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Operator
Ladies and gentlemen, good morning. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Ironwood Pharmaceuticals fourth quarter and full year 2021 investor update conference call. Today's conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. And I would like to introduce Matt Roach, the Director of Investor Relations. Mr. Roach, you may begin your conference.
Abby
Thank you, Andy. Good morning, and thanks for joining us for our fourth quarter of the year 2021 investor update. Our press release across the wire this morning is found on our website. These calls and accompanying slides include four of the key statements. Such statements involve risks and uncertainties that may cause actual results to differ materially. The 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 quarterly report on 410Q, recorded ended September 30th, 2021, and in our future SEC filings. All four of the key statements speak as of the date of this presentation. We undertake no obligation to update such statements. Also included are non-GAAP financial measures, which should be considered only as a supplement to, not a substitute for, or superior to GAAP measures. Since it's applicable, please refer to the tables at the end of our press release for reconciliation of these measures to the most directly comparable death measures. In today's call, Tom McCourt, our CEO, will begin with an overview, providing an update on the commercial performance of WINS-S. Mike Checkline, our chief medical officer, will provide updates on our pipeline. Shravan Amani, our chief financial officer, will review our financial results and guidance. Today's webcast includes slides to support For those of you dialing in, please go to the Advice section of our website to access the company slides separately. With that, I will turn the call over to Tom.
Andy
Thanks, Matt. Good morning, everyone, and thanks for joining us today. When I became CEO last year, I was energized about the commitment to developing innovative solutions in the area of high-end met need in GI. In 2021, we made significant progress against this important mission. I am proud of the Ironwood team, who even through the ongoing pandemic, was resistant in their commitment to advancing the treatment of GI diseases and redefining standard of care for patients. Thanks to their hard work and dedication, we closed out the year with a lot to be proud of. We started 2021 with a clear roadmap, which included three strategic priorities. One, maximizing lenses. Two, strengthening our innovative GI pipeline. And three, deliver sustainability by the end of 2021 i'm excited to report that we made tremendous headway across all three of these key pillars let's begin on slide six with a quick overview of some of our highlights and achievements in 2021 first lindas has been an extraordinarily resilient market leading brand that continues to deliver strong demand growth and profitability In 2021, I'm proud to share that Linzess achieved blockbuster status, exceeding $1 billion in U.S. net sales, representing 8% growth year-over-year. Prescription demand grew a robust 12% year-over-year, and commercial margins were 74%. The continued impressive Linzess performance is no small feat, and I want to acknowledge the dedication of our team who made this achievement of $1 billion in sales a reality. In addition, we previously announced that the FDA approved a revised label for Lindus, modifying the prior box warning, which included all children under 18 years of age, to the warning of a risk of serious dehydration and contraindication against use of children to less than two years of age. This label change is a significant accomplishment for the team as we continue to advance the pediatric program. As a reminder, Lindus is not currently approved for these patients under 18 years of age. Next, we strengthened our pipeline by entering into a collaboration and license option agreement with Core Pharmaceuticals to develop and commercialize CMP104, which, if successful, has the potential to be the first approved disease-modifying therapy for primary biliary cholangitis. In addition, we advance IW3300, our wholly owned asset for the treatment of visceral pain conditions, and our Lenacotide pediatric development program in IVSC and functional conservation. Mike will elaborate on these exciting pipeline updates in a few moments. Finally, we ended the year with $528 million in gap net income, which includes a $338 million non-recurring income tax benefit related to the release evaluation allowance in the second quarter of 2021. Adjusted EBITDA of $234 million at $620 million in cash and cash equivalents, a significant increase from the end of 2020. also we initiated our board authorized share buyback program with 27 million dollars of shares repurchased as of the end of 2021 another important highlight in 2021 was the addition of several experienced leaders including andrew davis our chief business officer john monardo our chief legal officer and most recently shravan amadi our chief financial officer We're thrilled that Andrew, John, and Trevon have joined the team, and I'm honored to be at