Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION 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 March 31, 2020 Washington, D.C. 20549 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 j ...

PART I [Business Overview](index=6&type=section&id=Item%201.%20Business) Ironwood Pharmaceuticals is a GI healthcare company focused on its flagship product LINZESS and a GI-focused pipeline - Ironwood Pharmaceuticals is a GI healthcare company focused on advancing the treatment of GI diseases and redefining the standard of care for millions of GI patients[17](index=17&type=chunk) - **LINZESS® (linaclotide)** is the company's commercial product, approved by the U.S. FDA for adult men and women suffering from irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC)[18](index=18&type=chunk) - The company has strategic partnerships with Allergan plc (U.S.), AstraZeneca AB (China), and Astellas Pharma Inc. (Japan) for the development and commercialization of linaclotide[19](index=19&type=chunk) - MD-7246, a delayed-release formulation of linaclotide, is in a Phase II clinical trial for abdominal pain associated with IBS with diarrhea (IBS-D)[20](index=20&type=chunk) - IW-3718, a gastric retentive formulation, is in two Phase III clinical trials for the potential treatment of refractory gastroesophageal reflux disease (GERD)[21](index=21&type=chunk) - On April 1, 2019, the company completed a tax-free spin-off of its sGC business into Cyclerion Therapeutics, Inc., to focus on driving growth as a GI-focused healthcare company[24](index=24&type=chunk) - Collaborative arrangements revenue related to U.S. LINZESS sales grew to **$325.4 million** for the year ended December 31, 2019[29](index=29&type=chunk) - Settlements were reached resolving LINZESS patent litigation with Sandoz Inc. and Teva Pharmaceuticals, USA, allowing generic versions to market as early as **March 2029** for 145 mcg and 290 mcg doses, and **August 2030** for 72 mcg doses[29](index=29&type=chunk)[83](index=83&type=chunk)[289](index=289&type=chunk) Revenue Distribution by Geography (2017-2019) | | Year Ended December 31, | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2017 | | U.S. | 78.0 % | 79.0 % | 89.0 % | | Japan | 13.0 % | 20.1 % | 10.0 % | | Rest of world | 9.0 % | 0.9 % | 1.0 % | | | 100.0 % | 100.0 % | 100.0 % | - The U.S. composition of matter patent for LINZESS expires in **2026**, and patents for commercial, room temperature stable formulations of 145 mcg and 290 mcg doses expire in the **early 2030s**[34](index=34&type=chunk)[35](index=35&type=chunk)[77](index=77&type=chunk) [Risk Factors](index=35&type=section&id=Item%201A.Risk%20Factors) The company faces significant risks from its reliance on LINZESS, third-party partners, market competition, and regulatory challenges - The company is **highly dependent on the commercial success of LINZESS** in the U.S. for the foreseeable future, with revenues from this collaboration constituting a significant portion of total revenue[127](index=127&type=chunk)[128](index=128&type=chunk) - LINZESS has a **boxed warning** regarding its use in pediatric patients (contraindicated up to six years of age, avoid use in six to less than 18 years of age) based on nonclinical data and lack of clinical safety/efficacy data[135](index=135&type=chunk) - The company **relies entirely on contract manufacturers**, partners, and other third parties for manufacturing linaclotide and other product candidates, and for distributing linaclotide[139](index=139&type=chunk)[140](index=140&type=chunk) - Changes in control or management of linaclotide partners (e.g., Allergan's combination with AbbVie) may adversely affect collaborative relationships and commercialization success[146](index=146&type=chunk) - Significant uncertainty exists regarding **coverage and reimbursement policies** in the U.S. and internationally, which could limit demand and pricing for products[152](index=152&type=chunk)[155](index=155&type=chunk) - The pharmaceutical industry is **intensely competitive**, with LINZESS competing with prescription therapies (e.g., AMITIZA, TRULANCE) and over-the-counter products (e.g., MiraLAX, DULCOLAX)[175](index=175&type=chunk)[179](index=179&type=chunk) - The company faces potential **product liability exposure** from the use and sale of its products, which could result in substantial liabilities and reputational damage[173](index=173&type=chunk)[174](index=174&type=chunk) - Promoting **'off-label' uses** of products is prohibited and could lead to significant liability, including civil and administrative remedies, as well as criminal sanctions[180](index=180&type=chunk) - The separation of Cyclerion introduces operational difficulties, potential claims and liabilities, and risks related to the **tax-free status** of the distribution[208](index=208&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk) - The company's ability to obtain and maintain **patent protection** for its products and product candidates is crucial, and patent litigation (e.g., ANDA filings by generic manufacturers) is costly and time-consuming[223](index=223&type=chunk)[230](index=230&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk) [Unresolved Staff Comments](index=87&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[276](index=276&type=chunk) [Properties](index=87&type=section&id=Item%202.%20Properties) The company's corporate headquarters are located in Boston, Massachusetts under a lease expiring in June 2030 - The company's corporate headquarters and operations are located in Boston, Massachusetts[277](index=277&type=chunk) - As of December 31, 2019, the company occupied approximately **39,000 square feet** of office space under a lease expiring in June 2030[277](index=277&type=chunk) [Legal Proceedings](index=87&type=section&id=Item%203.%20Legal%20Proceedings) The company settled patent infringement litigation, granting licenses for generic LINZESS versions starting in 2029 - Ironwood and Allergan received Paragraph IV certification notice letters regarding Abbreviated New Drug Applications (ANDAs) from generic drug manufacturers (Teva and Sandoz) seeking approval to market generic versions of LINZESS[280](index=280&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) - In January 2020, Ironwood and Allergan entered into **settlement agreements** with Sandoz and Teva, resolving the patent litigation[288](index=288&type=chunk) - The settlements grant each generic drug manufacturer a license to market their respective 145 mcg and 290 mcg generic versions of LINZESS in the U.S. beginning as early as **March 31, 2029** (subject to U.S. FDA approval)[289](index=289&type=chunk) - A settlement agreement with Mylan granted a license to market its 72 mcg generic version of LINZESS beginning **August 5, 2030** (subject to U.S. FDA approval)[289](index=289&type=chunk) [Mine Safety Disclosures](index=91&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - This item is not applicable[290](index=290&type=chunk) PART II [Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=92&type=section&id=Item%205.