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Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)

Credit Suisse 2012 Healthcare Conference Call

November 14, 2012 6:00 pm ET

Executives

Michael J. Higgins – Chief Operating Officer and Chief Financial Officer

Unidentified Analyst

Ironwood has proposed a fireside chat format today which is probably going to be more interesting anyway. We didn’t get the fireplace installed in time, but hopefully the chat part will be complete. So anyway just want to thank Michael Higgins, the COO and CFO of Ironwood for joining us, and Meredith Kaya, as well, from Investor Relations. So, obviously we need to discuss LINZESS at length.

Michael J. Higgins

Very good topic.

Unidentified Analyst

Right. We could go in a variety of approaches. But I think, can you talk a little bit about access, because obviously you’ve announced pricing for the drug and what the response has been from payers, and kind of walk us through the next 12 months of, opening the doors on access?

Michael J. Higgins

Sounds good. Can you guys hear me okay? Everyone can. So the access question is obviously critical one in both the very near term as we get to launch in December, but certainly as we roll through the years, it’s going to be critical. So the team has taken on, the joint team with us and Forest taken on the challenge of coming up with a variety of ways to ensure that we have reasonable access, both from a managed care perspective and also get a good start with patients, so let me focus on the managed care side first, and then we can talk a little bit about how we’re going to help the initial patient experience.

So on the managed care side of the things, the first step in the process actually really started well before approval. We had ongoing conversations with a number of organizations to kind of understand, make sure they understood the product and did some advisory committee type work to make sure that they understood the benefits of the product and understood where the opportunity was, and had good interactions early on. Since we’ve priced the product now at rack prices $7.10 since we’ve done that pricing, the team is now having the active conversations and our view is that we have a good opportunity of getting reasonable unrestricted access over time.

Our goal is to get to Tier 2 access. We think that the price point when the patient shows up at the pharmacy where we get them in the range of $1 a day, $25, $35 per month is important, and we are part of our strategy for pricing the way we did was an effort to demonstrate that there is a willingness to kind of provide a quality product at a reasonable price and we’re in the conversations now to try and assess the right disconnect strategy in order to ensure that that happens.

So no news to report today on that side, but they’ve made progress and the teams have been working on it, it’s a joint team, they’ve been doing quite well with it, so we’ll keep an eye on it. And we’re also, we know how important it is, we’re going to be talking about as we go through the launch period about how we getting access, what it looks like, whether or not it is unrestricted access, whether or not they are prior authorizations step and all those things. But our view is that there is a, because of the dynamics in the marketplace, I think some of those other barriers for hopeful that we keep the step [that’s out] in the prior authorization in place that make it a relatively easy experience for patients, but still work to be done.

Now, it is critical. Expectation is that likely most plans will default to a Tier 3, and we have structured things in a way, so that Tier 3 access and those higher co-pays, we’re able to offset a little bit in co-pay systems, both co-pay systems cards and some other electronic methods that we’re putting in place. So again, we think early on, it’s critically important. We think from a long-term perspective, we have to deal with it from a contract basis. But early on we’re going to try and do with co-pays as well.

Unidentified Analyst

I wanted to remind everyone to please raise your hand if you want to ask a question, because we can certainly expand our fireside circle to the room. Michael, in terms of your access and indication, so a lot of what you’re seeing in the process, so I would think would in parallel in terms of constipation and IBS-C. But do you think that there will be a stratified access for some plans, for no plans, or a lot of plans, how should we think about in access?

Michael J. Higgins

So in term of the access, I don’t really have the data suggest that there would be any stratification between the two indications. Certainly, the differentiation that we have in IBS provides us with a different type of discussion that we can have. But no indications at this point that there will be any stratification, so we’re feeling like, we’re entering with a product that can be used.

So in terms of the use across the spectrum, we think that both indications, there are a significant number of patients that are suffering both in categories. And our belief is that, while these patients they suffer different magnitude of symptoms, the IBS patients obviously with more significant pain. We think the use will be significant at both of those populations. So no indication that this is going to be differentiation from managed care perspective and then we think the use will be broad across both of these.

