Ironwood Pharmaceuticals, Inc.

Great. Thank you very much for joining us today. My name is Mohit Bansal. I'm one of the biotech and pharma analysts here at Wells Fargo, and I'm joined by Tim Ironwood today. So we have Tom McCourt, the CEO of the company, and we have Shravan Imani, the CFO of the company. Thank you very much for joining us.

Great to be here.

Great. So maybe let's just start with those who are new to the story. They are trying to learn the story. Talk a little bit about the company, just a brief overview of the company and what you're up to.

Sure. So Ironwood is a GI-focused healthcare company. Our primary focus is in GI medicines. And about five years ago, we reorganized the company to really strengthen our overall skills and capabilities around GI disease, both with regard to development and commercial. We have a lead asset in Linzess, which is the market-leading brand for the treatment of IBS and chronic constipation. It continues to thrive in the market. It's really been a remarkable drug and story in that, you know, in year 12, based on, you know, based on really a platform of about 4.5 million prescriptions, it's still growing at about 10% a year, which is really remarkably steady and consistent, durable growth that we're very proud of. And it's obviously, you know, reached blockbuster potential, exceeding a billion dollar in sales. And, you know, we recently are continuing to nurture that. We have faced some pricing pressures over the last year or so that we're working through, but it's still throwing off really healthy revenue. And so the primary objective of the organization is to maximize, at this point, the profitability of the brand through LOE, which is March of 2029. So we have a number of years of good growth and certainly opportunity to harvest the brand. In addition, you know, three years ago, four years ago, we set out to expand the pipeline. And we looked at a number of different assets, and we settled on purchasing or acquiring effective vial primarily because of the asset of afroglutide, which is a really, we believe, a best-in-class GLP-2, you know, for the treatment of short bowel syndrome for patients that are dependent on significant parenteral support. We finished the Phase III trial in March. reported the data recently, which was positive, and we've continued to evaluate the data, present, you know, a lot of the secondary analysis at a number of GI forums, and we're getting very, very positive feedback from, you know, the experts in the space as well as the investigators. So we're rapidly moving that towards a submission that will come early next year. In addition, we licensed the opportunity to access an asset that's called CMP-104, which is for primary biliary cholangitis. This asset has the chance, we believe, to be a disease-modifying agent in that it uniquely targets the root cause of PBC, which is the existence of a single antigen, a PDCE2 antigen, that triggers the body to generate autoreactive T cells that destroy the bile ducts. And this would be the first potentially disease-modifying agent. We'll be seeing data later this month, and certainly we're very excited to see what those data look like. And then, of course, the third pillar in our strategic priorities is continuing to generate cash flow and profits and cash flow to be able to fund, you know, where we are. But I think we... We're really at a critical point in the history of Ironwood, and the next year or two are going to be very exciting for us.

Awesome. This is very helpful. Thank you for that. Maybe let's just start with lenses and then the pressures, pulls and pushes you saw in the last couple of quarters. Just talk through that. There seems to be a little bit of trend break, or if it is, Please help us understand what exactly is going on.

I'm going to have Shravan handle that. I think the important thing to keep in perspective, though, is the real growth and health of the brand comes around the demand growth, which is continuing to be healthy. And at this point in time, we have been seeing some fluctuations in the use of Medicaid and certainly some of the changes in in the regulatory environment with regard to government pricing. But Shravan, you know, has been spending a lot of time fully understanding this. So, Shravan, maybe you can address that.

I think you answered it perfectly fine. We don't really think it's necessarily a trend break. I think it's a – I think we've – as we think of our overall business and our profile, demand is really strong, which is important. The brand is being – you know, continues to grow and thrive, which is great. We've just, from a government pay perspective, faced some headwinds. I think our overall commercial book of business is relatively stable at this point in time, and we feel pretty good about where that is between now and LOE.

Was this a mixed change or something? So you talked a little bit about Medicaid A&P cap removal as well, so can you elaborate this a little bit more so that people understand that?

