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TABLE OF CONTENTS
Index to Financial Statements of Ironwood Pharmaceuticals, Inc.

As filed with the Securities and Exchange Commission on January 20, 2010

Registration No. 333-163275

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

PRE-EFFECTIVE
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

IRONWOOD PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  04-3404176
(I.R.S. Employer
Identification Number)

320 Bent Street
Cambridge, Massachusetts 02141
(617) 621-7722

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Peter M. Hecht
Chief Executive Officer
320 Bent Street
Cambridge, Massachusetts 02141
(617) 621-7722

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Paul M. Kinsella
Ropes & Gray LLP
One International Place
Boston, MA 02110
Telephone (617) 951-7000
Fax (617) 951-7050

 

Richard D. Truesdell, Jr.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Telephone (212) 450-4000
Fax (212) 701-5800

          Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box.    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of
Securities to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price
Per Share

  Proposed Maximum
Aggregate
Offering Price(2)

  Amount of
Registration Fee(3)
 

Class A Common Stock, $0.001 par value per share

  19,166,667   $16.00   $306,666,672   $21,865.33

 

(1)
Includes 2,500,000 shares of Class A common stock issuable upon exercise of an option to purchase additional shares granted to the underwriters.

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act, based on an estimate of the proposed maximum aggregate offering price.

(3)
$9,625.50 was previously paid on November 20, 2009. The difference of $12,239.83 is being submitted herewith.

          THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.


Table of Contents

PROSPECTUS (Subject to Completion)

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Issued January 20, 2010

16,666,667 Shares

GRAPHIC

CLASS A COMMON STOCK



This is the initial public offering of Class A common stock by Ironwood Pharmaceuticals, Inc. We are offering 16,666,667 shares of Class A common stock. The estimated initial public offering price is between $14.00 and $16.00 per share.



Currently, no public market exists for our Class A common stock. We have applied to list our shares of Class A common stock on The NASDAQ Global Market under the symbol "IRWD."



Following this offering, we will have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting. In certain circumstances pertaining to change in control matters, holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to ten votes per share.



Investing in our Class A common stock involves risks. See "Risk Factors" beginning on page 8.



Price $         Per Share



 
  Price to
Public
  Underwriting
Discounts and
Commissions(1)
  Proceeds to
Us,
Before Expenses

Per Share

  $             $             $          

Total

  $                           $                           $                        

(1)
The underwriters will not receive any underwriting discount or commission on the sale of shares of our Class A common stock to certain of our existing stockholders and certain specified affiliated entities. We have directed the underwriters to reserve up to approximately 7,000,000 shares of our Class A common stock for such sales.

We have granted the underwriters an option for a period of 30 days to purchase up to 2,500,000 additional shares of Class A common stock on the same terms and conditions set forth above.

Neither the Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of Class A common stock to purchasers on or about                  , 2010.



J.P.Morgan     Morgan Stanley   Credit Suisse

BofA Merrill Lynch

Wedbush PacGrow Life Sciences

                       , 2010


Table of Contents


TABLE OF CONTENTS

 
  Page  

Prospectus Summary

    1  

The Offering

    4  

Summary Consolidated Financial Data

    6  

Risk Factors

    8  

Special Note Regarding Forward-Looking Statements

    30  

Use of Proceeds

    31  

Dividend Policy

    32  

Capitalization

    33  

Dilution

    35  

Selected Financial Data

    37  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    40  

Business

    75  

Management

    110  

Executive Compensation

    117  

Certain Relationships and Related Party Transactions

    133  

Principal Stockholders

    136  

Description of Capital Stock

    138  

Shares Eligible for Future Sale

    145  

Material U.S. Federal Tax Considerations for Non-U.S. Holders of Common Stock

    148  

Underwriting

    151  

Legal Matters

    156  

Experts

    156  

Where You Can Find Additional Information

    156  

Index to Financial Statements

    F-1  



        You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, prospects, financial condition and results of operations may have changed since that date.

        Until                        , 2010, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

        The Ironwood logo is a trademark of Ironwood Pharmaceuticals, Inc. All other trademarks and service marks appearing in this prospectus are the property of their respective holders. All rights reserved.

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PROSPECTUS SUMMARY

        This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, especially the risks of investing in our Class A common stock discussed under "Risk Factors" beginning on page 8 and the consolidated financial statements and notes to those consolidated financial statements, before making an investment decision.

Overview

        We are an entrepreneurial pharmaceutical company that discovers, develops and intends to commercialize innovative medicines targeting important therapeutic needs. Our goal is to build the next great pharmaceutical company, an outstanding business that will thrive and endure well beyond our lifetimes and generate substantial returns for our shareholders. Our experienced team of researchers is focused on a portfolio of internally discovered drug candidates that includes one Phase 3 drug candidate (linaclotide), one Phase 1 pain drug candidate, and multiple preclinical programs.

        We believe that linaclotide could present patients and healthcare practitioners with a unique therapy for a major medical need not yet met by existing therapies. Linaclotide is a first-in-class compound currently in confirmatory Phase 3 clinical trials evaluating its safety and efficacy for the treatment of patients with irritable bowel syndrome with constipation (IBS-C) or chronic constipation (CC). IBS-C and CC are gastrointestinal disorders that affect millions of sufferers worldwide, according to our estimates. Linaclotide recently achieved favorable efficacy and safety results in two Phase 3 CC trials, meeting all 32 primary and secondary endpoints, including the improvement of abdominal symptoms such as bloating and discomfort as well as constipation symptoms, across both doses evaluated in these independent trials involving 1,287 subjects. We expect to have data from our Phase 3 IBS-C trials in the second half of 2010. If those trials are successful, we intend to file a New Drug Application with the U.S. Food and Drug Administration, or the FDA, in the first half of 2011, seeking approval to market linaclotide to IBS-C and CC patients age 18 and older in the U.S. If the FDA approves linaclotide for those indications, we may seek to expand linaclotide's market opportunity by exploring its utility in other gastrointestinal indications and in the pediatric population.

        Linaclotide was designed by Ironwood scientists to target the defining attributes of IBS-C: abdominal pain, discomfort, bloating and constipation. Linaclotide acts locally in the gut with no detectable systemic exposure in humans at therapeutic doses. In the six Phase 2 and Phase 3 clinical trials we have completed to date in over 2,000 IBS-C and CC patients, linaclotide has demonstrated rapid and sustained improvement of the multiple symptoms of IBS-C and CC, with favorable tolerability and convenient once-daily oral dosing.

        In a Phase 2b study in patients with IBS-C, linaclotide rapidly reduced abdominal pain, abdominal discomfort and bloating, and improved constipation symptoms, throughout the 12-week treatment period of the trial, with improvements noted for all symptoms assessed within the first week of initiation of therapy. In particular, abdominal pain was reduced 37% to 47%, and pain reduction was observed within the first week following initiation of therapy and was sustained throughout the treatment period, even among patients with severe or very severe abdominal pain.

        In a Phase 2b study in patients with CC, linaclotide rapidly reduced abdominal discomfort and bloating, and improved constipation symptoms, throughout the 4-week treatment periods of the trials.

        In five of the six Phase 2 and Phase 3 trials, diarrhea was the most common adverse event (seen in 5% to 20% of subjects) and the most common cause for discontinuation (1% to 7% of the patients discontinued participation in the trials). Diarrhea has generally been mild to moderate.

        We have pursued a partnering strategy for commercializing linaclotide that has enabled us to retain significant control over linaclotide's development and commercialization, share the costs with high-quality

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collaborators whose capabilities complement ours, and, should linaclotide meet our sales expectations, retain approximately half of linaclotide's future long-term value in the major pharmaceutical markets. In September 2007, we entered into a partnership with Forest Laboratories, Inc., or Forest, to co-develop and co-market linaclotide in the U.S. In April 2009, we entered into a license agreement with Almirall, S.A., or Almirall, to develop and commercialize linaclotide in Europe for the treatment of IBS-C and other gastrointestinal conditions. In November 2009, we entered into a license agreement with Astellas Pharma Inc., or Astellas, to develop and commercialize linaclotide for the treatment of IBS-C and other gastrointestinal conditions in several Asian countries. To date, licensing fees, milestone payments, related equity investments and development costs received from our linaclotide partners total greater than $250 million. We have retained all rights to linaclotide outside of the territories discussed above.

        In addition to five years of exclusivity under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, that would be granted if the FDA approves linaclotide, linaclotide is covered by a U.S. composition of matter patent that expires in 2025, subject to possible patent term extension. Linaclotide is also covered by a European Union composition of matter patent that expires in 2024, subject to possible patent term extension. A patent application is pending in Japan, and if issued, would expire in 2024.

        If linaclotide continues to advance to regulatory submission in the U.S., the European Union and Asia, we expect to receive an additional $190 million in pre-commercial payments from our partners. We believe that these milestone payments, together with our existing cash and the anticipated proceeds of this offering, should enable us to launch and commercialize linaclotide in the U.S. with our partner Forest and to fund our currently contemplated research and development efforts for at least the next five years, based on our current business plan.

Our Strategy

        Our goal is to build the next great pharmaceutical company by discovering, developing and commercializing innovative and differentiated medicines that target important unmet needs. Key elements of our strategy include:

    attract and incentivize a team with a singular passion for creating and commercializing medicines that can make a significant difference in patients' lives;

    successfully commercialize linaclotide in collaboration with Forest in the U.S.;

    support our international partners to commercialize linaclotide outside of the U.S.;

    if approved for IBS-C and CC, develop linaclotide for the treatment of other gastrointestinal disorders and for the pediatric population;

    invest in our pipeline of novel product candidates and evaluate candidates outside of the company for in-licensing or acquisition opportunities;

    participate in a meaningful way in the economics of the drugs that we bring to the market; and

    execute our strategy with our shareholders' long-term interests in mind by seeking to maximize long-term per share cash flows.

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Risks Affecting Us

        Our ability to implement our business strategy is subject to numerous risks and uncertainties. As an early stage pharmaceutical company, we face many risks inherent in our business and our industry generally. We currently have no commercial products and we have not received regulatory approval for, nor have we generated commercial revenue from, any of our product candidates. The regulatory approval process is expensive, time-consuming and uncertain, and our product candidates may not be approved for sale by regulatory authorities. We are largely dependent on the success of our lead product candidate, linaclotide, which may never be successfully commercialized. Even if linaclotide receives regulatory approval, it may still face future development and regulatory difficulties and may never achieve profitability. Our other product candidates are at an early stage of development and are unproven. If we do not successfully commercialize our product candidates, we will be unable to achieve our business objectives. Our patents may not adequately protect our present and future candidates or prevent third parties from competing against us. We have a limited operating history and have incurred substantial losses since inception. We incurred a net loss attributable to Ironwood Pharmaceuticals, Inc. of approximately $47.3 million for the nine months ended September 30, 2009 and had an accumulated deficit of approximately $290.6 million as of September 30, 2009. We anticipate that we will continue to incur additional losses for the foreseeable future. You should carefully consider all of the information set forth in this prospectus and, in particular, the information under the heading "Risk Factors," prior to making an investment in our Class A common stock.

Corporate Information

        We were incorporated in Delaware in 1998. Prior to April 7, 2008, we were named Microbia, Inc., which is now the name of our majority-owned subsidiary (formerly Microbia Precision Engineering, Inc.). Our address is 320 Bent Street, Cambridge, Massachusetts 02141. Our telephone number is 617-621-7722. Our website address is www.ironwoodpharma.com. Information contained in, and that can be accessed through, our website is not incorporated into and does not form a part of this prospectus.

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THE OFFERING

Class A common stock we are offering

  16,666,667 shares
 

Over-allotment option

  2,500,000 shares

Common stock to be outstanding after this offering

   
 

Class A common stock

  16,666,667 shares
 

Class B common stock

  78,246,222 shares
 

Total common stock

  94,912,889 shares

Voting rights

  Until at least December 31, 2018, each share of Class A common stock and each share of Class B common stock has one vote per share, except on the following matters (in which each share of Class A common stock has one vote per share and each share of Class B common stock has ten votes per share):

 

•       adoption of a merger or consolidation agreement involving Ironwood;

 

•       a sale of all or substantially all of Ironwood's assets;

 

•       a dissolution or liquidation of Ironwood; or

 

•       every matter, if and when any individual, entity or "group" (as such term is used in Regulation 13D of the Securities Exchange Act of 1934, as amended, or the Exchange Act) has, or has publicly disclosed (through a press release or a filing with the Securities and Exchange Commission, or the SEC) an intent to have, beneficial ownership of 30% or more of the number of outstanding shares of Class A common stock and Class B common stock, combined.

  See "Description of Capital Stock" for a description of the material terms of our Class A common stock and our Class B common stock.

Use of proceeds after expenses

  We estimate that the net proceeds from this offering will be approximately $237.5 million, or approximately $272.4 million if the underwriters exercise their over-allotment option in full. We expect to use the net proceeds from this offering to fund the development and commercialization of linaclotide, to fund research and development of other products and for other general corporate purposes. See "Use of Proceeds."

Risk factors

  You should read the "Risk Factors" section of this prospectus beginning on page 8 for a discussion of factors to consider carefully before deciding whether to purchase shares of our Class A common stock.

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Directed share program

  We have directed the underwriters to reserve up to approximately 7,000,000 of the shares of our Class A common stock to be issued in this offering for sale to certain of our existing stockholders and certain specified affiliated entities. The underwriters will not receive any underwriting discount or commission on the sale of such shares. See "Underwriting."

Proposed NASDAQ Global Market symbol

  IRWD

        The number of shares of our common stock to be outstanding after this offering is based on 78,246,222 shares of Class B common stock outstanding as of December 31, 2009, after giving effect to the conversion of 69,904,843 shares of convertible preferred stock outstanding as of December 31, 2009 into 70,391,620 shares of our Class B common stock at the completion of this offering.

        The number of shares of our common stock outstanding immediately after this offering excludes:

    13,691,579 shares of Class B common stock issuable upon the exercise of options outstanding as of December 31, 2009, with exercise prices ranging from $0.10 to $7.36 per share and a weighted average exercise price of $2.45 per share; and

    2,255,516 additional shares of Class B common stock reserved for future grants under our 2002 Stock Incentive Plan and 2005 Stock Incentive Plan as of December 31, 2009.

        Unless otherwise indicated, all information in this prospectus:

    assumes an initial public offering price of $15.00 per share of Class A common stock, the mid-point of the range set forth on the cover page of this prospectus;

    gives effect to the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our Class B common stock upon the completion of this offering;

    gives effect to our eleventh amended and restated certificate of incorporation that we will file with Delaware immediately prior to the closing of this offering;

    assumes no conversion of our Class B common stock into our Class A common stock prior to the completion of this offering; and

    assumes no exercise by the underwriters of their option to purchase up to 2,500,000 shares of our Class A common stock in this offering to cover over-allotments.

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SUMMARY CONSOLIDATED FINANCIAL DATA

        The following tables present a summary of our historical consolidated financial information and pro forma net loss per common share. You should read the following summary financial data in conjunction with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes, all included elsewhere in this prospectus.

 
  December 31,   Nine Months Ended
September 30,
 
 
  2006   2007   2008   2008   2009  
 
   
   
   
  (unaudited)
 
 
  (in thousands, except share and per share data)
 

Consolidated Statement of Operations Data:

                               

Revenue:

                               
 

Collaborative arrangements

  $   $ 4,608   $ 18,383   $ 13,933   $ 25,917  
 

Services

    3,140     5,856     3,833     3,309     1,581  
                       

Total revenue

    3,140     10,464     22,216     17,242     27,498  

Operating expenses:

                               
 

Research and development

    35,543     57,246     59,809     43,309     58,824  
 

General and administrative

    7,192     10,833     18,328     13,054     17,309  
                       

Total operating expenses

    42,735     68,079     78,137     56,363     76,133  
                       

Loss from operations

    (39,595 )   (57,615 )   (55,921 )   (39,121 )   (48,635 )

Other income (expense):

                               
 

Interest expense

    (217 )   (263 )   (334 )   (253 )   (370 )
 

Interest and investment income

    2,533     4,118     2,124     1,901     214  
 

Remeasurement of forward purchase contracts

        600     (900 )   (5,900 )   (100 )
                       

Other income (expense), net

    2,316     4,455     890     (4,252 )   (256 )
                       

Loss before income tax benefit

    (37,279 )   (53,160 )   (55,031 )   (43,373 )   (48,891 )
 

Income tax benefit

                    (153 )
                       
 

Net loss

    (37,279 )   (53,160 )   (55,031 )   (43,373 )   (48,738 )
 

Net loss attributable to noncontrolling interest

    99     408     1,157     726     1,483  
                       

Net loss attributable to Ironwood Pharmaceuticals, Inc.

  $ (37,180 ) $ (52,752 ) $ (53,874 ) $ (42,647 ) $ (47,255 )
                       

Net loss per share attributable to Ironwood Pharmaceuticals, Inc.—basic and diluted

 
$

(5.79

)

$

(7.91

)

$

(7.82

)

$

(6.22

)

$

(6.70

)
                       

Weighted average number of common shares used in net loss per share attributable to Ironwood Pharmaceuticals, Inc.—basic and diluted

   
6,417,499
   
6,666,601
   
6,889,817
   
6,859,285
   
7,054,291
 

Pro forma net loss per share attributable to Ironwood Pharmaceuticals, Inc.—basic and diluted (unaudited)(1)

             
$

(0.72

)
     
$

(0.62

)
                             

Pro forma weighted average number of common shares used in net loss per share attributable to Ironwood Pharmaceuticals, Inc.—basic and diluted (unaudited)(1)

                74,495,452           75,574,117  

(1)
Pro forma basic and diluted net loss per share have been calculated assuming: (a) the automatic conversion of all outstanding shares of convertible preferred stock as of December 31, 2008 into 67,605,635 shares of our Class B common stock and as of September 30, 2009 into 69,709,801 shares of our Class B common stock upon the closing

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    of this offering; (b) the issuance of 681,819 shares of our convertible preferred stock sold at a price of $22.00 per share for cash proceeds of $15.0 million, which were received on November 13, 2009, including a $0.7 million gain on the final remeasurement of the forward purchase contract at the time of settlement, and the conversion of such shares into 681,819 shares of our Class B common stock upon the closing of this offering and (c) compensation expense of approximately $56,000 and $107,000 related to 30,000 and 45,000 time-accelerated stock options at December 31, 2008 and September 30, 2009, respectively, that will fully vest upon the closing of this offering. Pro forma basic and diluted net loss per share does not give effect to the sale of 16,666,667 shares of Class A common stock that we are offering pursuant to this prospectus.

 
  As of September 30, 2009
(unaudited)
 
 
  Actual   Pro Forma(a)   Pro Forma as
Adjusted(b)
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                   

Cash, cash equivalents and available-for-sale securities

  $ 98,928   $ 113,928   $ 351,428  

Working capital (excluding deferred revenue)

    99,412     108,612     346,112  

Total assets

    149,647     158,847     396,347  

Deferred revenue, including current portion

    104,487     104,487     104,487  

Long-term debt, including current portion

    3,406     3,406     3,406  

Capital lease obligations, including current portion

    220     220     220  

Total liabilities

    135,640     135,640     135,640  

Convertible preferred stock

    289,849          

Noncontrolling interest

    3,856     3,856     3,856  

Total stockholders' equity (deficit)

    (275,842 )   23,207     260,707  

(a)
The pro forma consolidated balance sheet data gives effect to: (i) the automatic conversion of all outstanding shares of our convertible preferred stock into 69,709,801 shares of our Class B common stock upon the closing of this offering; (ii) the issuance of 681,819 shares of our convertible preferred stock sold at a price of $22.00 per share for cash proceeds of $15.0 million, which were received on November 13, 2009, including a $0.7 million gain on the final remeasurement of the forward purchase contract at the time of settlement, and the conversion of such shares into 681,819 shares of our Class B common stock upon the closing of this offering and (iii) compensation expense of approximately $107,000 related to 45,000 time-accelerated stock options at September 30, 2009 that will fully vest upon the closing of this offering.

(b)
The pro forma as adjusted consolidated balance sheet data also gives effect to the sale of 16,666,667 shares of our Class A common stock in this offering at an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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RISK FACTORS

        Investing in our Class A common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding to invest in our Class A common stock. The occurrence of any of the following risks could harm our business, financial condition, results of operations or prospects. In that case, the trading price of our Class A common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

We are largely dependent on the success of linaclotide, which may never receive regulatory approval or be successfully commercialized.

        We currently have one product candidate, linaclotide, in Phase 3 clinical development. Our other drug candidates are in earlier stages of development. Our business depends entirely on the successful development and commercialization of our product candidates. We currently generate no revenue from sales, and we may never be able to develop marketable drugs. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of pharmaceutical products is subject to extensive regulation by the FDA and foreign regulatory authorities, and regulations differ from jurisdiction to jurisdiction. We are not permitted to market any of our product candidates in the U.S. until we receive approval of a new drug application, or an NDA, from the FDA, or in any foreign jurisdictions until we receive the requisite approvals from such jurisdictions. We have neither submitted an NDA nor received marketing approval for linaclotide in any jurisdiction. Obtaining approval of an NDA is a lengthy, expensive and uncertain process. The FDA also has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example:

    the FDA may not deem linaclotide or another product candidate safe and effective;

    the FDA may not find the data from preclinical studies and clinical trials sufficient to support approval;

    the FDA may not approve of manufacturing processes and facilities; or

    the FDA may change its approval policies or adopt new regulations.

        Linaclotide is a first-in-class compound that is currently in Phase 3 clinical development for the treatment of irritable bowel syndrome with constipation, or IBS-C, and chronic constipation, or CC, and will require the successful completion of at least two Phase 3 clinical trials for each indication before submission of an NDA to the FDA for potential approval in such indication. In November 2009, we announced that we achieved favorable results in our CC trials. Even though linaclotide met the endpoints of the CC trial, it may not be approved for the CC indication or for any other indication for which we are seeking approval from the FDA. The FDA may disagree with our trial design or our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. The FDA might also approve linaclotide for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDA may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of linaclotide. Any failure to obtain regulatory approval of linaclotide would significantly limit our ability to generate revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenue.

Our clinical trials may fail to demonstrate acceptable levels of safety and efficacy of linaclotide, which could prevent or significantly delay regulatory approval.

        Our product candidates are prone to the risks of failure inherent in drug development—most pharmaceutical product candidates fail. Before obtaining regulatory approvals for the commercial sale of

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linaclotide or any other product candidate for a specific indication, we must demonstrate with substantial evidence gathered in well-controlled clinical trials and to the satisfaction of the FDA, with respect to approval in the U.S., and to the satisfaction of similar regulatory authorities in other jurisdictions, with respect to approval in those jurisdictions, that the product candidate is safe and effective for use for the target indication.

        The results from the preclinical and clinical trials that we have completed for linaclotide may not be replicated in future trials, or we may be unable to demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for linaclotide. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. If linaclotide is not shown to be safe and effective, our clinical development programs could be delayed or terminated. Our failure to adequately demonstrate the efficacy and safety of linaclotide or any other product candidates that we may develop, in-license or acquire would prevent receipt of regulatory approval and, ultimately, the commercialization of that product candidate.

The positive top-line results from our two Phase 3 clinical trials assessing the safety and efficacy of linaclotide in patients with CC may not be indicative of our two Phase 3 clinical trials assessing the safety and efficacy of linaclotide in patients with IBS-C.

        In November 2009, we announced that the primary endpoint was achieved in each of our two Phase 3 clinical trials assessing the safety and efficacy of linaclotide in patients with CC. Additional data from each of these Phase 3 clinical trials may become available and may have a bearing on the safety and efficacy of linaclotide. In addition, the primary efficacy endpoint in each of these two clinical trials is only one of the three primary efficacy endpoints in each of our two Phase 3 clinical trials assessing the safety and efficacy of linaclotide in patients with IBS-C. Positive results in the CC trial or from earlier clinical trials are not necessarily indicative of future success in the IBS-C trials, even with respect to similar endpoints. Therefore, unless we meet all three primary efficacy endpoints in our two IBS-C clinical trials, we may be unable to demonstrate sufficient safety and efficacy of linaclotide in patients with IBS-C. Finally, our partners Almirall and Astellas intend to seek approval from regulatory authorities in each of their respective territories solely for the IBS-C indication. Accordingly, if we are unable to establish safety and efficacy of linaclotide in our U.S. IBS-C trials, our partners may be unable to utilize our data in the U.S. in their regulatory filings, and may be hindered from obtaining approval for linaclotide in their respective territories.

Linaclotide may cause undesirable side effects or have other properties that could delay or prevent its regulatory approval or limit its commercial potential.

        Undesirable side effects caused by linaclotide could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities and potential products liability claims. We are currently completing our evaluation of the data from our CC studies and conducting two Phase 3 IBS-C trials as well as a long-term safety study in patients dosed with linaclotide over a 78-week period. Serious adverse events deemed to be caused by linaclotide could have a material adverse effect upon the linaclotide program and our business as a whole. The most common adverse event to date in the clinical studies evaluating the safety and efficacy of linaclotide has been diarrhea. For the most part, the diarrhea has been considered mild or moderate by the patients, but in a small percentage of patients, it has been severe enough for patients to discontinue participation in a study. There have been no serious adverse events in patients treated with linaclotide that were deemed by a study investigator to be definitively related or probably related to linaclotide treatment. There have been serious adverse events in patients treated with linaclotide that were deemed by a study investigator to be possibly related to linaclotide treatment, involving single cases of aplastic anemia, atrial fibrillation, bronchitis, cholecystectomy, gastroenteritis, vertigo, and illeus. These serious adverse events may or may not have been related to linaclotide and our understanding of the relationship between

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linaclotide and these events may change as we gather more information. Finally, there have been no deaths in our trials that were considered to be related to linaclotide treatment.

        If linaclotide receives marketing approval, and we or others later identify undesirable side effects caused by the product, a number of potentially significant negative consequences could result, including:

    regulatory authorities may withdraw approvals of linaclotide;

    regulatory authorities may require additional warnings on the label;

    we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

    we could be sued and held liable for harm caused to patients; and

    our reputation may suffer.

        Any of these events could prevent us from achieving or maintaining market acceptance of linaclotide and could substantially increase commercialization costs.

Delays in the completion of clinical testing could result in increased costs and delay or limit our ability to generate revenues.

        Delays in the completion of clinical testing could significantly affect our product development costs. We do not know whether planned clinical trials will be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

    obtaining regulatory approval to commence a clinical trial;

    reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

    manufacturing sufficient quantities of a product candidate for use in clinical trials;

    obtaining institutional review board approval to conduct a clinical trial at a prospective site;

    recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for the treatment of similar conditions; and

    signing-up patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues, or who are lost to further follow-up.

        Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, an institutional review board overseeing the clinical trial at a clinical trial site (with respect to that site), the FDA, or other regulatory authorities due to a number of factors, including:

    failure to conduct the clinical trial in accordance with regulatory requirements or the study protocols;

    inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

    unforeseen safety issues; and

    lack of adequate funding to continue the clinical trial.

        Additionally, changes in regulatory requirements and guidance may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial

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protocols to institutional review boards for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate any of our clinical trials, the commercial prospects for our product candidates may be harmed, and our ability to generate product revenues will be delayed. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

Because we work with Forest Laboratories, Inc. to develop, promote and manufacture linaclotide in North America, we are dependent upon a third party in our efforts to obtain regulatory approval for, and to commercialize, linaclotide within our expected timeframes.

        We co-develop and plan to co-promote linaclotide in the U.S. with Forest Laboratories, Inc., or Forest. Forest plays a significant role in the conduct of the clinical trials for linaclotide and the subsequent collection and analysis of data. In addition, Forest is responsible for completing the manufacturing process of linaclotide upon production of the active pharmaceutical ingredient, or API, which consists of finishing and packaging linaclotide into capsules. Employees of Forest are not our employees, and we have limited ability to control the amount or timing of resources that they devote to linaclotide. If Forest fails to devote sufficient time and resources to linaclotide, or if its performance is substandard, it will delay the potential approval of our regulatory applications as well as the commercialization and manufacturing of linaclotide. A material breach by Forest of our collaboration agreement could also delay regulatory approval and commercialization of linaclotide. In addition, the execution of clinical trials, and the subsequent compilation and analysis of the data produced, requires coordination among various parties. These functions may not be carried out effectively and efficiently if these parties fail to communicate and coordinate with one another. Moreover, although we have non-compete restrictions in place with Forest, Forest may have relationships with other commercial entities, some of which may compete with us. If Forest assists our competitors, it could harm our competitive position.

We may face competition in the IBS-C and CC marketplace for linaclotide, and new products may emerge that provide different or better alternatives for treatment of gastrointestinal conditions.

        If approved and commercialized, linaclotide will compete with one existing prescription therapy for the treatment of IBS-C and CC, Amitiza. In addition, over the counter products are also used to treat certain symptoms of IBS-C and CC. The availability of prescription competitors and over the counter products for gastrointestinal conditions could limit the demand, and the price we are able to charge, for linaclotide unless we are able to differentiate linaclotide on the basis of its clinical benefits in our clinical trials. New developments, including the development of other drug technologies and methods of preventing the incidence of disease, occur in the pharmaceutical and medical technology industries at a rapid pace. These developments may render linaclotide obsolete or noncompetitive.

        We believe certain companies are developing other products which could compete with linaclotide should they be approved by the FDA. Currently, there is only one compound in late stage development, and it is being developed by Theravance, Inc. This compound has completed Phase 2 trials for CC. To our knowledge, other potential competitors are in earlier stages of development. If our potential competitors are successful in completing drug development for their drug candidates and obtain approval from the FDA, they could limit the demand for linaclotide.

        Many of our competitors have substantially greater financial, technical and human resources than us. Mergers and acquisitions in the pharmaceutical industry may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances made in the commercial applicability of technologies and greater availability of capital for investment in these fields.

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We have limited sales and marketing experience and resources, and we may not be able to effectively market and sell linaclotide.

