Q3 2020 Ironwood Pharmaceuticals Inc Earnings Call
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Ironwood Third Quarter 2020 Investor Update Conference Call. At this time, all participants are in a listen-only mode.
Ladies and gentlemen, thank you for standing by and welcome to the owner would third quarter Twentytwenty Investor update conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session. Let me cover star one on your telephone keypad. Please be advised today's conference.
Operator: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press Star 1 on your telephone keypad. Please advise me that today's conference is being recorded. If you require any further assistance, please press Star 0. Thank you. Ms. Meredith Kaya, you may begin. Good afternoon, and thanks for joining us for our third quarter 2020 investor update. Our press release crossed the wire this afternoon and can be found on our website, www.ironwoodpharma.com. Today's call and accompanying slides include forward-looking statements. Such statements involve risks and uncertainties that may cause actual results to differ materially.
Just be recorded.
Sure Corey you further assistance. Please press star zero. Thank you Ms. Meredith Kaya you may begin.
Good afternoon, and thanks for joining us for our third quarter 2020, Investor update a press release crossed the wire. This afternoon and can be found on our website www <unk> I would pharma dot com.
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 side as well as under the heading risk factors in our quarterly report on form 10-Q for the quarter ended June Thirtyth 2020 in our future I think.
Meredith Kaya: A discussion of these statements and risk factors is available on the current Safe Harbor Statements slide, as well as under the heading Risk Factors in our quarterly report on Form 10-Q for the quarter ended June 30, 2020, and in our future SEC filing. 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.
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All forward looking statements speak as of the date of this presentation and we undertake no obligation to update such statements.
Concluded are non-GAAP financial measures, which should be considered only as a supplement to and not a substitute for or superior to GAAP measures.
Meredith Kaya: 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 gap measure. During today's call, Mark Mallon, our CEO, will begin with an overview of the quarter. Mark Plinio, our Chief Commercial Officer, will review our commercial performance, and Gina Konselman, our CFO, will review our financial results and guidance. Mike Shetzline, our Chief Medical Officer, will also be available during the Q&A portion of the call. Our President, Tom McCourt, is unable to join us today due to a personal matter.
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 Mark Mallon, our CEO will begin with an overview of the quarter Mark plenty of our Chief Commercial Officer will review, our commercial performance and Gina consummate our CFO will review our financial results and guidance makes had signed our chief Medical Officer will also be available during the Q and a portion of the call. Our president Tom Mccourt is unable to join US today do it.
Meredith Kaya: We will be referring to slides via the webcast. For those of you dialing in, please go to the events section of our website to access the webcast slides. With that, I'll turn the call over to Mark.
Personal matter.
We will be referring to slides via the webcast for those of you dialing in please go to the events section of our web site to access the webcast site with that I'll turn the call over to Mark.
Mark Mallon: Thanks, Meredith, and good afternoon, everyone, and thanks for joining us today. Just over 18 months ago, we launched Ironwood as a purely GI-focused company, and since then, we've been resolute in our mission of advancing GI medicines and redesigning the standard of care for patients. We set out from the beginning with three strategic priorities.
Thanks, Matt and good afternoon, everyone and thanks for joining us today.
Over 18 months ago, we launch is it purely just focused company and since then we've been resolute in our mission of advancing medicines and redefining the standard of care for patients.
He said, okay from the beginning with three strategic priorities Drivelines has grown advance RG I portfolio and deliver profit while we have been presented with challenges along the way we continued to execute well against our priorities remain steadfast in our focus on our mission.
Mark Mallon: Drive Lincest growth, advance our GI portfolio, and deliver profits. While we have been presented with challenges along the way, we continue to execute well against our priorities and remain steadfast in our focus on our mission. Today, we believe Ironwood is in a strong position. The test continues to grow at nearly double-digit rates compared to last year, contributing substantial revenue to our business, and we have now achieved our sixth consecutive quarter of processing. Let me speak briefly to each of these priorities and then turn it over to the team for more detail.
Today, we believe firewood isn't strong position.
As continues to grow at nearly double digit rates compared to last year contributing substantial revenue to our business and we have now achieved our sixth consecutive quarter process.
Let me speak briefly to each of these priorities and then turn it over to the team for more detail.
Mark Mallon: The Zest continues to be the prescription market leader within its category. Prescription demand grew 7% year-over-year in the third quarter and, in the face of the continued COVID-19 pandemic, continued COVID-19 pandemic. The resiliency that Linthes has shown over this unprecedented period is remarkable. Linthes' performance resulted in total net sales of $241 million for the third quarter.
The just continues to be the prescription market leader within its category prescription demand grew 7% year over year in the third quarter and the face of continued corporate 19th endemic to continue to look at Nike It kinda.
The resiliency of let's say, it's a show over this unprecedented period is remarkable the test performance resulted in total net sales of $241 million for the third quarter. As you know I would share is equally with our partner Abbvie in the brand's profit.
