Ironwood Pharmaceuticals Reports Third Quarter 2019 Results; Raises Full Year 2019 Guidance

– Total revenue of $131 million, driven primarily by LINZESS^® (linaclotide) U.S. collaboration revenue of $85 million and ex-U.S. license and milestone revenue of $42 million –

– $21 million in GAAP net income from continuing operations; $76 million in adjusted EBITDA from continuing operations –

– LINZESS prescription demand continued to grow, achieving all-time highs during the period –

– MD-7246 Phase II top-line data now expected mid-2020 vs 2H 2020 due to faster enrollment –

BOSTON–(BUSINESS WIRE)–Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), a GI-focused healthcare company, today provided an update on its third quarter 2019 results and recent business performance. Ironwood also announced that it is increasing its full year 2019 total revenue and adjusted EBITDA from continuing operations guidance.

“We demonstrated solid execution during the third quarter highlighted by further growth in LINZESS prescription demand, the continued advancement of our late-stage pipeline, and strong operational performance,” said Mark Mallon, chief executive officer of Ironwood. “LINZESS prescription demand grew 15% year-over-year – maintaining strong double-digit growth through the summer months. We also simplified our business by successfully amending our linaclotide ex-U.S. partnerships in China and Japan, establishing a new U.S. commercial partnership with Alnylam for givosiran in AHP, and restructuring our debt – all while continuing to deliver profits. As a result of this strong performance, we look forward to building on this momentum as we strive to deliver value for all Ironwood stakeholders.”

Third Quarter 2019 Financial Highlights¹

(in thousands, except for per share amounts)
	3Q 2019			3Q 2018
Total revenues	$	131,167		$	65,686
Total costs and expenses		65,280			212,257
GAAP net income (loss) from continuing operations		20,648			(151,823)
GAAP net income (loss)		20,648			(174,351)
GAAP net income (loss) per share		0.13			(1.14)
Adjusted EBITDA from continuing operations		75,658			(15,428)
Non-GAAP net income (loss)		62,921			(41,843)
Non-GAAP net income (loss) per share		0.40			(0.27)

1. Refer to the reconciliation of GAAP results to Non-GAAP Financial Measures tables 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.

Third Quarter 2019 Corporate Highlights

U.S. LINZESS

• LINZESS U.S. net sales, as provided by Ironwood’s U.S. collaboration partner Allergan plc, were $214.7 million in the third quarter of 2019, a 5% increase compared to LINZESS net sales reported by Allergan in the third quarter of 2018. Ironwood and Allergan share equally in U.S. brand collaboration profits.

  – Total LINZESS prescription demand in the third quarter of 2019 included approximately 34 million LINZESS capsules, a 15% increase compared to the third quarter of 2018, per IQVIA. LINZESS new-to-brand prescription demand increased 12% in the third quarter of 2019 compared to the third quarter of 2018, per IQVIA. During the third quarter of 2019, LINZESS – for the first time – became the number one prescribed IBS-C/CIC treatment (branded or generic).

  – Ironwood recorded $84.6 million in collaboration revenue in the third quarter of 2019 related to sales of LINZESS in the U.S., compared to $52.3 million in the third 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 $134.4 million in the third quarter of 2019, compared to $66.2 million in the third quarter of 2018. See U.S. LINZESS Full Brand Collaboration table below and at the end of this press release.

• As previously disclosed, during the third quarter 2018, Allergan reported to Ironwood a $59.3 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.

  – Ironwood and Allergan filed a lawsuit in November 2016 against certain generic drug manufacturers who had submitted to the U.S. 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 in June 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 due to a serious health issue. In July 2019, the parties to the ANDA lawsuit filed a proposed stipulation with the Delaware District Court, and in August 2019 the court entered an order approving the stipulation. The stipulation and order provide for the rescheduled trial to begin on January 7, 2020.

U.S. LINZESS Full Brand Collaboration1 (in thousands, except for percentages)	Three Months Ended September 30,
	2019	2018
LINZESS U.S. net sales2	$214,743	$204,815
Allergan & Ironwood commercial costs and expenses	63,870	62,798
Commercial margin2	70%	69%
Allergan & Ironwood R&D Expenses	16,436	16,547
Total net profit on sales of LINZESS 2	134,437	125,470
Full brand margin2	63%	61%

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. 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. Net brand profit of $66.2 million for the three months ended September 30, 2018, excluding the approximately $59.3 million negative adjustment to LINZESS net sales, would have been $125.5 million.

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 persistent GERD. Enrollment in these trials has been slower than originally expected. Ironwood continues to target top-line data from the Phase III trials in the second half of 2020.

  – 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. Ironwood and Allergan are currently enrolling patients in a Phase II clinical trial of MD-7246 for the potential treatment of abdominal pain associated with IBS with diarrhea (IBS-D). Due to faster than expected enrollment, top-line data from the Phase II trial are now expected in mid-2020 versus previous guidance of the second half of 2020.

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

  – MD-7246 is a delayed-release formulation of linaclotide 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.

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 givosiran, an investigational RNAi therapeutic targeting aminolevulinic acid synthase 1 for the potential treatment of Acute Hepatic Porphyria (AHP).

  – Under the terms of the agreement, Ironwood will provide AHP disease education to gastroenterologists and other healthcare practitioners that Ironwood currently calls on for LINZESS. If approved by the U.S. FDA, Ironwood clinical sales specialists will then begin givosiran promotional efforts, augmenting Alnylam’s broader commercialization activities.

