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Ironwood Pharmaceuticals Reports Fourth Quarter and Full Year 2020 Results, Exceeding or Meeting Full Year 2020 Financial Guidance; Provides Full Year 2021 Financial Guidance

February 17, 2021 Off By BusinessWire

– LINZESS^® (linaclotide) 2020 U.S. net sales of $931 million, up 10% year-over-year; Ironwood expects 2021 U.S. LINZESS net sales growth of 3 to 5% –

– 2020 total revenue of $390 million, driven primarily by $369 million in U.S. LINZESS collaboration revenue –

– 2020 GAAP net income was $106 million and adjusted EBITDA was $161 million; ended 2020 with $363 million in cash and cash equivalents –

– Full year 2021 total revenue guidance of $370 to $385 million and adjusted EBITDA guidance of >$190 million –

BOSTON–(BUSINESS WIRE)–Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), a GI-focused healthcare company, today provided an update on its fourth quarter and full year 2020 results and recent business performance.

“The fourth quarter marked a strong finish to 2020, which is a testament to the hard work and dedication of the Ironwood team. LINZESS U.S. net sales grew 10% year-over-year in 2020 – remarkable growth in the face of the COVID-19 pandemic – and Ironwood delivered its second full year of profits. While the year did bring disappointing outcomes within the development portfolio, the team took thoughtful actions to help better position Ironwood for the future,” said Mark Mallon, chief executive officer of Ironwood. “Looking ahead, Ironwood has a tremendous opportunity to maximize LINZESS through innovative commercial strategies, build its GI pipeline by pursuing assets for serious, organic GI diseases, and deliver sustainable profits and cash flow. I believe in Ironwood’s future as a GI leader, as it seeks to progress its mission to advance the treatment of GI diseases and redefine the standard of care for patients.”


Fourth Quarter and Full Year 2020 Financial Highlights¹
(in thousands, except for per share amounts)

	4Q 2020	4Q 2019	FY 2020	FY 2019
Total revenues	$116,680	$126,301	$389,523	$428,413
Total costs and expenses	65,296	76,708	246,583	$308,290
GAAP income from continuing operations	43,204	47,858	106,176	58,943
GAAP net income	43,204	47,858	106,176	21,505
GAAP net income per share – basic	0.27	0.31	0.67	0.14
GAAP net income per share –diluted	0.27	0.30	0.66	0.14
Adjusted EBITDA	65,952	54,515	160,678	147,791
Non-GAAP net income	56,934	47,090	127,687	85,497
Non-GAAP net income per share – basic	0.36	0.30	0.80	0.55
Non-GAAP net income per share – diluted	0.36	0.30	0.79	0.55

Refer to the Reconciliation of GAAP Results to Non-GAAP Financial Measures table and to the Reconciliation of GAAP Income from Continuing Operations to Adjusted EBITDA table at the end of this press release. Adjusted EBITDA is reconciled from GAAP Income from Continuing Operations. There were no discontinued operations for the three and twelve months ended December 31, 2020 or the three months ended December 31, 2019. Refer to Non-GAAP Financial Measures for additional information.

Fourth Quarter and Full Year 2020 Corporate Highlights

U.S. LINZESS

Prescription Demand: Total LINZESS prescription demand in the fourth quarter of 2020 was 38 million LINZESS capsules, an 8% increase compared to the fourth quarter of 2019, per IQVIA. Total prescription demand was 144 million LINZESS capsules for the full year 2020, a 9% increase compared to the full year 2019, per IQVIA.
U.S. Brand Collaboration:
- LINZESS U.S. net sales are provided to Ironwood by its U.S. partner, AbbVie. LINZESS U.S. net sales were $278 million in the fourth quarter of 2020, a 16% increase compared to $240 million for the fourth quarter of 2019, and $931 million for the full year 2020, a 10% increase compared to $845 million for the full year 2019. 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.
  - The difference between LINZESS net sales growth and total prescription demand growth in the fourth quarter was primarily due to net price improvement and inventory fluctuations.
- LINZESS commercial margin was 65% in the fourth quarter of 2020 compared to 76% in the fourth quarter of 2019. Commercial margin was 72% for the full year 2020 compared to 68% for the full year 2019. See the U.S. LINZESS Full Brand Collaboration table below and at the end of this press release regarding adjustments recorded in the fourth quarter of 2020.
- Net profit for the LINZESS U.S. brand collaboration, net of commercial and research and development (R&D) expenses, was $168 million in the fourth quarter of 2020 compared to $166 million in the fourth quarter of 2019. Net profit for the LINZESS U.S. brand collaboration, net of commercial and R&D expenses, was $619 million for the full year 2020 compared to $514 million for the full year 2019. See U.S. LINZESS Full Brand Collaboration table below and at the end of this press release.
Collaboration Revenue to Ironwood: Ironwood recorded $111 million in collaboration revenue in the fourth quarter of 2020 related to sales of LINZESS in the U.S., a 9% increase compared to $102 million for the fourth quarter of 2019. Ironwood recorded $369 million in collaboration revenue for the full year 2020, a 13% increase compared to $325 million in 2019. See U.S. LINZESS Commercial Collaboration table at the end of the press release.

