Ironwood(IRWD) - 2020 Q4 - Annual Report

Part I Item 1. Business Ironwood Pharmaceuticals is a GI healthcare company focused on developing and commercializing innovative GI products, primarily LINZESS, with a strategy to maximize its core product, build its pipeline, and deliver sustained profits - Ironwood Pharmaceuticals is a gastrointestinal (GI) healthcare company dedicated to advancing treatments for GI diseases, with a focus on innovative product opportunities in areas of unmet need[21] - LINZESS® (linaclotide) is the company's commercial product, approved by the U.S. FDA for adult men and women with irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC) and is available in multiple global markets[22] - Strategic partnerships include AbbVie Inc. (U.S. and global ex-China/Japan), AstraZeneca AB (China), and Astellas Pharma Inc. (Japan), alongside a U.S. disease education and promotional agreement with Alnylam Pharmaceuticals, Inc. for GIVLAARI®[23] - The company's refreshed GI-focused strategy for 2021 includes three core priorities: maximize LINZESS, build an innovative GI pipeline, and deliver sustained profits and generate cash flow[24][52] 2020 Performance Against Core Priorities | Metric | Value (2020) | Change vs. 2019 | Notes | | :--- | :--- | :--- | :--- | | Collaborative arrangements revenue (LINZESS U.S.) | ~$368.6 million | +13% | Driven by increased LINZESS prescription demand | | Net Income | $106.2 million | N/A | Second full year of profitability | | Cash from Operations | $168.8 million | N/A | Ended year with $362.6 million in cash and cash equivalents | | Workforce Reduction | ~100 employees | N/A | Due to discontinuation of IW-3718 development | - Development programs MD-7246 (IBS-D) and IW-3718 (refractory GERD) were discontinued in 2020 due to failure to meet primary or key secondary endpoints in Phase II and Phase III trials, respectively[32] - The company is advancing IW-3300, a GC-C agonist, in pre-clinical development for visceral pain conditions, including Interstitial Cystitis / Bladder Pain Syndrome (IC / BPS) and Endometriosis[41] Revenue by Geographic Region (Percentage of Total Revenue) | Region | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | U.S. | 95.8 % | 78.0 % | 79.0 % | | Japan | 1.1 % | 13.0 % | 20.1 % | | Rest of world | 3.1 % | 9.0 % | 0.9 % | | Total | 100.0 % | 100.0 % | 100.0 % | - The linaclotide patent portfolio includes 14 U.S. patents (12 Orange Book listed) expiring between 2024 and 2033, as well as granted patents in Europe, Japan, China, and other foreign jurisdictions[68][69] - Settlement agreements with generic drug manufacturers allow for market entry of generic LINZESS (145mcg and 290mcg) as early as March 2029, and for 72mcg in August 2030, subject to U.S. FDA approval[72] - As of January 1, 2021, Ironwood had 232 employees, with a significant workforce reduction of approximately 100 full-time employees completed in Q4 2020 due to the discontinuation of IW-3718 development[109] Item 1A. Risk Factors The company faces significant risks including heavy reliance on LINZESS, market competition, pipeline development challenges, intellectual property disputes, financial liabilities, and the ongoing impact of the COVID-19 pandemic - The company is highly dependent on the commercial success of LINZESS® (linaclotide) in the United States for the foreseeable future, and cannot guarantee sufficient revenues to cover expenses[120] - LINZESS® has a boxed warning for pediatric patients up to six years of age and advises against use in patients six to less than 18 years of age, based on nonclinical data and lack of pediatric clinical safety/efficacy data[126] - Uncertainty in U.S. and foreign pricing and reimbursement policies, including potential for increased discounts/rebates and government cost-containment measures, could hinder commercial success[127][131][133] - The company faces intense competition from branded and generic prescription therapies, as well as over-the-counter products for IBS-C and CIC[142][143] - Failure to successfully in-license or acquire externally developed products or product candidates, or to realize anticipated benefits from such transactions, would materially adversely affect business and prospects[155] - Development programs for MD-7246 and IW-3718 were discontinued in 2020 due to unfavorable clinical trial results, highlighting the inherent uncertainties and risks in pharmaceutical product development[162] - The company relies heavily on third-party partners (AbbVie, Astellas, AstraZeneca) for the development, manufacturing, and commercialization of linaclotide globally, exposing it to risks related to partner performance and coordination[174][178][179] - Intellectual property risks include challenges to existing patents, potential infringement lawsuits by third parties, and the impact of changes in patent laws (e.g., America Invents Act)[213][217][218][225] - The company incurred significant losses from inception through 2018, with an accumulated deficit of approximately $1.5 billion as of December 31, 2020, and may incur future losses[234] - As of December 31, 2020, total indebtedness was approximately $520.7 million, which could adversely affect financial condition or restrict future operations[241] - The COVID-19 pandemic has impacted operations, sales, clinical trials, and the supply chain, and continues to pose significant uncertainties and potential material adverse impacts on the business and financial condition[257][258][259][260] - Mark Mallon resigned as CEO effective March 12, 2021, with Thomas McCourt appointed interim CEO, posing risks related to management transitions and attracting a permanent successor[263] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report for the period - No unresolved staff comments[279] Item 2. Properties The company's corporate headquarters and operations are located in Boston, Massachusetts, occupying approximately 39,000 square feet of office space under a lease expiring in June 2030 - Corporate headquarters and operations