399260003345000us-gaap:ValuationTechniqueOptionPricingModelMemberus-gaap:ValuationTechniqueOptionPricingModelMemberus-gaap:ValuationTechniqueOptionPricingModelMemberus-gaap:ValuationTechniqueOptionPricingModelMember1619310120001446847--12-312021Q1false00399260003345000160616675P5YP5Y0001446847us-gaap:SubsequentEventMember2021-05-042021-05-040001446847us-gaap:SubsequentEventMember2021-05-040001446847us-gaap:CommonStockMember2021-01-012021-03-310001446847us-gaap:CommonStockMember2020-01-012020-03-310001446847us-gaap:RetainedEarningsMember2021-03-310001446847us-gaap:AdditionalPaidInCapitalMember2021-03-310001446847us-gaap:RetainedEarningsMember2020-12-310001446847us-gaap:AdditionalPaidInCapitalMember2020-12-310001446847us-gaap:RetainedEarningsMember2020-03-310001446847us-gaap:AdditionalPaidInCapitalMember2020-03-310001446847us-gaap:RetainedEarningsMember2019-12-310001446847us-gaap:AdditionalPaidInCapitalMember2019-12-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementsLinzessMembercountry:US2021-01-012021-03-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementsLinzessMembercountry:US2020-01-012020-03-310001446847irwd:AbbviePlcMemberus-gaap:LicenseMembersrt:EuropeMember2012-09-300001446847irwd:AstellasPharmaIncMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMembercountry:JP2021-01-012021-03-310001446847irwd:AbbviePlcMemberus-gaap:RoyaltyMembersrt:NorthAmericaMember2021-01-012021-03-310001446847irwd:AbbviePlcMemberus-gaap:RoyaltyMembersrt:EuropeMember2021-01-012021-03-310001446847irwd:AbbviePlcMemberus-gaap:RoyaltyMemberirwd:CanadaAndMexicoMember2021-01-012021-03-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementsMembersrt:NorthAmericaMember2021-01-012021-03-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementsLinzessMembersrt:NorthAmericaMember2021-01-012021-03-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMembersrt:NorthAmericaMember2021-01-012021-03-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMemberirwd:EuropeAndOtherMember2021-01-012021-03-310001446847irwd:AstraZenecaMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMember2021-01-012021-03-310001446847irwd:AstraZenecaMemberirwd:ActivePharmaceuticalIngredientMember2021-01-012021-03-310001446847irwd:AstrazenecaLicenseAgreementMemberus-gaap:RoyaltyMember2021-01-012021-03-310001446847irwd:AstrazenecaLicenseAgreementMemberirwd:CollaborativeArrangementTransitionServicesAgreementMember2021-01-012021-03-310001446847irwd:AstrazenecaLicenseAgreementMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMember2021-01-012021-03-310001446847irwd:AstellasPharmaInc2009LicenseAgreementAmended2019Memberus-gaap:RoyaltyMember2021-01-012021-03-310001446847irwd:AlnylamMemberus-gaap:RoyaltyMember2021-01-012021-03-310001446847irwd:AlnylamMemberirwd:CollaborativeArrangementCoPromotionAgreementMember2021-01-012021-03-310001446847irwd:AbbviePlcMemberirwd:ActivePharmaceuticalIngredientMember2021-01-012021-03-310001446847irwd:CollaborativeArrangementsMember2021-01-012021-03-310001446847irwd:CollaborativeArrangementOtherAgreementsMember2021-01-012021-03-310001446847irwd:ActivePharmaceuticalIngredientMember2021-01-012021-03-310001446847irwd:AstrazenecaLicenseAgreementMemberirwd:CollaborativeArrangementCollaborationAgreementsMember2021-01-012021-01-310001446847irwd:AstellasPharmaIncMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMembercountry:JP2020-01-012020-03-310001446847irwd:AbbviePlcMemberus-gaap:RoyaltyMembersrt:NorthAmericaMember2020-01-012020-03-310001446847irwd:AbbviePlcMemberus-gaap:RoyaltyMembersrt:EuropeMember2020-01-012020-03-310001446847irwd:AbbviePlcMemberus-gaap:RoyaltyMemberirwd:CanadaAndMexicoMember2020-01-012020-03-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementsMembersrt:NorthAmericaMember2020-01-012020-03-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementsLinzessMembersrt:NorthAmericaMember2020-01-012020-03-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMembersrt:NorthAmericaMember2020-01-012020-03-310001446847irwd:AbbviePlcMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMemberirwd:EuropeAndOtherMember2020-01-012020-03-310001446847irwd:AstraZenecaMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMember2020-01-012020-03-310001446847irwd:AstraZenecaMemberirwd:ActivePharmaceuticalIngredientMember2020-01-012020-03-310001446847irwd:AstrazenecaLicenseAgreementMemberus-gaap:RoyaltyMember2020-01-012020-03-310001446847irwd:AstrazenecaLicenseAgreementMemberirwd:CollaborativeArrangementTransitionServicesAgreementMember2020-01-012020-03-310001446847irwd:AstrazenecaLicenseAgreementMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMember2020-01-012020-03-310001446847irwd:AstellasPharmaInc2009LicenseAgreementAmended2019Memberus-gaap:RoyaltyMember2020-01-012020-03-310001446847irwd:AlnylamMemberirwd:CollaborativeArrangementPromotionAgreementMember2020-01-012020-03-310001446847irwd:AlnylamMemberirwd:CollaborativeArrangementCoPromotionAgreementMember2020-01-012020-03-310001446847irwd:CollaborativeArrangementsMember2020-01-012020-03-310001446847irwd:CollaborativeArrangementOtherAgreementsMember2020-01-012020-03-310001446847irwd:ActivePharmaceuticalIngredientMember2020-01-012020-03-310001446847irwd:AstellasPharmaIncMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMember2019-08-012019-08-010001446847us-gaap:EmployeeSeveranceMember2021-03-310001446847us-gaap:ContractTerminationMember2021-03-310001446847us-gaap:EmployeeSeveranceMember2020-12-310001446847us-gaap:ContractTerminationMember2020-12-310001446847irwd:ReductionInWorkforceDiscontinuedDevelopmentOfIw3718September292020Member2021-01-012021-03-310001446847irwd:ReductionInWorkforceDiscontinuedDevelopmentOfIw3718September292020Member2020-09-012020-09-300001446847us-gaap:MoneyMarketFundsMember2021-03-310001446847us-gaap:MoneyMarketFundsMember2020-12-310001446847srt:NorthAmericaMember2021-01-012021-03-310001446847srt:NorthAmericaMember2020-01-012020-03-310001446847irwd:CyclerionTherapeuticsIncMemberus-gaap:ResearchAndDevelopmentExpenseMembersrt:AffiliatedEntityMember2020-01-012020-03-3100014468472015-06-012015-06-300001446847irwd:SummerStreetLeaseMember2021-03-310001446847irwd:SummerStreetLeaseMember2020-12-310001446847irwd:SummerStreetLeaseMember2021-01-012021-03-310001446847irwd:SummerStreetLeaseMember2020-01-012020-03-310001446847us-gaap:RetainedEarningsMember2021-01-012021-03-310001446847us-gaap:RetainedEarningsMember2020-01-012020-03-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleNotesPayableMember2021-03-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleNotesPayableMember2021-03-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Memberus-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleNotesPayableMember2021-03-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleNotesPayableMember2020-12-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleNotesPayableMember2020-12-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Memberus-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleNotesPayableMember2020-12-310001446847irwd:SummerStreetLeaseMember2019-06-012019-06-300001446847us-gaap:RestrictedStockMember2021-01-012021-03-310001446847us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001446847us-gaap:EmployeeStockMember2021-01-012021-03-310001446847irwd:TimeBasedRestrictedStockUnitsMember2021-01-012021-03-310001446847irwd:PerformanceBasedRestrictedStockUnitsMember2021-01-012021-03-310001446847us-gaap:RestrictedStockMember2020-01-012020-03-310001446847us-gaap:EmployeeStockOptionMember2020-01-012020-03-310001446847us-gaap:EmployeeStockMember2020-01-012020-03-310001446847irwd:TimeBasedRestrictedStockUnitsMember2020-01-012020-03-310001446847irwd:NoteHedgeWarrantDerivativesMember2015-06-300001446847irwd:ConvertibleNoteHedgeMember2015-06-300001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2019-01-012019-12-310001446847us-gaap:CallOptionMember2019-08-310001446847us-gaap:MeasurementInputSharePriceMember2021-03-310001446847us-gaap:MeasurementInputRiskFreeInterestRateMember2021-03-310001446847us-gaap:MeasurementInputPriceVolatilityMember2021-03-310001446847us-gaap:MeasurementInputExpectedTermMember2021-03-310001446847us-gaap:MeasurementInputExpectedDividendRateMember2021-03-310001446847us-gaap:MeasurementInputExercisePriceMember2021-03-310001446847us-gaap:MeasurementInputSharePriceMember2020-12-310001446847us-gaap:MeasurementInputRiskFreeInterestRateMember2020-12-310001446847us-gaap:MeasurementInputPriceVolatilityMember2020-12-310001446847us-gaap:MeasurementInputExpectedTermMember2020-12-310001446847us-gaap:MeasurementInputExpectedDividendRateMember2020-12-310001446847us-gaap:MeasurementInputExercisePriceMember2020-12-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2019-08-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2019-06-300001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2021-03-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:ConvertibleNotesPayableMember2021-03-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Memberus-gaap:ConvertibleNotesPayableMember2021-03-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2020-12-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:ConvertibleNotesPayableMember2020-12-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Memberus-gaap:ConvertibleNotesPayableMember2020-12-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:ConvertibleNotesPayableMember2019-08-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Memberus-gaap:ConvertibleNotesPayableMember2019-08-310001446847srt:MinimumMemberirwd:CalendarQuarterCommencingAfterDecember312019Memberirwd:ConvertibleSeniorNotes0.75PercentDue2024AndConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:ConvertibleNotesPayableMember2019-08-012019-08-310001446847irwd:CalendarQuarterCommencingAfterDecember312019Memberirwd:ConvertibleSeniorNotes0.75PercentDue2024AndConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:ConvertibleNotesPayableMember2019-08-012019-08-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:ConvertibleNotesPayableMember2019-08-012019-08-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Memberus-gaap:ConvertibleNotesPayableMember2019-08-012019-08-310001446847irwd:ConvertibleNoteHedgeMember2021-03-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024AndConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:ConvertibleNotesPayableMember2019-08-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2019-04-300001446847irwd:ConvertibleNoteHedgeMember2019-04-150001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2015-06-300001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Member2021-03-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Member2021-03-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Member2021-03-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Member2020-12-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Member2020-12-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Member2020-12-310001446847irwd:ConvertibleNoteHedgeMember2021-01-012021-03-310001446847irwd:NoteHedgeWarrantsMemberirwd:ConvertibleSeniorNotes2.25PercentDue2022Member2019-04-152019-04-150001446847us-gaap:CommonStockMember2021-03-310001446847us-gaap:CommonStockMember2020-12-310001446847us-gaap:CommonStockMember2020-03-310001446847us-gaap:CommonStockMember2019-12-310001446847irwd:NoteHedgeWarrantDerivativesMember2021-03-310001446847irwd:NoteHedgeWarrantsMember2021-03-3100014468472019-04-150001446847us-gaap:AccountingStandardsUpdate201912Member2021-03-310001446847irwd:AccountingStandardsUpdate202006Member2021-03-3100014468472019-12-310001446847us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001446847us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001446847us-gaap:FairValueMeasurementsRecurringMember2021-03-310001446847us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001446847us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001446847us-gaap:FairValueMeasurementsRecurringMember2020-12-310001446847us-gaap:RestrictedStockMember2021-01-012021-03-310001446847us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001446847irwd:TimeBasedRestrictedStockUnitsMember2021-01-012021-03-310001446847irwd:PerformanceBasedRestrictedStockUnitsMember2021-01-012021-03-310001446847irwd:NoteHedgeWarrantsMember2021-01-012021-03-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Member2021-01-012021-03-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Member2021-01-012021-03-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Member2021-01-012021-03-310001446847us-gaap:EquityUnitPurchaseAgreementsMember2020-01-012020-03-310001446847us-gaap:EmployeeStockOptionMember2020-01-012020-03-310001446847us-gaap:EmployeeStockMember2020-01-012020-03-310001446847irwd:TimeBasedRestrictedStockUnitsMember2020-01-012020-03-310001446847irwd:PerformanceBasedRestrictedStockUnitsMember2020-01-012020-03-310001446847irwd:NoteHedgeWarrantsMember2020-01-012020-03-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Member2020-01-012020-03-310001446847irwd:ConvertibleSeniorNotes1.50PercentDue2026Member2020-01-012020-03-310001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024Member2020-01-012020-03-310001446847us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-03-310001446847us-gaap:RestructuringChargesMember2021-01-012021-03-310001446847us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-03-310001446847us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-03-310001446847us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-03-310001446847us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001446847us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2019-08-012019-08-310001446847irwd:AbbviePlcMember2021-03-310001446847irwd:AbbviePlcMember2020-12-3100014468472020-03-310001446847us-gaap:EmployeeSeveranceMember2021-01-012021-03-310001446847us-gaap:ContractTerminationMember2021-01-012021-03-310001446847us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001446847us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001446847us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001446847us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001446847irwd:AbbviePlcMemberus-gaap:LicenseMembersrt:EuropeMember2015-10-310001446847irwd:AbbviePlcMemberus-gaap:LicenseMember2021-01-012021-03-310001446847irwd:SummerStreetLeaseMember2019-06-300001446847irwd:AbbviePlcMembercountry:US2021-01-012021-03-310001446847irwd:AbbviePlcMembercountry:US2020-01-012020-03-310001446847irwd:DevelopmentMilestonesMemberirwd:AbbviePlcMember2021-01-012021-03-310001446847irwd:AstellasPharmaInc2009LicenseAgreementMembercountry:JP2009-11-012009-11-300001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2021-01-012021-03-310001446847irwd:DevelopmentAndSalesMilestonesMemberirwd:AbbviePlcMember2021-03-3100014468472020-01-012020-03-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2019-04-012019-04-3000014468472019-08-012019-08-310001446847srt:MaximumMemberirwd:MeasurementPeriodMemberirwd:ConvertibleSeniorNotes0.75PercentDue2024AndConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:ConvertibleNotesPayableMember2019-08-012019-08-310001446847srt:MaximumMemberirwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2015-06-012015-06-300001446847irwd:ConvertibleSeniorNotes0.75PercentDue2024AndConvertibleSeniorNotes1.50PercentDue2026Memberus-gaap:ConvertibleNotesPayableMember2019-08-012019-08-310001446847irwd:ConvertibleSeniorNotes2.25PercentDue2022Memberus-gaap:ConvertibleNotesPayableMember2015-06-012015-06-300001446847irwd:AbbviePlcMember2020-01-012020-03-310001446847irwd:SalesMilestonesMember2021-03-310001446847irwd:AlnylamMemberirwd:CollaborativeArrangementPromotionAgreementMember2020-12-310001446847irwd:AstraZenecaMemberirwd:CollaborativeArrangementTransitionServicesAgreementMemberirwd:ChinaHongKongAndMacauMember2020-01-012020-12-310001446847irwd:AbbviePlcMember2021-01-012021-03-310001446847irwd:AstraZenecaMemberirwd:ChinaHongKongAndMacauMember2020-01-012020-12-310001446847irwd:AstellasPharmaIncMemberirwd:CollaborativeArrangementCollaborationAndLicenseAgreementsMembercountry:JP2019-08-012019-08-010001446847irwd:AstraZenecaMemberirwd:CollaborativeArrangementsMemberirwd:ChinaHongKongAndMacauMember2021-01-310001446847irwd:AstraZenecaMemberirwd:CollaborativeArrangementCollaborationAgreementsMemberirwd:ChinaHongKongAndMacauMember2021-01-012021-01-310001446847irwd:AstraZenecaMemberirwd:CollaborativeArrangementCollaborationAgreementsMemberirwd:ChinaHongKongAndMacauMember2020-01-012020-12-310001446847irwd:NoteHedgeWarrantDerivativesMember2021-01-012021-03-310001446847us-gaap:CallOptionMember2019-08-012019-08-3100014468472021-03-3100014468472020-12-3100014468472021-04-3000014468472021-01-012021-03-31irwd:Yiso4217:USDirwd:itemirwd:employeexbrli:sharesiso4217:USDxbrli:sharesiso4217:USDirwd:installmentxbrli:pureirwd:Dirwd:paymentirwd:itemutr:sqft

