Ironwood Pharmaceuticals Reports Strong Fourth Quarter and Full Year 2019 Results, Exceeding Full Year 2019 Guidance; Provides Full Year 2020 Guidance

–2019 revenue of $428 million, driven primarily by U.S. LINZESS^® (linaclotide) collaboration revenue–

–GAAP net income from continuing operations of $59 million and adjusted EBITDA from continuing operations of $148 million for the full year 2019–

–2020 total revenue and adjusted EBITDA guidance incorporates previously amended agreements with Astellas and AstraZeneca–

–Data readouts from MD-7246 Phase II trial and IW-3718 Phase III trials expected in 2020–

BOSTON–(BUSINESS WIRE)–Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), a GI-focused healthcare company, today provided an update on its fourth quarter and full year 2019 results and recent business performance.

“2019 brought us a catalyzing opportunity to become a GI-focused healthcare company dedicated to advancing the treatment of GI diseases and redefining the standard of care for millions of patients,” said Mark Mallon, chief executive officer of Ironwood. “To do this, we are executing on our strategy to drive LINZESS growth, advance our late-stage GI portfolio, and deliver sustainable profits. We made substantial progress in 2019 across each of these priorities and expect 2020 to be another pivotal year. We are already off to a strong start having settled all outstanding LINZESS patent litigation, and we look forward to continued momentum through strong growth of LINZESS, top-line data readouts from MD-7246 and IW-3718, and further revenue generation in 2020.”

Fourth Quarter and Full Year 2019 Financial Highlights¹

	(in thousands, except for per share amounts)
		4Q 2019			4Q 2018			FY 2019			FY 2018
Total revenues		$	126,301		$	130,692		$	428,413		$	346,639
Total costs and expenses			76,708			100,831			308,290			497,309
GAAP net income (loss) from continuing operations			47,858			8,373			58,943			(194,146)
GAAP net income (loss)			47,858			(15,493)			21,505			(282,368)
GAAP net income (loss) per share – basic			0.31			(0.10)			0.14			(1.85)
GAAP net income (loss) per share – diluted			0.30			(0.10)			0.14			(1.85)
Adjusted EBITDA from continuing operations			54,515			33,427			147,791			304
Non-GAAP net income (loss)			47,090			6,643			85,497			(105,975)
Non-GAAP net income (loss) per share			0.30			0.04			0.55			(0.69)

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

Fourth Quarter and Full Year 2019 Corporate Highlights

U.S. LINZESS

• LINZESS U.S. net sales, as provided by Ironwood’s U.S. collaboration partner, Allergan plc, were $231.2 million in the fourth quarter of 2019, a 13% increase compared to the fourth quarter of 2018, and $803.2 million for the full year 2019, a 6% increase compared to the full year 2018. Ironwood and Allergan share equally in U.S. brand collaboration profits.

  – Total LINZESS prescription demand in the fourth quarter of 2019 included 36 million LINZESS capsules, a 13% increase compared to the fourth quarter of 2018, per IQVIA. For the full year 2019, total prescription volume included 133 million LINZESS capsules, a 14% increase compared to the full year 2018.

  – LINZESS commercial margin was 81% in the fourth quarter of 2019 compared to 71% in the fourth quarter of 2018. LINZESS commercial margin was 72% for the full year 2019 compared to 66% for the full year 2018. See U.S. Brand Collaboration table below and at the end of this press release.

  – Ironwood recorded $101.6 million in collaboration revenue in the fourth quarter of 2019 related to sales of LINZESS in the U.S., compared to $81.6 million in the fourth quarter of 2018. For the full year 2019, Ironwood recorded $325.5 million in collaboration revenue related to sales of LINZESS in the U.S., compared to $264.2 million for the full year 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 $170.1 million in the fourth quarter of 2019, compared to $129.0 million in the fourth quarter of 2018. Net profit for the LINZESS U.S. brand collaboration, net of commercial and R&D expenses, was $513.7 million for the full year 2019, compared to $444.8 million for the full year 2018. See U.S. LINZESS Full Brand Collaboration table below and at the end of this press release.

