Ironwood(IRWD) - 2022 Q4 - Annual Report

PART I Item 1. Business Ironwood Pharmaceuticals is a GI healthcare company focused on developing and commercializing LINZESS and pipeline candidates, driven by strategic partnerships and subject to extensive regulation Our Company Overview Ironwood Pharmaceuticals is a GI healthcare company focused on LINZESS commercialization and pipeline development, prioritizing profits and cash flow - Ironwood Pharmaceuticals is a GI healthcare company focused on advancing GI disease treatment, with 2022 priorities including maximizing LINZESS, strengthening its pipeline, and delivering sustained profits and cash flow[25][28] - LINZESS (linaclotide) is the first FDA-approved guanylate cyclase type C agonist for adult IBS-C and CIC, available globally[26] - Strategic partnerships for linaclotide include AbbVie (U.S. and global), AstraZeneca (China), and Astellas (Japan)[27] - The pipeline features IW-3300 for visceral pain (IC/BPS, endometriosis) and CNP-104 for primary biliary cholangitis (PBC), which received FDA Fast Track Designation[27][28] Performance Against 2022 Core Priorities The company achieved key 2022 priorities, including strong LINZESS revenue, positive pediatric Phase III data, pipeline advancement, and significant net income and cash flow 2022 Performance Highlights | Priority | Detail | | :------- | :----- | | Maximize LINZESS | $398.8 million in U.S. collaborative arrangements revenue (slight decrease YoY due to net price erosion and inventory fluctuations, offset by increased prescription demand) | | Maximize LINZESS | Positive topline Phase III data for linaclotide 72 mcg in pediatric FC (6-17 years), sNDA submitted to U.S. FDA in Dec 2022, granted priority review in Feb 2023 with PDUFA date of June 14, 2023 | | Strengthen Innovative GI Pipeline | CNP-104 (for PBC) granted U.S. FDA Fast Track Designation in Dec 2021; early T-cell response data expected H2 2023 | | Strengthen Innovative GI Pipeline | IW-3300 (for IC/BPS and endometriosis) completed Phase I, Phase II proof-of-concept study in IC/BPS patients expected to begin early 2023 | | Deliver Sustained Profits & Generate Cash Flow | Net income of $175.1 million in 2022 | | Deliver Sustained Profits & Generate Cash Flow | Generated $273.8 million in cash from operations in 2022, ending with $656.2 million in cash and cash equivalents | GI Programs – IBS-C and CIC LINZESS addresses IBS-C and CIC in millions of U.S. adults, with recent label updates and a pediatric sNDA submission for functional constipation - IBS-C affects up to 11.5 million adults and CIC affects up to 28.5 million adults in the U.S[34] - LINZESS (290 mcg for IBS-C, 145 mcg for CIC) was approved by the U.S. FDA in August 2012 for adults, with a 72 mcg dose for CIC approved in January 2017[35][36] - The U.S. FDA approved an sNDA in September 2020 to include a more comprehensive description of LINZESS's effects on overall abdominal symptoms in adult IBS-C patients[37] - The U.S. FDA approved a revised LINZESS label in August 2021, modifying the boxed warning for serious dehydration risk in pediatric patients less than two years of age and a contraindication against its use in this group[38] - Positive Phase III data for linaclotide 72 mcg in pediatric FC (6-17 years) led to an sNDA submission in December 2022, granted priority review in February 2023, with no FDA-approved prescription pediatric therapies for FC currently existing[38] Linaclotide—Global Commercialization Linaclotide is commercialized globally through partnerships with AbbVie in Europe/North America, Astellas in Japan, and AstraZeneca in China - AbbVie commercializes CONSTELLA in Europe and linaclotide (as CONSTELLA/LINZESS) in Canada and Mexico for IBS-C/CIC[39][40] - Astellas commercializes LINZESS in Japan for adult IBS-C and chronic constipation[41] - AstraZeneca commercializes LINZESS in China (including Hong Kong and Macau) for adult IBS-C[42] Pipeline Products (IW-3300, CNP-104) The pipeline includes IW-3300 for visceral pain conditions, with Phase II starting soon, and CNP-104 for PBC, which received Fast Track Designation - IW-3300, a GC-C agonist, is in development for visceral pain conditions like IC/BPS (affecting 4-12 million U.S. sufferers) and endometriosis (affecting 4 million U.S. women), with Phase II in IC/BPS expected to begin early 2023[43][44] - CNP-104 is being developed for primary biliary cholangitis (PBC), a rare autoimmune liver disease affecting approximately 130,000 people in the U.S., having received U.S. FDA Fast Track Designation in December 2021[45] Collaborations and Partnerships Ironwood leverages strategic partnerships for global linaclotide commercialization, with U.S. revenue primarily from the AbbVie collaboration - Ironwood's partnering strategy focuses on U.S. commercialization internally or with partners, and out-licensing global rights[46][47] Revenue by Geography (as % of total revenue) | Year | U.S. (%) | Rest of world (%) | | :--- | :----- | :------------ | | 2022 | 98.1 % | 1.9 % | | 2021 | 97.8 % | 2.2 % | | 2020 | 95.8 % | 4.2 % | - Revenue from linaclotide partnerships constitutes substantially all total revenue, with the U.S. LINZESS collaboration with AbbVie being a significant portion[48] - Collaboration with AbbVie for North America involves joint and equal funding of U.S. development and commercialization with equal profit/loss sharing, plus mid-teens percent royalties for Canada and Mexico sales[49][50] - License agreement with AbbVie for the "Expanded Territory" includes commercial milestones up to $42.5 million and escalating royalties (mid-single to upper-teens percent in Europe, upper-single to low-double digits elsewhere)[51] - License agreement with Astellas for Japan involves tiered royalties (mid-single to low-double digits percent) on net sales, with Astellas responsible for API supply since August 2019[52] - Collaboration with AstraZeneca for China grants exclusive rights, with non-contingent payments totaling $35.0 million (of which $25.0 million remained outstanding