        With linaclotide, we are developing a product candidate for large markets traditionally served by general practitioners and internists, as well as gastrointestinal specialists. Traditional pharmaceutical companies employ groups of sales representatives to call on these large generalist physician populations. In order to adequately address these physician groups, we must optimize our co-development and co-promotion relationship in the U.S., Canada and Mexico with Forest, our license and commercialization relationship in Europe with Almirall, and our license and commercialization relationship in certain Asian countries with Astellas. Likewise, we must either establish sales and marketing collaborations or co-promotion arrangements or expend significant resources to develop our own sales and marketing presence outside of North America, Europe, and those Asian countries. We currently possess limited resources and may not be successful in establishing additional collaborations or co-promotion arrangements on acceptable terms, if at all. We also face competition in our search for collaborators, co-promoters and sales force personnel. By entering into strategic collaborations or similar arrangements, we rely on third parties for financial resources and for development, commercialization, sales and marketing and regulatory expertise. Our collaborators may fail to develop or effectively commercialize linaclotide because they cannot obtain the necessary regulatory approvals, lack adequate financial or other resources or decide to focus on other initiatives.

Even if linaclotide receives regulatory approval, it may still face future development and regulatory difficulties.

        Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product's indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. Linaclotide and our other product candidates would also be subject to ongoing FDA requirements governing the labeling, packaging, storage, advertising, promotion, recordkeeping and submission of safety and other post-market information. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practices, or GMP, regulations. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product or the manufacturer, including requiring withdrawal of the product from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

    issue warning letters or untitled letters;

    impose civil or criminal penalties;

    suspend regulatory approval;

    suspend any ongoing clinical trials;

    refuse to approve pending applications or supplements to applications filed by us;

    impose restrictions on operations, including costly new manufacturing requirements; or

    seize or detain products or require us to initiate a product recall.

Even if linaclotide receives regulatory approval in the U.S., we or our collaborators may never receive approval to commercialize linaclotide outside of the U.S.

        In May 2009, we entered into an out-license agreement with Almirall for European rights to develop and commercialize linaclotide. In November 2009, we entered into an out-license agreement with Astellas for rights to develop and commercialize linaclotide in certain Asian countries. In the future, we may seek

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to commercialize linaclotide in foreign countries outside of Europe and those Asian countries with other parties or by ourselves. In order to market any products outside of the U.S., we must establish and comply with numerous and varying regulatory requirements of other jurisdictions regarding safety and efficacy. Approval procedures vary among jurisdictions and can involve product testing and administrative review periods different from, and greater than, those in the U.S. The time required to obtain approval in other jurisdictions might differ from that required to obtain FDA approval. The regulatory approval process in other jurisdictions may include all of the risks detailed above regarding FDA approval in the U.S. as well as other risks. Regulatory approval in one jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory processes in others. Failure to obtain regulatory approvals in other jurisdictions or any delay or setback in obtaining such approvals could have the same adverse effects detailed above regarding FDA approval in the U.S. As described above, such effects include the risks that linaclotide may not be approved for all indications requested, which could limit the uses of our linaclotide and have an adverse effect on its commercial potential or require costly post-marketing studies.

If the manufacturers upon whom we rely fail to produce linaclotide in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the development and commercialization of our product candidates.

        We do not currently possess internal manufacturing capacity. We currently utilize the services of contract manufacturers to manufacture our clinical supplies. With respect to the manufacturing of linaclotide, we are currently pursuing long-term commercial supply agreements with multiple manufacturers. These manufacturers will be responsible for the linaclotide API. These third party manufacturers acquire the raw materials for the API from a limited number of sources. Any curtailment in the availability of these raw materials could result in production or other delays with consequent adverse effects on us. In addition, because regulatory authorities must generally approve raw material sources for pharmaceutical products, changes in raw material suppliers may result in production delays or higher raw material costs.

        We may be required to agree to minimum volume requirements, exclusivity arrangements or other restrictions with the contract manufacturers. We may not be able to enter into long-term agreements on commercially reasonable terms, or at all. If we change or add manufacturers, the FDA and comparable foreign regulators must approve these manufacturers' facilities and processes prior to use, which would require new testing and compliance inspections, and the new manufacturers would have to be educated in or independently develop the processes necessary for the production of our product candidates. Peptide manufacturing is a highly specialized manufacturing business. While we believe we will have long term arrangements with a sufficient number of API manufacturers, if we lose a manufacturer, it would take us a substantial amount of time to identify and develop a relationship with an alternative manufacturer.

        Upon production of our API, each of our collaboration partners, Forest, Almirall and Astellas, is responsible for completing the manufacturing process of linaclotide which consists of finishing and packaging linaclotide into capsules, and we will be dependent upon those parties' success in producing drug product for commercial sale. No party has experience producing the API or finished drug product for linaclotide at commercial scale, and such efforts may fail. Traditionally, peptide manufacturing is costly, time consuming, resulting in low yields and poor stability. We cannot give any assurances that we will not encounter these issues when scaling up manufacturing for linaclotide.

        The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up production. These problems include difficulties with production costs and yields, quality control, including stability of the product and quality assurance testing, shortages of qualified personnel, as well as compliance with federal, state and foreign regulations. We are currently evaluating the stability of different batch sizes of

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linaclotide at various points in time. If we are unable to demonstrate stability in accordance with commercial requirements, or if our manufacturers were to encounter difficulties or otherwise fail to comply with their obligations to us, our ability to obtain FDA approval and market linaclotide would be jeopardized. In addition, any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials, increase the costs associated with conducting our clinical trials and, depending upon the period of delay, require us to commence new trials at significant additional expense or to terminate a trial.

        Each of the linaclotide manufacturers would need to comply with GMP requirements enforced by the FDA through its facilities inspection program. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of linaclotide may be unable to comply with these GMP requirements and with other FDA and foreign regulatory requirements. We have little control over our manufacturers' or collaboration partners' compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of linaclotide is compromised due to a manufacturers' or collaboration partners' failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize linaclotide, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of linaclotide or our other product candidates, entail higher costs or result in our being unable to effectively commercialize linaclotide or our other product candidates. Furthermore, if our manufacturers or collaboration partners fail to deliver the required commercial quantities on a timely basis and at commercially reasonable prices, we may be unable to meet demand for any approved products and would lose potential revenues.

Guidelines and recommendations published by various organizations can reduce the use of our products.

        Government agencies promulgate regulations and guidelines directly applicable to us and to our products. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the health care and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Recommendations or guidelines suggesting the reduced use of our products or the use of competitive or alternative products that are followed by patients and health care providers could result in decreased use of our products.

We are subject to uncertainty relating to reimbursement policies which, if not favorable for linaclotide, could hinder or prevent linaclotide's commercial success.

        Our ability to commercialize linaclotide successfully will depend in part on the coverage and reimbursement levels set by governmental authorities, private health insurers and other third-party payors. As a threshold for coverage and reimbursement, third-party payors generally require that drug products have been approved for marketing by the FDA. Third-party payors also are increasingly challenging the effectiveness of and prices charged for medical products and services. We may not obtain adequate third-party coverage or reimbursement for linaclotide or we may be required to sell linaclotide at a discount.

        We expect that private insurers will consider the efficacy, cost effectiveness and safety of linaclotide in determining whether to approve reimbursement for linaclotide and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business would be materially adversely affected if we do not receive approval for reimbursement of linaclotide from private insurers on a timely or satisfactory basis. Our business could also be adversely affected if private insurers, including managed care organizations, the Medicare program or other reimbursing bodies or payors limit the indications for which linaclotide will be reimbursed to a smaller set than we believe it is effective in treating.

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        In some foreign countries, particularly Canada and the countries of Europe, the pricing of prescription pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory approval and product launch. To obtain favorable reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products, including linaclotide, to other available therapies. If reimbursement for our products is unavailable in any country in which reimbursement is sought, limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.

        We expect to experience pricing pressures in connection with the sale of linaclotide and our future products due to the potential healthcare reforms discussed below, as well as the trend toward programs aimed at reducing health care costs, the increasing influence of health maintenance organizations and additional legislative proposals.

We face potential product liability exposure, and, if successful claims are brought against us, we may incur substantial liabilities.

        The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:

    decreased demand for any approved product;

    impairment of our business reputation;

    withdrawal of clinical trial participants;

    initiation of investigations by regulators;

    costs of related litigation;

    distraction of management's attention from our primary business;

    substantial monetary awards to patients or other claimants;

    loss of revenues; and

    the inability to commercialize our product candidates.

        We have obtained product liability insurance coverage for our clinical trials. Our insurance coverage is limited to $5 million per occurrence, and $10 million in the aggregate, and covers bodily injury and property damage arising from our clinical trials, subject to industry-standard terms, conditions and exclusions. Our insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain marketing approval for any of our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain this product liability insurance on commercially reasonable terms. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

Our failure to successfully discover, acquire, develop and market additional product candidates or approved products would impair our ability to grow.

        As part of our growth strategy, we intend to develop and market additional products and product candidates. We are pursuing various therapeutic opportunities through our pipeline. We may spend several

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years completing our development of any particular current or future internal product candidate, and failure can occur at any stage. The product candidates to which we allocate our resources may not end up being successful. In addition, because our internal research capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select, discover and acquire promising pharmaceutical product candidates and products.

        The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.

        In addition, future acquisitions may entail numerous operational and financial risks, including:

    exposure to unknown liabilities;

    disruption of our business and diversion of our management's time and attention to develop acquired products or technologies;

    incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;

    higher than expected acquisition and integration costs;

    difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel;

    increased amortization expenses;

    impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and

    inability to motivate key employees of any acquired businesses.

        Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities.

Healthcare reform measures could hinder or prevent our product candidates' commercial success.

        The U.S. government and other governments have shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely impact the pricing of healthcare products and services in the U.S. or internationally and the amount of reimbursement available from governmental agencies or other third party payors. The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors of health care services to contain or reduce health care costs may adversely affect our ability to set prices for our products which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.

        New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and we may need to revise our research and

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development programs. The pricing and reimbursement environment may change in the future and become more challenging due to several reasons, including policies advanced by the current executive administration in the U.S., new healthcare legislation or fiscal challenges faced by government health administration authorities. Specifically, in both the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably. In the U.S., changes in federal health care policy are being considered by Congress this year. Some of these proposed reforms could result in reduced reimbursement rates for linaclotide and our other potential products, which would adversely affect our business strategy, operations and financial results.

        In addition, the Medicare Prescription Drug Improvement and Modernization Act of 2003 reforms the way Medicare will cover and reimburse for pharmaceutical products. This legislation could decrease the coverage and price that we may receive for our products. Other third-party payors are increasingly challenging the prices charged for medical products and services. It will be time consuming and expensive for us to go through the process of seeking reimbursement from Medicare and private payors. Our products may not be considered cost-effective, and coverage and reimbursement may not be available or sufficient to allow us to sell our products on a profitable basis. Further federal and state proposals and health care reforms are likely which could limit the prices that can be charged for the product candidates that we develop and may further limit our commercial opportunity. Our results of operations could be materially adversely affected by the proposed healthcare reforms, by the Medicare prescription drug coverage legislation, by the possible effect of such current or future legislation on amounts that private insurers will pay and by other health care reforms that may be enacted or adopted in the future.

        In September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-marketing authority, including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA's exercise of this authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to assure compliance with post-approval regulatory requirements, and potential restrictions on the sale and/or distribution of approved products.

If our strategic alliances are unsuccessful, our operating results will be negatively impacted.

        Our three primary strategic alliances are with Forest, Almirall and Astellas. The success of these arrangements is largely dependent on the resources, efforts and skills of these partners. Disputes and difficulties in such relationships are common, often due to conflicting priorities or conflicts of interest. Merger and acquisition activity may exacerbate these conflicts. The benefits of these alliances are reduced or eliminated when strategic partners:

    terminate the agreements covering the strategic alliance;

    fail to devote financial or other resources to the alliances and thereby hinder or delay development, manufacturing or commercialization activities; or

    fail to maintain the financial resources necessary to continue financing their portion of the development, manufacturing or commercialization costs, or become insolvent or declare bankruptcy.

We will need to increase the size of our organization, and we may experience difficulties in managing growth.

        We will need to expand our managerial, operational, financial and other resources in order to manage our operations and clinical trials, continue our development activities and commercialize our product

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candidates. Our personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:

    manage our clinical trials effectively, including our Phase 3 clinical trials for linaclotide;

    manage our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors, collaborators and other third parties;

    improve our operational, financial and management controls, reporting systems and procedures; and

    attract and motivate sufficient numbers of talented employees.

We may not be able to manage our business effectively if we lose any of our current management team or if we are unable to attract and motivate key personnel.

        We may not be able to attract or motivate qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the greater-Boston area. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our objectives.

        We are highly dependent on the development, regulatory, commercial and financial expertise of our management, particularly Peter M. Hecht, Ph.D., our Chief Executive Officer; Mark G. Currie, Ph.D., our Senior Vice President of Research and Development and our Chief Scientific Officer; Michael J. Higgins, our Senior Vice President, Chief Operating Officer and Chief Financial Officer; and Thomas McCourt, our Senior Vice President, Marketing and Sales and Chief Commercial Officer. Although no member of our management team has informed us to date that he or she intends to resign or retire, if we lose any members of our management team in the future, we may not be able to find suitable replacements, and our business may be harmed as a result. In addition to the competition for personnel, the Boston area in particular is characterized by a high cost of living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment efforts.

        We also have scientific and clinical advisors who assist us in formulating our product development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development of products that may compete with ours.

We will need to obtain FDA approval of any proposed product names, and any failure or delay associated with such approval may adversely impact our business.

        Any name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed product names, we may be required to adopt an alternative name for our product candidates. If we adopt an alternative name, we would lose the benefit of our existing trademark applications for such product candidate, such as linaclotide, and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.

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If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

        As a manufacturer of pharmaceuticals, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The regulations include:

    the federal healthcare program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;

    federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us which provide coding and billing advice to customers;

    the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;

    the Federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples; and

    state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.

        If our operations are found to be in violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

Our business involves the use of hazardous materials, and we must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

        Our activities involve the controlled storage, use and disposal of hazardous materials. We are subject to federal, state, city and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe that the safety procedures we use for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an

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accident, local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. We do not currently maintain hazardous materials insurance coverage.

Our business and operations would suffer in the event of system failures.

        Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such an event could cause interruption of our operations. For example, the loss of clinical trial data from completed or ongoing clinical trials for linaclotide could result in delays in our regulatory approval efforts and significantly increase our costs. To the extent that any disruption or security breach were to result in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the development of our product candidates could be delayed.

If the proprietary strain-development platform of our biomanufacturing segment does not succeed, we may lose our investment in Microbia, Inc.

        Our biomanufacturing segment consists of our majority ownership interest in Microbia, Inc. (formerly known as Microbia Precision Engineering), or Microbia. Microbia focuses on building a specialty biochemicals business based on a proprietary strain-development platform. The success of this segment is dependent on Microbia successfully developing, scaling up manufacturing and establishing commercial partnerships for biochemicals produced using its industrial biotechnology platform. If Microbia is not successful in developing products from its strain-development platform or partnering its platform, we may lose some or all of the value of our equity investment in Microbia.

Risks Related to Intellectual Property

Limitations on our patent rights relating to our product candidates may limit our ability to prevent third parties from competing against us.

        Our success will depend on our ability to obtain and maintain patent protection for our product candidates, preserve our trade secrets, prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others.

        The strength of patents in the pharmaceutical industry involves complex legal and scientific questions and can be uncertain. Patent applications in the U.S. and most other countries are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, we cannot be certain that we were the first to conceive inventions covered by our patents and pending patent applications or that we were the first to file patent applications for such inventions. In addition, we cannot be certain that our patent applications will be granted, that any issued patents will adequately protect our intellectual property or that such patents will not be challenged, narrowed, invalidated or circumvented.

        We also rely upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. We also have agreements with our employees and selected consultants that obligate them to assign their inventions to us. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors.

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        In addition, the laws of certain foreign countries do not protect proprietary rights to the same extent or in the same manner as the U.S., and therefore, we may encounter problems in protecting and defending our intellectual property in certain foreign jurisdictions.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

        Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing products. As the biotechnology and pharmaceutical industry expands and more patents are issued, the risk increases that our potential products may give rise to claims of infringement of the patent rights of others. There may be issued patents of third parties of which we are currently unaware, that may be infringed by our product candidates. Because patent applications can take many years to issue, there may be currently pending applications which may later result in issued patents that our product candidates may infringe.

        We may be exposed to, or threatened with, future litigation by third parties alleging that our product candidates infringe their intellectual property rights. If one of our product candidates is found to infringe the intellectual property rights of a third party, we or our collaborators could be enjoined by a court and required to pay damages and could be unable to commercialize the applicable product candidate unless we obtain a license to the patent. A license may not be available to us on acceptable terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us from making, using or selling our products, pending a trial on the merits, which may not occur for several years.

        There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally. If a third party claims that we or our collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:

    infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our management's attention from our core business;

    substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on or violates the third party's rights, and, if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner's attorneys' fees;

    a court prohibiting us from selling our product unless the third party licenses its rights to us, which it is not required to do;

    if a license is available from a third party, we may have to pay substantial royalties, fees or grant cross-licenses to our intellectual property rights; and

    redesigning our products so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.

We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.

        Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent application at risk of not issuing.

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        Interference proceedings brought by the U.S. Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patents and patent applications or those of our collaborators. An unfavorable outcome could require us to cease using the technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distraction of our management and other employees. We may not be able to prevent, alone or with our collaborators, misappropriation of our proprietary rights, particularly in countries where the laws may not protect those rights as fully as in the U.S.

        Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceeding or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our Class A common stock.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

        The U.S. Patent and Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

We have not yet registered trademarks for linaclotide in our potential markets, and failure to secure those registrations could adversely affect our business.

        We have not yet registered trademarks for linaclotide in any jurisdiction. Although we have filed trademark applications for linaclotide in the U.S., our trademark applications in the U.S. and any other jurisdictions where we may file may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the U.S. Patent and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

        We employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors, and as such, we may be subject to claims that these employees, or we, have used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

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Risks Related to Our Finances and Capital Requirements

We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future.

        We have a limited operating history. In recent years, we have focused primarily on developing linaclotide, with the goal of supporting regulatory approval for this product candidate. We have financed our operations primarily through private placements of preferred stock and our collaboration and license arrangements, and we have incurred losses in each year since our inception in 1998. We incurred net losses attributable to Ironwood Pharmaceuticals, Inc. of approximately $37.2 million, $52.8 million and $53.9 million in the years ended December 31, 2006, 2007 and 2008, respectively, and approximately $47.3 million in the nine months ended September 30, 2009. As of September 30, 2009, we had an accumulated deficit of approximately $290.6 million. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders' equity and working capital. We expect our expenses to increase in connection with our efforts to commercialize linaclotide and our research and development of our other product candidates. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when, or if, we will become profitable.

We have not generated any product revenue from our product candidates and may never be profitable.

        Our ability to become profitable depends upon our ability to generate revenue from sales. To date, we have not generated any product revenue, and we do not know when, or if, we will generate any such revenue. Our ability to generate product revenue depends on a number of factors, including, but not limited to, our ability to:

    successfully complete our ongoing and planned clinical trials for linaclotide;

    obtain regulatory approvals for linaclotide;

    if regulatory approvals are received, manufacture commercial quantities of linaclotide at acceptable cost levels;

    optimize our relationship to co-develop and co-promote linaclotide in the U.S. with Forest, to commercialize linaclotide in Europe with Almirall and to commercialize linaclotide in certain Asian countries with Astellas; and

    identify and enter into one or more strategic collaborations to market and sell linaclotide outside of North America, Europe and those Asian countries.

        Even if linaclotide is approved for commercial sale, we anticipate incurring significant costs associated with commercialization. We may not achieve profitability after generating product sales. If we are unable to generate product revenues, we will not become profitable.

We may need additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.

        Developing product candidates, conducting clinical trials, establishing manufacturing relationships and marketing drugs are expensive and uncertain. We believe that our cash on hand as of the date of this prospectus, additional cash milestone payments we may receive from our collaborators, and the proceeds of this offering, will enable us to launch and commercialize linaclotide in the U.S. with our partner, Forest, and to fund our currently contemplated research and development efforts for at least the next five years based on our existing business plan. However, unforeseen circumstances may arise, or our strategic

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imperatives could change, requiring us to seek to raise additional funds. The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:

    the rate of progress and cost of our clinical trials and other product development programs for linaclotide and our other product candidates;

    the costs and timing of in-licensing additional product candidates or acquiring other complementary companies;

    the timing of any regulatory approvals of our product candidates;

    the costs of establishing sales, marketing and distribution capabilities; and

    the status, terms and timing of any collaborative, licensing, co-promotion or other arrangements.

        Additional funding may not be available on acceptable terms or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts.

Our quarterly operating results may fluctuate significantly.

        We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:

    variations in the level of expenses related to our development programs;

    addition or termination of clinical trials;

    any intellectual property infringement lawsuit in which we may become involved;

    regulatory developments affecting our product candidates;

    our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements;

    the achievement and timing of milestone payments under our existing collaboration and license agreements; and

    if linaclotide receives regulatory approval, the level of underlying demand for that product and wholesalers' buying patterns.

        If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our Class A common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

Raising additional funds by issuing securities may cause dilution to existing stockholders and raising funds through borrowing or licensing arrangements may restrict our operations or require us to relinquish proprietary rights.

        If we need to raise additional funds by issuing equity securities as a result of unforeseen circumstances or new strategic imperatives, our existing stockholders' ownership will be diluted. If we seek to raise capital through debt financing, such transactions typically require covenants that restrict operating activities. Any borrowings under debt financing will need to be repaid, which creates additional financial risk, particularly if our business or prevailing financial market conditions are not conducive to paying-off or refinancing our outstanding debt obligations at maturity.

        If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our product candidates or technologies, or to grant licenses on terms that are not favorable to us. If adequate funds are not available when and if needed, our

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ability to achieve profitability or to respond to competitive pressures would be significantly limited, and we may be required to delay, significantly curtail or eliminate one or more of our programs.

We have operated as a private company and have no experience attempting to comply with public company obligations. Attempting to comply with these requirements will increase our costs and require additional management resources, and we still may fail to comply.

        We will face increased legal, accounting, administrative and other costs and expenses as a public company. Compliance with the Sarbanes-Oxley Act of 2002, as well as other rules of the SEC, for example, will result in significant initial cost to us as well as ongoing increases in our legal, audit and financial compliance costs. As a public company, we will become subject to Section 404 of the Sarbanes-Oxley Act relating to internal controls over financial reporting. Although we have not identified any material weaknesses in our internal controls over financial reporting to date, we cannot assure that our internal controls over financial reporting will prove to be effective.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our Class A common stock.

        Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, including at our subsidiary, Microbia, could cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Class A common stock.

Our ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments is limited by provisions of the Internal Revenue Code, and may be subject to further limitation as a result of the transactions contemplated by this offering.

        Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, contain rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long term tax exempt rate and the value of the company's stock immediately before the ownership change. We may be unable to offset our taxable income with losses, or our tax liability with credits, before such losses and credits expire and therefore would incur larger federal income tax liability.

        In addition, it is possible that the transactions described in this offering, either on a standalone basis or when combined with future transactions (including issuances of new shares of our Class A common stock or Class B common stock and sales of shares of our Class A common stock), will cause us to undergo one or more additional ownership changes. In that event, we generally would not be able to use our pre-change loss or credit carryovers or certain built-in losses prior to such ownership change to offset future taxable income in excess of the annual limitations imposed by Sections 382 and 383 and those attributes already subject to limitations (as a result of our prior ownership changes) may be subject to more stringent limitations. As of December 31, 2008, we had an immaterial amount of net operating loss carryforwards and tax credit carryforwards at risk of loss due to a prior ownership change, as well as approximately $78.2 million of net operating loss carryforwards and approximately $10.1 million of tax credit carryforwards at risk of limitation in the event of a future ownership change.

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Risks Relating to Securities Markets and Investment in Our Stock

The concentration of our capital stock ownership with our founders, directors, executives, employees and current holders of our preferred stock (and their affiliates) will limit your ability to influence certain corporate matters.

        Each share of Class A common stock and each share of Class B common stock has one vote per share on all matters except certain ones pertaining to change in control matters. After our offering, our Class B common stock will have ten votes per share and our Class A common stock, which is the stock we are selling in this offering, will have one vote per share in the following matters:

    adoption of a merger or consolidation agreement involving Ironwood;

    a sale of all or substantially all of Ironwood's assets;

    a dissolution or liquidation of Ironwood; and,

    every matter, if and when any individual, entity or "group" (as such term is used in Regulation 13D of the Exchange Act) has, or has publicly disclosed (through a press release or a filing with the SEC) an intent to have, beneficial ownership of 30% or more of the number of outstanding shares of Class A common stock and Class B common stock, combined.

        Because of our dual class common stock structure, the holders of our Class B common stock, who consist of our founders, directors, executives, employees and current holders of our preferred stock (and their affiliates), will continue to be able to control the corporate matters listed above if any such matter is submitted to our stockholders for approval even if they come to own less than 50% of the outstanding shares of our common stock. Immediately after this offering, the holders of our Class A common stock will own 17.6% and the holders of our Class B common stock will own 82.4% of the outstanding shares of Class A common stock and Class B common stock, combined. However, because of our dual class common stock structure these holders of our Class A common stock will have 2.1% and holders of our Class B common stock will have 97.9% of the total votes immediately after this offering in each of the matters identified in the list above. This concentrated control with our Class B common stock holders will limit your ability to influence those corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. The market price of our Class A common stock could be adversely affected by the structure. We have directed the underwriters to reserve up to approximately 7,000,000 of the shares of our Class A common stock to be issued in this offering for sale to certain of our existing stockholders and certain specified affiliated entities, as designated by us, at the public offering price. Participation in this offering by existing holders of our convertible preferred stock will further concentrate voting rights and may negatively impact liquidity for shares of our Class A common stock.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could negatively impact the market price of our Class A common stock.

        Provisions in our certificate of incorporation and bylaws, as amended and restated upon the completion of this offering, may have the effect of delaying or preventing a change of control. These provisions include the following:

    Our certificate of incorporation provides for a dual class common stock structure. As a result of this structure, our founders, directors, executives, employees and current holders of our preferred stock (and each of their affiliates), each of whom will hold shares of our Class B common stock following this offering, will have significant influence over certain matters requiring stockholder approval, including significant corporate transactions, such as a merger. This concentrated control could discourage others from initiating a change of control transaction that other stockholders may view as beneficial.

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    Our board of directors is divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time. This staggered board structure prevents stockholders from replacing the entire board at a single stockholders' meeting.

    Our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors.

    Our board of directors may issue, without stockholder approval, shares of preferred stock. The ability to authorize preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

    Stockholders must provide advance notice to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders' meeting. Furthermore, stockholders may only remove a member of our board of directors for cause. These provisions may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect such acquiror's own slate of directors or otherwise attempting to obtain control of our company.

    Our stockholders may not act by written consent. As a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions outside of a stockholders' meeting.

    Special meetings of stockholders may be called only by the chairman of our board of directors, our chief executive officer, our president or a majority of our board of directors. As a result, a holder, or holders, controlling a majority of our capital stock would not be able to call a special meeting.

    A majority of the outstanding shares of Class B common stock are required to amend our certificate of incorporation and a super-majority (80%) of the outstanding shares of Class B common stock are required to amend our by-laws, which make it more difficult to change the provisions described above.

        In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation and our bylaws and in the Delaware General Corporation Law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors.

If holders of shares of our Class B common stock convert their shares of Class B common stock into shares of Class A common stock and exercise their registration rights, a significant number of shares of our Class A common stock could be sold into the market, which could reduce the trading price of our Class A common stock and impede our ability to raise future capital.

        After this offering, holders of approximately 70,170,477 shares of Class B common stock (after giving effect to the conversion of 69,683,700 shares of convertible preferred stock outstanding as of December 31, 2009 into shares of our Class B common stock) will have rights under our eighth amended and restated investors' rights agreement, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. These rights will continue following this offering and will terminate five years following the completion of this offering, or for any particular holder with registration rights who at such time holds less than 1% of our outstanding Class B common stock, at such time following this offering when all securities held by that stockholder subject to registration rights may be sold pursuant to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, within a single 90 day period. We also intend to register all shares of Class A common stock that we may issue under our equity compensation plans. Once

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we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the "Underwriting" section of this prospectus.

There may not be a viable public market for our Class A common stock.

        Prior to this offering, there has been no public market for our Class A common stock, and a regular trading market may not develop and continue after this offering. Furthermore, the market price of our Class A common stock may decline below the initial public offering price. The initial public offering price will be determined through negotiations between us and the representatives of the underwriters and may not be indicative of the market price of our Class A common stock following this offering. Among the factors considered in such negotiations are prevailing market conditions, certain of our financial information, market valuations of other companies that we and the representatives of the underwriters believe are comparable to us, estimates of our business potential and the present state of our business. See "Underwriting" for additional information.

As a new investor, you will experience immediate and substantial dilution in the net tangible book value of your shares.

        The initial public offering price of our Class A common stock in this offering is considerably more than the net tangible book value per share of our Class A common stock. Investors purchasing shares of Class A common stock in this offering will pay a price that substantially exceeds the value of our tangible assets after subtracting liabilities. As a result, investors will, as of September 30, 2009:

    incur immediate dilution of $12.25 per share of Class A common stock, based on an assumed initial public offering price of $15.00 per share of Class A common stock, the mid-point of the price range set forth on the cover page of this prospectus; and

    contribute 43.0% of the total amount invested to date to fund our company based on an assumed initial offering price to the public of $15.00 per share of Class A common stock, the mid-point of the price range set forth on the cover page of this prospectus, but will own only 17.6% of the outstanding shares of Class A common stock and Class B common stock, combined, after the offering.

To the extent outstanding stock options are exercised, there will be further dilution to new investors.

        As of December 31, 2009, we had options to purchase 13,691,579 shares of Class B common stock outstanding, with exercise prices ranging from $0.10 to $7.36 per share and a weighted average exercise price of $2.45 per share. Upon the vesting of each of these options, the holder may exercise his or her options, which would result in further dilution to investors.

