Ironwood Pharmaceuticals Reports First Quarter 2021 Results

Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), a GI-focused healthcare company, today provided an update on its first quarter 2021 results and recent business performance.

“We are off to a solid start to the year, as LINZESS continued the strong momentum we saw in 2020,” said Tom McCourt, president and interim chief executive officer of Ironwood. “Prescription demand and new-to-brand prescription volume grew 12% and 24% year-over-year, respectively, which is a testament to the strength and resiliency of LINZESS and the tremendous execution by our team. We ended the quarter with $438 million in cash and cash equivalents, positioning us well to continue to invest thoughtfully into our business. As we look ahead, we are confident there is strong momentum in the business and a strong sense of resolve in our ability to advance the treatment of GI diseases and redefine the standard of care for patients.”

First Quarter 2021 Financial Highlights¹

(in thousands, except for per share amounts)

			1Q 2021		1Q 2020
		Total revenues	$88,845		$79,943
		Total costs and expenses	43,447		66,716
		GAAP net income	39,926		3,345
		GAAP net income per share – basic and diluted	0.25		0.02
		Adjusted EBITDA	46,119		13,936
		Non-GAAP net income	37,847		6,811
		Non-GAAP net income per share – basic and diluted	0.24		0.04

1. Refer to the Reconciliation of GAAP Results to Non-GAAP Financial Measures table and to the Reconciliation of GAAP Net Income to Adjusted EBITDA table at the end of this press release. Refer to Non-GAAP Financial Measures for additional information.

First Quarter 2021 Corporate Highlights

U.S. LINZESS

• Prescription Demand: Total LINZESS prescription demand in the first quarter of 2021 was 37 million LINZESS capsules, a 12% increase compared to the first quarter of 2020, per IQVIA.

• U.S. Brand Collaboration: LINZESS U.S. net sales are provided to Ironwood by its U.S. partner, AbbVie Inc. (AbbVie). LINZESS U.S. net sales were $215.4 million in the first quarter of 2021, a 12% increase compared to $192.8 million in the first quarter of 2020. The increase in LINZESS U.S. net sales year-over-year was driven by prescription demand growth and favorable inventory dynamics, partially offset by net price erosion.
  • Ironwood and AbbVie share equally in U.S. brand collaboration profits. See the LINZESS U.S. Commercial Collaboration table at the end of the press release.

– LINZESS commercial margin was 73% in the first quarter of 2021 compared to 71% in the first quarter of 2020. See the U.S. LINZESS Full Brand Collaboration table below and at the end of this press release regarding adjustments recorded in the first quarter of 2021.

– Net profit for the LINZESS U.S. brand collaboration, net of commercial and research and development (R&D) expenses, was $148.4 million in the first quarter of 2021 compared to $122.0 million in the first quarter of 2020. See U.S. LINZESS Full Brand Collaboration table below and at the end of this press release.

• Collaboration Revenue to Ironwood: Ironwood recorded $85.9 million in collaboration revenue in the first quarter of 2021 related to sales of LINZESS in the U.S., a 21% increase compared to $71.1 million for the first quarter of 2020. See U.S. LINZESS Commercial Collaboration table at the end of the press release.

U.S. LINZESS Full Brand Collaboration (in thousands, except for percentages)	Three Months Ended March 31,
	2021	20201
LINZESS U.S. net sales as reported by AbbVie	215,399	192,822
AbbVie & Ironwood commercial costs, expenses and other discounts	57,511	56,082
Commercial margin	73%	71%
AbbVie & Ironwood R&D Expenses	9,474	14,782
Total net profit on sales of LINZESS	148,414	121,958
Full brand margin	69%	63%

1. AbbVie completed its acquisition of Allergan in the second quarter of 2020. As a result, first quarter 2020 results have been adjusted to conform with AbbVie’s revenue recognition accounting policies and reporting conventions. Certain of the rebates and discounts that were previously classified within LINZESS U.S. net sales have been reclassified as LINZESS U.S. commercial costs, expenses and other discounts within Ironwood’s calculation of collaborative arrangements revenue. Refer to the U.S. LINZESS Full Brand Collaboration table at the end of this press release.

