This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Good day, and thank you for standing by. Welcome to the Ironwood Pharmaceuticals 2Q 2021 Investor Update Call. At this time, all participants are in a listen-only mode. After this speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Matt Roach, Director of Investor Relations. Please go ahead.
Matt Roach
Thank you, Whitney. Good morning and thanks for joining us for our second quarter of 2021 investor update. Our press release crossed the line this morning and 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 State Harbor Statement slide as well as under the heading Risk Factors in our quarterly report on Form 10-Q for the quarter ended March 31, 2021 and our future SEC filings. All forward-looking statements speak as of the date of this presentation and we undertake no obligation to update such statements. Also included are non-GAAP financial measures, which should be considered only as a supplement to and not a substitute for or superior to GAAP measures. To the extent applicable, please refer to the table 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 provide a brief overview and review our strategic priorities and commercial performance of Lindess. Jason Rickert, our Chief Operating Officer, will then review our second quarter financial results and provide updated guidance for the year. Mike Schetzlein, our Chief Medical Officer, will also be available for the Q&A portion of the call. 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 slides. With that, I will now turn the call over to Tom.
Tom McCourt
Thanks, Matt. Good morning, everyone, and thanks for joining us today. We had a very impressive second quarter driven by double-digit Linza's prescription demand growth. As a result of the company's strong commercial performance, we are raising our financial guidance for the fiscal year 2021, which Jason will cover in more detail later on the call. Working alongside the highly talented Ironwood team, we continue to execute against our strategy of maximizing LINZUS, building our innovative GI pipeline, and delivering sustained profits and generating positive cash flows. I am very proud of everyone's work thus far in 2021, and as we continue to strive to redefine standard of care for patients and drive value to our shareholders. Now, let me share a brief overview of our strategic priorities. First, we are proud that in the second quarter, Linz has delivered 14% prescription demand growth year-over-year and U.S. net sales of $259 million, reinforcing its position as the number one prescribed brand in the U.S. for the treatment of adults with IBSD and chronic constipation. We are also pleased to report that new-to-brand prescription growth increased 26% versus second quarter last year, a record high, demonstrating that a growing number of healthcare practitioners are choosing Linzess for their patients. Second, we continue to advance our efforts on building our GI portfolio. We are maintaining a disciplined approach to exploring and assessing innovative GI assets by applying a focused set of predefined criteria and setting the bar high for any potential deals that we may consider. We believe this approach will drive our success further, faster, and provide great benefits to patients we can serve. On IW3300, our wholly owned asset for the potential treatment of visceral pain conditions. We remain on track to submit an IMD by the end of this year and expect to begin a clinical program in early 2022. And third, we delivered significant growth on the bottom line and had another quarter of strong cash flow generation. We ended second quarter with $493 million in cash and cash equivalents on the balance sheet, providing us with the financial flexibility to execute on our strategic priorities for the remainder of the year and beyond. We continue to take a thoughtful and disciplined approach to capital allocation in an effort to maximize return to our shareholders as we aim to bring innovative therapies to GI patients. Turning to a few corporate updates, I was honored to be appointed Chief Executive Officer by the Board of Directors this quarter. Since joining the company in 2009, I've been consistently impressed by the organization's talent and focus on our strategic priorities and our mission to redefine standard of care for the GI community we faithfully serve. I look forward to building on our successes as we move forward. I also want to mention that Jason Rickards, our Senior Vice President and Chief Operating Officer, was designated Principal Financial Officer, which was previously held by Gina Kanzelman, our former CFO. We're appreciative of Jason taking on this additional role in the interim while we conduct a comprehensive retained search process to identify our next CFO. In addition, Ron Silver, our corporate controller, was designated principal accounting officer, and John Minardo recently joined Ironwood as chief legal officer. We're thrilled to have John join the team and to have Ron take on his new role. Now, let's move our focus to the commercial performance of LINSA. LizDust performed exceptionally well in the second quarter. As I mentioned a few moments ago, prescription demand growth grew 14% year over year. LizDust continues to be the market leader within this category with 42% total market share at the end of the second quarter, an all-time high for the brand. New-to-brand prescription