the helm of a very talented group of leaders, uniquely capable of advancing our mission and ushering in a new era in growth and innovation at Ironwood, as we look to continue to grow the company and our pipeline to address areas of GI diseases. Now, let's turn our attention to Linzess, starting on slide seven. Ironwood has had tremendous success with Linzess from its inception to its recent achievement of blockbuster status. And it continues to serve as a backbone of the company. As I mentioned a few moments ago, Linzess prescription demand increased 12% year-over-year in 2021, resulting in USN sales of over a billion dollars. Linzess ended the year with approximately 44% total prescription share, a new record high for the brand. As you can see in slide 8, new-to-brand prescription growth increased over about 15% year-over-year, which outpaced the market. In addition, 90-day prescription growth has continued to increase over time, making up approximately 20% of the business as of the end of 2021. Turning to slide 9. It's not every day that a brand achieves blockbuster status, and it doesn't happen by accident. First, lymph dust has demonstrated an improvement in constipation plus overall abdominal symptoms, which is important in the treatment for adults with IBSC who are often frustrated by bloating, pain, and discomfort. Additionally, the strong brand awareness has helped Linsys become the number one prescribed branded treatment for adults with IBSC and chronic constipation by gastroenterologists and primary care physicians. This robust momentum and market leadership position has enabled us to refine our overall marketing mix and investment over time while we continue to deliver strong demand growth and expand brand margins. We expect to continue to grow Linzess through patient activation, refined professional promotion, our class-leading payer access, and by pursuing future lifecycle management opportunities. Looking ahead, we're confident in our strategy and in the future, and we will continue to focus on delivering value to our patients and shareholders. We believe the investments we're making in the brand and in our pipeline will position our company for long-term growth. Since joining the company in 2009, I've seen firsthand the outstanding capabilities of the Ironwood team in advancing our development and commercialization strategies, as well as our unsurpassed level of commitment to making a positive difference for millions of patients affected by GI diseases. I'm very honored to lead this organization full of talented people, and I look forward to continuing to build upon Ironwood's success as we plan for 2022 and beyond. I'll now turn the call over to Mike to discuss our pipeline and clinical development efforts. Mike?
Matt
Thanks, Tom. We're thrilled that we've expanded our pipeline as we seek to bring new, potentially first-in-class therapies to patients suffering from GI diseases and disorders that we think we can impact in a clinically meaningful way. I'll start with the Linacletide pediatric program on slide 11. Functional constipation affects an estimated 4 to 6 million 6 to 17-year-olds in the U.S., and there are currently no FDA-approved prescription pediatric therapies for functional constipation. We believe that this is a significant opportunity to potentially expand the clinical utility of ONDAS to this large patient population. We're excited to continue to advance this program, and we expect the functional constipation study in 6- to 17-year-olds to read out in the second half of this year. Next is an update on IW3300. I'm pleased to share that our clinical study is officially underway. IW3300 is a guanylate psychase C agonist and a wholly owned asset for the potential treatment of visceral pain conditions such as interstitial cystitis, bladder pain syndrome, and endometriosis. Interstitial cystitis and bladder pain syndrome affect an estimated 4 to 12 million Americans, according to the Interstitial Cystitis Association. These diseases have a limited number of treatment options available and significantly impact patient quality of life. The scientific evidence to date supports the opportunity for IW3300 acting in the colon while for a pain benefit to other visceral organs through a mechanism known as CROSFOC. Crosstalk is a biological phenomenon where sensations of injury originating in one abdominal or visceral organ can result in altered sensation in a nearby organ because of overlapping nerve pathways. We're particularly excited about the launch of this Phase I study as it will be the foundation to clinically test the crosstalk hypothesis in humans Next, CMP104. We're tapping into external partners as we identify opportunities to meaningful, advanced, novel GI treatments for patients, where we can leverage our GI expertise and resources to help drive success. We're thrilled to collaborate with CORE on CMP104 for primary biliary cholangitis, which is a prime example of our strategic approach to enhancing our pipelines. EBC is a slowly progressive and debilitating rare autoimmune disease that affects an estimated 133,000 people in the U.S. Apparently, there's no approved therapy that addresses the underlying