We expect that the price of our Class A common stock will fluctuate substantially.

        The market price of our Class A common stock may be highly volatile due to many factors, including:

    the results from our clinical trials, including our current and planned Phase 3 clinical trials for linaclotide;

    FDA or international regulatory actions, including actions on regulatory applications for any of our product candidates;

    the commercial performance of any of our product candidates that receive marketing approval;

    announcements of the introduction of new products by us or our competitors;

    market conditions in the pharmaceutical and biotechnology sectors;

    announcements concerning product development results or intellectual property rights of others;

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    litigation or public concern about the safety of our potential products;

    actual and anticipated fluctuations in our quarterly operating results;

    deviations in our operating results from the estimates of securities analysts;

    additions or departures of key personnel;

    any third-party coverage and reimbursement policies for linaclotide;

    developments concerning current or future strategic collaborations; and

    discussion of us or our stock price in the financial or scientific press or in online investor communities.

        The realization of any of the risks described in these "Risk Factors" could have a dramatic and material adverse impact on the market price of our Class A common stock. In addition, class action litigation has often been instituted against companies whose securities have experienced periods of volatility. Any such litigation brought against us could result in substantial costs and a diversion of management attention, which could hurt our business, operating results and financial condition.

Our management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a significant return, if any.

        Our management will have broad discretion over the use of proceeds from this offering. The net proceeds from this offering will be used to fund the continued development and commercialization of linaclotide, the research and development of our other product candidates and other general corporate purposes. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or investments that lose value.

Future sales of our Class A common stock may depress our stock price.

        While we do not currently anticipate making additional offers of Class A common stock, such sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class A common stock. Immediately after this offering, we will have outstanding 16,666,667 shares of Class A common stock and 78,246,222 shares of Class B common stock, based on the number of outstanding shares of Class A common stock and Class B common stock as of December 31, 2009 and after giving effect to the conversion of 69,904,843 shares of convertible preferred stock outstanding as of December 31, 2009 into 70,391,620 shares of our Class B common stock at the completion of this offering. The shares of Class A common stock that we are selling in connection with this offering may be resold in the public market immediately.

We have never paid dividends on our capital stock, and because we do not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, of our common stock will be your sole source of gain on an investment in our Class A common stock.

        We have paid no cash dividends on any of our classes of capital stock to date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus, including the sections titled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. All statements contained in this prospectus other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words "may," "continue," "estimate," "intend," "plan," "will," "believe," "project," "expect," "seek," "anticipate" and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about:

    our expectations related to the use of proceeds from this offering;

    the progress of, timing of and amount of expenses associated with our research, development and commercialization activities;

    the timing, conduct and success of our clinical studies for our product candidates;

    our ability to obtain U.S. and foreign regulatory approval for our product candidates and the ability of our product candidates to meet existing or future regulatory standards;

    our expectations regarding federal, state and foreign regulatory requirements;

    the therapeutic benefits and effectiveness of our product candidates;

    the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our product candidates;

    our ability to manufacture sufficient amounts of our product candidates for clinical studies and products for commercialization activities;

    our plans with respect to collaborations and licenses related to the development, manufacture or sale of our product candidates;

    our expectations as to future financial performance, expense levels and liquidity sources;

    the timing of commercializing our product candidates;

    our plan to develop a high-quality commercial organization;

    our ability to compete with other companies that are or may be developing or selling products that are competitive with our product candidates;

    anticipated trends and challenges in our potential markets;

    our ability to attract and motivate key personnel; and

    other factors discussed elsewhere in this prospectus.

        Any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in "Risk Factors." In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

        You should not unduly rely on these forward-looking statements, which speak only as of the date of this prospectus. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See "Where You Can Find Additional Information."

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USE OF PROCEEDS

        We estimate that the net proceeds of the sale of the Class A common stock that we are offering will be approximately $237.5 million, or $272.4 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $15.00 per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The principal purposes of this offering are to obtain additional working capital to fund anticipated operating expenses, establish a public market for our Class A common stock and facilitate future access to the public markets.

        We estimate that we will use the proceeds of this offering, in combination with existing cash resources of approximately $123.1 million as of December 31, 2009, as follows:

    approximately $225.0 million to fund the development and commercialization of linaclotide;

    approximately $39.0 million to fund the research and development of IW-6118, an inhibitor of Fatty Acid Amide Hydrolase, or FAAH, being evaluated for the treatment of pain and inflammation, in Phase 1 and Phase 2 studies, and to continue discovery and preclinical research of early-stage compounds in gastrointestinal pain, inflammation and cardiovascular indications during the twelve month period following the date of this offering; and

    the remainder for general corporate purposes, such as general and administrative expenses, capital expenditures, working capital, prosecution and maintenance of our intellectual property, the potential investment in technologies or products that complement our business, and further investments in our pipeline.

        Although we currently anticipate that we will use the net proceeds of this offering as described above, there may be circumstances where a reallocation of funds may be necessary. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our development and commercialization efforts of linaclotide, the progress of our clinical studies, our existing and future strategic collaborations and partnerships and our operating costs and expenditures. Accordingly, our management will have significant flexibility in the expenditure of the net proceeds of this offering.

        The costs and timing of drug development and commercialization and of regulatory approval, particularly conducting clinical studies, are highly uncertain, are subject to substantial risks and can often change. Accordingly, we may change the allocation of use of these proceeds as a result of contingencies such as the progress and results of our clinical studies and other development activities, the continuation of our existing collaborations and the establishment of new arrangements, our manufacturing requirements and regulatory or competitive developments.

        Pending use of the proceeds from this offering as described above or otherwise, we intend to invest the net proceeds in short-term interest-bearing, investment-grade securities.

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DIVIDEND POLICY

        Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A common stock and Class B common stock will be entitled to share equally in any dividends that our board of directors may determine to issue from time to time. In the event a dividend is paid in the form of shares of common stock or rights to acquire shares of common stock, the holders of Class A common stock will receive Class A common stock, or rights to acquire Class A common stock, as the case may be, and the holders of Class B common stock will receive Class B common stock, or rights to acquire Class B common stock, as the case may be.

        We have never declared or paid any cash dividends on our capital stock and we do not currently anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance operations. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and covenants and other factors that our board of directors may deem relevant.

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CAPITALIZATION

        The following table sets forth our capitalization as of September 30, 2009:

    on an actual basis;

    on a pro forma basis after giving effect to: (a) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 69,709,801 shares of our Class B common stock, which will occur upon the completion of this offering; (b) the issuance of 681,819 shares of our convertible preferred stock sold at a price of $22.00 per share for cash proceeds of $15.0 million, which were received on November 13, 2009, including a $0.7 million gain on the final remeasurement of the forward purchase contract at the time of settlement, and the conversion of such shares into 681,819 shares of our Class B common stock, which will occur upon the closing of this offering and (c) compensation expense of approximately $107,000 related to 45,000 time-accelerated stock options at September 30, 2009 that will fully vest upon the closing of this offering; and

    on a pro forma as adjusted basis to give effect to the receipt by us of net proceeds of $237.5 million from the sale of shares of our Class A common stock that we are offering, assuming an initial public offering price of $15.00 per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        You should read the following table in conjunction with our financial statements and related notes, "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus.

 
  As of September 30, 2009  
 
  Actual   Pro Forma   Pro Forma
As Adjusted(1)
 
 
  (unaudited)
 
 
  (in thousands, except share and per share data)
 

Cash, cash equivalents and available-for-sale securities

  $ 98,928   $ 113,928   $ 351,428  

Long-term debt, including current portion

    3,406     3,406     3,406  

Class A common stock, $0.001 par value: 98,530,700 shares authorized, no shares issued and outstanding, actual and pro forma; 500,000,000 shares authorized, 16,666,667 shares issued and outstanding, pro forma as adjusted

            17  

Class B common stock, $0.001 par value: 98,530,700 shares authorized, 7,713,407 shares issued and outstanding, actual; 98,530,700 shares authorized, 78,105,027 shares issued and outstanding, pro forma; 100,000,000 shares authorized, 78,105,027 shares issued and outstanding, pro forma as adjusted

    8     78     78  

Convertible preferred stock, $0.001 par value: 74,942,226 shares authorized, 69,223,024 shares issued and outstanding, actual; 74,942,226 shares authorized, no shares issued or outstanding, pro forma; no shares authorized, issued or outstanding, pro forma as adjusted

    289,849          

Preferred stock, $0.001 par value: no shares authorized, no shares issued or outstanding, actual and pro forma; 75,000,000 shares authorized, no shares issued and outstanding, pro forma as adjusted

             

Additional paid-in capital

    10,921     309,307     546,790  

Accumulated deficit

    (290,629 )   (290,036 )   (290,036 )

Accumulated other comprehensive income

    2     2     2  

Total Ironwood Pharmaceuticals, Inc. stockholders' equity (deficit)

    (279,698 )   19,351     256,851  
               

Noncontrolling interest

    3,856     3,856     3,856  
               

Total stockholders' equity (deficit)

  $ (275,842 ) $ 23,207   $ 260,707  
               

Total capitalization

  $ 17,413   $ 26,613   $ 264,113  
               

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(1)
Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share would increase (decrease) the amount of pro forma as adjusted cash, cash equivalents and available-for-sale securities; additional paid-in capital; total stockholders' equity (deficit) and total capitalization by approximately $15.5 million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The table above does not include:

    14,094,470 shares of Class B common stock issuable upon the exercise of options outstanding as of September 30, 2009, with exercise prices ranging from $0.10 to $5.48 per share and a weighted average exercise price of $2.45 per share; and

    1,293,820 additional shares of Class B common stock reserved for future grants under our 2002 Stock Incentive Plan and 2005 Stock Incentive Plan as of September 30, 2009.

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DILUTION

        The historical net tangible book value of our common stock as of September 30, 2009 was approximately $(275.8) million, or $(35.76) per share, based on no shares of Class A common stock and 7,713,407 shares of Class B common stock outstanding as of such date. Historical net tangible book value per share represents the amount of our total tangible assets less total liabilities and convertible preferred stock, divided by the number of shares of common stock issued and outstanding.

        Our pro forma net tangible book value as of September 30, 2009 was approximately $23.2 million, or $0.30 per share, based on the aggregate of Class A and Class B common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets, less our total liabilities, divided by the pro forma number of shares of Class A and Class B common stock outstanding as of September 30, 2009, after giving effect to (a) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 69,709,801 shares of our Class B common stock, which will occur upon the completion of this offering, and the recognition of compensation expense of approximately $107,000 related to 45,000 time-accelerated stock options outstanding at September 30, 2009 that will fully vest upon the completion of this offering, and (b) the issuance of 681,819 shares of our convertible preferred stock sold at a price of $22.00 per share for cash proceeds of $15.0 million, which were received on November 13, 2009, including a $0.7 million gain on the final remeasurement of the forward purchase contract at the time of settlement, and the conversion of such shares into 681,819 shares of our Class B common stock, which will occur upon the completion of this offering.

        After giving effect to the sale of 16,666,667 shares of Class A common stock that we are offering, assuming an initial public offering price of $15.00 per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2009 would have been approximately $260.7 million, or approximately $2.75 per share based on the aggregate of Class A and Class B common stock. This amount represents an immediate increase in pro forma net tangible book value of $2.45 per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $12.25 per share to new investors purchasing shares of Class A common stock in this offering, assuming an initial public offering price of $15.00 per share, which is the midpoint of the range listed on the cover page of this prospectus. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share from the amount of cash that a new investor paid for a share of Class A common stock. The following table illustrates this dilution:

Assumed initial offering price per share of Class A common stock

        $ 15.00  
 

Historical net tangible book value per share as of September 30, 2009

  $ (35.76 )      
 

Increase attributable to the conversion of the outstanding shares of convertible preferred stock as of September 30, 2009 and the recognition of compensation expense

  $ 35.94        
 

Increase attributable to the issuance and conversion of 681,819 shares of convertible preferred stock

  $ 0.12        
             
 

Pro forma net tangible book value per share as of September 30, 2009

  $ 0.30        
 

Increase in pro forma net tangible book value attributable to this offering

  $ 2.45        
 

Pro forma as adjusted net tangible book value per share after this offering

        $ 2.75  

Dilution per share to new investors

        $ 12.25  

        A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share of Class A common stock, which is the midpoint of the range listed on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share by $0.16 and the dilution per share to new investors by $0.84, in each case assuming the number of shares offered, as set forth on the

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cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        If the underwriters exercise their over-allotment option in full in this offering, the pro forma as adjusted net tangible book value would be $3.04 per share, the increase in pro forma net tangible book value per share to existing stockholders would be $2.74 and the dilution per share to new investors would be $11.96 in each case assuming an initial public offering price of $15.00 per share, which is the midpoint of the range listed on the cover page of this prospectus.

        The following table summarizes, as of September 30, 2009, the differences between the number of shares of Class A common stock purchased from us, the total consideration paid to us in cash and the average price per share that existing stockholders and new investors paid. The calculation below is based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the range listed on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 
  Shares Purchased   Total Consideration    
 
 
  Average Price
per Share
 
 
  Number   Percent   Amount   Percent  

Existing Stockholders

    78,105,027     82.4 % $ 315,030,404     57.0 % $ 4.03  

New Investors

    16,666,667     17.6 % $ 237,500,005     43.0 % $ 14.25  
                             

Total

    94,771,694     100.0 % $ 552,530,409     100.0 % $ 5.83  
                           

        A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share of Class A common stock, which is the midpoint of the range listed on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by $16.7 million and increase (decrease) the percent of total consideration paid to us by new investors by 1.7%, assuming the number of shares offered, as set forth on the cover of this prospectus, remains the same and without deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The foregoing tables and calculations are based on the number of shares of our common stock outstanding as of September 30, 2009, after giving effect to: (a) the automatic conversion of all outstanding shares of our convertible preferred stock into our Class B common stock, which will occur upon the completion of this offering, (b) the issuance of 681,819 shares of our convertible preferred stock sold at a price of $22.00 per share for cash proceeds of $15.0 million, which were received on November 13, 2009, including a $0.7 million gain on the final remeasurement of the forward purchase contract at the time of settlement, and the conversion of such shares into 681,819 shares of our Class B common stock, which will occur upon the closing of this offering and (c) compensation expense of approximately $107,000 related to 45,000 time-accelerated stock options at September 30, 2009 that will fully vest upon the closing of this offering, and excludes:

    14,094,470 shares of Class B common stock issuable upon the exercise of options outstanding as of September 30, 2009, with exercise prices ranging from $0.10 to $5.48 per share and a weighted average exercise price of $2.45 per share; and

    1,293,820 additional shares of Class B common stock reserved for future grants under our 2002 Stock Incentive Plan and 2005 Stock Incentive Plan as of September 30, 2009.

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SELECTED CONSOLIDATED FINANCIAL DATA

        You should read the following selected financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus. We have derived the consolidated statements of operations data for the years ended December 31, 2006, 2007 and 2008 and the consolidated balance sheet data as of December 31, 2007 and 2008 from our audited financial statements included elsewhere in this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2004 and 2005 and consolidated balance sheet data as of December 31, 2004, 2005 and 2006 from our audited financial statements not included in this prospectus. We have derived the consolidated statements of operations data for the nine months ended September 30, 2008 and 2009 and the consolidated balance sheet data as of September 30, 2009 from our unaudited consolidated financial statements included elsewhere in this prospectus. Our unaudited consolidated financial statements for the nine months ended September 30, 2008 and 2009 have been prepared on the same basis as the annual consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for fair presentation of this data in all material respects. Pro forma financial information reflects: (a) the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our Class B common stock upon the completion of this offering, (b) the issuance of 681,819 shares of our convertible preferred stock sold at a price of $22.00 per share for cash proceeds of $15.0 million, which were received on November 13, 2009, including a $0.7 million gain on the final remeasurement of the forward purchase contract at the time of settlement, and the conversion of such shares into 681,819 shares of our Class B common stock upon the closing of this offering and (c) compensation expense of approximately $56,000 and $107,000 related to 30,000 and 45,000 time-accelerated stock options at December 31, 2008 and September 30, 2009, respectively, that will fully vest upon the closing of this offering. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period, and our results for any interim period are not necessarily indicative of results for a full fiscal year.

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  December 31,   Nine months ended
September 30,
 
 
  2004   2005   2006   2007   2008   2008   2009  
 
   
   
   
   
   
  (unaudited)
 
 
  (In thousands, except share and per share data)
 

Consolidated Statement of Operations Data:

                                           

Revenue:

                                           
 

Collaborative arrangements

  $   $   $   $ 4,608   $ 18,383   $ 13,933   $ 25,917  
 

Services

    3,569     1,574     3,140     5,856     3,833     3,309     1,581  
                               

Total revenue

    3,569     1,574     3,140     10,464     22,216     17,242     27,498  

Operating expenses:

                                           
 

Research and development(1)

    18,600     23,011     35,543     57,246     59,809     43,309     58,824  
 

General and administrative(1)

    3,693     4,627     7,192     10,833     18,328     13,054     17,309  
                               

Total operating expenses

    22,293     27,638     42,735     68,079     78,137     56,363     76,133  
                               

Loss from operations

    (18,724 )   (26,064 )   (39,595 )   (57,615 )   (55,921 )   (39,121 )   (48,635 )

Other income (expense):

                                           
 

Interest expense

    (375 )   (207 )   (217 )   (263 )   (334 )   (253 )   (370 )
 

Interest and investment income

    320     353     2,533     4,118     2,124     1,901     214  
 

Remeasurement of forward purchase contracts

                600     (900 )   (5,900 )   (100 )
                               

Other income (expense), net

    (55 )   146     2,316     4,455     890     (4,252 )   (256 )
                               

Loss before income tax benefit

    (18,779 )   (25,918 )   (37,279 )   (53,160 )   (55,031 )   (43,373 )   (48,891 )
 

Income tax benefit

                            (153 )
                               

Net loss

    (18,779 )   (25,918 )   (37,279 )   (53,160 )   (55,031 )   (43,373 )   (48,738 )

Net loss attributable to noncontrolling interest

            99     408     1,157     726     1,483  
                               

Net loss attributable to Ironwood Pharmaceuticals, Inc.

  $ (18,779 ) $ (25,918 ) $ (37,180 ) $ (52,752 ) $ (53,874 ) $ (42,647 ) $ (47,255 )
                               

Net loss per share attributable to Ironwood Pharmaceuticals, Inc.—basic and diluted

  $ (3.48 ) $ (4.35 ) $ (5.79 ) $ (7.91 ) $ (7.82 ) $ (6.22 ) $ (6.70 )
                               

Weighted average number of common shares used in net loss per share attributable to Ironwood Pharmaceuticals, Inc.—basic and diluted

    5,389,863     5,963,326     6,417,499     6,666,601     6,889,817     6,859,285     7,054,291  

Pro forma net loss per share attributable to Ironwood Pharmaceuticals, Inc.—basic and diluted (unaudited)(2)

                          $ (0.72 )       $ (0.62 )
                                         

Pro forma weighted average number of common shares used in net loss per share attributable to Ironwood Pharmaceuticals, Inc.—basic and diluted (unaudited)(2)

                            74,495,452           75,574,117  

(1)
Includes share-based compensation expense as indicated in the following table:

Research and development

  $ 208   $ 253   $ 316   $ 795   $ 1,708   $ 1,203   $ 1,332  

General and administrative

    56     64     633     359     1,086     640     1,919  
(2)
Pro forma basic and diluted net loss per share have been calculated assuming: (a) the automatic conversion of all outstanding shares of convertible preferred stock as of December 31, 2008 into 67,605,635 shares of our Class B common stock and as of September 30, 2009 into 69,709,801 shares of our Class B common stock upon the closing of this offering, (b) the issuance of 681,819 shares of our convertible preferred stock sold at a price of $22.00 per share for cash proceeds of $15.0 million, which were received on November 13, 2009, including a $0.7 million gain on the final remeasurement of the forward purchase contract at the time of settlement, and the conversion of such shares into 681,819 shares of our Class B common stock upon the closing of this offering and (c) compensation expense of approximately $56,000 and $107,000 related to 30,000 and 45,000 time-accelerated stock options at December 31, 2008 and September 30, 2009, respectively, that will fully vest upon the closing of this offering. Pro forma basic and diluted net loss per share does not give effect to the sale of 16,666,667 shares of Class A common stock that we are offering pursuant to this prospectus.

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  As of
December 31,
   
 
 
  As of
 
 
  September 30,
2009
 
 
  2004   2005   2006   2007   2008  
 
  (unaudited)
(In thousands)

 

Consolidated Balance Sheet Data:

                                     

Cash, cash equivalents and available-for-sale securities

  $ 26,459   $ 5,134   $ 49,501   $ 91,936   $ 89,767   $ 98,928  

Working capital (deficit) (excluding deferred revenue)

    22,985     (1,635 )   43,793     105,043     86,780     99,412  

Total assets

    32,079     10,490     57,520     135,908     140,723     149,647  

Deferred revenue, including current portion

    123     543     930     74,392     66,054     104,487  

Long-term debt, including current portion

    1,847     4,182     2,243     2,963     1,815     3,406  

Capital lease obligations, including current portion

                    306     220  

Total liabilities

    4,859     8,570     9,900     90,480     97,734     135,640  

Convertible preferred stock

    98,924     98,924     173,851     223,802     273,400     289,849  

Noncontrolling interest

            6,903     6,495     5,339     3,856  

Total stockholders' deficit

    (71,704 )   (97,004 )   (126,231 )   (178,374 )   (230,411 )   (275,842 )

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this prospectus. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under "Risk Factors" and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

        We are an entrepreneurial pharmaceutical company that discovers, develops and intends to commercialize innovative medicines targeting important therapeutic needs. To achieve this, we are building a sustainable culture centered on creating and marketing important new drugs. Our experienced team of researchers is focused on a portfolio of internally discovered drug candidates that includes one Phase 3 drug candidate (linaclotide), one Phase 1 pain drug candidate, and multiple preclinical programs. We have pursued a partnering strategy for the commercialization of linaclotide that has enabled us to retain significant control over linaclotide's development and commercialization, share the costs of drug development and commercialization with collaborators whose capabilities complement ours, and retain approximately half of the future long-term value of linaclotide in the major pharmaceutical markets, should linaclotide meet our sales expectations.

        We were incorporated in Delaware as Microbia, Inc. (which is now the name of our majority-owned subsidiary) on January 5, 1998. On April 7, 2008, we changed our name to Ironwood Pharmaceuticals, Inc.

        We operate in two reportable business segments—human therapeutics and biomanufacturing. Our human therapeutics segment comprises the vast majority of our business, and it consists of the development and commercialization of our product candidates, including linaclotide. Our biomanufacturing segment, which comprises a much smaller part of our business, consists of our majority ownership interest in Microbia, which focuses on building a specialty biochemicals business based on a proprietary strain-development platform. Our human therapeutics segment represented 96%, 97% and 97% and our biomanufacturing segment represented 4%, 3% and 3% of our total assets at December 31, 2007 and 2008 and September 30, 2009, respectively. Our human therapeutics segment represented 87%, 95%, 86%, 88% and 81% and our biomanufacturing segment represented 13%, 5%, 14%, 12% and 19% of our loss from operations for the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2008 and 2009, respectively. In November 2009, Microbia amended its existing facility lease to include an early termination option and subsequently implemented a strategic restructuring plan that includes an immediate reduction of Microbia's workforce (see Note 21 to our consolidated financial statements). We expect that after the restructuring actions are completed, Microbia's operating expenses will decrease and as a result, its percentage of our consolidated loss from operations will decrease.

        To date we have dedicated substantially all of our activities to the research and development of our product candidates. We have not generated any revenue to date from product sales and have incurred significant operating losses since our inception in 1998. We incurred net losses attributable to Ironwood Pharmaceuticals, Inc. of approximately $37.2 million, $52.8 million and $53.9 million in the years ended December 31, 2006, 2007 and 2008, respectively, and approximately $47.3 million in the nine months ended September 30, 2009. As of September 30, 2009, we had an accumulated deficit of approximately $290.6 million, and we expect to incur losses for the foreseeable future.

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Financial Overview

        Revenue.    Revenue to date from our human therapeutics segment is generated primarily through collaborative research, development and/or commercialization agreements. The terms of these agreements typically include payment to us of one or more of the following: nonrefundable, up-front license fees; milestone payments; and royalties on product sales. Revenue from our human therapeutics segment is shown in our consolidated statements of operations as collaborative arrangements revenue. Revenue from our biomanufacturing segment is generated by our subsidiary, Microbia, which has entered into research and development service agreements with various third parties. These agreements generally provide for fees for research and development services rendered, and may include additional payments at the conclusion of the research period upon achieving specified events. These service agreements also contemplate royalty payments to us on future sales of Microbia's customers' products. Revenue from our biomanufacturing segment is shown as services revenue. We expect our revenue to fluctuate for the foreseeable future as our collaborative arrangements revenue is principally based on the achievement of clinical and commercial milestones. Additionally, we expect our services revenue to decline as existing Microbia customer contracts are completed and no new services contracts are anticipated.

        Research and development expense.    Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates. These expenses consist primarily of compensation, benefits and other employee related expenses, facility costs and third-party contract costs relating to research, formulation, manufacturing, preclinical study and clinical trial activities. Also included in research and development expenses are the costs of revenue related to the Microbia services contracts. We charge all research and development expenses to operations as incurred. Under our Forest collaboration agreement we are reimbursed for certain research and development expenses and we net these reimbursements against our research and development expenses as incurred.

        Our lead product candidate is linaclotide and it represents the largest portion of our research and development expense for our product candidates. Linaclotide is a first-in-class compound currently in confirmatory Phase 3 trials evaluating its safety and efficacy for the treatment of patients with IBS-C or CC. Our other clinical stage program is IW-6118, an inhibitor of FAAH being evaluated for the treatment of pain and inflammation. IW-6118 is a novel small molecule inhibitor of FAAH, that decreased inflammation and pain and elevated fatty acid amides in preclinical models. We have an active investigational new drug application, or IND, for IW-6118 and are currently investigating the safety, tolerability, and pharmacokinetic properties of this molecule in Phase 1 studies.

        The following table sets forth our research and development expenses related to linaclotide and IW-6118 for the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2008 and 2009. We began tracking program expenses for linaclotide in 2004, and program expenses from inception to September 30, 2009 were approximately $81.5 million. We began tracking program expenses for IW-6118 in 2008, and program expenses from inception to September 30, 2009 were approximately $6.9 million. These expenses relate primarily to external costs associated with manufacturing, preclinical studies and clinical trial costs. The expenses for linaclotide include both reimbursements to us by Forest as well as our portion of costs incurred by Forest for linaclotide and invoiced to us under the cost-sharing provisions of our collaboration agreement. Costs related to facilities, depreciation, share-based compensation and research and development support services are not directly charged to programs.

 
  December 31,   Nine Months Ended
September 30,
 
 
  2006   2007   2008   2008   2009  
 
   
   
  (unaudited)
   
   
 
 
  (in thousands)
 
 

Linaclotide

  $ 10,974   $ 23,450   $ 13,588   $ 9,473   $ 25,850  
 

IW-6118

            2,577     1,312     4,328  

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        The lengthy process of securing FDA approvals for new drugs requires the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals would materially adversely affect our product development efforts and our business overall. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or money that we will be required to expend in the future on linaclotide or IW-6118 prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of any approvals, we are currently unable to estimate precisely when, if ever, linaclotide, IW-6118 or any of our other product candidates will generate revenues and cash flows.

        We have multiple product candidates in earlier stages of development, and are pursuing various therapeutic opportunities. We invest carefully in our pipeline, and the commitment of funding for each subsequent stage of our development programs is dependent upon the receipt of clear, positive data. In addition, we are actively engaged in identifying externally-discovered drug candidates at various stages of clinical development and accessing them through in-licensing or acquisition. In evaluating potential assets, we apply the same criteria as those used for investments in internally-discovered assets. To date, we have not in-licensed any drug candidates, but we do expect to do so from time to time.

        The majority of our external costs are spent on linaclotide, as costs associated with later stage clinical trials are, in most cases, more significant than those incurred in earlier stages of our pipeline. We expect external costs related to the linaclotide program to begin decreasing if its current Phase 3 clinical trials yield positive data and no other clinical trials are necessary to obtain regulatory approval in the U.S. If IW-6118 is successful in early stage clinical trials, we would expect the program's external costs to increase as it progresses through later stage clinical trials. The remainder of our research and development expense is not tracked by project as it consists primarily of our internal costs, and it benefits multiple projects that are in earlier stages of development and which typically share resources.

        The successful development of our product candidates is highly uncertain and subject to a number of risks including, but not limited to:

    The duration of clinical trials may vary substantially according to the type, complexity and novelty of the product candidate.

    The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures.

    Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activity. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.

    The duration and cost of discovery, nonclinical studies and clinical trials may vary significantly over the life of a product candidate and are difficult to predict.

    The costs, timing and outcome of regulatory review of a product candidate.

    The emergence of competing technologies and products and other adverse market developments.

As a result of the uncertainties discussed above, we are unable to determine the duration and costs to complete current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates. Development timelines, probability of success and development costs vary widely. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate, as well as ongoing assessments of such product candidate's commercial potential.

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        We expect our research and development costs to continue to be substantial for the foreseeable future and to increase with respect to our product candidates other than linaclotide as we advance those product candidates through preclinical studies and clinical trials.

        General and administrative expense.    General and administrative expense consists primarily of compensation, benefits and other employee related expenses for personnel in our administrative, finance, legal, information technology, business development, commercial and human resource functions. Other costs include the legal costs of pursuing patent protection of our intellectual property, facility costs and professional fees for accounting and legal services. After this offering, we anticipate increases in general and administrative expense relating to operating as a public company. These increases will likely include legal fees, accounting fees and directors' and officers' insurance premiums, as well as fees for investor relations services. We also anticipate substantial expenses related to developing the organization necessary to commercialize linaclotide.