IW-3300

• Ironwood is currently advancing IW-3300, a guanylate cyclase-C agonist being developed for the potential treatment of visceral pain conditions, such as interstitial cystitis / bladder pain syndrome (IC/BPS) and endometriosis.
  – IW-3300 is in pre-clinical development. Ironwood expects to submit an Investigational New Drug (IND) application with the U.S. FDA in the second half of 2021 for the initiation of a clinical trial with IW-3300 targeted in early 2022.
  – IC/BPS affects an estimated four to 12 million Americans, according to the Interstitial Cystitis Association. An estimated four million reproductive-age women in the U.S. have diagnosed endometriosis, according to a study published in Gynecologic and Obstetric Investigation. Both diseases have a limited number of treatment options available.

Leadership Changes

• CEO Transition. Mark Mallon resigned as chief executive officer and a member of the Ironwood Board of Directors, effective March 12, 2021.
  – The Ironwood Board named Tom McCourt, Ironwood’s president, as interim CEO effective upon Mr. Mallon’s departure.
  – The Ironwood Board initiated a candidate search with the assistance of a leading executive search firm to identify Mr. Mallon’s permanent successor.

First Quarter Financial Results

• Total Revenues. Total revenues in the first quarter of 2021 were $88.8 million, compared to $79.9 million in the first quarter of 2020, an increase of 11% year-over-year.
  – Total revenues in the first quarter of 2021 consisted of $85.9 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $2.7 million in linaclotide royalties and other revenue, and $0.2 million in sales of linaclotide API. Total revenues in the first quarter of 2020 consisted of $71.1 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $5.5 million in sales of linaclotide API, and $3.3 million in linaclotide royalties, co-promotion and other revenue.

• Operating Expenses. Operating expenses in the first quarter of 2021 were $43.4 million, compared to $66.7 million in the first quarter of 2020.
  – Operating expenses in the first quarter of 2021 consisted primarily of $27.7 million in selling, general and administrative (SG&A) expenses, $15.5 million in R&D expenses, and $0.3 million in restructuring expenses. Operating expenses in the first quarter of 2020 consisted primarily of $36.5 million in SG&A expenses, $28.0 million in R&D expenses, and $2.2 million in cost of revenues.

• Interest Expense, net of Interest and Investment Income. Net interest expense was $7.4 million in the first quarter of 2021, primarily in connection with Ironwood’s convertible senior notes. Interest expense recorded in the first quarter of 2021 included $1.8 million in cash expense and $5.8 million in non-cash expense. Net interest expense was $6.4 million in the first quarter of 2020, primarily in connection with Ironwood’s convertible senior notes. Interest expense recorded in the first quarter of 2020 included $1.8 million in cash expense and $5.4 million in non-cash expense.
• Gain (Loss) on Derivatives. Ironwood recorded a gain on derivatives of $2.4 million in the first quarter of 2021 as a result of the change in fair value of its convertible note hedges and note hedge warrants. Ironwood recorded a loss on derivatives of $3.5 million in the first quarter of 2020 as a result of the change in fair value of its convertible note hedge and note hedge warrants.
• Income Tax Expense. Ironwood recorded $0.4 million in state income taxes in the first quarter of 2021, primarily related to state income taxes in certain states which have temporarily disallowed the use of net operating losses to offset taxable income.
• GAAP Net Income. GAAP net income was $39.9 million, or $0.25 per share (basic and diluted), in the first quarter of 2021 compared to GAAP net income of $3.3 million, or $0.02 per share (basic and diluted), in the first quarter of 2020.

• Non-GAAP Net Income. Non-GAAP net income was $37.8 million, or $0.24 per share (basic and diluted), in the first quarter of 2021, compared to non-GAAP net income of $6.8 million, or $0.04 per share (basic and diluted), in the first quarter of 2020.
  – Non-GAAP net income excludes the impact of mark-to-market adjustments on the derivatives related to Ironwood’s 2022 Convertible Notes and restructuring expenses. See Non-GAAP Financial Measures below.

• Adjusted EBITDA. Adjusted EBITDA was $46.1 million in the first quarter of 2021, compared to $13.9 million in the first quarter of 2020.
  – Adjusted EBITDA is calculated by subtracting net interest expense, income taxes, depreciation, amortization, mark-to-market adjustments on derivatives related to Ironwood’s 2022 Convertible Notes and restructuring expenses from GAAP net income. See Non-GAAP Financial Measures below.

• Cash Flow Statement and Balance Sheet Highlights.
  – Ironwood ended the first quarter of 2021 with $438.5 million of cash and cash equivalents, compared to $231.1 million of cash and cash equivalents in the first quarter of 2020.
  – Ironwood generated $73.7 million in cash from operations in the first quarter of 2021, compared to $43.6 million in cash from operations in the first quarter of 2020.

