Ironwood Pharmaceuticals Reports Second Quarter 2019 Results

– Generated $12 million in GAAP net income from continuing operations and $26 million in adjusted EBITDA from continuing operations in 2Q 2019 –

– Delivered second quarter 2019 revenue of $102 million, primarily driven by LINZESS^® (linaclotide) collaboration revenue of $75 million and linaclotide API sales of $25 million –

– Grew LINZESS prescription demand by 13% year-over-year in 2Q 2019 –

– Progressed GI pipeline with positive data from linaclotide Phase IIIb trial and initiation of MD-7246 Phase II trial; MD-7246 and IW-3718 data readouts expected 2H 2020 –

CAMBRIDGE, Mass.–(BUSINESS WIRE)–Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), a GI-focused healthcare company, today provided an update on its second quarter 2019 results and recent business activities.

“The second quarter marked the beginning of a new chapter for Ironwood, as we began executing on our vision to become a leading GI-focused company,” said Mark Mallon, chief executive officer of Ironwood. “Our strategy remains clear – accelerate growth of LINZESS, advance our late-stage U.S. GI pipeline, and strengthen our corporate and financial profile. We made significant progress across each of these areas during the second quarter. Our flagship product, LINZESS, showed impressive year-over-year prescription demand growth of 13%, with strong growth continuing into the third quarter. We also made strides across our GI pipeline, highlighted by the positive linaclotide Phase IIIb results and the initiation of our Phase II trial with MD-7246, and we look forward to critical data readouts expected from both MD-7246 and IW-3718 next year. Finally, and importantly, we delivered profits in the second quarter – a significant milestone for the company. This is an exciting time for all of us at Ironwood as we continue to execute on our GI-focused strategy, which we believe will generate outstanding value for patients, shareholders, and our fellow employees.”

Second Quarter 2019 Financial Highlights1
(in thousands, except for per share amounts)
		2Q 2019			2Q 2018
Total revenues		$	102,215		$	81,106
Total costs and expenses			80,638			95,783
GAAP net income (loss) from continuing operations			12,283			(24,137	)
GAAP net income (loss)			12,283			(49,380	)
GAAP net income (loss) per share			0.08			(0.32	)
Adjusted EBITDA from continuing operations			25,645			(6,946	)
Non-GAAP net income (loss)			16,032			(32,928	)
Non-GAAP net income (loss) per share			0.10			(0.22	)

1. Refer to the reconciliation of GAAP results to Non-GAAP Financial Measures tables and to the reconciliation between GAAP Net Income (Loss) from Continuing Operations and adjusted EBITDA from continuing operations table at the end of this press release. Refer to Non-GAAP Financial Measures for additional information.

Second Quarter 2019 Corporate Highlights

U.S. LINZESS

• LINZESS (linaclotide) U.S. net sales, as provided by Ironwood’s U.S. collaboration partner Allergan plc, were $196 million in the second quarter of 2019. Ironwood and Allergan share equally in U.S. brand collaboration profits.
  • Total LINZESS prescription demand in the second quarter of 2019 included approximately 32 million LINZESS capsules, a 13% increase compared to the second quarter of 2018, per IQVIA.

  • Ironwood recorded $75 million in collaboration revenue in the second quarter of 2019 related to sales of LINZESS in the U.S, compared to $69 million in the second quarter of 2018. See U.S. LINZESS Commercial Collaboration table at the end of the press release.

  • Net profit for the LINZESS U.S. brand collaboration, net of commercial and research and development (R&D) expenses, was $115 million in the second quarter of 2019, compared to $100 million in the second quarter of 2018. See U.S. LINZESS Full Brand Collaboration table below and at the end of this press release.

  • As previously disclosed, Ironwood and Allergan filed a lawsuit in November 2016 against certain generic drug manufacturers who had submitted to the FDA Paragraph IV certification notice letters regarding Abbreviated New Drug Applications (ANDAs), requesting approval to engage in commercial manufacture, use, sale and offer for sale of proposed generic versions of LINZESS.

    • The trial for the ANDA lawsuit was originally scheduled to begin on June 17, 2019. However, the trial was postponed as a result of the unavailability of one of the expert witnesses for the generic drug manufacturer defendants to testify in person at the trial due to a serious health issue. In July 2019, the parties to the ANDA lawsuit filed a proposed stipulation with the Delaware District Court. Subject to the court’s approval, the stipulation provides for the trial to be rescheduled to begin on January 7, 2020.

