe the higher-than-expected Medicaid utilization which we saw in 2023 will also be higher than expected in 2024 based on a combination of legislative and market factors which include Medicaid redeterminations having a lower-than-expected impact on LINZESS. While fewer patients are enrolled in Medicaid across the country, we have not seen that correlate to lower LINZESS utilization to-date. We have also seen state-by-state changes with some states actively expanding Medicaid enrollment eligibility and some making changes to Medicaid formulary position. Additionally, as we had shared at the beginning of the year, in 2024 we faced uncapped rebates on LINZESS Medicaid volumes from the AMCAP repeal legislation which has led to higher rebates on our Medicaid book of business than we had in 2023.

While these rebates have played out as expected to-date, higher Medicaid utilization trends that further magnified the pricing headwinds associated with the AMCAP repeal for 2024. We continue to monitor these trends closely and remain focused on maximizing LINZESS profits and cash flows and optimizing our investments as we seek to mitigate these increased pricing pressures. Now turning to our financial highlights on slide 13. Ironwood revenue in the second quarter was $94 million, a decrease of 12% year-over-year. GAAP net loss was $1 million and adjusted EBITDA was $28 million. In June, we repaid the $200 million principal of the 2024 convertible notes upon maturity using $50 million of cash on hand and $150 million draw on our revolving credit facility.

The outstanding principal balance on the revolver was $424 million — sorry $425 million at the end of June. We ended the second quarter with $106 million of cash and cash equivalents on the balance sheet. We continue to believe LINZESS cash flows will support our existing portfolio including the — apraglutide launch for the progress — on our development programs and repay our debt. Moving to slide 14. We are revising our full year 2024 guidance to reflect additional pricing risk, primarily associated with the higher-than-expected Medicaid utilization trends I just mentioned. As a result, we now expect a LINZESS US net sales between $900 million and $950 million, Ironwood revenue of between $350 million and $375 million and adjusted EBITDA of greater than $75 million.

In the second half of 2024, disciplined expense management remains a priority as we seek to offset top-line revenue headwinds to optimize profits and cash flows. To wrap-up, LINZESS prescription demand continues to be healthy, but is currently being more than offset by pricing headwinds primarily due to higher Medicaid utilization. Moving forward we remain focused on maximizing LINZESS profits and cash flows until generic entry in 2029. In terms of our pipeline, I’m excited for the future of apraglutide where we see an attractive market opportunity and have significant life cycle management initiatives ahead of us. Furthermore, we look forward to providing an update later this quarter on CNP-104 in the potential treatment of PBC. I want to thank — I want to close by thanking all of our employees, patients, caregivers and advocates for their sheer dedication to advancing and supporting therapies for GI diseases.

Operator, you may now open up the line for questions.

Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of David Amsellem with Piper Sandler. Please go ahead.

David Amsellem: Thanks. Just a few. So as you think about 2025 and maximizing the net economics of LINZESS, how do you think about — you and AbbVie think about contracting and maybe backing off widespread preferred access as a means of driving a narrower gross to net, maybe sacrificing some volumes but also driving better net economics. So just help us understand the thought process as we move beyond this year. So that’s number one. And then number two on 104, help us level set expectations in terms of what you want to see in order to move forward, and then what next steps would look like to the extent that you see an adequate efficacy signal particularly on markers of liver function? Thank you.

Sravan Emany: Sure. So Good morning, David. Hope you’re well. Why don’t we start with the second component on CNP-104, I hand that over to Mike and then Andrew will answer the second question — sorry, your first question regarding the contracting strategy. Mike?

Mike Shetzline: Yeah. Thanks, David. Yes, the primary thing we’re looking at really is in the top line results for the T cell response. We certainly believe that the T cell response and T cell effects will be a leading indicator of the clinical benefit and we’ll also then evaluate several markers of liver function. And the linkage, obviously, between the T cell response and liver function is also equally important for us to look at. As I said we’re on track to deliver that this quarter. What comes after that is a little bit premature at this stage right? This is the first-in-human study proof-of-concept study. We certainly look to learn a lot. But again, we did the deal primarily because we thought we’d have a good look at this T cell response and that this T cell response could be a leading indicator for clinical outcomes. So until we get that, we’ll have to wait on what to determine to do after that.

Sravan Emany: Thanks, Mike. And then Andrew will respond regarding the contracting question.

Andrew Davis: Yeah, David thanks for the question. I mean, I think the point is net economics definitely is key for us as we look across the book of business from here to LOE. So I think that’s fine as we look at our contracting strategy both for next year and the future. We’ll really be looking at what the net economics that get driven over the life of the product.

