What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-06 · 230 added, 183 removed, 684 unchanged (38% of the section changed)

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019

Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019

Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Six Months Ended June 30, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

Notes to Condensed Consolidated Financial Statements

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PART II — OTHER INFORMATION

Legal Proceedings

PART I — FINANCIAL INFORMATION

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Preferred stock, $ 0.001 par value, 75,000,000 shares authorized, no shares issued and outstanding

Class A Common Stock, $ 0.001 par value, 500,000,000 shares authorized and 159,368,126 issued and outstanding at March 31, 2020 and 500,000,000 shares authorized and 157,535,962 shares issued and outstanding at December 31, 2019

Class A Common Stock, $ 0.001 par value, 500,000,000 shares authorized and 159,976,245 issued and outstanding at June 30, 2020 and 500,000,000 shares authorized and 157,535,962 shares issued and outstanding at December 31, 2019

Additional paid-in capital

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Three Months Ended

Six Months Ended

Collaborative arrangements revenue

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Selling, general and administrative

Gain on lease modification

Restructuring expenses

Total cost and expenses

Income (loss) from operations

Income from operations

Other (expense) income:

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Net income (loss) and comprehensive income (loss)

Net income per share from continuing operations—basic and diluted

Net income (loss) per share from continuing operations—basic and diluted

Net loss per share from discontinued operations—basic and diluted

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( 1,568,887 )

Issuance of common stock related to share-based awards and employee stock purchase plan

Share-based compensation expense related to share-based awards and employee stock purchase plan

Balance at June 30, 2020

( 1,543,683 )

Stockholders’

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( 1,650,412 )

Issuance of common stock related to share-based awards and employee stock purchase plan, net of cancellations

Share-based compensation expense related to share-based awards and employee stock purchase plan

Dividend of sGC business

Balance at June 30, 2019

( 1,640,738 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

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Share-based compensation expense

Gain on lease modification

Change in fair value of note hedge warrants

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Proceeds from sale of property and equipment

Net cash (used in) provided by continuing investing activities

Net cash used in continuing investing activities

Net cash used in discontinued investing activities

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Proceeds from exercise of stock options and employee stock purchase plan

Payments on 2026 Notes

Payments on 8.375% Notes due 2026

Net cash provided by (used in) continuing financing activities

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The Company has strategic partnerships with leading pharmaceutical companies to support the development and commercialization of linaclotide throughout the world.

The Company and its partner, Allergan plc (together with its affiliates) (“Allergan”), began commercializing LINZESS in the U.S.

The Company and its partner, AbbVie Inc.

(together with its affiliates, “AbbVie”) (successor to Allergan plc (together with its affiliates) (“Allergan”)), began commercializing LINZESS in the U.S.

in December 2012.

Under the Company’s collaboration with Allergan for North America, total net sales of LINZESS in the U.S., as recorded by Allergan, are reduced by commercial costs incurred by each party, and the resulting amount is shared equally between the Company and Allergan.

Allergan also has an exclusive license from the Company to develop and commercialize linaclotide in all countries other than China (including Hong Kong and Macau), Japan and the countries and territories of North America (the “Allergan License Territory”).

On a country-by-country and product-by-product basis in the Allergan License Territory, Allergan pays the Company a royalty as a percentage of net sales of products containing linaclotide as an active ingredient.

In addition, Allergan has exclusive rights to commercialize linaclotide in Canada as CONSTELLA and in Mexico as LINZESS.

In May 2020, AbbVie announced the completion of its acquisition of Allergan.

The Company’s collaboration, now with AbbVie, for the development and commercialization of linaclotide in North America, and the Company’s license, now to AbbVie, to develop and commercialize linaclotide in all countries worldwide other than China (including Hong Kong and Macau) and Japan, remain in effect.

Under the Company’s collaboration with AbbVie for North America, total net sales of LINZESS in the U.S., as recorded by AbbVie , are reduced by commercial costs incurred by each party, and the resulting amount is shared equally between the Company and AbbVie .

