Ironwood Pharmaceuticals, Inc (NASDAQ:IRWD) Q1 2023 Earnings Call dated May. 04, 2023
Corporate Participants:
Matt Roache — Director, Investor Relations
Thomas McCourt — Chief Executive Officer & Director
Michael Shetzline — Chief Medical Officer, Senior Vice President and Head, Research & Drug Development
Sravan Emany — Senior Vice President, Principal Financial Officer & Chief Finacial Officer
Analysts:
Timothy Chiang — Capital One Securities — Analyst
Cara — Piper Sandler — Analyst
Boris Peaker — Cowen — Analyst
Jacob Hughes — Wells Fargo Securities — Analyst
Presentation:
Operator
Good day and welcome to the Ironwood Pharmaceuticals Q1 2023 Investor Update Conference Call. Today’s call is being recorded. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Matt Roache, Director of Investor Relations. Please go ahead.
Matt Roache — Director, Investor Relations
Thank you, Angela. Good morning, and thanks for joining us for our first-quarter 2023 investor update. Our press release issued this morning, can be found on our website.
Today’s call and accompanying slides include forward-looking statements. Such statements involve risks and uncertainties that may cause actual results to differ materially. A discussion of these statements and risk factors is available on the current safe harbor statement slide as well as under the heading, Risk Factors, in our annual report on Form 10-K for the year ended December 31, 2021, and in our future SEC filings. All forward-looking statements speak as of the day 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. 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 Chief Financial Officer, will review our financial results and guidance.
Today’s webcast includes slides. So for those of you dialing in, please go to the Events section of our website to access the accompanying slides separately.
With that, I’ll turn the call over to Tom.
Thomas McCourt — Chief Executive Officer & Director
Thanks, Matt. Good morning, everyone and thanks for joining us today. I’m delighted to announce our first quarter results this morning. We are off to a terrific start to the year, as demonstrated by continued strong LINZESS demand growth, progress of our clinical studies and another quarter of delivering robust profits and cash-flow. At Ironwood, we remain committed to advancing the treatment of GI diseases and redefining standard-of-care for GI patients. I believe the progress we’ve made across the organization in the first quarter demonstrate the steps that we’re taking to become the leading GI healthcare company in the U.S.
Let’s begin on Slide 6 with our strategic priorities. Our strategy starts with maximizing LINZESS. LINZESS continues to experience remarkable prescription demand growth and widespread adoption amongst health-care practitioners as a leading branded prescription treatment for adults with IBS-C and chronic idiopathic constipation. In the first quarter, LINZESS U.S. net sales growth increased 8% Year-over-Year. Prescription demand growth increased over 10% as compared to the first quarter of 2022, demonstrating that the momentum of the brand remains strong. We believe there is still a significant opportunity to reach appropriate new patients and drive additional prescription demand growth, including the potential midyear indication for linaclotide in functional constipation for patients, 6 to 17 years of age, if approved.
Next, we are focused on continuing to strengthen the progress our innovative GI portfolio starting with CNP-104 a potentially disease-modifying treatment for primary biliary cholangitis. The clinical study is ongoing and we continue to expect early data assessing the T-Cell response in the second half of the year. From the patients enrolled in the studies, which will inform the timing of top line data.
Second IW-3300, we are continuing the proof-of-concept study in-patients with interstitial cystitis and bladder pain syndrome. Finally, we continue to actively evaluate opportunities to strengthen our portfolio and we see several attractive opportunities in the market that we believe are accessible and could benefit from Ironwoods expertise and capabilities in GI.
Our third strategic priority is delivering sustained profits and generate cash-flow. We delivered GAAP net income and adjusted EBITDA of $46 million and $60 million, respectively and ended the first quarter with $700 — $740 million in cash-and-cash equivalents on the balance sheet. With our unique profile as a profitable GI focused biopharma company with a strong and growing cash balance, we believe we’re well-positioned to maximize LINZESS growth and continue to build an innovative GI portfolio to create the next growth horizon for the Company.