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, 2021

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission file number: 001-34620

IRONWOOD PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3404176

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

100 Summer Street, Suite 2300

Boston, Massachusetts

02110

(Address of Principal Executive Offices)

(Zip Code)

(617) 621-7722

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.001 par value

IRWD

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

As of April 30, 2021, there were 161,966,737 shares of Class A common stock outstanding.

Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors”, contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words “may,” “continue,” “estimate,” “intend,” “plan,” “will,” “believe,” “project,” “expect,” “seek,” “anticipate,” “could,” “should,” “target,” “goal,” “potential” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about:

the demand and market potential for our products in the countries where they are approved for marketing, as well as the revenues therefrom;
the timing, investment and associated activities involved in commercializing LINZESS® by us and AbbVie Inc. in the U.S.;
the commercialization of CONSTELLA® in Europe and LINZESS in Japan and China, as well as our expectations regarding revenue generated from our partners;
the timing, investment and associated activities involved in developing, obtaining regulatory approval for, launching, and commercializing our products and product candidates by us and our partners worldwide;
our ability and the ability of our partners to secure and maintain adequate reimbursement for our products;
our ability and the ability of our partners and third parties to manufacture and distribute sufficient amounts of linaclotide active pharmaceutical ingredient, finished drug product and finished goods, as applicable, on a commercial scale;
our expectations regarding U.S. and foreign regulatory requirements for our products and our product candidates, including our post-approval development and regulatory requirements;
the ability of our product candidates to meet existing or future regulatory standards;
the safety profile and related adverse events of our products and our product candidates;
the therapeutic benefits and effectiveness of our products and our product candidates and the potential indications and market opportunities therefor;
our ability and the ability of our partners to obtain and maintain intellectual property protection for our products and our product candidates and the strength thereof, as well as Abbreviated New Drug Applications filed by generic drug manufacturers and potential U.S. Food and Drug Administration approval thereof, and associated patent infringement suits that we have filed or may file, or other action that we may take against such companies, and the timing and resolution thereof;
our ability and the ability of our partners to perform our respective obligations under our collaboration, license and other agreements, and our ability to achieve milestone and other payments under such agreements;
our plans with respect to the development, manufacture or sale of our product candidates and the associated timing thereof, including the design and results of pre-clinical and clinical studies;
the in-licensing or acquisition of externally discovered businesses, products or technologies, as well as partnering arrangements, including expectations relating to the completion of, or the realization of the expected benefits from, such transactions;

2

Table of Contents

our expectations as to future financial performance, revenues, expense levels, payments, cash flows, profitability, tax obligations, capital raising and liquidity sources, and real estate needs, as well as the timing and drivers thereof, and internal control over financial reporting;
our ability to repay our outstanding indebtedness when due, or redeem or repurchase all or a portion of such debt, as well as the potential benefits of the note hedge transactions and capped call transactions described herein;
asset impairments, and the drivers thereof, and purchase commitments;
our ability to compete with other companies that are or may be developing or selling products that are competitive with our products and product candidates;
the status of government regulation in the life sciences industry, particularly with respect to healthcare reform;
trends and challenges in our potential markets;
our ability to attract, motivate and retain key personnel;
the financial and operational impacts of the COVID-19 pandemic on our business and results of operations, including impacts on our day-to-day operations, collaborative arrangements revenue and marketing efforts, manufacturing and supply chain and clinical development of our pipeline; and
other factors discussed elsewhere in this Quarterly Report on Form 10-Q.

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. These forward-looking statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions identified under the heading “Risk Factors” in this Quarterly Report on Form 10-Q. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the U.S. Securities and Exchange Commission, or the SEC, after the date of this Quarterly Report on Form 10-Q.

NOTE REGARDING TRADEMARKS

LINZESS® and CONSTELLA® are trademarks of Ironwood Pharmaceuticals, Inc. Any other trademarks referred to in this Quarterly Report on Form 10-Q are the property of their respective owners. All rights reserved.

3

Table of Contents

IRONWOOD PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2021

TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

5

Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2021 and 2020

6

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

7

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

41

PART II — OTHER INFORMATION

Item 1A.

Risk Factors

41

Item 6.

Exhibits

71

Signatures

73

4

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)

March 31, 

December 31, 

    

2021

    

2020

ASSETS

Current assets:

Cash and cash equivalents

$

438,469

$

362,564

Accounts receivable, net

 

87,152

 

122,351

Prepaid expenses and other current assets

 

10,890

 

9,189

Restricted cash

1,735

1,735

Total current assets

 

538,246

 

495,839

Restricted cash, net of current portion

 

485

 

485

Accounts receivable, net of current portion

23,563

23,401

Property and equipment, net

 

8,501

 

8,929

Operating lease right-of-use assets

16,279

16,576

Convertible note hedges

11,346

13,065

Other assets

924

943

Total assets

$

599,344

$

559,238

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

842

$

661

Accrued research and development costs

 

1,254

 

1,898

Accrued expenses and other current liabilities

 

18,363

 

26,486

Current portion of operating lease liabilities

3,144

3,128

Total current liabilities

 

23,603

 

32,173

Note hedge warrants

7,979

12,088

Convertible senior notes

436,078

430,256

Operating lease obligations, net of current portion

19,862

20,318

Other liabilities

 

1,630

 

1,763

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.001 par value, 75,000,000 shares authorized, no shares issued and outstanding

 

 

Class A Common Stock, $0.001 par value, 500,000,000 shares authorized and 161,931,012 shares issued and outstanding at March 31, 2021 and 500,000,000 shares authorized and 160,616,675 shares issued and outstanding at December 31, 2020

 

162

 

161

Additional paid-in capital

 

1,536,160

 

1,528,535

Accumulated deficit

 

(1,426,130)

 

(1,466,056)

Total stockholders’ equity

 

110,192

 

62,640

Total liabilities and stockholders’ equity

$

599,344

$

559,238

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share amounts)

(unaudited)

Three Months Ended

March 31, 

    

2021

    

2020

Revenues:

Collaborative arrangements revenue

$

88,665

$

74,445

Sale of active pharmaceutical ingredient

180

5,498

Total revenues

 

88,845

 

79,943

Cost and expenses:

Cost of revenues

2,239

Research and development

15,484

28,027

Selling, general and administrative

27,652

36,450

Restructuring expenses

311

Total cost and expenses

 

43,447

 

66,716

Income from operations

 

45,398

 

13,227

Other (expense) income:

Interest expense

(7,626)

(7,220)

Interest and investment income

196

777

Gain (loss) on derivatives

2,390

(3,466)

Other income

27

Other expense, net

 

(5,040)

 

(9,882)

Income before income taxes

40,358

3,345

Income tax expense

(432)

Net income and comprehensive income

$

39,926

$

3,345

Net income per share—basic

$

0.25

$

0.02

Net income per share—diluted

$

0.25

$

0.02

Weighted average shares used in computing net income per share—basic:

160,967

158,374

Weighted average shares used in computing net income per share—diluted:

 

162,347

 

159,970

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(unaudited)

Class A

Additional

Total

Common Stock

paid-in

Accumulated

Stockholders’

Shares

    

Amount

    

capital

    

deficit

    

equity

Balance at December 31, 2020

 

160,616,675

161

1,528,535

(1,466,056)

62,640

Issuance of common stock related to share-based awards and employee stock purchase plan

 

1,314,337

1

2,229

2,230

Share-based compensation expense related to share-based awards and employee stock purchase plan

 

5,396

5,396

Net income

 

39,926

39,926

Balance at March 31, 2021

 

161,931,012

$

162

 

$

1,536,160

$

(1,426,130)

$

110,192

Class A

Additional

Total

Common Stock

paid-in

Accumulated

Stockholders’

    

Shares

    

Amount

    

capital

    

deficit

    

deficit

Balance at December 31, 2019

 

157,535,962

$

158

$

1,478,823

$

(1,572,232)

$

(93,251)

Issuance of common stock related to share-based awards and employee stock purchase plan