AbbVie also has an exclusive license from the Company to develop and commercialize linaclotide in all countries other than China (including Hong Kong and Macau), Japan and the countries and territories of North America (the “ AbbVie License Territory”).

On a country-by-country and product-by-product basis in the AbbVie License Territory, AbbVie pays the Company a royalty as a percentage of net sales of products containing linaclotide as an active ingredient.

In addition, AbbVie has exclusive rights to commercialize linaclotide in Canada as CONSTELLA and in Mexico as LINZESS.

Astellas Pharma Inc.

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In October 2012, the Company and AstraZeneca AB (together with its affiliates) (“AstraZeneca”) entered into a collaboration agreement to co-develop and co-commercialize linaclotide in China (including Hong Kong and Macau) (the “AstraZeneca License Territory”).

In September 2019, the Company amended its existing collaboration agreement with AstraZeneca.

As of September 16, 2019, AstraZeneca has the exclusive right to develop, manufacture, and commercialize products containing linaclotide in the AstraZeneca License Territory (Note 4).

In September 2019, the Company amended and restated its existing collaboration agreement with AstraZeneca.

As of September 16, 2019, AstraZeneca obtained the exclusive right to develop, manufacture, and commercialize products containing linaclotide in the AstraZeneca License Territory (Note 4).

In November 2019, AstraZeneca began commercializing LINZESS for the treatment of adults with IBS-C in China.

The Company and Allergan are exploring ways to enhance the clinical profile of LINZESS by studying linaclotide in additional indications, populations and formulations to assess its potential to treat various conditions.

The Company and AbbVie are exploring ways to enhance the clinical profile of LINZESS by studying linaclotide in additional indications, populations and formulations to assess its potential to treat various conditions.

In June 2019, the Company announced positive topline data from its Phase IIIb trial demonstrating the efficacy and safety of LINZESS 290 mcg on the overall abdominal symptoms of bloating, pain and discomfort, in adult patients with IBS-C.

The Company and Allergan are advancing MD-7246, a delayed release formulation of linaclotide, as an oral, intestinal, non-opioid, pain-relieving agent for patients with abdominal pain associated with certain GI diseases.

In May 2019, the Company and Allergan announced the initiation of a Phase II clinical trial evaluating the safety and efficacy of MD-7246 in adult patients with abdominal pain associated with IBS with diarrhea (“IBS-D”).

In March 2020, the Company announced that patient dosing in the IBS-D Phase II clinical trial was complete.

The Company also is developing IW-3718, a gastric retentive formulation of a bile acid sequestrant, for the potential treatment of refractory gastroesophageal reflux disease (“refractory GERD”).

In June 2018, the Company initiated two Phase III clinical trials evaluating the safety and efficacy of IW-3718 in patients with refractory GERD.

The Company and AbbVie were developing MD-7246, a delayed release formulation of linaclotide.

In May 2020, the Company and AbbVie announced top-line data from a Phase II trial evaluating MD-7246 in adult patients with abdominal pain associated with irritable bowel syndrome with diarrhea.

The Phase II trial did not meet its primary or key secondary endpoints.

Based on these findings, the Company and AbbVie are discontinuing the development of MD-7246.

Additionally, the Company periodically enters into co-promotion agreements to bolster its salesforce productivity.

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Under the agreement, the Company performs disease awareness activities related to AHP and sales detailing activities of GIVLAARI.

These and other agreements are more fully described in Note 4, Collaboration, License, Co-Promotion and Other Commercial Agreements , to these condensed consolidated financial statements.

The agreements described above, as well as other of the Company’s agreements, are more fully described in Note 4, Collaboration, License, Co-Promotion and Other Commercial Agreements , to these condensed consolidated financial statements.

On April 1, 2019, Ironwood completed the separation (the “Separation”) of its soluble guanylate cyclase (“sGC”) business, and certain other assets and liabilities, into Cyclerion Therapeutics, Inc.

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In August 2019, the Company issued $ 200.0 million in aggregate principal amount of 0.75 % Convertible Senior Notes due 2024 (the “2024 Convertible Notes”) and $ 200.0 million in aggregate principal amount of 1.50 % Convertible Senior Notes due 2026 (the “2026 Convertible Notes”).