Operator: The next question comes from the line of Amy Li with Jefferies. Please go ahead.

Amy Li: Hey, thanks so much for taking our question. On apraglutide given the Q1 2025 submission completion time line, do you still expect launch in 2025? And then also can you give us some color on how you are optimizing the commercial use kit? I know you alluded to it earlier. Is there going to be any formulation changes, format changes? Any color would be super helpful.

Sravan Emany: Yeah, sure. Thanks Amy, good morning. I’ll take those questions. Look I think our view on approval could occur in 2025 or early 2026 depending on whether we receive priority or standard review. I think that standard review will be early 2026 from our perspective. With respect to the kit, look I think it’s industry — it’s common industry practice that what’s used commercially is different than what’s used in clinical trials. I think we view — we take a very long view on apraglutide here as we have IP out into the 2040s. And we want to make sure that the launch is as successful as possible. And so we’ve — as we conducted human factor trials, we’ve learned ways to make the commercial bile kit presentation easier for patient use and we’re implementing those changes. And so not to get into a lot of detail, but I think the goal here is to make it easier for patients to administer themselves.

Amy Li: Excellent. Thanks so much.

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

Mohit Bansal: Great. Thank you very much for taking my question. And I have two different questions. So one is it does seem like that the pricing pressure is more than you anticipated in last quarter. You said that it seems like earlier than anticipated and you did anticipate this pricing pressure starting 2025. So that’s why like I think last quarter it was more like 2025 and onwards it should be similar to what you were previously expecting. But has anything changed in that thought process now that — like how should we think about the revenue growth trajectory versus 2024 from now at this point? And then the second question is regarding CNP-104. Can you just remind us like when you saw the healthy voluntary study, which COUR did what kind of T cell responses they saw in those patients? And how could they — how could — how do you correlate that with the sickle patient trial?

Sravan Emany: So Mohit could you repeat the second part of that question? Did you — was the question that the T cell response that COUR saw?

Mohit Bansal: Yeah. I think that was the study. I don’t know, it was a healthy voluntary study? Or was it — I think it was a PBC study as well, right? I cannot recall. It was a 40-patient study, right?

Mike Shetzline: Yeah, I can just put in some pieces of information I mean this is the first-in-human study for CNP in PBC patients, this 42-patient study. There’s no other clinical data set. You may be referring to a study many years ago that was done with the COUR platform in celiac. That data was — yes, celiac is a different autoimmune disease. It’s a poly kind of valent autoimmune disease right gliadin the peptides of insults right for celiac have a lot of different epitopes and it’s driven by a lot of different deamidated gliadin peptides and you can also externally challenge those T cells with gluten differently than the T cells that are primarily in the liver for PBC. So there are differences across those two diseases.

But we certainly think our approach is a valid way to look at the potential benefit of this platform technology in the autoimmune disease like PBC. We’re certainly using different techniques given the T cell — antigen-specific T cell responses, but that’s sort of how it plays out on the different diseases.

Sravan Emany: Yes. And then Mohit, with respect to the guidance, look, in Q1 I think as we mentioned, we did anticipate higher utilization for the full year 2024 and that was our best estimate at the time. Since Q1, we’ve seen higher than – even higher than anticipated Medicaid utilization of LINZESS and felt that it was prudent to revise guidance. And therefore, you can see we’ve meaningfully modified our guidance to account for that even higher utilization. And that’s driven again by the three things we talked about, which is even though there are less patients on Medicaid LINZESS use continues to increase in terms of our business in terms of share. The AMCAP removal is pretty significant. And then there’s also just changes that are occurring on the state level with respect to enhanced –increased eligibility and then also, just formulary changes.

So, all of that has just led to an even greater increase than we anticipated at the start of the year for the book of business.

Mohit Bansal: Got it.

Operator: [Operator Instructions] Your next question comes from the line of Jason Butler with Citizens JMP. Please go ahead.

Jason Butler: Hi. Thanks for taking the question. Just a couple on apraglutide. Can you just talk about what the remaining gating items are to submitting the BLA and 1225? And then just as you continue to get ready for launch what is the work that you’re doing? What is the feedback that you’re getting from potential prescribers on the data?

Sravan Emany: Yes. Great. Mike, do you want to tackle that one in terms of outstanding remaining items of trial?