 

1,832,164

1

 

 

11,984

 

11,985

Share-based compensation expense related to share-based awards and employee stock purchase plan

 

6,364

6,364

Net income

 

 

3,345

3,345

Balance at March 31, 2020

 

159,368,126

$

159

 

$

1,497,171

$

(1,568,887)

$

(71,557)

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Table of Contents

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

Three Months Ended

March 31, 

    

2021

    

2020

Cash flows from operating activities:

Net income

$

39,926

$

3,345

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

 

410

682

Loss on disposal of property and equipment

17

16

Share-based compensation expense

 

5,396

6,364

Change in fair value of note hedge warrants

(4,109)

(12,053)

Change in fair value of convertible note hedges

1,719

15,519

Non-cash interest expense

 

5,822

5,416

Changes in assets and liabilities:

Accounts receivable and related party accounts receivable, net

 

35,037

35,941

Prepaid expenses and other current assets

 

(1,681)

301

Operating lease right-of-use assets

297

296

Other assets

 

19

(51)

Accounts payable, related party accounts payable and accrued expenses

 

(7,942)

(11,768)

Accrued research and development costs

 

(644)

(670)

Operating lease liabilities

(440)

294

Other liabilities

(133)

(29)

Net cash provided by operating activities

 

73,694

 

43,603

Cash flows from investing activities:

Purchases of property and equipment

 

(1,438)

Net cash used in investing activities

 

 

(1,438)

Cash flows from financing activities:

Proceeds from exercise of stock options and employee stock purchase plan

 

2,211

11,955

Net cash provided by financing activities

 

2,211

 

11,955

Net increase in cash, cash equivalents and restricted cash

 

75,905

 

54,120

Cash, cash equivalents and restricted cash, beginning of period

 

364,784

 

179,244

Cash, cash equivalents and restricted cash, end of period

$

440,689

$

233,364

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets

Cash and cash equivalents

$

438,469

$

231,143

Restricted cash

2,220

2,221

Total cash, cash equivalents, and restricted cash

$

440,689

$

233,364

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Table of Contents

Ironwood Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Nature of Business

Ironwood Pharmaceuticals, Inc. (“Ironwood” or the “Company”) is a gastrointestinal (“GI”) healthcare company dedicated to advancing the treatment of GI diseases and redefining the standard of care for GI patients. The Company is focused on the development and commercialization of innovative GI product opportunities in areas of significant unmet need, leveraging its demonstrated expertise and capabilities in GI diseases.

LINZESS® (linaclotide), the Company’s commercial product, is the first product approved by the United States Food and Drug Administration (the “U.S. FDA”) in a class of GI medicines called guanylate cyclase type C agonists and is indicated for adult men and women suffering from irritable bowel syndrome with constipation (“IBS-C”) or chronic idiopathic constipation (“CIC”). LINZESS is available to adult men and women suffering from IBS-C or CIC in the United States (the “U.S.”) and Mexico and to adult men and women suffering from IBS-C in Japan and China. Linaclotide is available under the trademarked name CONSTELLA® to adult men and women suffering from IBS-C or CIC in Canada, and to adult men and women suffering from IBS-C in certain European countries.

The Company has strategic partnerships with leading pharmaceutical companies to support the development and commercialization of linaclotide throughout the world. The Company and its partner, AbbVie Inc. (together with its affiliates, “AbbVie”) (successor to Allergan plc), began commercializing LINZESS in the U.S. in December 2012. Under the Company’s collaboration for North America with AbbVie, total net sales of LINZESS in the U.S., as recorded by AbbVie, are reduced by commercial costs incurred by each party, and the resulting amount is shared equally between the Company and AbbVie. Additionally, development costs are shared equally between the Company and AbbVie. AbbVie also has an exclusive license from the Company to develop and commercialize linaclotide in all countries other than China (including Hong Kong and Macau), Japan and the countries and territories of North America (the “AbbVie License Territory”). On a country-by-country and product-by-product basis in the AbbVie License Territory, AbbVie pays the Company a royalty as a percentage of net sales of products containing linaclotide as an active ingredient. In addition, AbbVie has exclusive rights to commercialize linaclotide in Canada as CONSTELLA and in Mexico as LINZESS.

Astellas Pharma Inc. (“Astellas”), the Company’s partner in Japan, has an exclusive license to develop and commercialize linaclotide in Japan. In March 2017, Astellas began commercializing LINZESS for the treatment of adults with IBS-C in Japan, and in September 2018, Astellas began commercializing LINZESS for the treatment of adults with chronic constipation in Japan. In August 2019, the Company amended and restated its license agreement with Astellas. Effective in 2020, the Company is no longer responsible for the supply of linaclotide active pharmaceutical ingredient (“API”) to Astellas (Note 4).

In October 2012, the Company and AstraZeneca AB (together with its affiliates) (“AstraZeneca”) entered into a collaboration agreement to co-develop and co-commercialize linaclotide in China (including Hong Kong and Macau) (the “AstraZeneca License Territory”). In September 2019, the Company amended and restated its existing collaboration agreement with AstraZeneca whereby AstraZeneca obtained the exclusive right to develop, manufacture, and commercialize products containing linaclotide in the AstraZeneca License Territory (Note 4). In November 2019, AstraZeneca began commercializing LINZESS for the treatment of adults with IBS-C in China.

The Company and AbbVie are exploring ways to enhance the clinical profile of LINZESS by studying linaclotide in additional indications, populations and formulations to assess its potential to treat various conditions. In September 2020, based on the Phase IIIb data demonstrating efficacy and safety of LINZESS 290 mcg on the overall abdominal symptoms of bloating, pain and discomfort in adult patients with IBS-C, the U.S. FDA approved the Company’s supplemental New Drug Application to include a more comprehensive description of the effects of LINZESS in its approved label. In June 2020 and July 2020, the United States Patent and Trademark Office granted patents covering the formulation of the 72 mcg dose of LINZESS and methods of using the formulation, respectively. The patents are expected to expire in 2031.

9

Table of Contents

Additionally, the Company periodically enters into agreements to bolster its salesforce productivity. In August 2019, the Company entered into a disease education and promotional agreement with Alnylam Pharmaceuticals, Inc. (“Alnylam”) for Alnylam’s GIVLAARI® (givosiran), an RNAi therapeutic targeting aminolevulinic acid synthase 1, for the treatment of acute hepatic porphyria (“AHP”). GIVLAARI was approved by the U.S. FDA in November 2019. Under the agreement, the Company performs disease awareness activities related to AHP and sales detailing activities of GIVLAARI.

These and other agreements are more fully described in Note 4, Collaboration, License, Promotion and Other Commercial Agreements, to these condensed consolidated financial statements.

On April 1, 2019, Ironwood completed the separation (the “Separation”) of its soluble guanylate cyclase business, and certain other assets and liabilities, into Cyclerion Therapeutics, Inc. (“Cyclerion”). The Separation was effected by means of a distribution of all of the outstanding shares of common stock, with no par value, of Cyclerion through a dividend of all outstanding shares of Cyclerion’s common stock, to Ironwood’s stockholders of record as of the close of business on March 19, 2019.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements and the related disclosures are unaudited and have been prepared in accordance with accounting principles generally accepted in the U.S. Additionally, certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 17, 2021 (the “2020 Annual Report on Form 10-K”).

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments considered necessary for a fair statement of the Company’s financial position as of March 31, 2021, and the results of its operations for the three months ended March 31, 2021 and 2020, its statements of stockholders’ equity for the three months ended March 31, 2021 and 2020, and its cash flows for the three months ended March 31, 2021 and 2020. The results of operations for the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Ironwood and its wholly-owned subsidiaries as of March 31, 2021, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH. All intercompany transactions and balances are eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. On an ongoing basis, the Company’s management evaluates its estimates, judgments and methodologies. Significant estimates and assumptions in the condensed consolidated financial statements include those related to revenue recognition; accounts receivable; useful lives of long-lived assets, impairment of long-lived assets, including goodwill; valuation procedures for right-of-use assets and operating lease liabilities; valuation procedures for the issuance and repurchase of convertible notes; balance sheet classification of convertible notes; fair value of derivatives; income taxes, including the valuation allowance for deferred tax assets; research and development expenses; contingencies and share-based compensation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.