Mark Mallon: As you know, Ironwood shares equally with our partner AbbVie in the brand's profits. With a 78% commercial margin, Ironwood recorded $100 million in third-quarter revenue from U.S. Linthes sales. We remain confident in the brand's potential to achieve $1 billion in peak net sales, thereby providing a solid foundation to support future growth. We've also thoughtfully invested in our business. This discipline supported our transition to profitability post-separation, and we've demonstrated our ability to generate profits in every quarter since. Now with over $300 million in cash on our balance sheet and more than $50 million of cash generated in the third quarter, Ironwood is a strong cash flow generating business. And, as Gina will discuss, we are pleased to announce today that we are increasing our 2020 financial guidance. Turning to our pipeline, these past few months have clearly been disappointing, as the outcomes of both 3718 and 7246 development programs are certainly not what we had hoped.
Mark Mallon: I commend the team on executing two very well-designed and robust clinical programs that delivered clear results. Unfortunately, based on the results, we made quick, data-driven decisions to discontinue both programs and are now restructuring our organization with a planned workforce reduction. I want to emphasize that a decision that impacts our colleagues in this way was not easy to make. But we believe it has the potential to help better position our company moving forward as we seek to continue advancing our GI-focused mission and enhancing shareholder value. As we look to the future, we recognize that GI remains a therapeutic area with significant unmet need, including highly symptomatic patient populations and many severe and debilitating diseases that often have limited or no treatment options available.
Mark Mallon: We understand the need for new therapeutic approaches to treat these diseases, and we believe we have a strong tenured team with the knowledge and expertise to advance innovative science and build successful brands. We continue to explore accessing complementary commercial and development stage GI opportunities with the same high bar that we've always had. At the same time, we regularly review and evolve our strategy as we adapt to the broader market dynamics and continue to assess all options to enhance shareholder value. Working alongside the amazing Ironwood team, who are true champions in the GI community, I look forward to what the future holds. Before I turn it over to Mark to discuss our commercial performance, I want to take a moment to welcome Alex Danner. We announced this afternoon that we'll be joining Ironwood Pharmaceuticals Inc. As many of you know, Alex is a seasoned healthcare investor and has broad experience as a board director and overseeing the operations of companies within our industry.
For accent complimentary commercial and development stage <unk> opportunity with the same high bar that we've always had.
At the same time, we regularly review and of all of our strategy as we adapted about a market dynamic and continue to assess all options to enhance shareholder bed.
Working alongside the anything I routine who are true champions in the Jack community I look forward to what the future holds before I turn it off the mark to discuss our commercial performance I wanted to take a moment to welcome Alex Den We announced this afternoon will be joining iron was fourth.
If any of you know Alex as a citizen healthier investor in is broad experience as a board director and overseeing the operations accompanies within our industry. We've developed a strong relationship without over these past few years is Teresa is one of our largest shareholder and we look forward to collaborating with him on the Ironwood's Board and.
Mark Mallon: We've developed a strong relationship with Alex over these past few years, as Sarissa is one of our largest shareholders, and we look forward to collaborating with him on Ironwood. And with that, I'll turn it over to Mark. Thanks, Mark, and good afternoon, everyone. Linzess has shown incredible resilience in the face of this pandemic, further strengthening its position as the number one prescribed medicine in the U.S. for the treatment of adults with IBSC or CIC.
And with that I'll turn it over to Mark.
Thanks, Mark and good afternoon, everyone Linzess has shown incredible resilience in the face of this pandemic further strengthening its position as the number one prescribed medicine in the U S for the treatment of adults with IBSA. Your CIC in fact Linzess leads all other brands in this category in total prescription chair achieving and.
All time high of approximately 40% in September.
Mark Plinio: In fact, Linzess leads all other brands in this category in total prescription share, achieving an all-time high of approximately 40% in September. Furthermore, in addition to 7% prescription demand growth year over year, we have seen new-to-brand prescription demand continue to grow in the third quarter as well. As a reminder, beginning in late March, at the start of the pandemic in the US, we saw a negative impact on Nudibrand prescriptions. Not surprisingly, fewer patients were going into offices to see their physicians. We believe this, coupled with our decision to pause in-person promotion at that time, resulted in fewer new patients receiving prescriptions for Linzess. However, we believe the launch of our new DTC campaign in late spring and our sales force beginning to return to the field contributed to the rebound in new-to-brand prescription demand in the second quarter. This growth continued to strengthen in the third quarter, returning to pre-COVID-19 levels and outpacing the broader IBSC and CIC branded prescription market. In the third quarter, average new-to-brand prescription demand increased 10 percent compared to the second quarter.
In addition to 7% prescription demand growth year over year, we have seen new to brand prescription demand continue to grow in the third quarter as well.
As a reminder, beginning in late March at the start of the pandemic in the U S. We saw a negative impact new to brand prescriptions not surprisingly fewer patients were going into the offices to see their physicians.
Mark Plinio: By comparison, the rest of the branded prescription market, in aggregate, grew new-to-brand prescriptions by 8 percent during the same period. Another driver of prescription demand is the continued growth in the share of 90-day prescriptions, which now represent approximately 20% of total Linzess prescriptions in the third quarter. In the third quarter, total average Lenzest prescription size grew 4% year-over-year to 42 pills per prescription, and new Lindesk prescription size grew 5% to 46 pills per prescription. As we have mentioned before, data suggests that compliance with Linzess increases substantially with 90-day prescriptions, as we believe patients with IBSC are more likely to experience greater abdominal pain relief from Linzess over the course of a 90-day prescription as compared to those on a 30-day prescription.
Our total average linzess prescription size grew 4% year over year to 42 pills per prescription.