%20Market%20For%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's Class A Common Stock trades on Nasdaq under 'IRWD' and it does not anticipate paying cash dividends - Shares of Class A Common Stock are traded on the Nasdaq Global Select Market under the symbol **'IRWD'**[3](index=3&type=chunk)[293](index=293&type=chunk) - As of February 10, 2020, there were **158,206,912 shares** of Class A Common Stock outstanding and 70 stockholders of record[4](index=4&type=chunk)[293](index=293&type=chunk) - The company has **never declared or paid any cash dividends** on its capital stock and does not currently anticipate doing so in the foreseeable future, intending to retain all future earnings to finance operations[295](index=295&type=chunk) - The corporate performance graph's total returns for periods prior to April 1, 2019, have been adjusted for the effect of the separation of the sGC business into Cyclerion Therapeutics, Inc[298](index=298&type=chunk)[299](index=299&type=chunk) [Selected Financial Data](index=94&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides key financial data from 2015-2019, reflecting discontinued operations and a return to profitability in 2019 - Results of operations related to the soluble guanylate cyclase (sGC) business have been reclassified to reflect **discontinued operations** for all periods presented[304](index=304&type=chunk) Consolidated Statement of Operations Data (2015-2019, in thousands, except per share data) | | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | **$428,413** | **$346,639** | **$298,276** | **$273,957** | **$149,555** | | Collaborative arrangements revenue | $379,652 | $272,839 | $265,533 | $263,923 | $149,040 | | Product revenue, net | — | 3,445 | 3,061 | 109 | — | | Sale of active pharmaceutical ingredient | 48,761 | 70,355 | 29,682 | 9,925 | 515 | | **Total cost and expenses** | **308,290** | **497,309** | **313,639** | **284,126** | **216,903** | | Research and development | 115,044 | 101,060 | 88,145 | 101,903 | 78,326 | | Selling, general and administrative | 172,450 | 219,676 | 231,184 | 169,169 | 120,927 | | Impairment of intangible assets | — | 151,794 | — | — | — | | **Net income (loss)** | **$21,505** | **$(282,368)** | **$(116,937)** | **$(81,708)** | **$(142,669)** | | Net income (loss) per share—basic and diluted | $0.14 | $(1.85) | $(0.78) | $(0.56) | $(1.00) | - Collaborative arrangements revenue for 2019 included **$325.4 million** from U.S. LINZESS sales, **$32.4 million** in non-contingent payments from AstraZeneca, and **$10.0 million** upfront from Astellas[306](index=306&type=chunk) - Cost of revenues for 2019 was approximately **$23.9 million**, primarily related to sales of linaclotide API and finished drug product[308](index=308&type=chunk) - A loss on extinguishment of debt of approximately **$31.0 million** was recorded in 2019 due to the partial repurchase of 2022 Convertible Notes and redemption of 2026 Notes[315](index=315&type=chunk) Consolidated Balance Sheet Data (2015-2019, in thousands) | | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash, cash equivalents and available-for-sale securities | $177,023 | $173,172 | $221,416 | $305,216 | $439,394 | | Working capital (excluding deferred revenue) | 266,798 | 146,911 | 245,569 | 289,050 | 430,931 | | Total assets | 402,748 | 332,050 | 605,674 | 709,821 | 619,121 | | Debt financing and convertible notes, including current portion | 407,994 | 413,692 | 396,091 | 366,492 | 378,548 | | Total liabilities | 495,999 | 528,421 | 595,826 | 643,105 | 523,996 | | Total stockholders' (deficit) equity | (93,251) | (196,371) | 9,848 | 66,716 | 95,125 | - In August 2019, the company issued **$200.0 million** in 0.75% Convertible Senior Notes due 2024 and **$200.0 million** in 1.50% Convertible Senior Notes due 2026, with net proceeds of approximately **$391.0 million**[317](index=317&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=100&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company achieved profitability in 2019 driven by strong LINZESS revenue and strategic financial management - Ironwood Pharmaceuticals is a GI healthcare company focused on advancing the treatment of GI diseases and redefining the standard of care for millions of GI patients[320](index=320&type=chunk) - LINZESS® (linaclotide) is the company's commercial product, approved for adult men and women suffering from IBS-C or CIC in the U.S., Mexico, Japan, and China, and as CONSTELLA® in Canada and certain European countries[321](index=321&type=chunk) - The company recorded **net income of approximately $21.5 million** for the year ended December 31, 2019, after incurring net losses in each year since its inception in 1998[327](index=327&type=chunk) - As of December 31, 2019, the company had an accumulated deficit of approximately **$1.6 billion**[327](index=327&type=chunk) - In August 2019, the company issued **$200.0 million** in 0.75% Convertible Senior Notes due 2024 and **$200.0 million** in 1.50% Convertible Senior Notes due 2026, generating net proceeds of approximately **$391.0 million**[329](index=329&type=chunk) - Proceeds from the new convertible notes were used to repurchase **$215.0 million** of 2022 Convertible Notes and redeem **$116.5 million** of 8.375% Notes due 2026, resulting in a **$31.0 million loss on extinguishment of debt**[330](index=330&type=chunk) - Amended and restated ex-U.S. linaclotide partnerships with Astellas (Japan) and AstraZeneca (China) in 2019, recognizing **$10.0 million** in upfront revenue from Astellas and **$32.4 million** in non-contingent payments from AstraZeneca. The company will no longer be responsible for API supply to these partners from 2020[330](index=330&type=chunk)[331](index=331&type=chunk) - The company completed the separation of its sGC business into Cyclerion Therapeutics, Inc. on April 1, 2019, with sGC business expenses reclassified as **discontinued operations**[335](index=335&type=chunk)[384](index=384&type=chunk) - The company adopted ASC Topic 606, Revenue from Contracts with Customers, effective January 1, 2018, to align revenue recognition with service delivery[341](index=341&type=chunk) Revenue Comparison (2018 vs 2019, in thousands) | Revenues: | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Collaborative arrangements revenue | $379,652 | $272,839 | $106,813 | 39 % | | Product revenue, net | — | 3,445 | (3,445) | (100)% | | Sale of active pharmaceutical ingredient | 48,761 | 70,355 | (21,594) | (31)% | | **Total revenues** | **428,413** | **346,639** | **81,774** | **24 %** | - The increase in collaborative arrangements revenue was primarily due to **$32.4 million** from AstraZeneca, a **$31.3 million** increase in U.S. LINZESS net profits, a **$29.9 million** negative adjustment in 2018 related to gross-to-net sales reserves, and a **$10.0 million** upfront payment from Astellas[465](index=465&type=chunk) - Product revenue decreased by **$3.4 million** due to the termination of the Lesinurad License in January 2019[466](index=466&type=chunk) - Sale of active pharmaceutical ingredient decreased by **$21.6 million**, mainly due to decreased shipments to Astellas[467](index=467&type=chunk) Cost and Expenses Comparison (2018 vs 2019, in thousands) | Cost and expenses: | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cost of revenues, excluding amortization of acquired intangible assets | $ 23,875 | $ 32,751 | $ (8,876) | (27)% | | Research and development | 115,044 | 101,060 | 13,984 | 14 % | | Selling, general and administrative | 172,450 | 219,676 | (47,226) | (21)% | | Amortization of acquired intangible assets | — | 8,111 | (8,111) | (100)% | | Impairment of intangible assets | — | 151,794 | (151,794) | (100)% | | **Total cost and expenses** | **$308,290** | **$497,309** | **$(189,019)** | **(38)%** | - Research and development expense increased by **$14.0 million**, primarily due to increased external development costs for IW-3718 and linaclotide[470](index=470&type=chunk) - Selling, general and administrative expenses decreased by **$47.2 million**, mainly due to the Cyclerion Separation and the termination of the Lesinurad License[472](index=472&type=chunk) - Net cash provided by operating activities totaled **$10.7 million** for 2019, a significant improvement from **$70.9 million** used in 2018[506](index=506&type=chunk)[509](index=509&type=chunk) - As of December 31, 2019, the company had approximately **$177.0 million** of unrestricted cash and cash equivalents[504](index=504&type=chunk) - The company believes its cash on hand as of December 31, 2019, will be sufficient to meet projected operating needs at least through the next twelve months[520](index=520&type=chunk) Contractual Commitments and Obligations (Dec 31, 2019, in thousands) | | Total | Less Than 1 Year | 1 ‑ 3 Years | 3 ‑ 5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | 31,638 | 1,146 | 6,257 | 6,191 | 18,044 | | 2022 Convertible Notes (including interest) | 127,488 | 2,716 | 124,772 | — | — | | 2024 Convertible Notes (including interest) | 206,750 | 1,500 | 3,000 | 202,250 | — | | 2026 Convertible Notes (including interest) | 219,500 | 3,000 | 6,000 | 6,000 | 204,500 | | **Total payments on convertible senior notes** | **$553,738** | **$7,216** | **$133,772** | **$208,250** | **$204,500** | [Quantitative and Qualitative Disclosures about Market Risk](index=159&type=section&id=Item%207A.Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's market risk is primarily tied to its stock price volatility affecting convertible notes, with minimal interest rate or currency risk - The company's primary exposure to market risk is interest income sensitivity, affected by changes in the general level of interest rates, particularly for its short-term marketable securities[535](index=535&type=chunk) - An immediate **1% change in interest rates would not have a material effect** on the fair market value of the company's investment portfolio due to its short-term duration and low-risk profile[536](index=536&type=chunk) - The company's convertible senior notes bear **fixed interest rates**, resulting in minimal exposure to changes in interest rates[539](index=539&type=chunk) - The fair value of the 2022, 2024, and 2026 Convertible Notes is dependent on the price and volatility of the company's Class A Common Stock[540](index=540&type=chunk)[544](index=544&type=chunk) - The Convertible Note Hedges, Note Hedge Warrants, and Capped Calls are derivative transactions designed to minimize dilution or offset cash payments related to convertible notes, and their value is affected by the Class A Common Stock price[542](index=542&type=chunk)[546](index=546&type=chunk) - The company has **no significant monetary assets or liabilities** expected to be settled in foreign currencies and does not expect to be significantly impacted by foreign currency fluctuations[547](index=547&type=chunk) - Inflation and changing prices did not have a significant impact on the company's results of operations for the years ended December 31, 2019, 2018, and 2017[548](index=548&type=chunk) [Financial Statements and Supplementary Data](index=163&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item refers to the consolidated financial statements and supplementary data presented from page F-1 of the report - The consolidated financial statements, together with the independent registered public accounting firm report, appear at pages F-1 through F-72 of this Annual Report on Form 10-K[549](index=549&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=163&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with its accountants - There were no changes in and disagreements with accountants on accounting and financial disclosure[550](index=550&type=chunk) [Controls and Procedures](index=165&type=section&id=Item%209A.Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2019 - Management concluded that the company's disclosure controls and procedures were **effective** at the reasonable assurance level as of December 31, 2019[552](index=552&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2019, based on the COSO (2013 framework) criteria[554](index=554&type=chunk) - Ernst and Young LLP, the independent registered public accounting firm, audited and expressed an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting as of December 31, 2019[555](index=555&type=chunk)[560](index=560&type=chunk) - **No changes occurred** during the quarter ended December 31, 2019, that materially affected, or were reasonably likely to materially affect, the company's internal controls over financial reporting[558](index=558&type=chunk) [Other Information](index=169&type=section&id=Item%209B.%20Other%20Information) The company reported no other information required to be disclosed under this item - None[568](index=568&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=169&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, officers, and governance is incorporated by reference from the 2020 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Stockholders[571](index=571&type=chunk) - The company has adopted a code of business conduct and ethics applicable to its directors, executive officers, and all other employees, available on its corporate website[570](index=570&type=chunk) [Executive Compensation](index=169&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the 2020 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Stockholders[572](index=572&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=169&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details security ownership and equity compensation plans, with some information incorporated by reference - Information relating to security ownership of certain beneficial owners and management is incorporated by reference from the proxy statement for the 2020 Annual Meeting of Stockholders[573](index=573&type=chunk) Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2019) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) | Weighted average exercise price of outstanding options, warrants, and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 20,401,328 | $12.13 | 10,954,595 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **20,401,328** | **$12.13** | **10,954,595** | - The total number of securities to be issued upon exercise of outstanding options, warrants, and rights includes **17,194,239 stock options** and **3,207,089 restricted stock units**[581](index=581&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=171&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the 2020 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Stockholders[579](index=579&type=chunk) [Principal Accountant Fees and Services](index=171&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding accountant fees and services is incorporated by reference from the 2020 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Stockholders[580](index=580&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=172&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the 10-K report - Consolidated Financial Statements are listed under Part II, Item 8 and included herein by reference[584](index=584&type=chunk) - Exhibits include organizational documents (Certificate of Incorporation, Bylaws), debt indentures (2022, 2024, 2026 Convertible Notes), equity compensation plans, and various agreements[583](index=583&type=chunk)[586](index=586&type=chunk)[174](index=174&type=chunk)[176](index=176&type=chunk) - Key agreements listed include Collaboration Agreement with Allergan, License Agreement with Astellas, Amended and Restated License and Collaboration Agreement with AstraZeneca, Commercial Supply Agreements, Lease Agreements (100 Summer Street, 301 Binney Street), and Separation-related agreements (Separation Agreement, Tax Matters Agreement, Employee Matters Agreement)[587](index=587&type=chunk)[589](index=589&type=chunk)[590](index=590&type=chunk)[591](index=591&type=chunk) - Derivative transaction confirmations for Call Option and Warrants are also included as exhibits[592](index=592&type=chunk)[594](index=594&type=chunk)[596](index=596&type=chunk) [Form 