Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) Q2 2022 Earnings Conference Call August 4, 2022 8:30 AM ET
Company Representatives
Tom McCourt – Chief Executive Officer
Mike Shetzline – Chief Medical Officer
Sravan Emany – Chief Financial Officer
Matt Roache – Director of Investor Relations
Conference Call Participants
David Amsellem – Piper Sandler
Boris Peaker – Cowen
Operator
Operator
Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals Second Quarter 2022 Investor Update Conference Call. [Operator Instructions]. Thank you.
Matt Roache, Director of Investor Relations, you may begin your conference.
Matt Roache
Thank you, Stephanie. Good morning and thanks for joining us for our second quarter 2022 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, 2021, and in our future 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 any 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 CEO, will review our strategic priorities and provide an update on the commercial performance of LINZESS. Mike Shetzline, our Chief Medical Officer, will discuss our pipeline and Sravan Emany our, our Chief Financial Officer will review our financial results and guidance.
Today’s webcast include 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.
Tom McCourt
Thanks, Matt. Good morning, everyone. And thanks for joining us today as we share our second quarter results. The positive momentum across our business continued in the second quarter, as demonstrated by robust LINZESS prescription demand growth, advancement of our clinical programs, completion of our share repurchase program, and repayment of our 2022 convertible notes.
The progress we made in the second quarter is a direct result of hard work and strong execution from the team, along with our shared commitment to advancing the treatment in GI diseases, redefining standard of care in GI, and bringing important medicines to our patients. Our mission is to become the leading GI health care company in the U.S.
Now, I’ll start with a brief overview of our strategic priorities on slide six. Our strategy starts with maximizing LINZESS. Since launch, nearly 10 years ago LINZESS continues to experience remarkable prescription demand growth and widespread acceptance among health care practitioners as a leading prescription treatment for adults with IBS-C and chronic idiopathic constipation. We are proud to report the brand recently surpassed 4 million unique patients treated since launch in 2012.
In the second quarter, LINZESS prescription demand increased 9%, versus the prior year quarter, and LINZESS achieved an all-time high in new-to-brand prescription volume. As patients and prescribers turn to LINZESS to treat their IBS-C or chronic idiopathic constipation symptoms.
Through the first half of 2022, LINZESS prescription demand has performed in-line with expectations with double digit prescription demand growth year-over-year. We believe there is still significant opportunity to reach appropriate new patients and drive additional prescription growth for the brand.
In addition to the commercial success of LINZESS, we continue to make progress with our ongoing clinical trials. We now expect our Phase 3 pediatric study in six to 17 year olds of functional constipation to read out in the third quarter this year, and we remain on track with previously shared data readout timing for IW-3300 and CNP-104.
We continue to focus on strengthening our pipeline through in-license or acquisition of innovative GI assets as we believe it will position our company for continued growth. Mike, will provide an update of our pipeline in a few minutes. And finally, we continue to deliver sustained profits and cash flow.
We ended Q2 with over $500 million in cash and cash equivalents on the balance sheet, after repaying our 2022 convertible notes in cash and completing our share repurchase program during the quarter. We are pleased with the progress across our three strategic priorities, and believe we will continue to position ourselves for growth moving forward.
Now let’s turn to some additional details on the commercial performance of LINZESS on slide seven. LINZESS continues to perform exceptionally well, powered by both new patient and refilled volume, further reinforcing its position as the Number 1 prescribed branded medicine in the U.S. for the treatment of adults with IBS-C and Chronic Idiopathic Constipation.
As I mentioned earlier, LINZESS prescription demand in the second quarter grew 9% year-over-year. We believe high single-digit demand growth is impressive, particularly relative to the 14% demand growth achieved during the second quarter in 2021 as the market recovered from the COVID-19 pandemic.
Overall, the strong double digit, year-over-year LINZESS demand growth for the first half of 2022 is in line with our expectations for the full year. In addition, 90 day prescriptions have grown as a percentage of total retail prescriptions, now making up 21% of total prescriptions.
