Good day, and welcome to the Ironwood Pharmaceuticals Q1 2023 Investor Update conference call. Today's call is being recorded. 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 followed by the one on your telephone keypad. Thank you. I will now turn the call over to Matt Roache, Director of Investor Relations. Please go ahead.
Thank you, [Angela]. Good morning, and thanks for joining us for our 1st quarter 2023 investor update. Our press release issued this morning can be found on our website. Today's call and accompanying slides include forward-looking statements. Such statements involve risks and uncertainties that may cause actual results to differ materially. A discussion of these statements and risk factors is available on the current Safe Harbor statement slide, as well as under the heading Risk Factors in our annual report on Form 10-K for the year ended December 31st, 2022, and in 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 tables at the end of our press release for reconciliations of these measures to the most directly comparable GAAP measures. During today's call, Tom McCourt, our CEO, will review our strategic priorities and provide an update on the commercial performance of LINZESS. Mike Shetzline, our Chief Medical Officer, will discuss our pipeline, and Sravan Emany, our Chief Financial Officer, will review our financial results and guidance. Today's webcast includes slides. For those of you dialing in, please go to the events section of our website to access the accompanying slides separately. With that, I'll turn the call over to Tom.
Thanks, Matt. Good morning, everyone, and thanks for joining us today. I'm delighted to announce our first quarter results this morning. We are off to a terrific start to the year, as demonstrated by continued strong LINZESS demand growth, progress of our clinical studies, and another quarter of delivering robust profits and cash flow. At Ironwood, we remain committed to advancing the treatment of GI diseases and redefining standard of care for GI patients. I believe the progress we've made across the organization in the first quarter demonstrate the steps that are taken to become the leading GI healthcare company in the U.S. Let's begin on slide six with our strategic priorities. Our strategy starts with maximizing LINZESS. LINZESS continues to experience remarkable prescription demand growth and widespread adoption amongst healthcare practitioners as a leading branded prescription treatment for adults with IBS-C and chronic idiopathic constipation.
In the first quarter, LINZESS US net sales growth increased 8% year- over- year. Prescription demand growth increased over 10% as compared to the first quarter of 2022, demonstrating that the momentum of the brand remains strong. We believe there's still a significant opportunity to reach appropriate new patients and drive additional prescription demand growth, including a potential mid-year indication for linaclotide in functional constipation for patients 6- 17 years of age, if approved. We are focused on continuing to strengthen and progress our innovative GI portfolio, starting with CNP-104, a potentially disease-modifying treatment for primary biliary cholangitis. The clinical study is ongoing, and we continue to expect early data assessing the T-cell response in the second half of the year from the patients enrolled in the studies, which will inform the timing of top-line data. IW-3300.
We are continuing the proof-of-concept study in patients with interstitial cystitis and bladder pain syndrome. We continue to actively evaluate opportunities to strengthen our portfolio, and we see several attractive opportunities in the market that we believe are accessible and could benefit from Ironwood's expertise and capabilities in GI. Our third strategic priority is delivering sustained profits and generate cash flow. We delivered GAAP net income and adjusted EBITDA of $46 million and $60 million respectively and ended the first quarter with $740 million in cash and cash equivalents on the balance sheet. With our unique profile as a profitable GI-focused biopharma company with a strong and growing cash balance, we believe we're well-positioned to maximize LINZESS growth and continue to build an innovative GI portfolio to create the next growth horizon for the company.
Now let's turn to the performance of LINZESS on slide seven. As you can see on the left side of slide seven, LINZESS performed exceptionally well in the first quarter. As I mentioned a few moments ago, LINZESS prescription demand increased 10% year-over-year, net sales increased 8% year-over-year and generated $250 million in the quarter. Over the first quarter, the adult IBS-C and chronic constipation prescription market experienced strong growth, with LINZESS experiencing an all-time high in new to brand, new to brand patient volume to strengthen its position in the market as the number one prescribed brand for adults with IBS-C and chronic constipation. Most importantly, we are proud to have had treated more than 4.5 million unique patients since the launch of the brand over 10 years ago.
The growing number of patients that are actively seeking care and have been treated with LINZESS is evidence of the high treatment satisfaction expressed by both clinicians and patients. We believe these market dynamics, combined with class-leading formulary access, the clinical guideline recommendation from both GI societies and the strong commercial execution is driving the demand momentum that we continue to see. We expect this momentum to be augmented mid-year should FDA approve the pediatric functional constipation indication, reinforcing the growth potential for the brand. Looking ahead, we're excited about the continued growth of LINZESS, the advancement of our clinical program, and our stronger financial position as we advance Ironwood's leadership in GI. In a few days, we'll be presenting five abstracts at the Digestive Disease Week meeting or DDW, including an oral presentation.