pathology or root cause of bile duct destruction in PBC. The loss of bile ducts is fundamental to this disease and leads to decreased bile secretion, and the retention of toxic substances in the liver, resulting in continuous hepatic damage, which can ultimately require liver transfer. Since signing the agreement with CORE, CMP-104 has been granted fast-track designation by the U.S. FDA, underscoring the significant unmet medical need of patients with PBC. We're also pleased to share that CORE has initiated the clinical study of CMP-104, which will look at safety, tolerability, pharmacodynamics, and efficacy with the readout currently expected in 2023. We recently participated in a virtual symposium of leading experts in gastroenterology and hepatology to discuss the impact of PBC and existing gaps in care and treatment. During this forum, many reading gastroenterologists and hepatologists who treat PBC highlighted the importance of stopping the progression of liver bile duct destruction that is foundational to this disease. So you can see why we're really excited about this clinical program. We believe CMP104 has the potential to shift the treatment paradigm in PBC and could be the first truly disease-modifying therapy for this condition, if successful, and potentially a real game changer for patients suffering with PBC. This collaboration with CORE allows us to expand our pipeline, leverage our deep relationships within the GI community, and advance innovation via differentiated opportunities. We believe CORE's expertise in immune programming and Ironwood's development in commercial strength, as well as REACH in the GI disease area, will help advance this exciting program. And this is how we plan to focus our business development efforts going forward, on assets that are highly differentiated, target clear unmet medical needs, have an established mechanism of action, and provide clear decision points. and we're seeking to identify more assets like this as we further build out our pipeline. I'll now turn it over to Sheridan to review our financial performance.
Tom
Thanks, Mike, and good morning, everyone. I'm excited to be part of such a team, great team here at Ironwood, and a great culture. As the new CFO, it is fantastic to report such great numbers and see how much Ironwood has strengthened its financial position over the past few years. I would like to provide a few updates as First, I will highlight our fourth quarter and full year 2021 performance. Then, I will discuss our capital allocation strategy. And finally, I'll review our 2022 guidance. Please refer to our press release for our detailed financial information. I'll start on slide 13 within this. U.S. net sales were $279 million in the fourth quarter of 2021, a slight increase over the fourth quarter of 2020. As a reminder, we saw fewer inventory channel fluctuations in 2021, which resulted in favorable net sales growth in the first half of the year, or resulted in a dampening of net sales growth in the second half. Going forward, we expect quarterly inventory channels levels similar to 2021. For full year 2021, U.S. WINSES net sales were $1,006,000,000, an 8% increase compared to full year 2020. Growth was mostly driven by robust prescription demand. Turning to Linzet's brand profitability, commercial margin in the fourth quarter of 2021 was 76%. For full year 2021, commercial margins were 74% versus 72% for full year 2020. Moving to Ironwood revenues. In the fourth quarter, Ironwood revenues were $117 million. For full year 2021, Ironwood revenues were $414 million, with U.S. Linzess collaboration revenues of $400 million. Ironwood U.S. Linzess collaboration revenues increased 9% compared to full year 2020. Gap net income was $41 million in the fourth quarter of 2021 and $528 million for the full year, which includes a non-recurring income tax benefit of $338 million which was recorded in the second quarter relating to the release of our valuation allowance against the majority of our deferred tax assets. Adjusted EBITDA was $57 million in the fourth quarter of 2021, which includes $19.5 million in expenses associated with the core option agreement. Adjusted EBITDA was $234 million for full year 2021. Moving to cash and capital allocation priorities on slide 14. We are in a unique position of being a profitable biotech company that is delivering meaningful cash flow. In the fourth quarter, we generated $65 million in cash flow from operations and $262 million for the full year 2021, and ended the year with $620 million in cash and cash equivalents, up from $363 million at the end of 2020. We continue to execute our board authorized share purchase program of up to $150 million that runs through the end of this year. As previously mentioned and announced at the J.P. Morgan Healthcare Conference in January, we repurchased $27 million of shares of our common stock as of December 31st. And we repurchased an additional $51 million of shares through February 15th of 2022. We believe we are positioning our company for future success by maximizing Linzess growth and actively pursuing innovative, highly differentiated GIS assets to bolster our portfolio. We continue to take a balanced