Q2 2023 Ironwood Pharmaceuticals Inc Earnings Call
Ladies and gentlemen, thank you for standing by my name is Sharon and that will be accomplished operator today at this time I would like to welcome everyone to the Ironwood Pharmaceuticals, Q2, 2023, Investor update conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again.
Thank you.
I would now like to turn the call over to Matt Roche Director of Investor Relations Your.
Your line is now open.
Thank you Cheryl good morning, and thanks for joining us for our second quarter 2023 Investor update.
That's 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.
Cause actual results to differ materially.
These statements and risk factors is available on the current safe Harbor statement slide as well.
Well as under the heading risk factors.
Annual report on Form 10-K.
Year ended December 31, 2022, and in our subsequent SEC filings.
All forward looking statements speak as of the date of this presentation.
Undertake no obligation to update such statements.
Also included a non-GAAP financial measures.
Which should be considered only as a supplement to and not a substitute for or superior to GAAP measures to.
To the extent applicable please.
Please refer to the tables at the end of our press release a reconciliation of.
These measures to the most directly comparable GAAP measures.
During today's call Tom Mccourt, our Chief Executive Officer.
Review, our strategic priorities, and our pipeline and <unk> <unk>, our chief Financial Officer.
Slide an update on our commercial performance of Linzess.
The recent addition of effort we tied to our portfolio.
Through our acquisition of <unk> Bio and review, our financial results and updated guidance.
Andrew Davies, our Chief business Officer is available for the question and answer session. Following our prepared remarks.
Mike <unk>, our Chief Medical Officer is unable to attend today's call as he is out for personal reasons unrelated to ironwood's business while.
While we do not know how long the mic maybe out we will provide updates as appropriate.
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. Thanks, Matt Good morning, everyone and thanks for joining us today.
Im excited to provide an update on our progress on what has been a transformative quarter at ironwood.
First I'm pleased to announce that we are increasing.
Our full year Linzess U S net sales and Ironwood revenue guidance based on the strong performance of Linzess second Linzess received FDA approval to treat.
Pediatric patients aged six to 17 years old for functional constipation further expanding the clinical utility of the brand.
And its growth potential.
Finally, we're excited to have completed the tender offer to acquire <unk> bio, including their key G. L. P to add said ethically tight if successful and approved we believe Africa Lutite has the potential to become the new standard of care for patients suffering from short bowel syndrome within personal failure and achieve.
$1 billion in peak net sales.
We believe the continued successful linzess combined with our expanding pipeline has us well positioned to realize our vision of becoming the leading Gi health care company.
Let's turn to slide six for a brief overview of our strategic priorities.
First maximize Linzess Linzess continues to see robust prescription demand growth profitability and widespread acceptance among health care practitioners is a leading branded prescription treatment for adults with Ibs C and chronic idiopathic constipation.
In the second quarter U S net sales and prescription demand both increased 9% year over year, demonstrating that the momentum of the brand remains strong.
In June Linzess received FDA approval for pediatric patients aged six to 17 for functional constipation, making linzess the first and only prescription therapy indicated for the use in this population, which has a high unmet medical need and limited treatment options.
We're extremely proud of this achievement for ironwood, but more importantly for patients.
Moving on to our second strategic priority strengthen and progressed, our innovative Gi portfolio and.
In addition to the impressive Linzess performance in the second quarter. We also we also significantly enhanced our Gi portfolio with the acquisition effect of bio.
This acquisition fits squarely within our strategic framework and we believe it represents a critical step for ironwood to achieve our vision and deliver value to patients and shareholders.
Our third strategic priority is to deliver sustained profits and generate cash flow.
We expect the cash flows from Linzess will support a rapid delevering.
To below two times total net debt to EBITDA ahead of the potential epically tied commercial launch in 2025.
As a Gi focused biopharma with strong cash flow generation. We believe we are well positioned to maximize linzess growth and continue to advance our pipeline programs to create the next growth horizon for the company.
Next I'll review, our pipeline programs, which you can see on slide seven.
I'll start with an update on the timing of the topline data for the <unk> Phase III clinical program of Africa tied in short bowel syndrome, intestinal failure, which continues to be our primary focus and the effective bio pipeline and the expected value driver from the acquisition.
