Ironwood Pharmaceuticals, Inc.

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.

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.

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.