and disciplined approach to capital deployment and remain focused on identifying and investing in opportunities that we believe will create value for our patients and shareholders over the long term. Next, I will review our 2022 guidance on slide 15. As we previously stated in January, we expect one best net sales growth in the low single digits. We again anticipate continued double-digit prescription demand growth. over time we have continued to refine our investment in the brand to support demand growth improve brand margins and ultimately maximize ironwood cash flow in 2022 we made an investment to maintain broad payer access which we anticipate will result in high single-digit price erosion this year we expect to manage price erosion to be more modest in 2023. next We expect total Ironwood revenue of $420 to $430 million. And lastly, we expect adjusted EBITDA of greater than $250 million. So, as you can see, we are pleased with the progress we made in 2021, successfully driving LIMS-S growth leading it to blockbuster status, adding C&P 104, a potential game-changing asset to our pipeline, advancing IW3300, and then all-enacletide pediatric programming, and initiating our share of approaches. With this momentum carrying us forward, coupled with our current balance sheet and skilled management team, we have confidence in our ability to pursue new GI assets that potentially will help us make a difference for patients, and help grow our position as a leading GI healthcare company in the United States. We are excited about the work ahead of us, and we'll continue to keep you posted on our progress. Operator, you may now open up the line for questions.
Operator
Thank you. And at this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad, and we will pause for just a moment to compile the Q&A roster. And we will take our first question from Boris Peeker with Cowan.
Boris Peeker
Good afternoon. Oh, good morning. Yes. Question on 3300. Can you discuss what you need to see in the data update later this year to invest further in this drug? And are there any kind of reference data sets or reference drugs that we should be considering when we're looking at this data?
Tom
Well, good morning, Boris. This is Shravan. I'll hand it over to Mike to answer those questions.
Matt
Yeah, sure. So for 2022, we're actually, again, excited to kick off the program. The clinical program, as we said, started in quarter one 2022. It's a significant undertaking because it's a very well-established medical need. So to your point, through 2022, we're going to complete the phase one program. So we'll have data available from a safety and tolerability perspective. And we do plan to kick off what we call the phase two or proof of concept study later this year. So that design of that study is actually being worked on as we speak today. But it's also founded in other analogs. You know, there are a couple of products approved for bladder pain syndrome. They don't work well from the information we get from externals. That's just a clinical opinion. And that's one of the reasons why we think the medical need is quite significant. So using those analogs, we're sort of designing the program. And of course, we'll run it by the FDA to get their feedback as well. But it really is looking at the symptomatic improvement of patients suffering from visceral hypersensitivity from bladder pain syndrome.
Boris Peeker
Got it. And my last question is, I would say the valuation of biotech have come down quite significantly. You guys seem to be actively buying back your own shares. I'm just curious if with this new revaluated environment, Are you being more aggressive in M&A? Is that an objective, or are you happy with the pipeline you have right now and more focused on just returning cash to shareholders via buybacks?
Tom
Yeah. Thanks, Boris. Look, I think from where we stand today, again, I think we've said it a few times now that we're going to be pretty disciplined with our capital allocation strategy, whether that's deploying capital for future acquisitions or for repurchasing our own shares. And I think part of that comes down to when we find an opportunity that makes sense for us and we think creates value, we'll actively pursue it. Part of it is finding those opportunities, but we're open to whatever makes sense in the best interest of shareholders.
Andy
Yeah, Boris, this is Tom. A couple of our thoughts, too. I think the thing that's been really kind of remarkable to me is the resilience that lends us and our ability to continue to refine the marketing mix and the investment to really drop bigger numbers to the bottom line, which is going to set us up for the future. And I think CMP 104 is a classic example of a really area of significant high unmet need and a potential game changer for the treatment. And it's assets like that that we would be excited to be able to bring on board and get through proof of concept to determine whether we continue to invest in the future. You know, we're very excited about where we are right now. I think about, you know, where we were three years ago, and I think the team has just done a really strong job in kind of getting us on the right track.