10

Table of Contents

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, in the 2020 Annual Report on Form 10-K. During the three months ended March 31, 2021, the Company did not adopt any additional significant accounting policies, except as outlined below.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Except as set forth below, the Company did not adopt any new accounting pronouncements during the three months ended March 31, 2021 that had a material effect on its condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 during the three months ended March 31, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s financial position and results of operations.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The amendments in ASU 2020-06 simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Under ASU 2020-06, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated under previously existing guidance. The new guidance also requires the if-converted method to be applied for all convertible instruments. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted. Upon adoption, entities may apply the new standard on a modified retrospective or full retrospective basis. The Company is currently evaluating the impact that the adoption of ASU 2020-06 may have on its financial position and results of operations.

Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the Company or have a material effect on the condensed consolidated financial statements upon future adoption.

11

Table of Contents

3. Net Income Per Share

The following table sets forth the computation of basic and diluted net income per common share (in thousands, except per share amounts):

Three Months Ended

March 31,

    

2021

2020

Numerator:

Net income

$

39,926

$

3,345

Denominator:

Weighted average number of common shares outstanding used in computing net income per share — basic

 

160,967

 

158,374

Effect of dilutive securities:

Stock options

268

710

Time-based restricted stock units

957

647

Performance-based restricted stock units

13

Restricted stock

136

134

Shares subject to issuance under Employee Stock Purchase Plan

6

105

Dilutive potential common shares

Weighted average number of common shares outstanding used in computing net income per share — diluted

162,347

 

159,970

Net income per share — basic

0.25

0.02

Net income per share — diluted

$

0.25

$

0.02

The outstanding securities have been excluded from the computation of diluted weighted average shares outstanding, as applicable, as their effect would be anti-dilutive (in thousands):

Three Months Ended

March 31, 

    

2021

    

2020

Stock options

10,566

 

15,647

Restricted stock awards

 

25

 

Shares subject to repurchase

182

Time-based restricted stock units

407

4,945

Performance-based restricted stock units

20

543

Shares subject to issuance under Employee Stock Purchase Plan

105

Note Hedge Warrants

8,318

8,318

2022 Convertible Notes

8,318

8,318

2024 Convertible Notes

14,934

14,934

2026 Convertible Notes

14,934

14,934

Total

 

57,522

 

67,926

The potentially dilutive impact of the 2022 Convertible Notes, 2024 Convertible Notes and 2026 Convertible notes (together, the “Convertible Senior Notes”) (Note 8) is determined using the treasury stock method. Under this method, no numerator or denominator adjustments arise from the principal and interest components of the Convertible Senior Notes because the Company has the intent and ability to settle the Convertible Senior Notes’ principal and interest in cash. Instead, the Company is required to increase the diluted net income per share denominator by the variable number of shares that would be issued upon conversion if it settled the conversion spread obligation with shares. For diluted net income per share purposes, the conversion spread obligation is calculated based on whether the average market price of the Company’s Class A Common Stock during the reporting period is in excess of the conversion price of the Convertible Senior Notes. There was no calculated spread added to the denominator for three months ended March 31, 2021 or 2020.

12

Table of Contents

4. Collaboration, License, Promotion and Other Commercial Agreements

For the three months ended March 31, 2021, the Company had linaclotide collaboration agreements with AbbVie for North America and AstraZeneca for China (including Hong Kong and Macau), as well as linaclotide license agreements with Astellas for Japan and with AbbVie for the AbbVie License Territory. The Company also had an agreement with Alnylam to perform disease awareness activities for AHP and sales detailing activities for GIVLAARI. The following table provides amounts included in the Company’s consolidated statements of income as collaborative arrangements revenue and sale of API primarily attributable to transactions from these arrangements (in thousands):

Three Months Ended

March 31, 

Collaborative Arrangements Revenue

2021

    

2020

Linaclotide Collaboration and License Agreements:

AbbVie (North America)

$

86,499

$

71,692

AbbVie (Europe and other)

600

643

AstraZeneca (China, including Hong Kong and Macau)

210

 

332

Astellas (Japan)

496

 

479

Co-Promotion and Other Agreements:

Alnylam (GIVLAARI)

456

945

Other

404

354

Total collaborative arrangements revenue

$

88,665

$

74,445

Sale of API

Linaclotide Agreements:

AstraZeneca (China, including Hong Kong and Macau)

21

5,498

Other

159

Total sale of API

$

180

$

5,498

Accounts receivable, net, included $110.7 million and $145.8 million primarily related to collaborative arrangements revenue and sale of API, collectively, as of March 31, 2021 and December 31, 2020, respectively. Accounts receivable, net, included $85.6 million and $110.9 million due from the Company’s partner, AbbVie, net of $3.9 million and $4.3 million of accounts payable, as of March 31, 2021 and December 31, 2020, respectively.

The Company routinely assesses the creditworthiness of its license and collaboration partners. The Company has not experienced any material losses related to receivables from its license or collaboration partners during the three months ended March 31, 2021 and 2020.

Linaclotide Agreements

Collaboration Agreement for North America with AbbVie

In September 2007, the Company entered into a collaboration agreement with AbbVie to develop and commercialize linaclotide for the treatment of IBS-C, CIC, and other GI conditions in North America. Under the terms of this collaboration agreement, the Company received a non-refundable, upfront licensing fee and shares equally with AbbVie all development costs as well as net profits or losses from the development and sale of linaclotide in the U.S. The Company receives royalties in the mid-teens percent based on net sales in Canada and Mexico. AbbVie is solely responsible for the further development, regulatory approval and commercialization of linaclotide in those countries and funding any costs. The collaboration agreement for North America also includes contingent milestone payments, as well as a contingent equity investment, based on the achievement of specific development and commercial milestones. As of March 31, 2021, $205.0 million in license fees and all six development milestone payments had been received by the Company, as well as a $25.0 million equity investment in the Company’s capital stock. The Company can also achieve up to $80.0 million in a sales-related milestone if certain conditions are met, which will be recognized as collaborative arrangements revenue when it is probable that a significant reversal of revenue would not occur, and the associated constraints have been lifted.

13

Table of Contents

During the three months ended March 31, 2021 and 2020, the Company incurred $1.8 million and $6.6 million, respectively, in total research and development expenses under the linaclotide collaboration for North America. As a result of the research and development cost-sharing provisions of the linaclotide collaboration for North America, the Company incurred $2.9 million and $0.8 million in research and development costs during the three months ended March 31, 2021 and 2020, respectively, to reflect the obligations of each party under the collaboration to bear 50% of the development costs incurred.

The Company and AbbVie began commercializing LINZESS in the U.S. in December 2012. The Company receives 50% of the net profits and bears 50% of the net losses from the commercial sale of LINZESS in the U.S. Net profits or net losses consist of net sales of LINZESS to third-party customers and sublicense income in the U.S. less the cost of goods sold as well as selling, general and administrative expenses. LINZESS net sales are calculated and recorded by AbbVie and may include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions.

The Company evaluated its collaboration arrangement for North America with AbbVie and concluded that all development-period performance obligations had been satisfied as of September 2012. However, the Company has determined that there are three remaining commercial-period performance obligations, which include the sales detailing of LINZESS, participation in the joint commercialization committee, and approved additional trials. The consideration remaining includes cost reimbursements in the U.S., as well as commercial sales-based milestones and net profit and loss sharing payments based on net sales in the U.S. Additionally, the Company receives royalties in the mid-teens percent based on net sales in Canada and Mexico. Royalties, commercial sales-based milestones, and net profit and loss sharing payments will be recorded as collaborative arrangements revenue or expense in the period earned, as these payments relate predominately to the license granted to AbbVie. The Company records royalty revenue in the period earned based on royalty reports from its partner, if available, or based on the projected sales and historical trends. The cost reimbursements received from AbbVie during the commercialization period will be recognized as earned in accordance with the right-to-invoice practical expedient, as the Company’s right to consideration corresponds directly with the value of the services transferred during the commercialization period.