10-K Summary](index=189&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reported that no Form 10-K Summary was provided - None[600](index=600&type=chunk) [Signatures](index=189&type=section&id=Signatures) This section contains the required signatures certifying the filing of the Annual Report on Form 10-K - The report was signed on behalf of Ironwood Pharmaceuticals, Inc. by Mark Mallon (Chief Executive Officer), Gina Consylman (Senior Vice President, Chief Financial Officer), Kelly MacDonald (Vice President, Finance and Chief Accounting Officer), and other Directors[603](index=603&type=chunk)[605](index=605&type=chunk) - The signing date for the report was **February 13, 2020**[602](index=602&type=chunk)[605](index=605&type=chunk) Consolidated Financial Statements [Index to Consolidated Financial Statements](index=191&type=section&id=Index%20to%20Consolidated%20Financial%20Statements) This index lists all consolidated financial statements and accompanying notes included in the Annual Report - The index lists the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Stockholders' Equity (Deficit), Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[608](index=608&type=chunk) [Report of Independent Registered Public Accounting Firm](index=192&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on the financial statements and internal controls, identifying two critical audit matters - Ernst & Young LLP provided an **unqualified opinion** on the consolidated financial statements of Ironwood Pharmaceuticals, Inc. as of December 31, 2019 and 2018, and for the three years ended December 31, 2019[611](index=611&type=chunk) - An **unqualified opinion** was also expressed on the effectiveness of the company's internal control over financial reporting as of December 31, 2019[612](index=612&type=chunk) - **Critical audit matters** included revenue recognized from the Collaboration Agreement for North America with Allergan plc and the valuation of Convertible Notes[615](index=615&type=chunk)[616](index=616&type=chunk)[620](index=620&type=chunk) - The audit procedures for collaboration revenue included reviewing the contract, information from Allergan, and performing procedures over gross sales, net sales adjustments, and costs[618](index=618&type=chunk)[619](index=619&type=chunk) - Auditing the valuation of convertible notes involved testing the company's methodology, evaluating significant assumptions, and using a valuation professional[621](index=621&type=chunk)[622](index=622&type=chunk) [Consolidated Balance Sheets](index=196&type=section&id=Consolidated%20Balance%20Sheets) The balance sheets show the company's financial position, highlighting an improved stockholders' deficit in 2019 Consolidated Balance Sheets (in thousands, except share and per share amounts) | ASSETS | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $177,023 | $173,172 | | Accounts receivable, net | 11,279 | 20,991 | | Related party accounts receivable, net | 105,967 | 59,959 | | Inventory, net | 648 | — | | Prepaid expenses and other current assets | 10,685 | 10,216 | | Restricted cash | 1,250 | 1,250 | | Current assets of discontinued operations | — | 847 | | **Total current assets** | **306,852** | **266,435** | | Restricted cash, net of current portion | 971 | 6,426 | | Accounts receivable, net of current portion | 32,597 | — | | Property and equipment, net | 12,429 | 7,652 | | Operating lease right-of-use assets | 17,743 | — | | Convertible note hedges | 31,366 | 41,020 | | Goodwill | 785 | 785 | | Other assets | 5 | 89 | | Non-current assets of discontinued operations | — | 9,643 | | **Total assets** | **$402,748** | **$332,050** | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | Accounts payable | $3,978 | $14,891 | | Related party accounts payable, net | 1,509 | — | | Accrued research and development costs | 2,956 | 2,963 | | Accrued expenses and other current liabilities | 30,465 | 38,001 | | Capital lease obligations | — | 73 | | Current portion of deferred rent | — | 252 | | Current portion of 2026 Notes | — | 47,554 | | Current portion of contingent consideration | — | 51 | | Current portion of operating lease liabilities | 1,146 | — | | Deferred revenue | 875 | — | | Current liabilities of discontinued operations | — | 15,739 | | **Total current liabilities** | **40,929** | **119,524** | | Capital lease obligations, net of current portion | — | 158 | | Deferred rent, net of current portion | — | 6,308 | | Note hedge warrants | 24,260 | 33,763 | | Convertible senior notes | 407,994 | 265,601 | | 2026 Notes, net of current portion | — | 100,537 | | Operating lease obligations, net of current portion | 22,082 | — | | Other liabilities | 734 | 2,530 | | **Total liabilities** | **495,999** | **528,421** | | Total stockholders' deficit | $(93,251) | $(196,371) | [Consolidated Statements of Operations](index=198&type=section&id=Consolidated%20Statements%20of%20Operations) The company achieved net income of $21.5 million in 2019, a significant turnaround from prior years' losses Consolidated Statements of Operations (in thousands, except per share amounts) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Revenues:** | | | | | Collaborative arrangements revenue | $379,652 | $272,839 | $265,533 | | Product revenue, net | — | 3,445 | 3,061 | | Sale of active pharmaceutical ingredient | 48,761 | 70,355 | 29,682 | | **Total revenues** | **428,413** | **346,639** | **298,276** | | **Cost and expenses:** | | | | | Cost of revenues, excluding amortization of acquired intangible assets | 23,875 | 32,751 | 19,097 | | Research and development | 115,044 | 101,060 | 88,145 | | Selling, general and administrative | 172,450 | 219,676 | 231,184 | | Amortization of acquired intangible assets | — | 8,111 | 6,214 | | Impairment of intangible assets | — | 151,794 | — | | **Total cost and expenses** | **308,290** | **497,309** | **313,639** | | **Income (loss) from operations** | **120,123** | **(150,670)** | **(15,363)** | | **Other (expense) income:** | | | | | Interest expense | (36,602) | (37,724) | (36,370) | | Gain (loss) on derivatives | 3,023 | (8,743) | (3,284) | | Loss on extinguishment of debt | (30,977) | — | (2,009) | | **Net income (loss) from continuing operations** | **58,943** | **(194,146)** | **(54,915)** | | **Net loss from discontinued operations** | **(37,438)** | **(88,222)** | **(62,022)** | | **Net income (loss)** | **$21,505** | **$(282,368)** | **$(116,937)** | | Net income (loss) per share—basic and diluted | $0.14 | $(1.85) | $(0.78) | [Consolidated Statements of Comprehensive Income (Loss)](index=199&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Comprehensive income in 2019 was $21.5 million, aligning with net income due to no other comprehensive income items Consolidated Statements of Comprehensive Income (Loss) (in thousands) | | Years Ended December 31, | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2017 | | Net income (loss) | $21,505 | $(282,368) | $(116,937) | | Other comprehensive income (loss): | | | | | Unrealized gains (losses) on available-for-sale securities | — | 79 | (72) | | Total other comprehensive income (loss) | — | 79 | (72) | | **Comprehensive income (loss)** | **$21,505** | **$(282,289)** | **$(117,009)** | [Consolidated Statements of Stockholders' Equity (Deficit)](index=200&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) The company's stockholders' deficit improved significantly in 2019, driven by net income and equity-related transactions Consolidated Statements of Stockholders' Equity (Deficit) (in thousands, except share amounts) | | Class A Common Stock Shares | Class A Common Stock Amount | Additional paid-in capital | Accumulated deficit | Total Stockholders' deficit | | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at December 31, 2018 | 154,414,691 | 154 | 1,394,603 | (1,591,128) | (196,371) | | Issuance of common stock upon exercise of stock options and employee stock purchase plan, net of cancellations | 3,121,271 | 4 | 13,597 | — | 13,601 | | Share-based compensation expense related to share-based awards and employee stock purchase plan | — | — | 32,331 | — | 32,331 | | Equity component of convertible senior notes | — | — | 92,502 | — | 92,502 | | Equity component of issuance costs for convertible senior notes | — | — | (2,092) | — | (2,092) | | Purchase of capped calls | — | — | (25,159) | — | (25,159) | | Equity component of partial repurchase of 2022 Convertible Notes | — | — | (26,959) | — | (26,959) | | Dividend of SGC business | — | — | — | (2,609) | (2,609) | | Net income | — | — | — | 21,505 | 21,505 | | **Balance at December 31, 2019** | **157,535,962** | **$158** | **$1,478,823** | **$(1,572,232)** | **$(93,251)** | - All Class B Common Stock automatically converted into Class A Common Stock on December 31, 2018, with no outstanding Class B shares remaining[998](index=998&type=chunk) [Consolidated Statements of Cash Flows](index=202&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company generated positive cash from operations in 2019, a reversal from prior years, despite cash used in financing activities Consolidated Statements of Cash Flows (in thousands) | | Year Ended December 31, | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2017 | | Net cash provided by (used in) operating activities | $10,725 | $(70,882) | $(100,753) | | Net cash (used in) provided by investing activities | $(11,144) | $88,866 | $151,460 | | Net cash (used in) provided by financing activities | $(1,185) | $30,072 | $19,835 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(1,604) | $48,056 | $70,542 | | Cash, cash equivalents and restricted cash, end of period | $179,244 | $180,848 | $132,792 | | Supplemental cash flow disclosure: | | | | | Cash paid for interest | $17,584 | $18,235 | $20,388 | - Net cash provided by operating activities in 2019 was approximately **$10.7 million**, including **$11.4 million** from discontinued operations[506](index=506&type=chunk)[507](index=507&type=chunk) - Cash used in investing activities for 2019 totaled approximately **$11.1 million**, primarily due to the purchase of **$7.2 million** in property and equipment[511](index=511&type=chunk) - Cash used in financing activities for 2019 totaled approximately **$1.2 million**, resulting from **$227.3 million** in payments to repurchase 2022 Convertible Notes, **$156.4 million** to redeem 2026 Notes, and **$25.2 million** for Capped Calls, partially offset by **$391.0 million** in net proceeds from new convertible notes issuance[515](index=515&type=chunk) [Notes to Consolidated Financial Statements](index=205&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail the company's accounting policies, the Cyclerion spin-off, debt refinancing, and other key financial events - Ironwood Pharmaceuticals is a GI healthcare company focused on linaclotide (LINZESS) and pipeline candidates MD-7246 and IW-3718, with strategic partnerships globally[645](index=645&type=chunk)[646](index=646&type=chunk)[647](index=647&type=chunk)[648](index=648&type=chunk)[649](index=649&type=chunk)[650](index=650&type=chunk)[651](index=651&type=chunk)[652](index=652&type=chunk) - The company completed the spin-off of its sGC business into Cyclerion Therapeutics, Inc. on April 1, 2019, with related assets and liabilities reclassified as **discontinued operations**[645](index=645&type=chunk)[655](index=655&type=chunk)[664](index=664&type=chunk)[785](index=785&type=chunk) - In August 2019, the company issued **$400.0 million** in new convertible senior notes and used proceeds to repurchase **$215.0 million** of 2022 Convertible Notes and redeem **$116.5 million** of 2026 Notes, resulting in a **$31.0 million loss on extinguishment of debt**[657](index=657&type=chunk)[658](index=658&type=chunk) - The company adopted ASC Topic 606 (Revenue from Contracts with Customers) effective January 1, 2018, and ASC Topic 842 (Leases) effective January 1, 2019, recognizing operating lease right-of-use assets and liabilities[695](index=695&type=chunk)[705](index=705&type=chunk) Net Loss from Discontinued Operations (in thousands) | | Year Ended December 31, | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2017 | | Research and development | 21,792 | 65,443 | 60,083 | | Selling, general and administrative | 15,646 | 21,615 | 1,939 | | Restructuring expenses | — | 1,164 | — | | **Net loss from discontinued operations** | **$37,438** | **$88,222** | **$62,022** | - The company recorded a **$151.8 million impairment charge** in 2018 related to its ZURAMPIC and DUZALLO intangible assets due to the termination of the lesinurad license agreement[804](index=804&type=chunk) - Collaborative arrangements revenue from Allergan (North America) was **$327.6 million** in 2019, primarily from LINZESS U.S. sales[807](index=807&type=chunk) - The Amended Astellas License Agreement (August 2019) resulted in a **$10.0 million** upfront payment and shifts API supply responsibility to Astellas from 2020[837](index=837&type=chunk)[838](index=838&type=chunk) - The Amended AstraZeneca Agreement (September 2019) resulted in **$32.4 million** in non-contingent payments and transfers all manufacturing responsibilities to AstraZeneca from 2020[864](index=864&type=chunk)[865](index=865&type=chunk)[866](index=866&type=chunk) - The company's Convertible Note Hedges and Note Hedge Warrants are classified as **Level 3 derivative assets and liabilities**, respectively, valued using the Black-Scholes option-pricing model[891](index=891&type=chunk) - As of December 31, 2019, the company had **$120.7 million** principal outstanding for 2022 Convertible Notes, **$200.0 million** for 2024 Convertible Notes, and **$200.0 million** for 2026 Convertible Notes[969](index=969&type=chunk) - Workforce reductions in 2018 and 2019 resulted in restructuring expenses of approximately **$14.7 million** and **$3.6 million**, respectively, primarily due to the Lesinurad License termination and Cyclerion Separation[1045](index=1045&type=chunk)[1046](index=1046&type=chunk)[1047](index=1047&type=chunk)[1048](index=1048&type=chunk)[1051](index=1051&type=chunk) - In January 2020, the company and Allergan settled patent litigation with Sandoz and Teva regarding generic LINZESS versions[1055](index=1055&type=chunk) [Nature of Business](index=205&type=section&id=1.