U.S. LINZESS Full Brand Collaboration1 (in thousands, except for percentages)		Three Months Ended June 30,
		2019		2018
LINZESS U.S. net sales		$195,958		$191,826
Allergan & Ironwood commercial costs and expenses		66,730		76,726
Commercial margin		66%		60%
Allergan & Ironwood R&D Expenses		14,474		15,482
Total net profit on sales of LINZESS		$114,754		$99,618
Full brand margin		59%		52%

1. Refer to the U.S. LINZESS Full Brand Collaboration table at the end of this press release.

GI Pipeline

• Linaclotide. In June 2019, Ironwood and Allergan reported positive topline data from the Phase IIIb clinical trial evaluating LINZESS 290 mcg on multiple abdominal symptoms (bloating, pain and discomfort) in adult patients with irritable bowel syndrome with constipation (IBS-C). The companies began communicating these additional benefits of LINZESS to healthcare practitioners in July 2019.
  • The trial met its primary multi-component endpoint with statistical significance, demonstrating that LINZESS improved the overall abdominal symptoms of bloating, pain and discomfort in adult IBS-C patients compared to placebo. The trial also met both secondary endpoints. LINZESS was well-tolerated in this trial, with the most commonly reported adverse event being diarrhea.

  • The trial was designed to evaluate the safety and efficacy of LINZESS on the overall abdominal symptoms of bloating, pain and discomfort, which are part of IBS-C patients’ reported real-world experience. Communication of these data to healthcare practitioners has the potential to both broaden their understanding of the appropriate LINZESS patient and help patients in need find relief.

• IW-3718. Ironwood is currently enrolling patients in two pivotal Phase III trials of IW-3718, its gastric retentive formulation of a bile acid sequestrant for the potential treatment of persistent GERD. Data from the Phase III trials are expected in the second half of 2020.
  • The Phase III trials are identical, randomized, double-blind, placebo-controlled, multicenter trials that target enrolling approximately 1,320 total patients (660 in each trial) with persistent GERD who demonstrate evidence of pathological acid reflux.

  • Persistent GERD affects an estimated 10 million Americans who continue to suffer from heartburn and regurgitation despite receiving treatment with proton pump inhibitors (PPIs), the current standard of care.

• MD-7246. MD-7246, an investigational new product, is being evaluated by Ironwood and Allergan as an oral, intestinal, non-opioid, pain-relieving agent for patients in the U.S. suffering from abdominal pain associated with certain GI diseases. MD-7246 is a delayed-release formulation of linaclotide designed to provide targeted delivery of linaclotide to the colon, where the majority of the abdominal pain associated with IBS-D is believed to originate, and to limit fluid secretion in the small intestine resulting in minimal impact on bowel function.
  • In May 2019, Ironwood and Allergan initiated patient dosing in a randomized, double-blind, placebo-controlled, parallel-group, dose-range-finding Phase II clinical trial evaluating MD-7246 in patients with abdominal pain associated with IBS with diarrhea (IBS-D). Data from the Phase II trial are expected in the second half of 2020.

  • The Phase II trial is designed to evaluate the safety, tolerability, treatment effect on abdominal pain, and dose response of MD-7246 administered orally to patients with abdominal pain associated with IBS-D. The trial is expected to enroll approximately 368 IBS-D patients who are randomized equally across three dose levels of MD-7246 or matching placebo, administered once daily over 12 weeks.

  • IBS-D affects an estimated 16 million Americans who suffer from frequent and bothersome abdominal pain with a limited number of treatment options available.

Global Collaborations and Partnerships

• LINZESS in Japan. Ironwood reported $24.9 million in sales of linaclotide active pharmaceutical ingredient (API) to Ironwood’s partner Astellas Pharma Inc. in the second quarter of 2019. LINZESS was approved for the treatment of adults with IBS-C in Japan in December 2016 and for the treatment of chronic constipation in August 2018, and is being commercialized in Japan by Astellas.
• LINZESS in China. Ironwood expects to launch LINZESS in China with its partner AstraZeneca in the second half of 2019. The LINZESS marketing application was approved by the National Medical Products Administration for adults with IBS-C in China in January 2019. Ironwood and AstraZeneca are jointly responsible for the commercialization of linaclotide in China, with AstraZeneca primarily responsible for local operational execution.

Additional Business Updates

• New Headquarters. In June 2019, Ironwood announced that the company plans to relocate its headquarters to a new office in downtown Boston from its current location in Cambridge, Massachusetts. Ironwood’s new headquarters will occupy approximately 39,000 square feet at 100 Summer Street. Ironwood anticipates the move to be completed in the fourth quarter of 2019, and expects to save more than $25 million in cash payments to its landlord over the following five years.

Second Quarter Financial Results

• Total Revenues. Total revenues in the second quarter of 2019 were $102.2 million, consisting of $75.0 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $24.9 million in sales of linaclotide API, $1.5 million in co-promotion revenue, and $0.8 million in royalty revenue.