at December 31, 2022) and tiered royalties (mid-single digits up to 20%) on net sales[53] - The COUR Collaboration Agreement grants an option for an exclusive U.S. license for CNP-104, involving an upfront payment of $6.0 million, potential non-contingent and milestone payments of $13.5 million, $35.0 million upon option exercise, and commercial milestones up to $440.0 million plus high-single to low-double digit royalties[54][55][56][57] Our Strategy Ironwood aims to be the leading U.S. GI-focused healthcare company by maximizing LINZESS, advancing its pipeline, and ensuring sustained profitability - Ironwood's vision is to become the leading U.S. GI-focused healthcare company[58] - The company's strategy focuses on three core priorities: maximizing LINZESS, strengthening its innovative GI portfolio, and delivering sustained profits and cash flow[58] - Key strategic elements include leveraging U.S. commercial capabilities for LINZESS, exploring development opportunities, collaborating with global partners, evaluating external assets, progressing the current pipeline (pediatric LINZESS, CNP-104, IW-3300), and applying disciplined capital allocation[62] Competition The pharmaceutical industry is highly competitive, with LINZESS facing competition from branded, generic, and OTC therapies for IBS-C and CIC - The pharmaceutical industry is intensely competitive, with competitors often possessing substantially greater financial, technical, and human resources[147] - LINZESS competes with branded and generic prescription therapies and over-the-counter (OTC) products for IBS-C and CIC treatment[59][148] - LINZESS is the number one prescribed branded treatment in the U.S. for adults with IBS-C and CIC[60] - Key competitors include AMITIZA, TRULANCE, MOTEGRITY, and IBSRELA, alongside various OTC laxatives[61][64][148] Manufacturing and Supply Ironwood relies on contract manufacturers and partners for linaclotide API and finished product manufacturing and distribution, aiming for a safe and redundant supply chain - Ironwood relies on contract manufacturers, partners, and other third parties for the manufacturing of linaclotide active pharmaceutical ingredient (API), finished drug product, and finished goods[65][180] - The company aims for a safe and effective supply with redundancy, believing current commercial suppliers can produce linaclotide API in accordance with current good manufacturing practices (GMP)[65] - AbbVie, Astellas, and AstraZeneca are responsible for linaclotide API, finished drug product, and finished goods manufacturing and distribution in their respective territories[66] Sales and Marketing Ironwood develops and commercializes drugs in the U.S. independently or with partners, while relying on partners for international territories, coordinating global brand efforts - Ironwood intends to develop and commercialize drugs in the U.S. alone or with partners, relying on partners for ex-U.S. territories while retaining worldwide oversight[68] - The company has established a high-quality U.S. commercial organization dedicated to marketing, patient engagement, and sales for existing and future products[69] - Ironwood coordinates with its linaclotide partners to launch and maintain an integrated, global linaclotide brand, leveraging collective knowledge and expertise[70] Patents and Proprietary Rights Ironwood protects its proprietary technology through a broad patent portfolio for linaclotide, with U.S. patents expiring between 2024 and 2033, and has settled generic challenges - Ironwood actively protects its proprietary technology through patents covering products, compositions, formulations, methods of use, and manufacturing processes, also relying on trade secrets[71] - The linaclotide patent portfolio includes 14 U.S. patents (12 listed in the Orange Book), 8 granted European patents, 10 granted Japanese patents, 5 granted Chinese patents, and 80 issued patents in other foreign jurisdictions[74] - Issued U.S. patents for linaclotide expire between 2024 and 2033, with composition of matter patents for LINZESS doses expiring in 2026 and commercial formulation patents in the early 2030s[75] - U.S. Patent 7,304,036, covering linaclotide and its methods of use, received a patent term extension to August 30, 2026[77] - Ironwood and AbbVie have settled with five generic drug manufacturers, licensing them to market generic LINZESS versions (72 mcg, 145 mcg, and 290 mcg) as early as March 2029[78] Government Regulation The pharmaceutical business is extensively regulated by the U.S. FDA and foreign authorities, covering all stages from R&D to post-marketing, with significant impact from pricing policies and healthcare reforms - The pharmaceutical business is subject to extensive regulation by the U.S. FDA and foreign authorities, covering all stages from research and development to post-marketing requirements[79][80] - The U.S. FDA approval process involves nonclinical tests, IND submission, human clinical trials (Phase I, II, III), NDA submission, and satisfactory completion of manufacturing and clinical trial site inspections[82][83][84][85][87] - The Hatch-Waxman Act established abbreviated approval procedures for generic drugs (ANDA) and provides incentives like non-patent exclusivity periods (5 years for new chemical entities, 3 years for new clinical investigations) and patent term extensions (up to 5 years)[89][92][93][96] - Paragraph IV certifications by generic manufacturers can trigger a 30-month stay on U.S. FDA approval if a patent infringement suit is filed within 45 days of notice[94][95] - Post-approval, products are subject to ongoing compliance with GMP, safety and efficacy reporting, U.S. FDA approval for manufacturing/labeling changes, and strict promotion/advertising requirements, including prohibitions on "off-label" use[97][98][99][100][101][102] - Pricing and reimbursement policies by government health programs, commercial insurance, and managed healthcare organizations significantly impact commercial success, facing increasing cost-containment