%20Nature%20of%20Business) Ironwood is a GI healthcare company focused on LINZESS, with strategic partnerships and a GI-focused pipeline - Ironwood Pharmaceuticals, Inc. is a gastrointestinal (GI) healthcare company focused on advancing the treatment of GI diseases[645](index=645&type=chunk) - LINZESS® (linaclotide) is the company's commercial product, approved for adult IBS-C or CIC in the U.S., Mexico, Japan, and China, and as CONSTELLA® in Canada and certain European countries[646](index=646&type=chunk) - The company has strategic partnerships with Allergan plc (U.S.), Astellas Pharma Inc. (Japan), and AstraZeneca AB (China) for linaclotide[647](index=647&type=chunk)[648](index=648&type=chunk)[649](index=649&type=chunk) - Pipeline candidates include MD-7246 (Phase II for IBS-D abdominal pain) and IW-3718 (Phase III for refractory GERD)[650](index=650&type=chunk)[651](index=651&type=chunk)[652](index=652&type=chunk) - On April 1, 2019, Ironwood completed the tax-free spin-off of its sGC business into Cyclerion Therapeutics, Inc[645](index=645&type=chunk)[655](index=655&type=chunk) - The company recorded net income of approximately **$21.5 million** for the year ended December 31, 2019, and had an accumulated deficit of approximately **$1.6 billion**[659](index=659&type=chunk) [Summary of Significant Accounting Policies](index=207&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note details the company's accounting policies, including revenue recognition, leases, and derivatives - The company operates in one reportable business segment: human therapeutics[662](index=662&type=chunk) - The sGC business has been reclassified as **discontinued operations** for all periods presented in the consolidated financial statements[663](index=663&type=chunk)[664](index=664&type=chunk) - Significant estimates and assumptions in financial statements relate to revenue recognition, inventory valuation, impairment of long-lived assets, fair value of derivatives, and income taxes[665](index=665&type=chunk) - The company considers all highly liquid investment instruments with a remaining maturity of three months or less when purchased to be cash equivalents[666](index=666&type=chunk) - Inventory is stated at the lower of cost or net realizable value, with cost determined under the first-in, first-out basis[670](index=670&type=chunk) - The company relies on third-party manufacturers and collaboration partners for linaclotide API, finished drug product, and finished goods manufacturing[674](index=674&type=chunk)[675](index=675&type=chunk) Revenue from Significant Customers (2017-2019) | Collaborative Partner: | Accounts Receivable Dec 31, 2019 | Accounts Receivable Dec 31, 2018 | Revenue Year Ended Dec 31, 2019 | Revenue Year Ended Dec 31, 2018 | Revenue Year Ended Dec 31, 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Allergan (North America and Europe) | 90 % | 72 % | 78 % | 77 % | 88 % | | Astellas (Japan) | 8 % | 26 % | 13 % | 20 % | 10 % | - The company adopted ASC Topic 842, Leases, effective January 1, 2019, recognizing right-of-use assets and lease liabilities on the balance sheet for operating leases[695](index=695&type=chunk) - Convertible Note Hedges and Note Hedge Warrants are accounted for as derivative financial instruments under ASC Topic 815, recorded at fair value[702](index=702&type=chunk)[703](index=703&type=chunk) - The company adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606), effective January 1, 2018, recognizing revenue when the customer obtains control of a promised good or service[705](index=705&type=chunk) - For sales-based royalties and milestones, revenue is recognized when related sales occur, applying the sales-based royalty exception under ASC 606-10-55-65[716](index=716&type=chunk) - Research and development costs are generally expensed as incurred, with nonrefundable advance payments capitalized and expensed over the related service period[751](index=751&type=chunk) - Share-based compensation is recognized as expense based on grant date fair value over the requisite service period, net of estimated forfeitures, using the Black-Scholes option-pricing model for options and ESPP shares[758](index=758&type=chunk) - Deferred tax assets are reduced by a valuation allowance due to the uncertainty of their ultimate realization, given the company's history of operating losses[691](index=691&type=chunk)[1032](index=1032&type=chunk) [Cyclerion Separation](index=240&type=section&id=3.%20Cyclerion%20Separation) This note details the April 2019 spin-off of the sGC business into Cyclerion and its financial impact - On April 1, 2019, Ironwood completed the separation of its sGC business into Cyclerion Therapeutics, Inc. through a dividend of Cyclerion's common stock to Ironwood's stockholders[785](index=785&type=chunk) - The separation involved a transfer of assets and liabilities to Cyclerion, with net assets transferred totaling approximately **$2.6 million**[788](index=788&type=chunk) - Agreements with Cyclerion include a separation agreement, tax matters agreement, and employee matters agreement, governing the allocation of rights, responsibilities, and liabilities[786](index=786&type=chunk)[789](index=789&type=chunk)[790](index=790&type=chunk) - Transition services agreements and a development agreement were also entered into, with Ironwood providing and receiving certain corporate and R&D services[791](index=791&type=chunk)[792](index=792&type=chunk)[795](index=795&type=chunk) Net Loss from Discontinued Operations (in thousands) | | Year Ended December 31, | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2017 | | Costs and expenses: | | | | | Research and development | 21,792 | 65,443 | 60,083 | | Selling, general and administrative | 15,646 | 21,615 | 1,939 | | Restructuring expenses | — | 1,164 | — | | **Net loss from discontinued operations** | **$37,438** | **$88,222** | **$62,022** | - As of December 31, 2019, there were no assets and liabilities related to discontinued operations, as all balances were transferred to Cyclerion upon Separation[796](index=796&type=chunk) [Net Income (Loss) Per Share](index=245&type=section&id=4.%20Net%20Income%20(Loss)%20Per%20Share) This note provides the computation of basic and diluted net income (loss) per share Net Income (Loss) Per Share Computation (in thousands, except per share amounts) | | Year Ended December 31, | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2017 | | Net income (loss) | $21,505 | $(282,368) | $(116,937) | | Weighted average number of common shares outstanding used in net income (loss) per share — basic and diluted | 156,023 | 152,634 | 148,993 | | Net income (loss) per share — basic and diluted | $0.14 | $(1.85) | $(0.78) | - Potentially dilutive securities, including stock options, restricted stock units, Note Hedge Warrants, and Convertible Notes, were excluded from diluted weighted average shares outstanding when their effect would be anti-dilutive[797](index=797&type=chunk)[798](index=798&type=chunk)[799](index=799&type=chunk)[800](index=800&type=chunk) [Goodwill and Intangible Assets](index=247&type=section&id=5.%20Goodwill%20and%20Intangible%20Assets) This note details the impairment of intangible assets related to the terminated Lesinurad license - The company terminated its exclusive license to develop, manufacture, and commercialize Lesinurad Products (ZURAMPIC and DUZALLO) with AstraZeneca on August 2, 2018[802](index=802&type=chunk) - An impairment charge of approximately **$151.8 million** was recorded during 2018 to fully write-off the ZURAMPIC and DUZALLO intangible assets, following revised revenue and cash flow assumptions[804](index=804&type=chunk) - The company tests its goodwill for impairment annually as of October 1st; **no impairment of goodwill** was recorded for the years ended December 31, 2019, 2018, or 2017[805](index=805&type=chunk) [Collaboration, License, Co-Promotion and Other Commercial Agreements](index=247&type=section&id=6.