And new Linzess prescription size grew 5% to 46 pills per prescription.
As we have mentioned before data suggests that compliance on linzess increases substantially with 90 day prescriptions as we believe patients with Ibs C are more likely to experience greater abdominal pain relief from Linzess over the course of a 90 day prescription as compared to those on a 30 day prescription.
Since launch our Linzess commercial strategy has been focused on three core fundamentals.
Increasing awareness of Linzess among physicians.
Mark Plinio: Since launch, our Linzess commercial strategy has been focused on three core fundamentals: increasing awareness of Linzess among physicians, motivating appropriate patients to seek care, and securing broad payer access. We believe it is our focus on these fundamentals and our ability to demonstrate strong execution against them that has supported the brand's success to date. We see additional drivers, including the return of our customer-facing employees to the field, the overall abdominal symptoms, SNDA approval, and our innovative consumer efforts leveraging telehealth, helping to support continued growth moving forward. First, by the end of the quarter, the combined Ironwood-Abbey field force was mostly back conducting in-person details in territories throughout the country. While reps' access to physician offices isn't where it was prior to the COVID-19 pandemic, it continues to increase, especially among higher prescribing doctors. Second, in September 2020, the FDA approved the supplemental new drug application for Linzess, resulting in an updated label that now includes data demonstrating that Linzess improved the overall abdominal symptoms of bloating, discomfort, and pain in the adult population with IBS-C.
Motivating appropriate patients to seek care and securing broad payer access we.
We believe it is our focus on these fundamentals and our ability to demonstrate strong execution against them that has supported the brand success to date.
We see additional drivers, including the return of our customer facing employees to the field. The overall abdominal symptoms sndk approval and our innovative consumer efforts leveraging telehealth, helping to support continued growth moving forward.
First by the end of the quarter. The combined Ironwood Abbvie field force was mostly back conducting in person details in territories throughout the country.
While reps access to physician offices isn't where it was prior to the COVID-19 pandemic. It continues to increase, especially among the higher prescribing doctors.
Second in September 2020, the FDA approved a supplemental new drug application for Linzess, resulting in an updated label that now includes data demonstrating that lend ACLA tied improve the overall abdominal symptoms of bloating discomfort and pain in the adult population with RBS.
Yes.
The team has already integrated some of the refresh language on the Linzess web site and in certain promotional materials, a full refresh of the consumer campaign is expected in the spring of 2021.
Mark Plinio: The team has already integrated some of the refreshed language on the Linzess website and in certain promotional materials. A full refresh of the consumer campaign is expected in the spring of 2021. Third, we have been leveraging innovative new channels like telehealth to amplify Linzess consumer promotion in an effort to bring awareness and support to patients. Telehealth has been a significant driver of prescriptions written by gastroenterologists during the pandemic. At the peak of the pandemic in April, a significant portion of Lindsay's new patient starts came through telehealth. While the share of telehealth interactions has declined from the April peak, as more offices have opened up.
Third we have been leveraging innovative new channels like telehealth to amplified linzess consumer promotion in an effort to bring awareness and support to patients Tele health has been a significant driver of prescriptions written by Gastroenterologists during the pandemic.
At the peak of the pandemic in April a significant portion of Linzess, new patient starts came through telephone.
While the share of telehealth interactions has declined from the April peak as offices have opened up we.
We believe that telehealth as a channel has the potential to continue to play an important role in driving future growth of Linzess.
Mark Plinio: We believe that telehealth as a channel has the potential to continue to play an important role in driving future growth of Linzess. The IBSC category overall continues to experience remarkably stable growth in line with what we have seen in recent years. With approximately 40% market share in the U.S. as of the end of September, Linzess remains the prescription market leader in the category.
The IVC category overall continues to experience remarkably stable growth in line with what we have seen in recent years with approximately 40% market share in the US as of the end of September Linzess remains the prescription market leader in the category.
Mark Plinio: This strong position, combined with what we believe are multiple remaining growth drivers, reinforces our confidence in our ability to continue to drive LINZES growth now and into the future. With that, I'll turn it over to Gina to discuss the financial results of the court. Thanks Mark.
This strong position combined with what we believe are multiple remaining growth drivers reinforces our confidence in our ability to continue to drive linzess growth now and into the future with that I will turn it over to Gina to discuss the financial results of the quarter.
Thanks, Mac over the next few minutes I will provide some additional color on recent corporate actions followed by some highlights from our financial performance and our revised guidance for the year. Please refer to our press release for a detailed financial information.
Gina Konselman: Over the next few minutes, I will provide some additional color on recent corporate actions followed by some highlights from our financial performance and our revised guidance for the year. Please refer to our press release for our detailed financial information. In connection with the recent decision to discontinue our 3718 program, we are planning to reduce the workforce by approximately 100 employees.
In connection with the recent decision to discontinue our three seven when a program we are planning to reduce the workforce by approximately 100 employees. We continue to expect both the discontinuation of 3001 eight and the planned workforce reduction to result in total cost savings of approximately 95 million comprised of at least $45 million of annualized saving.