pressures and scrutiny of pharmaceutical pricing[104][105][106][107] - Healthcare reform efforts, such as the Inflation Reduction Act (IRA) of 2022, could reduce prices, increase discounts, and limit reimbursement for pharmaceutical products[107][203] - Sales and marketing activities are subject to federal and state "fraud and abuse" laws and transparency laws, with violations potentially leading to criminal or civil sanctions and exclusion from federal healthcare programs[111][112] Human Capital Ironwood prioritizes a diverse, equitable, and inclusive culture, offering competitive compensation and benefits, and emphasizing employee health and safety Employee Demographics (as of Dec 31, 2022) | Category | Number/Percentage | | :------- | :---------------- | | Total Employees | 219 | | Drug Development Team | 45 | | Sales and Commercial Team | 125 | | General and Administrative | 49 | | Women Employees | ~52% | | Women in Leadership (VP+) | 27% | | Women on Board of Directors | 33% | | Racially/Ethnically Diverse Employees | ~18% | | Racially/Ethnically Diverse New Hires (2022) | ~28% | - The company fosters a diverse, equitable, and inclusive (DE&I) culture through learning and development, strengthened talent acquisition, and employee resource groups[114][116][117] - Employees receive equity and competitive pay/benefits with a focus on pay equity, and communication/engagement are fostered through various channels including town hall meetings and surveys[118][119] - Health, wellness, and safety are top priorities, especially during the COVID-19 pandemic, with augmented healthcare, childcare, and leave benefits, and a dedicated working group for COVID-19 guidance[120] Item 1A. Risk Factors Ironwood faces significant commercial, growth, operational, regulatory, and financial risks, including LINZESS dependency, pipeline uncertainty, third-party reliance, compliance challenges, and financial stability concerns Risks Related to Commercializing LINZESS and Other Product Candidates Commercial success of LINZESS and other candidates is threatened by side effects, regulatory warnings, pricing pressures, intense competition, and compliance failures - Ironwood is highly dependent on the commercial success of LINZESS (linaclotide) in the U.S., influenced by effectiveness, patient population, marketing, reimbursement, and competition[126] - LINZESS may cause undesirable side effects, such as diarrhea (reported in 2% or less of patients), or other properties that could limit commercial potential, leading to impaired sales or regulatory actions[128][130][131][132] - The U.S. FDA-approved label for LINZESS includes a boxed warning for serious dehydration risk in pediatric patients less than two years of age and a contraindication against its use in this group[132] - Uncertainty regarding pricing and reimbursement policies, including increasing pressure for discounts/rebates and the impact of healthcare reforms like the Inflation Reduction Act (IRA) of 2022, could hinder commercial success[133][135][137][138][139][140][141] - Effective collaboration with AbbVie is crucial for LINZESS commercialization in the U.S., requiring continuous adaptation of the commercial model and market strategy to evolving landscapes, including potential approval for pediatric FC[143][144] - The company faces intense competition from existing branded (e.g., AMITIZA, TRULANCE, MOTEGRITY, IBSRELA) and generic prescription therapies, as well as over-the-counter products, potentially limiting demand and pricing for LINZESS[147][148] - Post-approval development and regulatory requirements for LINZESS, including seeking approval for additional indications, present ongoing challenges and costs, with failure potentially leading to negative regulatory action[149][150][152][153] - Failure by Ironwood, its partners, or manufacturing facilities to comply with applicable regulatory requirements (e.g., GMP) could result in product restrictions, recalls, withdrawal of approval, fines, or sanctions[154][156] - Regulatory approval in one jurisdiction does not guarantee approval in another, and delays or failures in obtaining foreign regulatory approvals could negatively affect global commercialization[155][157][159] Risks Related to Our Growth Strategy Ironwood's growth strategy relies on uncertain and costly in-licensing, acquisitions, and pipeline development, with high risks of delays and commercial failure - Ironwood's future success depends heavily on its ability to successfully in-license or acquire externally developed GI products or product candidates and execute other value-creation transactions[160] - Identifying, selecting, negotiating, and integrating license or acquisition opportunities is lengthy, complex, highly competitive, and may incur significant costs without guaranteed benefits[160][161] - Any in-licensed or acquired product candidates will require additional development efforts, including extensive clinical testing and regulatory approval, with no assurance of commercial viability[163] - Failure to successfully develop and commercialize additional product candidates (e.g., pediatric LINZESS, IW-3300, CNP-104) would impair growth and increase dependence on LINZESS's commercial success[164][165] - Pharmaceutical product development is highly uncertain, costly, and prone to delays, with nonclinical and early clinical results not necessarily predictive of later-stage success or regulatory approval[165][166] - Delays in clinical testing (e.g., due to COVID-19, regulatory approvals, patient enrollment, safety issues) could increase costs and delay or limit revenue generation[169][170][171][174] - Inability to successfully partner for product development and commercialization would impair growth, as the company relies on partners for financial resources and industry experience outside the U.S[168] Risks Related to Our Dependence on Third Parties Ironwood's reliance on third-party partners for linaclotide development, manufacturing, and commercialization introduces significant operational and