%20Collaboration,%20License,%20Co-Promotion%20and%20Other%20Commercial%20Agreements) This note outlines the company's key collaboration agreements and associated revenues Collaborative Arrangements Revenue and Sale of API (in thousands) | Collaborative Arrangements Revenue | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Allergan (North America) | $327,591 | $266,177 | $260,210 | | Allergan (Europe and other) | 1,718 | 1,146 | 617 | | AstraZeneca (China, including Hong Kong and Macau) | 32,628 | — | 208 | | Astellas (Japan) | 10,147 | — | — | | Allergan (VIBERZI) | 3,723 | 4,290 | 1,535 | | Alnylam (GIVLAARI) | 2,000 | — | — | | **Total collaborative arrangements revenue** | **$379,652** | **$272,839** | **$265,533** | | Sale of API | | | | | Astellas (Japan) | $45,788 | $69,599 | $29,682 | | AstraZeneca (China, including Hong Kong and Macau) | 2,973 | — | — | | **Total sale of API** | **$48,761** | **$70,355** | **$29,682** | - Under the collaboration agreement with Allergan for North America, the company **shares equally all development costs and net profits or losses** from the development and sale of linaclotide in the U.S., and receives mid-teens' percent royalties on net sales in Canada and Mexico[809](index=809&type=chunk)[812](index=812&type=chunk) - In August 2019, the Amended Astellas License Agreement was executed, resulting in a **$10.0 million** upfront payment and shifting API supply responsibility to Astellas from 2020[837](index=837&type=chunk)[838](index=838&type=chunk) - In September 2019, the Amended AstraZeneca Agreement granted AstraZeneca exclusive rights to develop, manufacture, and commercialize linaclotide in China, with **$35.0 million** in non-contingent payments and tiered royalties[864](index=864&type=chunk)[865](index=865&type=chunk) - A new disease education and promotional agreement with Alnylam for GIVLAARI (AHP treatment) was entered in August 2019, entitling the company to service fees up to **$9.5 million** and sales-based royalties[880](index=880&type=chunk)[881](index=881&type=chunk) [Fair Value of Financial Instruments](index=270&type=section&id=7.%20Fair%20Value%20of%20Financial%20Instruments) This note details the fair value measurement of the company's financial assets and liabilities, particularly derivatives Fair Value Measurements at Reporting Date Using (in thousands) | Assets: | December 31, 2019 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | | :--- | :--- | :--- | :--- | :--- | | Money market funds | $139,190 | $139,190 | $— | $— | | Repurchase agreements | 37,800 | 37,800 | — | — | | Restricted cash: Money market funds | 2,221 | 2,221 | — | — | | Convertible Note Hedges | 31,366 | — | — | 31,366 | | **Total assets measured at fair value** | **$210,577** | **$179,211** | **$—** | **$31,366** | | Liabilities: | | | | | | Note Hedge Warrants | $24,260 | $— | $— | $24,260 | | **Total liabilities measured at fair value** | **$24,260** | **$—** | **$—** | **$24,260** | - Convertible Note Hedges and Note Hedge Warrants are classified as **Level 3 derivatives** and valued using the Black-Scholes option-pricing model, requiring subjective assumptions like expected stock price volatility and expected term[891](index=891&type=chunk) Inputs for Fair Market Valuation of Convertible Note Hedges and Note Hedge Warrants | | Year Ended December 31, 2019 | Year Ended December 31, 2018 | | :--- | :--- | :--- | | | Convertible Note Hedges | Note Hedge Warrants | Convertible Note Hedges | Note Hedge Warrants | | Risk-free interest rate | 1.6 % | 1.6 % | 2.5 % | 2.5 % | | Expected term (in years) | 2.5 | 3.0 | 3.5 | 4.1 | | Stock price | $13.31 | $13.31 | $10.36 | $10.36 | | Strike price | $14.51 | $18.82 | $16.58 | $21.50 | | Common stock volatility | 49.1 % | 46.5 % | 43.8 % | 43.6 % | | Dividend yield | — % | — % | — % | — % | - The company recognized a gain of approximately **$3.0 million** on derivatives in 2019 due to the partial termination of Convertible Note Hedges and Note Hedge Warrants and changes in fair value[897](index=897&type=chunk) - Contingent consideration related to the Lesinurad Transaction was fully settled in 2019, with a gain on fair value remeasurement of approximately **$31.0 million** recognized in 2018[898](index=898&type=chunk) - Capped Calls, entered into with the 2024 and 2026 Convertible Notes, are classified in stockholders' deficit and not subsequently remeasured, as they meet equity classification conditions[903](index=903&type=chunk) [Inventory](index=276&type=section&id=8.%20Inventory) This note provides a breakdown of the company's inventory and discusses purchase commitments Inventory Composition (in thousands) | | December 31, | | :--- | :--- | :--- | | | 2019 | 2018 | | Raw Materials | $65 | $— | | Work in Progress | 392 | — | | Finished Goods | 191 | — | | | **$648** | **$—** | - **No impairment** of linaclotide API inventory was recorded during the years ended December 31, 2019 or 2018[906](index=906&type=chunk) - In 2019, the company recorded a settlement of approximately **$3.5 million** related to the reversal of certain previously accrued non-cancelable purchase commitments, including those assumed by AstraZeneca[909](index=909&type=chunk) - As of December 31, 2019, the company had **no remaining accruals** for excess purchase commitments on its consolidated balance sheet[909](index=909&type=chunk) [Leases](index=278&type=section&id=9.%20Leases) This note details the company's lease obligations and the impact of adopting the new ASC 842 lease standard - The company adopted ASC 842, Leases, effective January 1, 2019, resulting in the recognition of operating lease right-of-use assets and corresponding lease liabilities[915](index=915&type=chunk) Lease Cost (in thousands) | | Year Ended December 31, | | :--- | :--- | | | 2019 | | Operating lease cost during period, net | $16,452 | | Variable lease payments | 1,526 | | Short-term lease cost | 1,512 | | **Total lease cost** | **$19,490** | - In June 2019, the company entered into the Summer Street Lease for its new headquarters in Boston, Massachusetts, terminating its prior Binney Street Lease[920](index=920&type=chunk)[929](index=929&type=chunk) - Upon adoption of ASC 842, the company recorded approximately **$88.3 million** of operating lease right-of-use assets and approximately **$94.9 million** of corresponding lease liabilities[775](index=775&type=chunk) Future Minimum Lease Payments (as of December 31, 2019, in thousands) | | Operating Lease Payments | | :--- | :--- | | 2020 | $1,146 | | 2021 | 3,128 | | 2022 | 3,129 | | 2023 | 3,065 | | 2024 | 3,126 | | 2025 and thereafter | 18,044 | | **Total future minimum lease payments** | **31,638** | | Less: present value adjustment | 8,410 | | **Operating lease liabilities at December 31, 2019** | **23,228** | | Less: current portion of operating lease liabilities | 1,146 | | **Operating lease liabilities, net of current portion** | **$22,082** | - A gain of approximately **$3.2 million** on lease modification was recognized in 2019 related to the modification of the 301 Binney Street lease[928](index=928&type=chunk) - An impairment charge of approximately **$0.5 million** was recorded in 2019 for the right-of-use asset associated with the Data Center Lease due to migration to cloud-based services[933](index=933&type=chunk) [Property and Equipment](index=284&type=section&id=10.%20Property%20and%20Equipment) This note provides a breakdown of the company's property and equipment and related depreciation Property and Equipment, Net (in thousands) | | December 31, | | :--- | :--- | :--- | | | 2019 | 2018 | | Software | $9,568 | $10,976 | | Leasehold improvements | 7,318 | 12,472 | | Laboratory equipment | 2,193 | 1,597 | | Furniture and fixtures | 1,508 | 1,845 | | Computer and office equipment | 1,293 | 2,737 | | Construction in process | 631 | 115 | | Manufacturing equipment | — | 3,748 | | Total | 22,511 | 33,490 | | Less accumulated depreciation and amortization | (10,082) | (25,838) | | **Net property and equipment** | **$12,429** | **$7,652** | - Depreciation expense of property and equipment for the year ended December 31, 2019, was approximately **$5.6 million**[941](index=941&type=chunk) - The company ceased use of its manufacturing equipment in the United Kingdom in 2019 due to restructuring of partner agreements[939](index=939&type=chunk)[940](index=940&type=chunk) [Accrued Expenses and Other Current Liabilities](index=286&type=section&id=11.