Critical Accounting Policies and Estimates

        Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reported periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. These critical estimates and assumptions are based on our historical experience, our observance of trends in the industry, and various other factors that are believed to be reasonable under the circumstances and form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from our estimates.

        We believe that our application of the following accounting policies, each of which require significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating our reported financial results. Our significant accounting policies are more fully described in Note 2, "Summary of Significant Accounting Policies," to our consolidated financial statements appearing elsewhere in this prospectus.

Revenue Recognition

        Our revenue is generated primarily through collaborative research and development and license agreements. The terms of these agreements typically include payment to us of one or more of the following: nonrefundable, up-front license fees; milestone payments; and royalties on product sales. In addition, we generate services revenue through agreements that generally provide for fees for research and development services rendered, and may include additional payments at the conclusion of the research period upon achieving specified events. These service agreements also contemplate royalty payments to us on future sales of our customers' product.

        We recognize revenue when there is persuasive evidence that an arrangement exists, services have been rendered or delivery has occurred, the price is fixed or determinable, and collection is reasonably assured. We evaluate revenue from agreements that have multiple elements and account for those components as separate elements when the following criteria are met:

    the delivered items have value to the customer on a stand-alone basis;

    there is objective and reliable evidence of fair value of the undelivered items; and

    if there is a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and within our control.

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        The determination that multiple elements in an arrangement meet the criteria for separate units of accounting requires us to exercise our judgment.

        The determination of whether we should recognize revenue on a gross or net basis involves judgment based on the relevant facts and circumstances, which relate primarily to whether we act as a principal or agent in the process of generating revenues from our collaboration and licensing arrangements.

        For certain of our arrangements, particularly our license agreement with Almirall, it is required that taxes be withheld on payments to us. We have adopted a policy to recognize revenue net of these tax withholdings.

Up-Front License Fees

        We recognize revenues from nonrefundable, up-front license fees related to collaboration and license agreements, including the $70.0 million up-front license fee under the Forest collaboration agreement entered into in September 2007 and the $40.0 million up-front license fee, of which $38.0 million was received net of foreign withholding taxes, under the Almirall license agreement entered into in April 2009, on a straight-line basis over the contracted or estimated period of performance due to our continued involvement in research and development. The period of performance over which the revenues are recognized is typically the period over which the research and/or development is expected to occur. As a result, we often are required to make estimates regarding drug development and commercialization timelines for compounds being developed pursuant to a collaboration or license agreement. Because the drug development process is lengthy and our collaboration and license agreements typically cover activities over several years, this approach has resulted in the deferral of significant amounts of revenue into future periods. In addition, because of the many risks and uncertainties associated with the development of drug candidates, our estimates regarding the period of performance may change in the future. Any change in our estimates could result in substantial changes to the period over which the revenues from an up-front license fee are recognized. To date, we have had no material changes to our estimated periods of continuing involvement under existing collaboration and license agreements.

Milestones

        At the inception of each agreement that includes contingent milestone payments, we evaluate whether the contingencies underlying each milestone are substantive and at risk to both parties, specifically reviewing factors such as the scientific and other risks that must be overcome to achieve the milestone, as well as the level of effort and investment required. If we do not consider a milestone to be substantive and at risk to both parties, the revenues from the related milestone payment cannot be recognized when the milestone is achieved, but must be recognized on a straight-line basis over the remaining performance period. All of the milestones that have been achieved under our Forest collaboration agreement to date have been considered substantive. As of September 30, 2009, we had not achieved any milestones under our Almirall license agreement.

        In those circumstances where a substantive milestone is achieved, collection of the related receivable is reasonably assured and we have remaining obligations to perform under the collaboration arrangement, we recognize as revenue on the date the milestone is achieved an amount equal to the applicable percentage of the performance period that has elapsed as of the date the milestone is achieved, with the balance being deferred and recognized over the remaining period of performance.

        Payments received or reasonably assured after performance obligations are fully met are recognized as earned. Because the recognition of a substantive milestone under a collaboration agreement typically requires the completion of a number of activities conducted over a significant period of time, the expenses related to achieving the milestone often are incurred prior to the period in which the milestone payment is recognized. When we do achieve milestones that we consider substantive under any of our collaborations,

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we may experience significant fluctuations in our collaborative revenues from quarter to quarter and year to year depending on the timing of achieving such substantive milestones.

Services Revenue

        Services revenue is recognized when there is persuasive evidence that an arrangement exists, services have been rendered or delivery has occurred, the price is fixed or determinable, and collection is reasonably assured. Revenue from research and development services rendered is recognized as services are performed. These arrangements may include additional payments upon achieving specified events. We recognize these additional payments as revenue when achieved and the payments are due and collectible. Royalty revenue related to research and development services is recognized in the period the sales occur.

Research and Development Expense

        All research and development expenses are expensed as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including compensation, benefits and other employee costs; share-based compensation expense; laboratory supplies and other direct expenses; facilities expenses; overhead expenses; contractual services, including clinical trial and related clinical manufacturing expenses; and other external expenses. In addition, research and development expense includes reimbursements from Forest for services performed pursuant to our collaboration agreement. Clinical trial expenses include expenses associated with contract research organizations, or CROs. The invoicing from CROs for services rendered can lag several months. We accrue the cost of services rendered in connection with CRO activities based on our estimate of site management, monitoring costs, project management costs, and investigator fees. We maintain regular communication with our CRO vendors to gauge the reasonableness of our estimates. Differences between actual clinical trial expenses and estimated clinical trial expenses recorded have not been material and are adjusted for in the period in which they become known. Under our Forest collaboration agreement we are reimbursed for certain research and development expenses and we net these reimbursements against our research and development expenses as incurred. Nonrefundable advance payments for research and development activities are capitalized and expensed over the related service period or as goods are received.

Share-based Compensation Expense

        Prior to January 1, 2006, we accounted for employee share-based awards, including stock options, to employees using the intrinsic value method. Under the intrinsic value method, compensation expense was measured on the date of award as the difference, if any, between the deemed fair value of our common stock and the option exercise price, multiplied by the number of options granted. The option exercise prices and fair value of our common stock are determined by our management and board of directors based on a review of various objective and subjective factors. No compensation expense was recorded for stock options issued to employees prior to January 1, 2006 for awards with fixed amounts and with fixed exercise prices at least equal to the fair value of our common stock at the date of grant.

        Effective January 1, 2006, we recognize compensation expense for all share-based awards granted, modified, repurchased or cancelled on or after January 1, 2006, based on the grant date fair value. These costs are recognized on a straight-line basis over the requisite service period for all time-based vested awards. We continue to account for share-based awards granted prior to January 1, 2006 under the intrinsic value method.

        We record the expense of services rendered by non-employees based on the estimated fair value of the stock option using the Black-Scholes option-pricing model as of the respective vesting date. Further, we expense the fair value of non-employee stock options over the vesting term of the underlying stock options.

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        For employee share-based awards subsequent to January 1, 2006, we estimate the fair value of the share-based awards, including stock options, using the Black-Scholes option-pricing model. Determining the fair value of share-based awards requires the use of highly subjective assumptions, including the expected term of the award and expected stock price volatility. The assumptions used in calculating the fair value of share-based awards granted in 2006, 2007, 2008 and the nine months ended September 30, 2009 are set forth below:

 
  Years Ended December 31,    
 
 
  Nine Months Ended
September 30, 2009
 
 
  2006   2007   2008  

Volatility

    69.0 %   65.0 %   64.0 %   62.4 %

Dividend yield

    %   %   %   %

Expected life of options (in years)

    7.0     7.0     6.5     6.5  

Risk-free interest rate

    4.8 %   4.6 %   3.1 %   2.7 %

        The assumptions used in determining the fair value of share-based awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change, and we use different assumptions, our share-based compensation could be materially different in the future. The risk-free interest rate used for each grant is based on a zero-coupon U.S. Treasury instrument with a remaining term similar to the expected term of the share-based award. Because we do not have a sufficient history to estimate the expected term, we use the simplified method for estimating the expected term. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. Because there was no public market for our common stock prior to this offering, we lacked company-specific historical and implied volatility information. Therefore, we estimate our expected stock volatility based on that of publicly-traded peer companies, and we expect to continue to use this methodology until such time as we have adequate historical data regarding the volatility of our publicly-traded stock price. For purposes of identifying publicly-traded peer companies, we selected publicly-traded companies that are in the biopharmaceutical industry, have products or product candidates in similar therapeutic areas (gastrointestinal dysfunction and pain management) and stages of preclinical and clinical development as us, have sufficient trading history to derive a historic volatility rate and have similar vesting terms as our granted options. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. We also recognize compensation expense for only the portion of options that are expected to vest. Accordingly, we have estimated expected forfeitures of stock options based on our historical forfeiture rate, adjusted for known trends, and used these rates in developing a future forfeiture rate. Our forfeiture rates were 5.0%, 5.0% and 4.4% as of December 31, 2006, 2007 and 2008, respectively, and 4.4% and 4.0% as of September 30, 2008 and 2009, respectively. If our actual forfeiture rate varies from our historical rates and estimates, additional adjustments to compensation expense may be required in future periods.

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        The following table presents the grant dates and related exercise prices of stock options granted and other stock awards granted since January 1, 2007:

Date of Issuance
  Nature of
Issuance
  Number of Shares   Exercise or
Purchase Price
per Share
  Per Share
Estimated Fair
Value of
Common
Stock(1)
  Per Share
Weighted
Average
Estimated Fair
Value of
Options(2)
 

January 23, 2007

  Option grant     1,206,000   $ 2.94   $ 2.94   $ 2.06  

April 24, 2007

  Option grant     177,250   $ 3.05   $ 3.05   $ 2.06  

July 11, 2007

  Option grant     96,500   $ 3.05   $ 3.05   $ 2.08  

October 23, 2007

  Option grant     67,500   $ 3.62   $ 3.62   $ 2.36  

February 1, 2008

  Option grant     1,633,500   $ 3.76   $ 3.76   $ 2.35  

April 30, 2008

  Option grant     114,300   $ 4.33   $ 4.33   $ 2.53  

July 29, 2008

  Option grant     139,000   $ 4.67   $ 4.67   $ 2.84  

November 25, 2008

  Option grant     149,300   $ 4.98   $ 4.98   $ 3.03  

November 25, 2008

  Stock award     5,000   $ 0.00   $ 4.98   $ 0.00  

February 12, 2009

  Option grant     1,485,000   $ 4.89   $ 4.89   $ 2.95  

May 5, 2009

  Option grant     35,000   $ 5.00   $ 5.00   $ 3.06  

July 22, 2009

  Option grant     69,000   $ 5.48   $ 5.48   $ 3.51  

July 29, 2009

  Option grant     900,000 (3) $ 5.48   $ 5.48   $ 3.38  

August 4, 2009

  Option grant     29,000   $ 5.48   $ 5.48   $ 3.38  

September 8, 2009

  Option grant     360,000 (4) $ 5.48   $ 5.48   $ 3.38  

September 18, 2009

  Restricted
stock award
    470,686 (5) $ 0.00   $ 5.48   $ 0.00  

October 20, 2009

  Option grant     18,000   $ 7.36   $ 7.36   $ 4.35  

October 22, 2009

  Restricted
stock award
    44,863 (5) $ 0.00   $ 7.36   $ 0.00  

October 26, 2009

  Option grant     15,000   $ 7.36   $ 7.36   $ 4.35  

(1)
The per share estimated fair value of common stock represents the determination by our board of directors of the fair value of our common stock as of the date of grant, taking into account various objective and subjective factors and including the results, if applicable, of valuations of our common stock as discussed in the pages that follow.

(2)
Our estimate of the per share weighted average fair value for stock option grants was computed based upon the Black-Scholes option-pricing model with the assumptions through September 30, 2009 as disclosed in our consolidated financial statements.

(3)
Comprises stock options subject to performance-based milestone vesting. The vesting of these performance-based milestone stock options will occur upon the achievement of certain performance-based milestones, such as the filing of a second NDA with the FDA, the first commercial sale of our product, or achieving a specified sales target. Management has concluded that the performance-based milestones are not probable of achievement, as such, no compensation expense has been recorded related to these options.

(4)
Comprises stock options granted to an executive officer hired September 8, 2009.

(5)
Comprises shares of common stock sold to independent members of the board of directors under restricted stock agreements in accordance with the terms of our 2005 Stock Incentive Plan and consistent with our current director compensation program (see "Director Compensation" section). A total of 115,549 shares of restricted common stock will vest on December 31, 2009 and the remainder vest ratably over four years beginning in January 2010. In the event that a member of the board of directors ceases to serve on our board prior to December 31, 2013, the member will forfeit all unvested shares in accordance with the terms of the restricted stock agreement.

        We have historically granted stock options at exercise prices not less than the fair value of our common stock as determined by our board of directors, with input from management. Our board of

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directors has historically determined, with input from management, the estimated fair value of our common stock on the date of grant based on a number of objective and subjective factors, including:

    the prices at which we sold shares of convertible preferred stock;

    the superior rights and preferences of securities senior to our common stock at the time of each grant;

    the likelihood of achieving a liquidity event such as an initial public offering or sale of our company;

    our historical operating and financial performance and the status of our research and product development efforts;

    achievement of enterprise milestones, including our entering into collaboration and license agreements; and

    external market conditions affecting the biotechnology industry sector.

        Beginning in March 2006, our board of directors also considered valuations provided by management in determining the fair value of our common stock. Such valuations were prepared as of March 1, June 1, October 31 and December 31, 2006, April 24, June 30, September 30 and December 31, 2007, March 31, June 30, October 28 and December 31, 2008, and March 31, June 30 and September 30, 2009, and valued our common stock at $1.56, $1.56, $1.61, $2.94, $3.05, $3.05, $3.62, $3.76, $4.33, $4.67, $4.98, $4.89, $5.00, $5.48 and $7.36 per share, respectively. The valuations, as described in detail below for each option grant date beginning January 2007, have been used to estimate the fair value of our common stock as of each option grant date listed and in calculating share-based compensation expense. Our board of directors has consistently used the most recent quarterly valuation provided by management for determining the fair value of our common stock unless a specific event occurs that necessitates an interim valuation.

        The valuations were prepared consistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, or the Practice Aid. We used the guideline company method and the similar transaction method of the market approach, which compare our company to similar publicly-traded companies or transactions, and an income approach, which looks at projected future cash flows, to value our company from among the alternatives discussed in the Practice Aid. In addition, as we have several series of convertible preferred stock outstanding, it was also necessary to allocate our company's value to the various classes of stock, including stock options. As provided in the Practice Aid, there are several approaches for allocating enterprise value of a privately-held company among the securities held in a complex capital structure. The possible methodologies include the probability-weighted expected return method, the option-pricing method and the current value method.

        We used the probability-weighted expected return method described in the Practice Aid to allocate the enterprise values to the common stock. Under this method, the value of our common stock is estimated based upon an analysis of future values for our company assuming various future outcomes, the timing of which is based on the plans of our board of directors and management. Under this approach, share value is based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the rights of each share class. We estimated the fair value of our common stock using a probability-weighted analysis of the present value of the returns afforded to our stockholders under each of four possible future scenarios. Three of the scenarios assumed a shareholder exit, either through an initial public offering, or IPO, or a sale of our company. The fourth scenario assumed a sale of our company at a value that is less than the cumulative amounts invested by our preferred stockholders.

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        In March 2006, when we began utilizing the Practice Aid to allocate enterprise values to the various possible outcomes, we assumed two separate IPO scenarios based on our company's profile at the time. In 2006, we were advancing the linaclotide program in human clinical trials as well as a second early stage clinical product candidate. Given the relative risk of these two programs, one IPO scenario included both programs advancing in the clinic at the time of an IPO. Based on the relative risks of both programs and the significant effect on the potential value of a liquidity event if one program failed, a second IPO scenario was added, which included only linaclotide advancing in the clinic at the time of an IPO. This second scenario was included to better reflect the potential outcomes for our company. Beginning with the March 31, 2008 valuation, due to the suspension in March 2008 of the second product candidate program, we eliminated the two product IPO scenario and we utilized a one product IPO scenario reflecting only linaclotide advancing in the clinic at the time of an IPO. Beginning with the October 28, 2008 valuation, we again included two separate IPO scenarios to better reflect our company's risk profile at that time. The linaclotide program was by then advancing in two indications, CC and IBS-C. We believe that the IBS-C indication has a significantly higher market value and higher clinical risk for Ironwood. To better reflect the potential liquidity outcomes for linaclotide, the first IPO scenario included an assumption of successful Phase 3 clinical trials for both the CC and IBS-C indications at the time of an IPO, and the second IPO scenario reflected successful Phase 3 clinical trials in only the CC indication at the time of the IPO. For both IPO scenarios and the sale scenario, the estimated future values of our common stock were calculated using assumptions including: the expected pre-money or sale valuations based on the market approach, and beginning in September 2007, the income approach using the discounted cash flow method, and the expected dates of the future expected IPO or sale. For the sale at an assumed price less than the liquidation preference scenario, the estimated future and present values of our common stock were calculated using assumptions including the estimated aggregate enterprise value that could be attained through such a sale and the estimated expected date of the future sale. The present values of our common stock under each scenario were then calculated using a risk-adjusted discount rate. Finally, the calculated present values for our common stock were probability-weighted based on our estimate of the relative occurrence of each scenario to derive the concluded value of our common stock.

Stock Option Grants on January 23, 2007

        Our board of directors granted stock options on January 23, 2007, with each having an exercise price of $2.94 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of December 31, 2006 provided by management.

        As of December 31, 2006, linaclotide had completed Phase 2a clinical trials and the second product candidate had completed Phase 1 clinical trials and was expected to proceed further in clinical trials in early 2007. Additionally, Microbia had recently entered into a five-year product development agreement with a customer.

        In the December 31, 2006 valuation, we used the market approach to estimate the aggregate future enterprise value of our company under the two separate IPO scenarios, as described above, one in which both product candidates successfully completed Phase 2 clinical trials, and one where only linaclotide successfully completed Phase 2 clinical trials. In both IPO scenarios, we assumed the liquidity event would occur in February 2008. In applying the market approach to the IPO scenarios, we used the Guideline Public Company Method as described in the Practice Aid. Under this method, we analyzed market data on pre-money IPO valuations for approximately 50 biotechnology companies that went public in the period 2003 to 2006. From this set of data we selected a sub-set of companies that had either one or two drugs in Phase 2 clinical trials. We used the median and high end of the range, $200.0 million to $350.0 million in the one-product IPO scenario and $150.0 million to $700.0 million in the two-product IPO scenario, to estimate the enterprise values of our company under the two IPO scenarios. We used $250.0 million for the one-product scenario and $600.0 million for the two-product IPO scenario. We used these values as the

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estimated enterprise values in the respective IPO scenarios of the probability-weighted expected return method.

        In applying the market approach in the sale scenario, we analyzed sale transactions of similar biotechnology companies. The value used was supported by published transaction values of companies with product candidates in various stages of drug development ranging from discovery stage to Phase 3 clinical trials. In the sale scenario, we estimated our company's enterprise value using transactions for companies that were in a comparable stage of development as we anticipated we would be as of February 2008, which was the estimated date a sale or merger would be consummated.

        In the sale at an assumed price less than the liquidation preference scenario, we assumed a sale in February 2008 of our company's existing research and intellectual property at a value that would not allow our preferred stockholders to realize their liquidation preference at December 31, 2006.

        Under the IPO scenarios, the fair value of our common stock was calculated using the expected aggregate enterprise valuations and a risk-adjusted discount rate of 16% based on the estimated timing of a potential IPO with no lack of marketability discount. The risk-adjusted discount rate was based on the inherent risk of a hypothetical investment in our common stock. An appropriate rate of return required by a hypothetical investor was determined based on our cost of capital. Our calculated cost of capital was developed based upon a quantitative and qualitative analysis of factors that would impact the discount rate.

        The fair value of our common stock under the sale at an assumed price less than the liquidation preference scenario was determined by reducing the total estimated enterprise value by the liquidation preferences of our convertible preferred shares, all of which would receive more value based on their liquidation preferences, as opposed to converting to common stock.

        In our December 31, 2006 valuation, we used a probability weight of 35% for the two-product IPO scenario and a probability weight of 15% for the one-product IPO scenario. The greater probability of an IPO in a two-product scenario versus a one-product scenario was the basis for the higher two-product probability weight. The sale scenario had a probability weight of 45% and the sale at an assumed price less than the liquidation preference scenario had a probability weight of 5%. The probability weights assigned to the respective scenarios were primarily based on the industry average of the clinical success rates given the stage of development of our product candidates as of the valuation date as well as our assessment of the current financing and biotechnology industry environments at the time of the valuation. The resulting value, which represented the estimated fair value of our common stock at December 31, 2006, was $2.94 per share. No events or other circumstances occurred between December 31, 2006 and January 23, 2007 such that there was a change in the common stock fair value during that period.

Stock Option Grants on April 24, 2007

        Our board of directors granted stock options on April 24, 2007, with each having an exercise price of $3.05 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of April 24, 2007 provided by management.

        As of April 24, 2007, we had sold 8.0 million shares of our Series F convertible preferred stock at a per share price of $6.25 from which we received approximately $50.0 million of net proceeds. With the exception of the sale of the Series F convertible preferred stock, there had not been any material changes in our business or operating results since the December 31, 2006 valuation. We used the same valuation methodologies as were used in the December 31, 2006 valuation. The increase in the estimated fair value of our common stock to $3.05 per share in the April 24, 2007 valuation as compared to the December 31, 2006 valuation was primarily related to the decrease in the time to the expected liquidity event as the sale of the Series F convertible preferred stock was already taken into consideration in the December 31, 2006 valuation.

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Stock Option Grants on July 11, 2007

        Our board of directors granted stock options on July 11, 2007, with each having an exercise price of $3.05 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of June 30, 2007 provided by management.

        As of June 30, 2007, linaclotide had advanced into Phase 2b clinical trials while the second product candidate had not advanced as quickly as our previous projections. We used the same valuation methodologies as were used in the April 24, 2007 valuation, updated for the advancement of linaclotide to Phase 2b clinical trials and the delay in the second product candidate. The probability weight assigned to the two-product IPO scenario was reduced to 25% and the probability weight assigned to the one-product IPO scenario was increased to 50% compared to 15% in the April 24, 2007 valuation. The probability weight assigned to the sale scenario was reduced to 20% and the probability weight assigned to the sale at an assumed price less than the liquidation preference scenario remained the same compared to the April 24, 2007 valuation. The changes in the respective probability weights reflect linaclotide's further progress in the clinic and the delay in the second product candidate's development. Based on later clinical timelines and a reduced need for funding because of our Series F convertible preferred stock financing, the June 30, 2007 valuation reflected a revised liquidity event date of September 30, 2008 for the two IPO scenarios and the sale scenario. The resulting estimated fair value of our common stock of $3.05 per share at June 30, 2007 was the same as at April 24, 2007 because of the combined effect of the change in the probability weights assigned the two IPO scenarios and the sale scenario and the approximately seven month delay in the date of a liquidity event.

Stock Option Grants on October 23, 2007

        Our board of directors granted stock options on October 23, 2007, with each having an exercise price of $3.62 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of September 30, 2007 provided by management.

        As of September 30, 2007, we suspended the clinical trials and related development activity associated with our second product candidate. After further evaluating the clinical results and market opportunity for our second product candidate, we decided not to pursue further development activities for it. However, we did assume that an earlier stage third product candidate based on an existing back-up compound could be in Phase 2 clinical trials at the time of an IPO. Additionally, in September 2007, we entered into the Forest collaboration agreement for linaclotide whereby we anticipated receiving a $70.0 million up-front license fee as well as various clinical milestone payments and a commercial milestone payment for the achievement of a certain sales level. The Forest collaboration agreement included a clinical milestone, which would trigger an equity investment in our company by Forest. Also, under the Forest collaboration agreement, all development and commercialization costs, as well as all profits and losses related to linaclotide, were to be shared equally by the parties.

        We used the same valuation methodologies as were used in the June 30, 2007 valuation, updated for two material changes in our business. The first change was the suspension of all development activity associated with our second product candidate and its replacement with an earlier stage product candidate utilizing a backup compound. The second change was the execution of the Forest collaboration agreement which, among other benefits, made additional financial resources available to us in the form of milestone payments in addition to the up-front licensing fee of $70.0 million and cost sharing. At the time of this valuation, the two-product IPO scenario was updated to project linaclotide in Phase 3 clinical trials and a new third product candidate in Phase 2 clinical trials at the time of a liquidity event. The one-product IPO scenario was also updated to reflect only linaclotide in Phase 3 clinical trials at the time of a liquidity event. The sale scenario was updated to reflect linaclotide success in only one indication and under the assumption that a sale of Ironwood would be executed only in the absence of available equity financing. The probability weight assigned to the two-product IPO scenario was reduced to 15% and the probability

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weight assigned to the one-product IPO scenario was increased to 65% compared to the June 30, 2007 valuation based on our assessment that the CC indication posed lower clinical risk than IBS-C due to the different endpoints being tested and thus CC was more likely to be successful at the time of a liquidity event than the combination of both CC and IBS-C. The sale scenario's probability weight was reduced to 15% and the probability weight assigned to the sale at an assumed price less than the liquidation preference scenario remained the same compared to the June 30, 2007 valuation. The changes in the respective probability weights reflect the changes in the business described above. Additionally, the September 30, 2007 valuation reflected a delayed liquidity event date of June 30, 2009 for all the scenarios based on a decreased need for capital due to the additional funding provided to us by the Forest collaboration. The risk-adjusted discount rate for all scenarios was revised to 20% to reflect the overall increase in business risk associated with our increased reliance on linaclotide due to the setbacks and delays in our second product candidate program. The higher estimated enterprise value now associated with the one-product IPO scenario and its greater probability weight, driven by decreased clinical risk in CC and additional payments for the CC indication from the Forest collaboration, were the primary reasons for the increase in the estimated fair value of our common stock to $3.62 per share as compared to $3.05 per share in the June 30, 2007 valuation.

Stock Option Grants on February 1, 2008

        Our board of directors granted stock options on February 1, 2008, with each having an exercise price of $3.76 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of December 31, 2007 provided by management.

        As of December 31, 2007, there had not been any material changes in our business or operating results since the September 30, 2007 valuation. We used the same valuation methodologies as were used in the September 30, 2007 valuation, updated to reflect the shorter time to the liquidity event date of June 30, 2009 for all the scenarios. As a result, the estimated fair value of our common stock increased to $3.76 per share in the December 31, 2007 valuation as compared to $3.62 in the September 30, 2007 valuation.

Stock Option Grants on April 30, 2008

        Our board of directors granted stock options on April 30, 2008, with each having an exercise price of $4.33 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of March 31, 2008 provided by management.

        As of March 31, 2008, there were two material changes in our business. On March 4, 2008, we announced favorable Phase 2b results for linaclotide. We also terminated all efforts in our early stage clinical product candidate as well as the related backup compound based on the current marketing and regulatory environment for similar drugs. As a result of these changes, we eliminated the two-product IPO scenario. The focus of our clinical development was now solely on linaclotide, which became the primary value driver in our analysis. Additionally, the methodology for estimating the enterprise value for the remaining one-product IPO scenario was changed from the market approach to the income approach using the discounted cash flow method. This change in method incorporated the agreed upon deal terms with Forest, including all expected milestone payments and future profit sharing, which we assessed to be a better reflection of our enterprise value. Under the discounted cash flow method, our equity value is equal to the projected future free cash flows and expected terminal value of Ironwood, adjusted for cash, net of debt, and the probability of linaclotide completing successful Phase 3 clinical trials. The present value of our projected free cash flow is determined by discounting our projected future cash flows back to the valuation date. The discount rate used in the analysis was 16%. In determining the appropriate discount rate, we determined our weighted average cost of capital based on comparable biotechnology companies. We then adjusted this weighted average cost of capital for company specific risk based on the reduced risk profile of our company at the time of an IPO. Also, we increased the discount rate used to discount the per share values from the event date to the valuation date for all the scenarios to 22% from 20%. One primary

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reason for the increase in the discount rate was the change in the set of comparable companies primarily due to the elimination of the second product candidate. The change to the set of comparable companies along with updates in the market data increased the cost of equity for the scenarios.

        Because we no longer considered a two-product IPO scenario viable at this time, the probability weight assigned to the one-product IPO scenario was increased to 70%. The probability weight assigned to the sale scenario was increased to 25% based on the concentration of company risk, the availability of equity financing, and increased merger and sale activity in the biotechnology industry at that time. The sale at an assumed price less than the liquidation preference scenario remained at 5%. The impact of the changes in risk-adjusted discount rates and probability weights resulted in an estimated fair value of our common stock of $4.33 per share as of March 31, 2008.

Stock Option Grants on July 29, 2008

        Our board of directors granted stock options on July 29, 2008, with each having an exercise price of $4.67 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of June 30, 2008 provided by management.

        As of June 30, 2008, there had not been any material changes in our business or operating results since the March 31, 2008 valuation. We used the same valuation methodologies as were used in the March 31, 2008 valuation; however, we refined our comparable biotechnology companies to reflect anticipated progress of linaclotide into Phase 3 clinical trials by adding other companies with significant potential Phase 3 programs. The revised publicly traded comparable biotechnology companies were (1) focused on the development of gastrointestinal drugs, (2) had drug candidates in Phase 2 or Phase 3 clinical trials or a combination of both, or (3) had comparable market opportunities for their drug candidates. As a result of the change in comparable biotechnology companies, the risk-adjusted discount rate decreased to 19%. The expected liquidity event date remained June 30, 2009. These changes resulted in an increase in the estimated fair value of our common stock to $4.67 per share as of June 30, 2008.

Stock Option Grants and Stock Award on November 25, 2008

        Our board of directors granted stock options and a stock award on November 25, 2008, with each stock option having an exercise price of $4.98 per share and the stock award having a fair value of $4.98 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of October 28, 2008 provided by management.