growth increased 26% from the second quarter of 2020, which also is an all-time high. In addition, we saw a 13% increase in new prescribers in the first half of the year versus the same period a year ago. We believe our second quarter performance was driven by a few key factors. First, the growth we are experiencing in the U.S. continues to be the result of strong execution of our commercial strategy and the positive experience that patients and physicians have had with Linzess. We also benefited from broad payer access and reimbursement. Second, we believe we benefited significantly from our sales and marketing efforts, including our Refresh Consumer Campaign, which incorporates the IDSC overall abdominal symptom data. Also, our in-person sales calls to healthcare practitioners throughout the quarter are now returning and nearing pre-COVID levels. Third, we continue to see year-over-year increase in online searches and clicks for constipation-related terms. And we're also seeing higher traffic to the LINDSES website suggesting more patients are seeking treatment options for their IVSC and chronic constipation. Finally, we continue to see encouraging signs of market growth, which may be attributed in part to an increase in adult IVSC disease prevalence, including IVSC. Data from the National GI Survey 2 showing increased IBS prevalence were presented at the DDW meeting in May. Looking ahead, we're on track to exceed a billion dollars in U.S. med sales in the near term. Our strong performance in the quarter coupled with additional lifecycle management opportunities reinforce the long-term growth potential for the brand. In the second quarter, the American Journal of Gastroenterology published full results from our Phase IIIb clinical trial, evaluating LINDSES290 micrograms on multiple abdominal symptoms in adult patients with IBSC. The results demonstrated that LINACLTI290 micrograms administered orally once daily to adult IBSC patients was associated with a statistically significant and clinically meaningful improvement in overall change in abdominal score. which comprises the symptoms of bloating, pain, and discomfort compared to placebo. We reported top-line results in this trial in June 2019, and following the U.S. FDA approval of a supplemental MBA based on the date of this trial, the LINZ-S U.S. prescribing information was updated in September last year to reflect the clinical impact LINZ-S is having on overall abdominal symptoms in adult IBSC patients. Research has shown approximately 95% of surveyed adults with IBSC report experiencing bothersome abdominal bloating, pain, and or discomfort. With the majority reporting they experience these symptoms once a week or more. Our data suggests that LensDesk may provide meaningful improvement of overall abdominal symptoms associated with IBSC, a condition that impacts an estimated 11.5 million adults in the U.S. Moving along to an update on our IP. Ironwood, along with Abbey, entered into a settlement agreement with Teva Pharmaceuticals, providing a license to Teva for its generic version of the 72-microgram Linzess in the U.S. beginning March 31, 2029, subject to FDA approval and certain other limited testimony exceptions. With this settlement agreement, we have settled with the filers of all known Andes to date seeking approval to market generic versions of Linzess. and preserve the majority of the LINZUS patent coverage for all three dose strengths. As we look ahead, we understand that GI diseases affect one in five Americans and remain a large unmet need with a highly symptomatic patient population. These diseases can be severe and debilitating and often have limited or no treatment options, creating an urgency around the need for new and innovative treatments. Our experienced and specialized team continues to focus on pursuing innovative assets in GI diseases with a significant amount of need and strong scientific rationale. We're committed to generating more value-creating opportunities to leverage our strong GI capabilities and experience now and in the future. I would like to thank all of our employees, patients, caregivers, and advocates in the GI community for their shared dedication in this underserved market. I'll now turn the call over to Jason to review our financial performance. Jason? Thanks, Tom. It's a pleasure to be on the call this morning to discuss our strong second quarter results. I have three main updates to provide. First, I'll walk through our second quarter financial performance. Then I'll discuss our capital allocation strategy. And finally, I'll review our updated financial guidance for the year. Please refer to our press release for our detailed financial information. In the second quarter of 2021, Ireland revenues were 104 million, which are up 16% year-over-year, driven primarily by Linvess U.S. collaboration revenues of 100 million, also up 16% versus the second quarter of 2020. Let's move to Linvess. U.S. net sales grew 18% and favorable inventory channel fluctuations, partially offset by net price erosion. For the balance of the year, we anticipate healthy prescription demand and we continue to expect mid-single-digit net price erosion. We also expect fewer channel fluctuations versus the prior year, resulting in a dampening of net sales growth for the second half of 2021 when compared to the first half of the year. Turning to the best brand profitability, commercial margins in the