supply chain risks - Ironwood is highly dependent on third-party partners (AbbVie, Astellas, AstraZeneca) for various aspects of linaclotide development, manufacturing, and worldwide commercialization[175] - Ineffective communication, coordination, insufficient resource allocation by partners, or material breaches of collaboration agreements could delay regulatory approval and commercialization of linaclotide[176] - The company relies entirely on contract manufacturers, its partners, and other third parties to manufacture and distribute linaclotide and other product candidates[180] - Manufacturing and supply chain risks include non-compliance with GMP, raw material sourcing difficulties, quality issues, production disruptions, and insufficient capacities, potentially harming development and commercialization[181][182][183][184] - Changes in control or management of any linaclotide partner could adversely affect collaborative relationships, disrupt operations, and impact linaclotide's commercialization success[186] - If Ironwood reacquired rights due to a partner's change of control, it would need to establish or enhance its own operational capabilities, potentially leading to reduced efficiency or performance[187][188] Risks Related to Regulatory, Legal and Compliance Matters Ironwood faces significant product liability, off-label promotion, and compliance risks under extensive healthcare regulations, with potential for substantial penalties and negative impacts from healthcare reforms - Ironwood faces potential product liability exposure from clinical trial use and approved product sales, which could result in substantial liabilities, decreased demand, regulatory investigations, and reputational harm[190][191][193] - Promoting "off-label" uses of products is strictly prohibited, and such promotion could lead to significant civil, administrative, and criminal sanctions[192] - The company must comply with extensive healthcare and other regulations, including federal anti-kickback laws, false claims laws, HIPAA, the FCPA, and various state laws, with non-compliance potentially resulting in substantial penalties, fines, and operational disruption[196][197][198][199][201][202] - Healthcare reform efforts (e.g., ACA, IRA 2022) and other governmental/private payor initiatives aimed at controlling healthcare costs could negatively affect demand, pricing, and reimbursement for Ironwood's products[203][204][205][206][207] - The U.S. FDA's enhanced post-marketing authority, including requiring post-marketing studies, labeling changes, and risk evaluation/mitigation strategies, increases development costs and could restrict product sales[208] Risks Related to the Separation of Cyclerion The 2019 Cyclerion separation exposes Ironwood to potential claims and liabilities, including significant tax risks if the share distribution fails to qualify as tax-free - The 2019 separation of Cyclerion exposes Ironwood to potential claims and liabilities, as Cyclerion's financial responsibility for its business activities is not guaranteed to satisfy indemnification obligations[209][210] - The distribution of Cyclerion shares was intended to be tax-free for U.S. federal income tax purposes, but failure to qualify could subject Ironwood and its stockholders to significant tax liabilities[211][212][213][214] Risks Related to Intellectual Property Ironwood's success depends on maintaining patent protection and avoiding infringement, facing uncertainties in patent strength, costly litigation, and risks from generic launches - Ironwood's success depends on obtaining and maintaining sufficient patent protection for its products and candidates, preserving trade secrets, and operating without infringing others' proprietary rights[215] - The strength of pharmaceutical patents is uncertain, as applications may not be granted, or issued patents may be challenged, narrowed, invalidated, or circumvented[216] - Changes in U.S. patent statutes (e.g., America Invents Act) and Supreme Court rulings can make patent protection more difficult and costly to obtain, enforce, or defend[218][219] - The company may face or be threatened with litigation by third parties alleging intellectual property infringement, potentially resulting in injunctions, substantial damages, or costly licenses[222][223][224][225] - Involvement in legal proceedings (e.g., ANDA lawsuits, inter partes review, post-grant review) to protect or enforce intellectual property rights is expensive and time-consuming, with potential for adverse outcomes like patent invalidation or loss of protection[227][228][229][230][231][232] - Loss of patent protection for a product or an "at-risk" launch by a generic manufacturer could significantly reduce revenues[232] - Reliance on unpatented trade secrets and know-how carries risks of independent development by competitors or breaches of confidentiality agreements[220] Risks Related to Our Finances and Capital Requirements Ironwood faces financial risks from its accumulated deficit, reliance on LINZESS revenue, potential need for additional funding, debt obligations, and fluctuating operating results - Ironwood incurred significant net losses from inception through 2018, with an accumulated deficit of $696.4 million as of December 31, 2022, and may incur future losses[236][237] - Revenue is highly dependent on the LINZESS collaboration with AbbVie for the U.S., subject to fluctuations in demand, buying patterns, pricing, and reimbursement[236] - The company may need additional funding for commercialization, R&D, and acquisitions, but capital availability on acceptable terms is not assured, potentially leading to delays or reduced efforts[238][241] - The ability to pay principal and interest on $400.0 million in outstanding convertible notes depends on sufficient cash flows from operations, particularly net quarterly payments from AbbVie[242][245] - Indebtedness could adversely affect financial condition by limiting additional financing, requiring substantial cash flows for debt service, increasing