are located in Boston, Massachusetts, occupying approximately 39,000 square feet of office space[280] - The current lease for the headquarters expires in June 2030, and the facilities are deemed suitable and adequate for foreseeable needs[280] Item 3. Legal Proceedings There are no material legal proceedings to report for the period - No material legal proceedings[281] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Not applicable[282] 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 the Nasdaq Global Select Market under the symbol 'IRWD', with 160,962,175 shares outstanding as of February 10, 2021, and no cash dividends anticipated - Shares of Class A Common Stock are traded on the Nasdaq Global Select Market under the symbol 'IRWD'[284] - As of February 10, 2021, there were 160,962,175 shares of Class A Common Stock outstanding[4] - The company has never declared or paid any cash dividends on its capital stock and does not anticipate doing so in the foreseeable future, intending to retain future earnings to finance operations[286] - The corporate performance graph reflects total returns adjusted for the tax-free spin-off of the soluble guanylate cyclase (sGC) business into Cyclerion Therapeutics, Inc. on April 1, 2019[289][290] Item 6. Selected Financial Data This section presents a five-year summary of selected consolidated financial data, reclassifying sGC business results as discontinued operations, highlighting the company's transition to profitability and changes in financial position - Results of operations related to the sGC business have been reclassified to reflect discontinued operations for all periods presented, following the spin-off on April 1, 2019[293] Selected Consolidated Statement of Operations Data (in thousands, except per share data) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Collaborative arrangements revenue | $381,545 | $379,652 | $272,839 | $265,533 | $263,923 | | Product revenue, net | — | — | 3,445 | 3,061 | 109 | | Sale of active pharmaceutical ingredient | 7,978 | 48,761 | 70,355 | 29,682 | 9,925 | | Total revenues | 389,523 | 428,413 | 346,639 | 298,276 | 273,957 | | Cost of revenues | 3,136 | 23,875 | 32,751 | 19,097 | 1,868 | | Research and development | 88,062 | 115,044 | 101,060 | 88,145 | 101,903 | | Selling, general and administrative | 140,003 | 172,450 | 219,676 | 231,184 | 169,169 | | Income (loss) from operations | 142,940 | 120,123 | (150,670) | (15,363) | (10,169) | | Net income (loss) | $106,176 | $21,505 | $(282,368) | $(116,937) | $(81,708) | | Basic EPS from continuing operations | $0.67 | $0.38 | $(1.27) | $(0.37) | $(0.28) | | Diluted EPS from continuing operations | $0.66 | $0.38 | $(1.27) | $(0.37) | $(0.28) | | Basic Net EPS | $0.67 | $0.14 | $(1.85) | $(0.78) | $(0.56) | | Diluted Net EPS | $0.66 | $0.14 | $(1.85) | $(0.78) | $(0.56) | Selected Consolidated Balance Sheet Data (in thousands) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash, cash equivalents and available-for-sale securities | $362,564 | $177,023 | $173,172 | $221,416 | $305,216 | | Total assets | $559,238 | $402,748 | $332,050 | $605,674 | $709,821 | | Debt financing and convertible notes | $430,256 | $407,994 | $413,692 | $396,091 | $366,492 | | Total liabilities | $496,598 | $495,999 | $528,421 | $595,826 | $643,105 | | Total stockholders' equity (deficit) | $62,640 | $(93,251) | $(196,371) | $9,848 | $66,716 | - Collaborative arrangements revenue related to U.S. LINZESS sales increased by approximately $43.2 million in 2020 compared to 2019, reaching $368.6 million[295] - The company recorded net income of $106.2 million in 2020, marking its second consecutive year of profitability after incurring net losses since its inception in 1998[315] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Ironwood's 2020 financial performance, detailing revenue, cost, and expense changes, critical accounting policies, liquidity, and the COVID-19 impact, highlighting substantial net income and positive cash flow driven by LINZESS sales and reduced expenses - For the year ended December 31, 2020, total revenues were approximately $389.5 million, a 9% decrease from $428.4 million in 2019, primarily due to a decrease in the sale of active pharmaceutical ingredient (API)[317][408] - Collaborative arrangements revenue related to U.S. LINZESS sales increased by 13% to approximately $368.6 million in 2020, driven by increased prescription demand and lower collaboration-related selling expenses due to the COVID-19 pandemic[325][408] - Net income for 2020 was approximately $106.2 million, a significant increase from $21.5 million in 2019, primarily due to increased LINZESS U.S. sales revenue and decreases in costs from discontinued development programs (MD-7246 and IW-3718)[325] - Research and development expenses decreased by approximately $27.0 million (23%) in 2020, mainly due to the discontinuation of IW-3718 development and other operating cost reductions[414] - Selling, general and administrative expenses decreased by approximately $32.4 million (19%) in 2020, attributed to reduced Separation-related costs and lower non-Separation costs, including travel due to COVID-19[415] - Restructuring expenses increased by approximately $11.8 million (325%) in 2020, primarily due to severance, benefits, and related costs from the workforce reduction associated with discontinuing IW-3718 development[417] - Net cash provided by operating activities totaled approximately $168.8 million in 2020, driven by profitable operations and non-cash adjustments[432] - As of December 31, 2020, the company had approximately $362.6 million in unrestricted cash and cash equivalents and approximately $520.7 million in aggregate principal amount of convertible notes[427][428] Contractual Commitments and Obligations (as of December 31, 2020, in thousands) | Obligation Type | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $30,493 | $3,128 | $6,194 | $6,315 | $14,856 | | Convertible senior notes (principal + interest) | $546,523 | $7,216 | $131,057 | $206,750 | $201,500 | - The COVID-19 pandemic has impacted day-to-day operations (e.g., shift to virtual selling), LINZESS sales (due to changes in patient access and reimbursement), and clinical trial enrollment, with ongoing uncertainties regarding its future impact[458] Item 7A. Quantitative and Qualitative Disclosures about Market Risk This section addresses the company's exposure to interest rate, equity price, and foreign currency risks, noting minimal interest rate sensitivity due to investment strategy and fixed-rate debt, equity price risk from convertible notes, and insignificant foreign currency risk - The company's primary exposure to market risk is interest income sensitivity, but 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 fair market value[463] - Convertible senior notes bear interest at a fixed rate, minimizing exposure to changes in interest rates, though there's a risk of paying a higher rate relative to the market if credit rating improves[465] - Equity price risk arises from convertible notes, whose conversion and settlement provisions are based on the price of Class A Common Stock, potentially affecting cash payments and dilution[466] - The company has no significant monetary assets or liabilities in foreign currencies and does not expect to be significantly impacted by foreign currency fluctuations[468] Item 8. Financial Statements and Supplementary Data This item indicates that the consolidated financial statements and the independent registered public accounting firm's report are included elsewhere in this Annual Report on Form 10-K - Consolidated financial statements and the independent registered public accounting firm report are presented at pages F-1 through F-57 of this Annual Report on Form 10-K[471] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure matters - No changes in and disagreements with accountants on accounting and financial disclosure[472] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes identified - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020[472] - Management concluded that internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework[474] - The effectiveness of internal control over financial reporting as of December 31, 2020, was audited by Ernst and Young LLP, who expressed an unqualified opinion[475][480] - No changes occurred during the quarter ended December 31, 2020, that materially affected, or are reasonably likely to materially affect, internal controls over financial reporting[478] Item 9B. Other Information There is no other information to report under this item - None[488] Part III Item 10. Directors, Executive Officers and Corporate Governance Information regarding the company's directors, executive officers, and corporate governance, including its code of business conduct, is incorporated by reference from the 2021 proxy statement - The company has adopted a code of business conduct and ethics applicable to its directors, executive officers, and all other employees[490] - Information required by this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[491] Item 11. Executive Compensation Details concerning executive compensation are incorporated by reference from the company's definitive proxy statement for the 2021 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[492] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates security ownership information from the 2021 proxy statement and details securities authorized for issuance under equity compensation plans as of December 31, 2020 - Information relating to security ownership of certain beneficial owners and management is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[493] Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2020) | 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 | 18,216,454 | $12.25 | 9,651,783 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 18,216,454 | $12.25 | 9,651,783 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement for the 2021 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[497] Item 14. Principal Accountant Fees and Services Information on the fees and services provided by the principal accountant is incorporated by reference from the company's definitive proxy statement for the 2021 Annual Meeting of Stockholders - Information required by this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[498] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all documents filed as part of the Annual Report on Form 10-K, including consolidated financial statements, various corporate governance documents, debt instruments, and collaboration agreements - No schedules are submitted because they are not applicable, not required, or the information is included in the Consolidated Financial Statements or Notes to Consolidated Financial Statements[500] - The report includes a list of exhibits, such as the Separation Agreement, Certificate of Incorporation, Bylaws, Indentures for Convertible Senior Notes, Equity Incentive Plans, and various collaboration and supply agreements[500][502][505][507][509][511] Item 16. Form 10-K Summary The company has not provided a Form 10-K Summary in this report - No Form 10-K Summary is provided[514] Signatures This section contains the required signatures of the registrant's principal executive officer, principal financial officer, principal accounting officer, and members of the board of directors, certifying the Annual Report on Form 10-K - The report is signed by Mark Mallon (Chief Executive Officer), Gina Consylman (Senior Vice President, Chief Financial Officer), Kelly MacDonald (Vice President, Finance and Chief Accounting Officer), and the Board of Directors[517][519] Index to Consolidated Financial Statements This index provides a list of the consolidated financial statements included in the report, such as the Consolidated Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Stockholders' Equity (Deficit), Cash Flows, and accompanying Notes - The index lists the 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[522]