The Company received net proceeds of approximately $ 391.0 million from the sale of the 2024 Convertible Notes and the 2026 Convertible Notes, after deducting fees and expenses of approximately $ 9.0 million.

The proceeds from the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes were used in August 2019 to pay the cost of associated capped call transactions (the “Capped Calls”) and to repurchase $ 215.0 million aggregate principal amount of the existing 2.25 % Convertible Senior Notes due 2022 (the “2022 Convertible Notes”) and in September 2019 to redeem all of the outstanding principal balance of the 8.375 % Notes due 2026 (the “2026 Notes”) (Note 8).

Basis of Presentation

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Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on February 13, 2020 (the “2019 Annual Report on Form 10-K”).

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position as of March 31, 2020, and the results of its operations for the three months ended March 31, 2020 and 2019, its statements of stockholders’ deficit for the three months ended March 31, 2020 and 2019, and its cash flows for the three months ended March 31, 2020 and 2019.

The results of operations for the three months ended March 31, 2020 and 2019 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

The Company has presented its sGC business as discontinued operations in its condensed consolidated financial statements for all periods presented.

The historical financial statements and footnotes have been recast accordingly (Note 2).

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position as of June 30, 2020, and the results of its operations for the three and six months ended June 30, 2020 and 2019, its statements of stockholders’ deficit for the three and six months ended June 30, 2020 and 2019, and its cash flows for the six months ended June 30, 2020 and 2019.

The results of operations for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

The Company has presented its sGC business as discontinued operations in its condensed consolidated financial statements for all periods presented (Note 2).

For periods following the Separation, the Company continues to report financial results under one business segment.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Ironwood and its wholly-owned subsidiaries as of March 31, 2020, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH.

The accompanying condensed consolidated financial statements include the accounts of Ironwood and its wholly-owned subsidiaries as of June 30, 2020, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH.

Cyclerion was a wholly-owned subsidiary until it became an independent, publicly-traded company on April 1, 2019.

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Changes in estimates are reflected in reported results in the period in which they become known.

Reclassifications of Prior Period Financial Statements

Certain prior period financial statement items have been reclassified to conform to current period presentation.

The Company has presented its sGC business as discontinued operations in its condensed consolidated financial statements for prior periods presented.

The historical financial statements and footnotes have been recast accordingly.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies , in the 2019 Annual Report on Form 10-K.

During the three months ended March 31, 2020, the Company did not adopt any additional significant accounting policies, except as outlined below.

During the six months ended June 30, 2020, the Company did not adopt any additional significant accounting policies, except as outlined below.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date.

Except as set forth below, the Company did not adopt any new accounting pronouncements during the three months ended March 31, 2020 that had a material effect on its condensed consolidated financial statements.

Except as set forth below, the Company did not adopt any new accounting pronouncements during the three and six months ended June 30, 2020 that had a material effect on its condensed consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

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The transition services agreements terminated on March 31, 2020.

During the three months ended March 31, 2020, the Company recorded an insignificant amount as other income for services provided to Cyclerion.

During the three months ended March 31, 2020, the Company recorded an insignificant amount in selling, general and administrative expense for services provided by Cyclerion.

During the three months ended March 31, 2020, the Company recorded an insignificant amount of income as other income for services provided to Cyclerion.

During each of the three and six months ended June 30, 2019, the Company recorded an insignificant amount of other income for services provided to Cyclerion.

During the three months ended March 31, 2020, the Company recorded an insignificant amount of expense in selling, general and administrative expense for services provided by Cyclerion.

During each of the three and six months ended June 30, 2019, the Company recorded an insignificant amount of expense in both selling, general and administrative expense and research and development expense for services provided by Cyclerion.

Pursuant to the development agreement, Cyclerion is obligated to provide the Company with certain research and development services with respect to certain of Ironwood’s products and product candidates, including MD-7246 and IW-3718.

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Services received are paid at a mutually agreed upon rate.