Gina Konselman: We continue to expect both the discontinuation of 3718 and the planned workforce reduction to result in total cost savings of approximately $95 million, comprised of at least $45 million of annualized savings related to the planned workforce reduction and an additional approximately $50 million related to external spend for 3718 that was previously expected to incur. These cost savings exclude one-time costs of approximately $15 to $18 million, primarily associated with the plan's workforce reduction. Our decision to reduce our workforce was not one we made lightly but one that we felt was important as we further supported our business moving forward. Ironwood remains on solid footing, as indicated by our strong financial performance in the third quarter.
It's related to the planned workforce reduction and an additional approximately $50 million related to external spend 37 money that was previously expected to incur through 2021.
These cost savings exclude onetime costs of approximately $15 million to $18 million, primarily associated with the planned workforce reduction.
Our decision to reduce our workforce was not one we made lightly but one that we felt was important as we further support our business moving forward and what remains on solid footing as indicated by our strong financial performance in the third quarter.
Ironwood revenues were $103 million driven by us Linzess collaboration revenues of $100 million, our core business, our us Linzess collaboration revenue increased 18% compared to the third quarter of 2019.
It's worth noting that the year over year Ironwood revenue comparison is not an apples to apples ironwood total revenue generated in the third quarter of 2019, including $42 million in nonrecurring license and milestone revenue related to the amendment of our ex US land access had agreements in China and Japan.
Gina Konselman: Ironwood revenues were $103 million, driven by U.S.-Linzess collaboration revenues of $100 million. Our core business, our U.S.-Linzess collaboration revenues, increased 18% compared to the third quarter of 2019. It's worth noting that the year-over-year Ironwood revenue comparison is not apples-to-apples. Ironwood's total revenue generated in the third quarter of 2019 included $42 million in non-recurring license and milestone revenue related to the amendment of our ex-U.S. Linaclipide agreements in China and Japan.
Okay Linzess net sales were 241 million during the quarter as reported by Abbvie, a 10% increase compared to the third quarter of 2019 that growth for the brand was driven primarily by increased prescription demand combined with modest net price improvement in inventory fluctuations Brad.
Brand margin, including both commercial and R&D expenses were 73% during the quarter the.
The increase in margin was primarily due to higher net sales and lower brand expenditures keep in mind that we are limited in person details by the combined sales teams during the quarter due to the COVID-19 pandemic.
Gina Konselman: Lindus net sales were $241 million during the quarter, as reported by AbbVie, a 10% increase compared to the third quarter of 2019. The growth for the brand was driven primarily by increased prescription demand, combined with modest net price improvement and inventory fluctuations. Brand Margin, including both commercial and R&D expenses, was 73% during the quarter.
Our as Mark mentioned that combined field force is now mostly back conducting in person details in territories throughout the country.
As a reminder, that remote selling activities conducted by Ironwood in aby are not counted as an expense in the U.S. linzess commercial collaboration.
Turning now to Ironwoods profitability and cash we delivered our sixth consecutive quarter of profitability in the third quarter.
GAAP net income was 34 million and adjusted EBITDA was $47 million. Additionally, we generated 54 million in cash flow from operations and ended the third quarter with $308 million in cash.
Gina Konselman: The increase in margin was primarily due to higher net sales and lower brand expenditures. However, keep in mind there were limited in-person details by the Combined Sales Teams during the quarter due to the COVID-19 pandemic. However, as Mark mentioned, the Combined Field Force is now mostly back conducting in-person details in territories throughout the country. A reminder that remote selling activities conducted by Ironwood and Appy are not counted as an expense in the U.S. Linzess Commercial Collaboration.
We believe our continued financial performance, our current cash balance and the numerous steps taken in 2019, and 20 to strengthen our financial profile positions us well to continue to invest thoughtfully behind our Brazil business and pursue inorganic assets.
As we head into the last few months of the year. We are pleased to announce that we are increasing our 2020 financial guidance. We now expect high single digit percent Linzess net sales growth year over year compared to our previous guidance of mid single digit percent net sales growth.
Gina Konselman: Turning now to Ironwood's profitability and cash. We delivered our sixth consecutive quarter of profitability in the third quarter. Gap net income was $34 million, and adjusted EBITDA was $47 million.
Gina Konselman: Additionally, we generated $54 million in cash flow from operations and ended the third quarter with $308 million in cash. We believe our continued financial performance, our current cash balance, and the numerous steps taken in 2019 and 20 to strengthen our financial profile position us well to continue to invest thoughtfully in our business and pursue inorganic assets. As we head into the last few months of the year, we are pleased to announce that we are increasing our 2020 financial guidance. We now expect high single-digit percent LINZES net sales growth year over year, compared to our previous guidance of mid-single-digit percent net sales growth. We also expect total Ironwood revenue to now be between $370 million and $385 million, compared to our previous guidance of $360 million to $380 million.
We also expect total ironwood revenue to now be between $370 million and $385 million compared to our previous guidance of $360 million to $380 million.
And for adjusted EBITDA, we expect to generate greater than 130 million in 2020 compared to our previous guidance of greater than $105 million.
With that I'll turn it over to Mark for some closing comments before Q and a.
Thanks, Jim in summary, we entered the final leg of 2020 with what we believe are sound business fundamentals of focus strategy and the resilience and growing business I would be remiss, if I did not take a moment to commend the hard work that all of my colleagues at ironwood, putting during a very challenging year.
In light of the ongoing pandemic in the clinical trial set backs. This year, our colleagues continued commitment to and passion for our mission as reinforce what a remarkably as our culture and community we've built in Ireland.