Now let’s turn to the performance of LINZESS on Slide 7. As you can see on the left-side of slide seven, LINZESS performed exceptionally well in the first quarter, as I mentioned a few moments ago, LINZESS prescription demand increased 10% Year-over-Year and net sales increased 8% Year-over-Year, and generated $250 million in the quarter. Over the first quarter, the adult IBS-C and chronic constipation prescription market experienced strong growth with LINZESS experiencing an all-time high and new-to-brand — new-to-brand patient volume to strengthen its position in the market as the number one prescribed brand for adults with IBS-C and chronic constipation.
Most importantly, we are proud to have had treated more than 4.5 million unique patients since the launch of the brand, over 10 years ago. The growing number of patients that are actively seeking care, and have been treated LINZESS is evidence of the high treatment satisfaction expressed by both clinicians and patients. We believe these market dynamics combined with class-leading formulary access, the clinical guideline recommendations from both GI societies and the strong commercial execution is driving the demand momentum that we continue to see. And we expect this momentum to be augmented midyear should FDA approved the pediatric functional constipation indication, reinforcing the growth potential for the brand.
Looking ahead, we are excited about the continued growth of LINZESS. The advancement of our clinical program and a stronger financial position as we advance Ironwoods leadership in GI. In a few days we will be presenting five abstracts at the Digestive Disease Week meeting or DDW, including an oral presentation. These abstracts will highlight new data that reinforce the potential of linaclotide to treat functional constipation in children and adolescents. We look-forward to DDW, where each year we have an important precedence, demonstrating our commitment to advancing GI therapies, including expanding the clinical utility of linaclotide.
Before handing it over to Mike to discuss our pipeline programs, I’d like to take a moment to say a very big thank you, Jason Rickard for his leadership and immense contributions to Ironwood over the last 11 years, most recently serving as our Chief Operating Officer, and for helping make Ironwood, the company it is today. While a change like this is not easy, as an organization committed to maximizing shareholder value, we continue to look for ways to streamline our team in align key functions and resources to meet our current and future needs and support Ironwood through its next phase of growth.
I would also like to acknowledge all the Ironwood employees who have continued the momentum and strong execution against our strategic priorities, as we continue to help make a remarkable impact on patients’ lives. I would now like to hand the call over to Mike. Mike?
Michael Shetzline — Chief Medical Officer, Senior Vice President and Head, Research & Drug Development
Thanks, Tom, and good morning everyone. We continue to make progress across our three pipeline programs. I’ll begin with our linaclotide piece program on Slide 9. We believe the pediatric opportunity if approved could expand the market potential for LINZESS as functional constipation affects roughly $6 million 6 to 17-year-old children and adolescents in the United States. If our sNDA as approved by the FDA, LINZESS will be the first and only prescription therapy to treat this patient population. And this is a population that’s in need of better therapeutic options. We continue to work-through the sNDA with the FDA and look-forward to the June 14th PDUFA date.
As Tom mentioned, we will be presenting pediatric data on the efficacy and safety profile of linaclotide in treating functional constipation in this patient group at the upcoming DDW meeting. Thanks to CNP-104 for the potential treatment of Primary biliary cholangitis which affects an estimated 133,000 people in the United States. The proof-of-concept study is ongoing and given the strong science underlying this therapy, we plan to assess T-Cell responses in-patients dosed with CNP-104 in the second half of ’23. This will then form the timing of topline data and the potential option exercise. We expect to provide an update on the program at that time. We’re excited about CNP-104, because it is truly precision medicine and it introduces a potentially new game-changing asset for PBC patients as there are no therapies on the market today that addresses the root cause of this autoimmune destruction of the bile duct and PBC.
With respect to IW-3300 our wholly owned Ironwood asset for the potential treatment of interstitial cystitis and bladder pain syndrome, there is a significant unmet medical need in this area as this chronic condition affects millions of Americans. There are very few treatment options currently on the market or in development. Last year, we successfully completed dosing in healthy volunteers and are currently executing proof-of-concept Phase-II study. Interstitial cystitis, bladder pain syndrome patients are being screened, dosed, and site activations are ongoing and going very well. We are excited about this program as it is the first time the cross-talk hypothesis will be tested in humans, and we’re proud to be at the forefront of clinical development in this area. We’re looking-forward to providing updates as the study continues to advance.
