Table of Contents 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 September 30, 2021 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) (State or oth ...

Table of Contents 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, 2021 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) (State or other ju ...

| --- | --- | |------------------|-------| | | | | | | | | | | Ironwood 1Q 2021 | | | | | | Earnings Update | | Ironwood Introduction Meredith Kaya Safe Harbor Statement This presentation contains forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, including statements about our ability to execute on our vision and mission; our strategy, business, financial position and operations, including with respect to maximizing LINZESS® (linaclotide), b ...

[PART I — FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents Ironwood Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements, including Balance Sheets, Income, Stockholders' Equity, Cash Flows, and accompanying notes [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows increased total assets and stockholders' equity as of March 31, 2021, compared to December 31, 2020 Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total current assets** | $538,246 | $495,839 | | **Total assets** | **$599,344** | **$559,238** | | **Total current liabilities** | $23,603 | $32,173 | | **Total liabilities** | $489,152 | $496,598 | | **Total stockholders' equity** | $110,192 | $62,640 | | **Total liabilities and stockholders' equity** | **$599,344** | **$559,238** | [Condensed Consolidated Statements of Income and Comprehensive Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Total revenues and net income significantly increased in Q1 2021 compared to Q1 2020 Condensed Consolidated Statements of Income (in thousands, except per share amounts) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Total revenues** | $88,845 | $79,943 | | Collaborative arrangements revenue | $88,665 | $74,445 | | **Total cost and expenses** | $43,447 | $66,716 | | Research and development | $15,484 | $28,027 | | Selling, general and administrative | $27,652 | $36,450 | | **Income from operations** | $45,398 | $13,227 | | **Net income** | **$39,926** | **$3,345** | | **Net income per share—diluted** | **$0.25** | **$0.02** | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly increased in Q1 2021, leading to a substantial rise in cash and equivalents Condensed Consolidated Statements of Cash Flows (in thousands) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$73,694** | **$43,603** | | Net cash used in investing activities | $0 | $(1,438) | | Net cash provided by financing activities | $2,211 | $11,955 | | **Net increase in cash, cash equivalents and restricted cash** | **$75,905** | **$54,120** | | Cash, cash equivalents and restricted cash, end of period | $440,689 | $233,364 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information on the company's business, accounting policies, and key financial statement items - The company is a GI healthcare company focused on its commercial product **LINZESS® (linaclotide)**, indicated for IBS-C and CIC, with strategic partnerships for global commercialization[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - In September 2020, the company discontinued development of IW-3718 after a Phase III trial did not meet its primary endpoint, leading to a workforce reduction of approximately **100 employees**[154](index=154&type=chunk) - On May 4, 2021, the Board of Directors authorized a stock repurchase program of up to **$150,000 thousand** of the company's common stock, effective until December 31, 2022[156](index=156&type=chunk) Collaborative Arrangements Revenue Breakdown (in thousands) | Partner/Agreement | Q1 2021 Revenue | Q1 2020 Revenue | | :--- | :--- | :--- | | AbbVie (North America) | $86,499 | $71,692 | | AbbVie (Europe and other) | $600 | $643 | | AstraZeneca (China) | $210 | $332 | | Astellas (Japan) | $496 | $479 | | Alnylam (GIVLAARI) | $456 | $945 | | **Total** | **$88,665** | **$74,445** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 financial performance, highlighting increased net income from higher collaborative revenue and reduced costs Q1 2021 vs Q1 2020 Results of Operations (in thousands) | | Q1 2021 | Q1 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | **$88,845** | **$79,943** | **$8,902** | **11%** | | Collaborative arrangements revenue | $88,665 | $74,445 | $14,220 | 19% | | **Total cost and expenses** | **$43,447** | **$66,716** | **$(23,269)** | **(35)%** | | Research and development | $15,484 | $28,027 | $(12,543) | (45)% | | Selling, general and administrative | $27,652 | $36,450 | $(8,798) | (24)% | | **Income from operations** | **$45,398** | **$13,227** | $32,171 | 243% | | **Net income** | **$39,926** | **$3,345** | $36,581 | 1094% | - The increase in collaborative revenue was primarily due to a **$14,800 thousand** increase in the company's share of net profits from LINZESS sales in the U.S., driven by higher prescription demand[202](index=202&type=chunk) - The decrease