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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission file number: 001-34620

IRONWOOD PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3404176

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

100 Summer Street, Suite 2300

Boston, Massachusetts

02110

(Address of Principal Executive Offices)

(Zip Code)

(617) 621-7722

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.001 par value

IRWD

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

As of July 31, 2023, there were 156,029,186 shares of Class A common stock outstanding.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks, uncertainties, and assumptions. All statements contained in this Quarterly Report on Form 10-Q 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,” “could,” “should,” “target,” “goal,” “potential” 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 the demand and market potential for our products in the countries where they are approved for marketing, as well as the revenues therefrom; the timing, investment and associated activities involved in commercializing LINZESS® by us and AbbVie Inc. in the U.S.; the commercialization of CONSTELLA® in Europe and LINZESS in Japan and China, as well as our expectations regarding revenue generated from our partners; the timing, investment and associated activities involved in developing, obtaining regulatory approval for, launching, and commercializing our products and product candidates by us and our partners worldwide; our ability and the ability of our partners to secure and maintain adequate reimbursement for our products; our expectations regarding U.S. and foreign regulatory requirements for our products and our product candidates, including our post-approval development and regulatory requirements; the ability of our product candidates to meet existing or future regulatory standards; the safety profile and related adverse events of our products and our product candidates; the therapeutic benefits and effectiveness of our products and our product candidates and the potential indications and market opportunities therefor; our ability and the ability of our partners to perform our respective obligations under our collaboration, license and other agreements, and our ability to achieve milestone and other payments under such agreements; our plans with respect to the development, manufacture or sale of our product candidates and the associated timing thereof, including the design and results of pre-clinical and clinical studies; our expectations with respect to the acquisition of VectivBio Holding AG, and the costs and timing related thereto; the timing, progress and results of clinical trials for apraglutide; the in-licensing or acquisition of externally discovered businesses, products or technologies, or other strategic transactions, as well as partnering arrangements, including expectations relating to the completion of, or the realization of the expected benefits from, such strategic transactions; our expectations with respect to our option to acquire an exclusive license from COUR Pharmaceutical Development Company, Inc., to research, develop, manufacture and commercialize in the U.S., products containing CNP-104 for the treatment of primary biliary cholangitis and the timing related and expected usefulness thereof; our expectations as to future financial performance, revenues, expense levels, payments, cash flows, profitability, tax obligations, capital raising and liquidity sources, and real estate needs, as well as the timing and drivers thereof, and internal control over financial reporting; our expectations as to the timing of and the costs and restructuring expenses related to our workforce reductions; and our ability to repay our outstanding indebtedness when due, or redeem or repurchase all or a portion of such debt, as well as the potential benefits of the capped call transactions described herein.

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. These forward-looking statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties, including those related to the effectiveness of development and commercialization efforts by us and our partners; preclinical and clinical development, manufacturing and formulation development of linaclotide, apraglutide, CNP-104 and our other product candidates; the risk that clinical programs and studies may not progress or develop as anticipated, including that studies are delayed or discontinued for any reason, such as safety, tolerability, enrollment, manufacturing, economic or other reasons; the risk that findings from our completed nonclinical and clinical studies may not be replicated in later studies; the risk that we or our partners are unable to obtain, maintain or manufacture sufficient LINZESS or our product candidates, or otherwise experience difficulties with respect to supply or manufacturing; the efficacy, safety and tolerability of linaclotide and our product candidates; the risk that the therapeutic opportunities for LINZESS or our product candidates are not as we expect; decisions by regulatory and judicial authorities; the risk we may never get additional patent protection for linaclotide and other product candidates, that patents for linaclotide or other products may not provide adequate protection from competition, or that we are not able to successfully protect such patents; the risk that we are unable to manage our expenses or cash use, or are unable to commercialize our products as expected; the risk that we may elect to not exercise our option to acquire the exclusive license for CNP-104; the risk that the development of either apraglutide, CNP-104 and/or IW-3300 is not successful or that any of our product candidates is not successfully commercialized; outcomes in legal proceedings to protect or enforce the patents relating to our products and product candidates, including abbreviated new drug application litigation; the risk that financial and operating results may differ from our projections; developments in the intellectual property landscape; challenges from and rights of competitors or potential competitors; the risk that our planned

2

investments do not have the anticipated effect on our company revenues; developments in accounting guidance or practice; Ironwood’s or AbbVie’s accounting practices, including reporting and settlement practices as between Ironwood and AbbVie; the risk that we are unable to manage our expenses or cash use, or are unable to commercialize our products as expected; the risks related to VectivBio Holding AG and our acquisition of VectivBio Holding AG; the risks related to our increased indebtedness; the impact of the COVID-19 pandemic; and the additional risks identified under the heading “Part I, Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the U.S. Securities and Exchange Commission, or the SEC, on February 16, 2023, and under the heading “Risk Factors” in this Quarterly Report on Form 10-Q. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.