This has led to an all-time high in the average size of prescription.
Turning to slide eight. The impressive growth in LINZESS prescription demand is a reflection of the strong clinical profile, focused investment in both consumer and professional promotion and class leading payer access. As a result of our efforts to maximize LINZESS, total prescription share at the end of the second quarter was 44%, an all-time high for the brand. Over the past year, LINZESS has grown share approximately two points within the branded and generic IBS-C and chronic idiopathic constipation market. New prescription share has also increased, further strengthening the market leadership position of LINZESS.
Now slide nine. In addition to being the branded prescription market leader in IBS-C and chronic idiopathic constipation, the clinical importance of LINZESS was further acknowledged in the quarter in an updated treatment guidelines. On June 20, LINZESS received a strong recommendation from the American Gastroenterological Association for the treatment of IBS-C supported by a high level of evidence. LINZESS was the only treatment to receive a strong recommendation for the treatment of adults with IBS-C in the updated AGA treatment guidelines.
A powerful reinforcement, that LINZESS can help millions of adults living with the highly frustrated symptoms of IBS-C. These guidelines are a critical tool to help physicians provide evidence based care for their patients, and we will work to communicate this update during our ongoing interaction with our customers.
Finally, we are committed to advancing the lifecycle management program for LINZESS to broaden the clinical utility for the brand and help even more patients in need of treatment. We are excited about the strong position we are in today and the opportunities ahead of us as we seek to continue to maximize LINZESS, advance clinical programs, strengthen our financial position and grow Ironwood’s leadership within GI.
We strive to lead the way in GI, both through Innovative GI Therapeutics, and also in our contributions to the broader GI community. Over the next few days, Ironwood will be sponsoring the young investigator form at the 2022 American Neurogastroenterology and Motility Society, or ANMS. We also had the honor of sponsoring the ANMS Ironwood Diversity Award, and we hope to see some of you there. Thanks as always, to the employees, patients and shareholders for all your support.
I will now like to hand it over to Mike to discuss our pipeline programs. Mike?
Mike Shetzline
Thanks, Tom. And good morning, everyone. We continued to make good progress across our three pipeline programs. I’ll start with the linaclotide pediatric program on slide 11. The clinical study in six to 17 year olds with functional constipation was well executed, completed enrollment on time, and we now expect top line data in the third quarter. This is an exciting opportunity to potentially expand the clinical utility of LINZESS and assuming positive data and FDA approval bring a new treatment option to this patient population, as there are currently no FDA approved prescription pediatric therapies for functional constipation.
Next, we’re advancing IW-3300, a guanylate cyclase-C agonist and a wholly owned Ironwood asset for the potential treatment of visceral pain conditions, such as interstitial cystitis, bladder pain syndrome and endometriosis.
We have completed the studies in healthy volunteers, which will enable us to begin the Phase 2 proof-of-concept study focusing on the potential pain benefits of IW-3300 for patients suffering from interstitial cystitis and bladder plans pain syndrome. We’re currently working to finalize the study design for the proof-of-concept study, which we are targeting to start the end of this year.
And finally, CNP-104. COUR Pharmaceuticals is currently conducting a clinical trial for CNP-104 and the top line data is on track to read out in 2023.We’re happy with the progress to-date, working in partnership with COUR to get the study sites activated and begin enrolling patients.
When we speak to investigators, they’re excited about COUR’s novel approach, which combines the PDC-E2 antigen with state-of-the-art pharmaceutical nanoparticles to tolerate the immune system and potentially eliminate the bile duct destruction that is at the core of Primary Biliary Cholangitis.
We believe CNP-104 has the potential to significantly shift the treatment paradigm in PBC, target the root cause of PBC and if success will be the first truly disease modifying therapy for patients.
With that, I’ll now turn it over to Sravan to review our financial performance.