in R&D expense was mainly due to an **$11,000 thousand** reduction in external development costs for IW-3718, which was discontinued in September 2020[206](index=206&type=chunk) - The company believes its cash on hand of **$438,500 thousand** as of March 31, 2021, is sufficient to meet operating needs for at least the next twelve months[213](index=213&type=chunk)[220](index=220&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate sensitivity on its investment portfolio and equity price risk from convertible notes - The primary market risk is interest income sensitivity on its short-term investment portfolio, where an immediate **1%** change in interest rates is not expected to have a material effect[236](index=236&type=chunk) - Equity price risk exists due to convertible senior notes, whose conversion and settlement provisions are based on the company's **Class A Common Stock** price, mitigated by convertible note hedges and capped call transactions[239](index=239&type=chunk)[240](index=240&type=chunk) - The company has minimal exposure to changes in interest rates on its fixed-rate convertible senior notes and does not expect to be significantly impacted by foreign currency fluctuations[238](index=238&type=chunk)[242](index=242&type=chunk) [Controls and Procedures](index=71&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2021, despite recent management changes - Management concluded that disclosure controls and procedures are effective at a reasonable assurance level as of the end of the period covered by the report[244](index=244&type=chunk) - Recent management changes include the resignation of CEO Mark Mallon, effective March 12, 2021, with President Thomas McCourt appointed as interim CEO, but these changes were not found to have materially affected internal controls[246](index=246&type=chunk)[247](index=247&type=chunk) [PART II — OTHER INFORMATION](index=71&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Risk Factors](index=71&type=section&id=Item%201A.%20Risk%20Factors) This section details significant business risks, including LINZESS dependence, IP challenges, pipeline setbacks, partner reliance, and COVID-19 impact - The company is highly dependent on the commercial success of **LINZESS** in the U.S., and its revenue could be impacted by competition from products like AMITIZA, TRULANCE, and MOTEGRITY[253](index=253&type=chunk)[280](index=280&type=chunk) - The company faces intellectual property challenges, having received **Paragraph IV certification notices** for **LINZESS** from generic drug manufacturers, and while settlement agreements have been reached with **five filers**, future litigation is expected[358](index=358&type=chunk)[360](index=360&type=chunk) - The development pipeline has faced setbacks, including the discontinuation of **MD-7246** and **IW-3718** programs after failing to meet endpoints in **Phase II** and **Phase III** trials, respectively[297](index=297&type=chunk) - The **COVID-19** pandemic poses ongoing risks, potentially impacting **LINZESS** sales through reduced physician access, changes in patient insurance coverage, and disruptions to the supply chain or clinical trial enrollment[391](index=391&type=chunk)[394](index=394&type=chunk)[396](index=396&type=chunk) - The company relies entirely on partners (**AbbVie**, **Astellas**, **AstraZeneca**) and contract manufacturers for the manufacturing and distribution of **linaclotide**, exposing it to risks of supply disruption and compliance failures[305](index=305&type=chunk)[311](index=311&type=chunk) [Exhibits](index=131&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, material agreements, and CEO/CFO certifications - The exhibit index lists all documents filed with the report, including certifications from the **Chief Executive Officer** and **Chief Financial Officer** pursuant to **SEC rules**[419](index=419&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION (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 | Securities registered pursuant to Section 12(g) of the Act: None Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION ...

| --- | --- | --- | |-------------------------|-------|-------| | | | | | Ironwood 4Q and FY 2020 | | | Ironwood Introduction Meredith Kaya Safe Harbor Statement This presentation contains forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, including statements about our ability to execute on our vision and mission; the Company's strategy, business, financial position and operations, including with respect to maximizing LINZESS® (linaclotide), ...

Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) Q4 2020 Earnings Conference Call February 17, 2021 8:30 AM ET Company Participants Meredith Kaya - VP, IR and Corporate Communications Mark Mallon - CEO Thomas McCourt - President Gina Consylman - SVP and CFO Michael Shetzline - CMO, SVP and Head of Drug Development Conference Call Participants Unidentified Analyst - Credit Suisse Eric Joseph - J.P. Morgan Boris Peaker - Cowen and Company Jacob Hughes - Wells Fargo Operator Ladies and gentlemen, thank you for sta ...