• Operating Expenses. Operating expenses in the second quarter of 2019 consisted of $43.2 million in SG&A expenses, $28.8 million in R&D expenses, $11.3 million in cost of revenues, and $0.5 million in restructuring expenses, offset by a gain of approximately $3.2 million related to the modification of the Cambridge lease as of April 1, 2019.

• Interest Expense. Net interest expense was $8.8 million in the second quarter of 2019, primarily in connection with the 8.375% Notes funded in January 2017 and the approximately $336 million convertible debt financing funded in June 2015. Interest expense recorded in the second quarter of 2019 includes $4.7 million in cash expense and $4.7 million in non-cash expense.

• Loss on Derivatives. Ironwood recorded a loss on derivatives of $0.7 million in the second quarter of 2019 related to the change in fair value of the convertible note hedges and note hedge warrants issued in connection with the convertible debt financing.
• Net Income.

  • GAAP net income was $12.3 million, or $0.08 per share, in the second quarter of 2019, compared to GAAP net loss of $49.4 million, or $0.32 per share, in the second quarter of 2018. Non-GAAP net income was $16.0 million, or $0.10 per share, in the second quarter of 2019, compared to non-GAAP net loss of $32.9 million, or $0.22 per share, in the second quarter of 2018.

  • Non-GAAP net income excludes the impact of mark-to-market adjustments on the derivatives related to Ironwood’s convertible debt, the amortization of acquired intangible assets, the fair value remeasurement of contingent consideration related to Ironwood’s U.S. lesinurad license, the impairment of acquired intangible assets in connection with Ironwood’s notice of termination of the lesinurad franchise, restructuring, and separation-related expenses. This is reflected in non-GAAP net income in the second quarter of 2019 and 2018 presented in this press release. See Non-GAAP Financial Measures below.

• Net Income from Continuing Operations. The separation of Ironwood and Cyclerion was completed on April 1, 2019. Beginning in the second quarter of 2019, Ironwood recast historical Cyclerion-related operations as discontinued operations.

  • Ironwood recorded $12.3 million in GAAP net income from continuing operations in the second quarter of 2019, and $9.6 million in GAAP net loss from continuing operations in the first half of 2019.

  • Ironwood did not incur any Cyclerion-related operations during the second quarter of 2019. Ironwood recorded $37.4 million in GAAP net loss from discontinued operations in the first half of 2019.

• Adjusted EBITDA from Continuing Operations. Adjusted EBITDA from continuing operations was $25.6 million in the second quarter of 2019 and $17.6 million in the first half of 2019. Adjusted EBITDA from continuing operations is calculated by subtracting net interest expense, taxes, depreciation, amortization, fair value of remeasurement of contingent consideration, mark-to-market adjustments on derivatives, restructuring expenses, and separation expenses from GAAP net income (loss) from continuing operations. See non-GAAP Financial Measures below.
• Cash Flow Statement and Balance Sheet Highlights.
  • Beginning in the second quarter of 2019, Ironwood recast historical Cyclerion- related assets and liabilities as assets and liabilities of discontinued operations. As of April 1, 2019, Ironwood had transferred all Cyclerion-related assets and liabilities to Cyclerion pursuant to the separation agreement with Cyclerion.

  • Ironwood ended the second quarter of 2019 with $98.9 million of cash and cash equivalents.

  • Ironwood used $9.2 million in cash from operations in the second quarter of 2019.

  • In June 2019, Ironwood paid $9.2 million toward the principal payment on its 8.375% Notes.

Ironwood 2019 Financial Guidance
In 2019, Ironwood continues to expect:
		2019 Guidance
Total revenue		$370 – $390 million
Net interest expense		~$35 million
Separation expenses1		$30 – $40 million
Restructuring expenses2		~$3 – $4 million
Adjusted EBITDA from continuing operations3		>$65 million
LINZESS net sales growth		Low-to-mid single digit % increase

¹ Separation expenses were $2.6 million in the second quarter of 2019.

² Restructuring expenses were largely incurred during the first quarter of 2019 in connection with the reduction in workforce commenced in February 2019. Total restructuring expenses in the second quarter of 2019 were $0.5 million.

³ Adjusted EBITDA from continuing operations is calculated by subtracting net interest expense, taxes, depreciation, amortization, fair value of remeasurement of contingent consideration, mark-to-market adjustments on derivatives, restructuring expenses, and separation expenses from GAAP net income (loss) from continuing operations. Beginning in the second quarter of 2019, Ironwood is reporting in its financial statements GAAP net income (loss) from continuing operations which excludes discontinued operations related to Cyclerion.