These abstracts will highlight new data that reinforce the potential of linaclotide to treat functional constipation in children and adolescents. We look forward to DDW, where each year we have an important presence demonstrating our commitment to advancing GI therapies, including expanding the clinical utility of linaclotide. Before handing it over to Mike to discuss the pipeline programs, I'd like to take a moment to say a very big thank you to Jason Rickard for his leadership and immense contributions to Ironwood over the last 11 years. Most recently serving as our chief operating officer and for helping make Ironwood the company it is today.
While a change like this is not easy, as an organization committed to maximizing shareholder value, we continue to look for ways to streamline our team and align key functions and resources to meet our current and future needs and support Ironwood through its next phase of growth. I would also like to acknowledge all the Ironwood employees who have continued the momentum and strong execution against our strategic priorities as we continue to help make a remarkable impact in patients' lives. I would now like to hand the call over to Mike. Mike?
Yep. Thanks, Tom, good morning, everyone. We continue to make progress across our three pipeline programs. I'll begin with our linaclotide pediatric program on slide nine. We believe the pediatric opportunity, if approved, could expand the market potential for LINZESS as functional constipation affects roughly 6 million 6- 17-year-old children and adolescents in the United States. If our sNDA is approved by the FDA, LINZESS would be the first and only prescription therapy to treat this patient population, and this is a population that's in need of better therapeutic options. We continue to work through the sNDA with the FDA and look forward to the June 14 PDUFA date. As Tom mentioned, we'll be presenting pediatric data on the efficacy and safety profile of linaclotide in treating functional constipation in this patient group at the upcoming DDW meeting.
Next is CNP-104 for the potential treatment of primary biliary cholangitis, which affects an estimated 133,000 people in the United States. The proof of concept study is ongoing. Given the strong science underlying this therapy, we plan to assess T-cell responses in patients dosed with CNP-104 in the second half of 2023. This will inform the timing of top-line data and the potential option exercise. We expect to provide an update on the program at that time. We're excited about CNP-104 because it is truly precision medicine. It introduces a potentially new game-changing asset for PBC patients as there are no therapies on the market today that address the root cause of this autoimmune destruction of the bile ducts in PBC.
With respect to IW-3300, our wholly owned Ironwood asset for the potential treatment of interstitial cystitis and bladder pain syndrome. There's a significant unmet medical need in this area as this chronic condition affects millions of Americans, yet there are very few treatment options currently on the market or in development. Last year, we successfully completed dosing in healthy volunteers and are currently executing the proof of concept phase II study. Interstitial cystitis bladder pain syndrome patients are being screened, dosed, and site activations are ongoing and going very well. We're excited about this program as it is the first time the crosstalk hypothesis will be tested in humans, and we're proud to be at the forefront of clinical development in this area. We're looking forward to providing updates as the study continues to advance. With that, I'll turn the call over to Sravan.
Thanks, Mike, good morning, everyone. It is wonderful to be in a position to discuss such great financial performance with all of you. I will begin with an update on LINZESS, which is off to an impressive start to the year. As shown on slide 11, U.S. net sales were $250 million in the first quarter of 2023, an increase of 8% compared to the first quarter of 2022, driven by strong prescription demand growth of 10% year-over-year. We are excited about the strong start to the year and the continued momentum of the brand. Turning to LINZESS brand profitability. Commercial margins in the first quarter of 2023 were 73% compared to 74% in the first quarter of 2022. Moving to Ironwood revenues.
In the first quarter of 2023, Ironwood revenues were $104 million, driven primarily by US LINZESS collaboration revenues of $102 million. Ironwood recorded $20 million of income tax expense, the majority of which was non-cash. GAAP net income was $46 million, and adjusted EBITDA was $60 million in the first quarter. Cash and capital allocation. In the first quarter, we generated $80 million in cash flow from operations and ended the quarter with $740 million in cash and cash equivalents.
We believe we are positioning our company for future success by maximizing LINZESS growth and actively pursuing innovative, highly differentiated GI assets to strengthen our portfolio. We continue to take a balanced and disciplined approach to capital deployment and remain focused on identifying and investing in opportunities that we believe will have the potential to create value for our patients.