With that, I will turn the call over to Sravan.
Sravan Emany — Senior Vice President, Principal Financial Officer & Chief Finacial Officer
Thanks, Mike, and good morning, everyone. It’s wonderful to be in a position to discuss such great financial performance with all of you. I will begin with an update on LINZESS which is off to an impressive start to the year. As shown on Slide 11, U.S. net sales were $250 million in the first quarter of 2023 an increase of 8% compared to the first quarter of 2022, driven by strong prescription demand growth of 10% — 10% Year-over-Year. We are excited about the strong start to the year and the continued momentum of the brand.
Turning to LINZESS brand profitability commercial margins in the first quarter of 2023, were 73% compared to 74% in the first quarter of 2022. Moving to Ironwood revenues in the first-quarter of 2023, Ironwood revenues were $104 million, driven primarily by U.S. LINZESS collaboration revenues of $102 million. Ironwood recorded $20 million of income tax expense, the majority of which was non-cash. GAAP net income was $46 million and adjusted EBITDA was $60 million in the first quarter.
Next, cash and capital allocation. In the first quarter, we generated $80 million in cash flow from operations and ended the quarter with $740 million in cash-and-cash equivalents. We believe we are positioning our company for future success by maximizing LINZESS growth and actively pursuing innovative highly differentiated GI assets to strengthen our portfolio. We continue to take a balanced and disciplined approach to capital deployment, and we remain focused on identifying and investing in opportunities that we believe while the potential to create value for our patients and our shareholders over the long-term.
Next, I’ll review our 2023 guidance on Slide 12. We are encouraged by the strong start to the year and reiterate our full year 2023 guidance across all metrics. We continue to expect LINZESS U.S. net sales growth of between 3% and 5% driven by high-single-digit [Indecipherable] prescription demand growth. In addition, we expect to maintain our class-leading payer access. We expect Ironwood revenue of between $420 and $435 million and adjusted EBITDA of greater than $250 million, which includes increased investment to advance our pipeline programs CNP-104 and IW-3300.
To wrap-up, we had a strong start to the year and expect to build-on the momentum with potential midyear pediatrics functional constipation indication. Our first-quarter results reflect continued execution against our strategic priorities. We remain, we believe Ironwood is 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 free-cash flow. We are excited about what’s ahead this year and we’ll continue to keep you updated on our progress.
I want to close by thanking all of our employees, patients, caregivers and advocates for their sheer dedication to advancing and supporting therapies for GI disorders.
Operator, you may now open the line for questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from Tim Chiang with Capital One. Your line is open.
Timothy Chiang — Capital One Securities — Analyst
All right, thanks. Tom, could you talk a little bit about just obviously, the demand trends for LINZESS are doing quite well. And could you just talk a little bit about how you sort of see the rest of the year playing out for LINZESS? Obviously, it looks like you’re going to get a pediatric functional constipation indication. How much additional growth do you think you’ll see with that indication [Indecipherable].
Thomas McCourt — Chief Executive Officer & Director
Thanks Tim. Well. I think you can — if you can hear, we’re quite excited about what we’re seeing in the first half of the — first quarter of this year and we’re continuing to see this demand growth moving forward. I think we’ll see — we need a couple of more data points to really understand how we think we’re going to lay of the year. So, it’s the reason why we’re kind of staying firm on our current guidance. But I think the next the next month or so will give us a really good idea as you know this — this market tends to slow-down a little bit in the summer and then accelerate growth in the back back-half of the year. But we’re not seeing that right now. I mean, we’re seeing the market grow, and we are growing disproportionately and capturing that market. So I think we’re in a very-very healthy place for the brand.