Sure. Historically, yes. To answer your question, it is a mixed change. So it's just an increase in, as we think about where and how we sell in our books of business, there's commercial, there's Medicare, and there's Medicaid. And Medicare is part of the office. But the Medicaid percentage of our overall book of business, the amount of volume that we have, has increased from a couple percentage points. And if you think about what the gross sales of overall Linzess is, as you can imagine, it's a primary care drug that's been on the market since 2012. It's a heavily discounted drug. So the net sales we report is a fraction of what our overall gross sales are. Okay. And so if you think about that, the amount of net sales that a couple point change in our book of business creates big shifts, right? That's one. Two, Medicaid reimbursement historically had been capped at 100% of whatever our price was. And so essentially that volume we'd get zero revenue for. And so if you think about an increase in that volume in terms of a mix of our business, where we used to receive revenue, receive price for that product, we no longer do. because we're rebating it back to the states. So that's part one. So we saw an increase in utilization. Second component of that is last year due to the ARA, American Recovery Act, there was a change in the legislation which removed the cap of reimbursement at 100%. So there was a formula that was constructed by the states that allowed them to receive a payment beyond 100% of the rebate price. So we can rebate more than what the actual price of the drug is back to the state. And so the combination of the two created a headwind this year, and we've changed our guidance as a result. Right. Got it.

I think as we're looking forward, the other piece, too, is as we know, we're seeing some readjustment and really disenrollment of Medicaid, and we're really anticipating it to level off quicker than it did. We are, to Trevin's point, even though there's Fewer people on Medicaid, we're seeing greater utilization, which is really kind of the ping we took this year. But as we look forward, we certainly see that kind of baked into our baseline as we move forward. So we still see this as a very viable, very healthy brand that's going to continue to throw off a lot of cash.

Yeah, and I think that's a really important point, Tom, where it's in our 2024 over 2023 numbers in terms of the shock, but going forward, we'll have a year-over-year impact associated with

In the past, you did talk about, I mean, probably the low single-digit kind of growth for this particular brand, tilde LOE. Do you think once you absorb the shock, you can probably get back to that?

I think we believe so. I mean, because really the key driver is the overall demand growth, which continues to be really, I mean, it dominates the market. We're almost at 50% market share. We're getting a disproportionate share of the patients, the new patients coming into the market, which is going to continue to fuel the growth. I think the biggest thing we do need, I mean, I do think about payer access as a big part of our marketing mix, because if I lose payer access, it's really going to hinder our demand growth. So it is an investment in the brand, just like product promotion or our sales force.

And I think, again, relative to our commercial books, we're pretty stable. The thing that's always a wild card is changes in government policy, which we don't have control and we're only reactive to.

So talking about government policy, so there's a party redesign coming as well. So how much impactful that is for your business?

So we'll come back and give guidance on that when we give guidance at the start of next year. Anticipating some, I assume we'll come back and give you the level of what that might be. And I'm hesitant to tell you what it is until I know better. Got it.

I mean, there's one thought that, you know, especially for I mean, for lower-priced products, like they are not high-priced products, there is volume offset there. Do you think that is a possibility there?

Potentially. I would say that, again, it depends. This is the change in the redesign associated with catastrophic coverage associated with these brands. It just depends on how much that percentage is and the volume in our Medicare book business. Medicare is a significant part of our business, and so we'll have to come back as to what that impact is in the future days. There will be some impact. I just don't know what that is.

Got it. So one consequence of this top-line shock we saw this year, or we are seeing this year, is the impact on EBITDA and then the kind of profit. Yeah, it's all price. Right? It's a change in price. Change in prices, right? So it has an impact on EBITDA, and then obviously... So people are thinking about the profitability of the business going forward. How are you – what kind of comfort you can give the investors? How are you thinking about this? And is there room to, you know, right-size organization or think about situations where, you know, you can probably still throw off pretty good –

Yeah, so as Tom mentioned, it is a pretty profitable brand to begin with. And so the demand obviously is a big driver of what fuels that. We feel pretty confident that we'll continue to optimize the spend that we have against the brand and look for opportunities to continue to, as Tom mentioned, one of our pillars is increasing free cash flow. and we'll continue to find opportunities to do that. So the short way of saying yes, there are options and possibilities to do that, we're evaluating those.

And I think as we look towards the future, Linzess is going to continue to throw off a good deal of cash. We plan to have apraglutide into the market in 2026, and we still have another three years of revenue with Linzess and those two combined with really limited increase in overall G&A and expenses. So, you know, when you look at the longer-term outlook for us, it looks very, very bright with regard to certainly, you know, our ability to return, you know, value to the shareholders.

