Good day, and welcome to the Ironwood Pharmaceuticals Q1 2023 Investor Update Conference Call. Today's call is being recorded [Operator Instructions]. 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 first quarter 2023 investor update. Our press release issued this morning can be found on our Web site. 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 31, 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. So for those of you dialing in, please go to the event's section of our website to access the accompanying slide 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 we're taking to become the leading GI Healthcare Company in the U.S. Let's begin on Slide 6 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 U.S. 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 midyear indication for linaclotide in functional constipation for patients six to 17 years of age, if approved. Next, 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. Second, IW-3300. We are continuing the proof-of-concept study in patients with interstitial cystitis and bladder pain syndrome.…

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 9. We believe the pediatric opportunity, if approved, could expand the market potential for LINZESS as functional constipation affects roughly 6 million six to 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 and given the strong science underlying this therapy, we plan to assess T-cell responses in patients those with CNP-104 in the second half of '23. 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 and 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 duct in PBC. With respect to IW-3300, our wholly owned Ironwood asset for the potential treatment of interstitial cystitis and bladder pain syndrome. There is a significant unmet medical need in this area as this chronic condition affects millions of Americans if 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 and bladder pain syndrome patients are being screened, dosed and site activations are ongoing and going very well. We're excited about this program as is the first time that 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 and 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 U.S. LINZESS collaboration revenues of $102 million. Ironwood recorded $20 million of income tax expense, the majority of which was noncash. GAAP net income was $46 million and adjusted EBITDA was $60 million in the first quarter. Next, 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 while the potential to create value for our patients and 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 U.S. net sales growth of between 3% and 5%, driven by high single-digit percent 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 midyear pediatric functional constipation indication. Our first quarter results reflect continued execution against our strategic priorities. We remain -- 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 the line for questions.

[Operator Instructions] Your first question comes from Tim Chiang with Capital One.

Tom, could you talk a little bit about just obviously, the demand trends for LINZESS are doing quite well. And could you just talk a little bit about how you sort of see the rest of the year playing out for LINZESS? Obviously, it looks like you're going to get a pediatric functional constipation indication. How much additional growth do you think you'll see with that indication longer?

Well, I think you can hear we're quite excited about what we're seeing in the first half -- the first quarter of this year. And we're continuing to see this demand growth moving forward. I think we'll see -- we need a couple of more data points to really understand how we think we're going to land the year. So it's the reason why we're kind of staying firm on our current guidance. But I think the next month or so will give us a really good idea. As 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. But we're not seeing that right now. I mean, we're seeing the market grow and we are growing disproportionately capturing that market. So I think we're in a very, very healthy place for the brand. It's interesting. We've seen this growth spike that seems to be coinciding with our new DTC ad as well as we 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, there are 6 million to 8 million kids out there that are suffering. And 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 adults will struggle and try to self-medicate. But if you have a kid that's really disabled with abdominal symptoms and constipation, you're talking to a doctor probably multiple times here, which we're going to certainly see what we can do to help. We're going to -- we're trying to be very thoughtful about how we're going to allocate the investment and we'll be running a series of pilots with our partner, AbbVie, to really assess how promotionally responsive this pediatric market is, which really will inform the investment for next year. So I don't know that we'll see a whole lot of growth coming out of this market. I will hope we see growth, but I think the real impact will come in '24 and '25 as we invest -- focus and invest in this market. But at this point in time, Tim, we're really delighted with the performance of the drug.

And maybe just one question on CNP-104. Mike, you talked about T-cell response. What sort of threshold do you need to see in this Phase II study?

So as you know, this is a first-in-human study with this technology in PBC, so we're going to learn a lot. It's one of the reasons why we actually did this deal because the science is so strong and we think -- 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, they had a pretty robust T-cell response, meaning the using nanoparticles with gliadin or gluten inside that reduced T-cell responses with treatment roughly like 88%. So that's was pretty robust. But the key point is not necessarily a T-cell reduction, but that it correlates with the biomarkers as well and in celiac, it actually correlated with epithelial histology improvement. So we're going to look at the T-cell responses and we think we can get a really clear gauge on whether the drug is going to work by the T-cell responses. The absolute percent will remain to be seen, but we're going to have to look at the correlation with the biomarkers in terms of liver function to really understand where that's going to play out in terms of the longer-term clinical benefit, but 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.

And Mike, maybe if you comment also on which biomarkers are probably most relevant and how does the FDA look at that as an endpoint as far as drugs respond.

The biomarkers are pretty fairly established because of prior regulatory engagement because of ursodeoxycholic acid and obeticholic acid. So that -- and in those programs, the agency focused on alk phos, 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. So alk phos is clearly there. And then we also have things in there for liver function like bilirubin and other assessments, transaminases as well. And then 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 because the agency wants to make sure the biomarkers correlate with real improved liver function and the biopsy is sort of the standard today. But that's another reason why we think we're in a great position with this technology because the way the agency uses the biopsy and the other programs is really for objective evidence that the drug is working and not necessarily biomarker-driven evidence, that's where the biopsy plays, but that's why we like the T-cells because the T-cells will be a really strong objective assessment as well. And 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.