| --- | --- | --- | --- | --- | |-----------------------------------|-------|-------|-------|-------| | | | | | | | Ironwood 3Q 2020 Investor Update | | | | | | November 5, 2020 | | | | | | | | | | | | | | | | | | | | | | | Introduction Meredith Kaya Safe Harbor Statement This presentation contains forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, including statements about our ability to execute on our vision to become a leader in GI; our a ...

PART I — FINANCIAL INFORMATION [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements detail the company's financial position, operations, and cash flows for the specified periods Condensed Consolidated Balance Sheet (in thousands) | | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $433,317 | $306,852 | | **Total Assets** | **$492,324** | **$402,748** | | **Total Current Liabilities** | $32,901 | $40,929 | | **Total Liabilities** | $486,420 | $496,000 | | **Total Stockholders' Equity (Deficit)** | $5,904 | $(93,251) | | **Total Liabilities and Stockholders' Equity (Deficit)** | **$492,324** | **$402,748** | Condensed Consolidated Statement of Operations (in thousands) | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $103,468 | $131,167 | $272,843 | $302,112 | | **Total Cost and Expenses** | $57,852 | $65,280 | $181,287 | $231,582 | | **Income from Operations** | $45,616 | $65,887 | $91,556 | $70,530 | | **Net Income (Loss)** | **$34,423** | **$20,648** | **$62,972** | **$(26,353)** | | **Diluted EPS from Continuing Operations** | $0.21 | $0.13 | $0.39 | $0.07 | Condensed Consolidated Statement of Cash Flows (in thousands) | | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $117,323 | $(16,855) | | **Net cash used in investing activities** | $(1,814) | $(8,483) | | **Net cash provided by (used in) financing activities** | $15,022 | $(7,632) | | **Net increase (decrease) in cash** | $130,531 | $(32,970) | | **Cash, cash equivalents and restricted cash, end of period** | **$309,775** | **$147,878** | [Note 1. Nature of Business](index=11&type=section&id=1.%20Nature%20of%20Business) The company operates as a GI-focused healthcare entity, commercializing LINZESS® and managing key strategic partnerships - The company's primary commercial product is **LINZESS® (linaclotide)**, indicated for Irritable Bowel Syndrome with Constipation (IBS-C) and Chronic Idiopathic Constipation (CIC)[28](index=28&type=chunk) - Key partnerships for linaclotide include **AbbVie (North America, Europe, etc.), Astellas (Japan), and AstraZeneca (China)**[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - Development of **IW-3718 for refractory GERD was discontinued** following a Phase III trial's failure to meet its primary endpoint, resulting in a workforce reduction of approximately 100 employees[33](index=33&type=chunk)[34](index=34&type=chunk) - Development of **MD-7246**, a delayed-release formulation of linaclotide, was discontinued after a Phase II trial failed to meet its primary and key secondary endpoints[35](index=35&type=chunk) [Note 4. Collaboration, License, Promotion and Other Commercial Agreements](index=23&type=section&id=4.%20Collaboration%2C%20License%2C%20Promotion%20and%20Other%20Commercial%20Agreements) Collaborative arrangement revenue is detailed, primarily driven by the AbbVie partnership for LINZESS® Collaborative Arrangements Revenue and Sale of API (in thousands) | Partner/Agreement | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Collaborative Revenue** | | | | AbbVie (North America) | $259,571 | $225,390 | | AstraZeneca (China) | $650 | $32,401 | | Astellas (Japan) | $1,495 | $10,059 | | Alnylam (GIVLAARI) | $3,105 | $722 | | **Total Collaborative Revenue** | **$267,336** | **$273,998** | | **Sale of API** | | | | Astellas (Japan) | $0 | $27,468 | | AstraZeneca (China) | $5,507 | $646 | | **Total Sale of API** | **$5,507** | **$28,114** | - Under the AbbVie collaboration for North America, Ironwood shares equally in the net profits or losses from LINZESS sales in the U.S, generating **$257.9 million in revenue for Ironwood** for the nine months ended Sep 30, 2020[87](index=87&type=chunk)[91](index=91&type=chunk) - In August 2019, the license agreement with Astellas was amended, and Ironwood is **no longer responsible for supplying linaclotide API to Astellas** in Japan beginning in Q4 2020[104](index=104&type=chunk)[105](index=105&type=chunk) - In September 2019, the collaboration with AstraZeneca was amended, granting AstraZeneca exclusive rights in China, and Ironwood recognized **$32.4 million in revenue** at contract inception in 2019[110](index=110&type=chunk)[117](index=117&type=chunk) [Note 8. Notes Payable](index=49&type=section&id=8.