Boris Peeker
Great. Thank you very much for taking my questions.
Operator
And we will take our next question from Eric Joseph with J.P. Morgan.
Eric Joseph
Hey, good morning, guys. Thanks for taking the questions. Just picking up on the pediatric opportunity, any color that you might be willing to share in terms of the type of uptake you'd be expecting within that around 5 million patients or children with functional constipation that you're seeing here?
spk10
Do you have a sense of how many children? Well, good morning, Ark, and thanks for your question.
Tom
I'll hand it to Tom and then Mike.
Andy
Yeah, I mean, what I can share with you is really kind of what we've learned in market research in this space, and the reality is there's really not many good options for kids. As Mike mentioned earlier, there's nothing actually currently approved for pediatric constipation or IBS. I think there's a couple of sizable pieces to this marketer. One is the adolescent population, which is probably the most visible high need population that I think we can access very quickly. A lot of these patients are treated both by gastroenterologists as well as primary care physicians, and they're actively seeking care. I think the one difference in this population is, you know, when these kids are suffering, they're actively engaging physicians for help. And I think to have a drug that's actually improved and can not only improve, you know, constipation symptoms but also improve abdominal symptoms is a huge step forward for this population. Mike, maybe you can comment further, you know, with regard to kind of your clinical view of the need and the opportunity.
Matt
Yeah, I think similarly, the key is that constipation in general is a significant medical morbidity for patients, and primarily, actually, in one of the populations we're studying and study that will read out later this year is the 6- to 17-year-olds. So from a functional constipation perspective, from an IBSC perspective, or IBS with constipation perspective, you know, they're fairly prevalent conditions in pediatric populations. And as Tom mentioned, as you know, they sort of rotate through laxatives. They don't have any good alternatives, and nothing's currently improved. So that's why we're real excited to see the data at the end of this year in the 6- to 17-year-old populations, because moving forward with improving, you know, symptoms of malfrequency in patients with functional constipation could provide a real good therapy for patients in this patient population.
Andy
One other closing thought is, Eric, and I mentioned there's always been this question as far as drug safety in the younger population. And due to the hard work of Mark, Mike, and his team, they've really kind of resolved many of those concerns, both with regard to the basic science as far as what was hypothesized when we launched the drug, but more importantly, what we're seeing in the clinical data, that this drug does look like it's effective and well-tolerated. You know, we're going to continue to work with the FDA to make sure that it's going in the right direction, but we do see this as a very sizable commercial opportunity.
Abby
Yeah, I think that's a better answer.
Eric Joseph
I was just trying to mic to get a little more help to the premium expectations for the readout in the second half, which is, you know, the total study size, you know, what might be, what the trials are to show in terms of improvements in FDM, and really whether that data set at Pfizer would be used for purposes of labor expansion.
Matt
Yeah, so the current study, which is a 6-17 year old study, it's looking at improving bowel function, obviously in 6-17 year olds with diagnosed functional constipation. So at that level, and as with other constipation disorders, that's really founded in an improvement in bowel function. Bowel movement frequency, spontaneous bowel movement measurements, they're sort of the end points in what we're looking for, seeing improvement in bowel movement function in those patients. And that's hopefully will give us a path to an indication for functional constipation. Clearly we've got to see the data at the end of the year. We'll have discussions with the agency actually earlier this year. And it will obviously be data driven and discussion with the agency endeavor to move that forward.
Eric Joseph
Okay, great. Final question, if I could. Strong commercial margin for Linda as I do the fourth quarter. How should we be thinking about the trend in the future? in 2022? You talked earlier about sort of additional spend for the franchise. Any, I guess, diminishment of that commercial market?