It’s an interesting, we’ve seen this growth spike that seems to be coinciding with our new DTC ads, as well as we’ve made some adjustments to the physician call plan with AbbVie, which we think is that helping augment some of the growth we’re seeing. I think we’re very optimistic about the pediatric population, as Mike said. There are six to eight million kids out there that are suffering, and I think the big opportunity here Tim, it’s the fact that these kids are actively seeking care, which is very different than the adult population where adults will struggle and try to self-medicate, but if you have a kid that’s really disabled with abdominal symptoms and a constipation, you’re talking to a doctor probably multiple times an year which we’re going to certainly see what we can do to help.
We’re going to be — we are trying to be very thoughtful about how we’re going to allocate the investment and we’ll be running on series of pilots with our partner AbbVie to really assess how promotionally responsive this pediatric market is, which really will form the investment for next year. So, I don’t know that we’ll see a whole lot of growth coming out of this market, I hope we hope we see growth, but I think the real impact will come in ’24 and ’25 as we invest focus and invest in this market, but at this point in time, we’re really delighted with the performance of the drug.
Timothy Chiang — Capital One Securities — Analyst
Okay, great, that’s helpful and maybe just one question on CNP-104. Mike, you talked about T-Cell response. what sort of threshold do you need to see in this Phase-II study?
Michael Shetzline — Chief Medical Officer, Senior Vice President and Head, Research & Drug Development
Yeah, Thanks, Tim. Thanks for the question. So, as you noticed, the first-in human study with this technology in PBC. So, we’re going to learn a lot. One of the reasons why we actually did this deal, because the science is so strong, and we think — we feel we really do have an opportunity to understand how the drug may work by looking at the T-Cell responses. You may also recall back-in the Celiac study, they had a pretty robust T-Cell response, meaning the using of nanoparticles with gliadin or gluten inside that reduced the T-Cell responses with treatment, roughly like 88%. So that was pretty robust.
But the key point is not necessarily a T-Cell reduction, but that it correlates with the biomarkers as well. And in Celiac it actually correlated with epithelial histology improvement. So, we’re going to look at the T-Cell responses, and we think we can get a really clear gauge on whether the drug is going to work by the T-Cell responses. The absolute percent will remain to be seen, but we’re going to have to look at the correlation with the biomarkers included in terms of liver function to really understand where that’s going to play-out in terms of the longer-term clinical benefit, but we are really excited about the opportunity to look at the T-Cell responses early to really make an early read for further investment, and for the business case downstream because we think the science is so strong, are just great opportunity to do that.
Timothy Chiang — Capital One Securities — Analyst
And Mike, maybe you can comment also on which biomarkers are probably most relevant and how does the FDA look at that as an endpoint as far as drugs response?
Michael Shetzline — Chief Medical Officer, Senior Vice President and Head, Research & Drug Development
The biomarkers are pretty fairly established because a prior regulatory engagement because of ursodeoxycholic acid and obeticholic acid, so that — and then those programs, the agency focused on alka phos, which is not unreasonable. Alka phos is a primary indicator of cholestasis which is delayed or stopped bile flow and that’s really what these liver diseases are about, the delayed or stopped bile flow. So alka phos is clearly there and then we also have things in there for liver function like bilirubin and other assessments, transaminases as well. And then importantly, we have in there, the biopsy tool [Phonetic] because you may recall also that obeticholic acid needed to do a biopsy type study and that’s because the agency wants to make sure the biomarkers correlate with real improved liver function.
And the — the biopsy, is sort of a standard today, but that’s another reason why we think we’re in a great position with this technology, because the way the agency uses the biopsy and the other programs is really for objective evidence that the drug is working and not necessarily biomarker-driven evidence that’s where the biopsy plays, but that’s why we like the T-Cells, because the T-Cells will be a really strong objective assessment as well and to be able to get an early read on such a strong objective assessment that really is the underlying mechanism of how the drug works is quite strong and very powerful in drug development.
Timothy Chiang — Capital One Securities — Analyst
Okay, great, that’s very helpful. Thanks, Mike. Thanks, Tom.
Operator
Your next question from the line of David Amsellem with Piper Sandler. Your line is open.