• As previously disclosed, during the year ended 2018, Allergan reported to Ironwood a $59.8 million negative adjustment to LINZESS net sales relating to the cumulative difference between Allergan’s previous gross-to-net estimates during the three years ended December 31, 2015, 2016 and 2017 and actual subsequent payments made. This adjustment is not included in the net profit numbers above, but is included in Ironwood’s full year 2018 collaboration revenue. Refer to the U.S. LINZESS Full Brand Collaboration table at the end of this press release.

  – Ironwood and Allergan have entered into settlement agreements with five generic drug manufacturers (Teva Pharmaceuticals, USA, Sandoz Inc., Aurobindo Pharma Ltd. and an affiliate of Aurobindo, Mylan Pharmaceuticals Inc. and Sun Pharma Global FZE) resolving all outstanding patent infringement litigation brought in response to their abbreviated new drug applications seeking approval to market generic versions of LINZESS prior to the expiration of Ironwood’s and Allergan’s applicable patents. Pursuant to the terms of the settlements, Ironwood and Allergan granted each of the five generic drug manufacturers a license to market their 145 mcg and 290 mcg generic versions of LINZESS, beginning as early as March 2029 (subject to U.S. FDA approval), unless certain limited circumstances, customary for settlement agreements of this nature, occur. Ironwood and Allergan previously entered into a settlement agreement providing Mylan a license to market its 72 mcg generic version of LINZESS beginning in August 2030 (subject to U.S. FDA approval), unless certain limited circumstances, customary for settlement agreements of this nature, occur. The settlement with Teva does not grant any license to Teva with regard to its 72 mcg generic version of LINZESS.

U.S. LINZESS Full Brand Collaboration1 (in thousands, except for percentages)	Three Months Ended December 31,		Twelve Months Ended December 31,
	2019	2018	2019	2018
LINZESS U.S. net sales2	$231,155	$205,239	$803,204	$761,214
Allergan & Ironwood commercial costs and expenses	44,678	59,353	228,593	257,767
Commercial margin2	81%	71%	72%	66%
Allergan & Ironwood R&D Expenses	16,344	16,887	60,870	58,599
Total net profit on sales of LINZESS2	170,133	128,999	513,741	444,848
Full brand margin2	74%	63%	64%	58%

1. Refer to the U.S. LINZESS Full Brand Collaboration table at the end of this press release.
2. As previously disclosed, during the three months ended September 30, 2018, Allergan reported to Ironwood an approximately $59.3 million negative adjustment to LINZESS net sales which is not reflected in the table above. Such adjustment relates to the cumulative difference between certain previously estimated LINZESS gross-to-net sales reserves and allowances made by Allergan during the years ended December 31, 2015, 2016 and 2017, and actual subsequent payments made. This adjustment is primarily associated with estimated governmental and contractual rebates, as reported by Allergan. Upon receiving the information from Allergan, Ironwood recorded a $29.7 million reduction to collaborative arrangement revenue and accounts receivable in its third quarter 2018 financial statements related to its share of the adjustment. In addition, during the three months ended December 31, 2018, Allergan reported to Ironwood a true-up of approximately $0.2 million related to the previously reported adjustment.

GI Pipeline

• 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 refractory GERD. Ironwood continues to target top-line data in the second half of 2020.

  – Refractory GERD affects an estimated 8 to 10 million Americans who continue to suffer from heartburn and regurgitation despite receiving treatment with proton pump inhibitors (PPIs), the current standard of care. There are currently no treatments available for the treatment of regurgitation associated with GERD.

• MD-7246. Ironwood and Allergan completed enrollment in a Phase II clinical trial of MD-7246 in patients suffering from abdominal pain associated with IBS with diarrhea (IBS-D). Ironwood continues to target top-line data from the Phase II trial in mid-2020.

  – 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 is believed to originate, and to limit additional fluid secretion in the small intestine resulting in minimal impact on bowel function.

  – MD-7246 is being evaluated as an oral, intestinal, non-opioid, pain-relieving agent for patients in the U.S. suffering from abdominal pain associated with certain GI diseases, including IBS-D. 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 U.S. Promotional Partnerships

• U.S. Disease Education and Promotional Partnership with Alnylam Pharmaceuticals, Inc. 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 (AHP).

  – The non-exclusive agreement covers an approximately three-year term. Ironwood will receive 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. Alnylam will maintain responsibility for all other aspects of givosiran’s development and commercialization and retains all global development and commercialization rights.

  – In November 2019, the U.S. Food and Drug Administration approved GIVLAARI injection for subcutaneous use for the treatment of adults with AHP.