The Company recorded approximately $ 1.0 million in research and development expenses under the development agreement during the three months ended March 31, 2020.

The Company recorded approximately $ 0.8 million and approximately $ 1.8 million in research and development expenses under the development agreement during the three and six months ended June 30, 2020, respectively.

The Company recorded approximately $ 1.7 million in research and development expenses under the development agreement during each of the three and six months ended June 30, 2019.

Discontinued Operations

Upon Separation, the Company determined its sGC business qualified for discontinued operations accounting treatment in accordance with Accounting Standards Codification (“ASC”) 205-20.

The following is a summary of expenses of Cyclerion for the three months ended March 31, 2020 and 2019 (in thousands):

Three months ended

Upon Separation, the Company determined its sGC business qualified for discontinued operations accounting treatment in accordance with Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations .

There were no sGC expenses related to Cyclerion for the six months ended June 30, 2020.

The following is a summary of sGC expenses related to Cyclerion for the six months ended June 30, 2019 (in thousands):

Six months ended

Costs and expenses:

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Net loss from discontinued operations

There were no assets and liabilities related to discontinued operations as of March 31, 2020 or December 31, 2019, as all balances were transferred to Cyclerion upon Separation.

There were no assets or liabilities related to discontinued operations as of June 30, 2020 or December 31, 2019, as all balances were transferred to Cyclerion upon Separation.

Net Income (Loss) Per Share

Basic and diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

In June 2015, in connection with the issuance of the 2022 Convertible Notes (Note 8), the Company entered into convertible note hedge transactions, or the Convertible Note Hedges.

In June 2015, in connection with the issuance of the 2022 Convertible Notes (Note 8), the Company entered into convertible note hedge transactions (“Convertible Note Hedges”).

The Convertible Note Hedges are generally expected to reduce the potential dilution to the Company’s Class A common stockholders upon a conversion of the 2022 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2022 Convertible Notes in the event that the market price per share of the Company’s Class A Common Stock, as measured under the terms of the Convertible Note Hedges, is greater than the conversion price of the 2022 Convertible Notes.

The Convertible Note Hedges are not considered for purposes of calculating the number of diluted weighted average shares outstanding, as their effect would be antidilutive.

Concurrently with entering into the Convertible Note Hedges, the Company also sold note hedge warrant, or the Note Hedge Warrants, to the Convertible Note Hedge counterparties to acquire shares of the Company’s Class A Common Stock, subject to customary anti-dilution adjustments (Note 8).

Concurrently with entering into the Convertible Note Hedges, the Company also sold note hedge warrants (“Note Hedge Warrants”), to the Convertible Note Hedge counterparties to acquire shares of the Company’s Class A

Common Stock, subject to customary anti-dilution adjustments (Note 8).

The Note Hedge Warrants could have a dilutive effect on the Company’s Class A Common Stock to the extent that the market price per share of the Class A Common Stock exceeds the applicable strike price of such warrants.

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In August 2019, in connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company entered into the Capped Calls.

The Capped Calls are generally expected to reduce the potential dilution to

the Company’s Class A common stockholders upon a conversion of the 2024 Convertible Notes or the 2026 Convertible Notes and/or offset any cash payments that the Company is required to make in excess of the principal amount of converted 2024 Convertible Notes or 2026 Convertible Notes in the event that the market price per share of the Company’s Class A Common Stock, as measured under the terms of the Capped Calls, is greater than the conversion price of the 2024 Convertible Notes or the 2026 Convertible Notes.

The Capped Calls are generally expected to reduce the potential dilution to the Company’s Class A common stockholders upon a conversion of the 2024 Convertible Notes or the 2026 Convertible Notes and/or offset any cash payments that the Company is required to make in excess of the principal amount of converted 2024 Convertible Notes or 2026 Convertible Notes in the event that the market price per share of the Company’s Class A Common Stock, as measured under the terms of the Capped Calls, is greater than the conversion price of the 2024 Convertible Notes or the 2026 Convertible Notes.