Non-GAAP Financial Measures

Ironwood presents non-GAAP net income (loss) and non-GAAP net income (loss) per share to exclude the impact of net gains and losses on the derivatives related to our convertible notes that are required to be marked-to-market, the amortization of acquired intangible assets, the fair value remeasurement of contingent consideration associated with Ironwood’s U.S. license agreement with AstraZeneca for the exclusive rights to all products containing lesinurad, and the impairment of intangible assets associated with Ironwood’s subsequent notice of termination of the lesinurad license agreement, if any. Ironwood also excludes restructuring and separation-related expenses from non-GAAP net income (loss). These adjustments are reflected in the non-GAAP net income (loss) in the second quarter of 2019 and 2018 presented in this press release. Non-GAAP adjustments are further detailed below:

• The gains and losses on the derivatives related to our 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.
• The acquired intangible assets associated with the terminated U.S. license agreement with AstraZeneca for the exclusive rights to all products containing lesinurad are valued as of the date of acquisition and are amortized over their estimated economic useful life, and management believes excluding the amortization of acquired intangible assets provides more consistency with the treatment of internally developed intangible assets for which research and development costs were previously expensed.
• The contingent consideration balance associated with the terminated U.S. lesinurad license agreement with AstraZeneca is remeasured each reporting period, and the resulting change in fair value impacts the company’s reported results of operations. The changes in the fair value remeasurement of contingent consideration do not correlate to the company’s actual cash payment obligations in the relevant period.
• Impairment of intangible assets is a non-cash charge that Ironwood considers to be non-recurring as it is associated with its notice of termination of the lesinurad franchise. As such, management believes that excluding the impairment of intangible assets provides more transparency into Ironwood’s continuing operations.
• 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 from continuing operations, as such expenses are included as part of discontinued operations, and are therefore excluded from the calculation of GAAP net income (loss) from continuing operations.

Ironwood also presents adjusted EBITDA from continuing operations, a non-GAAP measure. Adjusted EBITDA from continuing operations is calculated by subtracting net interest expense, taxes, depreciation, amortization, fair value of remeasurement of contingent consideration, mark-to-market adjustments on derivatives, restructuring expenses, and separation expenses from GAAP net income (loss) from continuing operations. The adjustments are made on a similar basis as described above related to non-GAAP net income (loss), 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 (loss) and non-GAAP net income (loss) per share to GAAP net income (loss) and GAAP net income (loss) per share, respectively, and for a reconciliation of adjusted EBITDA from continuing operations to net income (loss) 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 net income (loss) from continuing operations or a reconciliation of expected adjusted EBITDA from continuing operations to expected GAAP net income (loss) from continuing operations because, without unreasonable efforts, it is unable to predict with reasonable certainty the non-GAAP adjustments used to calculate adjusted EBITDA from continuing operations including, without limitation, the mark-to-market adjustments on the derivatives related to its convertible notes. These adjustments are uncertain, depend on various factors and could have a material impact on GAAP net income (loss) from continuing operations for the guidance period.

Conference Call Information

Ironwood will host a conference call and webcast at 4:30 p.m. Eastern Time on Tuesday, July 30, 2019 to discuss its second quarter 2019 results and recent business activities. Individuals interested in participating in the call should dial (866) 393-4306 (U.S. and Canada) or (734) 385-2616 (international) using conference ID number 1896718. 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 7:30 p.m. Eastern Time, on July 30, 2019 running through 11:59 p.m. Eastern Time on August 13, 2019. To listen to the replay, dial (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (international) using conference ID number 1896718. 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 GI-focused healthcare company dedicated to creating medicines that make a difference for patients living with GI diseases. We discovered, developed and are commercializing linaclotide, the U.S. branded prescription market leader for adults with irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC).

We are also advancing two late-stage, first-in-category GI product candidates: IW-3718 is a gastric retentive formulation of a bile acid sequestrant being developed for the potential treatment of persistent gastroesophageal reflux disease, and MD-7246 is a delayed-release formulation of linaclotide that is being evaluated as an oral, intestinal, non-opioid, pain-relieving agent for patients suffering from abdominal pain associated certain GI diseases.

Ironwood was founded in 1998 and is headquartered in Cambridge, Mass. For more information, please visit our website at www.ironwoodpharma.com or www.twitter.com/ironwoodpharma; information that may be important to investors will be routinely posted in both these locations.

About LINZESS (linaclotide)

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

LINZESS is a once-daily capsule that helps relieve the abdominal pain and constipation 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.

Contacts

Meredith Kaya, 617-374-5082

Vice President, Investor Relations and Corporate Communications

mkaya@ironwoodpharma.com

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