We recently completed enrollment.
The stars Phase III trial, with 164 patients suffering from short bowel syndrome with intestinal failure.
As the largest <unk> study ever conducted in short bowel syndrome, what's intestinal failure.
A big congratulations to the entire store.
<unk> clinical team and the entire organization for this tremendous accomplishment.
Given the medical need and the interest of patients.
We elected to enroll all screen patients that made it successfully through the STAAR study screening process and honor their commitments to participate in our clinical trial, allowing for more global diversity, which we believe is beneficial to both patients and the global development program.
We expect the addition of these patients will now result in a top line readout for the startup phase III in March 2024.
In addition, <unk> for short bowel syndrome at Tesla failure received fast track designation, which is designed to expedite development of treatments for patients with limited treatment options and can lead to earlier drug approval and faster access.
<unk> fast track designation further reinforces our conviction in the clinical development program based on the unmet medical need and the potential benefit for patients suffering from short bowel syndrome within personal failure, which remains on track for a potential launch in 2025, we look forward to providing additional.
It'll updates as the study continues to advance.
In addition to evaluating Africa tied for short bowel syndrome, what's intestinal failure. We are also evaluating the asset as a potential treatment for patients with graft versus host disease or gvhd.
Graft versus host disease is immunologically mediated and occurs in individuals with allogeneic hematopoietic.
Stem cell transplantation, where donor immune cells react against the host recipient.
The gastrointestinal tract because among the most common site.
It is affected by JV gvhd and severe manifestations of Gvhd, if the guide portends poor prognosis in patients after stem cell transplant.
We are currently executing a proof of concept phase II study, which is going well and recently completed a pre planned interim analysis.
The interim analysis supported continuing the study without any changes.
Given the recent acceleration in Sydney.
<unk> of the study we expect to complete recruitment in the near term and we expect data on <unk> on.
The complete study in the first quarter of 2024.
Now the <unk> 104 for the potential treatment of primary biliary cholangitis.
The proof of concept study is ongoing and given the strong science underlying this therapy, we plan to assess T cell response in patients.
With CMP one of four in the second half of 2023.
This will inform the timing of the top line data and potential option exercise we expect.
To provide an update on the program at that time.
We're excited about <unk>, because it is truly precision medicine and it introduces a potentially new game changing asset for PBC patients.
There are no therapies on the market today that address the root cause of the autoimmune destruction.
<unk> in PBC.
Moving to IW 3300 wholly owned ironwood asset for the potential treatment of interstitial cystitis bladder pain syndrome.
There is a significant unmet need in this area as this chronic condition affects millions of America. Yet there are very few treatment options currently on the market or in development.
We are currently executing a proof of concept phase II study, which is progressing as planned for.
We're excited about this program as it is the first time the cross talk hypothesis will be tested in humans and we are proud to be on the forefront forefront of the clinical development area.
Purely clinical development in this area.
Before I turn the call over to shrub it I want to acknowledge all of the ironwood employees, including our newest colleagues, who joined us through vector bio who have continued the momentum and strong execution against our strategic priorities as we pursue our mission to help make a remarkable impact in patients' lives <unk> over to you.
Thanks, Tom and good morning, everyone I'm happy to provide additional details on what was a very exciting and transformative quarter for ironwood starting on slide nine.
As Tom mentioned, a few moments ago, both Linzess U S net sales and prescription demand grew 9% year over year.
This strong growth was driven in part by a 15% increase in new to brand prescriptions year over year, reinforcing the patients and health care professionals continue to choose linzess and a growing market.
We believe the strong demand momentum for Linzess as a result of high treatment satisfaction with both patients and healthcare professionals combined with the support of class leading formulary access.
Online recommendations and focused commercial execution.
In addition, as previously mentioned.
Linzess was granted a new indication in June for the treatment of functional constipation, which affects roughly 6 million patients aged six to 17 years old in the United States.
Since the FDA approval, our talented sales team has been in the field educating customers.
Thus far feedback has been very positive and health care professionals are excited by the ability to prescribe linzess to help this new patient population.
In early July we also began promoting linzess to pediatric gastroenterologist and specific geographies and we will assess future promotional expansion based on market response from these efforts.