The Capped Calls are not considered for purposes of calculating the number of diluted weighted average shares outstanding, as their effect would be anti-dilutive.

As applicable, the following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, when their effect would be anti-dilutive (in thousands):

Three Months Ended

Six Months Ended

Options to purchase Class A Common Stock

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Performance-based restricted stock units

Shares subject to issuance under Employee Stock Purchase Plan

Note Hedge Warrants

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Collaboration, License, Co-Promotion and Other Commercial Agreements

For the three months ended March 31, 2020, the Company had linaclotide collaboration agreements with Allergan for North America and AstraZeneca for China (including Hong Kong and Macau), as well as linaclotide license agreements with Astellas for Japan and with Allergan for the Allergan License Territory.

For the three and six months ended June 30, 2020, the Company had linaclotide collaboration agreements with AbbVie for North America and AstraZeneca for China (including Hong Kong and Macau), as well as linaclotide license agreements with Astellas for Japan and with AbbVie for the AbbVie License Territory.

The Company also had an agreement with Alnylam to perform disease awareness activities for AHP and sales detailing activities for GIVLAARI.

The following table provides amounts included in the Company’s condensed consolidated statements of operations as collaborative arrangements revenue and sale of API primarily attributable to transactions from these arrangements (in thousands):

The following table provides amounts included in the Company’s condensed consolidated statements of operations as

collaborative arrangements revenue and sale of API primarily attributable to transactions from these arrangements (in thousands):

Three Months Ended

Six Months Ended

Collaborative Arrangements Revenue

Linaclotide Collaboration Agreements:

Allergan (North America)

Allergan (Europe and other)

Linaclotide Collaboration and License Agreements

AbbVie (North America)

AbbVie (Europe and other)

AstraZeneca (China, including Hong Kong and Macau)

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Co-Promotion and Other Agreements:

AbbVie (VIBERZI) (1)

Alnylam (GIVLAARI)

Total collaborative arrangements revenue

Linaclotide License Agreements:

Linaclotide Agreements:

Astellas (Japan)

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Total sale of API

Accounts receivable, net included approximately $ 40.5 million and approximately $ 43.9 million related to collaborative arrangements revenue and sale of API, collectively, as of March 31, 2020 and December 31, 2019, respectively.

Related party accounts receivable, net included approximately $ 73.4 million and approximately $ 110.1 million related to collaborative arrangements revenue, net of approximately $ 4.6 million and approximately $ 4.1 million related to related party accounts payable as of March 31, 2020 and December 31, 2019, respectively.

As of March 31,

2020, deferred revenue was approximately $ 0.9 million related to the disease education and promotional agreement with Alnylam.

(1) The Company’s agreement with AbbVie to perform sales detailing activities for VIBERZI ® (eluxadoline) terminated as of December 31, 2019.

Accounts receivable, net, included approximately $ 128.4 million related to collaborative arrangements revenue and sale of API, collectively, as of June 30, 2020, including approximately $ 88.3 million, net of accounts payable of approximately $ 3.6 million from the Company’s partner AbbVie.

Accounts receivable, net, included approximately $ 43.9 million related to collaborative arrangements revenue and sale of API, collectively, as of December 31, 2019.

The Company previously reflected amounts due from Allergan prior to its acquisition by AbbVie as related party accounts receivable.

Related party accounts receivable, net, included approximately $ 110.1 million related to collaborative arrangements revenue, net of approximately $ 4.1 million related to related party accounts payable to Allergan prior to the transaction with AbbVie, at December 31, 2019.

Following acquisition of Allergan by AbbVie, the Company determined that AbbVie is not a related party to the Company (Note 10).

At both June 30, 2020 and December 31, 2019, deferred revenue was approximately $ 0.9 million related to the disease education and promotional agreement with Alnylam.

The Company routinely assesses the creditworthiness of its license and collaboration partners.

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Linaclotide Agreements

Collaboration Agreement for North America with Allergan

In September 2007, the Company entered into a collaboration agreement with Allergan to develop and commercialize linaclotide for the treatment of IBS-C, CIC and other GI conditions in North America.