Unidentified Analyst

Would you see (inaudible) through over-the-counter remedies and any prescription remedies or just over-the-counter remedies?

Michael J. Higgins

Most likely see, because of the label indications, certainly for IBS because of the label on the pain component of that, I think it’s hard to imagine that there is a step through anything else. There is nothing that has that type of data. There is nothing that has that type of label. So that would be difficult to imagine, but that would be the case. So we do think it’s most likely that there is something there. It is likely to be in the form of a laxative or some sort. The interesting part is that the vast majority of these patients have been on and have tried at certain times a laxative, many of them are on them on an ongoing basis.

So the thought is that’s a relatively straightforward to get through it. It maybe complicated from a logistical point of view, because it is non-prescription, it’s an over-the-counter sort of maybe an issue where the physician needs to kind of confirm or ask a question to kind of check the box.

So that is possible, and in reality I think the vast majority of patients that they are served simply by laxatives that that should be the first approach that the physicians take. But in most of these patients we’ve talked about the 10 million patients who are underserved in this market, who are in the physicians’ office, who’ve tried everything are still dissatisfied. Those patients have tried laxatives, so I think the patients were initially going to go after really clear that hurdle. So it’s again going to be from a logistical point of view, it will be interesting to see how that plays out. But our view is that the vast majority should have or will have tried the over-the-counter therapies.

Unidentified Analyst

Just could you remind on your targets for patient access for the next 12 months?

Michael J. Higgins

I’m sorry.

Unidentified Analyst

The unrestricted patient access targets for the next 12 months?

Michael J. Higgins

Yeah. So we haven’t identified a specific target yet. We have been talking about it internally, and we have some internal goals, but we haven’t articulated that. We would expect that, the traditional timeframe is you will default to a Tier 3 and then over a period of 6 to 12 months, should be able to start to turn some of those accounts. The team is already working on it now, so we hope we can accelerate that, but I think you should expect, it will be over the course of the year before we start to get the Tier 2 access.

Unidentified Analyst

On awareness maybe you could speak to what your sort of starting point is in terms of specialist awareness, primary care awareness?

Michael J. Higgins

Yeah, so I guess the best way to respond to that is, we’ve had over the past few months, we’ve had numerous opportunities at a number of the different industry meetings. So back in the spring at DDW, most recently at ACG here and UEGW in Europe, we had a chance to, have had a great chance to meet with the [KOLs] and post approval now, those interactions have accelerated and the excitement level has increased.

So the view is that the, at the [KOL] level, there is a great knowledge of the product and the label, the indication, the data. The effort that is now really going to kickoff, it’s broadening out beyond the [KOLs] at the national level for sure. We are in a great spot now at the regional level and now going down to the practitioning physicians that’s the goal over the coming months with the sales force that we are establishing and putting out in the market.

So it’s an exciting movement to get out there and really start to broaden it, but the feedback at the gastro meetings has been very positive and very well received and those folks are pretty knowledgeable in this space, are quite knowledgeable in the space and quite knowledgeable about the product.

Unidentified Analyst

And you mentioned the sales force, I’d like to ask you about your promotional efforts with NEXIUM and they are on their specialist force. So could you share a little bit more granularity in terms of operationally how that may help you and any sharing information across with AstraZeneca, obviously their longstanding relationships in specialist markets for gastrointestinal endurance could be hugely beneficial to you, but to what extent might you be able to sort of access to information within the realm of the partnership that would help you with your targeting efforts, help you with your messaging?

Michael J. Higgins

So the relationship with AstraZeneca for those who don’t know the relationship with AstraZeneca was a deal that we signed for the development and commercialization of linaclotide in China. As part of that relationship that we establish, we were able to gain access to NEXIUM in the U.S. and we feel like it is a really nice addition to the suite that the reps are going to go in and start talking to physicians about. It is one of the leading products in the GI space, and I think we will allow for, we feel like we have a great access opportunity to the physicians’ office with linaclotide by having one of the leading products in the space and being able to talk more broadly about GI disorders. I think it creates a really nice opportunity to have a broader dialog with the physicians.