We look forward to providing updates later in the year as we gain more insight into this opportunity, which will help inform optimal investment and then net sales potential in 2024.
Moving on to our acquisition of vector bio on slide 10.
We are thrilled to have Africa tightest part of our Gi portfolio for the following reasons.
We have high conviction <unk> clinical program in the short bowel syndrome.
Intestinal failure based on its mechanism of action.
<unk> for enhanced potency extended.
Half life and unique convenience of weekly dosing as well as the compelling data to date in.
In addition, the.
The novel design of the ongoing phase III study is set up to evaluate efficacy in both short bowel syndrome intestinal failure.
Populations, which are stomach and calling and continuity.
As a company with strong with a strong network in the GI community. We believe ironwood is best positioned to maximize the potential value of actively tied our patients and shareholders by leveraging our existing expertise in clinical development.
Regulatory medical affairs and commercial execution.
As evidenced by the blockbuster success of Linzess.
We believe we will drive significant operating leverage to ironwood's existing commercial capabilities to support a potential commercial launch in 2025.
Approved.
As I mentioned earlier, we believe applegate side has the potential to achieve $1 billion in peak net sales and significantly expand the treated patients and then short bowel syndrome with intestinal failure based on the assets unique properties.
This acquisition has the potential to create an attractive financial profile for ironwood over the long term.
With African time, providing a significant catalyst to be to extent ironwood's growth horizon through 2030.
Additionally, I'd like to provide a brief update on where we are with effective bio transaction closing and the integration.
As we previously announced at the end of June we successfully completed the tender offer to purchase the outstanding ordinary shares objective by over $17 per share in cash.
With 98% of the shares being tendered.
Following the completion of the tender offer we began collaborating with our new colleagues and integrating ironwood invective bio business operations, which is progressing well.
We are taking the necessary steps to effect, a squeeze out merger under Swiss law to acquire the remaining 2% effective bio shares.
We expect this process to be completed during the second half of 2023.
We will provide additional updates in subsequent filings.
As steps in this process are completed.
Next I'll provide additional details on our financial performance for the quarter.
As shown on slide 11 U S. Net sales were $270 million in the second quarter of 2023.
An increase 9% year over year.
Net sales growth was driven by Linzess prescription demand growth of 9%.
Second quarter net price was favorable as compared to our previously communicated full year mid single digit net price erosion guidance due.
Due to favorable channel mix.
Turning to Linzess brand profitability.
Commercial margins in the second quarter of 2023% or 71%.
Compared to 69% in the second quarter of 2022.
Moving to Ironwood revenues.
In the second quarter of 2023, Ironwood revenues were $107 million driven primarily by U S. Linzess.
Collaboration revenues of $105 million.
Ironwood recorded $13 million of income tax expense in the second quarter.
The majority of which was noncash.
When completed two restructurings in the second quarter of 2023.
In April as previously disclosed we reduced our workforce by approximately 10% of our headquarters based personnel.
And in June Ironwood commenced the elimination of certain positions in connection with the <unk> bio acquisition.
Ironwood recorded $13 million of restructuring expenses and adjustments primarily comprised of employee severance benefits related cost in the second quarter.
In the second quarter, Ironwood recorded $1 8 million and interest expense and other financing costs and generated $8 $8 million in interest and investment income.
GAAP net loss was $1 1 billion and adjusted EBITDA was a loss of $1 billion in the second quarter driven by a onetime charge.
A $1 $1 billion related to the.
Acquired in process research and development from the vector vials acquisition.
In the second quarter, we generated approximately $35 million in cash flow from operations and ended the quarter with $175 million in cash and cash equivalents.
The acquisition of active buyer was funded through proceeds from our revolving credit facility cash on hand, and cash effective buyer.
Moving forward, we continue to maintain our focus on generating sustained profits and meaningful cash flows well now having the potential extended our growth horizon through the 20 <unk>.
We expect to generate greater than $175 million in operating cash flows each year out of a potential Africa type commercial launch is successful and approved in 2025.
Additionally, the acquisition of active buyers expect it to be accretive to earnings per share beginning in 2026, and assuming no additional business development.
The activities, we expect adjusted EBITDA to return to greater than $250 million by the end of 2025.