Gina Konselman: And for adjusted EBITDA, we expect to generate greater than $130 million in 2020, compared to our previous guidance of greater than $105 million. With that, I'll turn it over to Mark for some closing comments before Q&A. Thanks, Gina.
I believe the Ironwood is positioned well and are excited about the opportunities to improve the lives of patients and delusional holder value. Thanks again for joining us This afternoon and operator, we can now open the line for June.
Mark Mallon: In summary, we entered the final leg of 2020 with what we believe are sound business fundamentals, a focused strategy, and a resilient and growing business. I would be remiss if I did not take a moment to commend the hard work that all of my colleagues at Ironwood have put in during a very challenging year. In light of the ongoing pandemic and the clinical trial setbacks this year, our colleagues have continued commitment to and passion for our mission, as reinforced by the remarkably agile culture and community we built at Ironwood. We believe that Ironwood is positioned well and are excited about the opportunity to improve the lives of GI patients and deliver short-holder value. Thanks again for joining us this afternoon, and Operator, we can now open the line for Q&A. And at this time, I'd like to remind everyone, if you'd like to ask a question, please press star 1 on your telephone keypad. Again, that is star number 1.
And at this time I'd like to remind everyone. If you like to ask a question. Please press star one on your telephone keypad again that is star one well pause for just a moment about keeney roster.
Your first question comes from the line of David Lebowitz with Morgan Stanley.
Well. Thank you very much for taking my question.
The uptick in the quarter.
Operator: We'll pause for just a moment to compile a Q&A roster. Your first question comes from David Lebowitz with Morgan Stanley. Thank you very much for taking the mic. With the uptick in the quarter, what do you guess you're attributing most? Has there also been, I guess, more embracing of prescribing?
Mark Plinio: Thanks, David. Mark, why don't you take that question? Sure. Thanks for the question. We're very pleased with the performance over the course of the entire pandemic that we've been experiencing and particularly in Q3. I think we really focused there on the result of our field being back to full strength, calling on physicians in person. We did launch DTC, which is driving patients in. I think on the telehealth front, what we've seen is, you know, with the pandemic, as I mentioned earlier, we saw a significant portion of new patients coming through the telehealth channel. Now, interactions have declined a little bit since that time.
Mark Plinio: But we do see that telehealth will continue to be a channel as we look forward. And I think the opportunity for Ironwood and, quite frankly, the rest of pharma is how do we transition from a more transactional approach to really looking at the patient holistically, driving a good experience, and potentially higher satisfaction, which will lead to brand loyalty and, ultimately, stronger adherence. So we do continue to see telehealth as a great channel for us to really leverage Linzess because it's made for a telehealth environment, has a strong clinical profile and safety profile, is easy to diagnose based upon the symptomatic disease, and patients' willingness to engage over the digital channel. So we're looking forward to leveraging those opportunities as we look into later in the year and into 21. Did that answer your question, David?
Leveraging those opportunities as we look into later in the year and into 21.
And answer your question David.
[laughter].
David.
Okay, maybe upgrade can we we wanted to next call.
Yes. Your next question comes from the lineup Eric Justice.
Oh, Thanks for today, Hi, Hi, Thanks for taking my question I guess with first on Linzess, another pretty strong quarter on commercial margin.
I'd be curious to get a sense of sort of how durable you see this you know going into fourth quarter. In 2021, I guess is there any sensitivities and [laughter].
Operator: Okay. Okay, maybe operator, can we move on to the next call? Yes, your next question comes from lineup Eric Joseph. Hi, thanks for taking the question. I guess first on Lindesk, another pretty strong quarter on commercial margin. I would be curious to get a sense of sort of how durable you see this, you know, going into the fourth quarter in 2021. Is there any sensitivities on that front? How do you feel about that
On that front.
How do you.
Yeah <unk> eliminate the first question there and then secondly.
Alright.
Hello.
Operator: Yeah, let me leave the first question there. And then secondly, Eric? Hello.
Hi, Eric go ahead, we seem to have lost it.
Apologies sorry about that so my my first question can you hear me now.
Operator: Hi Eric. Go ahead. We seem to have lost you there. Apologies. Sorry about that. So my first question is, can you hear me now?
Yes.
Okay. So my first question was about.
Operator: Yes. Okay, so my first question was about the Commercial Margin, which continues to be strong. I'm just wondering how you're thinking about, I guess, investing in the brand, and how commercial margin might look into the end of the year and into 2021, if there are any sensitivities there. And then, secondly, I don't want to ask you to speak for Alex Denner, but curious to get a sense of how, with his joining the board, you're thinking about or how you anticipate the strategic direction of the company So, Gina, why don't you take the first question on commercial margin, and then I'll come back and take the second question, Eric. Thanks. Sure. Thank you. And good afternoon, Eric.
Commercial margin, which continues strong.
I'm just wondering how you were thinking about I guess spend into the bran and how commercial margin might look into the end of the year is 2021, if there are any sensitivities there and then secondly.
I don't want to ask you to speak for Alex dinner, but curious to get a sense of how with his joined the board you're thinking about or how you anticipate the strategic direction of the company shifting you know between investing more heavily into brand potential pipeline expansion or potential like the <unk>.