NOTE REGARDING TRADEMARKS

LINZESS® and CONSTELLA® are trademarks of Ironwood Pharmaceuticals, Inc. Any other trademarks referred to in this Quarterly Report on Form 10-Q are the property of their respective owners. All rights reserved.

3

IRONWOOD PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2023

TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

5

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2023 and 2022

6

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2023 and 2022

7

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

42

PART II — OTHER INFORMATION

Item 1A.

Risk Factors

44

Item 5.

Other Information

48

Item 6.

Exhibits

48

Signatures

51

4

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)

June 30, 

December 31

    

2023

    

2022

ASSETS

Current assets:

Cash and cash equivalents

$

175,321

$

656,203

Accounts receivable, net

 

118,990

 

115,458

Prepaid expenses and other current assets

 

22,500

 

7,715

Restricted cash

788

1,250

Total current assets

 

317,599

 

780,626

Restricted cash, net of current portion

 

510

 

485

Accounts receivable, net of current portion

14,589

Property and equipment, net

 

5,876

 

6,288

Operating lease right-of-use assets

13,319

14,023

Intangible assets, net

4,096

Deferred tax assets

257,900

283,661

Other assets

3,920

847

Total assets

$

603,220

$

1,100,519

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

3,505

$

483

Accrued research and development costs

 

20,122

 

5,258

Accrued expenses and other current liabilities

 

79,585

 

16,700

Current portion of operating lease liabilities

3,095

3,065

Current portion of convertible senior notes

199,083

Note hedge warrants

19

Total current liabilities

 

305,390

 

25,525

Operating lease obligations, net of current portion

15,598

16,599

Convertible senior notes, net of current portion

197,974

396,251

Revolving credit facility

400,000

Other liabilities

 

31,035

 

9,766

Commitments and contingencies

 

Ironwood Pharmaceuticals, Inc. Stockholders’ equity:

Preferred stock, $0.001 par value, 75,000,000 shares authorized, no shares issued and outstanding

 

 

Class A Common Stock, $0.001 par value, 500,000,000 shares authorized and 156,027,648 shares issued and outstanding at June 30, 2023 and 500,000,000 shares authorized and 154,026,949 shares issued and outstanding at December 31, 2022

 

156

 

154

Additional paid-in capital

 

1,366,989

 

1,348,600

Accumulated deficit

 

(1,712,849)

 

(696,376)

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

(345,704)

652,378

Noncontrolling interests

(1,073)

Total stockholders’ equity (deficit)

 

(346,777)

 

652,378

Total liabilities and stockholders’ equity

$

603,220

$

1,100,519

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

(In thousands, except per share amounts)

(unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Revenues:

Collaborative arrangements revenue

$

107,382

$

97,231

$

211,443

$

194,760

Total revenues

 

107,382

 

97,231

 

211,443

 

194,760

Costs and expenses:

Research and development

 

34,577

11,452

47,424

22,274

Selling, general and administrative

 

52,484

30,124

83,601

58,985

Restructuring expenses

13,011

13,011

Acquired in-process research and development

1,090,449

1,090,449

Total costs and expenses

 

1,190,521

 

41,576

 

1,234,485

 

81,259

Income (loss) from operations

 

(1,083,139)

 

55,655

 

(1,023,042)

 

113,501

Other income (expense):

Interest expense and other financing costs

 

(1,840)

(2,207)

(3,367)

(4,548)

Interest and investment income

 

8,757

1,018

16,029

1,248

Gain (loss) on derivatives

(681)

19

49

Other income (expense), net

 

6,917

 

(1,870)

 

12,681

 

(3,251)

Income (loss) before income taxes

(1,076,222)

53,785

(1,010,361)

110,250

Income tax expense

(13,256)

(16,705)

(33,403)

(34,369)

Net income (loss) and comprehensive income (loss)

(1,089,478)

37,080

(1,043,764)

75,881

Less: Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests

(27,291)

(27,291)

Net income (loss) and comprehensive income (loss) attributable to Ironwood Pharmaceuticals, Inc.