Cara — Piper Sandler — Analyst
Hi, thanks, this is Cara [Phonetic] on for David. Can you remind us how you’re thinking about the physician target audience for the pediatric opportunity and the potential need to expand the sales force headcount to support this opportunity? Thanks.
Thomas McCourt — Chief Executive Officer & Director
Sure, yes, as I mentioned earlier, we’re going to be running a series of pilots, there won’t be any — at this point, there won’t be any increase in selling effort. We’re really — the good news here is, this is a fairly concentrated prescriber base like 3,000 to 4,000 docs [Phonetic] will generate 30%, 40% of the volume. So, we can easily fold those docs into our existing call list and trade-off those for lower-performing or lower — less busy position, and we’ll let the data really guide our decision on this one. So, if we see some fairly significant response there, then we’ll go back and take a look at do we think we need to increase our selling effort.
At this point, that’s not the plan. Keep in mind, we’re currently calling on about 35,000 physicians who will generate the majority of the business. So, this isn’t a significant increase in the number of targets, but it will really give us a good line-of-sight with regard to how hard do we think we need to push to [Indecipherable] to really affect, and then will come — and then we’ll come back and look at not only the selling effort, but the overall promotional mix, which we continue to refine as we balance both personal promotion with trying to consumer advertising in our Director patient programs.
Cara — Piper Sandler — Analyst
That’s helpful. Thank you.
Operator
Your next question comes from the line of Boris Peaker with Cowen. Your line is open.
Boris Peaker — Cowen — Analyst
Great. Thanks for taking my question. I guess for CNP-104, I just wanted to clarify for approval ultimately, can you get an approval in this indication based on some of these biomarkers like you just talked about? Or would you have to do natural study with a clinical outcome?
Michael Shetzline — Chief Medical Officer, Senior Vice President and Head, Research & Drug Development
Yes, so prior history as kind of address that with obeticholic acid because they got approval based on the biomarker of improvement in alka phos and I recall [Phonetic] that’s also been historic with ursodeoxycholic acid or urso or that class of compounds. So, it has been done, usually and that setting has happened in the obeticholic acid case. They get a post-marketing requirement to do another study like the liver study, but they are on the market. And that’s clearly, because the benefit with those agents, they improve cholestasis, so patients do better and they should be on them and they’re good products, but they don’t address the root cause of the disease like we do with CNP-104 and that’s also evident in what a responder is for obeticholic acid because the alka phos is the biomarker, but you don’t have to normalize alka phos to actually be a responder in those programs.
You can actually get to 1.5 or 1.67 times normal, which still means you have roughly 50% or 67% of your liver function potentially abnormal because your alka phos is elevated to that degree. So alka phos has been accepted by the agency for a marker for success and does usually come with post-marketing increments and that’s why we like the objectivity around the T-Cell response, because getting an early read on that I think gives us a real good insight into the opportunity more longer-term.
Thomas McCourt — Chief Executive Officer & Director
[Technical Issues] the actual responder endpoint that is to reduce alka phos to a level that’s 1 or 1.5 times normal.
Michael Shetzline — Chief Medical Officer, Senior Vice President and Head, Research & Drug Development
Correct.
Boris Peaker — Cowen — Analyst
Right, okay. And just so you know Boris [Phonetic] for an ultimate pivotal study could you get approved, really on a placebo-control. Or do you think you’d have to use in active control in this space, since it’s the standard-of-care?
Thomas McCourt — Chief Executive Officer & Director
Yeah, I think, we will — certainly we will have discussions with the agency on what the Phase 3, design would look like. Again, we don’t have any data to date to have those discussions, but as soon as we get that, we will — we do anticipate that there is an opportunity for a placebo-controlled out granted urso standard-of-care as well as urso failures can take obeticholic acid. So, we need to manage that. Obviously want to keep patients being treated. Currently, the study we’re designing is for urso and non-responders. So, we do have to cross that bridge when we get there, but I think that’s a really another unique feature of this asset because even in the setting of an urso responder a obeticholic acid responder again, they still have often an abnormal alka phos and there is still benefits to using this therapy.