%20Notes%20Payable) The company holds significant debt through three series of convertible senior notes totaling $424.5 million in net carrying amount Convertible Senior Notes Balances (in thousands) | Note Series | Principal | Unamortized Discount & Costs | Net Carrying Amount (Sep 30, 2020) | | :--- | :--- | :--- | :--- | | 2022 Convertible Notes | $120,699 | N/A | Part of Total | | 2024 Convertible Notes | $200,000 | N/A | Part of Total | | 2026 Convertible Notes | $200,000 | N/A | Part of Total | | **Total** | **$520,699** | **$(96,160)** | **$424,539** | Total Interest Expense on Convertible Notes (in thousands) | | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Contractual interest expense | $1,803 | $5,412 | | Amortization of debt discount & issuance costs | $5,616 | $16,545 | | **Total interest expense** | **$7,419** | **$21,957** | - To minimize dilution from the 2022 Convertible Notes, the company entered into **Convertible Note Hedges and sold Note Hedge Warrants**, accounted for as derivative assets and liabilities[184](index=184&type=chunk)[185](index=185&type=chunk)[189](index=189&type=chunk) - In connection with the 2024 and 2026 notes, the company entered into **Capped Call transactions to reduce potential dilution**, which are classified in stockholders' equity[190](index=190&type=chunk)[191](index=191&type=chunk)[193](index=193&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=62&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, strategic updates including program discontinuations, and the manageable impacts of COVID-19 [Overview](index=62&type=section&id=MD%26A%20Overview) The company focuses on its primary GI product LINZESS after discontinuing two development programs amid the COVID-19 pandemic - The company is **discontinuing development of IW-3718 (refractory GERD) and MD-7246 (IBS-D)** based on negative clinical trial data[210](index=210&type=chunk)[213](index=213&type=chunk) - A **workforce reduction of approximately 100 full-time employees** is planned for Q4 2020 following the discontinuation of IW-3718[210](index=210&type=chunk)[212](index=212&type=chunk) Recent Financial Performance (in millions) | Period | Net Income (Loss) | | :--- | :--- | | Q3 2020 | $34.4 | | Nine Months 2020 | $63.0 | | Full Year 2019 | $21.5 | - The COVID-19 pandemic has resulted in changes to business operations and impacted financial results, with the **full extent and duration of the impact remaining uncertain**[222](index=222&type=chunk) [Results of Operations](index=76&type=section&id=Results%20of%20Operations) Q3 2020 revenue decreased due to prior-year one-time payments, offset by lower operating expenses and increased LINZESS profits Revenue Comparison (in thousands) | Revenue Source | Q3 2020 | Q3 2019 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Collaborative arrangements | $103,468 | $130,524 | $(27,056) | (21)% | | Sale of API | $0 | $643 | $(643) | (100)% | | **Total Revenues** | **$103,468** | **$131,167** | **$(27,699)** | **(21)%** | - The decrease in Q3 collaborative revenue was mainly due to a **$32.4 million payment from AstraZeneca** and a **$10.0 million payment from Astellas**, both recognized in Q3 2019[268](index=268&type=chunk) Cost and Expense Comparison (in thousands) | Expense Category | Q3 2020 | Q3 2019 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Research and development | $21,692 | $27,551 | $(5,859) | (21)% | | Selling, general and administrative | $34,928 | $40,919 | $(5,991) | (15)% | | **Total Cost and Expenses** | **$57,852** | **$65,280** | **$(7,428)** | **(11)%** | - The decrease in R&D expense was primarily due to **lower external development costs for IW-3718 and linaclotide**, while the SG&A decrease was due to a **$6.8 million reduction in separation costs**[274](index=274&type=chunk)[277](index=277&type=chunk) - Other expense, net, improved significantly, largely because the 2019 period included a **$31.0 million loss on extinguishment of debt**[281](index=281&type=chunk)[287](index=287&type=chunk) [Liquidity and Capital Resources](index=83&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash position increased significantly due to strong operating cash flow, ensuring sufficient liquidity for the next year - Cash and cash equivalents stood at **$307.6 million** as of September 30, 2020[291](index=291&type=chunk) - Net cash provided by operating activities was **$117.3 million** for