Sravan Emany
Thanks, Mike. Hello, everyone. And a pleasant Thursday morning to you, wherever you may be. I will begin by reiterating Tom’s earlier commentary. We are delighted with our strong first half performance, driven by continued impressive LINZESS demand growth.
Based on our performance to-date, we remain on track to achieve the guidance we put forth at the beginning of this year. Please refer to our Press Release for our detailed financial information.
Now, to slide 13. The LINZESS, U.S. net sales were $248 million in the second quarter of 2022, a 4% decrease compared to the second quarter of 2021. Strong LINZESS prescription demand growth was more than offset by net price decline and inventory fluctuations versus prior year. Net price was anticipated for our previously provided guidance.
Inventory channel fluctuations are not expected to have a material impact, on net sales for the full year. In the first half of 2022, prescription demand is up over – is up 10% year-over-year, and net sales growth is up 1% year-over-year. For the full year, we continued to expect LINZESS U.S. net sales growth in the low single digits driven by double-digit prescription demand growth.
Turning to LINZESS brand profitability, commercial margin in the second quarter of 2022 was 69% compared to 72% in the second quarter of 2021.
Moving to Ironwood revenues, in the second quarter of 2022, Ironwood revenues were $97 million, driven primarily by U.S. LINZESS collaboration revenues of $94 million.
Turning to income tax expense, during the second quarter of 2022, Ironwood recorded $17 million of income tax expense. Ironwood will continue to report tax expense on our P&L and our effective tax rate throughout 2022. As a reminder, Ironwood has significant net operating loss carry-forwards from prior years and therefore the majority of our income taxes will be a non-cash expense as we use our net operating losses.
Moving to Ironwood’s profitability, as a reminder second quarter 2021 GAAP net income included $338 million nonrecurring income tax benefit, related to the release of the valuation allowance. GAAP net income was $37 million and adjusted EBITDA was $56 million in the second quarter of 2022.
Next, our cash and capital allocation priorities on slide 14. In the second quarter, we generated $61 million in cash flow from operations and ended the quarter with $504 million in cash and cash equivalents. In May, we completed our $150 million share repurchase program. For the overall program, under which repurchases commenced in December 2021, Ironwood repurchased 13.1 million shares at an average price per share of $11.47, approximately 8% of our Class A Common Stock.
In addition, in June, we repaid the remaining $121 million aggregate principal amount of the 2022 convertible notes in full, and as of June 30, 2022, we now have $400 million in convertible notes outstanding.
Over the past 12 months, Ironwood has deployed roughly $270 million in capital to strengthen our financial position. Our capital allocation priorities include investing to maximize LINZESS and actively pursuing innovative, highly differentiated GI assets to add to our portfolio. We are focused on identifying and investing in opportunities that create the most value for our patients and shareholders over the long term.
We are fortunate to have a growing, market-leading and profitable brand in LINZESS, a strong balance sheet and continue to take a disciplined approach to capital allocation, which we believe positions us well for continued growth. Before moving on to our financial guidance, I would like to highlight that Ironwood was added to the S&P SmallCap 600 Index in June. We are excited to be added to this reputable Index as it is recognition of Ironwood’s momentum and financial strength as we continue to make a difference for people living with gastrointestinal diseases.
Turning to our 2022 guidance on slide 15. We are reiterating our full year 2022 financial guidance as we remain confident in the continued strength of LINZESS, with expectations of double digit prescription demand growth. We continue to expect U.S. LINZESS net sales growth in the low single digits.
Ironwood revenue of $420 million to $430 million, which includes approximately $10 million in royalty and other revenues and adjusted EBITDA of greater than $250 million. We believe the progress we are making positions our company well for continued growth. We remain focused on advancing our three strategic priorities, and we are excited about the opportunities ahead of us to improve the lives of GI patients and deliver shareholder value.
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 disorders.
Operator, you may now open up the line for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from David Amsellem with Piper Sandler. Your line is open.
