Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) Q4 2023 Earnings Call Transcript

Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) Q4 2023 Earnings Call Transcript February 15, 2024

Ironwood Pharmaceuticals, Inc. misses on earnings expectations. Reported EPS is $-0.01 EPS, expectations were $0.2. IRWD isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Ironwood Pharmaceuticals Fourth Quarter and Full Year 2023 Investor Update Call. [Operator Instructions]. And finally, I would like to advise all participants that this call is being recorded. Thank you. I’d now like to welcome Matt Roache, Director of Investor Relations to begin the conference. Matt, over to you.

Matt Roache: Thank you, Gavin. Good morning, and thanks for joining us for our fourth quarter and full year 2023 investor update. Our press release issued this morning can be found on our website. Today’s call and accompanying slides include forward-looking statements. 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, 2022, and our quarterly report on Form 10-Q for the quarters ended June 30, 2023, at September 30, 2023, and in our subsequent SEC filings. All forward-looking statements speak as of the date of this presentation, we undertake no obligation to update such statements.

Also included our 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 Sravan Emany, our Chief Financial Officer, to provide a commercial update and review 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 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. I’m absolutely delighted to share with you the progress we made in 2023 and why we believe our future is bright. We made important progress in 2023 toward realizing our vision of becoming the leading GI health care company in the industry. I am very proud of the Ironwood team and the significant headway we made in 2023 across our three strategic priorities, which are: maximize LINZESS, advance our GI pipeline and deliver sustained profits and cash flows. As we turn our attention to 2024, I’m confident in our strategy and look forward to what we expect to be an exciting and transformational year for our company. Let’s begin on Slide 6 with a brief overview of some of our key achievements against our strategic priorities in 2023.

And First, maximizing LINZESS. In its 11th year on the market, LINZESS had another terrific year as the leading prescription treatment for adults with IBS-C and chronic idiopathic constipation. In 2023, prescription demand increased a robust 10% year-over-year. New-to-brand prescriptions ramped up significantly, increasing 15% compared to 2022, which we believe is a key indicator for future growth potential. In addition, LINZESS reached an all-time high of 46% in TRx share in the combined branded and generic IBS-C and chronic idiopathic constipation market strengthening its market leadership. And in June of 2023, LINZESS received FDA approval for the functional constipation in pediatric patients ages six to 17, becoming the first and only approved prescription therapy for this patient population, an achievement we’re incredibly proud of.

Moving forward, our focus remains on continuing to grow LINZESS subscription demand and delivering strong brand profits and cash flow. Next, advance our GI pipeline in areas of high unmet need. Last year, we strengthened our GI pipeline with the acquisition of VectivBio, including its lead asset, Apraglutide as the next-generation, long-acting GLP-2 analog, we believe Apraglutide, if successful, has the potential to become the standard of care in treating patients with short bowel syndrome dependent on parenteral support based on its clinical profile and the potential convenient once-weekly dosing. If approved, we believe Apraglutide can achieve $1 billion in peak net sales. Apraglutide’s unique pharmacologic properties and strong clinical data to date, including the positive data from the STARS Nutrition study gives us confidence in the STARS Phase 3 study which will let on track to read out in March.

In addition to Apraglutide, we’re also excited about the progress of CNP-104, a potential disease-modifying therapy for the treatment of primary biliary cholangitis or PBC. Late last year, we completed an early analysis that showed evidence of favorable T-cell responses in patients treated with CNP-104 supporting the mechanistic rationale for the asset, which we believe could positively impact disease progression in PBC. We’re looking forward to the top-line Phase 2 data in the third quarter. We believe both Apraglutide and CNP-104 have the potential to improve standard of care and the quality of life for patients suffering from these serious GI diseases with key data expected this year. Our third priority is to deliver sustained profits and cash flow.