the nine months ended September 30, 2020, primarily due to profitable operations driven by LINZESS sales in the U.S[292](index=292&type=chunk) - Management believes that cash on hand as of September 30, 2020 will be **sufficient to meet projected operating needs for at least the next twelve months**[299](index=299&type=chunk) - The company's primary sources of liquidity have been **equity and debt financings, and payments from collaborative arrangements**[297](index=297&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=89&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Primary market risks stem from equity price volatility linked to convertible senior notes, with minimal interest rate and currency risk - **Interest rate risk is low** due to short-term investments and fixed-rate debt, and an immediate 1% change in interest rates would not have a material effect[318](index=318&type=chunk)[320](index=320&type=chunk) - **Equity price risk stems from the convertible senior notes** (2022, 2024, 2026), as their fair value and potential conversion are tied to the company's stock price[321](index=321&type=chunk)[325](index=325&type=chunk) - The company uses **Convertible Note Hedges and Capped Calls to reduce potential dilution** from its convertible notes, with the value of these derivatives also linked to the stock price[323](index=323&type=chunk)[327](index=327&type=chunk) - **Foreign currency risk is not significant**[328](index=328&type=chunk) [Item 4. Controls and Procedures](index=93&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls during the quarter - The principal executive officer and principal financial officer concluded that the company's **disclosure controls and procedures were effective** as of the end of the period[330](index=330&type=chunk)[332](index=332&type=chunk) - **No changes in internal control over financial reporting** occurred during the quarter that materially affected, or were reasonably likely to materially affect, these controls[333](index=333&type=chunk)[334](index=334&type=chunk) PART II — OTHER INFORMATION [Item 1A. Risk Factors](index=95&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include COVID-19 impacts, dependency on LINZESS, partner reliance, and intellectual property challenges [Risks Related to the COVID-19 Pandemic](index=95&type=section&id=Risks%20Related%20to%20the%20COVID-19%20Pandemic) The COVID-19 pandemic presents risks to operations, sales promotion, clinical trials, and manufacturing supply chains - Limitations on in-person sales calls and a shift to virtual customer support due to COVID-19 may **fundamentally change the commercial model and could impact LINZESS sales**[338](index=338&type=chunk)[340](index=340&type=chunk) - The pandemic has **impacted clinical trial enrollment**, specifically for the now-discontinued IW-3718 program, and could affect future trials[342](index=342&type=chunk) - Negative impacts on the U.S. economy could lead to changes in patient insurance coverage, **potentially harming LINZESS revenue**[338](index=338&type=chunk) [Risks Related to Our Business and Industry](index=97&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Business risks include high dependency on LINZESS, reliance on partners for manufacturing, and intense market competition - The company is **highly dependent on the commercial success of LINZESS** in the U.S. for the foreseeable future[344](index=344&type=chunk) - The company has **no internal manufacturing capabilities** and relies on contract manufacturers and partners, making it vulnerable to supply chain disruptions and quality issues[355](index=355&type=chunk)[356](index=356&type=chunk) - LINZESS competes with other prescription therapies such as **AMITIZA, TRULANCE, MOTEGRITY, and ZELNORM**[398](index=398&type=chunk) - The **discontinuation of development for MD-7246 and IW-3718** highlights the significant setbacks and uncertainties in clinical development[421](index=421&type=chunk) [Risks Related to Intellectual Property](index=133&type=section&id=Risks%20Related%20to%20Intellectual%20Property) The company's success depends on protecting LINZESS patents from challenges by generic drug manufacturers - The company's success depends on **maintaining patent protection for LINZESS**, with its main patent expiring in 2026[449](index=449&type=chunk)[451](index=451&type=chunk) - The company has received **Paragraph IV certification notices for ANDAs** filed by generic drug manufacturers seeking to market generic versions of LINZESS[457](index=457&type=chunk)[462](index=462&type=chunk) - The