With regard to access additional information, the relationship with AstaZeneca is one that is primarily focused on China as I mentioned and we have the NEXIUM relationship, but the relationships with the team go fairly broad as well. We have a number of folks who have worked at it over the years. So in terms of leading or accessing their knowledge base, we’ve developed a team in-house that really has broad knowledge and we think we have pieces that we need certainly in terms of the call patterns and the required calls for an access to physicians with NEXIUM, we have access to all the appropriate information necessary to do that. So that certainly helps us, but we’ve started, we had started doing all that work previously.

So I’d say, it supplements the efforts that the team has already put in place. We feel like it somewhat validates the team that we brought together to get access to a great product like that. So we are feeling great about it. And I would say increment to this, it does help us with additional knowledge about the space broadly, but mostly it was about getting a nice product that we pair up with linaclotide and be able to have a broader conversation with physicians about GI disorders. And I think again it opens the door for us in a broader way. It’s nice to have a new product but to have one of the other, one of the strongest products in the industry that’s been out there for a while, it’s a nice complement of the two.

Unidentified Analyst

Any questions from the audience? Okay. In terms of your marketing plans and your budgets, there has been some debate at certain points about the extent to which you may have to increase your budget for LINZESS, and I think that you and Forest have articulated that. Now you feel pretty comfortable with where you are, incremental with layers, you never know if you could add on the incremental promotional cost. But do you think investors overly worry about that at times, or maybe is there something misunderstood about your core plan for promotion or how many kind of standard deviations away from that core plan you may need to go if you find that the promotional effort could benefit from some augmentation?

Michael J. Higgins

I think, certainly we get a lot of questions on our side and I can’t speak for Forest, but I’d said from the Ironwood perspective, we get a lot of great questions about the investment, it’s a primary care launch, so I mean you know quite well, it’s a significant investment that we’ve committed to. And with our partners at Forest, we feel like we have a great plan in place. We want to ensure on our side and then no Forest does as well, but we have the ability to analyze the data and adapt and adjust as we go forward.

But as we go into the launch, I think the commitment to the size of the sales force that we committed to the non-sales force commercial investments that we are aligned on. I think we feel like we’ve got a great plan going to launch. And the thought is we want to be able to flex depending on what the data tells us.

But I think certainly for the first six plus months, the plan is quite type one, Tom McCourt, DeTore and the teams both at Ironwood and Forest have been working very carefully to ensure that it’s a seamless plan, it’s a joint plan with both teams, single launch meeting, training is identical, so everything is done as a single team. So we’re feeling like we’re aligned and we’re going into the launch with the right tools. We all believe it’s a great opportunity, so we’re making significant investments.

I think on our side, I want to give a couple of examples of some of the things that we think are going to be important in the launch, specifically around sample strategy alone and things along those lines. But I’ll say a lot of the sensitivity that comes up around in the investment on the Ironwood side has as much to do with financing strategy as it does with the launch. So I should probably comment on that, because it is one that comes up frequently as we feel like we’re in a great spot heading into the launch that we have the right plan in place, we have the right team in place, and that we’re in a good spot to launch the product with regard to our balance sheet strength.

Our ability to kind of execute on the plan long-term, we have always as a company positioned ourselves to allow for options. Make sure we never get boxed in and so we’re not going to allow the company to get to a position where we can’t, as you said we can increase investment where we need to, but we’ll also evaluate it as we go.

So we feel like we have a great plan going in. We have the balance sheet strength we need going into the launch. But we’re going to make sure that we have the flexibility. So we’re evaluating all the options available to us to make sure that we have additional capital available if we need it. But we’re feeling like we’re in a good spot going in for the launch.

So we can talk about that further, but maybe if it’s okay, I’ll comment just a little bit more on just one of the strategies we touched on half of it a little while ago. We talked a little bit about the managed care strategy, on the other side of that in terms of the access giving patients access to the product.

Given the data that we had in Phase 3, we feel it is a key part of this plan to allow patients to have an early experience with the product. So we’re going out within an approach where we’re going to provide significant sampling in two ways. We’re going to provide kind of traditional samples. We’ve got a four capsule sample vial that’s available. Physicians will likely give a few of those out. So probably one of the samples approaches will be physicians will give out somewhere between four and 12 days of therapy.