Got it. I mean, again, not to talk about quantitatively because, I mean, you have not given guidance for the next few years, but given... Not thinking about CNP at this point, CNP would, whatever happens, but without that, do you think this is the high watermark, this year's high watermark for R&D, probably, given that you're... For R&D, yes.

For development, true development span, we advance trials in short bowel syndrome, advance trials in graft-versus-host disease, CNP-104, 3300, and that includes CNP. internal and external spend, right? So this is a big year from a development focus for the organization. As we turn the page, there is ramp up associated with regulatory filing, commercial launch that we'll face in 25, right? So from an OpEx perspective, we might be stable just a mix of where we have that OpEx. We'll shift to essentially preparation of commercial launch. And then in 26, once we're able to post revenues and launch the drug after approval, if we get approved, which we should, but, you know, we feel confident about. But the post-approval, then we'll be able to, you know, I think have significant leverage over that existing operating base.

Got it. That makes sense. So let's just move on to a prototype a little bit here. So we'd love to understand what the feedback you have received after the presentation at at DDW, what physicians like and what kind of questions did you get there?

Yeah, maybe we start with, you know, what does the market look like and kind of going into the market, you know, why we were attracted to this market and why we were attracted to the asset. And I think the reality is, you know, these are really debilitated patients. They're on, you know, daily or multiple days a week, parenteral support to thrive or even survive. Certainly, the first GLP-2 that came to market was an advancement in care, but had some real gaps with regard to its value proposition to patients. And there's some questions around efficacy. There's weekly injections. There's tolerability issues. And the reality is about 50% of patients that are initiated on this GLP-2 discontinue within 12 months and almost two-thirds in the first two years. So, Clearly, there's a sizable population out there, 8,000 to 10,000 patients. The majority of those remain untreated, and those that have been initiated often discontinue. So we saw an opportunity where there was clearly an advancement in care, and certainly we saw that in afraglutide, both with regard to its half-life and its exposure. in the gut that would allow a more effective therapy and a more convenient therapy. And certainly the clinical data panned out. No question efficacy was demonstrated across both anatomies, those that have a stoma and those that have remnant colon. But I think the other piece that was remarkable is the tolerability profile, which was comparable to placebo. So if you look at the overall clinical profile of the drug, clearly sound efficacy across both both anatomies, very well tolerated drug that's once a week as opposed to a daily injection. So the reaction from the investigators and KOLs have been very, very positive. And as we've continued to expand, because this was such a large trial, I mean the largest trial ever conducted, as we've kind of teased back a lot of the additional data and presented it, the case becomes more and more compelling. And certainly we're getting a lot of feedback, you know, from the KOLs that they're looking for to getting the drug in their hands.

Got it. So, I mean, in terms of unmet need, can you talk a little bit about where is the opportunity there? And then I think you talked in the past that, I mean, this market is not very – it's an under-planetized market. So where do you see the opportunity?

I think multiple forms. One, the minority of patients have been treated, and part of that is the attractiveness of the initial treatment, which is a daily injection. And half this population aren't on daily parenteral nutrition. So if I'm on two, three, four days, do I want to take a daily injection as opposed to a weekly injection? I think the other piece, as I mentioned, is the tolerability. There's a fair bit of abdominal distress in injection site reaction associated, you know, with the currently available GLP-2, where we clearly saw an advantage. So I think the primary source of business will be the treatment naive patients that would be, you know, this would be a far more attractive asset, you know, treatment for them. I think second is, you know, a lot of these patients that have discontinued GLP-2, either due to a lack of efficacy or tolerability in you know, are certainly available to us. And certainly we are also, from physicians or prescribers, you're hearing their willingness to switch just because it looks like it's a better tolerated and a better alternative for their patients. So there is a sizable opportunity. The one thing that is new is is the initiation of an ICD-10 code for short bowel syndrome, which never existed. So, you know, we were estimating the size of the population somewhere between 8,000 and 10,000 patients. And as we're seeing the data roll in, the ICD-10 code now has been available since late 2023. That certainly validated it. But the other piece that it gives us, is where are the patients concentrated. So as we think about our go-to-market strategy, it really allows us to focus on where are the pools of patients, where are the centers we want to cover, and that's data we never had before, which will be, I think, invaluable as we continue to get ready to go to market.

Got it. That's super helpful. So, I mean, I think in the past you did talk about there are patients who have tried GATEX before and they have discontinued. So can you talk a little bit about the size of the patient population and what is the reason why people discontinued that?