Under the Company’s collaboration agreement with AbbVie for North America, LINZESS net sales are calculated and recorded by AbbVie and include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions, as noted above. These amounts include the use of estimates and judgments, which could be adjusted based on actual results in the future. The Company records its share of the net profits or net losses from the sales of LINZESS in the U.S. less commercial expenses on a net basis, and presents the settlement payments to and from AbbVie as collaboration expense or collaborative arrangements revenue, as applicable. This treatment is in accordance with the Company’s revenue recognition policy, given that the Company is not the primary obligor and does not have the inventory risks in the collaboration agreement with AbbVie for North America. The Company relies on AbbVie to provide accurate and complete information related to net sales of LINZESS in accordance with U.S. generally accepted accounting principles in order to calculate its settlement payments to and from AbbVie and record collaboration expense or collaborative arrangements revenue, as applicable.

The Company recognized collaborative arrangements revenue from the AbbVie collaboration agreement for North America during the three months ended March 31, 2021 and 2020 as follows (in thousands):

Three Months Ended

March 31, 

    

2021

    

2020

Collaborative arrangements revenue related to sales of LINZESS in the U.S.

$

85,949

$

71,142

Royalty revenue

 

550

550

Total collaborative arrangements revenue

$

86,499

$

71,692

The collaborative arrangements revenue recognized in the three months ended March 31, 2021 and 2020 primarily represents the Company’s share of the net profits and net losses on the sale of LINZESS in the U.S.

14

Table of Contents

The following table presents selling, general and administrative costs related to the sale of LINZESS in the U.S. in accordance with the cost-sharing arrangement with AbbVie for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

March 31,

    

2021

    

2020

Selling, general and administrative costs incurred by the Company (1)

$

7,005

$

8,674

(1)Excludes $0.1 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively, related to patent prosecution and patent litigation costs recognized in connection with the collaboration agreement with AbbVie.

In May 2014, CONSTELLA® became commercially available in Canada and, in June 2014, LINZESS became commercially available in Mexico. The Company records royalties on sales of CONSTELLA in Canada and LINZESS in Mexico in the period earned. The Company recognized $0.6 million of combined royalty revenues from Canada and Mexico during each of the three months ended March 31, 2021 and 2020.

License Agreement with AbbVie (All countries other than the countries and territories of North America, China (including Hong Kong and Macau), and Japan)

In April 2009, the Company entered into a license agreement with Almirall, S.A. (“Almirall”) to develop and commercialize linaclotide in Europe (including the Commonwealth of Independent States and Turkey) for the treatment of IBS-C, CIC and other GI conditions (the “European License Agreement”). In accordance with the European License Agreement, the Company granted Almirall a right to access its U.S. Phase III clinical trial data for the purposes of supporting European regulatory approval. In October 2015, Almirall transferred its exclusive license to develop and commercialize linaclotide in Europe to AbbVie.

Additionally, in October 2015, the Company and AbbVie separately entered into an amendment to the European License Agreement relating to the development and commercialization of linaclotide in Europe. Pursuant to the terms of the amendment, (i) certain sales-based milestones payable to the Company under the European License Agreement were modified to increase the total milestone payments such that, when aggregated with certain commercial launch milestones, they could total up to $42.5 million, (ii) the royalties payable to the Company during the term of the European License Agreement were modified such that the royalties based on sales volume in Europe begin in the mid-single digit percent and escalate to the upper-teens percent by calendar year 2019, and (iii) AbbVie assumed responsibility for the manufacturing of linaclotide API for Europe from the Company, as well as the associated costs. The Company concluded that the 2015 amendment to the European License Agreement was not a modification to the linaclotide collaboration agreement with AbbVie for North America.

In January 2017, the Company and AbbVie entered into an amendment to the European License Agreement (the “2017 Amendment”). The 2017 Amendment extended the license to develop and commercialize linaclotide in all countries other than China (including Hong Kong and Macau), Japan, and the countries and territories of North America. On a country-by-country and product-by-product basis in such additional territory, AbbVie is obligated to pay the Company a royalty as a percentage of net sales of products containing linaclotide as an active ingredient in the upper-single digits for five years following the first commercial sale of a linaclotide product in a country, and in the low-double digits thereafter. The royalty rate for products in the expanded territory will decrease, on a country-by-country basis, to the lower-single digits, or cease entirely, following the occurrence of certain events. The 2017 Amendment did not modify any of the milestones or royalty terms related to Europe.

In evaluating the terms of the European License Agreement, as amended, the Company determined that there are no remaining performance obligations as of September 2012. However, the Company continues to be eligible to receive consideration in the form of commercial launch milestones, sales-based milestones, and royalties.

The commercial launch milestones, sales-based milestones and royalties under the European License Agreement and the 2017 Amendment relate predominantly to the license granted to AbbVie. The Company records royalties on sales of CONSTELLA in Europe in the period earned based on royalty reports from its partner, if available, or the projected sales and historical trends under the sales-based royalty exception. The commercial launch milestones

15

Table of Contents

are recognized as revenue when it is probable that a significant reversal of revenue would not occur and the associated constraint has been lifted.

The Company recognized $0.6 million of royalty revenue from the Amended European License Agreement during each of the three months ended March 31, 2021 and 2020.

License Agreement for Japan with Astellas

In November 2009, the Company entered into a license agreement with Astellas, as amended, to develop and commercialize linaclotide for the treatment of IBS-C, CIC and other GI conditions in Japan (the “2009 License Agreement with Astellas”). Astellas is responsible for all activities relating to development, regulatory approval and commercialization in Japan as well as funding the associated costs and the Company was required to participate on a joint development committee over linaclotide’s development period. Under the 2009 License Agreement with Astellas, the Company received an upfront licensing fee of $30.0 million and three development milestone payments that totaled $45.0 million and has no remaining performance obligations.

In April 2017, the Company and Astellas entered into a commercial API supply agreement (the “Astellas Commercial Supply Agreement”). Pursuant to the Astellas Commercial Supply Agreement, the Company sold linaclotide API supply to Astellas at a contractually defined rate and recognized related revenue as sale of API. Under the 2009 License Agreement with Astellas, the Company received royalties which escalated based on sales volume, beginning in the low-twenties percent, less the transfer price paid for the API included in the product sold and other contractual deductions.

In August 2019, the Company and Astellas amended and restated the 2009 License Agreement with Astellas (the “Amended Astellas License Agreement”). This amendment to the 2009 License Agreement with Astellas was accounted for as a separate contract. Under the terms of the Amended Astellas License Agreement, the Company is no longer responsible for the supply of linaclotide API to Astellas, and Astellas assumed responsibility for its own supply of linaclotide API in Japan in 2020, other than minimal quantities of API the Company supplied to Astellas in 2020 relating to orders for linaclotide API placed by Astellas in 2019.

In connection with the execution of the Amended Astellas License Agreement, Astellas paid the Company a non-refundable, upfront payment of $10.0 million in August 2019. Further, Astellas, in lieu of the royalty payment terms set forth in the 2009 License Agreement with Astellas, is required to pay royalties to the Company at rates beginning in the mid-single digit percent and escalating to low-double-digit percent, based on aggregate annual net sales in Japan of products containing linaclotide API. These royalty payments are subject to reduction following the expiration of certain licensed patents and the occurrence of generic competition in Japan. The Company continued to supply linaclotide API for Japan during 2019 and 2020 at a contractually defined rate. Additionally, Astellas reimbursed the Company for the Company’s performance of adverse event reporting services at a fixed monthly rate until such services were terminated in February 2020.

The Company identified the following performance obligations under the Amended Astellas License Agreement:

delivery of the expanded license of intellectual property, including the applicable manufacturing know-how;
obligation to supply linaclotide API for 2019; and
adverse event reporting services.

The Company allocated the $10.0 million upfront payment to the delivery of the expanded license of intellectual property and recognized it as collaborative arrangements revenue at contract inception. The Company allocated the $20.4 million in remaining purchase orders for API to the obligation to supply linaclotide API to Astellas for 2019. Consideration for the supply of linaclotide API was recognized over the performance period as linaclotide API is shipped to Astellas. Consideration allocated to the adverse event reporting services was recognized as such services were provided over the performance period based on the amount to which the Company has a right to invoice.

16

Table of Contents

Royalties on sales of LINZESS in Japan relate predominantly to the license granted to Astellas. Accordingly, the Company applies the sales-based royalty exception and records royalties on sales of LINZESS in Japan in the period earned based on royalty reports from its partner, if available, or the projected sales and historical trends.