U.S. LINZESS Full Brand Collaboration¹ (in thousands, except for percentages)	Three Months Ended December 31,		Twelve Months Ended December 31,
	2020	2019	2020	2019
LINZESS U.S. net sales as reported by AbbVie	$278,320	$239,650	$931,211	$844,761
AbbVie & Ironwood commercial costs, expenses and other discounts	97,992	56,940	260,825	270,150
Commercial margin	65%²	76%	72%	68%
AbbVie & Ironwood R&D Expenses	11,889	16,344	51,295	60,870
Total net profit on sales of LINZESS	168,439	166,366	619,091	513,741
Full brand margin	61%	69%	66%	61%

All periods presented have been adjusted to conform with AbbVie’s revenue recognition accounting policies and reporting conventions. As a result, 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.
Commercial margin decreased in the fourth quarter of 2020 compared to the fourth quarter of 2019 due to a $38.7 million adjustment recorded in the fourth quarter of 2020 to account for selling expenses incurred in 2020 relating to virtual details and overhead due to the COVID-19 pandemic. During the first three quarters of 2020, only costs associated with in-person details were allocated to the LINZESS U.S. brand collaboration, although AbbVie and Ironwood field representatives performed both in-person and virtual details.

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 Phase I clinical trial with IW-3300.
- 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.

U.S. Promotional Partnerships and Global Collaborations

U.S. Disease Education and Promotional Partnership with Alnylam Pharmaceuticals, Inc. (Alnylam). In August 2019, Ironwood and Alnylam announced a U.S. GI disease education and promotional agreement for Alnylam’s GIVLAARI^®(givosiran), an RNAi therapeutic targeting aminolevulinic acid synthase 1 for the treatment of adults with Acute Hepatic Porphyria.
- Under the original agreement, Ironwood received fixed payments and royalties in the mid-teens percent on net sales generated from prescriptions or referrals from certain physicians related to Ironwood’s promotional efforts.
  - Ironwood efforts in 2020 contributed to more than 25 patients starting on GIVLAARI treatment. As a result, Ironwood earned $4.3 million from Alnylam in 2020, inclusive of both fixed payments and royalties.
- In December 2020, Ironwood and Alnylam amended the agreement. Beginning in 2021, Ironwood will no longer receive fixed payments and remains eligible to receive royalties as described above over the term of the agreement, which is approximately three years.
LINZESS in China and Japan.
- Japan. Under its license agreement with Astellas, Ironwood receives royalties beginning in the mid-single-digits percent and escalating to the low double-digits percent, based on annual net sales of LINZESS in Japan. In the fourth quarter of 2020, Astellas assumed responsibility for linaclotide active pharmaceutical (API) manufacturing in Japan.
  - LINZESS net sales in Japan for the nine months ended December 31, 2020, as reported by Astellas, were approximately ¥4.9 billion, a 14% increase compared to the nine months ended December 31, 2019.
- China. Under its collaboration agreement with AstraZeneca, Ironwood receives royalties beginning in the mid-single-digits percent and increasing up to 20 percent based on annual net sales of LINZESS in China (including Hong Kong and Macau).
  - In December 2020, the Chinese National Healthcare Security Administration (NHSA) added LINZESS to the 2020 reimbursement list. Ironwood expects a modest ramp-up in LINZESS net sales in China (including Hong Kong and Macau) in 2021.

Leadership Changes

CEO Transition. In February 2021, Ironwood announced that Mark Mallon plans to step down as chief executive officer and a member of the Ironwood Board of Directors, effective March 12, 2021.
- The Ironwood Board has named Thomas McCourt, Ironwood’s president, as interim CEO effective upon Mr. Mallon’s departure.
- The Ironwood Board plans to initiate a candidate search with the assistance of a leading executive search firm to identify Mr. Mallon’s permanent successor.
Board of Directors.
- Julie McHugh, Ironwood’s Board chair, will become executive chair of the Board of Directors effective upon Mr. Mallon’s departure. In that capacity, Ms. McHugh will continue to lead the Board of Directors as well as provide counsel and guidance to Ironwood’s senior management team through the CEO transition.
- In the fourth quarter of 2020, Ironwood also appointed Alexander Denner, Ph.D. and Jay P. Shepard to its Board of Directors. Dr. Denner serves as a member of the Governance and Nominating Committee, and Mr. Shepard serves as a member of the Audit Committee.