• LINZESS in Japan. In August 2019, Ironwood and its partner Astellas Pharma Inc. entered into an amended and restated license agreement relating to the development and commercialization of linaclotide in Japan.

  – Beginning in 2020, Astellas assumed responsibility for linaclotide active pharmaceutical ingredient (API) manufacturing in Japan and Ironwood will receive royalties beginning in the mid-single-digit percent and escalating to the low double-digit percent, based on annual net sales of LINZESS in Japan.

  – Astellas reported LINZESS net sales of approximately 4.3 billion yen during the nine months ended December 31, 2019. LINZESS was approved for the treatment of adults with IBS-C in Japan in December 2016 and for the treatment of adults with chronic constipation in Japan in August 2018 and is being commercialized in Japan by Astellas.

• LINZESS in China. In September 2019, Ironwood and its partner AstraZeneca entered into an amended and restated collaboration agreement for the development and commercialization of LINZESS in China. LINZESS was approved by the Chinese National Medical Products Administration for adults with IBS-C in China in January 2019 and was launched in November 2019.

  – Under the terms of the amended agreement, AstraZeneca obtained exclusive rights to develop, manufacture, and commercialize linaclotide in China (including Hong Kong and Macau) and will be responsible for all expenses associated with these activities beginning in 2020. Ironwood will receive royalties beginning in the mid-single-digit percent and increasing up to 20 percent based on annual net sales of LINZESS in China.

Fourth Quarter Financial Results

• Total Revenues. Total revenues in the fourth quarter of 2019 were $126.3 million, compared to $130.7 million in the fourth quarter of 2018. Total revenues for the full year 2019 were $428.4 million, compared to $346.7 million in the full year 2018.

  – 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 in the fourth quarter of 2018 consisted of $81.6 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $45.9 million in sales of linaclotide API, and $3.2 million in linaclotide royalties, co-promotion and other revenue.

  – 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 milestone payments, and $11.7 million in linaclotide royalties, co-promotion and other revenue. Total revenues for the full year 2018 consisted primarily of $264.2 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $70.4 million in sales of linaclotide API, and $12.0 million in linaclotide royalties, co-promotion and other revenue.

• Operating Expenses. Operating expenses in the fourth quarter of 2019 were $76.7 million, compared to $100.8 million in the fourth quarter of 2018. Operating expenses in full year 2019 were $308.2 million, compared to $497.3 million in the full year 2018.

  – Operating expenses in the fourth quarter of 2019 consisted 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 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 write-down of commercial supply and inventory to net realizable value and (settlement) loss on non-cancellable purchase commitments and a $3.2 million gain on lease modification in connection with the separation of Ironwood and Cyclerion Therapeutics, Inc., or Cyclerion, completed on April 1, 2019.

• Interest 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 the 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. See Convertible Debt Offering below.

• Gain (loss) on Derivatives. 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.

• Net Income (Loss).

  – GAAP net income was $47.9 million, or $0.31 per share, in the fourth quarter of 2019, compared to GAAP net loss of $(15.5) million, or $(0.10) per share, in the fourth quarter of 2018. GAAP net income for the full year 2019 was $21.5 million, or $0.14 per share, compared to GAAP net loss of $(282.4) million, or $(1.85) per share, in the full year 2018.

  – Non-GAAP net income was $47.1 million, or $0.30 per share, in the fourth quarter of 2019, compared to non-GAAP net income of $6.6 million, or $0.04 per share, in the fourth quarter of 2018. Non-GAAP net income was $85.5 million, or $0.55, per share for the full year 2019, compared to non-GAAP net loss of $(106.0) million, or $(0.69) per share, for the full year 2018.

  – Non-GAAP net income excludes the impact of mark-to-market adjustments on the derivatives related to Ironwood’s 2022 Convertible Notes, the amortization of acquired intangible assets, the fair value remeasurement of contingent consideration related to Ironwood’s terminated 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, and loss on the extinguishment of debt. These adjustments are reflected in non-GAAP net income (loss) in the fourth quarter of 2019 and 2018 presented in this press release. See Non-GAAP Financial Measures below.

• Net Income (Loss) 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.

