Ironwood(US:IRWD)2022-11-03 20:06PART I — FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements for Ironwood Pharmaceuticals, Inc., including balance sheets, income, and cash flow statements, with detailed notes Condensed Consolidated Financial Statements Highlights key financial figures, showing decreased assets and net income, with strong but slightly lower operating cash flow Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $574,188 | $620,129 | | Total current assets | $698,994 | $745,225 | | Total assets | $1,040,344 | $1,126,927 | | Total current liabilities | $27,117 | $161,698 | | Convertible senior notes, net | $395,850 | $337,333 | | Total stockholders' equity | $591,063 | $605,911 | Condensed Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $108,637 | $103,747 | $303,397 | $296,623 | | Income from operations | $68,473 | $65,171 | $181,974 | $175,667 | | Net income | $50,317 | $55,845 | $126,198 | $487,074 | | Diluted EPS | $0.28 | $0.34 | $0.69 | $2.97 | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended, in thousands) | Cash Flow Activity | September 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $194,581 | $197,327 | | Net cash used in investing activities | ($163) | ($137) | | Net cash provided by (used in) financing activities | ($240,359) | $14,037 | Notes to Condensed Consolidated Financial Statements Details business focus, accounting changes for convertible debt, collaborative revenue, debt structure, and share repurchases - The company's primary commercial product is LINZESS® (linaclotide), a GC-C agonist for IBS-C and CIC, commercialized through strategic partnerships with AbbVie, Astellas, and AstraZeneca293031 - On January 1, 2022, the company adopted ASU 2020-06, which simplifies accounting for convertible debt, resulting in the elimination of the bifurcated equity component, a decrease in additional paid-in capital by $110.2 million, and an expected $22.1 million reduction in non-cash interest expense for 20224546 Collaborative Arrangements Revenue (in thousands) | Partner (Agreement) | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | AbbVie (North America) | $106,085 | $101,061 | $296,047 | $288,598 | | AbbVie (Europe and other) | $709 | $682 | $1,847 | $1,856 | | Astellas (Japan) | $520 | $555 | $1,543 | $1,621 | | AstraZeneca (China) | $144 | $219 | $484 | $629 | - In June 2022, the company repaid the remaining $120.7 million aggregate principal amount of its 2.25% Convertible Senior Notes due 2022 upon maturity104 - The company completed its $150.0 million share repurchase program in May 2022, having repurchased a total of 13.1 million shares at an average price of $11.47 per share141142 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses financial performance, revenue growth, expense changes, strong liquidity, and R&D pipeline progress Results of Operations Analyzes Q3 2022 results, showing revenue growth, increased operating expenses, decreased interest expense, and higher income tax - Collaborative arrangements revenue increased by $4.9 million in Q3 2022 compared to Q3 2021, primarily due to a $4.8 million increase in the company's share of net profits from U.S. LINZESS sales, driven by higher prescription demand193 - Research and development expenses decreased by $4.7 million year-over-year for the nine months ended Sep 30, 2022, mainly due to a $5.3 million reduction in costs for the discontinued IW-3718 program, partially offset by a $2.8 million increase for the IW-3300 program197 - Interest expense decreased by $6.3 million for Q3 2022 compared to Q3 2021, largely due to a $5.6 million reduction in non-cash interest expense following the adoption of ASU 2020-06 for convertible notes202 - The income tax provision reflects a normalized expense in 2022, following the release of the valuation allowance on most deferred tax assets in Q2 2021, which had resulted in a significant one-time tax benefit in the prior year207208 Liquidity and Capital Resources Details strong liquidity, cash and cash equivalents, operating cash flows, and significant financing outflows - The company had $574.2 million of unrestricted cash and cash equivalents as of September 30, 2022210 Summary of Cash Flows (Nine Months Ended September 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $194,581 | $197,327 | | Net cash used in investing activities | ($163) | ($137) | | Net cash (used in) provided by financing activities | ($240,359) | $14,037 | - Financing activities for the first nine months of 2022 included $126.4 million for share repurchases and the repayment of $120.7 million for the 2022 Convertible Notes221 - The COVID-19 pandemic has not caused significant disruptions to the manufacturing or supply of LINZESS, though it has led to the inclusion of remote selling costs in the collaboration's expense calculation, which can cause fluctuations in quarterly settlement payments233236 Item 3. Quantitative and Qualitative Disclosures About Market Risk Addresses market risk exposures, primarily interest rate risk on investments and equity price risk from convertible notes - The company's main market risks are interest rate sensitivity on its short-term investment portfolio and equity price risk related to its convertible senior notes239243 - Interest rate risk is low due to the short-term duration of the investment portfolio, with an immediate 1% change in interest rates not materially affecting fair market value240 - Equity price risk is managed through capped call transactions related to the 2024 and 2026 Convertible Notes, designed to reduce potential stock dilution upon conversion244 Item 4. Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - 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 covered by the report248 - There were no changes during the quarter that materially affected, or were reasonably likely to materially affect, the company's internal control over financial reporting249250 PART II — OTHER INFORMATION Item 1A. Risk Factors States no material changes to risk factors previously disclosed in the 2021 Annual Report on Form 10-K - There were no material changes from the risk factors previously disclosed in the 2021 Annual Report on Form 10-K254 Item 6. Exhibits Provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL data - The report includes an Exhibit Index listing all documents filed as part of the Form 10-Q, such as officer certifications and XBRL data255258