The data we have in Phase 3 suggest that sufficient time for the majority of patients actually to see an effect, feel the benefit and then the hope is that that translates into significant number of prescriptions. So that we think is important and I think the data supports that. So we’re going in, we and Forest agree that that’s a critical part of the plan.

But in addition, pain is such a key element to the patient experience with a lot of IBS patients that we feel there is an additional way to approach that to some of the more severe patients we have what I refer to as early experience kits that we’re making available to physicians in smaller numbers, but we’re making them available for the physician.

So that some of those patients who really have had significant challenges get a chance to try the therapy on a longer basis. So the early experience kits are 30 day sample, that’s a full kit that includes a prescription. And the idea there is to allow physician to try it on a group of patients who have had significant challenges. The feedback is that the design not only to get the patients to get a full experience and then transition to prescription.

But also give the physician an opportunity to see how this product will work in some of the more difficult patients. So we think that combination of sampling strategy along with our access strategy with managed care gives us great opportunity to get the launch up to a good start. So I just can’t comment further on any of those.

Unidentified Analyst

The one point in sort of related is access and co-pay cards, and you mentioned that I don’t know how significant co-pay strategies will be in terms of the cards and that’s something that we can think pretty broadly, any one has any level of commercial government insurance have access to co-pay card and how has that been received by the payers as you get to obviously a mix blessing for them.

Michael J. Higgins

Yeah, it’s early days, so I can’t really comment in detail on those specific interactions. But at least the way we think about it is, if you think about what we’re trying to accomplish with both the interactions with the managed care organizations and with the co-pay system plans, whether it’s the cards or the electronic methods for doing that.

What we’re trying to do is get the patient in a place whereas the product is affordable to them. It’s something that works for them. I mean if you think about the sampling plan combined with all these, you say okay. What do we want to do? We want to provide an experience for the patient where they get to try the therapy, if it works for them, they get to access it at a reasonable price, and what we kind of deem is in the reasonable ranges for patients, somewhere in the range of $1 a day $25, $35 a month is something that we feel is a reasonable place for them to enter and if it works for them, be able to kind of experience it that way.

We’re going to try and do that in one or two ways. We’re going to either do with the discussions with managed care, what we’re going to do with co-pay systems cards. And the idea would be we’re actively negotiating. We’re open to negotiations. We’re having this conversations and the idea is to just have that be somewhat seamless from a patient perspective over time. So early on the co-pay systems will be heavy, as we get those contracts in place, the idea is that would actually be cut it out over and decline over a period of time.

We’re trying to do it in a way and full cooperation with the managed care organizations and express to them what we’re trying to accomplish. We’ll see how those conversations go. But it’s been a good initial dialog, but no specific results on it just yet.

Unidentified Analyst

Any questions from the audience? In terms of that line items in your marketing and selling budgets, I’m just wondering if you think about what are the areas where you had to hypothesize that might be replace as you might need to go up, if you need to go up, like sales force or like DTC, or sampling where they are sort of levers that you might go to first if you feel like the promotional response to those [some more]?

Michael J. Higgins

So I think the one of the really nice aspects about having the partnership that we have with Forest is adding access to really talented sales force that allows us to bring on basically the number of details that we think are appropriate for the access. So we’re starting with the fairly robust effort on that side.

We’re accessing multiple parts of the primary care sales force that Forest has, we’re accessing their specialty sales force. We have our sales force on board, our special sales force on board as well. So we think we got a very robust plan in place with the reps. But having the structure that Forest have and having the ability to bring additional folks on board if we think that’s appropriate and the data supports that, and I think that’s important. We’ve locked down on the plan for the year.

If there is data that supports either increasing or decreasing that the team can work through. We have a joint commercialization come in and they can work through and we can move that in the appropriate direction and we can act based upon the data that we see in the marketplace. Having said that, the primary care launches have a different trajectory than some of the traditional biotechnologies that a lot of folks are familiar with, and the requirement is really that you have to commit for a period of time to really see what the response looks like.