Fourth Quarter and Full Year Financial Results

Total Revenues. Total revenues in the fourth quarter of 2020 were $116.7 million, compared to $126.3 million in the fourth quarter of 2019. Total revenues for the full year 2020 were $389.5 million, compared to $428.4 million for the full year 2019.
- Total revenues in the fourth quarter of 2020 consisted of $110.7 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $3.5 million in linaclotide royalties, co-promotion and other revenue, and $2.5 million in sales of linaclotide API. Total revenues in the fourth quarter of 2019 consisted of $101.6 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $20.6 million in sales of linaclotide API, and $4.1 million in linaclotide royalties, co-promotion and other revenue.
- Total revenues for the full year 2020 consisted of $368.6 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $12.9 million in linaclotide royalties, co-promotion and other revenue, and $8.0 million in sales of linaclotide API. Total revenues for the full year 2019 consisted of $325.5 million associated with Ironwood’s share of the net profits for the sales of LINZESS in the U.S., $48.8 million in sales of linaclotide API, $42.4 million in license and non-contingent milestone payments, and $11.7 million in linaclotide royalties, co-promotion and other revenue.
Operating Expenses. Operating expenses in the fourth quarter of 2020 were $65.3 million, compared to $76.7 million in the fourth quarter of 2019. Operating expenses for the full year 2020 were $246.6 million, compared to $308.2 million for the full year 2019.
- Operating expenses in the fourth quarter of 2020 consisted primarily of $34.0 million in selling, general and administrative (SG&A) expenses, $16.3 million in R&D expenses, and $14.2 million in restructuring expenses. Operating expenses in the fourth quarter of 2019 consisted primarily of $39.2 million in SG&A expenses, $26.5 million in R&D expenses, and $11.0 million in cost of revenues.
- Operating expenses for the full year 2020 consisted primarily of $140.0 million in SG&A expenses, $88.1 million in R&D expenses, $15.4 million in restructuring expenses, and $3.1 million in cost of revenues. Operating expenses for the full year 2019 consisted primarily of $172.5 million in SG&A expenses, $115.0 million in R&D expenses, $23.8 million in cost of revenues, and $3.6 million in restructuring expenses partially offset by $3.5 million related to the settlement of non-cancellable purchase commitments and a $3.2 million gain on lease modification in connection with the separation of Ironwood and Cyclerion Therapeutics, Inc. (Cyclerion) completed on April 1, 2019.
- Restructuring expenses for the full year 2020 are related to a workforce reduction in connection with Ironwood’s decision to discontinue IW-3718. Ironwood reduced its workforce by approximately 100 full-time employees. The workforce reduction was substantially completed in the fourth quarter of 2020.
Interest Expense, net of Interest and Investment Income. Net interest expense was $7.3 million in the fourth quarter of 2020 and $28.0 million for the full year 2020, primarily in connection with Ironwood’s convertible senior notes. Interest expense recorded in the fourth quarter of 2020 included $3.6 million in cash expense and $5.7 million in non-cash expense. Interest expense recorded for the full year 2020 included $7.2 million in cash expense and $22.3 million in non-cash expense.
- Net interest expense was $6.6 million in the fourth quarter of 2019 and $33.7 million for the full year 2019, primarily in connection with Ironwood’s convertible senior notes. Interest expense recorded in the fourth quarter of 2019 included $1.8 million in cash expense and $5.3 million in non-cash expense. Interest expense recorded for the full year 2019 included $17.0 million in cash expense and $19.6 million in non-cash expense, and included interest amounts associated with the 8.375% Notes due 2026 prior to their redemption in September 2019.
Gain (Loss) on Derivatives. Ironwood recorded a gain on derivatives of $0.4 million in the fourth quarter of 2020 as a result of the change in fair value of the convertible note hedges and note hedge warrants. For the full year 2020, Ironwood recorded a loss on derivatives of $6.1 million.
- Ironwood recorded a gain on derivatives of $4.5 million in the fourth quarter of 2019 as a result of the change in fair value of the convertible note hedge and note hedge warrants. For the full year 2019, Ironwood recorded a gain on derivatives of $3.0 million.
Income Tax Expense. Ironwood recorded $1.3 million in state income taxes in the fourth quarter of 2020 and $2.7 million for the full year 2020, primarily in connection with a change in California tax law that temporarily disallows the use of net operating losses. Ironwood did not record any income tax expense in 2019.
Net Income.
- GAAP net income was $43.2 million, or $0.27 per share (basic and diluted), in the fourth quarter of 2020, compared to GAAP net income of $47.9 million, or $0.31 per share (basic) and $0.30 per share (diluted), in the fourth quarter of 2019. GAAP net income for the full year 2020 was $106.2 million, or $0.67 per share (basic) and $0.66 per share (diluted), compared to GAAP net income of $21.5 million, or $0.14 per share (basic and diluted), for the full year 2019.
- Non-GAAP net income was $56.9 million, or $0.36 per share (basic and diluted), in the fourth quarter of 2020, compared to non-GAAP net income of $47.1 million, or $0.30 per share (basic and diluted), in the fourth quarter of 2019. Non-GAAP net income for the full year 2020 was $127.7 million, or $0.80 per share (basic) and $0.79 per share (diluted), compared to Non-GAAP net income of $85.5 million, or $0.55 per share (basic and diluted), for the full year 2019.
- Non-GAAP net income excludes the impact of mark-to-market adjustments on the derivatives related to Ironwood’s 2022 Convertible Notes, restructuring expenses, separation expenses, and loss on extinguishment of debt. These adjustments are reflected in non-GAAP net income in the fourth quarter and full year 2020 and 2019 results presented in this press release. See Non-GAAP Financial Measures below.
Income from Continuing Operations. Beginning in the second quarter of 2019, Ironwood recast historical operations related to Cyclerion as discontinued operations.
- Ironwood recorded $43.2 million and $47.9 million in income from continuing operations during the fourth quarter of 2020 and 2019, respectively. Ironwood recorded $106.2 million and $58.9 million in income from continuing operations during the full year 2020 and 2019, respectively.
- Ironwood did not incur any separation-related expenses for the full year 2020. Ironwood recorded $37.4 million in GAAP net loss from discontinued operations for the full year 2019.
Adjusted EBITDA. Adjusted EBITDA was $66.0 million in the fourth quarter of 2020, compared to $54.5 million in the fourth quarter of 2019. For the full year 2020, adjusted EBITDA was $160.7 million, compared to $147.8 million for the full year 2019.
- 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, restructuring expenses, separation expenses, and loss on extinguishment of debt from GAAP income from continuing operations. See Non-GAAP Financial Measures below.
Cash Flow Statement and Balance Sheet Highlights.
- Ironwood ended 2020 with $362.6 million of cash and cash equivalents, compared to $177 million of cash and cash equivalents at the end of 2019.
- Ironwood generated $51.5 million in cash from operations in the fourth quarter of 2020, compared to $27.6 million in cash from operations in the fourth quarter of 2019. Ironwood generated $168.8 million in cash from operations for the full year 2020, compared to $10.7 million for the full year 2019.
Strong Performance Against 2020 Financial Guidance