We’re committed to being thoughtful and disciplined in our capital allocation as we strive to grow the business, achieve our vision and deliver value to patients and shareholders. Looking ahead to 2024, we expect to deliver greater than $150 million in adjusted EBITDA, while continuing to progress multiple clinical programs with the potential to deliver long-term growth. We believe the positive momentum across the pipeline programs, combined with the continued strong performance of LINZESS uniquely positions us for success of our mission to be the leader in GI. We’re excited about the key near-term data catalysts, which we believe will present the opportunity to propel Ironwood’s growth and create value for patients and shareholders for years to come.

At the end of this month, we will be celebrating rare disease day. I’d like to take this opportunity to say a special thank you to all the employees, patients, caregivers and advocates in the rare disease community for their shared dedication to advancing and supporting new therapies for diseases with significant unmet medical need. I would now like to turn the call over to Mike to review our pipeline. Mike?

Mike Shetzline : Thanks, Tom, and good morning, everyone. Over the past few years, we’ve made significant strides to expand our footprint in GI. Today, we have a portfolio of innovative GI development programs with upcoming data that could be transformational for our company, as shown on Slide 8. In March, we expect top-line data from the STARS Phase 3 clinical program of Apraglutide in short bowl syndrome with intestinal failure, which was our primary focus and the value driver of the VectivBio acquisition. We believe Apraglutide, if successful and approved has best-in-class potential as the only once-weekly GLP-2 analog for the whole spectrum of patients with short bowel syndrome dependent on parenteral support also known as SBS-IF, a disease for which there is considerable unmet need.

The novel STARS 3 trial is designed to show efficacy across both patient subtypes, stoma and colon-in-continuity. As you may recall, the primary endpoint is relative change from baseline in weekly parenteral score volume at 24 weeks. We view success as achieving the primary endpoint as the only once-weekly GLP-2 therapy for SBS-IF and look forward to seeing the pivotal data in March. In addition to evaluating Apraglutide for short bowel syndrome with intestinal failure, we’re also looking at the asset as a potential treatment for patients with graft-versus-host disease or GvHD. Data is expected from this exploratory Phase 2 study later this quarter, which will inform a decision on further investment in the program. Next, CNP-104 for PBC. We’re encouraged by the favorable T-cell responses in patients treated with CNP-104 that we saw last year and look forward to seeing how this may impact liver function in the top-line results expected in the third quarter of 2024.

We’re excited about CNP-104 because it has the potential to be the first disease-modifying therapy for patients suffering with PBC. As there are no therapies on the market today that address the root cause of the autoimmune destruction of the liver bio ducts. And finally, IW-3300 a wholly owned Ironwood asset for visceral pain conditions, including interstitial cystitis and bladder pain syndrome. The Phase 2 study is ongoing and progressing well. The near-term catalysts I just highlighted reinforce our confidence in the tremendous opportunity we have in front of us with multiple programs that we believe have the potential to improve the standard of care and the quality of life for patients suffering with GI diseases. With that, I’ll turn it over to Sravan.

Sravan Emany: Thanks, Mike, and good morning, everyone. I’ll begin on Slide 10. As Tom mentioned earlier, LINZESS had another very strong year in 2023. As you can see, demand growth has been remarkable over time, reinforcing that patients and health care professionals continue to choose LINZESS in a growing market. We believe the strong demand momentum and success of LINZESS will continue as a result of high treatment satisfaction with both patients and health care professionals, combined with increased clinical utility from the new pediatric syndication, class-leading formulary access, guideline recommendations, focused commercial execution and new patient start acceleration. Next, I’ll provide a brief update on the VectivBio transaction.