Under the terms of this collaboration agreement, the Company received a non-refundable, upfront licensing fee and shares equally with Allergan all development costs as well as net profits or losses from the development and sale of linaclotide in the U.S.

Collaboration Agreement for North America with AbbVie

In September 2007, the Company entered into a collaboration agreement with AbbVie to develop and commercialize linaclotide for the treatment of IBS-C, CIC and other GI conditions in North America.

Under the terms of this collaboration agreement, the Company received a non-refundable, upfront licensing fee and shares equally with AbbVie all development costs as well as net profits or losses from the development and sale of linaclotide in the U.S.

The Company receives royalties in the mid-teens’ percent based on net sales in Canada and Mexico.

Allergan is solely responsible for the further development, regulatory approval and commercialization of linaclotide in those countries and funding any costs.

The collaboration agreement for North America also includes contingent milestone payments, as well as a contingent equity investment, based on the achievement of specific development and commercial milestones.

At March 31, 2020, $ 205.0 million in license fees and all six development milestone payments had been received by the Company, as well as a $ 25.0 million equity investment in the Company’s capital stock.

AbbVie is solely responsible for the further development, regulatory approval and commercialization of linaclotide in those countries and funding any costs.

The collaboration agreement for North America also includes contingent milestone payments, as well

as a contingent equity investment, based on the achievement of specific development and commercial milestones.

At June 30, 2020, $ 205.0 million in license fees and all six development milestone payments had been received by the Company, as well as a $ 25.0 million equity investment in the Company’s capital stock.

The Company can also achieve up to $ 100.0 million in a sales-related milestone if certain conditions are met, which will be recognized as collaborative arrangements revenue when it is probable that a significant reversal of revenue would not occur and the associated constraints have been lifted.

During the three months ended March 31, 2020 and 2019, the Company incurred approximately $ 6.6 million and approximately $ 10.0 million in total research and development expenses under the linaclotide collaboration for North America, respectively.

As a result of the research and development cost-sharing provisions of the linaclotide collaboration for North America, the Company incurred approximately $ 0.8 million and offset approximately $ 3.2 million in research and development costs during the three months ended March 31, 2020 and 2019, respectively, to reflect the obligations of each party under the collaboration to bear half of the development costs incurred.

The Company and Allergan began commercializing LINZESS in the U.S.

During the three and six months ended June 30, 2020, the Company incurred approximately $ 6.2 million and approximately $ 12.9 million, respectively, in total research and development expenses under the linaclotide collaboration for North America.

During the three and six months ended June 30, 2019, the Company incurred approximately $ 9.6 million and approximately $ 19.6 million, respectively, in total research and development expenses under the linaclotide collaboration for North America.

As a result of the research and development cost-sharing provisions of the linaclotide collaboration for North America, the Company incurred approximately $ 0.5 million and approximately $ 1.2 million in research and development costs during the three and six months ended June 30, 2020, respectively, and offset approximately $ 2.4 million and approximately $ 5.6 million in incremental research and development costs during the three and six months ended June 30, 2019, respectively, to reflect the obligations of each party under the collaboration to bear half of the development costs incurred.

The Company and AbbVie began commercializing LINZESS in the U.S.

in December 2012.

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less the cost of goods sold as well as selling, general and administrative expenses.

LINZESS net sales are calculated and recorded by Allergan and may include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions.

The Company evaluated its collaboration arrangement for North America with Allergan under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) and concluded that all development-period performance obligations had been satisfied as of September 2012.

LINZESS net sales are calculated and recorded by AbbVie and may include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions.

The Company evaluated its collaboration arrangement for North America with AbbVie under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) and concluded that all development-period performance obligations had been satisfied as of September 2012.

However, the Company has determined that there are three remaining commercial-period performance obligations, which include the sales detailing of LINZESS, participation in the joint commercialization committee, and approved additional trials.

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Additionally, the Company receives royalties in the mid-teens’ percent based on net sales in Canada and Mexico.