$

(1,062,187)

$

37,080

$

(1,016,473)

$

75,881

Net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. shareholders —basic

$

(6.84)

$

0.24

$

(6.56)

$

0.49

Net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. shareholders —diluted

$

(6.84)

$

0.21

$

(6.56)

$

0.42

Weighted average shares used in computing net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. shareholders—basic:

155,367

153,304

154,912

155,550

Weighted average shares used in computing net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. shareholders—diluted:

 

155,367

184,876

 

154,912

 

187,315

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(unaudited)

Total Ironwood

Class A

Additional

Pharmaceuticals, Inc.

Total

Common Stock

paid-in

Accumulated

Stockholders’

Noncontrolling

Stockholders’

Shares

    

Amount

    

capital

    

deficit

    

equity (deficit)

Interests

equity (deficit)

Balance at December 31, 2022

 

154,026,949

$

154

$

1,348,600

$

(696,376)

$

652,378

$

$

652,378

Issuance of common stock related to share-based awards

 

1,319,154

1

1,628

1,629

1,629

Share-based compensation expense related to share-based awards and employee stock purchase plan

 

7,131

7,131

7,131

Net income

 

45,714

45,714

45,714

Balance at March 31, 2023

 

155,346,103

$

155

 

$

1,357,359

$

(650,662)

 

$

706,852

$

$

706,852

Issuance of common stock related to share-based awards and employee stock purchase plan

 

681,545

1

1,365

1,366

1,366

Share-based compensation expense related to share-based awards and employee stock purchase plan

 

8,265

8,265

8,265

Non-controlling interests on acquisition of VectivBio Holding AG

26,218

26,218

Net loss

 

(1,062,187)

(1,062,187)

(27,291)

(1,089,478)

Balance at June 30, 2023

156,027,648

$

156

$

1,366,989

$

(1,712,849)

$

(345,704)

$

(1,073)

$

(346,777)

Total Ironwood

Class A

Additional

Pharmaceuticals, Inc.

Total

Common Stock

paid-in

Accumulated

Stockholders’

Noncontrolling

Stockholders’

Shares

    

Amount

    

capital

    

deficit

    

equity (deficit)

Interests

equity

Balance at December 31, 2021

 

162,036,461

$

162

$

1,543,357

$

(937,608)

$

605,911

$

$

605,911

Cumulative effect adjustment upon adoption of ASU 2020-06, net of tax

(110,217)

66,167

(44,050)

(44,050)

Issuance of common stock related to share-based awards

 

1,087,966

1

1,520

1,521

1,521

Share-based compensation expense related to share-based awards and employee stock purchase plan

 

6,089

6,089

6,089

Repurchases of common stock

(8,009,272)

(8)

(90,481)

(90,489)

(90,489)

Net income

 

38,801

38,801

38,801

Balance at March 31, 2022

 

155,115,155

$

155

 

$

1,350,268

$

(832,640)

 

$

517,783

$

$

517,783

Issuance of common stock related to share-based awards and employee stock purchase plan

 

818,235

1

4,314

4,315

4,315

Share-based compensation expense related to share-based awards and employee stock purchase plan

 

6,601

6,601

6,601

Repurchases of common stock

(2,757,081)

(3)

(32,893)

(32,896)

(32,896)

Net income

 

37,080

37,080

37,080

Balance at June 30, 2022

153,176,309

$

153

$

1,328,290

$

(795,560)

$

532,883

$

$

532,883

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

Six Months Ended

June 30, 

    

2023

    

2022

Cash flows from operating activities:

Net income (loss)

$

(1,043,764)

$

75,881

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

 

556

715

Share-based compensation expense

 

15,395

12,690

Change in fair value of note hedge warrants

(19)

(1,164)

Change in fair value of convertible note hedges

1,115

Non-cash interest expense

 

887

1,053

Acquired in-process research and development

1,090,449

Deferred income taxes

27,060

29,594

Changes in assets and liabilities:

Accounts receivable, net

 

11,057

21,394

Prepaid expenses and other current assets

 

(6,268)

(1,264)

Operating lease right-of-use assets

704

650

Other assets

 

(270)

128

Accounts payable and accrued expenses

 

18,333

(10,765)

Accrued research and development costs

 

(2,083)

(9,558)

Operating lease liabilities

(970)