We anticipate total net debt to EBITDA for a revolving credit agreement of approximately three times by the end of 2023.
And we expect cash flows from Linzess will support our rapid delevering to below two times total net debt to EBITDA out of a potential commercial.
Commercial launch in 2025.
Moving forward, we will continue to prioritize investments to maximize the value of Linzess progress our development portfolio and manage our capital structure through debt Paydown.
We will maintain the flexibility to evaluate additional opportunities for capital development.
Next I'll review, our updated 2023 guidance on slide 13.
As a result of continued strong performance of Linzess to the first half of the year, we are increasing our full year U S. Linzess net sales and ironwood revenue guidance.
We now expect Linzess U S net sales growth of between six and 8% driven by strong continued and he need strong prescription demand growth and an improved pricing outlook for the remainder of the year.
Accordingly, we now expect ironwood revenue between $435 million to $450 million.
We're also revising our adjusted EBITDA guidance to reflect the acquisition of that give bio.
We now expect a loss of approximately $900 million.
Which includes a one time charge of approximately $1 1 billion.
On the acquisition.
Excluding the impact of the onetime charge.
Adjusted EBITDA.
Isn't it approximate representation of our operating cash flows.
To wrap up.
We had a strong second quarter and first half of the year. We believe we have strengthened our position to become the leading Gi health care company.
We are well positioned for continued growth and we remain focused on maximizing linzess strengthening and progressing our innovative gi portfolio and delivering sustained profits and generating cash flow.
We are excited about the several key development milestones ahead of us and we'll continue to keep you updated on our progress in the second half of the year.
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.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We will pause for a moment to compile the Q&A roster.
Yes.
Your first question comes from the line of Tim Chiang with capital One your line is now open.
Hi, Thanks, I, just got a few questions I think.
The first questions on the improved pricing for Linzess could you just sort of comment on.
You know what the dynamics are.
For Linzess in the second half of the year.
How things have changed a little bit from the first half of the year for Linzess.
Yes, so thanks Tim.
Good to hear from you. So I think from a from a pricing perspective through the first few quarters, we experienced favorable pricing relative to our initial guidance and expectations and I think as we discussed as we disclosed that's due to favorable channel mix.
First half pricing trends have been improved our outlook for the full year and as you can imagine when you have the volume of Linzess as slight shift in the mix is going to have meaningful change and so I think that's.
Essentially.
Where we're at.
Got it and then maybe just a follow up on Africa tide I mean, obviously, you've adjusted the time timeline for the top line readout.
Is there any change and is it really just.
Screening related is that is that.
The reason for the push out on the release of the data data.
Yeah. So I think <unk> always said is I think the key here Tim is that we elected to enroll all the patients that need it successfully through the stars study and the screening process and so as a as Tom mentioned, we have a commitment to those patients and the connection between amendment to the sites.
And in order to maintain the global diversity of the trial. We believe it is beneficial for the patients and our overall global development opportunity.
So.
We're excited.
The trial enrollment is completed and we've got 164 patients and with that I think will have somehow.
Something to report out in the first quarter next year.
Mike This is Tom I think you know this.
This is a discussion that we had obviously with the with effective team in the.
The process of screening these patients as is pretty robust and challenging and we're asking patients to go through an awful lot. During the screening process. So we felt obligated to really include them into the trial. We felt it was absolutely the right thing to do we have good alignment with active on that.
Plus it certainly strengthens the overall diversity of the study as we think about a global program as we think about the future filings with the product. So we are absolutely delighted with where the program that.
Certainly everything looks.
Right, where it needs to be and I think we have great conviction and confidence in the clinical development program at this point and two final points on top of that which is one.
As an extra 20 patients in the trial and study.
And then too.
Notwithstanding the extra 20 patients we still expect to have a 2025 launch and there is no impact from our perspective on the timing of our commercial loans.
Okay got it no that's.
The details are very helpful. Thanks.
Your next question comes from the line of Boris <unk> with TD colleagues.
Line is now open.
Good morning, and congratulations on strong Linzess resolve.
Thanks for us.
I guess I just have two questions one on Linzess and the other one on the G. L. P. Two so on Linzess.
Can you comment where the sales growth is coming from is there a particular demographic that youre seeing expansion.