Royalties, commercial sales-based milestones, and net profit and loss sharing payments will be recorded as collaborative arrangements revenue or expense in the period earned, in accordance with the sales-based royalty exception, as these payments relate predominately to the license granted to Allergan.

The Company records royalty revenue in the period earned based on royalty reports from its partner, if available, or based on the projected sales and historical trends.

The cost reimbursements received from Allergan during the commercialization period will be recognized as earned in accordance with the right-to-invoice practical expedient, as the Company’s right to consideration corresponds directly with the value of the services transferred during the commercialization period.

Under the Company’s collaboration agreement with Allergan for North America, LINZESS net sales are calculated and recorded by Allergan and include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions, as noted above.

The cost reimbursements received from AbbVie during the commercialization period will be recognized as earned in accordance with the right-to-invoice practical expedient, as the Company’s right to consideration corresponds directly with the value of the services transferred during the commercialization period.

Under the Company’s collaboration agreement with AbbVie for North America, LINZESS net sales are calculated and recorded by AbbVie and include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions, as noted above.

These amounts include the use of estimates and judgments, which could be adjusted based on actual results in the future.

The Company records its share of the net

profits or net losses from the sales of LINZESS in the U.S.

on a net basis less commercial expenses and presents the settlement payments to and from Allergan as collaboration expense or collaborative arrangements revenue, as applicable.

This treatment is in accordance with the Company’s revenue recognition policy, given that the Company is not the primary obligor and does not have the inventory risks in the collaboration agreement with Allergan for North America.

The Company relies on Allergan to provide accurate and complete information related to net sales of LINZESS in accordance with U.S.

generally accepted accounting principles in order to calculate its settlement payments to and from Allergan and record collaboration expense or collaborative arrangements revenue, as applicable.

The Company recognized collaborative arrangements revenue from the Allergan collaboration agreement for North America during the three months ended March 31, 2020 and 2019 as follows (in thousands):

The Company records its share of the net profits or net losses from the sales of LINZESS in the U.S.

on a net basis less commercial expenses and presents the settlement payments to and from AbbVie as collaboration expense or collaborative arrangements revenue, as applicable.

The Company relies on AbbVie to provide accurate and complete information related to net sales of LINZESS in accordance with U.S.

generally accepted accounting principles in order to calculate its settlement payments to and from AbbVie and record collaboration expense or collaborative arrangements revenue, as applicable.

The Company recognized collaborative arrangements revenue from the AbbVie collaboration agreement for North America during the three and six months ended June 30, 2020 and 2019 as follows (in thousands):

Three Months Ended

Six Months Ended

Collaborative arrangements revenue related to sales of LINZESS in the U.S.

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Total collaborative arrangements revenue

The collaborative arrangements revenue recognized in the three months ended March 31, 2020 and 2019 primarily represents the Company’s share of the net profits and net losses on the sale of LINZESS in the U.S.

The following table presents the amounts recorded by the Company for commercial efforts related to LINZESS in the U.S.

in the three months ended March 31, 2020 and 2019 (in thousands):

The collaborative arrangements revenue recognized in the three and six months ended June 30, 2020 and 2019 primarily represents the Company’s share of the net profits and net losses on the sale of LINZESS in the U.S.

The following table presents selling, general and administrative costs related to the sale of LINZESS in the U.S.

in accordance with the cost-sharing arrangement with AbbVie for the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended

Collaborative arrangements revenue related to sales of LINZESS in the U.S.

Six Months Ended

Selling, general and administrative costs incurred by the Company (1)

The Company’s share of net profit

(1) Includes only collaborative arrangements revenue or selling, general and administrative costs attributable to the cost-sharing arrangement with Allergan.

Excludes approximately $ 0.2 million and approximately $ 0.5 million for the three months ended March 31, 2020 and 2019, respectively, related to patent prosecution and patent litigation costs recognized in connection with the collaboration agreement with Allergan for North America.

(1) Excludes an insignificant amount and approximately $ 0.4 million for the three and six months ended June 30, 2020, respectively, and excludes approximately $ 0.8 million and approximately $ 1.3 million for the three and six months ended June 30, 2019, respectively, related to patent prosecution and patent litigation costs recognized in connection with the collaboration agreement with AbbVie for North America.