        As of October 28, 2008, we had sold 4.1 million shares of our Series H convertible preferred stock at a per share price of $12.00 from which we received approximately $49.6 million of net proceeds. This financing also included a change in our capital structure to reflect a limited dual class common stock structure whereby any shares then owned or owned prior to a public offering have a super-majority vote in certain circumstances. Also, shortly after the close of our Series H convertible preferred stock financing, the general financial market conditions substantially deteriorated as a result of the global credit and liquidity crisis, which lead to a significant increase in the cost of capital. This credit crisis substantially lowered our expectations for additional financing for the foreseeable future which had the effect of lowering our valuation primarily as a result of a delay in our assessed timeline to a liquidity event.

        We used the same valuation methodologies as were used in the June 30, 2008 valuation; however, we updated them to reflect an adjustment to the IPO scenario based on the deterioration in the financial markets. The IPO scenario was also split into two linaclotide scenarios: (1) a two-indication IPO whereby both the IBS-C and CC indications achieved favorable Phase 3 clinical trials at the time of a liquidity event, and (2) a one-indication IPO whereby only the CC indication had favorable Phase 3 clinical trials at the time of a liquidity event. This split in IPO scenarios was made to reflect the difference in clinical risk associated with successful Phase 3 data in the CC indication, which relied primarily on clinical endpoints that we assessed were easier to achieve than the endpoints required in our IBS-C clinical trials. We also

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determined there was higher commercial value associated with the IBS-C market in relation to the CC market based on assessments of the size of each opportunity. The discount rate used in both IPO scenarios to discount the cash flows was 19%. The funding received in the Series H convertible preferred financing round, combined with aggressive cash management, was deemed sufficient to fund linaclotide through Phase 3 clinical trials, which, along with the current financial crisis, resulted in the moving of the expected IPO date to June 30, 2010 from June 30, 2009. Since we estimated that the IPO would occur after some Phase 3 clinical trial results for linaclotide were known, a higher probability of success was applied to the future estimated cash flows. These changes in assumptions resulted in larger estimated enterprise values in all IPO and sale scenarios. The combination of the aforementioned events and the deterioration in the condition of the financial markets balanced out the impact on the discount rate used to discount the per share values from the event date to the valuation date and left it unchanged at 19%.

        We assigned a probability weight of 45% to the two-indication IPO scenario and 30% to the one-indication IPO scenario. The total probability weight of 75% assigned to an IPO liquidity event was an increase from 70% in the June 30, 2008 valuation. The increase in the total IPO probability weight reflected the greater likelihood that linaclotide would succeed in clinical trials for at least one, if not both, of the indications. The probability weight assigned to the sale scenario was reduced to 20% compared to the June 30, 2008 valuation based on the implementation of a limited dual class common stock structure and the potential of a super-majority blocking vote by any existing stockholders in certain circumstances. The probability weight assigned to the sale at an assumed price less than the liquidation preference scenario remained the same compared to the June 30, 2008 valuation. The higher estimated enterprise values now associated with the two IPO scenarios and the sale scenario combined with the greater total probability weight assigned to the IPO scenarios were the primary reasons for the increase in the estimated fair value of our common stock to $4.98 per share as compared to $4.67 per share in the June 30, 2008 valuation.

Stock Option Grants on February 12, 2009

        Our board of directors granted stock options on February 12, 2009, with each having an exercise price of $4.89 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of December 31, 2008 provided by management.

        As of December 31, 2008, there had not been any material changes in our business or operating results since the October 28, 2008 valuation. We used the same valuation methodologies as were used in the October 28, 2008 valuation, except a later liquidity event date of September 30, 2010 was used for all the scenarios as compared to June 30, 2010 in the October 28, 2008 valuation. This liquidity date change resulted from the continued deterioration in the condition of the financial markets, which was assumed to have a sustained limiting effect on the IPO market for the foreseeable future. As a result, the estimated fair value of our common stock decreased to $4.89 per share in the December 31, 2008 valuation as compared to $4.98 in the October 28, 2008 valuation.

Stock Option Grants on May 5, 2009

        The compensation and HR committee of our board of directors, or the compensation committee, granted stock options on May 5, 2009, with each having an exercise price of $5.00 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of March 31, 2009 provided by management.

        As of March 31, 2009, there had not been any material changes in our business or operating results since the December 31, 2008 valuation. We used the same valuation methodologies as were used in the December 31, 2008 valuation, updated to reflect an increase in the risk-adjusted discount rate from 19% to 20% for all the scenarios based on changes in market data, reflecting the additional return investors would expect from an equity investment made during the turbulent economic conditions existing at this time. Despite this increased cost of capital, no liquidity dates were changed and we were three months closer to our assumed liquidity events and as a result, the estimated fair value of our common stock increased to $5.00 per share in the March 31, 2009 valuation as compared to $4.89 in the December 31, 2008 valuation.

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Stock Option Grants on July 22, July 29, August 4 and September 8, 2009 and Restricted Stock Awards on September 18, 2009

        Our board of directors or the compensation committee granted stock options on July 22 and 29, August 4 and September 8, 2009 and restricted stock awards on September 18, 2009, with each having an exercise price of $5.48 per share. In addition to considering the objective and subjective factors listed above, the board of directors considered the valuation as of June 30, 2009 provided by management.

        As of June 30, 2009, linaclotide had entered Phase 3 clinical trials for CC and had not yet entered Phase 3 clinical trials for IBS-C. In April 2009, we completed the Almirall license agreement for the development and distribution of linaclotide for the European market. Under the Almirall license agreement, we anticipated receiving a net $38.0 million up-front license fee, a clinical milestone, a commercial milestone payment and royalties based on Almirall's annual sales in the licensed territory. Additionally, the Almirall license agreement includes a clinical milestone, which would trigger an equity investment in our company by Almirall.

        We used the same valuation methodologies as were used in the March 31, 2009 valuation; however, we updated the discounted cash flow analyses to reflect the additional value we anticipated receiving from the completed Almirall license agreement. As a result of the revisions, the estimated enterprise value of Ironwood in both the two-indication IPO scenario and the one-indication IPO scenario increased. The estimated enterprise values under the sale scenario and sale at an assumed price less than the liquidation preference scenario remained the same as in the March 31, 2009 valuation. The probability weights assigned to each scenario, the expected liquidity event date, and the risk-adjusted discount rate all remained the same as in the March 31, 2009 valuation. As a result, the estimated fair value of our common stock increased to $5.48 per share in the June 30, 2009 valuation as compared to $5.00 per share in the March 31, 2009 valuation.

Stock Option Grants on October 20 and October 26, 2009 and Restricted Stock Award on October 22, 2009

        The compensation committee granted stock options on October 20 and October 26, 2009 and a restricted stock award on October 22, 2009, with each having an exercise price of $7.36 per share. In addition to considering the objective and subjective factors listed above, our board of directors considered the valuation as of September 30, 2009 provided by management.

        As of September 30, 2009, linaclotide had entered Phase 3 clinical trials for IBS-C as well as progressing in its Phase 3 clinical trials for CC. In July 2009, we achieved a clinical milestone included in the Forest collaboration agreement and as a result received a $20.0 million milestone payment from Forest and sold 2.1 million shares of our Series G convertible preferred stock to Forest at a contractually-agreed per share price of $12.00 from which we received approximately $25.0 million of net proceeds.

        We used the same valuation methodologies as were used in the June 30, 2009 valuation, however, we updated them to reflect an earlier liquidity event date of March 31, 2010 for the one-indication IPO scenario based on our belief that if we received successful data from our Phase 3 clinical trials for CC, they could potentially support a public offering. In addition, the market for IPOs had become more active, thereby increasing the likelihood of an IPO based on successful Phase 3 CC data. As a result, we increased the probability weight of the one-indication IPO scenario to 45% and decreased the probability weight of the two-indication IPO scenario to 30%. The increase in the probability weight of the one-indication IPO scenario reflected the greater likelihood that linaclotide would succeed in Phase 3 clinical trials for CC at the time of an IPO. The total probability weight of 75% assigned to the combination of the one-indication and two-indication IPO scenarios remained the same as the June 30, 2009 valuation. The estimated enterprise values in both the one-indication and two-indication IPO scenarios were also updated to reflect the feedback we received from investment advisors as to the value of our potential IPO in both the one-indication and two-indication IPO scenarios. The risk-adjusted discount rate was adjusted from 20%

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to 19% for all the scenarios to reflect the initiation of the IBS-C trials and the modest improvement in the economic environment. The higher estimated enterprise values now associated with the two IPO scenarios and the sale scenario combined with the increase in probability weight and shorter timeline assigned to the one-indication IPO scenario were the primary reasons for the increase in the estimated fair value of our common stock to $7.36 per share in the September 30, 2009 valuation as compared to $5.48 in the June 30, 2009 valuation.

        On November 2, 2009, we became aware of and announced favorable efficacy and safety results in two Phase 3 CC trials, meeting all 32 primary and secondary endpoints across both doses evaluated in these independent trials involving 1,287 subjects. Due to the materiality of this result for Ironwood and a favorable outcome above our expectations, management prepared a common stock valuation to reflect a significant change in value although no additional stock option grants were made or contemplated.

        We used the same valuation methodologies as were used in the September 30, 2009 valuation, however, we updated them to reflect the significant change to our business that resulted from the favorable clinical trial results in CC. First, we determined that it was highly likely that we would be able to complete a successful public offering on the strength of our CC clinical trial data, and as a result we increased the probability weight of our one-indication IPO scenario to 65%. We also moved the liquidity event date to February 28, 2010 from March 31, 2010 based on higher confidence that we could complete a public offering earlier. The probability weight of the two-indication IPO remained at 30% to continue to reflect the possibility that the IBS-C trial could enroll more quickly and could persuade us to wait for IBS-C Phase 3 results before completing a public offering. The total combined probability weight of 95% assigned to the one-indication and two-indication IPO scenarios increased from 75% in the previous valuation based on our determination of a higher likelihood of completing an IPO sometime in 2010. The risk-adjusted discount rate was also lowered from 19% to 15% for all the scenarios to reflect a decrease in company risk as a result of a higher likelihood of obtaining financing required to fund Ironwood further into the future. The sale scenario was decreased to 5% to reflect the lower likelihood in light of our CC trial results. The sale at an assumed price less than the liquidation preference scenario previously assigned a 5% likelihood was decreased to zero. As a result of these changes, the estimated fair value of our common stock increased to $11.75 per share in the November 2, 2009 valuation as compared to $7.36 per share in the September 30, 2009 valuation.

        On January 15, 2010, we and the underwriters determined the range set forth on the cover page of this prospectus. The midpoint of the range is $15.00 as compared to $11.75, management's determination of the estimated fair value of our common stock on November 2, 2009, the date we became aware of and announced favorable efficacy and safety results in two Phase 3 CC trials for linaclotide. This estimated fair value represents a discount of 22% from the midpoint of the range and an increase of 28% from the estimated fair value of our common stock on November 2, 2009. We note that, as is typical in initial public offerings, the range set forth on the cover page of this prospectus was not derived using a formal determination of fair value, but was determined based upon discussions between us and the underwriters. Among the factors considered in setting this range were prevailing market conditions and estimates of our business potential. In addition to this difference in purpose and methodology, we believe that the difference in value reflected between the midpoint of the range and management's determination of the estimated fair value of our common stock on November 2, 2009 is primarily the result of the following factors:

    The stock price of our publicly-traded peer companies increased, on average, approximately 17% during the period from November 2, 2009 to January 13, 2010. The NASDAQ biotechnology index increased approximately 15%, and the NASDAQ composite index increased approximately 13% during the same period.

    During the period from November 2, 2009 to January 13, 2010, four biopharmaceutical companies filed registration statements for initial public offerings in the U.S. as compared to just four

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      biopharmaceutical companies that priced their initial public offerings in the 12 months preceding November 2, 2009, demonstrating a significant improvement in the market for initial public offerings in the U.S. in the biopharmaceutical industry.

    Our early January 2010 discussions with the underwriters took into account our and the underwriters' perceptions of significantly increased optimism regarding the market for initial public offerings, as well as our and our underwriters' increased expectations that we would complete our initial public offering in the first quarter of 2010.

    We performed a preliminary valuation to estimate the fair value of our common stock immediately before the earliest anticipated effective date of the offering of February 5, 2010, in which we held all assumptions, with the exception of the liquidity date for a one-indication IPO scenario, consistent with our November 2, 2009 valuation. The liquidity date for the one-indication IPO scenario was accelerated from February 28, 2010 to February 5, 2010. As a result of both the accelerated liquidity date for the one-indication IPO scenario and the passage of time from the November 2, 2009 valuation to the February 5, 2010 anticipated effective date, management's estimated fair value of our common stock at February 5, 2010 would be $12.18, a 19% discount from the midpoint of the range.

    History has shown that it is reasonable to expect that the completion of an initial public offering will increase the value of stock as a result of the significant increase in the liquidity and ability to trade/sell such securities. However, it is not possible to measure such increase in value with precision or certainty.

        Based on the $15.00 midpoint of the range, the intrinsic value of the options outstanding at October 26, 2009, the last date we granted stock options, was $176.3 million, of which $95.1 million related to vested options and $81.2 million related to unvested options.

        There are significant judgments and estimates inherent in the determination of these valuations. These judgments and estimates include assumptions regarding our future performance, the time to completing an IPO or other liquidity event, and the timing of and probability of launching our product candidate as well as determinations of the appropriate valuation methods. If we had made different assumptions, our share-based compensation expense, net loss and net loss per share could have been significantly different.

        We have also granted performance-based stock options with terms that allow the recipients to vest in a specific number of shares based upon the achievement of performance-based goals as specified in the grants. Share-based compensation expense associated with these performance-based stock options is recognized if the performance condition is considered probable of achievement using management's best estimates of the time to vesting for the achievement of the performance milestones. If the actual achievement of the performance milestones varies from our estimates, share-based compensation expense could be materially different than what is recorded in the period. The cumulative effect on current and prior periods of a change in the estimated time to vesting for performance-based stock options will be recognized as compensation cost in the period of the revision, and recorded as a change in estimate.

        We have also granted time-accelerated stock options with terms that allow the acceleration in vesting of the stock options upon the achievement of performance-based milestones specified in the grants. Share-based compensation expense associated with these time-accelerated stock options is recognized over the requisite service period of the awards or the implied service period, if shorter.

        While the assumptions used to calculate and account for share-based compensation awards represents management's best estimates, these estimates involve inherent uncertainties and the application of management's judgment. As a result, if revisions are made to our underlying assumptions and estimates, our share-based compensation expense could vary significantly from period to period.

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        The total estimated compensation cost related to non-vested stock options and stock awards not yet recognized was approximately $2.2 million, $3.9 million, $6.4 million and $11.2 million as of December 31, 2006, 2007 and 2008 and September 30, 2009, respectively. The weighted-average period over which this expense is expected to be recognized is approximately 3.96 years. See Notes 2 and 15 to our consolidated financial statements located in this prospectus for further discussion of share-based compensation.

Fair Value of Financial Instruments

        In September 2007, we entered into a collaboration agreement with Forest, which included a contingent equity investment in the form of a forward purchase contract, which required Forest to purchase 2,083,333 shares of our Series G convertible preferred stock at a price of $12.00 per share if we achieved a specific clinical milestone. This preferred stock, which was issued to Forest in September 2009, has rights and conditions substantially identical to our outstanding preferred stock prior to the issuance.

        In April 2009, we entered into a license agreement with Almirall, which also included a contingent equity investment in the form of a forward purchase contract, which required Almirall to purchase 681,819 shares of our Series I convertible preferred stock, if a specific clinical milestone is met, at a price of $22.00 per share. The milestone in this agreement is a different milestone from the one contained in the Forest collaboration agreement. This preferred stock, which was issued to Almirall and for which we received $15.0 million of cash proceeds on November 13, 2009, has rights and conditions substantially identical to our outstanding preferred stock.

        We evaluated both of these financial instruments and determined that because we may be required to settle these instruments by transferring assets to Forest and Almirall due to "deemed liquidation" provisions of the preferred stock, these instruments should be considered assets or liabilities. Each contingent equity investment was assessed at fair market value at its inception. A significant input in the valuation of the forward purchase contracts is the fair value of our convertible preferred shares which are estimated using the probability-weighted expected return method. Under the probability-weighted expected return method, the value of our convertible preferred shares is calculated based on an analysis of potential future values of our company assuming various future liquidity events, the timing and amount of which are based on estimates from our company's management. The resulting preferred share value was based on the probability-weighted present value of the expected future returns, considering each of the possible outcomes as well as the rights of each preferred share class. At each measurement date, assumptions used in the probability-weighted expected return model, including future values, liquidity dates and scenario weightings, were consistent with the assumptions used in our common stock valuations at such time, as described above. The calculated discount or premium from the pre-determined price paid by Forest and Almirall for their shares in excess of the estimated fair value of our convertible preferred stock at the expected time of meeting the respective milestone was then discounted using a company risk-adjusted rate consistent with the common stock valuations being performed at the time to arrive at the present value of the respective forward purchase contract.

        At the inception of the Forest collaboration agreement, the fair value of our convertible preferred stock to be issued upon the achievement of the milestone was equal to the sum of the probability-weighted present values for the four identified possible exit scenarios—initial public offering (either one-product IPO or two-product IPO or later a one-indication IPO and two-indication IPO), sale and sale at an assumed price below the liquidation preference, all with June 30, 2009 as the expected milestone achievement date. The probability weight assigned to the two-product IPO scenario was 20% and the probability weight assigned to the one-product IPO scenario was 70%. The probability weight assigned to the sale scenario was 5% and the probability weight assigned to the sale at an assumed price less than the liquidation preference scenario was 5%. The resulting enterprise values for each scenario were discounted to an estimated investment date of October 31, 2008, using a risk-adjusted discount rate of 20%. Based on this calculation, the fair value of the convertible preferred stock to be issued upon achievement of the Forest milestone was valued at $5.32 per share. The resulting difference of $6.68 per share between the fair

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value of $5.32 and the purchase price of $12.00 per share represented the estimated premium Forest would pay above the fair value of the convertible preferred stock. This per share premium was then adjusted by the probability of achieving the milestone, which was estimated at 80%, based on clinical risk, resulting in a probability adjusted premium of $5.34 per share. The resulting total premium was then discounted as of September 12, 2007 using a company risk-adjusted discount rate of 20%. As a result, the Forest contingent equity investment was valued at the inception of the agreement to be $9.0 million, which represents the fair value of the premium that Forest would pay for shares of our stock should the milestone be achieved.

        The fair value of our convertible preferred stock to be issued upon the achievement of the Almirall milestone at the inception of the license agreement in April 2009 was equal to the sum of the probability-weighted present values for the four identified possible exit scenarios—one-indication IPO, two-indication IPO, sale and sale at an assumed price less than the liquidation preference, all with September 30, 2010 as the expected event date. The resulting enterprise values for each scenario were discounted as of the investment date which was estimated to be October 15, 2009. Based on this calculation, the fair value of the convertible preferred stock to be issued upon achievement of the Almirall milestone was estimated at $9.23 per share. The resulting difference of $12.77 per share between the estimated fair value of $9.23 and the purchase price of $22.00 per share is the estimated premium Almirall will pay above the fair value of the convertible preferred stock. This per share premium was then adjusted by the probability of achieving the milestone, which was estimated at 75%, resulting in a probability adjusted premium of $9.58 per share. The resulting total premium was then discounted as of April 30, 2009 at 20%. As a result, the Almirall contingent equity investment was valued at the inception of the agreement to be $6.0 million, which represents the fair value of the premium that Almirall would pay for shares of our stock should the milestone be achieved.

        In addition to valuing these instruments at their inception, we are also required to remeasure the fair value of our contingent equity investments at each reporting period, using current assumptions, with changes in value recorded as other income or expense. At December 31, 2007, we remeasured the fair value of the Forest contingent equity investment using valuation methodologies consistent with those used at inception, updated for current assumptions. Based on these calculations, the fair value of the convertible preferred stock to be issued upon achievement of the milestone was valued at $5.28 per share. The resulting difference of $6.72 per share was then adjusted by the probability of achieving the milestone, which was again estimated as 80%, resulting in a probability adjusted premium of $5.38 per share. The resulting total premium was then discounted as of December 31, 2007 using an appropriate risk-adjusted discount rate of 21%. As a result, the Forest contingent equity investment was valued at December 31, 2007 to be $9.6 million.

        At September 30, 2008, we remeasured the fair value of the Forest contingent equity investment using valuation methodologies consistent with those used at December 31, 2007, updated for current assumptions. Based on these calculations, the fair value of the convertible preferred stock to be issued upon achievement of the Forest milestone was valued at $9.63 per share. The resulting difference of $2.37 per share was then adjusted by the probability of achieving the milestone, which was again estimated as 80%, resulting in a probability adjusted premium of $1.90 per share. The resulting total premium was then discounted as of September 30, 2008 using a risk-adjusted discount rate of 14%. As a result of these assumptions, the contingent equity investment was valued at September 30, 2008 to be $3.7 million. At December 31, 2008, we remeasured the fair value of the Forest contingent equity investment using valuation methodologies consistent with those used at September 30, 2008, updated for current assumptions. Based on these calculations, the fair value of the convertible preferred stock to be issued upon achievement of the Forest milestone was estimated at $7.16 per share. The resulting difference of $4.84 per share was then adjusted by an updated probability of achieving the milestone, which was now estimated at 90%, resulting in a probability adjusted premium of $4.35 per share. The resulting total premium was then discounted as of December 31, 2008 using a risk-adjusted discount rate of 19%. As a result, the Forest contingent equity investment was valued at December 31, 2008 to be $8.7 million.

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        On July 22, 2009, we achieved the Forest milestone, thus triggering the Forest equity investment. As a result, we remeasured the fair value of the equity investment as of July 22, 2009 using valuation methodologies consistent with those used at December 31, 2008, updated for current assumptions including a change to the investment date to July 22, 2009. Based on these calculations, the fair value of the convertible preferred stock to be issued upon achievement of the Forest milestone was calculated at $7.76 per share. The resulting difference of $4.24 per share was not adjusted by a probability discount as the milestone was achieved. The resulting total premium was then discounted as of July 22, 2009 using a risk-adjusted discount rate of 20%. As a result, the Forest contingent equity investment was valued at July 22, 2009 to be $8.8 million and at that time we reclassified the forward purchase contract as a reduction to convertible preferred stock. On September 1, 2009, we received from Forest $25.0 million for the 2,083,333 shares of Series G convertible preferred stock.

        At September 30, 2009, we remeasured the fair value of the Almirall contingent equity investment using valuation methodologies consistent with those used at December 31, 2008, updated for current assumptions. Based on these calculations, the fair value of the convertible preferred stock to be issued upon achievement of the Almirall milestone increased to $10.51 per share. This per share premium was then adjusted by the probability of achieving the milestone, which remained at 75%, resulting in a probability adjusted premium of $8.62 per share. The resulting total premium was then discounted as of September 30, 2009 using a risk-adjusted discount rate of 19%. As a result, the Almirall contingent equity investment was valued at September 30, 2009 to be $5.8 million.

        On November 2, 2009, we achieved the Almirall milestone, thus triggering the Almirall equity investment. As a result, we remeasured the fair value of the equity investment as of November 2, 2009 using valuation methodologies consistent with those used at September 30, 2009, updated for current assumptions including a change to the investment date to November 2, 2009. Based on these calculations, the fair value of the convertible preferred stock to be issued upon achievement of the Almirall milestone was estimated at $12.41 per share. The resulting difference of $9.59 per share was not adjusted by a probability discount as the milestone was achieved. The resulting total premium was then discounted as of November 2, 2009 using a risk-adjusted discount rate of 15%. As a result, the Almirall contingent equity investment was valued at November 2, 2009 to be $6.5 million and at that time we reclassified the forward purchase contract as a reduction to convertible preferred stock and recognized in other income a $0.7 million gain on remeasurement. On November 13, 2009, we received from Almirall $15.0 million for the 681,819 shares of Series I convertible preferred stock.

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Results of Operations

        The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.

 
  December 31,   Nine Months Ended
September 30,
 
 
  2006   2007   2008   2008   2009  
 
   
   
   
  (unaudited)
 
 
  (in thousands)
 

Revenue:

                               
 

Collaborative arrangements

  $   $ 4,608   $ 18,383   $ 13,933   $ 25,917  
 

Services

    3,140     5,856     3,833     3,309     1,581  
                       
 

Total revenue

    3,140     10,464     22,216     17,242     27,498  

Operating expenses:

                               
 

Research and development

    35,543     57,246     59,809     43,309     58,824  
 

General and administrative

    7,192     10,833     18,328     13,054     17,309  
                       

Total operating expenses

    42,735     68,079     78,137     56,363     76,133  
                       

Loss from operations

    (39,595 )   (57,615 )   (55,921 )   (39,121 )   (48,635 )

Other income (expense):

                               
 

Interest expense

    (217 )   (263 )   (334 )   (253 )   (370 )
 

Interest and investment income

    2,533     4,118     2,124     1,901     214  
 

Remeasurement of forward purchase contracts

        600     (900 )   (5,900 )   (100 )
                       

Other income (expense), net

    2,316     4,455     890     (4,252 )   (256 )
                       
 

Loss before income tax benefit

    (37,279 )   (53,160 )   (55,031 )   (43,373 )   (48,891 )
 

Income tax benefit

                    (153 )
                       
 

Net loss

    (37,279 )   (53,160 )   (55,031 )   (43,373 )   (48,738 )
 

Net loss attributable to noncontrolling interest

    99     408     1,157     726     1,483  
                       
 

Net loss attributable to Ironwood Pharmaceuticals, Inc. 

  $ (37,180 ) $ (52,752 ) $ (53,874 ) $ (42,647 ) $ (47,255 )
                       

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

Revenue

 
  Nine Months Ended September 30,   Change  
 
  2008   2009   $   %  
 
  (unaudited)
   
   
 
 
  (dollars in thousands)
 

Revenue:

                         
 

Collaborative arrangements

  $ 13,933   $ 25,917   $ 11,984     86.0 %
 

Services

    3,309     1,581     (1,728 )   (52.2 )%
                   

Total revenue

  $ 17,242   $ 27,498   $ 10,256     59.5 %
                   

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        Collaborative Arrangements.    The increase in revenue from collaborative arrangements for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily due to increases in revenue from the Forest collaboration and the Almirall license agreement. During the nine month period ended September 30, 2009, we recognized approximately $8.2 million in deferred revenue related to a $20.0 million Forest milestone payment we received in July 2009, and a total of approximately $4.4 million in deferred revenue related to the $38.0 million up-front license payment received from Almirall in May 2009 and the amortization of the deferred revenue resulting from recording the initial $6.0 million valuation of the Almirall forward purchase contract. In both the nine months ended September 30, 2008 and 2009, we recognized a total of approximately $11.9 million in deferred revenue related to the amortization of the up-front license payment from Forest and the initial $9.0 million valuation of the Forest forward purchase contract. In the nine months ended September 30, 2008, we recognized approximately $2.1 million in deferred revenue related to a clinical milestone achieved in September 2008 for which we received a $10.0 million payment and, in the nine months ended September 30, 2009, we recognized approximately $1.5 million of deferred revenue related to the same milestone.

        Services.    Services revenue decreased primarily due to the receipt of a one-time $1.2 million payment in March 2008 as settlement of a contract dispute and the winding down of service contracts amounting to $0.4 million.

Operating Expenses

 
  Nine Months Ended
September 30,
  Change  
 
  2008   2009   $   %  
 
  (unaudited)
   
   
 
 
  (dollars in thousands)
 

Operating expenses:

                         
 

Research and development

  $ 43,309   $ 58,824   $ 15,515     35.8 %
 

General and administrative

    13,054     17,309     4,255     32.6 %
                   
 

Total operating expenses

  $ 56,363   $ 76,133   $ 19,770     35.1 %
                   

        Research and Development Expense.    The increase in research and development expense for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily due to an increase of $11.1 million in expenses associated with the initial Phase 3 clinical trials for linaclotide, an increase of $3.5 million in spending for compensation, benefits and other employee related expenses resulting from an increase in headcount to support our linaclotide program, and increased facilities and depreciation costs of $1.2 million associated with new research and development space.

        General and Administrative Expense.    The increase in general and administrative expense for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily due to increased compensation, benefits and other employee related expenses of $3.3 million related to an increase in headcount to support our overall growth, increased facilities' costs of $0.9 million associated with new office space and increased legal costs of $0.7 million associated with intellectual property and other corporate legal matters, partially offset by a $0.4 million decrease in professional fees associated with marketing related activities.

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Other Income (Expense), Net

 
  Nine Months Ended
September 30,
  Change  
 
  2008   2009   $   %  
 
  (unaudited)
   
   
 
 
  (dollars in thousands)
 

Other income (expense):

                         
 

Interest expense

  $ (253 ) $ (370 ) $ (117 )   (46.2 )%
 

Interest and investment income

    1,901     214     (1,687 )   (88.7 )%
 

Remeasurement of forward purchase contracts

    (5,900 )   (100 )   5,800     98.3 %
                   
 

Total other income (expense), net

  $ (4,252 ) $ (256 ) $ 3,996     94.0 %
                   

        Interest Expense.    The increase in interest expense for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was a result of additional borrowings in 2009 under our debt facility as well as two new capital leases that we entered into in 2008.

        Interest and Investment Income.    The decrease in interest and investment income for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was due to lower prevailing interest rates during the period combined with lower average cash and investment balances.

        Remeasurement of Forward Purchase Contracts.    The smaller decline in the fair value of the forward purchase contracts for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 resulted from changes in the fair value of the Forest and Almirall forward purchase contracts at the time of remeasurement. The valuation of the Forest forward purchase contract for the nine months ended September 30, 2009 increased $0.1 million as compared to a decrease of $5.9 million for the nine months ended September 30, 2008. The large decrease in the valuation of the Forest forward purchase contract was primarily a result of an increase in the fair value of our convertible preferred stock at the time of remeasurement. This increase was driven by higher estimated enterprise values and a lower risk-adjusted interest rate assumption used in our valuation. These changes in the underlying valuation assumptions reflected the close of our Series H convertible preferred stock financing which occurred prior to the sustained deterioration of the financial markets. As a result, at September 30, 2008, the valuation of the Forest forward purchase contract decreased. The Almirall forward purchase contract valuation decreased $0.2 million in the nine months ended September 30, 2009 without a corresponding change in the nine months ended September 30, 2008 as we entered into the license agreement with Almirall in April 2009.