So we’ll be watching the data. We’ll be observing it along with everyone who is following the company and we’ll react accordingly. But I think the view is that we’re going to commit to the significant investment for that early launch period and then we’ll adapt and just as necessary. I do think the sales force is one place where we could flex, but feel like we got the right detailing efforts in place at this time.

The other areas that you alluded to you talked about DTC, so let me maybe take it and change that slightly, because often times DTC is immediately translates into kind of turning on the television, going for direct advertising in that way and that’s not part of the initial plan, but what is, is accessing patients through the Internet through some of the spaces that didn’t exist years ago when products like (inaudible) we launch.

So we think we have access to some tools that I would put in that broad category of accessing the patient or accessing the consumer, but they’re not all the way through the place where you actually turning on the television and making that kind of investment.

I think over time the team has talked about this at length using those Internet tools initially and then broadening out if the data supports it. If we see that the patients are responsive to some of those over time, if we think it’s going to help, we’ll certainly consider using those types of investments. I think we as a company, the team we built put in place have done a lot of that.

Forest has been a company that they applied the tools that are necessary. They’ve not used a lot of television advertising over time. But they’re open to using whatever the appropriate tools are that will help drive the products. So we’re feeling like we’re in a good spot and we can’t flex those up and down.

And in terms of the investments, we feel like we’re entering in a good place. We’re making a big commitment both companies are, but we feel like we’re in a good place. So we don’t feel we need to kind of frankly net up just yet for a while. We’ll play out the hand and kind of read the data before we make any decisions to address the plan.

Unidentified Analyst

And if you had to give investors comfort as far as within this sort of range of time will be the critical assessment points in terms of our budget, it could be as it really has three months from now, but no earlier and it could be, just thinking about launch curves, thinking about assessing success.

Michael J. Higgins

Yeah.

Unidentified Analyst

I mean 10 years ago, we would say, five, six months we don’t know whether this is going to be bigger the pasta, bread basket, but these times are different. So where you see those sorts of mile posts being and how does that relate back to your decision-making process on whether you need to spend more or you don’t?

Michael J. Higgins

Yeah, so think I would certainly say there will be data all along that we will be evaluating. The one we talked about in a couple of different ways now as I think will be a really important early indicator and that is the access question, is if what we think is the case and we’re able to get contracts in place and actually able to get reasonable access and that will bode well for us kind of getting off to a great start.

We put in place kind of the backup plan to make sure that access is available early on to the co-pay systems, but we think that will be a good indicator of how things are going to look on a go-forward basis, so that we’ll see that relatively early on. I don’t think that’s going to impact our investment strategy in the early days of the launch. I think we’re going to continue to play that out for a period of time.

I would say in a launch like this at this stage, you really need to go six months and beyond to really get a feel for where this is going to go. You’ll certainly get early indicators of whether or not there is good uptake. But what you really want to start to see on a primary care space like this as you do want to start to build the base and to see those prescriptions, see patients coming back for the second and third prescription is going to be critical.

So until we start to see some of that data, I think it would be premature to kind of make dramatic changes. And I think the team is absolutely going to adapt and adjusts elements of the plan throughout. But I think in terms of the big investments, I think it will be currently six months out before there is any a big amount of data, now sort of a surprise in one direction or the other I think it’s going to take that amount of time. But I think after six, nine months when we get into the first year, we’ll have the quite good feel for where it’s going to go, how long it continues to grow and those types of questions I think are in still early days.

So I don’t want to get ahead of ourselves with that. But I think it’s going to be at least six months period before we get really a good read on that and probably longer than that before we can really get a true assessment. But obviously, we will certainly be looking at all the data that comes in. I know a lot of folks who are following the company will be watching closely and we will do our best to keep everyone informed on where we think things are happening in a way that is positive, where we think things are going to require more work. But we just have to kind of look at the data and evaluate it. That’s how we try to operate since inception and that’s how we expect it.

Unidentified Analyst

We’ve exhausted our time, but we do have a breakout in the Sedona Room. So please join us if you like more. Okay, you guys are planning things like that working?

Michael J. Higgins

Yeah, it sounds great.

Question-and-Answer Session

[No Q&A session for this event]

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