So standard-of-care not included, we still think we have an opportunity to show a benefit even in patients who may be a responder to the other agents being used. Does that makes sense, Boris? Yeah. Great. Thank you, very much for taking my question. Thanks, Boris.
Operator
Your next question comes from Jacob Hughes with Wells Fargo Securities. Your line is open.
Jacob Hughes — Wells Fargo Securities — Analyst
Hey guys, good morning.
Thomas McCourt — Chief Executive Officer & Director
Good morning.
Jacob Hughes — Wells Fargo Securities — Analyst
Couple of questions. On the pricing headwind in the quarter, I think the implied it was down three. Can you just talk about the dynamics you’re seeing for the rest of the year because if there was any benefit. I think last year you guys had one-time gross-to-net benefit in the first quarter of last year. Is that a similar dynamic?
Thomas McCourt — Chief Executive Officer & Director
Yeah, so thanks for the question, Jacob. I would start by saying we are really pleased with the start to the year. 8% net sales growth as you kind of got to was driven by prescription demand about 10% and the rest is essentially price headwind. I guess [Phonetic] the price and everything else performed in-line. I would say that, look, we have a pretty good set of into a good line-of-sight into where our expectations are for price over the course of the year. This is not similar to last year, which had a one-time price benefit. This is really about where we ended-up for — for the quarter. This quarter because of contracting and where we align for the full year. It’s a little better potentially than we anticipated, but I would say that we said low-single digits in terms of sorry — mid-single digits as sort of the full-year guidance and [Indecipherable] implied for price. We’ll see where it comes out, but I think we’re really pleased with where we are today.
Jacob Hughes — Wells Fargo Securities — Analyst
Okay and then on the — the guidance. Okay, like the first quarter is a little bit better from a demand standpoint, the weekly scripts look about the same so far in the second quarter. Prices were little bit better. So is there anything you’re seeing in the back-half of the year that giving you some pause in terms of the guidance. [Indecipherable] I know it’s only one-quarter in the bag and then like how much of the — how much of the pediatric functional constipation got indications, is that in there for the second half as well.
Michael Shetzline — Chief Medical Officer, Senior Vice President and Head, Research & Drug Development
Yeah, so look, yeah, so let me start by saying, look I think we’re — what we’re really excited about is where we are this year and I think we want to see one-quarter doesn’t make a trend yet, and we want to see a little bit more data before we can come back to you and give you any change in guidance if at all. But we’re pleased with the momentum we have in the first quarter.
On the price piece, as I was trying to just to put a final point [Technical Issues] you can fluctuate from throughout the year first-quarter was more moderate than we experienced in the course of 2022 and if this sustains itself. I think we’ll — we’ll be able to come back here and give you a better sense. Our guidance does and has always contemplated any contribution from paediatrics. So, look I think we’re — we’re really happy with where we are. I think you heard it on the call, excitements here on LINZESS performance and if we have something to tell you, in the second quarter, and we continue to see performance like this, we may come back to you give you an update on that.
Thomas McCourt — Chief Executive Officer & Director
Yeah, I think we’re — we’re cautiously optimistic. And this is why we’re kind of being a little careful with regard to the upside in pediatric and this is the reason why again where we’re running these pilots to really understand how promotional responsive this group is. And we’re, we’ll have a lot more information by the end-of-the third quarter with regard to what we think we’re going to see, because I think we’ll see a quick response one-way or the other. I think we will have a pretty good line-of-sight. I think the one thing we’ve learned in this market, this category is, one, these kids are actively seeking care as I mentioned, but also these physicians end-up to be quite paediatricians and they do end up following clinical practice guidelines and standard-of-care and this is one — this will be the only drug actually approved for functional constipation. We think that’s a real asset, because traditionally paediatricians don’t like prescribing drugs off-label for kids. And you know to have drug that’s approved for these kids, I think could be a real advantage but stay-tuned, and we’ll certainly keep you updated as far as what we see in the market as we launch the new indication.
Jacob Hughes — Wells Fargo Securities — Analyst
Okay, thanks, guys. I appreciate it.
Operator
[Operator Closing Remarks]