So if you didn't want to take the first question commercialized and then I'll come back and take a second question everything sure. Thank you and could you Tenuity I I'm, having to take the commercial brand margin question.
Gina Konselman: I'm happy to take the commercial brand margin question. So, maybe just a comment on Q3 first before I talk about subsequent quarters and our expectations. Just keep in mind that we were able to see a 78 percent commercial margin, which is one of our strongest to date. It's up significantly year over year.
Maybe just a comment on Q3 first before I talk about subsequent quarters and our expectations just keep in mind. You know we were able to see that 78% commercial margin, which you know which is one of our strongest to date, it's up significantly here over here, we had about 66% margin last year at the same same quarter and it's a combination of.
Gina Konselman: We had about a 66 percent margin last year in the same quarter. It's a combination of two things, one so one, you know, just the revenue continues to increase. That contributes to the margin. But if you note, our expenses are about $20 million or so lighter than they were in the prior year. And that's really just related to what we were talking about the number of in-person calls. It's primarily related to the number of in-person calls that were made.
Two things months. So one you know just that revenue continues to increase that contributes to them the margin, but if you know what our expenses are about 20 million aircell of lighter than they have been in the in the prior year and that's really just related to what we were talking about on the number of in person calls is primarily related to the number of a personal call that were made.
Gina Konselman: We noted that, you know, our sales force has been ramping up and getting back out there face-to-face with physicians, but they were doing that and continuing to do that through the quarter, which means there were fewer calls charged to the collaboration and then a higher brand margin. Now, maybe more specifically to Q4 and, in general, Q4 has traditionally been our highest-margin quarter every year. It's usually our highest revenue quarter, and the costs remain relatively fixed, so it translates to a higher margin.
Yeah, we noticed that our sales force has been ramping up and getting back out there face to face with physicians, but they were doing that and continuing to do that through with a quarter, which means that were last calls charge to the collaboration and then a higher Ah brand margin.
And now maybe more specifically the queue for and I think beyond and.
In general in queue for has traditionally been our highest margin quarter every year, it's usually our highest revenue quarter and the cost remained relatively fixed too it translates to a higher margin, but I did have that cautionary note in my script and the and the reason I had that is because.
Gina Konselman: But I did have that cautionary note in my script, and the reason I had that was because while revenue could possibly increase, I wanted to be cautious on the expense side because since our reps are back in the field more, we would expect more charges in Q4 related to those face-to-face calls. And then lastly, just sorry to make it a long answer, but on the longer term, you know, we are just very optimistic about the continued growth of Linzess and, you know, with maintaining expenses roughly fixed and combining that with growing revenue, that just leads to increasing margins over time. Thanks, Gina.
Well the revenue could possibly increase I want it to be cautious on the expense side because since our reps are back in the field more we would expect more charges in queue for related to those face to face calls.
And then lastly, just sorry to make it a long answer but on the longer term. We are just very optimistic about the continued growth for linzess and.
With maintaining expenses roughly 610, combining that with growing revenue that just leads to increasing margins overtime.
Thanks, you and Eric two second question as I mentioned I mean, our strategy remains the same.
Mark Mallon: And Eric, to your second question, as I mentioned, our strategy remains the same, which is really maximizing, as Lynn says, growth, continuing to make sure we're driving good profit from and growing profit from our business, and then continuing to look for complementary assets to lenses that would meet unmet needs from a GI perspective, disease perspective, but also there will be value to patients. And so that will continue. We've also said, of course, that we do regularly sort of look at our overall strategy and if there are opportunities to do something that would add value to shareholders more quickly, more impactfully, we're open to sort of all possibilities. You know, I'm excited, actually, to have, you know, Alex come on board sort of on all of those dimensions, right?
Talk about which is really maximizing Lin says.
Growth.
Continuing to make sure we're driving groups of profit from and growing profit from our business.
And then continue to look for complementary assets two lenses.
We'll need unmet need from a jihad perspective disease perspectives would also there'll be a valued patient.
And so that will continue we've also set of course that we do regularly sort of look at our overall strategy and if there are opportunities to to do something that would add value to shareholders will quickly.
Quickly where in fact loot, but we are open to all sorts of all possibilities.
I'm excited actually to have <unk>.
It looks to come aboard sort of and all of those dimensions right. He's got a as you probably know a lot of experience in the industry and you see many great Grand So we've had good discussions in the past the boatman says and having him engaged in thinking about how we can do more there will be great.
Mark Mallon: He's got, as you probably know, a lot of experience in the industry, and he's seen many great brands. So, we've had good discussions in the past about Luncez, and having him engaged in thinking about how we can do more there will be great. He's a very savvy businessman, so I think thinking about how we can sort of optimize profit and performance will be another area that he can engage in. And then he's got a lot of experience in corporate development, and of course, you know, even thinking overall strategically about the business. So, the strategy remains the same. I mean, Alex is going to be able to, I think, really participate in all of those areas, and we'll continue to, you know, with him now as part of the team, evaluate overall, long-term, what we're going to do. Great. It does. Thank you.
Very savvy businessman, so I think thinking about how we can optimize.
Profit been performance will be another area that he can engagement and then he's got a lot of experience also.
Development and of course, even also thinking overall strategically with the business. So the strategy remains the same.