The primary reason was either a lack of efficacy, because what we do know from the clinical trials, when you look at the primary endpoint, it worked in stoma patients, but it really had no change over placebo in this other CIC population. So obviously, you're probably not seeing efficacy in that group, where we clearly saw that in our primary endpoint. And certainly, as we looked at the secondary analysis, there's clear benefit to those patients. So I think the clinical profile expands the clinical response to a larger population. And I think the other piece of that is this rolling off due to tolerability issues. And keep in mind, you know, roughly, you know, there's probably... 1,400 to 1,600 patients that are on the currently available GLP-2, which generates about $800 million a year, but they're cycling off. So, again, about 50% of those patients discontinue within 12 months. Over the last several years, that's a sizable population that have tried it and it stopped it, which we think is a very accessible population to us as we go to market.

Got it. And then given that you are in some of the clinics already with the lenses, I mean, what kind of practice you can do and then you have done so far?

Yeah, I think we're really well situated right now with regard to our commercial model. You know, we have a very effective, very tenured sales force that have been in gastrointestinal, gastroenterologist's office for the last 10 or 12 years. Over half of our sales force that we currently have launched the drug 10 years ago and are still in there. So the access that they have to those offices is very strong, particularly the large GI practices, these I call them GI supergroups, where you're seeing this consolidation in practices. There's a group down in Dallas that's over 1,000 gastroenterologists, and we have ready access to that. So we have the Salesforce necessary to certainly cover the large GI centers as well as the academic centers where these patients tend to be cared for. And the previous GLP-1 or GLP-2 of Salesforce was actually smaller than the one we have. So I think we're not talking about a need to expand the Salesforce. I think we may want to refocus it on certain centers. I think the one outstanding piece that we do need to put in place is a hub service to really support patients to kind of hold their hand through the treatment process, which we think could be invaluable for that patient population.

And then, Tom, we also started just in addition to the data we've had at individual conferences, the GI conferences over the course of the year, we've also begun disease awareness programs as well, which also will prime us for a launch in 2026.

I mean, that's really an important point because right now, as far as the number one opportunity is identifying patients. Right. And so we felt strongly that we wanted to jumpstart our disease awareness program to really expose who is the patient, what is the medical need. You know, what are the goals of therapy? So certainly it exposes the shortcomings currently in treatment offices. Certainly we're not promoting, you know, at this point, but I think really laying that foundation for who is the patient in need and really figure out who is the first patient that that prescriber is going to give us.

Right. That completely makes sense. So, I mean, I think one question we get a lot, and I'm sure you have received a lot, is that people recognize that it is better than GATEX, but there is Glepa Glutide as well in between. So how do you see, which is not on the market right now, but you see about overall competitiveness of the drug versus the market in which Glepa would be there as well.

How do you think about that? Maybe. So the reality is we don't know a lot about Glepa. They haven't disclosed all the data. I think I go back to... The clinical profile of APRA, you know, which clearly has efficacy across both patient populations, both anatomies. The tolerability, you know, is outstanding. And there's some question about that with GLEPA. I don't want to comment on that. But also, you know, the once-a-week injection. Right. That's very well tolerated. I think we're still in a very, very strong position. And keep in mind... there's still a lot of patients out there that need to be treated. So I think there's plenty of room for a couple of players that may advance care. I think we clearly advance care. So I think there's room, but it's really uncertain, you know, what their go-to-market strategy is going to be. I mean, we're going at it now, right? And, you know, we feel an urgency, you know, to get our feet on the ground and really start developing the market where I'm not sure that that's happened over...

Yeah, and I think, Mohit, as we think about our product in terms of positioning, where we get confident in terms of our feedback from KOLs is it's a once-weekly, which doctors have been seeking for a long time in terms of therapy. We had large responders in terms of high responders to our trial, which the data released in May in terms of patients receiving two or three days off therapy, which is like a quarter or a third of our patients, depending on two or three days. And if you think about the doctors here when they're trying to work with their patients, giving them significant relief from parental nutrition and the potential that that might exist for a patient is great. Couple that with fast responder, early response in terms of feeling and seeing benefits in the first couple weeks, and then couple that with a safety and tolerability profile that's almost equivalent to placebo. I think it's the overall profile of our drug, right, in a competitive environment that we will get more than our share of patients, because as a whole, I think the opportunity to give patients benefit and the opportunity to give significant benefit exists with our product, and the burden in terms of the hurdle for that patient to take on the therapy is very low. And so that combination, I think, is a winner.