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) This note provides a detailed breakdown of the company's accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (in thousands) | | December 31, | | :--- | :--- | :--- | | | 2019 | 2018 | | Salaries | $2,973 | $3,054 | | Accrued vacation | 2,540 | 3,493 | | Accrued incentive compensation | 11,760 | 13,867 | | Other employee benefits | 1,260 | 1,883 | | Professional fees | 1,421 | 1,735 | | Accrued interest | 301 | 873 | | Restructuring liabilities | 179 | 2,885 | | Other | 10,031 | 10,211 | | | **$30,465** | **$38,001** | - Other accrued expenses in 2019 included **$4.1 million** for API batches, **$0.9 million** for headquarters relocation activities, **$0.6 million** for unbilled inventory, and **$0.2 million** for clinical studies equipment[943](index=943&type=chunk) [Notes Payable](index=286&type=section&id=12.%20Notes%20Payable) This note details the company's debt structure, including significant refinancing activities involving convertible senior notes in 2019 - The company redeemed all outstanding 8.375% Notes due 2026 in September 2019 for approximately **$123.0 million**, resulting in a **$7.6 million loss on extinguishment of debt**[945](index=945&type=chunk) - In August 2019, the company repurchased **$215.0 million** aggregate principal amount of the 2022 Convertible Notes, leading to a **$23.4 million loss on extinguishment of debt**[958](index=958&type=chunk) - In August 2019, the company issued **$200.0 million** in 0.75% Convertible Senior Notes due 2024 and **$200.0 million** in 1.50% Convertible Senior Notes due 2026, with net proceeds of approximately **$391.0 million**[959](index=959&type=chunk) - The initial conversion rate for the 2024 and 2026 Convertible Notes is **74.6687 shares** of Class A Common Stock per $1,000 principal amount, equivalent to an initial conversion price of approximately **$13.39 per share**[962](index=962&type=chunk) Convertible Senior Notes Outstanding Balances (in thousands) | | December 31, | | :--- | :--- | :--- | | | 2019 | 2018 | | Liability component: | | | | Principal: | | | | 2022 Convertible Notes | $120,699 | $335,699 | | 2024 Convertible Notes | 200,000 | — | | 2026 Convertible Notes | 200,000 | — | | Less: unamortized debt discount | (104,700) | (65,094) | | Less: unamortized debt issuance costs | (8,005) | (5,004) | | **Net carrying amount** | **$407,994** | **$265,601** | | Equity component: | | | | 2022 Convertible Notes | 19,807 | 114,199 | | 2024 Convertible Notes | 41,152 | — | | 2026 Convertible Notes | 51,350 | — | | **Total equity component** | **$112,309** | **$114,199** | Total Interest Expense for Convertible Senior Notes (in thousands) | | Year Ended December 31, | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2017 | | Contractual interest expense | $7,361 | $7,553 | $7,553 | | Amortization of debt issuance costs | 1,190 | 971 | 806 | | Amortization of debt discount | 17,683 | 15,437 | 14,145 | | **Total interest expense** | **$26,234** | **$23,961** | **$22,504** | - The company entered into Capped Calls in connection with the 2024 and 2026 Convertible Notes to minimize potential dilution, paying approximately **$25.2 million** for these instruments, which are classified in stockholders' deficit[980](index=980&type=chunk)[983](index=983&type=chunk) [Commitments and Contingencies](index=298&type=section&id=13.%20Commitments%20and%20Contingencies) This note outlines the company's contractual commitments, potential milestone payments, and indemnification obligations - The company amended its API supply agreements in 2019 to transfer minimum purchase commitments to its partners outside North America starting in 2020[985](index=985&type=chunk) - Under the collaboration agreement with Allergan for North America, the company and Allergan are jointly obligated to make minimum purchases of linaclotide API[986](index=986&type=chunk) - The company has commitments for potential future milestone payments (up to **$18.0 million** for regulatory milestones) and royalties under certain license and collaboration arrangements[988](index=988&type=chunk) - The company indemnifies its directors and officers, and enters into indemnification provisions with business partners, contractors, landlords, clinical sites, and customers in the ordinary course of business[991](index=991&type=chunk)[992](index=992&type=chunk) - The company is involved in various legal proceedings and claims, but management does not believe the outcome will have a material adverse effect on consolidated financial statements[993](index=993&type=chunk) [Stockholders' Equity](index=302&type=section&id=14.%20Stockholders'%20Equity) This note describes the company's capital structure, including preferred and common stock - The company's preferred stock may be issued in one or more series, with terms determined by the board of directors[996](index=996&type=chunk) - On December 31, 2018, all Class B Common Stock automatically converted into Class A Common Stock, with no Class B shares outstanding thereafter[998](index=998&type=chunk) - The company has reserved sufficient shares of Class A Common Stock to effect the conversion of convertible senior notes and Note Hedge Warrants[999](index=999&type=chunk) [Employee Stock Benefit Plans](index=302&type=section&id=15.%20Employee%20Stock%20Benefit%20Plans) This note details the company's share-based compensation plans, expenses, and stock option activity Share-Based Compensation Expense (in thousands) | | Year Ended December 31, | | :--- | :--- | :--- | :--- | | | 2019 | 2018 | 2017 | | Employee stock options | $12,526 | $20,478 | $19,331 | | Restricted stock units | 15,488 | 17,160 | 7,646 | | Restricted stock awards | 2,095 | 2,330 | 2,441 | | Non-employee stock options | — | — | 301 | | Employee stock purchase plan | 1,115 | 1,097 | 1,172 | | Stock award | 54 | 17 | 14 | | | **$31,278** | **$41,082** | **$30,905** | - Share-based compensation expense is recognized over the requisite service period, net of estimated forfeitures, with fair value estimated using the Black-Scholes option-pricing model for options and ESPP shares[758](index=758&type=chunk)[1020](index=1020&type=chunk) - Workforce reductions in 2018 and 2019 led to modifications of certain share-based payment awards, resulting in restructuring expenses[1002](index=1002&type=chunk)[1003](index=1003&type=chunk)[1004](index=1004&type=chunk)[1005](index=1005&type=chunk) - In April 2019, all outstanding share-based payment awards were modified in connection with the Cyclerion Separation, with no incremental compensation expense recognized[1006](index=1006&type=chunk) - As of December 31, 2019, there were **15,867,625 shares** available for future grant under the 2019 Equity Incentive Plan and the 2010 Employee Stock Purchase Plan[1009](index=1009&type=chunk) Stock Option Activity (as of December 31, 2019) | | Shares of Common Stock Attributable to Options | Weighted-Average Exercise Price | Weighted Average Contractual Life (in years) | Aggregate Intrinsic Value (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Outstanding at December 31, 2018 | 20,457,537 | $13.47 | 5.80 | $4,147 | | Granted | 5,743,167 | $11.71 | — | — | | Exercised | (1,369,327) | $8.33 | — | — | | Ca

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☐ 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 jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF ...

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, 2019 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 ...

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 March 31, 2019 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 j ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10‑K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR For the transition period from to Commission File Number 001‑34620 IRONWOOD PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 301 Binney Street Cambridge, Massachusetts ...