On November 3, 2016 Ironwood Pharmaceuticals, Inc. (NASDAQ: IRWD), a commercial biotechnology company, reported an update on its third quarter 2016 results and recent business activities (Press release, Ironwood Pharmaceuticals, NOV 3, 2016, View Source [SID1234516300]).
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"Ironwood demonstrated outstanding third quarter performance, including a 67% increase in revenue year-over-year driven by strong growth in LINZESS demand. With the launch of ZURAMPIC, our salesforce is now bringing three products for chronic, debilitating conditions to roughly 30,000 of the highest prescribing primary care physicians in the U.S.," said Peter Hecht, chief executive officer of Ironwood. "Over the coming year, we expect continued revenue and prescription growth and a number of value-creating milestones, including three additional commercial launches and at least three Phase II data readouts from our pipeline. We remain on track to deliver positive cash flow beginning in 2018 and believe our continued execution and financial discipline will provide the opportunity for sustained revenue growth and shareholder returns."
Third Quarter 2016 and Recent Highlights
Irritable Bowel Syndrome with Constipation (IBS-C) / Chronic Idiopathic Constipation (CIC) Franchise
LINZESS. U.S. net sales, as provided by Ironwood’s U.S. collaboration partner Allergan plc, were $164.4 million in the third quarter of 2016, a 40% increase compared to the third quarter of 2015. Ironwood and Allergan share equally in brand collaboration profits or losses.
Approximately 700,000 total LINZESS prescriptions were filled in the third quarter of 2016, a 26% increase compared to the third quarter of 2015, according to IMS Health.
Net profit for the LINZESS U.S. brand collaboration, including commercial and research and development (R&D) expenses, was $81.5 million in the third quarter of 2016, a 128% increase compared to the third quarter of 2015. LINZESS commercial margin was 61% in the third quarter of 2016, compared to 44% in the third quarter of 2015.
Ironwood and Allergan expect to launch a 72 mcg dose of linaclotide in early 2017 that, if approved by the Food and Drug Administration (FDA), could increase physician prescribing of LINZESS among the estimated 35 million adult CIC patients.
Linaclotide Colonic Release. Ironwood and Allergan expect data from the Phase IIb clinical trial later this year. Linaclotide colonic release is a second-generation guanylate cyclase-C (GC-C) agonist product candidate that, if approved by the FDA, has the potential to provide better symptom improvement, including improved abdominal pain relief in adult IBS-C patients, to expand the IBS-C and CIC markets, and to extend patent protection for linaclotide to the mid-2030s.
In October 2016, Ironwood and Allergan received Paragraph IV certification notice letters regarding Abbreviated New Drug Applications (ANDAs) submitted to the FDA by generic drug manufacturers seeking approval to manufacture, use and sell generic versions of LINZESS. One of the ANDAs was submitted to the FDA by Teva Pharmaceuticals USA, Inc. (Teva). Teva contends that the U.S. patents for LINZESS listed in the FDA’s Approved Drugs Product with Therapeutic Equivalence Evaluations list, commonly known as the Orange Book, are invalid, unenforceable and/or would not be infringed by Teva’s manufacture, use or sale of a generic version of LINZESS. Ironwood and Allergan are evaluating filing patent infringement suits against such generic drug manufacturers. Filing of a patent infringement suit would trigger a 30-month stay of any approval of the subject ANDA that will not expire until 2020, unless the court earlier decides that the relevant patents are invalid, unenforceable and/or not infringed. LINZESS is currently covered by nine patents listed in the Orange Book, which expire between 2024 and 2031.
Uncontrolled Gout Franchise
ZURAMPIC. In October 2016, Ironwood’s clinical sales specialists began promoting ZURAMPIC for the treatment of hyperuricemia in patients with uncontrolled gout who are already taking a xanthine oxidase inhibitor (XOI), such as allopurinol or Uloric (febuxostat). Gout is a form of inflammatory arthritis caused by an underlying metabolic disorder, hyperuricemia – or high levels of uric acid in the blood. An estimated two million patients in the U.S. suffer from uncontrolled gout in which traditional first-line XOI treatment alone is not sufficient to achieve target serum uric acid (sUA) levels. ZURAMPIC is not recommended for the treatment of asymptomatic hyperuricemia and should not be used as monotherapy.
Lesinurad-allopurinol fixed-dose combination product. A New Drug Application (NDA) for the fixed-dose combination of lesinurad and allopurinol was submitted in October 2016 for review by the FDA. If approved, Ironwood expects to launch the fixed-dose combination product by late 2017.
Refractory Gastroesophageal Reflux Disease (rGERD) Franchise
IW-3718. Ironwood continues to enroll patients in a dose-ranging Phase IIb clinical trial of IW-3718, a wholly-owned asset being studied as a potential treatment of rGERD. IW-3718 is a novel, investigational gastric retentive formulation of a bile acid sequestrant designed to work with a proton pump inhibitor (PPI) to reduce the detrimental effects of bile and acid on the esophagus. An estimated 10 million people in the U.S. suffer from rGERD and continue to experience heartburn symptoms despite treatment with PPIs.
Vascular and Fibrotic Franchise
IW-1973. Ironwood initiated a Phase IIa open-label, placebo-controlled study in patients with Type 2 diabetes and hypertension. This study is designed to explore the tolerability, pharmacokinetic and pharmacodynamic effects of IW-1973 across multiple doses, as well as to explore its effects on biomarkers. Data from this study are expected in the first quarter of 2017.
IW-1701. Data from the IW-1701 Phase Ib multiple ascending dose study are expected by year-end. Ironwood initiated a Phase IIa randomized, double-blind, placebo-controlled single-dose study of IW-1701 designed to evaluate its safety, tolerability, pharmacokinetics and pharmacodynamics in patients with Type II achalasia. Data from this study are expected in 2017.