Your next question comes from the line of David Amsellem with Piper Sandler.

This is Skyler on for David. Can you remind us how you're thinking about the physician target audience for the pediatric opportunity and the potential need to expand sales force head count to support this opportunity.

As I mentioned earlier, we're going to be running a series of pilots. There won't be any -- at this point, there won't be any increase in selling effort. We're really -- the good news here is this is a fairly concentrated prescriber base, like 3,000 to 4,000 docs will generate 30% to 40% of the volume. So we can easily fold those docs into our existing call list and trade off those for kind of lower performing or lower -- less busy positions. And we'll let the data really guide our decision on this one. So if we see some fairly significant response there, then we'll go back and take a look at do we think we need to increase our selling effort. At this point, that's not the plan. Keep in mind, we're currently calling out about 35,000 physicians who generate the majority of the business. So this isn't a significant increase in the number of targets, but it will really give us a good line of sight with regard to how hard do we think we need to push to make -- to really affect and I'll come and then 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 and our direct patient programs.

Your next question comes from the line of Boris Peaker with Cowen.

I guess for CNP-104, I just want to clarify for approval, ultimately, can you get an approval in 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?

So prior history has kind of addressed that with obeticholic acid because they got approval based on the biomarker of improvement in alk phos. That has also been historic with ursodeoxycholic acid or Urso that class of compounds. So it has been done usually in that setting has 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. And that's clearly because the benefit with those agents, they improve cholestasis. So patients do better and 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, and that's also evident in what a responder is for obeticholic acid because the alk phos is the biomarker, but you don't have to normalize alk phos 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 alk phos is elevated to that degree. So alk phos has been accepted by the agency for a marker for success and does usually come with post-mark agreements. And that's why we like the objectivity around the T-cell response because getting an early read on that, I think, gives us a real good insight into the opportunity more longer term.

Clear, Mike. The actual responder endpoint that is to reduce alk phos to a level that's 1.5x normal.

Correct. Right.

Okay.

And 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 space since it's the standard of care?

Yes. 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 placebo-controlled now granted Urso standard of care as well as Urso failures can take obeticholic acid. So we need to manage that. Obviously, we want to keep patients being treated. Currently, the study we're designing is for Urso and nonresponders. So we do have to cross that bridge when we get there. But I think that's really another unique feature of this asset because even in the setting of an Urso responder or an obeticholic acid responder, again, they still have often an abnormal alk phos and there still is benefit using this therapy. So standard of care are not included, we still think we have an opportunity to show a benefit even in patients who may be a responder to the other agents being used. Does that make sense, first?

Your next question comes from Jacob Hughes with Wells Fargo Securities.

A couple of questions. On the pricing headwind in the quarter, I think the implied it was down three. Could you just talk about the dynamics you're seeing for the rest of the year because if there was any benefit because I think last year, you guys had one-time growth in that benefit in the first quarter of last year, is that a similar dynamic?

I would start by saying I'm really pleased with the start to the year. 8% net sales growth as you kind of got to was driven by prescription demand of about 10% and the rest is sort of essentially a price segment. Yes, price and everything else kind of performed in line. I would say that, look, we have a pretty good set of into -- 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 what 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 -- sorry, mid-single digits is sort of the full year guidance in terms of implied for price. We'll see where it comes out. But I think we're really pleased with where we are today.

And then on the guidance, okay, like the first quarter is a little bit better from our demand standpoint, like the weekly scripts look about the same so far in the second quarter. Pricing is a little bit better. So is there anything you're seeing in the back after the year that's giving you some pause in terms of the guidance? I know it's only one quarter in the back. And then like, how much of the -- how much of the pediatric functional constipation indication. Is that in there for the second half as well?

So look, yes, so let me start by saying, look, I think we're really excited about where we are this year. And I think we want to see 1 quarter doesn't make transient. I am going to see a little bit more data before we can come back to you and give you any change in the guidance at all. But we're pleased with the momentum we have in the first quarter. And on the price piece, I was trying to just put a finer point, I'd look it 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. So look, I think we're really happy with where we are. I think you've heard it on the call, excitements here on LINZESS performance. And if we have something to tell you in the second quarter and then we continue to see performance like this, we may come back to you to give you an update that.

I think we're cautiously optimistic and this is why we're kind of being a little careful this year with regard to the upside of the pediatrics. And this is the reason why, again, we're running these pilots to really understand how promotional response this group is. And we're -- we'll have a lot more information by the end of the third quarter with regard to what we think we're going to see because I think we'll see 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, the kids are actively seeking care, as I mentioned. But also these physicians end up to be quite pediatricians end up following clinical practice guidelines and standard of care. And this is one where -- this will be the only drug actually approved for functional constipation. We think that's a real asset because traditionally, pediatricians don't like prescribing drugs off-label for kids. And to have a drug that's approved for these kids, I think it could be a real advantage. But stay tuned and we'll certainly keep you updated as far as what we see in the market as we launch the new indication.

With no further questions, we will conclude today's conference. Thank you for your participation. You may now disconnect.