• Ironwood 2021 Financial Guidance

In 2021, Ironwood continues to expect:

	2021 Guidance
U.S. LINZESS Net Sales Growth	3% to 5%
Total Revenue	$370 to $385 million
Adjusted EBITDA1	>$190 million

¹ Adjusted EBITDA is calculated by subtracting net interest expense, income taxes, depreciation, amortization, mark-to-market adjustments on derivatives related to Ironwood’s 2022 Convertible Notes and restructuring expenses from GAAP net income.

Non-GAAP Financial Measures

Ironwood presents non-GAAP net income and non-GAAP net income per share to exclude the impact of net gains and losses on derivatives related to our 2022 Convertible Notes that are required to be marked-to-market and restructuring expense. Non-GAAP adjustments are further detailed below:

• The gains and losses on the derivatives related to our 2022 Convertible Notes may be highly variable, difficult to predict and of a size that could have a substantial impact on the company’s reported results of operations in any given period.
• Restructuring expenses are considered to be a non-recurring event as they are associated with distinct operational decisions. Included in restructuring expenses are costs associated with exit and disposal activities.

Ironwood also presents adjusted EBITDA, a non-GAAP measure, as well as guidance on adjusted EBITDA. Adjusted EBITDA is calculated by subtracting net interest expense, income taxes, depreciation, amortization, mark-to-market adjustments on derivatives related to Ironwood’s 2022 Convertible Notes and restructuring expenses from GAAP net income. The adjustments are made on a similar basis as described above related to non-GAAP net income, as applicable.

Management believes this non-GAAP information is useful for investors, taken in conjunction with Ironwood’s GAAP financial statements, because it provides greater transparency and period-over-period comparability with respect to Ironwood’s operating performance. These measures are also used by management to assess the performance of the business. Investors should consider these non-GAAP measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures are unlikely to be comparable with non-GAAP information provided by other companies. For a reconciliation of non-GAAP net income and non-GAAP net income per share to GAAP net income and GAAP net income per share, respectively, and for a reconciliation of adjusted EBITDA to GAAP net income, please refer to the tables at the end of this press release.

Ironwood does not provide guidance on GAAP net income or a reconciliation of expected adjusted EBITDA to expected GAAP net income because, without unreasonable efforts, it is unable to predict with reasonable certainty the non-GAAP adjustments used to calculate adjusted EBITDA. These adjustments are uncertain, depend on various factors and could have a material impact on GAAP net income for the guidance period.

Conference Call Information

Ironwood will host a conference call and webcast at 8:30 a.m. Eastern Time on Thursday, May 6, 2021 to discuss its first quarter 2021 results and recent business activities. Individuals interested in participating in the call should dial (833) 350-1432 (U.S. and Canada) or (647) 689-6932 (international) using conference ID number and event passcode 8067476. To access the webcast, please visit the Investors section of Ironwood’s website at www.ironwoodpharma.com at least 15 minutes prior to the start of the call to ensure adequate time for any software downloads that may be required. The call will be available for replay via telephone starting at approximately 11:30 a.m. Eastern Time on May 6, 2021 running through 11:59 p.m. Eastern Time on May 20, 2021. To listen to the replay, dial (800) 585-8367 (U.S. and Canada) or (416) 621-4642 (international) using conference ID number 8067476. The archived webcast will be available on Ironwood’s website for 14 days beginning approximately one hour after the call has completed.

About Ironwood Pharmaceuticals

Ironwood Pharmaceuticals (Nasdaq: IRWD) is a leading gastrointestinal (GI) healthcare company on a mission to advance the treatment of GI diseases and redefine the standard of care for GI patients. We are pioneers in the development of LINZESS® (linaclotide), the U.S. branded prescription market leader for adults with irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC). Under the guidance of our seasoned industry leaders, we continue to build upon our history of GI innovation and challenge what has been done before to shape what the future holds. We keep patients at the heart of our R&D and commercialization efforts to reduce the burden of GI diseases and address significant unmet needs.

Founded in 1998, Ironwood Pharmaceuticals is headquartered in Boston, Massachusetts.

We routinely post information that may be important to investors on our website at www.ironwoodpharma.com. In addition, follow us on Twitter and on LinkedIn.

About LINZESS (linaclotide)

LINZESS® is the #1 prescribed brand in the U.S. for the treatment of adult patients with irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC), based on IQVIA data.