Global Collaborations and Partnerships
Linaclotide is currently under review by the Pharmaceuticals and Medical Devices Agency (PMDA) in Japan for potential approval for the treatment of adult patients with IBS-C. Under the terms of Ironwood’s license agreement with Astellas Pharma Inc., Ironwood will earn a $15 million development milestone payment upon approval of linaclotide by the PMDA.
Astellas continues to enroll patients in the Phase III clinical trial of linaclotide in Japan for adults with chronic constipation.
Ironwood continues co-promoting Allergan’s VIBERZI (eluxadoline) in the U.S. for adults suffering from IBS with diarrhea.
Ironwood and Exact Sciences Corp. terminated their agreement for the U.S. co-promotion of Cologuard, a noninvasive stool DNA screening test for colorectal cancer.
Corporate and Financials
Collaborative Arrangements Revenue
Collaborative arrangements revenue was $66.1 million in the third quarter of 2016, compared to $39.6 million in the third quarter of 2015. Included in collaborative arrangements revenue was $60.0 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., up from $34.8 million in the third quarter of 2015.
Operating Expenses
Operating expenses were $94.4 million in the third quarter of 2016, compared to $65.8 million in the third quarter of 2015. Operating expenses in the third quarter of 2016 consisted of $37.5 million in R&D expenses and $45.0 million in selling, general and administrative (SG&A) expenses, as well as $3.2 million in acquired intangible asset amortization expenses and an $8.7 million loss on fair value remeasurement of contingent consideration resulting from Ironwood’s U.S. licensing agreement with AstraZeneca for the exclusive rights to all products containing lesinurad.
Other Expense
Interest Expense. Net interest expense was $9.5 million in the third quarter of 2016, in connection with the $175 million Linaclotide PhaRMA 11% Note debt financing executed in January 2013 and the approximately $336 million convertible debt financing executed in June 2015 and due in 2022. Interest expense recorded in the third quarter of 2016 includes $6.0 million in cash expense and $3.8 million in non-cash expense. Both the cash and non-cash components of the 2022 convertible notes are recorded quarterly.
In September 2016, Ironwood closed a $150 million debt refinancing with an annual interest rate of 8.375%. The transaction is expected to fund on January 5, 2017, with the net proceeds from this transaction being used to redeem the remaining principal balance of the existing PhaRMA Notes.
Gain/Loss on Derivatives. Ironwood records a gain/loss on derivatives related to the change in fair value of the convertible note hedges and note hedge warrants issued in connection with the convertible debt financing in June 2015. A gain on derivatives of $4.5 million was recorded in the third quarter of 2016.
Net Loss
GAAP net loss was $33.2 million, or $0.23 per share, in the third quarter of 2016, compared to $47.4 million, or $0.33 per share, in the third quarter of 2015.
Non-GAAP net loss was $25.9 million, or $0.18 per share, in the third quarter of 2016, compared to $36.1 million, or $0.25 per share, in the third quarter of 2015. Non-GAAP net loss excludes the impact of mark-to-market adjustments on the derivatives related to Ironwood’s convertible debt, as well as the amortization of acquired intangible assets and the fair value remeasurement of contingent consideration related to Ironwood’s U.S. lesinurad license. See Non-GAAP Financial Measures below.
Cash Position
Ironwood ended the third quarter of 2016 with $320 million of cash, cash equivalents and available-for-sale securities, a decrease of $5 million from the end of the second quarter of 2016. Cash used in operations was $645,000 in the third quarter of 2016.
2016 Financial Guidance
Ironwood now expects to use less than $50 million in cash for operations in 2016, down from previous guidance of less than $70 million.
Ironwood continues to expect:
R&D expenses to be within a range of $140 million to $150 million,
SG&A expenses to be within a range of $170 million to $180 million,
amortization of intangible assets to be $8 million (not applicable prior to the U.S. lesinurad license), and
combined Allergan and Ironwood total 2016 LINZESS marketing and sales expenses to be in the mid to higher end of $230 million to $260 million.
Non-GAAP Financial Measures
The company presents non-GAAP net loss and non-GAAP net loss per share to exclude the impact of net gains and losses on the derivatives related to our convertible notes that are required to be marked-to-market, as well as the amortization of acquired intangible assets and the fair value remeasurement of contingent consideration associated with Ironwood’s U.S. licensing agreement with AstraZeneca for the exclusive rights to all products containing lesinurad. The derivative gains and losses may be highly variable, difficult to predict and of a size that could have a substantial impact on the company’s reported results of operations in any given period. The acquired intangible assets are valued at the time of acquisition and are amortized over their estimated economic useful life, and management believes excluding the amortization of acquired intangible assets provides more consistency with the treatment of internally developed intangible assets for which research and development costs were previously expensed. The contingent consideration balance is remeasured each reporting period, and the resulting change in fair value impacts the company’s reported results of operations. The changes in the fair value remeasurement of contingent consideration do not correlate to the company’s actual cash payment obligations in the relevant period. The company has presented non-GAAP net loss and non-GAAP net loss per share in prior calendar quarters, and this is the first calendar quarter in which the company has contingent consideration that is excluded from such non-GAAP financial measures. Management believes this non-GAAP information is useful for investors, taken in conjunction with Ironwood’s GAAP financial statements, because it provides greater transparency and period-over-period comparability with respect to Ironwood’s operating performance. These measures are also used by management to assess the performance of the business. Investors should consider these non-GAAP measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures are unlikely to be comparable with non-GAAP information provided by other companies. For a reconciliation of these non-GAAP financial measures to the most comparable GAAP measures, please refer to the table at the end of this press release.