Alex is going to be able to I think really participate in all of those areas and will continue to with him now as part of the team evaluate overall longterm, what what we're gonna do.
Great Uhm maybe.
It does go ahead. Thank you what other question. She just remind us where maybe just yeah remind us what the stanfield <unk> Uhm provisions are under the company charter and to the extent there is still in place when they might be up for reconsideration.
Operator: One other question, can you just remind us where the Stanfield provisions are under the company charter and to the extent they're still in place when they might be up for reconsideration? Virginia, do you want to comment on the standstill? I'm sorry, Marius, do you want to comment on the standstill? You were talking with Abby, correct, Eric?
So if you want to comment on the I'm, sorry bedroom, if you want to comment on the standstill.
What was that you were talking with Abu director.
Correct, Yeah, what it would be bad publicly about this standstill agreement.
If we continue to have a standstill agreement with Abby that will extend throughout the licensee partnership.
Unknown Executive: Correct. What have you said publicly about the standstill agreement with AbbVie? We continue to have a standstill agreement with AbbVie that will extend throughout the life of the partnership. It's a fixed part of the contract, it doesn't, there's no... Changes, et cetera, are a myth-based input.
Okay.
It's a fixed part of the contract he doesn't deserve.
Changes et cetera.
Okay.
I appreciate it thank you.
Your next question comes from the lineup with him Chang wouldn't Brooklyn security.
Alright, thank pricing and.
Unknown Executive: I appreciate it. Thank you. Your next question comes from the line of Tim Chang with Northland Security. Hi, thanks. Hi, Mark.
Hi, Mark.
So you don't get you guys have a good problem here with building cash from operations.
Operator: So, you know, I guess you guys have a good problem here with building cash from operations. Unknown Speaker You know, you have what $300 million plus of cash on the balance sheet now, I mean, as you sort of work into 2021? You know, how should we sort of think about business development? And are you looking for assets outside of GI that might complement Linzess? And then also I had a follow-up question.
You know you just have with what $300 million lots of cash on the balance sheet now.
As you sort of.
Work into 2021, you know how <unk>, how should we sort of think about business development.
I mean are you are you looking for.
Assets outside of G I that might complement linzess.
And then also I had a follow up on.
The Lind this joint venture which is really.
Mark Mallon: The Lindis Joint Venture, which is really... You know, how much of this additional growth is really because of AbbVie? Is it just because they're just a bigger company, and they're able to put more boots on the ground with Linzess? Is that why the growth is accelerating here? So I'll say, I'm going to comment on your second question, and Mark, you can expand on it if you'd like. So I would say a little bit of yes and yes. I think the main reason why we're continuing to see growth is that we have the right strategy. And we've been executing against it well. And Mark went through the levers.
You know how much of this additional grass is really because I have the.
Is it just because they're just a bigger company and they're able to.
Mark Mallon: And AbbVie has been fully committed to that, and we continue to support it. But, of course, they're a great company. And so we are, you know, seeing them engage fully; their sales teams are fully out there. And I think what we're really excited about is the future possibilities where we're talking about, you know, new areas where we can collaborate and do more with the brand. So we have the right strategy in place, and really, the transition to AbbVie has been seamless. I think it's a little bit early to say how much there could be an acceleration from that. It's hard to say now.
Mark Plinio: It's probably more the momentum that we had. But going forward, we certainly are both, I think, hoping to do more with AbbVie. Yeah, Mark, I think you're spot on with that. I think what I'd add is, you know, we've been in this space for some time with a heavy focus on GI, and we've built a lot of relationships over time. I think what we bring to the equation from an Ironwood perspective are those strong relationships and focus in GI, which has helped make that transition with AbbVie seamless. And I think you're seeing that pay off right now from the standpoint of how we've been able to essentially deliver, you know, strong demand growth ever since this brand was launched back in 2012. And the one constant factor in this whole thing has been Ironwood.
The equation from an iron wood perspective are those strong relationships and focus in <unk>, which has helped make that transition would that be seamless and I think you're seeing that pay off right now from the standpoint of how we've been able to essentially delivered strong demand growth ever since this brand was launched back in 2012 and the one constant.
Factor in this whole thing has been ironwood I mean, the we've had multiple changes over time, we've been able to transition through those changes we've had great partnership so along the way and add these no different we have a great partnership there we stand to benefit from a lot of the capabilities that they have in place. We're looking forward. We've only just begun quite frankly them coming out of it.
Mark Plinio: I mean, we've had multiple changes over time. We've been able to transition through those changes. We've had great partnerships along the way, and AbbVie is no different. We have a great partnership there. We stand to benefit from a lot of the capabilities that they have in place. We're looking forward. We've only just begun, quite frankly, them coming out of the transition of their acquisition of Allegan.
The transition of their acquisition of elegant so we're really looking forward to really reaping the benefits of that.
That collaboration overall, so I'm really excited about what the future holds and we look forward to 21 and beyond.
Thanks, Mark so in terms of business.
Element.
Corporate development, let me just say a few words.
Mark Plinio: So, you know, we're really looking forward to reaping the benefits of that collaboration overall. So I'm really excited about what the future holds, and we look forward to 21 and beyond. Thanks, Mark.
First our focus will continue to be in Gi, that's what we've stated.