Uptake or maybe any kind of a specific type of physician general practitioners versus Gi docs or is this kind of across the board and on the G. L. P. Two side. My question is is why what are your thoughts on the generic <unk> why we havent seen one and.
When we may be seeing one.
Thank you Andrew why don't you kind of take.
The first property and so on that first question on Linzess, it's really across the board.
We're seeing growth in <unk>.
So we're excited by that.
Remarks, Greg we're seeing continued growth in the market and we're continuing to see physicians choose linzess when those patients present.
Yes of course, the other I think part of that too is you know.
Certainly the pediatric indication was a strong endorsement of the overall profile of the drug which I think has a significant halo effect.
Sure.
We will better understand what the upside potential is for pediatrics is still early.
But Andrew and the team are taken are really evaluating how promotional response of this to really understand how hard we can push or how hard we should push on the investment side, but I think this is I mean, it's as you know continues to be a remarkable drug to see this kind of linear growth and even acceleration in growth, particularly with the.
New to brand.
To see a 15% increase in new to brand at this point on the base business that we have is pretty remarkable.
And so we're just seeing these new patients continue.
And then I think the other pieces is a strong profile remains the same clinically huge patient satisfaction I think the things that have mainland versus SaaS over the last 11 years for us.
I think the.
Have continued here and then Andrew do you want to take a crack at the GATX question as well so on generic <unk> tough to say, what's going to another pharmaceutical manufacturers mind on what they are doing strategy wise by at the end of the day peptides are not always easy drugs to make an easy drugs to bring to market I think there's a number of kind of market dynamics for generic.
To make it challenging so.
We haven't seen it yet I think maybe not the most unexpected outcome for us at this point.
Yeah, So I mean, that's.
So as far as we're concerned.
Good news.
You know when you look at kind of organics as and when you look at the profile of <unk> tied with regard to its potency and it's half life.
I mean, this really could be a significant advancement in care for patients.
Great well, congratulations again and thanks for taking my questions.
Thanks Lauren.
Your final question comes from the line of David.
From Piper Sandler Your line is now open.
Hey, Thanks, so on.
On the GATX generic question I know, it's hard to make it's a peptide and all that but I guess my question here is.
The extent that GATX does lose exclusivity how are you thinking about payer dynamics.
For Applebee's side, how are you thinking about pricing.
<unk>, So just help us understand the commercial implications of loss of exclusivity.
For GATX and then secondly for.
For the <unk> study in acute graft versus host.
To the extent that you do have.
Proof of concept.
Is that something you intend to take forward or is that something you'd look to partner out given that it's it's outside the G. I round how are you thinking about that thank you.
Yes, once you start with the first one yes. So on the generic <unk> question I think maybe it's a little bit early on where we are in terms of for us to specifically guide on price, but I think I can say that this is certainly something that we considered and modeled out when we did the transaction. So regardless of if theres, a GATX generic or theres not I think we feel quite comfortable.
But the investment we've made here and the strong opportunity there as rapidly tighten the future.
As respect to the Stargaze trial.
Look I think.
We're at as we just recently.
Complete the Preplanned interim analysis AD supported continue the study without any changes.
Where we are with the study and the recruitment will probably as Tom mentioned, we will have something in the first quarter to kind of report out.
In terms of data at that point in time, I think depending on the.
The trial is I think Paul and what the data says, we'll we'll evaluate options.
The Big Big part here is you know what is.
Where is the greatest opportunity for value creation, and obviously, that's something that we'll critically assess I mean I don't think we're at this point, we're tied to any specific outcome will evaluate I think a lot of it has to deal with what the profile ends up looking like as to how you know how it sort of we would be in this space.
But you know I think you know we're very data driven we're very evidence driven it will certainly make a good choice.
Ed We're I mean this is a huge unmet medical need keep in mind. The biggest problem here is the Gi problems associated with this and you know when that when that occurs.
Obviously, the Gi community is involved.
And consultant so they certainly would play a role even though they don't directly often care for these patients they're often consulted on these patients.
Operator.
Yes, ladies and gentlemen that concludes today's call. Thank you all for Jeremy you may now disconnect.
Please wait the conference will begin shortly.
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