vulnerability to adverse conditions, and limiting operational flexibility[245][248] - Quarterly and annual operating results may fluctuate significantly due to factors including product demand, commercialization costs, milestone payments, strategic arrangements, asset impairments, tax changes, and regulatory developments[252][253] - The ability to use net operating loss (NOL) and tax credit carryforwards is limited by Internal Revenue Code provisions (Sections 382 and 383) related to ownership changes, and carryforwards may expire before sufficient taxable income is generated[254][255][256] General Risk Factors General risks include the ongoing impact of the COVID-19 pandemic, reliance on key personnel, cybersecurity threats, anti-takeover provisions, and stock price volatility - The COVID-19 pandemic has impacted and may continue to impact business operations, commercial plans for LINZESS, and clinical trial enrollment, with significant uncertainties regarding its duration and extent[257][258][259][260][261][262] - The company may not effectively manage its business if it loses current management or fails to attract, motivate, and retain key personnel, especially in the competitive biotechnology and pharmaceutical industry[263][264] - Security breaches and IT system disruptions (internal or external) could compromise sensitive information, disrupt operations, and expose the company to liability, negatively impacting financial condition and reputation[266][268] - Anti-takeover provisions under the company's charter documents and Delaware law could delay or prevent a change of control through various mechanisms[269][270][271] - Identification of a material weakness in internal control over financial reporting or an unqualified auditor opinion could adversely affect business, financial results, and Class A Common Stock trading price, especially due to reliance on partner-provided financial information[272][273][274][275] - The price of Class A Common Stock is expected to fluctuate substantially due to various factors, including commercial performance, reimbursement policies, market conditions, product safety concerns, and external events[276][277][284] - Proxy contests or other stockholder actions can be costly, disruptive, and divert management attention, potentially impacting the market price of Class A Common Stock[279] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments to report - The company has no unresolved staff comments[280] Item 2. Properties Ironwood's corporate headquarters in Boston, Massachusetts, occupies 39,000 square feet under a lease expiring in June 2030, deemed suitable for foreseeable needs - Ironwood's corporate headquarters and operations are located in Boston, Massachusetts, occupying approximately 39,000 square feet of office space[281] - The lease for the headquarters facilities expires in June 2030[281] - The company believes its facilities are suitable and adequate for its needs for the foreseeable future[281] Item 3. Legal Proceedings The company has no material legal proceedings to report - The company has no material legal proceedings[282] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[283] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Ironwood's Class A Common Stock trades on Nasdaq under "IRWD"; the company has 34 stockholders of record, does not pay dividends, and completed a $150.0 million stock repurchase program in May 2022 - Ironwood's Class A Common Stock is traded on the Nasdaq Global Select Market under the symbol "IRWD" since February 3, 2010[287] - As of January 31, 2023, there were 34 stockholders of record of the Class A Common Stock[287] - The company has never declared or paid cash dividends and does not anticipate doing so, intending to retain all future earnings to finance operations and strategic transactions[289] - A $150.0 million stock repurchase program, authorized in May 2021, was completed in May 2022, resulting in the repurchase and retirement of 13.1 million shares of Class A Common Stock[313][685][686] Item 6. Selected Financial Data This item is reserved, indicating that no selected financial data is presented in this section of the report - Item 6 is reserved, indicating no selected financial data is provided in this section[295] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Ironwood's financial condition and operations, detailing 2022 revenues, income, and cash flow, and outlining critical accounting policies and ongoing COVID-19 uncertainties Overview Ironwood is a GI healthcare company focused on LINZESS and pipeline candidates, reporting $175.1 million net income in 2022 and an accumulated deficit of $696.4 million - Ironwood is a gastrointestinal (GI) healthcare company focused on developing and commercializing innovative GI product opportunities, with LINZESS (linaclotide) as its commercial product[300][301] - The company maintains strategic partnerships for linaclotide with AbbVie (U.S. and global), AstraZeneca (China), and Astellas (Japan)[302] - The pipeline includes IW-3300 for visceral pain conditions and CNP-104 (via COUR collaboration) for primary biliary cholangitis[303][302] Net Income (in thousands) | Year | Net Income (in thousands) | | :--- | :--------- | | 2022 | $175,065 | | 2021 | $528,448 | | 2020 | $106,176 | - As of December 31, 2022, the company had an accumulated deficit of $696.4 million[304] Key 2022 Financial Highlights In 2022, total revenues slightly decreased to $410.6 million, while income from operations increased to $250.3 million, and cash from operations reached $273.8 million 2022 Financial Highlights | Metric | 2022 (in millions) | 2021 (in millions) | Change (in millions) | | :----- | :----------------- | :----------------- | :------------------- | | Total Revenues | $410.6 | $413.8 | $(3.2) | | LINZESS U.S. Collaborative Arrangements Revenue | $398.8 | $400.4 | $(1.6) | | Income from Operations | $250.3 | $232.3 | $18.0 | | Cash from Operations | $273.8 | N/A | N/A | | Cash & Cash Equivalents (EOP) | $656.2 | N/A | N/A | | Stock Repurchase