Our shareholders over the long term. Next, I'll review our 2023 guidance on slide 12. We are encouraged by the strong start to the year and reiterate our full year 2023 guidance across all metrics. We continue to expect LINZESS US net sales growth of between 3% and 5%, driven by high single-digit % prescription demand growth. In addition, we expect to maintain our class-leading payer access. We expect Ironwood revenue of between $420 million and $435 million, and adjusted EBITDA of greater than $250 million, which includes increased investment to advance our pipeline programs, CNP-104 and IW-3300. To wrap up, we had a strong start to the year and expect to build on the momentum with potential mid-year pediatrics functional constipation indication.
Our first quarter results reflect the continued execution against our strategic priorities. We believe Ironwood is well-positioned for continued growth, and we remain focused on maximizing LINZESS, strengthening and progressing our innovative GI portfolio, and delivering sustained profits and generating free cash flow. We are excited about what's ahead this year, and we'll continue to keep you updated on our progress. I want to close by thanking all of our employees, patients, caregivers, and advocates for their shared dedication to advancing and supporting therapies for GI disorders. Operator, you may now open up the line for questions.
At this time, I would like to remind everyone, if you'd like to ask a question, press star one on your telephone keypad. Your first question comes from Tim Chiang with Capital One. Your line is open.
Hi. Thanks. Tom, could you talk a little bit about just, obviously, the demand trends for LINZESS are doing quite well. Could you just talk a little bit about, you know, how you sort of see the rest of the year playing out for LINZESS? Obviously, it looks like you're gonna get a pediatric functional constipation indication. You know, how much additional growth do you think you'll see with that indication longer?
Thanks, Tim. Well, I think you can hear we're quite excited about what we're seeing in the first half of this year, the first quarter of this year. We're continuing to see this demand growth, you know, moving forward. You know, I think we'll see. We need two more data points to really understand how we think we're gonna land the year. It's the reason why we're kinda staying firm on our current guidance. I think the next month or so will give us a really good idea. You know, this market tends to slow down a little bit in the summer and then accelerate growth in the back half of the year. We're not seeing that right now.
I mean, we're seeing the market grow and we are growing disproportionately, you know, capturing that market. I think we're in a very, very healthy place for the brand. It's interesting, you know, we've seen this growth spike that seems to be coinciding with our new DTC ad, as well as, you know, we've made some adjustments to the physician call plan with AbbVie, which we think is helping augment some of the growth we're seeing. I think we're very optimistic about the pediatric population. As Mike said, you know, there's 6 million- 8 million kids out there that are suffering.
I think the big opportunity here, Tim, is the fact that these kids are actively seeking care, which is very different than the adult population, where, you know, adults will struggle and try to self-medicate. If you have a kid that's, you know, really disabled with abdominal symptoms and constipation, you're talking to a doctor probably multiple times a year, which, you know, we're gonna certainly see what we can do to help. You know, we're trying to be very thoughtful about how we're gonna allocate the investment.
We'll be running a series of pilots with our partner, AbbVie, to really assess how promotionally responsive, you know, this pediatric market is, which really will inform the investment for next year. I don't know that we'll see a whole lot of growth coming out of this market. I hope we see growth, but I think the real impact will come, you know, in 2024 and 2025 as we invest, focus and invest in this market. At this point in time, Tim, we're really delighted with the performance of the drug.
Okay, great. That's helpful. maybe just 1 question on CNP-104. Mike, you know, you talked about T-cell response. you know, what sort of threshold do you need to see in this phase II study?
Yeah. Thanks, Tim Chiang. Thanks for the question. As you noticed, the first in human study with this technology in PBC, we're gonna learn a lot. It's one of the reasons why we actually did this deal because the science is so strong, and we feel we really do have an opportunity to understand how the drug may work by looking at the T-cell responses. You may also recall back in the celiac study, you know, they had a pretty robust T-cell response, meaning the using the nanoparticles with the gliadin or gluten inside that reduced the T-cell responses with treatment, roughly like 88%. It was pretty robust. The key point is not necessarily the T-cell reduction, but that it correlates with the biomarkers as well.
In celiac, it actually correlated with epithelial histology improvement. We're gonna look at the T-cell responses, and we think we can get a really clear gauge on whether the drug is gonna work by the T-cell responses. The absolute percent will remain to be seen, but we're gonna have to look at the correlation with the biomarkers included in terms of liver function to really understand where that's gonna play out in terms of the longer-term clinical benefit. We're really excited about the opportunity to look at the T-cell responses early to really make an early read for further investment and for the business case downstream because we think the science is so strong. There's just a great opportunity to do that.