The Company recognized $0.5 million and $0.4 million of royalty revenue during the three months ended March 31, 2021 and 2020, respectively. The Company recognized an insignificant amount of collaborative arrangements revenue related to adverse event reporting services in the three months ended March 31, 2020 prior to the termination of such services.

Collaboration Agreement for China (including Hong Kong and Macau) with AstraZeneca

In October 2012, the Company entered into a collaboration agreement with AstraZeneca to co-develop and co-commercialize linaclotide in the AstraZeneca License Territory (the “AstraZeneca Collaboration Agreement”). The collaboration provided AstraZeneca with an exclusive nontransferable license to exploit the underlying technology in the AstraZeneca License Territory. The parties shared responsibility for continued development and commercialization of linaclotide under a joint development plan and a joint commercialization plan, respectively, with AstraZeneca having primary responsibility for the local operational execution.

In September 2019, the Company and AstraZeneca entered into an amendment and restatement of the AstraZeneca Collaboration Agreement (the “Amended AstraZeneca Agreement”) under which AstraZeneca obtained the exclusive right to develop, manufacture and commercialize products containing linaclotide in the AstraZeneca License Territory (the “AstraZeneca License”).

Prior to the execution of the Amended AstraZeneca Agreement, the Company identified the following performance obligations under the AstraZeneca Collaboration Agreement:

research, development and regulatory services pursuant to the development plan (“R&D Services”);
Joint Development Committee (“JDC”) services;
obligation to supply clinical trial material; and
Joint Commercialization Committee services.

Under the original AstraZeneca Collaboration Agreement, the Company shared development costs with AstraZeneca, with AstraZeneca incurring 55% of the net losses from the development and commercialization of linaclotide in the AstraZeneca License Territory. Payments from AstraZeneca with respect to both research and development and selling, general and administrative costs incurred by the Company prior to the commercialization of linaclotide in the AstraZeneca License Territory were recorded as a reduction in expense. Development costs incurred by the Company that pertained to the joint development plan and subsequent amendments to the joint development plan, as approved by the JDC, were recorded as research and development expense as incurred. Payments to AstraZeneca were recorded as incremental research and development expense.

Under the Amended AstraZeneca Agreement, the Company is entitled to receive non-contingent payments totaling $35.0 million in three installments through 2024, of which $10.0 million was received in January 2021. In addition, AstraZeneca may be required to make milestone payments totaling up to $90.0 million contingent on the achievement of certain sales targets and will be required to pay tiered royalties to the Company at rates beginning in the mid-single-digit percent and increasing up to twenty percent based on the aggregate annual net sales of products containing linaclotide in the AstraZeneca License Territory. In connection with the Amended AstraZeneca Agreement, the Company and AstraZeneca entered into a transition services agreement (“AstraZeneca TSA”) and an amended commercial supply agreement (“AstraZeneca CSA”). Under the terms of the AstraZeneca TSA, the Company will provide certain regulatory and administrative services for a term of approximately two years from the date of execution, unless earlier terminated or extended. Services performed are paid at a mutually agreed upon rate. Amounts for AstraZeneca TSA services are recorded as collaborative arrangements revenue. Under the terms of the AstraZeneca CSA, the Company supplied linaclotide API, finished drug product and finished goods for the Licensed Territory through March 31, 2020 at predetermined rates.

17

Table of Contents

The Company evaluated the Amended AstraZeneca Agreement and determined that it would be accounted for as a separate contract because it adds a distinct good or service at an amount that reflects standalone selling price. The following performance obligations under the Amended AstraZeneca Agreement were identified:

delivery of the expanded AstraZeneca License;
AstraZeneca TSA services; and
supply of linaclotide API, finished drug product and finished goods under the AstraZeneca CSA.

The Company determined that the non-contingent payments should be allocated to the delivery of the expanded AstraZeneca License. The Company determined that the performance obligation related to the transfer of the AstraZeneca License was satisfied as of the execution date of the Amended AstraZeneca Agreement. As a portion of the payments relating to the transfer of the AstraZeneca License are due significantly after the performance obligation was satisfied, the Company adjusted its transaction price for the significant financing component of $2.6 million. Accordingly, the Company recognized $32.4 million in 2019 relating to the delivery of the AstraZeneca License as collaborative arrangements revenue at contract inception and is recognizing the $2.6 million relating to the significant financing component as interest income through 2024 using the effective interest method. Consideration allocated to the AstraZeneca TSA services will be recognized as collaborative arrangements revenue as such services are provided over the performance period based on the amount to which the Company has a right to invoice. Consideration for the supply of linaclotide API, finished drug product and finished goods under the AstraZeneca CSA was recognized over the performance period as linaclotide API, finished drug product and finished goods were shipped to AstraZeneca.

During the three months ended March 31, 2021, the Company recognized $0.2 million in collaborative arrangements revenue related to the Amended AstraZeneca License, of which $0.1 million related to the AstraZeneca TSA services and $0.1 million related to royalties. During the three months ended March 31, 2020, the Company recognized $0.3 million in collaborative arrangements revenue related to the Amended AstraZeneca License, of which $0.2 million related to the AstraZeneca TSA services and $0.1 million related to royalties. Additionally, the Company recognized $5.5 million in sales of API relating to the supply of linaclotide finished drug product and finished goods under the AstraZeneca CSA during the three months ended March 31, 2020.

Co-promotion and Other Agreements

Disease Education and Promotional Agreement with Alnylam

In August 2019, the Company and Alnylam entered into a disease education and promotional agreement for Alnylam’s GIVLAARI, and this agreement was subsequently amended in December 2020 (the “Alnylam Agreement”). GIVLAARI was approved by the U.S. FDA in November 2019 for the treatment of adult patients with AHP. Under the terms of the Alnylam Agreement, the Company’s sales force is performing disease awareness activities and sales detailing activities for GIVLAARI to gastroenterologists and health care practitioners to whom they detail LINZESS in the first position over the term of the agreement, which is approximately three years.

Under the Alnylam Agreement, the Company received service fees, totaling $5.5 million for services rendered through December 31, 2020. In connection with the amendment of the Alnylam Agreement, beginning in 2021, the Company no longer receives service fees. The Company is eligible to receive royalties based on a percentage of net sales of GIVLAARI that are directly attributable to the Company’s promotional efforts over the term of the agreement. The Company identified the following performance obligation under the Alnylam Agreement:

performance of disease education activities for AHP and performance of sales details for GIVLAARI (together “Givosiran Education and Promotion Activities”).

The Company allocated the service fees to the performance of Givosiran Education and Promotion Activities and recognized collaborative arrangements revenue through December 31, 2020 as the services were performed based on the amount to which the Company had a right to invoice. Royalties are recognized as collaborative arrangements revenue for Givosiran Education and Promotion Activities based on the amount to which the Company has a right to invoice when the associated constraints have been lifted.

18

Table of Contents

During the three months ended March 31, 2020, the Company recognized $0.9 million in collaborative arrangements revenue related to the service fees. During the three months ended March 31, 2021 and 2020, the Company recognized $0.5 million and an insignificant amount, respectively, in royalty revenue.

5. Fair Value of Financial Instruments

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability.

The Company’s investment portfolio may include fixed income securities that do not always trade on a daily basis. As a result, the pricing services used by the Company apply other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. In addition, model processes are used to assess interest rate impact and develop prepayment scenarios. These models take into consideration relevant credit information, perceived market movements, sector news and economic events. The inputs into these models may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads and other relevant data. The Company validates the prices provided by its third-party pricing services by obtaining market values from other pricing sources and analyzing pricing data in certain instances. The Company also invests in certain reverse repurchase agreements, which are collateralized by Government Securities and Obligations for an amount not less than 102% of their principal amount. The Company does not record an asset or liability for the collateral as the Company is not permitted to sell or re-pledge the collateral. The collateral has at least the prevailing credit rating of U.S. Government Treasuries and Agencies. The Company utilizes a third-party custodian to manage the exchange of funds and ensure the collateral received is maintained at 102% of the reverse repurchase agreements principal amount on a daily basis.