Tom
Yeah. So, first of all, let me just take a step back, Eric, and just say, look, we're really – really proud of where lenses is from a profile perspective in terms of having a brand that's thriving and being able to produce double-digit prescription demand growth year over year uh 10 years into its life cycle at the same time we've been pretty prudent in terms of what goes into our commercial spend to maintain that and as tom had mentioned and i i think we talked about a little earlier we've made some choices as to where to make those investments in either payer access, marketing, et cetera, to manage and drive that prescription to mangrove. Because we think that's the ultimate driver of overall profitability and ultimate driver of overall cash flows for the company. Specifically to your question, what I would say is, Look, I think like every other CFO, I'd be, you know, wanting, if I didn't mention that we're in an inflationary environment, right? And like the broader economy, we're exposed to inflationary pressures in our business, whether that's labor and the like. And so we continue to monitor that. But I think from where we stand today, from a commercial margins perspective, I think we're going to hold steady about where we're at for 2022 and continue to drive profitability through cost containment.
Andy
Just one other comment as I think about this. We talked about the momentum that this brand has in the market, which has allowed us to really tune up the marketing mix. As you know, we have dramatically pulled back on personal promotion, which is one of the biggest problems. ticket items with regard to expense, and we haven't seen the demand growth waiver, which says a lot for the effectiveness of this drug in the marketplace and ongoing growth. But obviously, you know, we continue to look at promotional response. We look at investment both on the consumer and professional side. And, of course, the payer mix is also critically important, which is continue to enable patients to easily access the drug.
Eric Joseph
Okay, excellent. Thanks, guys, for taking the questions. No problem.
Operator
And we will take on a question from Tim Cheng with Northland Securities. Thanks.
Tim Cheng
Tom, just given the revaluation in a lot of pharma biotech names, have you guys considered looking at other existing approved products, complement ones, just given the fact that you already have a commercial infrastructure in place?
Tom
So, to this, Trevin, look, I'll start by saying that, you know, we don't comment on business development activities as the standard of course. What I will say is, look, we are open from a strategic direction perspective to whatever creates the most amount of value for the company, and we will evaluate any and all opportunities that we think can and drive that for us. So it's a broad answer to your question. I appreciate that. But, you know, we're not going to get specific about where and what we're looking at.
Andy
Yeah, I mean, just in addition, I mean, I agree. I think this is, you know, the environment's changing. which could create nice opportunities for us. And the team is looking at a lot of different things right now, Tim. I think we have a number of opportunities in front of us that we're critically evaluating and working closely with our board to make sure that we're making very sound decisions for you as an investor.
Tim Cheng
Okay, great. And let me just follow up. I know you guys have provided 2022 guidance, which I think is solid, but do you guys expect R&D expenses to ramp up this year, or is it more of a flat type of year for R&D?
Tom
Yeah, so just as a reminder, taking a step back, last year in 2022 and 2021, with respect to R&D expenses, first of all, one, Tim, we don't give guidance on R&D expenses. I think it's the first one. We just talk about evens out. But what I would say is that our 2021 R&D expense, included about $19.5 million associated with the core license option agreement, and we don't expect those costs to recur in 2022. At the same time, you know, we've got some interesting things that we're looking to get readouts on this year, specifically pediatrics and, you know, the progress we're making on IW3300 And I'm sorry, CMT-104 itself. So, yeah, I just say that, you know, we don't have those recurring costs. We don't provide guidance on that.
Tim Cheng
Okay, great. Thanks.
Operator
And we will take our next question from Jacob Hughes with Wells Fargo. Good morning.
Jacob Hughes
Good morning. It's Nick on. Hey, it's Nick. Thanks for taking the time. Just one from us. Is there any update you can share on the Linzess OTC pathway and maybe what progress you expect into this year?
Tom
Well, thanks for the question. At this time, we don't have an update on the OTC pathway, and we'll provide an update when we have one.
Andy
Yeah, I'll just comment. I think that's spot on, Trevor. And, you know, we're still working through that, obviously, with our partner to, you know, look at, you know, feasibility and the timing of that. So, you know, right now we're primarily focused on moving the pediatric program forward and resolving any outstanding questions that the FDA may have on drug safety before we can even really move forward with the OTC assessment. Got it. Thank you.
Operator
And ladies and gentlemen, that concludes our question and answer session. And this also concludes today's conference call. We do appreciate your participation, and you may now disconnect.
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