Mike, maybe you can comment also on, you know, which biomarkers, you know, are probably most relevant and how does the FDA look at that as an endpoint as far as drug response?
Yeah. The biomarkers are pretty fairly established because of prior, you know, regulatory engagement because of ursodeoxycholic acid and obeticholic acid. In those programs, you know, the agency focused on alkaline phosphatase, which is not unreasonable. Alk phos is a primary indicator of cholestasis, which is delayed or stopped bile flow, and that's really what these liver diseases are about, the delayed or stopped bile flow. Alkaline phosphatase is clearly there. Then we also have things in there for liver function, like bilirubin and other assessments, transaminases as well.
Importantly, we have in there the biopsy too because you may recall also that obeticholic acid needed to do a biopsy type study, and that's 'cause the agency wants to make sure the biomarkers correlate with real improved liver function, and the biopsy is sort of the standard today. That's another reason why we think we're in a great position with this technology because the way the agency uses the biopsy in the other programs is really for objective evidence that the drug's working, and not necessarily biomarker-driven evidence, and that's where the biopsy plays. That's why we like the T-cells because the T-cells will be a really strong objective assessment as well. To be able to get an early read on such a strong objective assessment that really is the underlying mechanism of how the drug works is quite strong and very powerful in drug development.
Okay, great. That's very helpful. Thanks, Mike. Thanks, Tom.
Thanks, Tim.
Your next question comes from the line of David Amsellem with Piper Sandler. Your line is open.
Hi. Thanks. This is Skylar on for David. Can you remind us how you were thinking about the physician target audience for the pediatric opportunity and the potential need to expand the sales force headcount to support this opportunity? Thanks.
Sure. You know, as I mentioned earlier, we're gonna be running a series of pilots. There won't be any. At this point, there won't be any increase in selling effort. The good news here is this is a fairly concentrated prescriber base. You know, like 3, 4 thousand docs will generate, you know, 30%, 40% of the volume. We can easily fold those docs into our existing call list and trade off those for kind of lower performing or lower, you know, less busy physicians. We'll let the data really guide our decision on this one. If we see some, you know, fairly significant response there, then we'll go back and take a look at do we think we need to, you know, increase our selling effort.
At this point, that's not the plan. Keep in mind, we're currently calling at about 35,000 physicians, who, you know, generate the majority of the business. You know, this isn't a significant increase in the number of targets, but it'll really give us a good line of sight with regard to, you know, how hard do we think we need to push to make, you know, to really affect an outcome. We'll come back and look at not only the selling effort but the overall promotional mix, which we continue to refine as we balance both personal promotion with direct-to-consumer advertising in our direct-to patient programs.
That's helpful. Thank you.
Your next question comes from the line of Boris Peaker with Cowen. Your line is open.
Great. Thanks for taking my question. I guess, for CNP-104, I just wanna clarify. For approval, ultimately, can you get an approval on this indication based on some of these biomarkers like you just talked about, or would you have to do an actual study with a clinical outcome?
Yeah. Prior history has kind of addressed that with obeticholic acid because they got approval based on the biomarker of improvement in alkaline phosphatase. Recall that's also been historic with ursodeoxycholic acid or URSO or that class of compounds. It has been done usually in that setting, as happened in the obeticholic acid case. They get a post-marketing requirement to do another study, like a liver study, but they're on the market. That's clearly because the benefit with those agents, you know, they improve cholestasis, so patients do better. They should be on them, and they're good products, but they don't address the root cause of the disease like we do with CNP-104.
That's also evident in what a responder is for obeticholic acid because the alkaline phosphatase is the biomarker, but you don't have to normalize alkaline phosphatase to actually be a responder in those programs. You can actually get to 1.5x or 1.67x normal, which still means you have roughly 50% or 67% of your liver function potentially abnormal because your alkaline phosphatase is elevated to that degree. Alkaline phosphatase is, has been, accepted by the agency for a marker for success and does usually come with post-marketing commitments. That's why we like the objectivity around the T-cell response 'cause getting an early read on that, I think, gives us a real good insight into the opportunity more longer term.
just so we're clear, Mike, the actual responder endpoint then is to reduce alkaline phosphatase to a level that's 1.5x normal.
Correct.
Right. Okay.
just.