And will continue to be there certainly we've got swirls, you diseases over Gi diseases or diseases Gastrologist play a big Big Row. For example of course acute traumatic for the partnership with a violent is not.
Mark Mallon: So, in terms of business development or corporate development, let me just say a few words. So, first, you know, our focus will continue to be on GI. That's what we've stated and have been, and will continue to be there. Certainly, with gastroenterology diseases or GI diseases or diseases that gastroenterologists play a big role. For example, you know, of course, acute hepatic porphyria in partnership with hepatitis A is not, you know, specifically a GI disease. But, you know, its hallmark symptoms are very similar to IBS, and gastroenterologists do get very involved in managing, particularly identifying AHP patients.
Specifically, a guess hei disease, but it's Hallmark center was very like similar to Ibs and Gastrologist do get very involved in managing.
Particularly identify AFP patients and so we saw that is a good fit for a coca emotional will be staying focused on Gi diseases.
And diseases that Gastrologist heavily involved in training I think the second thing we've talked about is it needs to be a product of products that we think over time can really support continued does growth.
Wherever we can do something that synergistically.
Enhanced what we're doing with Lopez, that's a cute priority.
Mark Mallon: And so we saw that as a good fit for a co-promotion. But we'll be staying focused on GI diseases and diseases that gastroenterologists are heavily involved in treating. I think the second thing we've talked about is it needs to be a product of products that we think, over time, can really support continued Lincez growth. So wherever we can do something that synergistically is going to enhance what we're doing with Lincez, that's a key priority. We are committed to... Sustaining profit generations over time.
We are committed to.
Sustaining profit generations overtime, it because that can fluctuate depending.
Depending on the phase of development of a product of the lunch stage, where we're committed to generate a profit and so as we said we're focusing at this point primarily on.
Late stage or commercial assets that hopefully can get.
Deliver revenue sooner rather than later has been a primary focus and of course, we want things that we're confident really will address I areas of unmet need.
Mark Mallon: Of course, that can fluctuate, you know, if you're in, depending on the phase of development of a product or the launch stage. But we're committed to generating profit. And so, as we've said, we're focusing at this point primarily on late stage or commercial assets that, hopefully, can deliver revenue sooner rather than later. And of course, you know, we want things that we're confident really will address high areas of unmet need, bring innovation, and then do something we'll be confident is value-creative for shareholders. You know, there are a lot of different areas within the GI space that can meet those criteria, so we don't necessarily specify particular diseases.
Bringing innovation and then do something we will be confident is valley.
<unk> <unk>.
Shareholders.
There were a lot of different areas within the Gis space.
Meet those criteria so.
Specifies particular diseases with Ya.
Unfortunate and we've had a very high amount of inbound opportunities that we continue to see them and we will continue to evaluate them but.
With a pretty careful I in a pretty high bar because.
Obviously, we still got a lot we can do with those.
That answer your question is Tim.
Yeah, maybe maybe just one last question is how big will your sales force the.
Mark Mallon: We've been fortunate that we have had a very high number of inbound opportunities, and we continue to see them, and we'll continue to evaluate them, but, you know, with a pretty careful eye and a pretty high bar. Does that answer your questions, Tim? Yeah, maybe just one last question is, how big will your salesforce be post the personnel reductions? I mean, is it still going to be pretty sizable?
Host the personnel reduction I mean is it.
I'm gonna be pretty sizable.
So we we haven't.
Sure.
The file size of the new Salesforce team is.
Very much working on the redesign of that.
As soon as we have that complete at appropriate time, we will we will share that externally as you can imagine.
Organization is waiting to hear the results of that work, we wanted to show that internally and communicate that with our partners before we could publicly but.
Mark Mallon: So we haven't shared the final size of the new sales force. The team is very much working on the redesign of that. As soon as we have that complete at the appropriate time, we will share that externally. As you can imagine, the organization is waiting to hear the results of that work. We want to share that internally and communicate that with our partners before we go public, but that's what we've given for now, just the guidance at the total company level. I will say that you can assume that we're going to still maintain our strong relationships with gastroenterologists and the highest prescribers, that we're going to continue with AbbVie as a partnership, and make sure that we're not shortchanging Litez at all.
That's what I would give them for now just the guidance of the total company level I will say that you can assume that we're going to films maintain are strong relations with guests neurologist and the highest prescribers that we're going to continue with Abbvie as a partnership make sure that we're not sure changing.
Mark Mallon: We're going to continue to really make sure we're doing everything to get behind the brand. Now, that doesn't mean just personal promotion. I think you know over time, because you've followed us for a long time, that we've been gradually reducing personal promotion and increasing our investment in consumers. And you can probably expect that that type of a trend is going to continue. That's part of why we feel like we can take a look at this option on this. But the final design is still a few weeks away.
Operator: Okay, great. Thanks. Congratulations on the quarter. And again, if you'd like to ask a question, there's a star one on your telephone keypad. Operator, any more calls? There are no questions at this time. Okay, I think we will say thanks to everybody who participated in the call this afternoon. Again, thanks to the team, and we look forward to continuing to engage with you through the rest of the year. Everybody have a great weekend and stay well. This does conclude today's conference call. You may now disconnect. Thanks for watching!
Continuing to engage with Ya.
We were the rest of the year everybody have a great weekend.
And stay well.
It's definitely close today's conference call you may now disconnect.