        Income Tax Benefit.    The $0.2 million increase in income tax benefit for the nine months ended September 30, 2009 was related to a refundable research and development tax credit which we received in October 2009.

        Net Loss Attributable to Noncontrolling Interest.    The $0.8 million increase in net loss attributable to noncontrolling interest was due to the larger net loss for Microbia as a result of lower revenue and increased expenses during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008.

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Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenue

 
  Years Ended
December 31,
  Change  
 
  2007   2008   $   %  
 
  (dollars in thousands)
 

Revenue:

                         
 

Collaborative arrangements

  $ 4,608   $ 18,383   $ 13,775     298.9 %
 

Services

    5,856     3,833     (2,023 )   (34.6 )%
                   
 

Total revenue

  $ 10,464   $ 22,216   $ 11,752     112.3 %
                   

        Collaborative Arrangements.    The increase in revenue from collaborative arrangements for the year ended December 31, 2008 compared to the year ended December 31, 2007 was due to the amortization of $11.2 million of deferred revenue from the Forest up-front license payment and the amortization of the deferred revenue related to the initial $9.0 million valuation of the Forest forward purchase contract over the estimated development period. In the year ended December 31, 2007 we recognized a total of approximately $4.6 million of deferred revenue related to the Forest up-front license payment and the amortization of the initial valuation of the Forest forward purchase contract as compared to a total of approximately $15.8 million in the year ended December 31, 2008. Additionally, in September 2008 we achieved a clinical milestone under the Forest collaboration agreement and recognized revenue of $2.6 million related to the milestone.

        Services.    The decrease in services revenue for the year ended December 31, 2008 compared to the year ended December 31, 2007 was primarily due to the winding down of service contracts amounting to $3.2 million which was partially offset by the receipt of a one-time $1.2 million payment in March 2008 as settlement of a contract dispute.

Operating Expenses

 
  Years Ended
December 31,
  Change  
 
  2007   2008   $   %  
 
  (dollars in thousands)
 

Operating expenses:

                         
 

Research and development

  $ 57,246   $ 59,809   $ 2,563     4.5 %
 

General and administrative

    10,833     18,328     7,495     69.2 %
                   
 

Total operating expenses

  $ 68,079   $ 78,137   $ 10,058     14.8 %
                   

        Research and Development Expense.    The increase in research and development expense for the year ended December 31, 2008 compared to the year ended December 31, 2007 was primarily a result of increased compensation, benefits and other employee related expenses of $5.8 million related to the hiring of additional employees to support the linaclotide program; increased facility costs of $9.0 million due to the expansion of our research facility in 2008; and a $12.6 million credit to research and development expense due to a full year of reimbursement of costs under the Forest collaboration agreement for the year ended December 31, 2008 as compared to approximately three months for the year ended December 31, 2007.

        General and Administrative Expense.    The increase in general and administrative expense for the year ended December 31, 2008 compared to the year ended December 31, 2007 was primarily a result of increased compensation, benefits and other employee related expenses of $4.9 million resulting from an increase in headcount to support our overall growth; increased consulting costs of $1.3 million related to our pre-commercialization activities; and increased facility costs of $1.3 million associated with the additional office space we leased in 2008.

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Other Income (Expense), Net

 
  Years Ended
December 31,
  Change  
 
  2007   2008   $   %  
 
  (dollars in thousands)
 

Other income (expense):

                         
 

Interest expense

  $ (263 ) $ (334 ) $ (71 )   (27.0 )%
 

Interest and investment income

    4,118     2,124     (1,994 )   (48.4 )%
 

Remeasurement of forward purchase contracts

    600     (900 )   (1,500 )   (250.0 )%
                   
 

Total other income (expense), net

  $ 4,455   $ 890   $ (3,565 )   (80.0 )%
                   

        Interest Expense.    The increase in interest expense for the year ended December 31, 2008 compared to the year ended December 31, 2007 was a result of additional borrowings under our debt facility in 2008 as well as entering into two new capital leases.

        Interest and Investment Income.    The decrease in interest and investment income for the year ended December 31, 2008 compared to the year ended December 31, 2007 was due to lower prevailing interest rates during 2008 partially offset by higher average cash and investment balances resulting from the cash received under the Forest collaboration agreement.

        Remeasurement of Forward Purchase Contracts.    The decrease in the valuation of the Forest forward purchase contract for the year ended December 31, 2008 compared to December 31, 2007 resulted from change in the fair value of the Forest forward purchase contract at the time of remeasurement related to changes in the underlying valuation assumptions including, but not limited to, the clinical status of linaclotide, our enterprise values, timing and likelihood of the different liquidity events and the appropriate risk-adjusted discount rate.

        Net Loss Attributable to Noncontrolling Interest.    The increase of $0.7 million in net loss attributable to noncontrolling interest was a result of a larger net loss for Microbia as a result of lower revenue and increased expenses for the year ended December 31, 2008 compared to the year ended December 31, 2007.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Revenue

 
  Years Ended
December 31,
  Change  
 
  2006   2007   $   %  
 
  (dollars in thousands)
 

Revenue:

                         
 

Collaborative arrangements

  $   $ 4,608   $ 4,608     100.0 %
 

Services

    3,140     5,856     2,716     86.5 %
                   
 

Total revenue

  $ 3,140   $ 10,464   $ 7,324     233.3 %
                   

        Collaborative Arrangements.    The increase in revenue from collaborative arrangements for the year ended December 31, 2007 compared to the year ended December 31, 2006 resulted from the recognition of a total of $4.6 million of deferred revenue related to the amortization of the initial $9.0 million valuation of the Forest forward purchase contract and the $70.0 million up-front license payment received from Forest.

        Services.    The increase in services revenue for the year ended December 31, 2007 compared to the year ended December 31, 2006 resulted from additional services under existing contracts.

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Operating Expenses

 
  Years Ended
December 31,
  Change  
 
  2006   2007   $   %  
 
  (dollars in thousands)
 

Operating expenses:

                         
 

Research and development

  $ 35,543   $ 57,246   $ 21,703     61.1 %
 

General and administrative

    7,192     10,833     3,641     50.6 %
                   
 

Total operating expenses

  $ 42,735   $ 68,079   $ 25,344     59.3 %
                   

        Research and Development Expense.    The increase in research and development expense for the year ended December 31, 2007 compared to the year ended December 31, 2006 was primarily a result of increased compensation, benefits and other employee related expenses of $5.3 million related to the hiring of additional employees to support the linaclotide program; an increase of $19.9 million in spending related to our Phase 2 linaclotide trials; and increased facility costs of $1.3 million related to additional research and development space leased in October 2006. These increases were partially offset by $5.0 million for reimbursable research costs shared with Forest in accordance with the Forest collaboration agreement executed in 2007.

        General and Administrative Expense.    The increase in general and administrative expense for the year ended December 31, 2007 compared to the year ended December 31, 2006 was primarily a result of increased consulting costs of $1.2 million related to our pre-commercialization activities; increased legal costs of $0.9 million primarily for patent related work; and other general and administrative costs of $1.0 million related to the development of our administrative infrastructure.

Other Income (Expense), Net

 
  Years Ended
December 31,
  Change  
 
  2006   2007   $   %  
 
  (dollars in thousands)
 

Other income (expense):

                         
 

Interest expense

  $ (217 ) $ (263 ) $ (46 )   (21.2 )%
 

Interest and investment income

    2,533     4,118     1,585     62.6 %
 

Remeasurement of forward purchase contracts

        600     600     100.0 %
                   
 

Total other income (expense), net

  $ 2,316   $ 4,455   $ 2,139     92.4 %
                   

        Interest Expense.    The increase in interest for the year ended December 31, 2007 compared to the year ended December 31, 2006 was primarily a result of additional borrowings under our debt facility.

        Interest and Investment Income.    The increase in interest and investment income for the year ended December 31, 2007 compared to the year ended December 31, 2006 was primarily related to higher average cash, cash equivalents and investment balances resulting from the sale in February 2007 of 8.0 million shares of our Series F convertible preferred stock at a per share price of $6.25 from which we received approximately $50.0 million of net proceeds.

        Remeasurement of Forward Purchase Contracts.    The increase in the valuation of the Forest forward purchase contract for the year ended December 31, 2007 compared to the year ended December 31, 2006 resulted from change in the fair value of the Forest forward purchase contract at the time of remeasurement related to changes in the underlying valuation assumptions including, but not limited to,

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the clinical status of linaclotide, our enterprise values, timing and likelihood of the different liquidity events and the appropriate risk adjusted discount rate.

        Net Loss Attributable to Noncontrolling Interest.    The increase of $0.3 million in the loss attributable to noncontrolling interest was primarily a result of twelve months of losses in 2007 compared to four months of losses in 2006 since Microbia was not created until September 2006.

Liquidity and Capital Resources

        The following table sets forth the major sources and uses of cash for each of the periods set forth below:

 
  December 31,   Nine Months Ended
September 30,
 
 
  2006   2007   2008   2008   2009  
 
   
   
   
  (unaudited)
 
 
  (in thousands)
 

Net cash provided by (used in):

                               
 

Operating activities

  $ (33,532 ) $ (6,759 ) $ (28,195 ) $ (16,466 ) $ (14,249 )
 

Investing activities

    (5,615 )   (27,609 )   (15,073 )   (12,026 )   965  
 

Financing activities

    80,090     50,718     48,563     49,465     26,831  
                       

Net increase in cash and cash equivalents

  $ 40,943   $ 16,350   $ 5,295   $ 20,973   $ 13,547  
                       

        We have incurred losses since our inception on January 5, 1998 and, as of September 30, 2009, we had a cumulative deficit of approximately $290.6 million. We have financed our operations to date primarily through the sale of preferred stock and common stock, payments received under collaborative arrangements, including reimbursement of certain expenses, debt financings and interest earned on investments. Through September 30, 2009, we have received aggregate gross proceeds of approximately $322.2 million from financings, of which approximately $306.1 million was from the issuance of preferred stock, approximately $1.0 million was from the issuance of common stock and approximately $15.1 million was from debt financings. Through September 30, 2009, we have received aggregate gross proceeds of approximately $138.0 million from up-front licensing and milestone payments. At September 30, 2009, we had $98.9 million of cash, cash equivalents and available-for-sale securities. Our cash and cash equivalents include amounts held in money market funds, stated at cost plus accrued interest, which approximates fair market value. We invest cash in excess of immediate requirements in accordance with our investment policy which limits the amounts we may invest in any one type of investment and requires all investments held by us to be A+ rated so as to primarily achieve liquidity and capital preservation.

        On November 13, 2009, as a result of achieving a clinical milestone under the Almirall license agreement, we received cash proceeds of approximately $15.0 million from the sale of 681,819 shares of our Series I convertible preferred stock at a price of $22.00 per share to Almirall. On a pro forma basis, after giving effect to the license fee from Astellas and the equity investment by Almirall, at September 30, 2009, we have $143.9 million of cash, cash equivalents and available-for-sale securities.

Cash Flows From Operating Activities

        The decrease of $2.2 million in net cash used in operations for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily associated with an increase of $9.1 million in the net changes in working capital relating to operations, partially offset by an increase in the net loss of $5.4 million combined with an increase of $1.6 million in the change in non-cash items such as depreciation, share-based compensation expense, remeasurement of the forward purchase contracts and accretion of the discount/premium on investment securities. The net change in working capital items relating to operations between the nine months ended September 30, 2009 and the nine months ended

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September 30, 2008 was primarily due to the receipt in the nine months ended September 30, 2009 of a $38.0 million up-front payment from Almirall and a $20.0 million milestone payment from Forest compared to the receipt in the nine months ended September 30, 2008 of a $20.0 million up-front license fee from Forest, a $10.0 million milestone payment from Forest, as well as $4.6 million in cash reimbursements for tenant improvements which were recorded as deferred rent.

        Net cash used in operations for the year ended December 31, 2008 compared to the year ended December 31, 2007 increased by $21.4 million. This increase was primarily the result of a $1.9 million increase in the net loss, a $5.0 million increase in non-cash items such as depreciation, share-based compensation expense, remeasurement of the forward purchase contract and accretion of the discount/premium on investment securities and a $24.6 million decrease in net changes in working capital items relating to operations. The net changes in working capital items were primarily driven by cash receipts and the recognition of deferred revenue under the Forest collaboration agreement as well as cash reimbursements for tenant improvements which were recorded as deferred rent.

        Net cash used in operations for the year ended December 31, 2007 compared to the year ended December 31, 2006 decreased by $26.8 million. This change was primarily a result of a $43.1 million increase in net changes in working capital items relating to operations. The net changes in working capital items were primarily driven by the receipt of the Forest up-front license payment and the recognition of deferred revenue under the Forest collaboration agreement. This was partially offset by a $15.9 million increase in the net loss and a $0.4 million decrease in non-cash items such as depreciation, remeasurement of the forward purchase contract, share-based compensation expense and accretion of the discount/premium on investment securities.

Cash Flows From Investing Activities

        The increase of $13.0 million in net cash provided by investing activities for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily the result of $13.4 million less cash used for the purchase of property and equipment and $35.9 million less cash used for the purchase of investments, partially offset by a $36.4 million decrease in the cash received from the sales and maturities of investments.

        Net cash used in investing activities decreased by $12.5 million for the year ended December 31, 2008 compared to the year ended December 31, 2007. This decrease was primarily a result of a $27.6 million increase in cash received from the sales and maturities of investments and a $5.2 million decrease in the cash used for the purchase of investments; offset by a $20.3 million increase in purchases of property and equipment primarily related to the leasehold improvements for our new facility and the purchase of laboratory equipment for the new facility.

        Net cash used in investing activities increased by $22.0 million for the year ended December 31, 2007 compared to the year ended December 31, 2006. This increase in cash used for investing activities was primarily a result of a $50.8 million increase in purchases of investments; offset by a $28.7 million increase in cash received from the sales and maturities of investments and a $0.2 million decrease in purchases of property and equipment.

Cash Flows From Financing Activities

        The decrease of $22.6 million in net cash provided by financing activities for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily due to lower proceeds from the sale of our convertible preferred stock, partially offset by higher proceeds from borrowings on our debt facility, net of payments made. During the nine months ended September 30, 2008 we received $49.6 million of proceeds from the sale of 4,141,586 shares of our Series H convertible preferred stock while in the nine months ended September 30, 2009 we received $25.0 million of proceeds from the sale of 2,083,333 shares of our Series G convertible preferred stock to Forest.

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        Net cash provided by financing activities decreased by $2.2 million for the year ended December 31, 2008 compared to the year ended December 31, 2007. This decrease was primarily the result of a $1.2 million decrease in borrowings in 2008 and a $0.8 million increase in payments on borrowings. Additionally, there was a decrease of $0.4 million in the cash received from the issuance of Series H convertible preferred stock in 2008 compared to the issuance of Series F convertible preferred stock in 2007.

        Net cash provided by financing activities decreased by $29.4 million for the year ended December 31, 2007 compared to the year ended December 31, 2006. This decrease was primarily a result of a $25.0 million decrease in proceeds from the issuance of our Series F convertible preferred stock offering in 2007 compared to the proceeds of our Series E convertible preferred stock offering in 2006, a $7.0 million decrease in capital contributions from noncontrolling interest in 2006 and a $0.3 million decrease in proceeds from borrowings, offset by a $3.0 million decrease in payments on borrowings.

Funding Requirements

        To date, we have not commercialized any products and have not achieved profitability. We anticipate that we will continue to incur substantial net losses for the next several years as we further develop and prepare for the potential commercial launch of linaclotide, continue to invest in our pipeline, develop the organization required to sell our product candidates and operate as a publicly traded company.

        We have generated revenue from services, up-front license fees and milestones, but have not generated any product revenue since our inception and do not expect to generate any product revenue from our collaborative arrangements or the sale of products unless we receive regulatory approval for commercial sale of linaclotide. We believe the net proceeds from this offering, together with our existing cash, cash equivalents and investment balances, interest income we earn on these balances, and amounts we expect to receive from our collaborators under existing contractual obligations will be sufficient to meet our anticipated cash requirements to complete development and commercialize linaclotide with our partner Forest for the U.S. market, and to fund our currently contemplated research and development efforts for at least the next five years, based on our current business plan. However, it is difficult to predict the actual rate of product sales and related collaborative arrangement revenue until the product is approved by the FDA and the specific language allowed by the FDA on the label is known. If our available cash, cash equivalents and investment balances, net proceeds from this offering, and amounts we expect to receive from our collaborators are insufficient to satisfy our liquidity requirements or if sales are less than anticipated, we may seek to sell additional equity or debt securities or secure new collaborative agreements. The sale of additional equity may result in dilution to our stockholders. If we raise additional funds through the issuance of debt securities, these securities would have rights senior to those of our common stock and could contain covenants that would restrict our operations. Any required additional capital may not be available on reasonable terms, if at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay, or eliminate some or all of, our planned research, development and commercialization activities, or attempt to obtain funds through arrangements that may require us to relinquish rights to certain of our technologies or drug candidates, which could materially harm our business.

        Our forecast of the period of time through which our financial resources will be adequate to support our operations, the costs to obtain regulatory approval, and the costs to commercialize our product candidates are forward-looking statements and involve risks and uncertainties, and actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in the "Risk Factors" section of this prospectus. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

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        Due to the numerous risks and uncertainties associated with the development of our products, we are unable to estimate precisely the amounts of capital outlays and operating expenditures necessary to complete the development of, and to obtain regulatory approval for, linaclotide and our other product candidates for all of the indications for which we believe each product candidate is suited. Our funding requirements will depend on many factors, including, but not limited to, the following:

    the time and costs involved in obtaining regulatory approvals for our product candidates;

    the rate of progress and cost of our commercialization activities;

    the success of our research and development efforts;

    the expenses we incur in marketing and selling our product candidates;

    the revenue generated by sales of our product candidates;

    the emergence of competing or complementary technological developments;

    the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

    the terms and timing of any additional collaborative, licensing or other arrangements that we may establish; and

    the acquisition of businesses, products and technologies (although we currently have no commitments or agreements relating to any of these types of transactions).

Contractual Commitments and Obligations

        Under our collaborative agreement with Forest, we share equally with Forest all development and commercialization costs related to linaclotide in the U.S. The actual amounts that we pay Forest will depend on numerous factors outside of our control, including the success of our clinical development efforts with respect to linaclotide, the content and timing of decisions made by the FDA, the reimbursement and competitive landscape around linaclotide and our other product candidates, and other factors described under the heading "Risk Factors."

        Our most significant clinical trial expenditures are to CROs. The contracts with CROs generally are cancellable, with notice, at our option and do not have any cancellation penalties. These items are not included in the table below.

        The following table summarizes our contractual obligations at December 31, 2008 (excluding interest).

 
  Payments Due by Period  
 
  Total   Less Than
1 Year
  1–3 Years   3–5 Years   More Than 5 Years  
 
  (in thousands)
 

Long-term debt

  $ 1,815   $ 943   $ 872   $   $  

Capital lease obligations

    306     117     189          

Operating lease obligations

    60,322     8,769     20,053     16,691     14,809  
                       

Total contractual obligations

  $ 62,443   $ 9,829   $ 21,114   $ 16,691   $ 14,809  
                       

        As of September 30, 2009, we did not incur any additional obligations that materially change the disclosure of our contractual obligations as shown in the table above.

        Our commitment for long-term debt relates to our master loan agreement for the financing of purchases of laboratory and other equipment. As of December 31, 2008, there were no funds available under the master loan agreement to finance future equipment purchases. Not shown in the table above are

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commitments related to a new master loan and security agreement entered into in January 2009 with the same financing company that provided the prior financing to purchase our laboratory, computer, and other equipment. The new master loan and security agreement provides us up to $6.0 million of available funding through December of 2009. At September 30, 2009, approximately $2.6 million of borrowings have been made under the new master loan and security agreement. Borrowings under the new master loan and security agreement are being repaid with interest over periods of either 36 or 48 months. The new master loan and security agreement requires interest and principal payable in monthly installments on the outstanding borrowings ranging from $2,000 to $27,000 through July 2013. Outstanding borrowings under the new master loan and security agreement bear interest at a fixed rate of 12.5% for the duration of the term, and are collateralized by the laboratory and other equipment. At September 30, 2009, approximately $3.4 million was outstanding under all loan and security agreements.

        Our commitment for capital lease obligations relates to leased computer equipment.

        Our commitments for operating leases relate to our lease of office and laboratory space in Cambridge, Massachusetts and Microbia's office and laboratory space in Lexington, Massachusetts.

Related Party Transactions

        We have and currently obtain legal services from a law firm that is an investor of ours. We paid approximately $0.3 million, $0.1 million, $0.1 million, $0.1 million and $0 in legal fees to this investor during the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2008 and 2009, respectively.

        In September 2006, Tate & Lyle Investments, Ltd. ("T&L") became a related party when we sold to them 1,823,529 shares of common stock of Microbia at the aggregate purchase price of approximately $2,000, and sold 7,000,000 shares of convertible preferred stock of Microbia at the aggregate purchase price of $7.0 million. T&L accounted for approximately 7%, 29%, 10%, 10% and 6% of our revenue for the years ended December 31, 2006, 2007 and 2008 and for the nine months ended September 30, 2008 and 2009, respectively.

        In September 2009, Forest became a related party when we sold to them 2,083,333 shares of our convertible preferred stock at a price of $12.00 per share for cash proceeds of $25.0 million. Forest accounted for approximately 0%, 44%, 83%, 81% and 78% of our revenue for the years ended December 31, 2006, 2007 and 2008 and for the nine months ended September 30, 2008 and 2009, respectively.

        In November 2009, Almirall became a related party when we sold to them 681,819 shares of our convertible preferred stock at a price of $22.00 per share for cash proceeds of $15.0 million. Almirall accounted for approximately 16% of our revenue for the nine months ended September 30, 2009.

Off-Balance Sheet Arrangements

        We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.

New Accounting Pronouncements

        From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies that are adopted by us as of the specified effective date.

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Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial position or results of operations upon adoption.

Recently Issued Accounting Standards

        In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring Liabilities at Fair Value, or ASU 2009-05. ASU 2009-05 amends Accounting Standards Codification Topic 820, Fair Value Measurements. Specifically, ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: (1) a valuation technique that uses (a) the quoted price of the identical liability when traded as an asset or (b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or (2) a valuation technique that is consistent with the principles of Topic 820 of the Accounting Standards Codification, or Codification, (e.g. an income approach or market approach). ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption of this standard did not have an impact on our financial position or results of operations.

        In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, or ASU 2009-13. ASU 2009-13, amends existing revenue recognition accounting pronouncements that are currently within the scope of FASB Accounting Standards Codification, or ASC, Subtopic 605-25 (previously included within EITF 00-21, Revenue Arrangements with Multiple Deliverables, or EITF 00-21). The consensus to ASU 2009-13 provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management's estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. EITF 00-21 previously required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. Under EITF 00-21, if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and allows for retroactive application. We are currently evaluating the potential impact of this standard on our financial position and results of operations.

Recently Adopted Accounting Standards

        Effective January 1, 2009, we adopted new accounting guidance related to accounting for uncertainty in income taxes. This accounting standard clarifies the recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting standard also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We have not identified any material uncertain tax positions for which reserves would be required and the adoption of this accounting standard did not have an effect on our consolidated financial statements.

        Effective January 1, 2009, we adopted a newly issued accounting standard for business combinations. This standard requires an acquiring company to measure all assets acquired and liabilities assumed, including contingent considerations and all contractual contingencies, at fair value as of the acquisition date. In addition, an acquiring company is required to capitalize in-process research and development and either amortize it over the life of the product, or write it off if the project is abandoned or impaired. This guidance is applicable to acquisitions completed after January 1, 2009 and as we did not have any business

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combinations in the first nine months of 2009, the adoption did not impact our financial position or results of operations. The standard also amended accounting for uncertainty in income taxes as required by the Income Tax Topic of the Codification. Previously, accounting standards generally required post-acquisition adjustments related to business combination deferred tax asset valuation allowances and liabilities for uncertain tax positions to be recorded as an increase or decrease to goodwill. This new standard does not permit this accounting and, generally, requires any such changes to be recorded in current period income tax expense. Thus, all changes to valuation allowances and liabilities for uncertain tax positions established in acquisition accounting, whether the business combination was accounted for under this guidance, will be recognized in current period income tax expense.

        Effective January 1, 2009, we adopted new guidance for the accounting, reporting and disclosure of noncontrolling interests which requires, among other things, that noncontrolling interests be recorded as equity in the consolidated financial statements. The adoption of this new guidance resulted in the reclassification of noncontrolling interests (previously referred to as minority interests) to a separate component of stockholders' equity (deficit) on the consolidated balance sheet. Additionally, net loss attributable to noncontrolling interests is now shown separately from parent net loss in the consolidated statement of operations. Prior periods have been restated to reflect the presentation and disclosure requirements of the new guidance. Refer to Note 2, Summary of Significant Accounting Policies of this Form S-1 for additional information on the adoption of the new accounting standard for noncontrolling interests.

        In April, 2009, the FASB issued a new accounting standard providing guidance for the accounting of assets acquired and liabilities assumed in a business combination that arise from contingencies. This guidance amends and clarifies previous accounting standards to address application issues regarding the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance is applicable to acquisitions completed after January 1, 2009. As we did not have any business combinations in the first nine months of 2009, the adoption did not impact our financial position or results of operations.

        In May 2009, the FASB established general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. Our adoption of these standards had no material impact on our financial position, results of operations and cash flows.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

        We are exposed to market risk related to changes in interest rates. We invest our cash in a variety of financial instruments, principally deposits, securities issued by the U.S. government and its agencies and money market instruments. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk.

        Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates, particularly because our investments are in short-term marketable securities. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.

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        Recently, there has been concern in the credit markets regarding the value of a variety of mortgage-backed and auction rate securities and the resulting effect on various securities markets. We do not currently have any auction rate securities. We do not believe our cash, cash equivalents and available-for-sale investments have significant risk of default or illiquidity. While we believe our cash, cash equivalents and available-for-sale investments do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. Given the current instability of financial institutions, we cannot be assured that we will not experience losses on these deposits.

        Our long-term debt and capital lease obligations bear interest at a fixed rate and therefore have minimal exposure to changes in interest rates.

Foreign Currency Risk

        We have no operations outside the U.S. and do not have any foreign currency or other derivative financial instruments.

Effects of Inflation

        We do not believe that inflation and changing prices over the years ended December 31, 2007 and 2008 had a significant impact on our results of operations.

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BUSINESS

Our Company

        We are an entrepreneurial pharmaceutical company that discovers, develops and intends to commercialize innovative medicines targeting important therapeutic needs. Our goal is to build the next great pharmaceutical company, an outstanding business that will thrive and endure well beyond our lifetimes and generate substantial returns for our shareholders. In order to be successful, we will need to overcome the enormous challenges inherent in the pharmaceutical product development model. Developing a novel therapeutic agent can take a decade or more and cost hundreds of millions of dollars, and most drug candidates fail to reach the market. We recognize that most companies undertaking this endeavor fail, yet despite the significant risks and our own experiences with multiple failed drug candidates, we are enthusiastic and passionate about our mission to deliver differentiated medicines to patients. To achieve our mission, we are building a sustainable culture centered on creating and marketing important new drugs. If we are successful, we plan to reinvest a portion of our future cash flows into our research and development organization in order to accelerate and enhance our ability to bring new products to market. Our experienced team of researchers is currently focused on a portfolio of internally discovered drug candidates that includes one Phase 3 drug candidate (linaclotide), one Phase 1 pain drug candidate, and multiple preclinical programs.

        We believe that linaclotide could present patients and healthcare practitioners with a unique therapy for a major medical need not yet met by existing therapies. Linaclotide is a first-in-class compound currently in confirmatory Phase 3 clinical trials evaluating its safety and efficacy for the treatment of patients with irritable bowel syndrome with constipation (IBS-C) or chronic constipation (CC). IBS-C and CC are gastrointestinal disorders that affect millions of sufferers worldwide, according to our analysis of studies performed by N.J. Talley (published in 1995 in the American Journal of Epidemiology), P.D.R. Higgins (published in 2004 in the American Journal of Gastroenterology) and A.P.S. Hungin (published in 2003 in Alimentary Pharmacology and Therapeutics) as well as 2007 U.S. census data. Linaclotide recently achieved favorable efficacy and safety results in two Phase 3 CC trials, meeting all 32 primary and secondary endpoints, including the improvement of abdominal symptoms such as bloating and discomfort as well as constipation symptoms, across both doses evaluated in these independent trials involving 1,287 subjects. We expect to have data from our Phase 3 IBS-C trials in the second half of 2010. If those trials are successful, we intend to file a New Drug Application, or NDA, with the Food and Drug Administration, or FDA, in the first half of 2011, seeking approval to market linaclotide to IBS-C and CC patients age 18 and older in the U.S. If linaclotide is approved for those indications, we may seek to expand linaclotide's market opportunity by exploring its utility in other gastrointestinal indications and in the pediatric population.

        Linaclotide was designed by Ironwood scientists to target the defining attributes of IBS-C: abdominal pain, discomfort, bloating and constipation. Linaclotide acts locally in the gut with no detectable systemic exposure in humans at therapeutic doses. In the six Phase 2 and Phase 3 clinical trials we have completed to date in over 2,000 IBS-C and CC patients, linaclotide has demonstrated rapid and sustained improvement of the multiple symptoms of IBS-C and CC, with good tolerability and convenient once-daily oral dosing.

        In a Phase 2b study in patients with IBS-C, linaclotide rapidly reduced abdominal pain, abdominal discomfort and bloating, and improved constipation symptoms, throughout the 12-week treatment period of the trial, with improvements noted for all symptoms assessed within the first week of initiation of therapy. In particular, abdominal pain was reduced 37% to 47%, and pain reduction was observed within the first week following initiation of therapy and was sustained throughout the treatment period, even among patients with severe or very severe abdominal pain.