company has **filed and settled patent infringement lawsuits against five generic companies** and expects future litigation, which could materially harm the business[462](index=462&type=chunk)[464](index=464&type=chunk) [Risks Related to Our Finances and Capital Requirements](index=137&type=section&id=Risks%20Related%20to%20Our%20Finances%20and%20Capital%20Requirements) The company faces financial risks from its history of losses, substantial debt, and potential need for future funding - As of September 30, 2020, the company had an **accumulated deficit of approximately $1.5 billion**, despite recent profitability[470](index=470&type=chunk) - The company has approximately **$520.7 million in total principal debt** from its Convertible Senior Notes, which could limit financial flexibility[476](index=476&type=chunk) - The ability to make interest and principal payments on debt is **highly dependent on receiving payments from the AbbVie collaboration** for LINZESS sales[475](index=475&type=chunk)

[PART I — FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) The company's unaudited financial statements show improved net income driven by lower operating expenses despite a decrease in total revenues [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $443.5 million, and the total stockholders' deficit improved significantly Balance Sheet Items | Balance Sheet Items | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | **Total Current Assets** | $374,275 | $306,852 | | **Total Assets** | **$443,538** | **$402,748** | | **Total Current Liabilities** | $26,695 | $40,929 | | **Total Liabilities** | $480,390 | $495,999 | | **Total Stockholders' Deficit** | **($36,852)** | **($93,251)** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2020 net income from continuing operations more than doubled to $25.2 million despite a decrease in total revenues Key Operational Metrics | Metric (in thousands) | Q2 2020 | Q2 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $89,432 | $102,215 | $169,375 | $170,945 | | Collaborative arrangements revenue | $89,423 | $77,322 | $163,868 | $143,474 | | Sale of active pharmaceutical ingredient | $9 | $24,893 | $5,507 | $27,471 | | **Income from Operations** | $32,713 | $21,577 | $45,940 | $4,643 | | **Net Income (Loss) from Continuing Operations** | $25,204 | $12,283 | $28,549 | ($9,563) | | **Net Income (Loss) per Share - Diluted** | $0.16 | $0.08 | $0.18 | ($0.06) | [Condensed Consolidated Statements of Stockholders' Deficit](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Deficit) The stockholders' deficit improved from ($93.3) million to ($36.9) million, driven primarily by net income - The total stockholders' deficit decreased from **$93.3 million** at the end of 2019 to **$36.9 million** at the end of Q2 2020, mainly due to net income of **$28.5 million** for the six-month period[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company generated positive operating cash flow of $63.7 million, a significant reversal from the prior year Cash Flow Summary | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $63,691 | ($51,622) | | **Net cash used in investing activities** | ($1,814) | ($5,406) | | **Net cash provided by (used in) financing activities** | $14,352 | ($16,265) | | **Net increase (decrease) in cash** | $76,229 | ($73,293) | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the company's focus on LINZESS, key collaboration revenues, and outstanding convertible debt - The company is a gastrointestinal (GI) healthcare company focused on its commercial product LINZESS® (linaclotide) for IBS-C and CIC, with key strategic partnerships with AbbVie, Astellas, and AstraZeneca for global commercialization[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - On April 1, 2019, the company completed the separation of its sGC business into Cyclerion Therapeutics, Inc, which is presented as discontinued operations in the financial statements[38](index=38&type=chunk)[56](index=56&type=chunk) - As of June 30, 2020, the company had three series of convertible senior notes outstanding with a total net carrying amount of **$418.9 million**[180](index=180&type=chunk) Collaborative Revenue Breakdown | Collaborative Revenue Source (in thousands) | Q2 2020 | Q2 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | **AbbVie (North America)** | $86,926 | $75,498 | $158,618 | $140,283 | | **Astellas (Japan)** | $504 | $0 | $983 | $0 | | **AstraZeneca (China)** | $187 | $0 | $519 | $0 | | **Alnylam (GIVLAARI)** | $1,061 | $0 | $2,006 | $0 | | **Total Collaborative Revenue** | **$89,423** | **$77,322** | **$163,868** | **$143,474** | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=60&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial performance, operational results, and liquidity, highlighting LINZESS's success and pipeline developments [Overview](index=60&type=section&id=Overview) The company focuses on its GI product LINZESS, manages pipeline changes, and addresses COVID-19 impacts - The company's primary focus is on its GI product LINZESS, commercialized through partnerships with AbbVie, AstraZeneca, and Astellas[209](index=209&type=chunk)[210](index=210&type=chunk)[212](index=212&type=chunk) - The development of MD-7246 was discontinued with partner AbbVie after a **Phase II trial failed to meet its primary endpoints**[214](index=214&type=chunk) - The COVID-19 pandemic has impacted the business, notably by **slowing patient enrollment** in the Phase III clinical trials for IW-3718[213](index=213&type=chunk)[223](index=223&type=chunk) [Financial Overview](index=64&type=section&id=Financial%20Overview) Revenues are driven by LINZESS collaborations, while R&D expenses are concentrated in IW-3718 and linaclotide programs - Revenues are primarily generated through collaborative arrangements for linaclotide, including profit sharing with AbbVie in the U.S, royalties, and milestone payments[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) R&D Expense by Program | R&D Expense by Program (in thousands) | Q2 2020 | Q2 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | **Linaclotide** | $6,362 | $8,284 | $14,149 | $18,147 | | **IW-3718** | $13,629 | $18,562 | $32,522 | $35,464 | | **Early research and development** | $2,085 | $1,757 | $3,432 | $6,974 | | **Total R&D Expenses** | **$22,076** | **$28,758** | **$50,103** | **$60,956** | [Results of Operations](index=73&type=section&id=Results%20of%20Operations) Higher LINZESS profits drove revenue growth, while reduced spending led to a significant increase in operating income - Q2 2020 collaborative arrangements revenue **increased by 16% YoY to $89.4 million**, primarily due to an $11.5 million increase in the company's share of net profits from LINZESS sales in the U.S[267](index=267&type=chunk) - Sale of API revenue **dropped nearly 100%** in Q2 2020 to just $9,000 from $24.9 million in Q2 2019, mainly because of a decrease in API sales to Astellas in Japan[267](index=267&type=chunk)[269](index=269&type=chunk) - Total operating expenses for Q2 2020 **decreased by 30% YoY to $56.7 million**, driven by lower R&D spending on IW-3718, reduced SG&A costs, and the absence of restructuring charges[271](index=271&type=chunk)[272](index=272&type=chunk)[274](index=274&type=chunk) [Liquidity and Capital Resources](index=79&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds sufficient cash to fund operations for at least twelve months but notes COVID-19 as a financial uncertainty - The company held **$253.3 million in unrestricted cash and cash equivalents** as of June 30, 2020[289](index=289&type=chunk) - Management believes that cash on hand as of June 30, 2020, is **sufficient to meet projected operating needs** for at least the next twelve months[296](index=296&type=chunk) - The COVID-19 pandemic is noted as a significant uncertainty that could adversely impact the company's future financial condition and ability to obtain financing[292](index=292&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=87&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are equity price risk from its convertible notes and minimal interest rate risk - The company's main market risk exposures are **interest rate risk and equity price risk**[313](index=313&type=chunk) - Interest rate risk is low due to short-term investments and fixed-rate convertible senior notes[314](index=314&type=chunk)[316](index=316&type=chunk) - Equity price risk arises from convertible senior notes whose conversion is based on the company's stock price, with hedges in place to manage potential dilution[317](index=317&type=chunk)[321](index=321&type=chunk)[323](index=323&type=chunk) [Controls and Procedures](index=91&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were effective as of June 30, 2020 - Management concluded that the company's **disclosure controls and procedures were effective** as of June 30, 2020[327](index=327&type=chunk) - **No material changes** to the company's internal control over financial reporting were identified during the quarter[329](index=329&type=chunk) [PART II — OTHER