second quarter was 72% versus 75% in the second quarter of 2020. I'd like to point out that the lower commercial margin versus last year was primarily a result of an increase in selling expense in the second quarter of 2021 versus the second quarter of 2020 when we did not As you may recall, our selling expenses related to virtual call details and overhead during the first two quarters of 2020 were adjusted in the fourth quarter of last year. Before moving on, I'd like to provide an update on an accounting item reflected in the second quarter's results. The release of our valuation allow us against the majority of our deferred tax assets, including the net operating loss carry forwards from losses incurred by our business through 2020. resulting in a one-time recognition of an income tax benefit of $338 million in Q2 and a $338 million non-current deferred tax asset that is expected to be used to offset future cash taxes. It's important to note that this valuation allowance release is a non-cash, non-recurring event, and as such, is reflected in an adjustment to our non-GAAP net income. Please refer to our quarterly filing for more information about the valuation allowance release. Now to Ironwood's profitability. We delivered GAAP net income of $391 million, which includes the $338 million non-recurring income tax benefit associated with the release of the valuation allowance that I just mentioned. Adjusted EBITDA was $65 million, up $32 million versus the per annum year quarter. moving to cash and capital allocation priorities. In the second quarter, we generated $49 million in cash flow from operations and ended the quarter with $493 million in cash and cash equivalents, up from $363 million at the end of 2020. We maintain a disciplined and thoughtful approach to capital allocation. As you know, in the second quarter, our board authorized a share repurchase program under which the company made repurchase up to $150 million of its outstanding shares of common stock through December 2022. Although we did not repurchase any shares in the second quarter, we continue to remain committed to deploying capital in support of our strategic priorities where we believe we can drive the greatest value for our shareholders. Now let's review our updated 2021 guidance. As Tom highlighted earlier, as a result of the strong growth of U.S. INVEST prescription demand, we are raising our 2021 financial guidance. We now expect U.S. INVEST net sales growth of 6% to 8%, which is up from our previous guidance range of 3% to 5%. Total ironwind revenue of $390 to $410 million, which is up from $370 to $385 million, and adjusted EBITDA of greater than $210 million, which is up from greater than $190 million. We believe our continued financial performance, strong balance sheet, and disciplined approach to capital allocation positions us well to continue to invest in our business and pursue additional opportunities in the GI space. I'll now turn the call back over to Tom. Thanks, Jason. I'm extremely proud of our performance this quarter and the team's continued dedication to our vision of becoming a leading GI healthcare company. We're looking forward to continuing our momentum in the upcoming months with the Neurogastroenterology meeting later this month, as well as the Ironwood team will also be attending the Wells Fargo Healthcare Conference and the Morgan Stanley Global Healthcare Conference in September, as well as the American College of Gastroenterology meeting in October. We look forward to speaking to all of you then. Operator, you may now open up the line for questions.
Operator
As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question is from the line of Eric Joseph with JP Morgan.
Eric Joseph
Good morning. This is Hannah on for Eric. Thanks for taking the question. Just a couple from us. So with LendVest now on pace to reach over a billion dollars in revenue in 2021, just thinking about what do you now see as the peak sales potential of the product and how much headroom do you currently see with respect to market share growth?
Tom McCourt
Yeah, I think – thank you. And, you know, we're remarkably impressed. with how the growth is accelerating. As you've seen, there's been a clear inflection point of the brand. And, you know, the outlook looks very promising. I mean, you think about it, there's still 30 million patients out there suffering. We've treated, you know, less than, you know, 10% of those patients. So there's a lot of room to grow. The other thing that we're also seeing is this tremendous increase in activity of patients raising their hand, looking for help, and leveraging the web activity as well as telemedicine to give care, all of which is, I think, boosting what we're seeing in the marketplace. So I think we're very encouraged of kind of where we are and where we're going. I think we certainly see, you know, the brand, you know, going significantly over a billion dollars in sales. And a lot of it now becomes, you know, how do we continue to invest in the brand to continue to push that growth as well as, you know, pulling through some of the large life cycle management programs such as the pediatric program, you know, which is a very large underserved community where there's no approved drugs really right now. So I think as far as long-term, you know, we haven't provided those numbers yet, but I think we're far more encouraged right now than we were a year ago.