This is very helpful. Thank you for that. So when people look at the market opportunity, they look at Gatax, which is selling, what, $750 million, give or take some, but We have seen oftentimes with less frequent doses, compliance improves as well as durability, duration of the treatment improves. So do you think those factors could also come into play here? And where do you see duration on GATEX right now versus how you think about it?

Yeah, I think it comes down to, again, the available patient population, right, which is sizable. Right. I think to Shravan's point earlier, The clinical profile of the drug is far more attractive. So I think we're going to attract patients that just weren't accessible to GADX. I think we talked about those clinicians that have made the choice to try a GLP-2 and they stopped. Those are available to us. And clearly, I think we'll see some switching as well because it is a far more attractive clinical profile. So I think about our confidence and our projection of a billion dollars in sales is very accessible. So we're talking about 2,000 patients with current drug pricing to get to a billion dollars. And I think that is very achievable in this market with this clinical profile.

And just to remind you, that's our peak sales guidance. That is not year one guidance. Our hope with this product when we acquired it and when we guided to, we're still so confident in this, is that will replace Linzess revenues by the end of the decade. Linzess goes off patent. Apple will be there at a similar revenue level. We still feel confident in that ability. And just as a reminder for everybody, Linzess produces about $400-something million of revenue for us. So I think just to put in context, the number of patients to get to that level is not thousands and thousands.

Got it. That's super helpful. Maybe touching on CNP 104, I mean, on a high level, I mean, like, so what are you looking to see from this study? And this is a novel mechanism of action. So what is your thought process behind this?

I think this is really exciting science. This is a real, true innovation. And the first treatment ever to really, as I mentioned, target the root cause of the problem, which is this autoimmune response to the PDCE2 antigen that destroys these bile ducts. This is a first in human study. The first signal that we would want to see is a reduction in these activated T cells that are destroying it. We did have a preliminary look in blinded data about halfway through the study, and we saw some clearly favorable trends that we'd like to see with the T cells. But by the end of the month, we'll see the whole data set at 120 days. And so the first thing we really need to see is a proof of mechanism, which is this reduction in these activated T cells. The other thing that we are evaluating is liver function. And we're looking at multiple markers as far as liver function beyond just alkaline phosphatase, which primarily just focus on bioflow, not actually the health of the liver. Right. Hopefully, if we see this significant reduction in T cells, that reads through to, you know, an improvement in liver function. Now, keep in mind, it's important also to recognize that when you look at the currently available treatments, you know, for PBC, it generally takes a year to see an improvement in ALKFAS. So, you know, is one 20-day soon enough? Or, I'm sorry, long enough, excuse me, long enough, too soon, you know, to see those data? So I think, you know, to give us confidence on maximum, we really need to see a reduction in T-cell. And I think, you know, any lead indicators for liver function will take a hard look. But at this point, when I look at our business priorities as an organization of, maximizing the profitability lends us, getting APRA to market as fast as we can. You know, the bar is going to be high for this, you know, for us to take on another binary risk, you know, to go forward with a phase three trial. I think we have to be absolutely convinced that, you know, this is going to advance care.

Got it. So basically you will excise the option if you're absolutely certain about it. Absolutely. Got it. Very helpful. One last question to both of you. So fast forward one year. We are sitting here again. I hope you come here. So if I ask you, like, what would make you look back at the year and think that this was a great year for us?

Well, I think certainly as we continue to figure out how we can harvest Linzess and generate even higher profits based on the event, that's certainly one. I think certainly getting in a timely submission. You know, we have, as you know, we already have Fast Track designation from the FDA. So, you know, they've agreed to a rolling submission. So we'll be, you know, rolling out, you know, certainly the submission, you know, later this year. And we hope to have it completed, you know, certainly by early next year or early, you know, 2025. So I think looking back, having a timely and a very solid NDA submission is number one. I think continuing the strong trends of Linzess is number two. And certainly, are we continuing to grow the EBITDA, you know, to a healthier place that we have great confidence in?

I think that's spot on. Great. On that high note, thank you very much for being here.

Thank you. Appreciate it.