Mike Shetzline: Sure. Yes. So for — in terms of what’s going on we’ve obviously made steady progress in preparing the NDA. We’ve had a focus obviously the quality of data package. The early modules that we’re working on now will include the non-clinical and clinical components. We’ve continued to progress on the regulatory filing in conjunction with the commercial planning activities. Also have some additional information we’ve been giving as we talked about in terms of the best application of how to pursue the vial. We decided to make those enhancements to the presentation of the vial to optimize it commercially, and we’re in the process of finalizing, the commercial supply chain and the supporting documentation for the CMC components of the application. And as I said, we — as Tom and I both said, we expect to complete that in the quarter — first quarter of 2025.

Sravan Emany: And then, with respect to the feedback, Mike on clinical profile from physicians and other key opinion leaders.

Mike Shetzline: Yes, we’ve gotten great — we continue to get great feedback from externals whether they be, prescribers people the KOLs the key opinion leaders thought leaders in the area. They really are quite impressed with the fact that we are the first and currently only once-weekly to hit the primary endpoint in SBS-IF. That was a pretty significant achievement. They certainly — I think our tolerability profile is excellent as well. As Tom mentioned, we had an ad board to review that with a lot of externals and prescribers and really was very well received. So there’s quite a lot of enthusiasm out there and we’re looking to continue that engagement with the prescribers and the community and push forward to submission to get to market as early as possible.

Tom McCourt: Jason, this is Tom, and I’ll ask Andrew to jump in here as well. But as we think about next steps this is really about preparing the market preparing the organization for a successful launch. We’ve already initiated some disease awareness programs. This is really about identifying patients and making sure that we get patients into the programs, these patient support programs, to get them on therapy as quickly as possible and retain them. One of the really big pieces of data that we — nobody ever had access to is this implementation of the new ICD-10 codes, which are actually labeling a lot of these patients. And it’s validated how many patients are really out there. But it also allows us to target and really guide our go-to-market strategy which is data that didn’t exist before.

So as the commercial team continues to evolve its go-to-market strategy, we’re going to do our best to increase the overall awareness of the disease, proactively identify the patients and their location and then how do we align that with our commercial capabilities including certainly the sales force that’s already in these offices, many of these offices and these patients hub services which is really going to be critical to be able to pull the business through. I don’t know, Andrew, if there’s anything else you’d like to comment beyond that?

Andrew Davis: No. I think you nailed it. I think we’re excited here, Jason. I think we’re getting great feedback.

Operator: Your next question comes from the line of Tim Chiang with Capital One. Please go ahead.

Tim Chiang: Thanks. Mike, could you talk a little bit about how much interaction or discussion you’ve had with patient advocacy groups in the short bowel syndrome disease area with apraglutide? I mean, what sort of responses have you gotten so far? And then just sort of — have you already started to talk with payers on apraglutide?

Mike Shetzline: Yes. Thanks, Tim. Go ahead, Sravan.

Sravan Emany: I apologize. Go ahead.

Mike Shetzline: Yes. So we certainly have a strong link with the patient advocacy groups. This is a disease that has a very vocal and actually long-standing advocacy among patients who started way back decades ago five of them with Oley Foundation. So there’s a lot of good networking out there by patients. And the feedback we’ve gotten from patients is very enthusiastic. Many have participated in our trial. The compliance in our trial has been very high. People have talked about how nice if I could say it that way the drug is from a utilization perspective. They don’t suffer some of the adverse effects that they know other agents might be a little more common at achieving. So that overall has been very, very good. And obviously the weekly administration is just a big bonus in terms of — you don’t — if you’re not on parenteral support seven days a week and you have to take something every day, that’s one position.

But if you really only on a parenteral support four or five days a week, you have to take something more than that can be a little bit more work than you might want to do. And so the opportunity for the patient population to just have a weekly administration, really broadens the utility across the SBS-IF community. But in general, I could say it’s been very, very positive.

Tim Chiang: Okay. Great. And Sravan, I have one follow-up, just on the LINZESS JV. Commercial margins, I think they were what 62% this quarter. Do you think that number can stay at around that figure in the back half of this year?

Sravan Emany: Yes. So look, from a commercial margin perspective, I think since the spin, Tim, I think the company has been very focused on maximizing the brand profit and then improving it as much as possible. I think we had opened this year I think the — based on our guidance we thought would be close to 70%. And I think our goal is — I think our guidance reflects our best estimate in terms of our profit as of now and where we sit today.

Tim Chiang: Okay. And I know you did comment about the $17 million gross to net adjustment. But you’re not going to get that in future quarters this year. Is that right?

Sravan Emany: Well I think the point of that is that we’ve adjusted our guidance down to $900 million to $950 million of net sales or LINZESS accounting for increased Medicaid utilization throughout the back half of the year.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.