	2020 Results	Revised 2020 Guidance	Original 2020 Guidance
U.S. LINZESS Net Sales Growth	10%	~10%	Mid-single digit % increase
Total Revenue	$390 million	High end of $370 – $385 million	$360 – $380 million
Adjusted EBITDA¹	$161 million	~$150 million	>$105 million

¹Adjusted 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, restructuring expenses, separation expenses, and loss on extinguishment of debt from GAAP income from continuing operations.

Ironwood 2021 Financial Guidance

In 2021, Ironwood expects:

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

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. Ironwood also excludes restructuring, separation-related expenses, and loss on extinguishment of debt from non-GAAP net income, if any. These adjustments, as applicable, are reflected in the non-GAAP net income in the fourth quarter and full year 2020 and 2019 presented in this press release. 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.
Separation expenses include costs associated with the spin-off of Cyclerion from Ironwood. These costs are considered non-recurring as the separation was a significant and unusual event. Certain of these expenses do not appear as non-GAAP adjustments used to calculate adjusted EBITDA, as such expenses are included as part of discontinued operations, and are therefore excluded from the calculation of GAAP income from continuing operations.
Loss on extinguishment of debt is considered to be a non-recurring event as it is associated with a distinct financing decision. Included in loss on extinguishment of debt are costs associated with the extinguishment of the 8.375% Notes and a portion of the 2022 Convertible Notes.

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, restructuring expenses, separation expenses and loss on extinguishment of debt from GAAP income from continuing operations. 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 income from continuing operations on a GAAP basis, please refer to the tables at the end of this press release.

Ironwood does not provide guidance on GAAP income from continuing operations or a reconciliation of expected adjusted EBITDA to expected GAAP income from continuing operations because, without unreasonable efforts, it is unable to predict with reasonable certainty the non-GAAP adjustments used to calculate adjusted EBITDA.

Contacts

Investors and Media:

Meredith Kaya, 617-374-5082

[email protected]

Media:

Beth Calitri, 978-417-2031

[email protected]

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