        In a Phase 2b study in patients with CC, linaclotide rapidly reduced abdominal discomfort and bloating, and improved constipation symptoms, throughout the 4-week treatment period of the trial.

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        In five of the six Phase 2 and Phase 3 studies, diarrhea was the most common adverse event (seen in 5% to 20% of subjects), and the most common cause for discontinuation in 1% to 7% of the patients in the trials. Diarrhea has generally been mild to moderate.

        We have pursued a partnering strategy for commercializing linaclotide that has enabled us to retain significant control over linaclotide's development and commercialization, share the costs with high-quality collaborators whose capabilities complement ours, and retain approximately half of linaclotide's future long-term value in the major pharmaceutical markets, should linaclotide meet our sales expectations. To date, licensing fees, milestone payments, related equity investments and development costs received from our linaclotide partners total greater than $250 million.

        In September 2007, we entered into a partnership with Forest Laboratories, Inc., or Forest, to co-develop and co-market linaclotide in the U.S. Under the terms of the collaboration agreement, we and Forest are jointly and equally funding the development and commercialization of linaclotide in the U.S., with equal share of any profits. Forest also has exclusive rights to develop and commercialize linaclotide in Canada and Mexico, and will pay us royalties in the mid-teens on any net sales in these countries. In addition to having reimbursed us for half of linaclotide's development costs since September 2007, Forest has paid us $100 million in license fees and milestone payments to date and has purchased $25 million of our convertible preferred stock pursuant to the collaboration agreement. Remaining pre-commercial milestone payments could total up to $105 million. If linaclotide is successfully developed and commercialized in the U.S., total licensing, milestone payments and related equity investments to us under the Forest collaboration agreement could total up to $330 million, including the $125 million that has already been paid to us. Unless terminated by either us or Forest for material breach, violation of law, bankruptcy or certain adverse changes of control of the other party, or by Forest for convenience, the collaboration agreement will continue in full force and effect with respect to each of the U.S., Canada and Mexico as long as we and Forest are developing or commercializing a product under the agreement.

        In April 2009, we entered into a license agreement with Almirall, S.A., or Almirall, to develop and commercialize linaclotide in Europe (including the Commonwealth of Independent States countries and Turkey) for the treatment of IBS-C and other gastrointestinal conditions. Under the terms of the license agreement, Almirall has paid us $38 million in license fees and milestone payments and has purchased $15 million of our convertible preferred stock. Remaining pre-commercial milestone payments could total up to $40 million. Almirall is responsible for activities and expenses relating to regulatory approval and commercialization in the European market. If Almirall receives approval to market and sell linaclotide in Europe, we will receive gross royalties which escalate based on sales volume in the territory, beginning in the mid-twenties, less the transfer price paid for the active pharmaceutical ingredient. Unless terminated by either us or Almirall for material breach, violation of law or bankruptcy, by Almirall for convenience, or by us in the event of an adverse change of control of Almirall, the license agreement will continue in full force and effect on a country-by-country basis until Almirall is no longer developing or commercializing linaclotide in such country.

        In November 2009, we entered into a license agreement with Astellas Pharma Inc., or Astellas, to develop and commercialize linaclotide for the treatment of IBS-C and other gastrointestinal conditions in Japan, South Korea, Taiwan, Thailand, the Philippines and Indonesia. Under the terms of the license agreement, Astellas paid us a $30 million up-front licensing fee. Remaining pre-commercial milestone payments could total up to $45 million. Astellas is responsible for activities and expenses relating to regulatory approval and commercialization in those markets. If Astellas receives approval to market and sell linaclotide, we will receive gross royalties which escalate based on sales volume in the territory, beginning in the low-twenties, less the transfer price paid for the active pharmaceutical ingredient. Unless terminated in all or certain countries by either us or Astellas for material breach or bankruptcy, by Astellas for convenience, or by us in the event of an adverse change of control of Astellas, the license agreement will continue in full force and effect until the later of (a) the last-to-expire valid claim of our patent rights for linaclotide in the countries listed above has expired or (b) Astellas is no longer developing or commercializing linaclotide in all of the countries listed above.

        We have retained all rights to linaclotide outside of the territories discussed above.

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        In addition to five years of exclusivity under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, that would be granted if linaclotide is approved by the FDA, linaclotide is covered by a U.S. composition of matter patent that expires in 2025, subject to possible patent term extension. Linaclotide is also covered by an European Union composition of matter patent that expires in 2024, subject to possible patent term extension. A patent application is pending in Japan, and if issued, would expire in 2024.

        We have multiple product candidates in earlier stages of development and are pursuing various therapeutic opportunities. We invest carefully in our pipeline, and the commitment of funding for each subsequent stage of our development programs is dependent upon the receipt of clear, positive data. In addition to linaclotide, our other clinical stage candidate is IW-6118, an inhibitor of Fatty Acid Amide Hydrolase, or FAAH, being evaluated for the treatment of pain and inflammation. In a Phase 1 study, IW-6118 demonstrated favorable pharmacokinetics and dose-related elevation of biomarkers suggesting that IW-6118 inhibits FAAH in humans. We are also conducting early stage, preclinical research on approximately eight therapeutic targets in gastrointestinal pain, inflammation and cardiovascular indications.

        In addition, we are actively engaged in identifying externally-discovered drug candidates at various stages of clinical development and accessing them through in-licensing or acquisition. In evaluating potential assets, we apply the same criteria as those used for investments in internally-discovered assets. To date, we have not in-licensed any drug candidates, but we do expect to do so from time to time.

Owner-related Business Principles

        Before investing in Ironwood, we encourage all potential new co-owners to read the owner-related business principles below that guide our overall strategy and decision making.

1.     We view our shareholders as partners and co-owners in our business.

        With our cash on hand and up to $190 million in pre-commercial milestone payments payable to us from linaclotide partners, the anticipated proceeds from this offering should be sufficient to enable us to launch and commercialize linaclotide in the U.S. together with our partner Forest, and to fund our currently contemplated research and development efforts for at least the next five years, based on our current business plan. Since it is possible that we will not offer additional equity capital for a number of years, a priority for this offering is to augment our current shareholder group by adding additional, long-term focused co-owners.

2.     We believe we can best maximize long-term shareholder value by building a great pharmaceutical franchise.

        We believe that Ironwood has the potential to deliver outstanding long-term returns to shareholders who: (i) are sober to the risks inherent in the pharmaceutical product development model and to the potential dramatic highs and lows along the way, and (ii) are comfortable with management's focus on superior long-term cash flows, instead of the steadiness or consistency of our short-term growth in accounting earnings.

        Since the pharmaceutical product development cycle is lengthy and unpredictable, we believe it is critical to have a long-term strategic horizon. We work hard to embed our long-term focus into our policies and practices, which may give us a competitive advantage in attracting like-minded shareholders and the highest caliber researchers. Our current and future employees may perceive both financial and qualitative advantages in having their inventions or hard work result in marketed drugs that they and their fellow shareholders continue to own. Some of our key policies and practices that are aligned with this imperative include:

            a.     Our dual class equity voting structure (which applies only in the event of change of control votes) is designed to concentrate change of control decisions in the hands of long-term focused owners

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    who have a history of experience with us. Please read the "Description of Capital Stock" for additional information regarding our capital structure.

            b.     Compensation is weighted to equity over salary for all of our employees, and many employees have a significant portion of their incentive compensation in milestone-based equity grants that reward achievement of major value-creating events a number of years out from the time of grant.

            c.     We have adopted a change of control severance plan for all of our employees that is intended to encourage them to bring forward their best ideas by providing them with the comfort that if a change of control occurs and their employment is terminated, they will still have an opportunity to share in the economic value that they have helped create for shareholders.

            d.     Many of the members of our board of directors are substantial investors in the company. Furthermore, each director is required to hold all shares of stock acquired as payment for his or her service as a director throughout his or her term on the board.

            e.     Our partnerships with Forest, Almirall and Astellas all include standstill agreements, which serve to protect us from an unwelcome acquisition attempt by one of our partners. In addition, we have change of control provisions in our partnership agreements in order to protect the economic value of linaclotide should the acquirer of one of our partners be unable or unwilling to devote the time and resources required to make the program successful.

3.     We are and will remain careful stewards of our shareholders' capital.

        We work intensely to allocate capital carefully and prudently, continually reinforcing a lean, cost-conscious culture.

        While we are mindful of the declining productivity and inherent challenges of pharmaceutical research and development, we intend to invest in discovery research for many years to come. Our singular passion is to create and develop novel drug candidates, seeking to integrate the most successful drugmaking practices of the past and the best of today's cutting-edge technologies and basic research advances. While we hope to improve the productivity and efficiency of our drug creation efforts over time, our discovery process revolves around small, highly interactive, cross-functional teams. We believe that this is one area where our relatively small size is a competitive advantage, so for the foreseeable future, we do not expect our drug discovery team to grow beyond 100-150 scientists. We will continue to prioritize constrained resources and maintain organizational discipline. Once internally- or externally-derived candidates advance into development, compounds follow careful stage-gated plans, with further advancement depending on clear data points. Since most pharmaceutical research and development projects fail, it is critical that our teams are rigorous in driving to early go/no go decisions, following the data, terminating unsuccessful programs, and allocating scarce dollars and talent to the most promising efforts, thus enhancing the likelihood of late phase development success.

4.     We believe commercializing our drugs is a crucial element of our long-term success.

        For the foreseeable future, we intend to play an active role in the commercialization of our products in the U.S., and to outlicense commercialization rights for other territories. We believe in the long-term value of our drug candidates, so we seek collaborations that provide meaningful economics and incentives for us and any potential partner. Furthermore, we seek partners who share our values, culture, processes, and vision for our products, which we believe will enable us to work with those partners successfully for the entire potential patent life of our drugs.

5.     Our financial goal is to maximize long-term per share cash flows.

        Our goal is to maximize long-term cash flows per share, and we will prioritize this even if it leads to uneven short-term financial results from an accounting perspective. If and when we become profitable, we expect and accept uneven earnings growth. Our underlying product development model is risky and

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unpredictable, and we will not advance marginal development candidates or consummate suboptimal in-license transactions in an attempt to fill anticipated gaps in revenue growth. Successful drugs can be enormously beneficial to patients and highly profitable and rewarding to shareholders, and we believe strongly in our ability to occasionally (but not in regular or predictable fashion) create and commercialize great medicines that make a meaningful difference in patients' lives.

        If and when we reach profitability, we do not intend to issue quarterly or annual earnings guidance, however we plan to be transparent about the key elements of our performance, including near-term operating plans and longer-term strategic goals.

Our Strategy

        Our goal is to build the next great pharmaceutical company by discovering, developing and commercializing innovative and differentiated medicines that target important unmet needs. Key elements of our strategy include:

    attract and incentivize a team with a singular passion for creating and commercializing medicines that can make a significant difference in patients' lives;

    successfully commercialize linaclotide in collaboration with Forest in the U.S.;

    support our international partners to commercialize linaclotide outside of the U.S.;

    if approved for IBS-C and CC, develop linaclotide for the treatment of other gastrointestinal disorders and for the pediatric population;

    invest in our pipeline of novel product candidates and evaluate candidates outside of the company for in-licensing or acquisition opportunities;

    participate in a meaningful way in the economics of the drugs that we bring to the market; and

    execute our strategy with our shareholders' long-term interests in mind by seeking to maximize long-term per share cash flows.

Linaclotide

    Overview

        The gastrointestinal tract has many roles in human physiology, including the intake, breakdown and absorption of vital nutrients and fluids as well as the elimination of waste. In healthy individuals, waste is formed into stools and eliminated by the process of bowel movements. Bowel movements in healthy individuals cause minimal pain or discomfort and occur at various frequencies ranging from three times daily to three times weekly. IBS-C and CC are functional gastrointestinal disorders that afflict millions of sufferers worldwide. IBS-C is characterized by frequent and recurrent abdominal pain and/or discomfort and constipation symptoms (e.g. infrequent bowel movements, hard/lumpy stools, straining during defecation). CC is primarily characterized by constipation symptoms, but a majority of these patients report experiencing bloating and abdominal discomfort as among their most bothersome symptoms. Available treatment options primarily improve constipation, leading healthcare providers to diagnose and manage IBS-C and CC based on stool frequency. However, patients view these conditions as multi-symptom disorders, and while laxatives can be effective at relieving constipation symptoms, they do not necessarily improve abdominal pain, discomfort or bloating, and can often exacerbate these symptoms. This disconnect between patients and physicians, amplified by patients' embarrassment to discuss all of their gastrointestinal symptoms, often delays diagnosis and may compromise treatment, possibly causing additional suffering and disruption to patients' daily activities.

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        IBS-C and CC are chronic conditions characterized by frequent and bothersome symptoms that dramatically affect patients' daily lives. We believe that gastro esophageal reflux disease, or GERD, serves as a reasonable analogue to illustrate the potential for a treatment that effectively relieves chronic gastrointestinal symptoms. Based on a study performed by M. Camilleri published in 2005 in Clinical Gastroenterology and Hepatology and 2007 U.S. census data, we estimate that in 2007, approximately 40 million people in the U.S. suffered from GERD. The typical GERD sufferer, who experiences frequent episodes of heartburn poorly controlled by over the counter products, will commonly seek medical care and is generally treated with a proton pump inhibitor, such as Prilosec (omeprazole), Nexium (esomeprazole magnesium), Prevacid (lansoprazole), or Protonix (pantoprazole). According to IMS Health, peak sales of the proton pump inhibitor class reached $12.8 billion in November 2007. The proton pump inhibitors generally provide relief of key heartburn symptoms within the first week of treatment and have a favorable safety and tolerability profile. Once GERD patients experience relief of heartburn, they tend to be highly adherent to therapy, taking a proton pump inhibitor for approximately 200 days a year, according to IMS Health. The relief of bothersome symptoms and the recurrence of symptoms following discontinuation, serve to reinforce patient adherence to chronic therapy for functional disorders, like GERD, IBS-C and CC.

    U.S. IBS-C and CC Opportunity

        Based on the Talley and Higgins studies, studies performed by F.A. Luscombe (published in 2000 in Quality of Life Research) and J.F. Johanson (published in 2007 in Alimentary Pharmacology and Therapeutics), and 2007 U.S. census data, we estimate that in 2007, approximately 35 million to 46 million people in the U.S. suffered from symptoms of IBS-C and CC, of whom between 9 million to 15.5 million patients sought medical care. As a result of the less than optimal treatment options currently available, patients seeking care experienced a very low level of satisfaction. Due to patients' lack of satisfaction with existing treatment options, about 70% of patients stop prescription therapy within one month, according to IMS Health. It is estimated that patients seek medical care from five or more different healthcare providers over the course of their illness with limited or no success, as shown in a 2009 study by D.A. Drossman in the Journal of Clinical Gastroenterology. Many of the remaining patients are too embarrassed to discuss the full range of their symptoms, or for other reasons do not see the need to seek medical care and continue to suffer in silence while unsuccessfully self-treating with fiber, OTC laxatives and other remedies which improve constipation, but often exacerbate pain and bloating.

        Irritable Bowel Syndrome with Constipation.    Based on the Talley study and 2007 U.S. census data, we estimate that in 2007, approximately 12 million people or 5.2% of the U.S. adult population suffered from symptoms associated with IBS-C. As shown in a study conducted by the International Foundation of Functional Gastrointestinal Disorders, or IFFGD, in 2002, almost 35% of all IBS-C patients report suffering from some related symptoms daily. Based on this data and the Luscombe study, we estimate that up to 7 million of these patients sought medical attention for their symptoms. Based on the Talley, Luscombe and Johanson studies and 2007 U.S. census data, we estimate that between 5 million to 9 million sufferers have not consulted a physician and attempt to manage their symptoms with over the counter fiber and laxatives. Patients with IBS-C who seek medical care receive either a recommendation from their physician for an over the counter product or a prescription medication. As shown in a study conducted by the IFFGD in 2007, for all treated IBS-C patients, there continues to be a low rate of satisfaction with relief of their symptoms, with 92% of patients reporting that they are not fully satisfied with their treatments; and 77% of patients reporting that they were unsatisfied with overall care by their physician.

        Chronic Constipation.    Based on the Higgins study and 2007 U.S. census data, we estimate that in 2007, 23 million to 34 million people, or 10% to 15% of the U.S. adult population, were suffering from CC. Based on this data and the Johanson study, we estimate that of the total CC sufferers, only 6 million to 8.5 million patients suffering from CC sought medical care. Almost all of these patients, whether or not seeking medical care for their symptoms, took an over the counter or prescription treatment, or both. Similar to IBS-C, there continues to be a low rate of treatment satisfaction, with over 70% of those taking

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over the counter and prescription laxatives reporting that they are not fully satisfied with their treatment results as shown in the Johanson study.

        As shown in the figure below, according to L.E. Brandt in a study published in 2005 in the American Journal of Gastroenterology, the symptoms underlying both disorders can be viewed on a continuum. During a consultation, patients will often discuss only the predominant symptom making it difficult for physicians to effectively diagnose and treat. For most patients, constipation is also accompanied by a set of symptoms broader than straining and infrequency of bowel movements. Given the limitations of available treatment options in addressing multiple symptoms, physicians tend to focus on the most easily treatable symptom, constipation. Our market research suggests that most physicians view abdominal pain and bloating as difficult to treat. We believe that linaclotide's profile could offer health care providers the opportunity to identify, diagnose, and treat the other important symptoms experienced by IBS-C and CC patients.

GRAPHIC

        IBS-C and CC Opportunity Outside of U.S.    We believe that the prevalence rates of IBS-C in Europe and Japan are similar to the prevalence rates in the U.S.

        Burden of Illness.    Both IBS-C and CC adversely affect the quality of life of patients, leading to increased absenteeism from work or school and increased costs to the healthcare system. According to both a study by A.P.S. Hungin published in 2005 in Alimentary Pharmacology & Therapeutics and the Johanson study, patients with IBS-C and CC reportedly suffer from their symptoms on average 166 and 97 days per year, respectively, and, according to the Drossman study, over one third have experienced their symptoms for more than ten years. In a typical month, IBS-C and CC patients will miss an average of one to three days of school or work, according to Johanson's study and a study by B. Cash published in 2005 in The American Journal of Medical Care, and their productivity will be disrupted an additional four to five days per month, according to the Cash study. When the level of suffering becomes acutely overwhelming for patients, they seek care at an ambulatory care facility. In 2004, CC was the second most common cause for ambulatory care visits after GERD, according to a 2008 article by J.E. Everhart published in Functional Intestinal Disorders. According to the Everhart article, CC accounted for 6.3 million ambulatory care visits (when considered as part of any listed diagnosis) and IBS accounted for 3 million ambulatory care visits. Estimates of the indirect and direct costs associated with these conditions range upwards of $25 billion, according to a study published in 2000 by M. Camilleri and D.E. Williams in Pharmacoeconomics.

        Treatment Options for IBS-C and CC.    By the time patients seek care from a physician, they have typically tried a number of available remedies and remain unsatisfied. Most IBS-C and CC patients initially attempt self-treatment with over the counter medications such as laxatives, stool softeners or fiber supplementation, as well as attempts to modify their diet. While some of these therapies offer limited success in transit-related symptoms, they offer little to no effect on other bothersome symptoms from which patients are suffering. Unfortunately, physicians have very limited treatment options beyond what is readily available to the patient alone. Physicians typically rely on fiber and laxatives, which can exacerbate bloating and abdominal pain, the same symptoms from which many patients are seeking relief and which are the most troubling to treat. In an attempt to help alleviate the more severe abdominal symptoms associated with IBS-C and CC, healthcare providers sometimes prescribe medications that have not been approved by the FDA for these indications, such as anti-depressant or antispasmodic agents.

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        Polyethylene glycol, or PEG (such as Miralax), and lactulose, account for the majority of prescription and over the counter laxative treatments. Both agents demonstrate an increase in stool frequency and consistency but do not improve bloating or abdominal discomfort. Clinical trials and product labels document several adverse effects with PEG and lactulose, including exacerbation of bloating, cramping and, according to the Brandt study, up to a 40% incidence of diarrhea. Overall, up to 75% of patients taking prescription laxatives report not being completely satisfied with the predictability of when they will experience a bowel movement on treatment, and 50% were not completely satisfied with relief of the multiple symptoms associated with constipation, according to the Johanson study.

        In 2002, the FDA approved Zelnorm, the first new drug for the treatment of IBS-C, and in 2004, Zelnorm was approved for the treatment of CC. Zelnorm is a serotonin 5-HT4 receptor agonist, with a mechanism of action completely separate and distinct from the mechanism of action underlying linaclotide's activity. As a newly available treatment option to potentially address some of the symptoms beyond the scope of laxatives and fiber, Zelnorm achieved great success in raising patient and physician awareness of IBS-C and CC. During the five years that Zelnorm was promoted, total prescriptions in the category grew three fold, and in 2006, there were more than 16 million total prescriptions written for treating patients with IBS-C and CC, according to IMS Health. Prior to its withdrawal, in 2006, Zelnorm total sales were approximately $561 million. In 2007, Zelnorm was withdrawn from the market by its manufacturer due to an analysis that found a higher chance of heart attack, stroke and chest pain in patients treated with Zelnorm as compared to placebo. Despite modest effectiveness relieving abdominal pain (1% to 10% of patients responding to treatment as compared to placebo) and bloating (4% to 11% of patients responding to treatment as compared to placebo) as described on the Zelnorm product label, Zelnorm succeeded in establishing a symptom-based approach highlighting the need to recognize and treat, on a chronic basis, both the abdominal and constipation symptoms afflicting these patients.

        Currently, the only available prescription therapy for IBS-C and CC is Amitiza, which was approved for the treatment of CC in 2006, and for IBS-C in 2008. Amitiza sales have been modest in comparison to Zelnorm sales prior to its withdrawal from the market, according to IMS Health.

        Although a significant unmet need exists for better treatments for IBS-C and CC, we believe that there are very few treatments in late-stage clinical development. The most recent entrant to the CC marketplace, solely in Europe, is Resolor (prucalopride). Resolor was recently approved by the European Medicines Agency and is indicated for the treatment of CC in women for whom laxatives have failed to provide adequate relief. Resolor, which will be marketed by Movetis, is a serotonin 5-HT4 receptor agonist like Zelnorm. Johnson & Johnson has U.S. rights to prucalopride. Currently, we believe there is only one compound in late stage clinical development, velusetrag (being developed by Theravance), which is also a serotonin 5-HT4 receptor agonist like Zelnorm, and which has completed Phase 2 trials for CC. We believe that there are a number of earlier stage compounds in development.

        The Linaclotide Opportunity.    Based on the Talley, Luscombe, Johanson and IFFGD studies and 2007 U.S. census data, we believe that there are over 10 million IBS-C and CC patients in the U.S. who suffer from multiple symptoms, are actively seeking therapy and are dissatisfied with current treatment options. Moreover, physicians overwhelmingly report a need for an efficacious treatment with demonstrated safety that can provide rapid, convenient, and effective multi-symptom relief, relieving abdominal pain and discomfort, bloating and constipation symptoms.

        Linaclotide is a unique and promising potential treatment for patients suffering from both abdominal and constipation symptoms related to IBS-C and CC. Based on the clinical profile we have observed to date, we believe linaclotide is well positioned to provide IBS-C and CC patients with much needed reduction in abdominal and constipation symptoms, with a low incidence of adverse events, and a convenient once daily, oral dosing regimen.

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Preclinical Pharmacology, Safety, and Toxicology

Pharmacology: Unique Mechanism of Action

        The underlying causes of the abdominal pain, discomfort and bloating suffered by patients with lower gastrointestinal disorders like IBS-C and CC are poorly understood. Further, because current therapeutic agents offer limited improvement in these symptoms, there has been limited medical research in this area. Since our clinical studies indicate that linaclotide provides rapid and sustained improvement of these symptoms, we have invested significant effort to define the mechanisms of linaclotide's physiological effects.

        Linaclotide is a 14 amino acid peptide agonist of guanylate cyclase type-C, or GC-C, a receptor found on the epithelial cells that line the intestine. Activation of GC-C leads to increases in intracellular and extracellular cyclic guanosine monophosphate, or cGMP, levels. cGMP is a well characterized "second messenger" that relays and amplifies signals received at receptors on the cell surface to target molecules in the cytosol and/or nucleus of a cell. We believe increased cGMP has dual effects on intestinal function. First, as the figure below shows, cGMP can exit the epithelial cells to block pain signaling by inhibiting the pain-sensing neurons that carry signals from the gastrointestinal tract to the central nervous system (afferent pain fibers). Second, cGMP can remain inside the epithelial cell to activate protein kinase GII, or PKGII, which activates the protein Cystic Fibrosis Transmembrane conductance Regulator, or CFTR, by phosphorylation, or P, to stimulate electrolyte (Na+ = sodium, Cl- = chloride, and HCO3- = bicarbonate) and fluid (H2O = water) secretion into the intestinal lumen. The resulting increase in intestinal fluid volume accelerates intestinal transit.

GRAPHIC

        Our preclinical work supports the above model for the actions of linaclotide. Regarding the effect on pain sensation, we have found that increased extracellular cGMP inhibited noxious-stimulus-induced firing of afferent pain fibers. In addition, oral dosing with either linaclotide or directly with cGMP significantly reduced abdominal pain responses in a number of preclinical models. While much work remains to be done, we hypothesize that the reduction in abdominal pain, abdominal discomfort, and visceral hypersensitivity seen both preclinically and clinically is a result of increased extracellular cGMP, which may reduce firing of pain-sensing neurons and thus decrease sensitivity to otherwise painful stimuli.

        Additionally, in other preclinical studies, linaclotide was shown to increase intracellular cGMP, leading to activation of channels in intestinal cell membranes that resulted in the secretion of ions and fluid out of intestinal cells and into the intestinal lumen. Increased fluid in the intestinal lumen causes accelerated intestinal transit.

        Importantly, linaclotide's effects on pain sensation and gastrointestinal transit/secretion are dependent on the presence of the GC-C receptor; in preclinical experiments where the GC-C receptor was genetically deleted, the effects of linaclotide on pain sensation and secretion were eliminated.

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        The binding and activity of linaclotide at the GC-C receptor is highly specific. Linaclotide has no effect on the serotonin system, unlike Zelnorm, Resolor, cisapride (Propulsid, which was approved for heartburn caused by GERD), or alosetron (Lotronex, which was approved for irritable bowel syndrome with diarrhea), each of which work through serotonin receptors in the intestine. Zelnorm, Propulsid and Lotronex were all withdrawn from the market because of safety concerns.

Preclinical Safety

        Linaclotide exhibits very limited oral bioavailability in all species tested, and it does not require absorption into the bloodstream to exert its pharmacological effect. This very limited exposure is due to minimal absorption of linaclotide through the intestinal epithelium. We believe that linaclotide's limited systemic exposure may reduce the likelihood of side effects.

        We have investigated the intestinal fate and metabolism of linaclotide. Linaclotide is processed by the enzyme carboxypeptidase, which removes a single amino acid (tyrosine) from the end of linaclotide. The resulting 13 amino acid metabolite has similar activity to linaclotide in all assays tested. Both linaclotide and this active metabolite are degraded in the intestine by a sequential process of disulfide bond disruption, cleavage to inactive peptide fragments, and ultimate digestion to natural amino acids.

        We consider linaclotide to have a highly favorable preclinical safety profile. Linaclotide's preclinical safety profile has been evaluated in both safety pharmacology and general toxicology studies following single intravenous and oral doses and repeat oral doses in rodent and non-rodent species. Linaclotide exhibits its desired pharmacological effects at doses that are much lower than those that could cause an adverse effect in toxicology studies, with the no-observed-adverse-effect level in these preclinical studies being at least 1,000 times higher than the highest human dose in any Phase 3 trial. Intravenous administration of up to five milligrams per kilogram of linaclotide had no effect on cardiovascular or respiratory function. In a 26-week chronic toxicity study, the no-observed-adverse-effect level was greater than or equal to 4,000-times the highest human dose for any Phase 3 study. In a 39-week chronic toxicity study, the-no-observed-adverse-effect level was 1,000-times the highest human dose for any Phase 3 study.

        In reproductive toxicity studies, the no-observed-adverse-effect level was determined to be 1,000-times the maximum dose studied in Phase 3 clinical studies.

        We have also completed dosing for two years in carcinogenicity studies, and expect to have the final analysis in the first quarter of 2010.

Clinical

        We are conducting a comprehensive clinical program consisting of 13 studies in over 4,600 people. Nine of the studies have been completed; three in healthy volunteers, two in IBS-C patients, and four in CC patients. Additionally, two Phase 3 studies in IBS-C patients and two long-term safety studies are ongoing.

Healthy Volunteer Studies

        Three Phase 1 studies conducted in healthy volunteers were completed to obtain an understanding of linaclotide's safety and pharmacodynamic effects, to determine whether co-administration of linaclotide with food modulates linaclotide's pharmacodynamic effects, and to determine whether linaclotide showed minimal systemic exposure after oral administration as was observed in preclinical studies.

        In the first two Phase 1 studies, single doses of up to 3,000 micrograms, or mcg, of linaclotide in 30 healthy male and female subjects, and once daily doses of up to 1,000 mcg over a seven-day period in 48 healthy male and female subjects, were generally well tolerated. Linaclotide was administered as an oral solution in this study. Linaclotide and its active metabolite were not measurable in the plasma of any subject at any dose level or time point, despite the ability of methods to measure as little as three nanograms of linaclotide or its metabolite in a milliliter of plasma. There were no dose-related increases in

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the number of subjects reporting treatment-emergent adverse events, or TEAEs, after linaclotide administration,

        In a Phase 1 food-effect study in 19 healthy non-constipated volunteers, linaclotide administration in the fed state resulted in more frequent and looser stools as compared to linaclotide administration in the fasted state. In this study, despite the use of improved methods that can measure as little as 0.2 nanograms of linaclotide or 2 nanograms of its metabolite in a milliliter of plasma, there were no measurable levels of either compound in individuals dosed with 300 mcg of linaclotide in either the fed or fasted state. In this same study, a single supratherapeutic dose of 3,000 mcg (10 times higher than the highest Phase 3 dose) was administered immediately following seven consecutive days of administration of 300 mcg linaclotide once daily. Linaclotide was detected in the plasma of two of 18 subjects following administration of the 3,000 mcg dose, and the active metabolite of linaclotide was not detected in any subject. Exposure levels of linaclotide in these two subjects were not high enough or sufficiently sustained to allow calculation of pharmacokinetic parameters. The majority of subjects experienced gastrointestinal-related TEAEs during the study (primarily diarrhea), which were mild or moderate in severity and resolved following treatment.