The following tables present the assets and liabilities the Company has measured at fair value on a recurring basis (in thousands):

Fair Value Measurements at Reporting Date Using

    

  

  

Quoted Prices in

    

Significant Other

    

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

March 31, 2021

(Level 1)

(Level 2)

(Level 3)

Assets:

Cash and cash equivalents:

Money market funds

$

422,454

$

422,454

$

$

Restricted cash:

Money market funds

2,220

2,220

Convertible note hedges

11,346

11,346

Total assets measured at fair value

$

436,020

$

424,674

$

$

11,346

Liabilities:

Note hedge warrants

$

7,979

$

$

$

7,979

Total liabilities measured at fair value

$

7,979

$

$

$

7,979

19

Table of Contents

Fair Value Measurements at Reporting Date Using

    

  

  

Quoted Prices in

    

Significant Other

    

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

December 31, 2020

(Level 1)

(Level 2)

(Level 3)

Assets:

Cash and cash equivalents:

Money market funds

$

349,014

$

349,014

$

$

Restricted cash:

Money market funds

 

2,221

 

2,221

 

 

Convertible note hedges

13,065

13,065

Total assets measured at fair value

$

364,300

$

351,235

$

$

13,065

Liabilities:

Note hedge warrants

$

12,088

$

$

$

12,088

Total liabilities measured at fair value

$

12,088

$

$

$

12,088

There were no transfers between fair value measurement levels during each of the three months ended March 31, 2021 or 2020.

Cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued research and development costs, accrued expenses and other current liabilities and current portion of operating lease obligations at March 31, 2021 and December 31, 2020 are carried at amounts that approximate fair value due to their short-term maturities.

Convertible Note Hedges and Note Hedge Warrants with Respect to 2022 Convertible Notes

The Company’s Convertible Note Hedges and the Note Hedge Warrants are recorded as derivative assets and liabilities, respectively, and are classified as Level 3 measurements under the fair value hierarchy. These derivatives are not actively traded and are valued using the Black-Scholes option-pricing model, which requires the use of subjective assumptions. Significant inputs used to determine the fair value as of March 31, 2021 included the price per share of the Company’s Class A Common Stock, expected terms of the derivative instruments, strike prices of the derivative instruments, risk-free interest rates, and expected volatility of the Company’s Class A Common Stock. Changes to these inputs could materially affect the valuation of the Convertible Note Hedges and Note Hedge Warrants.

The following inputs were used in the fair market valuation of the Convertible Note Hedges and Note Hedge Warrants as of March 31, 2021 and December 31, 2020:

Three Months Ended

Year Ended

March 31, 2021

December 31, 2020

Convertible

    

Note Hedge

Convertible

    

Note Hedge

 

Note Hedges

Warrants

 

Note Hedges

Warrants

 

Risk-free interest rate (1)

0.1

%  

0.1

%

0.1

%  

0.1

%

Expected term

 

1.2

 

1.8

1.5

 

2.0

Stock price (2)

$

11.18

$

11.18

$

11.39

$

11.39

Strike price (3)

$

14.51

$

18.82

$

14.51

$

18.82

Common stock volatility (4)

48.9

%  

45.9

%

46.7

%  

50.3

%

Dividend yield (5)

 

%  

 

%

 

%  

 

%

(1)Based on U.S. Treasury yield curve, with terms commensurate with the expected terms of the Convertible Note Hedges and the Note Hedge Warrants.
(2)The closing price of the Company’s Class A Common Stock on the last trading days of the quarters ended March 31, 2021 and December 31, 2020, respectively.
(3)As per the respective agreements for the Convertible Note Hedges and Note Hedge Warrants.
(4)Expected volatility based on historical volatility of the Company’s Class A Common Stock.
(5)The Company has not paid and does not anticipate paying cash dividends on its shares of common stock in the foreseeable future; therefore, the expected dividend yield is assumed to be zero.

20

Table of Contents

The Convertible Note Hedges and the Note Hedge Warrants are recorded at fair value at each reporting date and changes in fair value are recorded in other (expense) income, net within the Company’s condensed consolidated statements of income.

The following table reflects the change in the Company’s Level 3 Convertible Note Hedges and Note Hedge Warrants from December 31, 2020 through March 31, 2021 (in thousands):

Convertible

Note Hedge

    

 Note Hedges

    

 Warrants

 

Balance at December 31, 2020

$

13,065

$

(12,088)

Change in fair value, recorded as a component of (loss) gain on derivatives

(1,719)

4,109

Balance at March 31, 2021

$

11,346

$

(7,979)

Convertible Senior Notes

In June 2015, the Company issued $335.7 million aggregate principal amount of its 2022 Convertible Notes. In August 2019, the Company issued $200.0 million aggregate principal amount of its 2024 Convertible Notes and $200.0 million aggregate principal amount of its 2026 Convertible Notes, and used a portion of the proceeds from such issuances to repurchase $215.0 million aggregate principal amount of its 2022 Convertible Notes. The Company separately accounted for the liability and equity components of each of the 2022 Convertible Notes, 2024 Convertible Notes, and 2026 Convertible Notes, by allocating the proceeds between the liability component and equity component (Note 8). The fair value of the respective convertible senior notes, which differs from their carrying value, is influenced by interest rates, the price of the Company’s Class A Common Stock and the volatility thereof, and the prices for the respective convertible senior notes observed in market trading, which are Level 2 inputs.

The estimated fair value of the 2022 Convertible Notes was $130.1 million and $130.2 million as of March 31, 2021 and December 31, 2020, respectively. The estimated fair value of the 2024 Convertible Notes was $220.9 million and $222.3 million as of March 31, 2021 and December 31, 2020, respectively. The estimated fair value of the 2026 Convertible Notes was $225.9 million and $224.1 million as of March 31, 2021 and December 31, 2020, respectively.

Capped Calls with Respect to 2024 Convertible Notes and 2026 Convertible Notes

In connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company entered into the Capped Calls with certain financial institutions. The Capped Calls cover 29,867,480 shares of Class A Common Stock (subject to anti-dilution and certain other adjustments), which is the same number of shares of Class A Common Stock that initially underlie the 2024 Convertible Notes and the 2026 Convertible Notes. The Capped Calls have an initial strike price of approximately $13.39 per share, which corresponds to the initial conversion price of the 2024 Convertible Notes and the 2026 Convertible Notes, and have a cap price of approximately $17.05 per share (Note 8). The strike price and cap price are subject to anti-dilution adjustments generally similar to those applicable to the 2024 Convertible Notes and the 2026 Convertible Notes. These instruments meet the conditions outlined in ASC Topic 815, Derivatives and Hedging (“ASC 815”), to be classified in stockholders’ equity and are not subsequently remeasured as long as the conditions for equity classification continue to be met (Note 8).

21

Table of Contents

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

    

March 31, 2021

    

December 31, 2020

Accrued incentive compensation

$

3,070

$

8,719

Accrued vacation

2,612

2,625

Professional fees

 

977

 

530

Accrued interest

 

2,105

 

301

Salaries

1,408

627

Other employee benefits

838

1,442

Restructuring liabilities

5,475

10,510

Other

 

1,878

 

1,732

Total accrued expenses and other current liabilities

$

18,363

$

26,486

As of March 31, 2021, other accrued expenses of $1.9 million included $1.4 million related to uninvoiced vendor liabilities and $0.3 million related to state income taxes payable. As of December 31, 2020, other accrued expenses of $1.7 million included $1.6 million of uninvoiced vendor liabilities.

7. Leases

The Company’s lease portfolio for the three months ended March 31, 2021 includes: an office lease for its current headquarters location, a data center colocation lease, vehicle leases for its salesforce representatives, and leases for computer and office equipment.

The Company’s office lease and vehicle lease require letters of credit to secure the Company’s obligations under the lease agreements totaling $2.2 million and are collateralized by money market accounts recorded as restricted cash on the Company’s condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.

Lease cost is recognized on a straight-line basis over the lease term. The components of lease cost for the three months ended March 31, 2021 and 2020 are as follows (in thousands):

Three Months Ended March 31,

2021

2020

Operating lease cost during period, net

$

631

$

633

Short-term lease cost

214

372

Total lease cost

$

845

$

1,005

Supplemental information related to leases for the periods reported is as follows:

Three Months Ended March 31,

2021

2020

Cash paid for amounts included in the measurement of lease liabilities (in thousands)

$

773

$

43

Weighted-average remaining lease term of operating leases (in years)

9.0

10.0

Weighted-average discount rate of operating leases