The integration of Ironwood and VectivBio business operations is ongoing and progressing very well. In December, we successfully completed the squeeze-out merger under Swiss law. At that time, Ironwood purchase all remaining outstanding ordinary shares of VectivBio for $17 per share in cash. Next, I will provide additional details on our fourth quarter and full year 2023 financial performance. I’m pleased that we were able to meet or exceed all three of our guidance metrics in 2023. I’ll begin with LINZESS. LINZESS U.S. net sales were $274 million in the fourth quarter of 2023, an increase of 5% compared to the fourth quarter of 2022, driven by prescription demand growth, 10%, partially offset by price and inventory channel fluctuations. For full year 2023, as shown on Slide 11, LINZESS U.S. net sales were $1.73 billion, an increase of 7% year-over-year, driven by continued strong LINZESS prescription demand growth of 10%.

Commercial margins were 77% in the fourth quarter compared to 74% in the fourth quarter of 2022. For the full year 2023, commercial margins were 73%, in line with full year 2022. Moving to Ironwood revenues. In Q4, Ironwood revenues were $118 million, driven primarily by U.S. LINZESS collaboration revenues of $114 million. For the full year, Ironwood revenues were $443 million with LINZESS U.S. collaboration revenues of $430 million. In the fourth quarter and for the full year, Ironwood recorded $32 million, and $83 million income tax expense, respectively, the majority of which was noncash. In addition, Ironwood recorded interest expense of $8 million and $22 million in the fourth quarter and for the full year, respectively, and recorded $1 million and $19 million in interest and investment income, respectively, in the fourth quarter and for the full year.

GAAP net loss was $2 million in the fourth quarter. driven by a onetime noncash tax expense tied to a change in Massachusetts state laws and approximately $1 billion for the full year in 2023. As a reminder, for the full year, GAAP net loss includes a onetime charge of approximately $1.1 billion from the acquisition of VectivBio. Adjusted EBITDA was $40 million in Q4 and a loss of $885 million for the full year. The full year adjusted EBITDA loss also includes the onetime charge of approximately $1.1 billion from the acquisition of VectivBio. In the fourth quarter and for the full year 2023, Ironwood generated approximately $36 million and $183 million, respectively, in cash flow from operations and ended the year with $92 million in cash and cash equivalents after repaying $100 million of the outstanding principal balance on our revolving credit facility in cash.

As of the end of December, the outstanding drawn balance on the revolver was $300 million. Next, I’ll review our 2024 guidance on Slide 12. As previously stated in January, we expect LINZESS U.S. net sales growth in the low single digit’s percent, driven by continued high single-digit prescription demand growth, offset by mid- to high single-digit price erosion primarily driven by the Medicaid AMP cap removal legislation, which went into effect on January 1 of this year. We expect Ironwood revenue of between $435 million and $455 million, and we expect adjusted EBITDA of greater than $150 million which is in line with our previously stated expectations on announcement of the VectivBio acquisition of greater than $175 million of operating cash flows in 2024.

To wrap up, we are very pleased with the progress we made in 2023. Ironwood is a much different company than we were just a few years ago, and we believe we have positioned 2024 as a potential transformational year for our company. Looking ahead, we remain focused on maximizing LINZESS, advancing our GI pipeline and delivering sustained profits and cash flows. We are excited about the continued strong LINZESS performance. and the key pipeline catalysts ahead of us, which we believe can propel Ironwood’s next phase of growth. We look forward to sharing the STARS Phase 3 top-line results with you in March. 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: [Operator Instructions]. The first question is from the line of Amy Li from Jefferies. Your line is open.

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Q&A Session

Amy Li : Thanks, so much for taking my questions. Just two from us. On CIC, it looks like Apraglutide twice daily is showing higher improvement on PS reduction compared to GATX and CIC patients despite a relatively similar approval. Do you view this as a sign that improved PK will translate to efficacy? Additionally, can you walk us through the order of the hierarchical testing that you’ll be looking at for the secondary endpoints and where CIC falls relative to this? And then finally, can you give us any color on how much additional sales force that you may need to add to launch Apraglutide in SBS and how we should model SG&A. Thanks so much.

Sravan Emany: Okay. Well, thanks, Amy. I guess I’ll start by handing it over to Mike can answer the first two questions, and I’ll answer the third on the sales force.