  – 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.

• 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 January 2020, Astellas will assume responsibility for linaclotide active pharmaceutical ingredient (API) manufacturing in Japan and Ironwood will receive royalties on annual net sales of LINZESS in Japan.

  – As part of this amended agreement, Astellas paid Ironwood a $10 million upfront payment which was recorded in full during the third quarter of 2019. Beginning in January 2020, Astellas will pay royalties to Ironwood beginning in the mid-single-digit percent and escalating to the low double-digit percent, based on annual net sales of LINZESS in Japan.

  – Ironwood expects 2019 revenue from Astellas to be approximately $55 million including the $10 million upfront payment.

  – Astellas reported LINZESS net sales of approximately 2.7 billion yen during the six months ended September 30, 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.

  – 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.

  – In return, Ironwood will receive up to a total of $125 million, including non-contingent payments totaling $35 million paid in three installments through 2024 and up to $90 million in commercial milestone payments contingent on the achievement of certain annual net sales targets. Approximately $32.4 million of the non-contingent payments were recorded as revenue in the third quarter of 2019, with the remaining $2.6 million to be recorded as interest income through 2024. Ironwood does not expect to receive cash related to these non-contingent payments in 2019.

  – Additionally, 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.

  – In connection with the amended agreement, Ironwood will no longer be jointly funding the development and commercialization of linaclotide or sharing in the net profit from sales in China.

  – LINZESS was approved by the National Medical Products Administration for adults with IBS-C in China in January 2019.

Additional Business Updates

• New Headquarters. In October 2019, Ironwood relocated its headquarters to a new office in downtown Boston from its previous location in Cambridge, Massachusetts. Ironwood’s new headquarters occupies approximately 39,000 square feet at 100 Summer Street. Ironwood expects to save more than $25 million in cash payments to its landlord over the five years beginning in 2020 as a result of this relocation.

Third Quarter Financial Results

• Total Revenues. Total revenues in the third quarter of 2019 were $131.2 million, consisting of $84.6 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $42.4 million in license and milestone payments, $2.1 million in co-promotion revenue, $1.5 million in royalty revenue, and $0.6 million in sales of linaclotide API.

• Operating Expenses. Operating expenses in the third quarter of 2019 consisted of $40.9 million in SG&A expenses, $27.6 million in R&D expenses, $0.5 million in cost of revenues, 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 $0.2 million in adjustments to restructuring expenses.

• Interest Expense. Net interest expense was $9.6 million in the third quarter of 2019, primarily in connection with the 8.375% Notes funded in January 2017 and the 2022 Convertible Notes funded in June 2015. Interest expense recorded in the third quarter of 2019 includes $4.2 million in cash expense and $6.2 million in non-cash expense. See Convertible Debt Offering below.

• Loss on Derivatives. Ironwood recorded a loss on derivatives of $4.8 million in the third quarter of 2019 as a result of the partial termination of the convertible note hedges and note hedge warrants associated with the partial redemption of the 2022 Convertible Notes, and the change in fair value of the remaining convertible note hedge and note hedge warrants.
• Loss on Extinguishment of Debt. During the third quarter of 2019, Ironwood recognized a loss on extinguishment of debt, which was primarily non-cash, of $31.0 million related to the redemption of all of the 8.375% Notes and the partial repurchase of the 2022 Convertible Notes.

• Net Income.

  – GAAP net income was $20.6 million, or $0.13 per share, in the third quarter of 2019, compared to GAAP net loss of $174.4 million, or $1.14 per share, in the third quarter of 2018. Non-GAAP net income was $62.9 million, or $0.40 per share, in the third quarter of 2019, compared to non-GAAP net loss of $41.8 million, or $0.27 per share, in the third quarter of 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 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. This is reflected in non-GAAP net income in the third 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 $20.6 million in GAAP net income from continuing operations in the third quarter of 2019, and $11.1 million in GAAP net income from continuing operations in the nine months ended September 30, 2019.

  – Ironwood did not incur any Cyclerion-related operations during the third quarter of 2019. Ironwood recorded $37.4 million in GAAP net loss from discontinued operations for the nine months ended September 30, 2019.

• Adjusted EBITDA from Continuing Operations. Adjusted EBITDA from continuing operations was $75.7 million in the third quarter of 2019 and $93.8 million in the nine months ended September 30, 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 third quarter of 2019 with $139.2 million of cash and cash equivalents.

  – Ironwood generated $34.8 million in cash from operations in the third 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. 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.

• In September 2019, Ironwood paid its last principal payment of $12.0 million before fully redeeming the remaining portion of the 8.375% Notes for $123.0 million, which included the early extinguishment penalty of approximately $6.5 million.
• Ironwood expects to settle the remaining principal amount of the 2022 Convertible Notes in cash.

Ironwood 2019 Financial Guidance

Ironwood revised its 2019 financial guidance and now expects:

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

¹ 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 $6.7 million in the third 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. Total restructuring adjustments in the third quarter of 2019 were $0.2 million.

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 of 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.

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 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 third 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 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.
• 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.
• 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 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 related to Ironwood’s 2022 Convertible Notes, restructuring expenses, separation expenses and loss on extinguishment of debt from GAAP net income (loss) from continuing operations.

Contacts

Meredith Kaya, 617-374-5082

Vice President, Strategy, Investor Relations and Corporate Communications

mkaya@ironwoodpharma.com

Read full story here