Studies in CC and IBS-C Patients

        In Phase 2 and Phase 3 studies in CC and IBS-C patients, the following key symptoms were measured:

    Spontaneous Bowel Movements (SBMs):  Bowel movements that occur in the absence of laxative, enema, or suppository usage within the preceding 24 hours

    Complete SBMs (CSBMs):  SBMs accompanied by the patient self-reporting a feeling of complete evacuation

    Stool Consistency using the Bristol Stool Form Scale:  a 7-point ordinal scale (1=separate hard lumps like nuts [difficult to pass]; 2=sausage shaped but lumpy; 3=like a sausage but with cracks on surface; 4=like a sausage or snake, smooth and soft; 5=soft blobs with clear-cut edges [passed easily], 6=fluffy pieces with ragged edges, a mushy stool; 7=watery, no solid pieces [entirely liquid])

    Straining (during bowel movements):  a 5-point ordinal severity scale (1=not at all, 2=a little bit, 3=a moderate amount, 4=a great deal, 5=an extreme amount)

    Abdominal Pain:  a 5-point ordinal severity scale (1=none, 2=mild, 3=moderate, 4=severe, and 5=very severe)

    Abdominal Discomfort:  a 5-point ordinal severity scale (1=none, 2=mild, 3=moderate, 4=severe, and 5=very severe)

    Bloating:  a 5-point ordinal severity scale (1=none, 2=mild, 3=moderate, 4=severe, and 5=very severe)

    Constipation Severity:  a 5-point ordinal severity scale (1=none, 2=mild, 3=moderate, 4=severe, and 5=very severe)

    IBS Symptom Severity:  a 5-point ordinal severity scale (1=none, 2=mild, 3=moderate, 4=severe, and 5=very severe)

Phase 2

        We conducted four Phase 2 studies, two in patients with IBS-C and two in patients with CC, to evaluate linaclotide's safety, efficacy, and dose response.

    Phase 2 IBS-C Studies

        Phase 2a IBS-C Study.    A single-center Phase 2a motility study was conducted in 36 female patients with IBS-C. The study evaluated doses of 100 and 1,000 mcg for effects on upper and lower gastrointestinal motility when administered orally in solution once daily for five days. Bowel symptoms and safety

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parameters were also measured. In this study, the 1,000 mcg dose of linaclotide significantly accelerated lower gastrointestinal motility, as measured as ascending colonic emptying and overall colonic transit at 48 hours. No effect of linaclotide 1,000 mcg dose on upper gastrointestinal motility, as measured by gastric emptying or small bowel transit, was observed in this study. There was also a dose-dependent improvement in bowel symptoms. Headache was the most common TEAE.

        Phase 2b IBS-C Study.    A randomized, double-blind, placebo-controlled study was conducted in 420 IBS-C patients at 92 sites in the U.S. and Canada. The study enrolled IBS-C patients age 18 years or older with at least mild abdominal pain/discomfort, fewer than three CSBMs per week, and no more than six SBMs per week during the pre-treatment period. The study had a two-week pre-treatment baseline period, a 12-week treatment period, and a two-week post-treatment period. Four doses of linaclotide were evaluated: 75 mcg, 150 mcg, 300 mcg and 600 mcg, administered once daily as oral capsules. The primary endpoint of the study was the change from baseline in weekly CSBM frequency in the evaluable population. However, data are shown below for the more inclusive intent-to-treat, or ITT, population, as that is the primary endpoint population for Phase 3. Additional endpoints included the change from baseline in other bowel symptoms (SBMs, stool consistency, straining), daily abdominal symptoms (pain, discomfort, and bloating), and weekly global severity assessments (IBS symptom severity, constipation severity).

        During the baseline period, the average CSBM frequency was 0.3 CSBMs per week, and 68% of patients had no CSBMs during this period. The change from baseline in weekly CSBM frequency versus placebo was statistically significant (p-value < 0.01) in all linaclotide dosing arms compared to the placebo group. The p-value is a measure of probability that the difference between the placebo group and the linaclotide group is due to chance (e.g., p = 0.01 means that there is a 1% (0.01 = 1.0%) chance that the difference seen between the placebo and linaclotide group is the result of random chance as opposed to the linaclotide treatment). A p-value less than or equal to 0.05 (0.05 = 5%) is commonly used as a criterion for statistical significance.

Phase 2b IBS-C Primary Endpoint: Change from Pre-treatment in CSBM Frequency

         GRAPHIC


*p<0.05, **p<0.01, ***p<0.001
Note: ITT population

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        Linaclotide treatment decreased abdominal pain, abdominal discomfort, bloating and global measures of IBS severity and constipation severity in the study. The pretreatment baseline values on the five-point ordinal severity scale (1=none, 2=mild, 3=moderate, 4=severe, and 5=very severe) ranged from 2.87 to 3.13 for abdominal pain, 3.11 to 3.34 for abdominal discomfort, 3.32 to 3.56 for bloating, 3.56 to 3.73 for IBS severity and 3.47 to 3.80 for constipation severity. Improvement in the abdominal symptoms and global measurements of severity ranged from 25.5% to 53.8% compared to placebo rates of 16.1% to 25.6% across the dose groups as shown in the table below. In particular, the 300 mcg dose (the dose level being evaluated in Phase 3 IBS-C trials) demonstrated a 46.8% relative reduction in the mean abdominal pain score versus 25.6% in the placebo arm.

Phase 2b IBS-C: Improvement as Percent Change from Baseline*

Endpoint
  Placebo   75 mcg   150 mcg   300 mcg   600 mcg  

Abdominal pain

    25.6 %   37.1 %   36.9 %   46.8 %   44.4 %

Abdominal discomfort

    22.1 %   31.3 %   32.5 %   42.7 %   38.6 %

Bloating

    16.1 %   27.3 %   25.5 %   37.3 %   31.6 %

IBS severity

    22.2 %   35.0 %   34.1 %   42.1 %   41.0 %

Constipation severity

    23.3 %   42.3 %   41.1 %   53.8 %   48.8 %

*
ITT population. Improvement as percent change from baseline calculated as the percent difference in the treatment group's mean change from baseline value relative to the mean baseline score.

        Abdominal pain improved within the first week of treatment and the effect was sustained over the 12-week treatment period as shown below.


Abdominal Pain

         GRAPHIC


Note: ITT population

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        Linaclotide also demonstrated a significant reduction in abdominal pain frequency as measured by an increase in the median percentage of pain-free days in the 300 mcg group compared to the placebo group (18.5% vs. 2.0%). At the 75 mcg, 150 mcg, and 600 mcg dose groups, there was a numerical but not statistically significant increase in the percentage of pain-free days relative to placebo.

        Significant improvements in other bowel habits, including frequency of SBMs, straining and stool consistency (i.e., less hard stools) were also demonstrated, and were seen within the first week of treatment. The percentages of patients reporting a CSBM within 24 hours of initial dosing ranged from 27% to 37% for the linaclotide dose groups compared to 13% for the placebo group (p<0.05 for all linaclotide dose groups compared to placebo). All improvements were statistically significant for at least three of the four linaclotide dose groups for each endpoint. The 300 mcg dose, which is currently being assessed in Phase 3 IBS-C trials, demonstrated statistically significant effects across all secondary endpoints. Effects were seen within the first week of dosing, often within the first three days, and continued over the 12 weeks of treatment. Linaclotide provided statistically significant improvement in multiple symptoms of IBS-C in this study.

        We analyzed the Phase 2b IBS-C data utilizing the Phase 3 primary efficacy parameters (see "Phase 3 IBS-C Trials" below). Responder rates for the placebo group, the pooled linaclotide-treated group (75, 150, 300, and 600 mcg aggregated), and the 300 mcg group (the Phase 3 IBS-C dose) were determined. The responder rate for the 12-week abdominal pain and CSBM (APC) responder was 10% in the placebo group, 20% for the pooled linaclotide-treated group, and 27% for the 300 mcg group. The responder rate for the 12-week CSBM responder was 13% in the placebo group, 26% for the pooled linaclotide-treated group, and 31% for the 300 mcg group. The responder rate for the 12-week abdominal pain responder was 30% in the placebo group, 44% for the pooled linaclotide-treated group, and 48% for the 300 mcg group.

        The most common TEAE in the linaclotide-treated groups was diarrhea (occurring in 11% to 18% of patients), which was the primary cause of discontinuation for 1% to 7% of patients. Most reports of diarrhea were mild to moderate; nine linaclotide-treated patients reported severe diarrhea. Other TEAEs occurred with similar frequency across the placebo and linaclotide dose groups.

Phase 2b IBS-C: Treatment-emergent Adverse Events
TEAEs occurring in ³ 3% of patients in any of the linaclotide groups and > placebo

 
   
  Linaclotide
Treatment-emergent adverse event (TEAE)   Placebo
n=85
  75 mcg
n=79
  150 mcg
n=82
  300 mcg
n=85
  600 mcg
n=89
  All
n=335

Any TEAE

  35 (41%)   41 (52%)   40 (49%)   50 (59%)   61 (69%)   192 (57%)
 

Diarrhea

  1 (1%)   9 (11%)   10 (12%)   14 (16%)   16 (18%)   49 (15%)
 

Abdominal pain

  3 (4%)   4 (5%)   3 (4%)   4 (5%)   7 (8%)   18 (5%)
 

Urinary tract infection

  2 (2%)   7 (9%)   1 (1%)   5 (6%)   1 (1%)   14 (4%)
 

Nausea

  5 (6%)   1 (1%)   8 (10%)   1 (1%)   3 (3%)   13 (4%)
 

Nasopharyngitis

  5 (6%)   3 (4%)   6 (7%)   1 (1%)   1 (1%)   11 (3%)
 

Upper respiratory tract infection

  3 (4%)   0   2 (2%)   4 (5%)   5 (6%)   11 (3%)
 

Sinusitis

  2 (2%)   3 (4%)   2 (2%)   3 (4%)   2 (2%)   10 (3%)
 

Bronchitis

  0   2 (3%)   1 (1%)   1 (1%)   3 (3%)   7 (2%)
 

Back pain

  1 (1%)   0   4 (5%)   1 (1%)   1 (1%)   6 (2%)
 

Fecal incontinence

  0   0   1 (1%)   0   3 (3%)   4 (1%)

Phase 2 CC Studies

        Phase 2a CC Study.    A randomized, placebo-controlled study was conducted in 42 CC patients at 14 sites. The study evaluated doses of 100, 300 and 1,000 mcg administered orally once daily as an oral solution for 14 days. Bowel and abdominal symptoms as well as safety parameters were measured. In this

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study, linaclotide increased SBM frequency and CSBM frequency compared to placebo. Linaclotide also improved stool consistency (i.e., decreased stool hardness), decreased straining severity and decreased abdominal discomfort when compared to placebo. The most common TEAE was diarrhea.

        Phase 2b CC Study.    A randomized, double-blind, placebo-controlled study was conducted in 310 CC patients at 57 sites in the U.S. The study enrolled patients age 18 years or older who had fewer than three CSBMs per week and no more than six SBMs per week in the pre-treatment period. The study had a two-week pre-treatment baseline period, a four-week treatment period and a two-week post-treatment period. Four doses of linaclotide were evaluated: 75 mcg, 150 mcg, 300 mcg, and 600 mcg, administered once daily as oral capsules. The primary endpoint of the study was the change from baseline in weekly SBM frequency in the evaluable population. However, data are shown for the more inclusive ITT population as that is the primary endpoint population for Phase 3. Additional endpoints included the change from baseline in other bowel symptoms (CSBMs, stool consistency, training) and daily abdominal symptoms (discomfort and bloating), as well as the global assessment of constipation severity.

        The change from baseline versus placebo for weekly SBM frequency increased from a baseline of 2.3 per week in all treatment groups and was statistically significant in all linaclotide dosing arms compared to the placebo group. Weekly SBM frequency increased with the dose of linaclotide administered. Linaclotide improved all other bowel habits, including frequency of CSBMs, straining, and stool consistency (i.e., less hard stools). All improvements were statistically significant for each endpoint and for all four linaclotide dose groups, except straining at the 75 mcg dose level. Improvements were sustained over the four-week treatment period.


Phase 2b CC: Primary Endpoint: Change from Pre-treatment in SBM Frequency

GRAPHIC


*p<0.05, **p<0.01, ***p<0.001
Note: ITT population

        The percentages of patients reporting a CSBM within 24 hours of initial dosing ranged from 14% to 36% for the linaclotide dose groups compared to 7% for the placebo group (p<0.05 for the 75, 300 and 600 mcg dose groups compared to placebo).

        Linaclotide treatment decreased abdominal discomfort, bloating and constipation severity in the study. The pretreatment baseline values ranged from 2.36 to 2.50 for abdominal discomfort, 2.69 to 2.83 for bloating and 3.25 to 3.58 for constipation severity. Improvement of these symptoms ranged from 17.2%

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to 40.9% compared to placebo rates of 2.5% to 6.6% (see table below). Onset of improvement in these symptoms generally ocurred within the first week of treatment.

Phase 2b CC: Improvement as Percent Change from Baseline*

Endpoint
  Placebo   75 mcg   150 mcg   300 mcg   600 mcg  

Abdominal discomfort

    3.8 %   25.0 %   23.4 %   18.2 %   21.8 %

Bloating

    2.5 %   24.6 %   25.9 %   17.6 %   17.2 %

Constipation severity

    6.6 %   35.2 %   38.6 %   38.3 %   40.9 %

*
ITT population. Improvement as percent change from baseline calculated as the percent difference in the treatment group's mean change from baseline value relative to the mean baseline score.

        The most common and only dose-dependent TEAE in the linaclotide-treated groups was diarrhea (occurring in 5% to 14% of patients), which was the primary cause of discontinuation for 2% to 5% of patients. Most reports of diarrhea were of mild or moderate severity, with two linaclotide-treated patients reporting severe diarrhea (both in the 600 mcg group). Other TEAEs occurred with similar frequency across the placebo and linaclotide dose groups (see table below).

Linaclotide Phase 2b CC: Treatment-emergent Adverse Events
TEAEs occurring in ³ 3% of patients in any of the linaclotide groups and > placebo

 
   
  Linaclotide
Treatment-emergent adverse event (TEAE)   Placebo n=69   75 mcg n=59   150 mcg n=56   300 mcg n=62   600 mcg n=63   All
n=240

Any TEAE

  22 (32%)   21 (36%)   18 (32%)   18 (29%)   24 (38%)   81 (34%)
 

Diarrhea

  2 (3%)   3 (5%)   5 (9%)   3 (5%)   9 (14%)   20 (8%)
 

Abdominal pain

  3 (4%)   2 (3%)   5 (9%)   2 (3%)   2 (3%)   11 (5%)
 

Nausea

  1 (1%)   2 (3%)   2 (4%)   1 (2%)   2 (3%)   7 (3%)
 

Urinary tract infection

  1 (1%)   1 (2%)   2 (4%)   1 (2%)   1 (2%)   5 (2%)
 

Dizziness

  0   0   0   1 (2%)   3 (5%)   4 (2%)
 

Vomiting

  1 (1%)   1 (2%)   1 (2%)   0   2 (3%)   4 (2%)
 

Bowel sounds abnormal

  0   0   1 (2%)   0   2 (3%)   3 (1%)
 

Bronchitis

  2 (3%)   2 (3%)   0   0   0   2 (1%)
 

Influenza

  0   0   2 (4%)   0   0   2 (1%)

Phase 1 and Phase 2 Serious Adverse Event Summary

        There were no serious adverse events in the Phase 1 studies. Serious adverse events occurred in less than 1% of patients in the Phase 2 program and were similarly distributed across placebo and linaclotide treated groups.

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Phase 3

        The Phase 3 program consists of two long-term safety studies and four pivotal efficacy trials: two in patients with IBS-C and two in patients with CC. The Phase 3 trials were designed based on our experience from the Phase 2 program, which provided an understanding of linaclotide's potential therapeutic effect on abdominal symptoms (e.g., abdominal bloating, discomfort and pain) and constipation (frequency, straining and stool consistency) and provided insight into the appropriate methods for measuring these symptoms. The consistent results for the primary and secondary efficacy measures as well as safety parameters observed throughout the Phase 2 program were also reflected in marked improvements in global assessments (e.g., constipation severity, IBS severity). With this in mind, we designed the Phase 3 trials as larger confirmatory trials targeting the same patient populations (similar inclusion and exclusion criteria) and similar endpoints. In order to increase the statistical power (>95% for the primary endpoint), we increased the size of the Phase 3 studies to 200 patients per group for CC compared to 50 patients per group in Phase 2 and 400 patients per group for IBS-C compared to 80 patients per group in Phase 2. We also extended the length of the treatment period of the CC trials to 12 weeks from four weeks in Phase 2 and extended one of the IBS-C trials to six months of treatment compared to the 12 weeks utilized in Phase 2 (the primary Phase 3 endpoint remains at 12 weeks). To better align our measurements of abdominal symptoms in the IBS-C Phase 3 studies with those preferred by regulatory authorities, we modified the measurement tool used by patients to describe their abdominal symptoms from a 5-point scale to an 11-point scale (0-10). Our experience with a similar scale in Phase 2b IBS-C study indicated that the 11-point scale provided similar responses to those observed with the 5-point scale and may detect change with greater precision.

        The doses of linaclotide referenced in connection with our Phase 1 and Phase 2 studies represented the total peptide content, which, in addition to linaclotide, includes inactive linaclotide-related peptides. Beginning with Phase 3 and going forward, dose level designations refer solely to linaclotide content. Thus, the 150 mcg total peptide dose in Phase 2 has active linaclotide content equivalent to the 133 mcg dose in Phase 3 and going forward. Similarly, the 300 mcg total peptide dose in Phase 2 has active linaclotide content equivalent to the 266 mcg dose in Phase 3 and going forward. This does not reflect any change in the amounts of linaclotide delivered between the trials or the formulation, but rather an improvement in analytic methods and the way we reference the dose levels.

    Phase 3 IBS-C Trials

        In July 2009, we initiated two confirmatory Phase 3, multi-center, randomized, double-blind, placebo-controlled trials assessing the safety and efficacy of linaclotide in patients with IBS-C in the U.S. and Canada. Each trial will target enrollment of 800 IBS-C patients. Patients enrolled in the trials are to have fewer than three CSBMs and no more than five SBMs per week during the pretreatment period, with an average abdominal pain score of at least 3.0 on an 11-point scale (0=none, 10=very severe). Patients are being randomized to receive placebo or 266 mcg linaclotide administered once daily as an oral capsule. There are three primary efficacy parameters: 12-week abdominal pain and CSBM responder; 12-week responder; and 12-week abdominal pain responder. A 12-week CSBM responder is a patient who had three or more CSBMs per week and an increase of at least one CSBM per week over baseline for at least nine of the 12 weeks of the treatment period. A 12-week abdominal pain responder is a patient who has at least a 30% relative reduction in abdominal pain compared to baseline for at least nine out of the 12 weeks in the treatment period. Finally, a 12-week abdominal pain and constipation responder is a patient who meets both the responder criteria for abdominal pain and constipation for at least nine out of the 12 weeks in the treatment period.

        We anticipate having top-line data from both trials in the second half of 2010.

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    Phase 3 CC Trials

        In November 2009, we announced positive top-line results from two confirmatory Phase 3 multi-center, randomized, double-blind, placebo-controlled studies assessing the safety and efficacy of linaclotide administered once daily as an oral capsule in patients with CC. In both trials, statistical significance was achieved for the primary endpoint of 12-week CSBM responder at the 2 doses studied in each trial (133 mcg/day: p-values £0.0012 and 266 mcg/day: p-values<0.0001). In both trials, statistical significance was achieved for all pre-specified secondary endpoints, which included measures of bloating, abdominal discomfort, and constipation severity.

        As illustrated in the table below, data from the Phase 3 CC program were consistent with the Phase 2b CC study described earlier, and support the potential for linaclotide to improve the multiple symptoms associated with CC.

Phase 3 CC Trials: Statistical Significance of Linaclotide Effects as Compared to Placebo

 
  Trial 303
(n=642)
  Trial 01
(n=630)
 
Endpoint
  133 mcg   266 mcg   133 mcg   266 mcg  

Primary endpoint

                         

    12-week CSBM responder

    p<0.0001     p<0.0001     p=0.0012     p<0.0001  

Secondary endpoints

                         

    CSBM frequency

    p<0.0001     p<0.0001     p<0.0001     p<0.0001  

    SBM frequency

    p<0.0001     p<0.0001     p<0.0001     p<0.0001  

    Stool consistency

    p<0.0001     p<0.0001     p<0.0001     p<0.0001  

    Severity of straining

    p<0.0001     p<0.0001     p<0.0001     p<0.0001  

    Constipation severity

    p<0.0001     p<0.0001     p<0.0001     p<0.0001  

    Abdominal discomfort

    p=0.0003     p=0.0063     p=0.0006     p=0.0001  

    Bloating

    p<0.0001     p=0.0049     p=0.0005     p<0.0001  

        Trial 01.    Trial 01 was conducted in 630 CC patients. The trial enrolled patients age 18 years or older who had fewer than three CSBMs per week and no more than six SBMs per week during the pre-treatment period. The trial included a two-week pre-treatment baseline period and a 12-week treatment period. The primary efficacy endpoint was a 12-week CSBM responder. A 12-week CSBM responder is a patient who had three or more CSBMs per week and an increase of at least one CSBM per week over baseline for at least nine of the 12 weeks of the treatment period. During the baseline period, the average CSBM frequency was 0.3 CSBMs per week and 72% of patients had no CSBMs during this period.

        The 12-week CSBM responder rate was 16.0% in the 133 mcg linaclotide group (p=0.0012), and 21.3% in the 266 mcg linaclotide group (p<0.0001), a numerical increase of 2.6 and 3.5 fold, respectively, when compared to the placebo group, which exhibited a 6.0% responder rate (see table below). The additional endpoints shown in the table below were statistically significant at both the 133 mcg and 266 mcg dose levels.

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Phase 3 CC (Trial 01): Responder Endpoints*

Endpoint
  Placebo
(n = 215)
  133 mcg
(n = 213)
  266 mcg
(n = 202)

Primary Endpoint

           

    12-week CSBM responder(1)

  6.0%   16.0%   21.3%

      (p=0.0012)   (p<0.0001)

Additional Endpoints

           

    CSBM rate change ³1 responder(2)

  13.0%   31.0%   40.1%

      (p<0.0001)   (p<0.0001)

     CSBM rate ³3 responder(3)

  6.0%   16.0%   21.8%

      (p=0.0012)   (p<0.0001)

    12-week CSBM mean change ³1 responder(4)

  25.6%   49.3%   56.9%

      (p<0.0001)   (p<0.0001)

*
ITT population

(1)
Patient must have had a CSBM weekly frequency rate that was three or greater and increased by one or more from baseline for at least nine of the 12 weeks of the treatment period.

(2)
Patient must have had a CSBM weekly frequency rate that was increased by one or more from baseline for at least nine of the 12 weeks of the treatment period.

(3)
Patient must have had a CSBM weekly frequency rate that was three or greater for at least nine of the 12 weeks of the treatment period

(4)
Patient must have had an overall mean CSBM frequency rate that was increased one or more from baseline over the treatment period.

        Linaclotide-treated patients demonstrated a significant increase in average weekly CSBMs from baseline (0.6 for placebo; 2.0 for 133 mcg, p<0.0001; 2.7 for 266 mcg, p<0.0001) and an increase in average weekly SBMs from baseline (1.1 for placebo; 3.4 for 133 mcg, p<0.0001; 3.7 for 266 mcg, p<0.0001).

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The increase in stool frequency occurred in the first week and was sustained over the 12 weeks of treatment as shown in the figure below.

Mean Weekly CSBMs*

CHART


*
"Pre-Tx" is the pre-treatment period

        In addition to the endpoints detailed above, the remaining secondary endpoints measured in this study; abdominal discomfort, bloating, constipation severity, stool consistency and straining; were statistically significant for linaclotide versus placebo at both doses.

        In a post-hoc analysis, improvements in abdominal discomfort, bloating and constipation severity were observed as shown in the table below. Baseline values for these endpoints ranged from 2.47 to 2.56 for abdominal discomfort, 2.73 to 2.82 for bloating and 3.31 to 3.34 for constipation severity.

Phase 3 CC (Trial 01): Improvement as Percent Change from Baseline*

Endpoint
  Placebo   133 mcg   266 mcg  

Abdominal discomfort

    19.5 %   31.1 %   33.5 %

Bloating

    13.0 %   24.3 %   27.3 %

Constipation severity

    14.4 %   40.2 %   42.7 %

*
ITT population. Improvement as percent change from baseline calculated as the percent difference in the treatment group's mean change from baseline value relative to the mean baseline score.

        The most common TEAE associated with linaclotide treatment in Trial 01 was diarrhea (15% to 20% of patients, compared to 3% for placebo). Diarrhea led to discontinuation in 5% to 6% of linaclotide

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treated patients compared to 0.5% of patients receiving placebo. Other TEAEs were similarly distributed across the treatment groups. Serious adverse events occurred in 2% of patients and were similarly distributed across the placebo and linaclotide treatment groups. There was one death during the treatment period, and one death outside of the treatment period, both of which were deemed unrelated to treatment by the investigators.

Phase 3 CC (Trial 01): Treatment-emergent Adverse Events
TEAEs occurring in ³ 3% of patients in any of the linaclotide groups and > placebo

 
   
  Linaclotide
Treatment-emergent adverse event (TEAE)
  Placebo
N=215
  133 mcg
N=213
  266 mcg
N=205
  All
N=418

Any TEAE

  116 (54%)   138 (65%)   116 (57%)   254 (61%)

    Diarrhea

  6 (3%)   42 (20%)   30 (15%)   72 (17%)

    Flatulence

  13 (6%)   16 (8%)   13 (6%)   29 (7%)

    Upper respiratory tract infection

  14 (7%)   16 (8%)   9 (4%)   25 (6%)

    Abdominal pain

  5 (2%)   11 (5%)   11 (5%)   22 (5%)

    Nausea

  7 (3%)   8 (4%)   9 (4%)   17 (4%)

    Abdominal distension

  7 (3%)   7 (3%)   8 (4%)   15 (4%)

    Urinary tract infection

  8 (4%)   8 (4%)   6 (3%)   14 (3%)

    Sinusitis

  5 (2%)   8 (4%)   4 (2%)   12 (3%)

    Nasopharyngitis

  7 (3%)   3 (1%)   8 (4%)   11 (3%)

        Trial 303.    Trial 303 was conducted in 643 patients, and was identical to Trial 01 in design except Trial 303 also included a four-week randomized withdrawal period, as described below. During the baseline period, the average CSBM frequency was 0.3 CSBMs per week and 68% of patients had no CSBMs during this period.

        The 12-week CSBM responder rate was 21.2% in the 133 mcg linaclotide group (p<0.0001) and 19.4% in the 266 mcg linaclotide group (p<0.0001), a numerical increase of 6.3 and 5.8 fold, respectively, when compared to the placebo group, which exhibited a 3.3% responder rate.

        The additional endpoints shown in the table below were statistically significant at both the 133 mcg and 266 mcg dose levels.

Phase 3 CC (Trial 303): Responder Endpoints*

Endpoint
  Placebo
(N = 209)
  133 mcg
(N = 217)
  266 mcg
(N = 216)

Primary Endpoint

           
 

12-week CSBM responder(1)

  3.3%   21.2%   19.4%

      (p<0.0001)   (p<0.0001)

Additional Endpoints

           
 

CSBM rate change ³1 responder(2)

  11.0%   39.2%   37.0%

      (p<0.0001)   (p<0.0001)
 

CSBM rate ³3 responder(3)

  3.8%   21.7%   19.4%

      (p<0.0001)   (p<0.0001)
 

12-week CSBM mean change ³1 responder(4)

  22.5%   55.8%   52.8%

      (p<0.0001)   (p<0.0001)

*
ITT population

(1)
Patient must have had a CSBM weekly frequency rate that was three or greater and increased by one or more from baseline for at least nine of the 12 weeks of the treatment period.

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(2)
Patient must have had a CSBM weekly frequency rate that was increased by one or more from baseline for at least nine of the 12 weeks of the treatment period.

(3)
Patient must have had a CSBM weekly frequency rate that was three or greater for at least nine of the 12 weeks of the treatment period

(4)
Patient must have had an overall mean CSBM frequency rate that was increased one or more from baseline over the treatment period.

        Linaclotide-treated patients demonstrated a significant increase in average weekly CSBMs from baseline (0.5 for placebo; 1.9 for 133 mcg, p<0.0001; 2.0 for 266 mcg, p<0.0001) and a significant increase in average weekly SBMs from baseline (1.1 for placebo; 3.0 for 133 mcg, p<0.0001; 3.0 for 266 mcg, p<0.0001). The increase in stool frequency occurred in the first week and was sustained over the 12 weeks of treatment.

        In addition to the endpoints detailed above, the remaining secondary endpoints measured in Trial 303; abdominal discomfort, bloating, constipation severity, stool consistency and straining; were statistically significant for linaclotide versus placebo at both doses.

        In a post hoc analysis, improvements in abdominal discomfort, bloating and constipation severity were observed as shown in the table below. Baseline values for these endpoints ranged from 2.46 to 2.52 for abdominal discomfort, 2.74 to 2.81 for bloating, and 3.25 to 3.32 for constipation severity.

Phase 3 CC (Trial 303): Improvement as Percent Change from Baseline*