  – GAAP net income from continuing operations in the fourth quarter of 2019 was $47.9 million, compared to GAAP net income from continuing operations of $8.4 million in the fourth quarter of 2018. GAAP net income from continuing operations was $58.9 million for the full year 2019, compared to GAAP net loss from continuing operations of $194.1 for the full year 2018.

  – Ironwood did not incur any Cyclerion-related operations during the fourth quarter of 2019. Ironwood recorded $37.4 million in GAAP net loss from discontinued operations for the full year 2019.

• Adjusted EBITDA from Continuing Operations. Adjusted EBITDA from continuing operations was $54.5 million in the fourth quarter of 2019 and $147.8 million for the full year 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 related to Ironwood’s 2022 Convertible Notes, impairment of intangibles, restructuring expenses, separation expenses, and loss on extinguishment of debt from GAAP net income (loss) from continuing operations. See Non-GAAP Financial Measures below.

• Cash Flow Statement and Balance Sheet Highlights.

  – Ironwood ended the fourth quarter of 2019 with $177 million of cash and cash equivalents.

  – Ironwood generated $27.6 million in cash from operations in the fourth quarter of 2019.

• Convertible Debt Offering. In August 2019, Ironwood issued $200 million in aggregate principal amount of 0.75% Convertible Senior Notes due 2024 and $200 million in aggregate principal amount of 1.50% Convertible Senior Notes due 2026.

  – These notes carry an initial conversion price of approximately $13.39 per share. In connection with the offering, Ironwood also entered into capped call transactions with certain financial institutions that are expected generally to reduce the potential dilution to common stock in certain circumstances, upon conversion of the notes. The cap price of the capped call transactions will initially be approximately $17.05 per share. Aggregate net proceeds, after fees and expenses, were approximately $391.0 million.

  – Ironwood used a portion of the net proceeds to repurchase $215 million aggregate principal amount of its outstanding 2022 Convertible Notes, pay the cost of the capped call transactions, and redeem the outstanding principal balance of the 8.375% Notes.

Performance Against 2019 Financial Guidance

	2019 Results	Revised 2019 Guidance	Original 2019 Guidance1
Total revenue	$428 million	$410 – $420 million	$370 – $390 million
Net interest expense	$34 million	~$35 million	~$35 million
Separation expenses2	$32 million	~$30 million	$30 – $40 million
Restructuring expenses3	$4 million	~$4 million	~$3 – $4 million
Adjusted EBITDA from continuing operations4	$148 million	>$130 million	>$65 million
LINZESS net sales growth	6%	Mid-single digit % increase	Low-to-mid single digit % increase

¹ Ironwood revised its 2019 guidance in connection with its third quarter 2019 earnings update on October 31, 2019. Revised 2019 guidance for total revenue and adjusted EBITDA from continuing operations reflects approximately $42.4 million in license and milestone payments related to the amended ex-U.S. agreements with Astellas and AstraZeneca that were recognized in the third quarter of 2019.

² Separation expenses were $3.8 million in the fourth quarter of 2019.

³ Restructuring expenses were largely incurred during the first quarter of 2019 in connection with the reduction in workforce commenced in February 2019. There was an insignificant amount of restructuring adjustments in the fourth quarter of 2019.

⁴ 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 related to Ironwood’s 2022 Convertible Notes, impairment of intangibles, restructuring expenses, separation expenses, and loss on extinguishment of debt from GAAP net income (loss) from continuing operations. In the second quarter of 2019, Ironwood began reporting in its financial statements GAAP net income (loss) from continuing operations which excludes discontinued operations related to Cyclerion. See Non-GAAP Financial Measures below.

Ironwood 2020 Financial Guidance

In 2020, Ironwood expects:

	2020 Guidance
LINZESS net sales growth	Mid-single digit % increase
Total Revenue	$360 – $380 million
Adjusted EBITDA1	>$105 million

¹ Adjusted EBITDA is calculated by subtracting net interest expense, 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 net income (loss).

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 derivatives related to our 2022 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 terminated 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, separation-related expenses and loss on extinguishment of debt from non-GAAP net income (loss). These adjustments are reflected in the non-GAAP net income (loss) in the fourth quarter and full year 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 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.
• 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.

Contacts

Investors and Media:

Meredith Kaya, 617-374-5082

mkaya@ironwoodpharma.com

Media:

Beth Calitri, 978-417-2031

bcalitri@ironwoodpharma.com

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