Eric Joseph
Great. And so just thinking a little about timing for BDD, so last quarter you announced the $150 million share buyback through 2022. So can we assume that this will be the primary focus for surplus cash during this timeframe? And what timelines do you have in mind for potentially selecting new pipeline candidates? Yeah, looking a few years ahead, just what do you see the pipeline looking like?
Tom McCourt
Great. Thanks, Hannah, for the question. And I mentioned it in the script that I'll reference our capital allocation strategy. We believe we're in a fortunate position to be able to invest behind and invest brand to continue the growth that Tom outlined. As you know, we have a desire to continue to grow the GI portfolio with innovative assets for organic GI disease and to generate cash and sustain profitability. And we'll continue to assess those opportunities and make judgments about how to allocate capital over that period. And we don't see the announcement of the share buyback program as contrary to any of those priorities. And we believe we can execute against each of them. in a way that's going to create value for shareholders. When it comes to corporate development, we maintain a high bar, but we also see a lot of opportunity in the GI space, and there's innovation out there, and we believe we've got the right team to be able to assess those assets, attract them, and prosecute them in the case that we find something that's attractive. I can't speculate on the timing of that. As you know, deals take their own form, so we'll be updating as we go on the corporate development front.
Eric Joseph
Great. That's helpful. Thanks for taking the questions.
Matt Roach
Do we have any more questions?
Operator
I'm sorry, I was on mute. Your next question is from the line of Tim Chang.
Matt Roach
Oh, hi, Tom. Hi, Tim. Good quarter, by the way. You know, I jumped on late, so I apologize if these questions aren't even asked, but I sort of, you know, look at your updated guidance.
Tom
U.S. investment sales were around 6% to 8% for this year, and that's still particularly lower than what AbbVie has been reporting in terms of sales growth. Could you just sort of talk about that a little bit? And I apologize if we've already explained that.
Tom McCourt
Well, Tim, I think we're very much aligned with AbbVie. You know, we work side by side. You know, we set the targets on a quarterly basis and update, you know, the year end and long-range plan, you know, quarterly. So, you know, we should probably go back and check, you know, what they put out. But, you know, as far as our guidance, you know, we had previously, you know, provided, you know, the three to five nest sales growth, and we're, as Jason mentioned, raising that to six to eight, you know, which is a pretty healthy increase. So, you know, we're certainly, you know, all pleased with the growth we're seeing, but we should be pretty consistent. So thanks for the heads up. We'll certainly reach over to Abby to make sure we're talking the same language.
Matt Roach
Well, Tom, I'm just referring to the fact that I think Abby reported, what, 18% more of a year U.S. net sales growth in the second quarter.
Tom McCourt
Is that right? That's true. Go ahead. Just to clarify, it's 15% year-to-date versus we're getting to 6% to 8% all year. And reference my comments in the script related to lower inventory in the second half of the year, dampening the net price growth over that period. Basically, we saw a boost this quarter due to how the inventory is being managed now, where, as you know, it was seasonal in the past where we saw a burn in the first half of the year, and then they would accelerate the inventory in the back end of the year. And what they've been doing is keeping a more level-set, predictable inventory, which makes it easier to kind of predict where net sales will land. But you're absolutely right. For the quarter, it was 18%, but that was a combination of the 14% demand growth, as Jason mentioned, as well as the boost in the inventory, which was partially offset by, you know, net price erosion in the mid-single digits. And how do you see the demand growth? I mean, do you see this sustainable at around 14%? Yeah, I mean... I think this brand continues to surprise us as far as its growth. I mean, as you know, you do not see many brands like this in categories, you know, where you see linear growth that we have been seeing. And, you know, you think about, you know, we were looking at 10% to 11% growth a couple years ago. But, you know, really, for the last four years in a row, we've seen north of 12% demand growth, and this year is going to be north of that, we believe. So... You know, this branch has continued to perform, and I think, as I mentioned earlier, when I look at, you know, the tens of millions of patients that are still out there suffering, and we've only treated 10% of the patient population, and I don't see a real competitor in the future, you know, it's believable that we're going to continue to see this kind of growth over time.