(978)

Other liabilities

4,067

5,998

Net cash provided by operating activities

 

115,134

 

125,489

Cash flows from investing activities:

Purchases of property and equipment

 

(13)

(97)

Acquisition of VectivBio Holding AG, net of cash acquired

(999,492)

Net cash used in investing activities

 

(999,505)

 

(97)

Cash flows from financing activities:

Proceeds from exercise of stock options and employee stock purchase plan

 

5,347

5,937

Payment on 2022 Convertible Notes

(120,699)

Proceeds from revolving credit facility

400,000

Costs associated with revolving credit facility

(2,295)

Repurchases of common stock

(126,394)

Net cash provided by (used in) financing activities

 

403,052

 

(241,156)

Net increase in cash, cash equivalents and restricted cash

 

(481,319)

 

(115,764)

Cash, cash equivalents and restricted cash, beginning of period

 

657,938

 

621,864

Cash, cash equivalents and restricted cash, end of period

$

176,619

$

506,100

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets

Cash and cash equivalents

$

175,321

$

504,365

Restricted cash

1,298

1,735

Total cash, cash equivalents, and restricted cash

$

176,619

$

506,100

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Ironwood Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Nature of Business

Ironwood Pharmaceuticals, Inc. (“Ironwood” or the “Company”) is a gastrointestinal (“GI”) healthcare company dedicated to advancing the treatment of GI diseases and redefining the standard of care for GI patients. The Company is focused on the development and commercialization of innovative GI product opportunities in areas of significant unmet need, leveraging its demonstrated expertise and capabilities in GI diseases.

LINZESS® (linaclotide), the Company’s commercial product, is the first product approved by the United States Food and Drug Administration (the “U.S. FDA”) in a class of GI medicines called guanylate cyclase type C agonists (“GC-C agonists”) and is indicated for adult men and women suffering from irritable bowel syndrome with constipation (“IBS-C”) or chronic idiopathic constipation (“CIC”) and for pediatric patients ages 6-17 years-old suffering from functional constipation (“FC”). LINZESS is available to adult men and women suffering from IBS-C or CIC in the United States (the “U.S.”), Mexico and Saudi Arabia, to adult men and women suffering from IBS-C or chronic constipation in Japan, IBS-C in China, and pediatric patients ages 6-17 years old with FC in the U.S. Linaclotide is available under the trademarked name CONSTELLA® to adult men and women suffering from IBS-C or CIC in Canada, and to adult men and women suffering from IBS-C in certain European countries.

The Company has strategic partnerships with leading pharmaceutical companies to support the development and commercialization of linaclotide throughout the world. The Company and its partner, AbbVie Inc. (together with its affiliates, “AbbVie”), began commercializing LINZESS in the U.S. in December 2012. Under the Company’s collaboration for North America with AbbVie, total net sales of LINZESS in the U.S., as recorded by AbbVie, are reduced by commercial costs incurred by each party, and the resulting amount is shared equally between the Company and AbbVie. Additionally, development costs are shared equally between the Company and AbbVie. The Company and AbbVie are exploring ways to enhance the clinical profile of LINZESS by studying linaclotide in additional indications, populations and formulations to assess its potential to treat various conditions.

Outside of the U.S., the Company earns royalties as a percentage of net sales of products containing linaclotide as an active ingredient by the Company’s collaboration partners. AbbVie has an exclusive license from the Company to develop and commercialize linaclotide in all countries other than China (including Hong Kong and Macau), Japan and the countries and territories of North America (the “AbbVie License Territory”). In addition, AbbVie has exclusive rights to commercialize linaclotide in Canada as CONSTELLA and in Mexico as LINZESS. Astellas Pharma Inc. (“Astellas”), the Company’s partner in Japan, has an exclusive license to develop, manufacture, and commercialize linaclotide in Japan. AstraZeneca AB (together with its affiliates) (“AstraZeneca”), the Company’s partner in China, has the exclusive right to develop, manufacture, and commercialize products containing linaclotide in China (including Hong Kong and Macau) (the “AstraZeneca License Territory”).

The Company has a collaboration and license option agreement (the “COUR Collaboration Agreement”) with COUR Pharmaceutical Development Company, Inc. (“COUR”), a biotechnology company developing novel immune-modifying nanoparticles to treat autoimmune diseases. The COUR Collaboration Agreement grants the Company an option to acquire an exclusive license to research, develop, manufacture and commercialize, in the U.S., products containing CNP-104, a potential treatment for primary biliary cholangitis, a rare autoimmune disease targeting the liver.