David Amsellem
Hey thanks! Just a couple. So first, I wanted to ask about the functional constipation study in peds. So to the extent that you do get favorable data, how does that advance the potential discussion surrounding the over-the-counter version of linaclotide. What kind of conversation or dialogue would you have with the FDA subsequent to that data, again assuming its positive?
And then secondly, you know on the commercial margin, I wanted to ask sort of a forward-looking question is, as the product – as a franchise gets later in its life cycle and its commercial life, how do you see commercial margins evolving? Do you think that commercial margins might increase as there potentially could be less in the way of intensive promotions? What’s the right way to think about that over the long term? Thank you.
Sravan Emany
Good morning, David. This is Sravan. I’ll first – let’s have Mike respond to your first point about the peds question, and then I’ll handle the question on commercial margin thereafter.
Michael Shetzline
Yes, sure. So the current study that you’re alluding to, the 6 to 17 year old functional constipation, it certainly adds additional support to the overall safety and tolerability of the use of LINZESS in patients certainly under the age of 18. And you recall and I think the basis of your question was at launch, we had a box warning that encompassed all the pediatric patients from those 18 and below.
So over the years we’ve done a number of studies in pediatric patients, including patients 7 and 17 year’s olds with IBS, 6 to 17 year olds with functional constipation, a prior study, a Phase II study in addition to the one we’re talking about now, and also a study in 2 to 5 year olds. That actually got us a revision of the box, which now only includes kids less than 2 years of age.
So this study, which specifically addresses the 6 to 17 year old population, so we’ve actually had that change in relation to the submission we did with the agency last year with the aggregate data I just mentioned. But certainly additional data in that patient population is always helpful.
As we move forward with the clinical program in pediatric, we have additional studies we’re doing. We’re kicking off another study now in 2 to 5 year olds in the near term with our partner AbbVie. So all that data will be pulled together with the ultimate goal to have an engagement with the agency in the future for further discussions about the box and the appropriate language for pediatric patients.
But we remain confident in the safety and tolerability in this patient population, because all studies to-date have demonstrated LINZESS to be safe and well tolerated in the pediatric patients we studied.
And just one final note, please note we’re currently not labeled in pediatrics, so this is all about addressing the label language that we had, which to your real question helps support us to further progress on discussions on how to move to an OTC product.
Tom McCourt
And David, this is Tom McCourt. The other piece of this is certainly there looks like a clear path forward from a regulatory front, but Mike can maybe comment on that. You know certainly the – you know it’s very clear about what a trial design would look like to get an indication for occasional constipation, and we’re very, very confident that obviously the drug will meet those requirements.
But I think the most important thing here with the whole pediatric program is really eliminating the safety concern that FDA originally had that was hypothetical, and we’re very pleased with the progress we’re making and the ongoing collaboration and dialogue with both our partner, as well as the FDA.
Michael Shetzline
Yes, we clearly have regulatory precedent in terms of OTC approaches for occasional constipation with products like MiraLAX, so – and we’ve had some preliminary discussions including with our partners. So I think we are in a good position to carry that forward and it’s a continued program that we have.
Sravan Emany
And then David, I’ll start with your second question. First of all, we’re really pleased about our progress on commercial margin overall and how we’re managing expenses. I’ll start by answering your question about where we are today with respect to commercial margin and then talk a little bit about where we’re going and where we think we’ll head the company.
First point is, year-to-date commercial margins are 71% through June 2022 compared to 72% through June 2021 in the prior year. Commercial margin can fluctuate quarter-to-quarter based on timing of expenses throughout the year. As a reminder for everyone out there, the second quarter tends to be the largest commercial investment of the year due to the timing of the DTC launches and where we have our commercial spend in the year.
So the second quarter commercial margins for 2022 were also impacted by lower net sales in the quarter, which was primarily driven by unfavorable inventory fluctuations. We don’t expect those inventory fluctuations, a material impact on the full year as we said earlier, but those fluctuations had an impact in this quarter.