INFORMATION](index=91&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Risk Factors](index=91&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic, dependency on LINZESS, and intellectual property challenges [Risks Related to the COVID-19 Pandemic](index=91&type=section&id=Risks%20Related%20to%20the%20COVID-19%20Pandemic) The pandemic poses risks to operations, LINZESS sales, and clinical trial timelines, with uncertain long-term impacts - The COVID-19 pandemic has impacted business operations, with remote work and limited in-person interactions **potentially harming LINZESS sales**[332](index=332&type=chunk)[335](index=335&type=chunk) - Enrollment in clinical trials, specifically the Phase III trials for IW-3718, has been **slowed by the pandemic**, leading to delays and expected increases in trial expenses[338](index=338&type=chunk) - Potential disruptions to the **manufacturing and supply chain** for LINZESS and clinical trial materials due to the pandemic pose a risk to revenue and trial progression[337](index=337&type=chunk) [Risks Related to Our Business and Industry](index=95&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Key business risks include heavy reliance on LINZESS, third-party manufacturing, competition, and pricing pressures - The company is **highly dependent on the commercial success of LINZESS** in the U.S, which constitutes a significant portion of total revenue[342](index=342&type=chunk) - The company relies entirely on contract manufacturers and partners, exposing it to risks of **supply disruption, quality issues, and regulatory non-compliance**[351](index=351&type=chunk) - LINZESS faces competition from other prescription therapies such as **AMITIZA, TRULANCE, MOTEGRITY, and ZELNORM**, as well as over-the-counter products[395](index=395&type=chunk) - The business is subject to significant uncertainty from **pricing and reimbursement policies** in the U.S and abroad, as well as broader healthcare reform initiatives[368](index=368&type=chunk)[370](index=370&type=chunk) [Risks Related to Intellectual Property](index=129&type=section&id=Risks%20Related%20to%20Intellectual%20Property) The company's success depends on defending its LINZESS patents against challenges from generic drug manufacturers - The company's success is dependent on its ability to obtain and maintain patent protection for its products, particularly LINZESS[442](index=442&type=chunk)[444](index=444&type=chunk) - The company has received Paragraph IV certification notices for ANDAs filed by generic drug manufacturers and has filed patent infringement lawsuits in response[455](index=455&type=chunk)[456](index=456&type=chunk) [Risks Related to Our Finances and Capital Requirements](index=135&type=section&id=Risks%20Related%20to%20Our%20Finances%20and%20Capital%20Requirements) The company has a history of losses, substantial debt, and uncertain future funding needs dependent on LINZESS revenue - The company has a history of significant losses, with an **accumulated deficit of approximately $1.5 billion** as of June 30, 2020, and may incur losses in the future[464](index=464&type=chunk)[465](index=465&type=chunk) - As of June 30, 2020, the company had **total indebtedness of approximately $520.7 million**, which could adversely affect its financial condition[474](index=474&type=chunk) - The ability to service its debt depends in part on receiving payments from AbbVie from the LINZESS collaboration[470](index=470&type=chunk)[473](index=473&type=chunk) [Risks Related to Securities Markets and Investment in Our Stock](index=148&type=section&id=Risks%20Related%20to%20Securities%20Markets%20and%20Investment%20in%20Our%20Stock) The company's stock price is expected to be volatile, and anti-takeover provisions could prevent a change of control - The market price of the company's Class A Common Stock is **expected to fluctuate substantially** due to commercial performance, clinical trial results, and other factors[499](index=499&type=chunk) - **Anti-takeover provisions**, including a staggered board of directors (being phased out by 2022), could delay or prevent a change of control[488](index=488&type=chunk) [Exhibits](index=148&type=section&id=Item%206.%20Exhibits) This section indexes the exhibits filed with the report, including corporate documents and required officer certifications - The exhibits filed with this report include corporate governance documents, CEO and CFO certifications pursuant to SEC rules, and interactive data files (XBRL)[501](index=501&type=chunk)[504](index=504&type=chunk)