These and other agreements are more fully described in Note 4, Collaboration, License, and Other Agreements, to these condensed consolidated financial statements.

The Company is also advancing IW-3300, a GC-C agonist, for the potential treatment of visceral pain conditions, including interstitial cystitis/bladder pain syndrome (“IC/BPS”) and endometriosis.

In June 2023, the Company completed a tender offer to purchase outstanding ordinary shares of VectivBio Holding AG (“VectivBio”), a clinical-stage biotechnology company focused on the discovery and development of treatments for severe, rare GI conditions for which there is a significant unmet medical need. As of June 30, 2023,

9

Ironwood holds 98% of VectivBio’s outstanding ordinary shares and intends to effect a statutory squeeze-out merger under Swiss law to acquire all remaining shares.Through the acquisition, the Company is advancing apraglutide, a next-generation, synthetic peptide analog of glucagon-like peptide-2 (“GLP-2”), for rare GI diseases, including short bowel syndrome with intestinal failure (“SBS-IF”).

The Company was incorporated in Delaware on January 5, 1998 as Microbia, Inc. On April 7, 2008, the Company changed its name to Ironwood Pharmaceuticals, Inc. To date, the Company has dedicated a majority of its activities to the research, development and commercialization of linaclotide, as well as to the research and development of its other product candidates.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements and the related disclosures are unaudited and have been prepared in accordance with accounting principles generally accepted in the U.S. Additionally, certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 16, 2023 (the “2022 Annual Report on Form 10-K”).

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments considered necessary for a fair statement of the Company’s financial position as of June 30, 2023, and the results of its operations for the three and six months ended June 30, 2023 and 2022, its statements of stockholders’ equity (deficit) for the three and six months ended June 30, 2023 and 2022, and its cash flows for the six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 2023 and 2022 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

Principles of Consolidation

The accompanying condensed consolidated financial statements as of June 30, 2023 include the accounts of Ironwood, its wholly-owned subsidiaries, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH, as well as Ironwood’s majority-owned subsidiary, VectivBio, and VectivBio’s wholly-owned subsidiaries, VectivBio AG, VectivBio Comet AG, GlyPharma Therapeutic Inc. and VectivBio US Inc. All intercompany transactions and balances are eliminated in consolidation.

For consolidated entities in which the Company owns less than 100% of the outstanding shares, the Company records net income (loss) and comprehensive income (loss) attributable to noncontrolling interests in its consolidated statements of income (loss) and comprehensive income (loss), respectively, equal to the percentage of the common stock ownership interest retained in such entities by the noncontrolling parties. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity.

The Company acquired control of VectivBio and its subsidiaries on June 29, 2023 (Note 3). Accordingly, the accompanying condensed consolidated financial statements reflect the results of operations and cash flows of VectivBio and its subsidiaries from the acquisition date through June 30, 2023.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. On an ongoing basis, the Company’s management evaluates its estimates, judgments and methodologies. Significant estimates and assumptions in the condensed consolidated financial statements include those related to fair value of assets acquired and liabilities assumed in acquisitions; revenue recognition; accounts receivable; useful lives of long-lived assets, impairment of long-lived assets, including goodwill; valuation procedures for right-of-use assets and operating lease

10

liabilities; fair value of derivatives; income taxes, including uncertain tax positions and the valuation allowance for deferred tax assets; research and development expenses; contingencies and share-based compensation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, in the 2022 Annual Report on Form 10-K. During the three and six months ended June 30, 2023, the following additional significant accounting policies were applicable following the acquisition of VectivBio:

Foreign Currency Translation

For subsidiaries with a different functional currency than the U.S. dollar, assets and liabilities are translated at the exchange rate as of the balance sheet date and income and expense items are translated at the average exchange rate for the reporting period. Adjustments resulting from the translation of the financial statements of foreign subsidiaries are recorded in accumulated comprehensive income (loss), a separate component of stockholders’ equity.

Adjustments related to foreign currency translation were insignificant during the three and six months ended June 30, 2023 and cumulatively were insignificant as of June 30, 2023.

Acquisitions

The Company evaluates acquisitions of assets and other similar transactions to assess whether the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated into a single identifiable asset or group of similar identifiable assets. If the screen test is met, a single asset or group of assets is not a business and is accounted for as an asset acquisition. If the screen test is not met, further determination is required as to whether the Company has acquired inputs and processes that have the ability to create outputs that would meet the requirements of a business.