Mike Shetzline: Yes. Thanks, Amy. Good questions. So, the first question you ask is related to PK and exposure around the Apraglutide program and sort of some of the findings they had, which did sort of portend a better from a parenteral support reduction perspective of outcome in the CIC population. The root of your question is, obviously, what gives you the best pharmacodynamic response from a PK perspective. And we’ve actually modeled and looked into this quite extensively because the question is whether it’s Cmax or whether it’s AUC, right, whether you need to cover the receptor for multiple times or consistently throughout time and that’s sort of where you’re getting at with the Apraglutide twice weekly that by doing it twice weekly or giving the drug twice weekly, they maintain sort of a higher trough throughout the week.

And is that the reason why they might see better parental support reductions. We certainly think that there is an exposure-related benefit to having drug chronically or at least persistently available to the receptors. And that’s one of the reasons why we think that once weekly has the potential opportunity to best-in-class. So, we certainly consider that. We’re going to learn a lot from the study in terms of how to model that pharmacodynamic response, but it certainly is part of the PK/PD profile that we think is very positive and aspirational for Apraglutide. The second question you asked is about the key secondaries. So, we have taken into account statistically the secondary endpoints, obviously, to have future discussions with the agency on potential label language.

Those key secondaries are the first one is really the reduction of at least 1 day off parenteral sport for the total population at week 24. So, it’s not a subtype endpoint, it’s the total population. The second one really looks at the parental support volume reductions in Stoma, the subpopulation at week 24. And then the third one looks at the parental support volume reductions for CIC, specifically at week 48. And because as we’ve mentioned many times, we think the CIC population takes a little longer to respond. They start with lower parental support volume needs and those kind of things. The fourth one is the enteral autonomy endpoint, and that’s at week 48.

Sravan Emany: And then with respect to the sales force question. At launch, we will have the largest sales force ever rate against this disease state with over 90 — our existing 90 reps — 90-plus reps here at Ironwood. From an incremental investment standpoint, I think we’ll see as we get closer to launch of how much that needs to evolve, we don’t think it’s very much. We do think there will be additional investments though tied to selling a therapy that is a rare disease. And so that includes hub services, patient services. There is this becomes much more of a service model where we have to follow the patient through their patient journey and help support them. So, we’ll build out some of those additional ancillary components of our sales force and our team. But that we don’t think is significant in terms of incremental spend and would not affect the guidance we’ve already given in terms of where we’ll be in 2025.

Tom McCourt: This is Tom. I think the big thing to understand with the sales force deployment is we’re already in the offices today, a lot of these physicians who really kind of specialize in managing these patients reside. So that’s the reason why we feel very confident that we have an adequate sales force. There may be some additional roles that will be specific for certain large GI practices that we’re taking a look at that I think we very creatively and effectively accelerate the uptake of the drug. But we’re not looking at certainly a significant incremental spend in sales force.

Operator: Your next question comes from the line of David Amsellem from Piper Sandler. Your line is open.

Unidentified Analyst : This is Tim on for David. As we get closer to Apraglutide data, what are your latest thoughts on pricing of Apraglutide to the extent a generic Gattex materializes? And what’s your latest thinking on your strategy for Apraglutide ex U.S., particularly in Europe?

Sravan Emany: Yes. So, thanks, Tim. First, on pricing, I think we’re still working on some of that in terms of where we’ll price it. I don’t think we’ve communicated yet our strategy. And I think we still have some time before we feel like we’re ready to do that. I think a lot of that will tie to what our clinical profile actually looks like and how differentiated it actually is. And so, we’ll wait until we have the data in March before we start working on that. With respect to the second component of your question, which is apra U.S., look, I think we understand that our current field and sales force is heavily U.S. and we’re open, I think, some flexibility about how we’ll think about ex U.S. in a very strategic manner for our company.