LINZESS is a once-daily capsule that helps relieve the abdominal pain, constipation, and overall abdominal symptoms of bloating, discomfort and pain associated with IBS-C, as well as the constipation, infrequent stools, hard stools, straining, and incomplete evacuation associated with CIC. The recommended dose is 290 mcg for IBS-C patients and 145 mcg for CIC patients, with a 72-mcg dose approved for use in CIC depending on individual patient presentation or tolerability. LINZESS should be taken at least 30 minutes before the first meal of the day.

LINZESS is contraindicated in pediatric patients less than 6 years of age. The safety and effectiveness of LINZESS in pediatric patients less than 18 years of age have not been established. In neonatal mice, linaclotide increased fluid secretion as a consequence of guanylate cyclase-C (GC-C) agonism resulting in mortality within the first 24 hours due to dehydration. Due to increased intestinal expression of GC-C, patients less than 6 years of age may be more likely than patients 6 years of age and older to develop severe diarrhea and its potentially serious consequences. In adults with IBS-C or CIC treated with LINZESS, the most commonly reported adverse event was diarrhea.

LINZESS is not a laxative; it is the first medicine approved by the FDA in a class called GC-C agonists. LINZESS contains a peptide called linaclotide that activates the GC-C receptor in the intestine. Activation of GC-C is thought to result in increased intestinal fluid secretion and accelerated transit and a decrease in the activity of pain-sensing nerves in the intestine. The clinical relevance of the effect on pain fibers, which is based on nonclinical studies, has not been established.

In the United States, Ironwood and AbbVie co-develop and co-commercialize LINZESS for the treatment of adults with IBS-C or CIC. In Europe, AbbVie markets linaclotide under the brand name CONSTELLA® for the treatment of adults with moderate to severe IBS-C. In Japan, Ironwood's partner Astellas markets linaclotide under the brand name LINZESS for the treatment of adults with IBS-C or CIC. Ironwood also has partnered with AstraZeneca for development and commercialization of LINZESS in China, and with AbbVie for development and commercialization of linaclotide in all other territories worldwide.

LINZESS Important Safety Information

INDICATIONS AND USAGE

LINZESS (linaclotide) is indicated in adults for the treatment of both irritable bowel syndrome with constipation (IBS-C) and chronic idiopathic constipation (CIC).

IMPORTANT SAFETY INFORMATION

WARNING: RISK OF SERIOUS DEHYDRATION IN PEDIATRIC PATIENTS LINZESS is contraindicated in patients less than 6 years of age. In nonclinical studies in neonatal mice, administration of a single, clinically relevant adult oral dose of linaclotide caused deaths due to dehydration. Use of LINZESS should be avoided in patients 6 years to less than 18 years of age. The safety and effectiveness of LINZESS have not been established in patients less than 18 years of age.

Contraindications

• LINZESS is contraindicated in patients less than 6 years of age due to the risk of serious dehydration.
• LINZESS is contraindicated in patients with known or suspected mechanical gastrointestinal obstruction.

Warnings and Precautions

Pediatric Risk

• LINZESS is contraindicated in patients less than 6 years of age. The safety and effectiveness of LINZESS in patients less than 18 years of age have not been established. In neonatal mice, linaclotide increased fluid secretion as a consequence of GC-C agonism resulting in mortality within the first 24 hours due to dehydration. Due to increased intestinal expression of GC-C, patients less than 6 years of age may be more likely than patients 6 years of age and older to develop severe diarrhea and its potentially serious consequences.
• Use of LINZESS should be avoided in pediatric patients 6 years to less than 18 years of age. Although there were no deaths in older juvenile mice, given the deaths in young juvenile mice and the lack of clinical safety and efficacy data in pediatric patients, use of LINZESS should be avoided in pediatric patients 6 years to less than 18 years of age.

Diarrhea

• Diarrhea was the most common adverse reaction in LINZESS-treated patients in the pooled IBS-C and CIC double-blind placebo-controlled trials. The incidence of diarrhea was similar in the IBS-C and CIC populations. Severe diarrhea was reported in 2% of 145 mcg and 290 mcg LINZESS-treated patients, and in <1% of 72 mcg LINZESS-treated CIC patients. If severe diarrhea occurs, dosing should be suspended and the patient rehydrated.

Common Adverse Reactions (incidence ≥2% and greater than placebo)

• In IBS-C clinical trials: diarrhea (20% vs 3% placebo), abdominal pain (7% vs 5%), flatulence (4% vs 2%), headache (4% vs 3%), viral gastroenteritis (3% vs 1%) and abdominal distension (2% vs 1%).