The Company accounts for business combinations using the acquisition method of accounting, which requires the acquiring entity to recognize the fair value of assets acquired and liabilities assumed and establishes the acquisition date as the fair value measurement point. The Company determines the fair value of assets acquired and liabilities assumed based on management’s estimate of the fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Transaction costs are expensed as incurred.

The Company accounts for asset acquisitions that are not determined to be a business combination by recognizing net assets based on the consideration paid, inclusive of transaction costs, on a relative fair value basis. In an asset acquisition, the cost allocated to acquired in-process research and development (“IPR&D”) with no alternative future use is charged to research and development expense at the acquisition date. The Company classifies asset acquisitions of acquired IPR&D as investing activities on its condensed consolidated statements of cash flows.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that are adopted by the Company as of the specified effective date. The Company did not adopt any new accounting pronouncements during the three and six months ended June 30, 2023 that had a material effect on its condensed consolidated financial statements.

11

Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the Company or have a material effect on the condensed consolidated financial statements upon future adoption.

 

 

 

3. Acquisitions

On June 29, 2023, the Company completed a tender offer to purchase the outstanding ordinary shares of VectivBio (the “VectivBio Shares”) at a price per share of $17.00, net to the shareholders of VectivBio in cash, without interest and subject to any applicable withholding taxes (the “VectivBio Acquisition”). The aggregate consideration paid by the Company to acquire the shares accepted for payment was approximately $1.2 billion. The Company financed the acquisition through proceeds from the borrowings under the Revolving Credit Agreement (as defined elsewhere below), cash on hand, and cash of VectivBio.

As of June 30, 2023, the Company holds 98% of the outstanding VectivBio Shares. The Company intends to effect a squeeze-out merger under Swiss law to acquire all the remaining outstanding VectivBio Shares in the second half of 2023. The remaining outstanding VectivBio Shares are expected to be settled by the Company in cash for $26.3 million.

The total purchase consideration for VectivBio is as follows (in thousands):

Cash consideration paid to selling shareholders (1)

$

1,041,391

Cash consideration paid to settle VectivBio restricted stock units ("RSUs") and stock options (2)

 

78,003

Cash consideration paid to settle VectivBio warrants (3)

3,720

Transaction costs

26,270

Fair value of noncontrolling interest (4)

26,218

Total purchase consideration

$

1,175,602

 

(1)The cash consideration paid to selling shareholders was determined based on the total number of VectivBio Shares tendered at closing of 61,258,315 at a per share price of $17.00.
(2)The cash consideration paid to settle VectivBio RSUs and stock options issued under VectivBio’s equity incentive plans was determined based on the total number of underlying VectivBio Shares of 8,904,171 at a per share price of $17.00, less the exercise price for stock options.
(3)The cash consideration paid to settle VectivBio warrants was determined based on the total number of VectivBio warrant shares outstanding at close of 324,190 at a per share price of $11.4757 calculated as the per share price of $17.00, less the exercise price of $5.5243 per share.
(4)The fair value of the non-controlling interest was determined based on the total number of VectivBio Shares outstanding at closing of 1,547,723 at the closing date of the tender offer, using the VectivBio closing share price on June 28, 2023 of $16.94.

 

All consideration was paid during June 2023 with the exception of $18.6 million of transaction costs and $8.0

million of employee tax withholdings on RSU and stock option settlements, both of which are included in accrued expenses as of June 30, 2023.

 

The VectivBio Acquisition was accounted for as an asset acquisition under Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable IPR&D asset, apraglutide, VectivBio’s lead investigational asset. Apraglutide is a next-generation, long-acting synthetic GLP-2 analog being developed for a range of rare GI diseases and is currently in Phase III clinical trial for the potential treatment of SBS-IF. The Company recognized the acquired assets and assumed liabilities based on the consideration paid, inclusive of transaction costs, on a relative fair value basis. In accordance with the accounting for asset acquisitions, an entity that acquires IPR&D assets in an asset acquisition follows the guidance in ASC Topic 730 Research and Development, which requires that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion of the consideration transferred and recorded as research and development expense at the acquisition date. As a result, the Company recorded approximately $1.1 billion in acquired in-process research and development expense related to the apraglutide IPR&D asset during the three and six months ended June 30, 2023.