Program | Completed $150M program, repurchased 10.8M shares for $123.4M in 2022 | N/A | N/A | - The slight decrease in LINZESS U.S. collaborative arrangements revenue was primarily driven by net price erosion and inventory channel fluctuations, partially offset by increased prescription demand[313] - The increase in income from operations was primarily driven by the recognition of $19.5 million of research and development expense in 2021 for the upfront, non-contingent, and milestone payment obligations related to the COUR Collaboration Agreement[313] Financial Operations Overview Revenues are primarily from linaclotide collaborations, while R&D and SG&A expenses are significant, and interest/investment income and derivative gains/losses impact net results - Revenues are primarily generated through collaborative arrangements and license agreements related to linaclotide, with the majority from net profit/loss sharing from LINZESS sales in the U.S. with AbbVie[309][310] - Cost of revenues primarily includes costs related to the sales of linaclotide API, finished drug product, and finished goods to partners outside of the U.S[311] - Research and development (R&D) expense comprises costs for product candidate development (linaclotide, IW-3300, CNP-104) and early research, including compensation, third-party contract costs, and licensing fees[312][314][315][319][320][321] Research and Development Expenses (in thousands) | Program | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :------ | :----- | :----- | :----- | | Linaclotide | $17,267 | $21,075 | $25,531 | | IW-3718 | $461 | $8,002 | $52,183 | | IW-3300 | $15,824 | $11,687 | $3,810 | | CNP-104 | $1,022 | $19,500 | $0 | | Early R&D | $9,691 | $10,141 | $6,538 | | Total R&D | $44,265 | $70,405 | $88,062 | - Selling, general and administrative (SG&A) expense is substantial, covering personnel, legal, information technology, business development, commercial, sales, marketing, communications, and human resource functions[334] - Interest expense primarily consists of cash and non-cash interest costs related to convertible senior notes[336] - Interest and investment income consists of interest earned on cash and cash equivalents, as well as significant financing components of payments due from collaboration partners[337] - Gain (loss) on derivatives consists of the change in fair value of convertible note hedges and note hedge warrants[338] - Income taxes are prepared based on the asset and liability method, with a valuation allowance for deferred tax assets reassessed periodically[341] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in revenue recognition, net profit/loss sharing, R&D expense accruals, share-based compensation, and income tax estimates - Revenue recognition requires significant judgment in identifying performance obligations, determining transaction price, allocating to standalone selling prices, and recognizing milestones and royalties[344][345][346][347][348][349][350] - Net profit or net loss sharing from LINZESS sales in the U.S. relies on AbbVie-provided amounts, involving estimates and judgments (e.g., product sales allowances, rebates) subject to future adjustments[352] - Research and development expenses are generally expensed as incurred, with nonrefundable advance payments capitalized; accruing CRO services and recognizing upfront/milestone payments (e.g., COUR Collaboration Agreement) require estimates[358][359][360][361] - Share-based compensation expense requires subjective assumptions for fair value estimation (e.g., Black-Scholes for stock options and ESPP, Monte Carlo for performance-based RSUs) and judgment for anticipated achievement of performance targets[362][363][365][366][367] - Income taxes are accounted for using the asset and liability method, with deferred tax assets reduced by a valuation allowance based on recoverability assessment, requiring significant judgment for both the allowance and uncertain tax positions[368][369][370][371] Results of Operations In 2022, total revenues decreased slightly to $410.6 million, while income from operations increased to $250.3 million, and net income was $175.1 million, significantly impacted by a 2021 tax benefit Consolidated Statements of Income (in thousands) | Metric | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :-------------------------------- | :----- | :----- | :----- | | Total Revenues | $410,596 | $413,753 | $389,523 | | Collaborative arrangements revenue | $410,596 | $412,784 | $381,545 | | Sale of active pharmaceutical ingredient | $0 | $969 | $7,978 | | Total Operating Expenses | $160,259 | $181,494 | $246,583 | | Research and development | $44,265 | $70,405 | $88,062 | | Selling, general and administrative | $115,994 | $111,133 | $140,003 | | Income from Operations | $250,337 | $232,259 | $142,940 | | Net Income | $175,065 | $528,448 | $106,176 | | Net income per share—basic | $1.13 | $3.26 | $0.67 | | Net income per share—diluted | $0.96 | $3.21 | $0.66 | Revenue Changes (2022 vs 2021, in thousands) | Revenue Type | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :----------- | :----- | :----- | :----- | | Collaborative arrangements revenue | $410,596 | $412,784 | $(2,188) | | Sale of active pharmaceutical ingredient | $0 | $969 | $(969) | | Total Revenues | $410,596 | $413,753 | $(3,157) | - Collaborative arrangements revenue decreased by $2.2 million, primarily due to a $1.6 million decrease in Ironwood's share of net profits from LINZESS sales in the U.S., driven by net price erosion and inventory channel fluctuations, partially offset by increased prescription demand[375] - Sale of active pharmaceutical ingredient (API) decreased by $1.0 million due to non-recurring, insignificant sales during 2021[376] Operating Expense Changes (2022 vs 2021, in thousands) | Expense Type | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :----------- | :----- | :----- | :----- | | Research and development | $44,265 | $70,405 | $(26,140) | | Selling, general and administrative | $115,994 | $111,133 | $4,861 | | Restructuring expenses | $0 | $(44) | $44 | | Total Operating Expenses | $160,259 | $181,494 | $(21,235) | - The $26.1 million decrease in research and development expense was primarily due to a $19.4 million decrease in expenses related to the COUR Collaboration Agreement and a $5.4 million decrease in external development costs for IW-3718, partially offset by a $3.0 million increase in external development costs for IW-3300[378] - Selling, general and administrative expenses increased by $4.9 million, mainly due to a $3.4 million increase in sales and marketing activities and a $1.7 million increase in compensation, benefits, and other employee-related expenses[379] Other (Expense) Income, Net Changes (2022 vs 2021, in thousands) | Item | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :--- | :----- | :----- | :----- | | Interest expense | $(7,598) | $(31,150) | $23,552 | | Interest and investment income | $9,501 | $726 | $8,775 | | Gain (loss) on derivatives | $182 | $(1,178) | $1,360 | | Total Other (Expense) Income, Net | $2,085 | $(31,602) | $33,687 | - Interest expense decreased by $23.6 million due to a $22.1 million decrease in non-cash interest expense following ASU 2020-06 adoption and a $1.5 million decrease in coupon interest expense from 2022 Convertible Notes repayment[381] - Interest and investment income increased by $8.8 million, primarily due to an increase in investment interest rates[382] - Income tax expense was $77.4 million in 2022, compared to an income tax benefit of $327.8 million in 2021, with the 2021 benefit primarily related to the release of the valuation allowance on tax attributes and deferred tax assets[384][385] Liquidity and Capital Resources Ironwood maintains $656.2 million in cash and equivalents, with $400.0 million in convertible notes, and expects sufficient cash from operations to meet future obligations - Ironwood had an accumulated deficit of $696.4 million as of December 31, 2022, but has financed operations through equity, collaboration/license arrangements, debt financings, and cash from operations[387] - As of December 31, 2022, the company had $656.2 million of unrestricted cash and cash equivalents and $400.0 million aggregate principal amount of convertible notes outstanding[387][388] Cash Flow Summary (in thousands) | Activity | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :------- | :----- | :----- | :----- | | Net cash provided by operating activities | $273,763 | $261,895 | $168,836 | | Net cash used in investing activities | $(136) | $(265) | $(1,842) | | Net cash provided by (used in) financing activities | $(237,553) | $(4,550) | $18,546 | | Net increase in cash, cash equivalents and restricted cash | $36,074 | $257,080 | $185,540 | - Cash and cash equivalents increased by $36.1 million during 2022, driven by $273.8 million in cash from operating activities, offset by $237.6 million in financing activities[389] - Net cash provided by operating activities totaled $273.8 million for 2022, primarily related to cash flows from net income and collaboration arrangements revenue from LINZESS sales in the U.S[389][394][395] - Net cash used in financing activities for 2022 totaled $237.6 million, resulting from $126.4 million of share repurchases and repayment of the $120.7 million remaining principal on the 2022 Convertible Notes[398] - The company anticipates its cash balance and expected net cash inflows from operations will be sufficient to meet its near-term and long-term cash obligations[390][401] - Future funding requirements will depend on various factors, including LINZESS sales, R&D costs for product candidates, regulatory approvals, and strategic transactions[404] - The company may consider additional funding through new collaborative arrangements, strategic alliances, and additional equity and debt financings[405] Trends and Uncertainties The COVID-19 pandemic continues to pose significant uncertainties for Ironwood's business, impacting commercial operations, LINZESS sales, and clinical trials - The COVID-19 pandemic, including containment and mitigation measures, has impacted and may continue to impact Ironwood's business and operations, particularly day-to-day operations and the collaboration agreement for North America with AbbVie[410] - New strains or variants of COVID-19 may present risks to the successful execution of the commercial operating plan for LINZESS due to potential limitations on in-person work practices for customer-facing employees[411] - The COVID-19 pandemic may negatively impact future net sales of LINZESS in the U.S., including through reduced in-person promotion or potential changes in patient access to healthcare and payor reimbursement levels[413] - The pandemic could also cause significant disruptions to manufacturing operations or supply of LINZESS and impact clinical trial enrollment or participation[412][262] Item 7A. Quantitative and Qualitative Disclosures about Market Risk Ironwood's market risk exposure is primarily from interest rate sensitivity on short-term investments and equity price risk on convertible notes, with no significant foreign currency risk Interest Rate Risk Ironwood's interest rate risk primarily stems from short-term marketable securities, with minimal material impact expected from rate changes due to portfolio characteristics - Ironwood's primary market risk exposure is interest income sensitivity, affected by changes in general interest rates, particularly for its short-term marketable securities investments[416] - Due to the short-term duration and low-risk profile of its investment portfolio, an immediate 1% change in interest rates would not materially affect the fair market value, operating results, or cash flows[416] - The company's Convertible Senior Notes bear interest at a fixed rate, resulting in minimal exposure to interest rate changes, though future interest rates may be higher relative to market if credit rating improves or circumstances change[419] Equity Price Risk The fair values of Ironwood's convertible notes are subject