Yeah. Boris, did you have another?
For an ultimate pivotal study, could you get approved really on a placebo control, or do you think you'd have to use an active control in this case since it's standard of care?
Yeah. I think we'll... certainly we'll have discussions with the agency on what the phase III design would look like. Again, we don't have any data to date to have those discussions, but as soon as we get that, we will. We do anticipate that there's an opportunity for a placebo control. Now, granted, URSO standard of care as well as URSO failures can take obeticholic acid, so we need to manage that. Obviously, we wanna keep patients, you know, being treated. Apparently, the study we're designing is for URSO non-responders.
We do have to cross that bridge when we get there. I think that's a really another unique feature of this asset because even in the setting of an URSO responder or an ursodeoxycholic acid responder, again, they still have often an abnormal alkaline phosphatase, and there still is benefit to using this therapy. Standard of care are not included. We still think we have an opportunity, you know, to show a benefit even in patients who may be a responder to the other agents in being used. Does that make sense, Boris?
Great. Thank you very much for taking my question.
Thanks, Boris.
Your next question comes from Jacob Hughes with Wells Fargo Securities. Your line is open.
Hey, guys. Good morning.
Morning.
Just a couple questions. On the pricing, headline in the quarter, I think the implied is it was down three. Can you just talk about the dynamics you're seeing for the rest of the year? Because. If there was any benefits, because I think last year you guys had, you know, a one-time gross net benefit in the first quarter of last year. Is that a similar dynamic?
Yeah. Thanks for the question, Jacob. I would start by saying, we're really pleased with the starts of the year. You know, 8% net sales growth as you kind of got to was driven by prescription demand of about 10%, and you know, the rest is sort of essentially a price headwind. As price and everything else kind of performed in line. I would say that, look, we have a pretty good line of sight into where our expectations are for price over the course of the year.
This is not similar to last year, which had a one-time price benefit. This is really about where we ended up for the quarter, this quarter because of contracting and where we aligned for the full year. It's a little better potentially than we anticipated, but I would say that we said low single digits in terms of mid-single digits is sort of the full year guidance and implied for price. We'll see where it comes out, but I think we're really pleased with where we are today.
Then on the guidance, like, the first quarter is a little bit better from an RX demand standpoint. Like, the weekly scripts look, you know, about the same so far in the second quarter. Pricing's a little bit better. You know, is there anything you're seeing in the back half of the year that's giving you some pause in terms of the guidance? You know, you know, I know it's only one quarter in the bag. Then, like, how much of the pediatric functional constipation got is indication? Is that, is that in there for the second half as well?
Yeah. Look. Yeah. Let me start by saying, look, I think we're really excited about where we are this year. I think we wanna see. One quarter doesn't make a trend yet, and we wanna see a little bit more data before we can come back to you and give you any change in the guidance at all. We're pleased with the momentum we have in the first quarter. You know, on the price piece, as I was trying to just put a finer point, like, it can fluctuate from throughout the year.
First quarter was more moderate than we experienced in the course of 2022, and if this sustains itself, I think we'll be able to come back to you and give you a better sense. Our guidance does and has always contemplated any contribution from pediatrics. Look, I think we're really happy with where we are. I think you heard it on the call, the excitement's here on LINZESS performance. If we have something to tell you in the second quarter, and we continue to see performance like this, we may come back to you, give you an update then.
Yeah. I think we're, you know, we're cautiously optimistic. This is why we're kind of being a little careful this year with regard to the upside of the pediatrics. This is the reason why, again, we're running these pilots to really understand, you know, how promotional responsive this group is. You know, we'll have a lot more information by, you know, by the end of the third quarter with regard to what we think we're gonna see. I think we'll see a, you know, a quick response one way or the other. I think we'll have a pretty good line of sight. I think the one thing we've learned in this market, this category, is one, these kids are actively seeking care, as I mentioned.
Also these physicians end up to be, you know, quite... Pediatricians end up following clinical practice guidelines and standard of care. This is one where this will be the only drug actually approved for functional constipation. We think that's a real asset 'cause, you know, the... Traditionally, pediatricians don't like prescribing drugs off-label for kids. You know, to have a drug that's approved, you know, for these kids, I think, you know, could be a real advantage. You know, stay tuned, and we'll certainly keep you updated as far as what we see in the market as we launch the new indication.
Thanks, guys. Appreciate it.
With no further questions, we will conclude today's conference. Thank you for your participation. You may now disconnect.