12

The following is the allocation of the purchase consideration based on the relative fair value of assets acquired and liabilities assumed by the Company (in thousands):

Assets acquired

Cash and cash equivalents

$

123,340

Prepaid expenses and other current assets

10,867

Property and equipment

126

Intangible assets

4,100

Acquired in-process research and development

1,090,449

Total assets acquired

$

1,228,882

Liabilities assumed

Current liabilities

37,377

Other liabilities

15,903

Total liabilities assumed

$

53,280

Net assets acquired

$

1,175,602

 

Intangible assets are comprised of the assembled workforce and are amortized on a straight-line basis over an estimated useful life of five years. The Company recognized an insignificant amount of amortization expense during the three and six months ended June 30, 2023 and the net carrying value of the assembled workforce was $4.1 million.

The Company incurred acquisition-related expenses of $45.2 million for the three and six months ended June 30, 2023, of which $20.9 million were included in selling, general and administrative expenses, $14.8 million were included in research and development expense, and $9.6 million were included in restructuring expense within the Company’s condensed consolidated statement of income (loss) for the three and six months ended June 30, 2023. Acquisition-related expenses include direct and incremental costs incurred in connection with the transaction, including integration-related professional services and employee retention-related benefits. Acquisition-related expenses exclude transaction costs included in the computation of total consideration paid.

13

4. Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2023(1)

    

2022

2023(1)

2022

Numerator:

Net income (loss)

$

(1,089,478)

$

37,080

$

(1,043,764)

$

75,881

Less: Net income (loss) attributable to noncontrolling interests

(27,291)

(27,291)

Net income (loss) attributable to Ironwood Pharmaceuticals, Inc.

(1,062,187)

37,080

(1,016,473)

75,881

Add back interest expense, net of tax benefit, on assumed conversion of 2024 Convertible Notes

445

889

Add back interest expense, net of tax benefit, on assumed conversion of 2026 Convertible Notes

667

1,333

Numerator used in computing net income per share — diluted

(1,062,187)

38,192

(1,016,473)

78,103

Denominator:

Weighted average number of common shares outstanding used in computing net income (loss) per share — basic

155,367

153,304

154,912

155,550

Effect of dilutive securities:

Stock options

361

339

Time-based restricted stock units

922

1,211

Performance-based restricted stock units

270

188

Restricted stock

151

159

2024 Convertible Notes assumed conversion

14,934

14,934

2026 Convertible Notes assumed conversion

14,934

14,934

Dilutive potential common shares

Weighted average number of common shares outstanding used in computing net income (loss) per share — diluted

155,367

184,876

154,912

187,315

Net income (loss) per share — basic

$

(6.84)

$

0.24

$

(6.56)

$

0.49

Net income (loss) per share — diluted

$

(6.84)

$

0.21

$

(6.56)

$

0.42

 

(1) During the three and six months ended June 30, 2023, the Company was in a net loss position, and therefore, did not differentiate basic and diluted earnings per share.

 

The outstanding securities have been excluded from the computation of diluted weighted average shares outstanding, as applicable, as their effect would be anti-dilutive (in thousands):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

2023

    

2022

Stock options

4,855

5,035

4,957

 

6,204

Time-based restricted stock units

1,365

98

920

49

Performance-based restricted stock units

230

528

146

510

Note Hedge Warrants

1,848

8,318

5,083

8,318

Total

 

8,298

 

13,979

11,106

 

15,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

5. Collaboration, License and Other Agreements

The Company has linaclotide collaboration agreements with AbbVie for North America and AstraZeneca for China (including Hong Kong and Macau), as well as linaclotide license agreements with Astellas for Japan and with AbbVie for the AbbVie License Territory. The following table provides amounts included in the Company’s condensed consolidated statements of income as collaborative arrangements revenue attributable to transactions from these arrangements and other agreements (in thousands):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

Collaborative Arrangements Revenue

2023

    

2022

2023

    

2022

Linaclotide Collaboration and License Agreements:

AbbVie (North America)

$

105,482

$

95,061

$

207,818

$

189,962

AbbVie (Europe and other)

694

528

1,357

1,138

AstraZeneca (China, including Hong Kong and Macau)

121

 

148

212

 

340

Astellas (Japan)

482

 

500

873

 

1,023

Other Agreements:

Alnylam (GIVLAARI)

585

1,408

Other

603

409

1,183

889

Total collaborative arrangements revenue

$

107,382

$

97,231

$

211,443