to equity price risk, mitigated by Capped Calls to minimize potential dilution - The fair values of Ironwood's convertible notes are dependent on the price and volatility of its Class A Common Stock[420] - To minimize potential dilution upon note conversion, the company entered into Convertible Note Hedges (terminated unexercised in June 2022) and Capped Calls (for the 2024 and 2026 Convertible Notes)[421] Foreign Currency Risk Ironwood has no significant monetary assets or liabilities in foreign currencies and does not anticipate significant impact from foreign currency fluctuations - Ironwood has no significant monetary assets or liabilities expected to be settled in foreign currencies[423] - The company does not expect to be significantly impacted by foreign currency fluctuations[423] Item 8. Financial Statements and Supplementary Data Consolidated financial statements and the independent auditor's report are presented in pages F-1 through F-50 of this Annual Report on Form 10-K - The consolidated financial statements and the independent registered public accounting firm's report appear at pages F-1 through F-50 of this Annual Report on Form 10-K[424] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[425] Item 9A. Controls and Procedures Ironwood's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during the fourth quarter Evaluation of Disclosure Controls and Procedures Management concluded that Ironwood's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022 - Management, including the principal executive and financial officers, concluded that Ironwood's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022[426] - These controls ensure that information required for Exchange Act reports is recorded, processed, summarized, and reported within specified time periods[426] Management's Report on Internal Control Over Financial Reporting Management concluded that internal control over financial reporting was effective as of December 31, 2022, a conclusion affirmed by Ernst and Young LLP - Management is responsible for establishing and maintaining adequate internal control over financial reporting[428] - Based on a COSO (2013) framework evaluation, management concluded that internal control over financial reporting was effective as of December 31, 2022[429] - The effectiveness of internal control over financial reporting as of December 31, 2022, was audited by Ernst and Young LLP, who expressed an unqualified opinion thereon[430][435] Changes in Internal Control No material changes to internal controls over financial reporting occurred during the quarter ended December 31, 2022 - Management concluded that no material changes occurred during the quarter ended December 31, 2022, affecting the company's internal controls over financial reporting[432] Item 9B. Other Information No other information is reported under this item - No other information is reported under this item[443] PART III Item 10. Directors, Executive Officers and Corporate Governance Ironwood has a code of business conduct and ethics for all personnel, with other required information incorporated by reference from its 2023 proxy statement - Ironwood has adopted a code of business conduct and ethics applicable to its directors, officers, employees, consultants, and their immediate family, available on its corporate website[445] - Other information required by this item is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[446] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from Ironwood's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information regarding executive compensation is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[447] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2023 proxy statement; as of December 31, 2022, 12,390,288 securities were issuable from outstanding options at a $12.34 weighted-average exercise price - Information relating to security ownership of certain beneficial owners and management is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[448] Securities Authorized for Issuance Under Equity Compensation Plans (as of Dec 31, 2022) | Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants, and rights ($) | Number of securities remaining available for future issuance under equity compensation plans | | :------- | :---------------------------------------------------------------------------------------- | :------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 12,390,288 | $12.34 | 7,366,153 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 12,390,288 | $12.34 | 7,366,153 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from Ironwood's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[452] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from Ironwood's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information regarding principal accountant fees and services is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[453] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists consolidated financial statements and a comprehensive array of exhibits, including various agreements, corporate governance documents, financial instrument confirmations, and required certifications - This section lists documents filed as part of the report, including consolidated financial statements and exhibits[455][456] - No financial statement schedules are submitted as they are not applicable, required, or the information is included in the Consolidated Financial Statements or Notes[455] - Exhibits include various agreements (e.g., Separation, Collaboration, License, Supply, Lease, Tax Matters, Employee Matters), corporate governance documents (e.g., Certificate of Incorporation, Bylaws), financial instrument confirmations (e.g., Indentures, Warrants, Call Option), and certifications (e.g., Independent Registered Public Accounting Firm Consent, CEO/CFO Certifications, XBRL documents)[455][458][459][461][462][463][465][466][467] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided in this report - No Form 10-K Summary is provided[470]