And so where we stand, we feel like we’re on track to hit our guidance for profitability for the year, and then with respect to long term and where we expect – where we are from a brand perspective and where we want to go, we’re constantly evaluating. We’re always looking with our partner, where and how we can fine tune and improve those margins. We do think there is still room to grow on the commercial margin front and we’ll continue to try and drive those efficiencies.
Tom, I don’t know if you have anything else to add.
Tom McCourt
Yes, thanks Sravan. I think the other thing to remember, you know year-over-year was – the second quarter in 2021 was an interesting quarter one. We had the surge of demand as we are coming out of the pandemic, and in additional, because of the pandemic, we were short on calls that were getting billed to the P&L. So the margins were more favorable with those two combined things.
So you know as Sravan mentioned, we’re delighted with the progress we’re making and keep in mind, we’ve continued to refine the marketing mix with regard to the level of investment, both with regard to professional promotion, DTC and certainly one of the real key investments is payer access, which really drive near term and long term growth for the brand.
Sravan Emany
Hopefully that answers your question, David.
David Amsellem
Okay, thank you.
Sravan Emany
Thank you.
Operator
[Operator Instructions] Your next question comes from Boris Peaker with Cowen. Your line is open.
Unidentified Analyst
Alright great, thanks. This is Nick on for Boris Peaker. I just have a few questions. First is on IW-3300. I was wondering if we’re going to – if we should expect to see some data from the Phase I trial, whether it be safety data or whatnot before the initiation of the Phase II trial?
And then my second question is, what is your guidance strategy right now on like potentially expanding the pipeline further beyond COUR and CNP-104 and beyond IW-3300? Thanks.
Sravan Emany
Sure, thanks. And look, Mike why don’t you handle the first question again on IW-3300 and our plans there and then I’ll address the second.
Michael Shetzline
Yes, sure. So the Phase I program for IW-3300 was in healthy volunteers. It was a single ascending dose study, as well as a multiple ascending dose studies. Both of those studies were completed on time. Both of those studies did not demonstrate any concerns that make it any issues for us to complicate – proceeding to starting the POC study end of this year.
So we’re going through that data now and we certainly are having discussions on how to disseminate that data, but we clearly will put it in the public domain. You may know those trials are registered in clinicaltrials.gov. Even though the healthy volunteer studies were not obligated to put that data from – just because they are Phase I in healthy volunteers, but we are committed to disseminating the data publicly, so we certainly will take that opportunity.
Unidentified Analyst
Great! And so on the piece on strategy.
Sravan Emany
Look, I’ll start by saying that I think we’re going to continue to take a balanced approach to capital deployment. We believe we are positioning the company for future success, which includes maximizing LINZESS growth to commercial innovation, life cycle management and actually pursuing these highly differentiated GI assets to bolster our portfolio. We’re focusing on identifying and investing in opportunities to create the most value for our patients and shareholders over the long term, including licensing such as CNP and other acquisitions.
And so for us, at this point in time, our team continues to engage with third parties and evaluate opportunities. You know this market, while it’s been better for us this year as a buyer potentially finding assets. I think we are – we’re going to continue to be disciplined and if we find opportunities to make sense and can create long term shareholder value, we’ll pursue them, and we’re not going to comment on any other specific efforts beyond that. But we have set a high bar for ourselves in evaluating potential transactions and any asset that we acquire is going to meet our internal criteria needs. I don’t know, Tom or…
Tom McCourt
Well, I think that’s spot on Sravan, and I think the exciting thing is there’s a lot of activity right now with regard to emerging technologies and treatments and you know there’s other dynamics in the market that look, may turn into something that may be very attractive. So again to Sravan’s point, the bar is high we like where we are and how we’re growing as far as our overall financial health, and we just really want to be disciplined with regard to how we think about allocation of our capital.
Unidentified Analyst
Great! Thank you very much.
Operator
[Operator Instructions] There are no further questions at this time. Thanks everyone for joining today. This concludes today’s conference call. You may now disconnect.
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