Matt Roach
Okay, good.
Tom McCourt
Well, it's a good place to be.
Matt Roach
Yeah, we're just delighting.
Mike
So thanks for the comments, Tom.
Matt Roach
Thanks, Tim.
Operator
Again, to ask a question, please press star 1. And your next question is from the line of David Leibowitz.
Tom
Hi, this is Avatar Jones on for David. Our question is in regard to the volumes, and I apologize if I missed this, but where are those coming from? Is that... Impacted by the Phase 3 publication? Is this just something more organic? Is it 90-day scripts? Can you sort of provide some color behind that? Thank you.
Tom McCourt
I mean, it's probably all of the above. I do think certainly we're seeing a higher level of activity by the patient when we talk about the activity as far as online searches, as well as, I mean, we're seeing 400,000 and 500,000 unique visitors a month to our website, which is, you know, really strong. which is showing ongoing growth. So I think part of it is an overall awareness of the disease. I think it's the ability of patients to raise their hand. I do think, to your point, what we see is when we get patients on 90-day scripts, there's better adherence to therapy because they realize the full benefit of the drug. And I do think, you know, this ability to describe multiple abdominal symptoms as opposed to just abdominal pain really speaks to a broader community who now are raising their hand. So I think it's probably all of those things. And they're all kind of growing very nicely, including the overall awareness. And we still have work to do here. You know, when you look at unaided awareness, it's still around, you know, 10 to 12%. So, you know, there's still an awful lot of opportunities to make patients aware that there is a better treatment option out for them, out there for them, you know, that we need to continue to push on.
Tom
Understood. Thank you. And if I could, a follow-up question. I know there's been a question asked on business development, but just are there any specific therapeutic areas of interest and can you sort of, Provide us guidance as to what intrigues you.
Tom McCourt
Maybe I'll ask, I know Mike online here. And he's leading the charge and kind of looking at the GI terrain. We're seeing a lot of opportunities, but where we are focused right now in molecules we are currently evaluating. Mike, would you comment on that?
Mike
Sure. Sure, Tom. Thanks. So firstly, we're obviously addressing the medical needs of patients suffering from GI disease and disorders and we're really trying to prioritize those that are really managed by the gastroenterologist with a particular focus on organic diseases where we kind of know the mechanisms and we can really do clear and decisive proof of concept studies because we want to target innovation and we also want to be first in class best in class with differentiated opportunities and we do think to Tom's point We have a great opportunity list, so to speak. The disease areas are, we're not trying to boil the ocean, but we do have a fair amount of opportunity given the medical need. But things like liver injury or liver failure, there's a huge medical need in the hepatology space. Celiac disease is another very hugely underserved population. You may hear that people feel that it can be cured with a gluten-free diet. I mean, it is true. Patients can benefit from a gluten-free diet. But if you talk to patient groups, they are really underserved and still have a lot of morbidity related to their celiac disease. So a huge opportunity there. There are other entities like puritis. Puritis is itch, right? It's actually an indication for liver transplant. So a huge medical need there from a liver function perspective. And something like pancreatitis. Pancreatitis is bread and butter medicine, but a GI disorder that really has no medical therapies. Today, still, when a patient comes into the hospital with pancreatitis, they get IV fluid and pain management. That's quite sad when you think of all the innovation in this space around immunology and inflammation. And then things like even rare diseases. A lot of rare diseases are hepatology in origin. we really do have a broad landscape and a lot of opportunity but as mentioned we really have a high bar we want to make sure we make the right choice at the right time thank you thank you much appreciated thanks and at this time there are no further questions i would like to thank everyone for joining today's call you may now disconnect
Disclaimer