In May 2014, CONSTELLA became commercially available in Canada and, in June 2014, LINZESS became commercially available in Mexico.

The Company records royalties on sales of CONSTELLA in Canada and LINZESS in Mexico in the period earned.

The Company recognized approximately $ 0.6 million and approximately $ 0.5 million of combined royalty revenues from Canada and Mexico during the three months ended March 31, 2020 and 2019, respectively.

License Agreement with Allergan (All countries other than the countries and territories of North America, China, (including Hong Kong and Macau), and Japan)

The Company recognized approximately $ 0.4 million and approximately $ 1.0 million of combined royalty revenues from Canada and Mexico during the three and six months ended June 30, 2020, respectively.

The Company recognized approximately $ 0.5 million and approximately $ 1.0 million of combined royalty revenues from Canada and Mexico during the three and six months ended June 30, 2019, respectively.

License Agreement with AbbVie (All countries other than the countries and territories of North America, China, (including Hong Kong and Macau), and Japan)

In April 2009, the Company entered into a license agreement with Almirall, S.A.

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Phase III clinical trial data for the purposes of supporting European regulatory approval.

In October 2015, Almirall transferred its exclusive license to develop and commercialize linaclotide in Europe to Allergan.

Additionally, in October 2015, the Company and Allergan separately entered into an amendment to the European License Agreement relating to the development and commercialization of linaclotide in Europe.

single digit percent and escalate to the upper-teens percent by calendar year 2019, and (iii) Allergan assumed responsibility for the manufacturing of linaclotide API for Europe from the Company, as well as the associated costs.

The Company concluded that the 2015 amendment to the European License Agreement was not a modification to the linaclotide collaboration agreement with Allergan for North America.

In January 2017, the Company and Allergan entered into an amendment to the European License Agreement (the “2017 Amendment”).

In October 2015, Almirall transferred its exclusive license to develop and commercialize linaclotide in Europe to AbbVie.

Additionally, in October 2015, the Company and AbbVie separately entered into an amendment to the European License Agreement relating to the development and commercialization of linaclotide in Europe.

Pursuant to the terms of the amendment, (i) certain sales-based milestones payable to the Company under the European License Agreement were modified to increase the total milestone payments such that, when aggregated with certain commercial launch milestones, they could total up to $ 42.5 million, (ii) the royalties payable to the Company during the term of the European License Agreement were modified such that the royalties based on sales volume in Europe begin in the mid-single digit percent and escalate to the upper-teens percent by calendar year 2019, and (iii) AbbVie assumed responsibility for the manufacturing of linaclotide API for Europe from the Company, as well as the associated costs.

The Company concluded that the 2015 amendment to the European License Agreement was not a modification to the linaclotide collaboration agreement with AbbVie for North America.

In January 2017, the Company and AbbVie entered into an amendment to the European License Agreement (the “2017 Amendment”).

The 2017 Amendment extended the license to develop and commercialize linaclotide in all countries other than China (including Hong Kong and Macau), Japan, and the countries and territories of North America.

On a country-by-country and product-by-product basis in such additional territory, Allergan is obligated to pay the Company a royalty as a percentage of net sales of products containing linaclotide as an active ingredient in the upper-single digits for five years following the first commercial sale of a linaclotide product in a country, and in the low-double digits thereafter.

On a country-by-country and product-by-product basis in such additional territory, AbbVie is obligated to pay the Company a royalty as a percentage of net sales of products containing linaclotide as an active ingredient in the upper-single digits for five years following the first commercial sale of a linaclotide product in a country, and in the low-double digits thereafter.

The royalty rate for products in the expanded territory will decrease, on a country-by-country basis, to the lower-single digits , or cease entirely, following the occurrence of certain events.

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However, the Company continues to be eligible to receive consideration in the form of commercial launch milestones, sales-based milestones, and royalties.

The commercial launch milestones, sales-based milestones and royalties under the European License Agreement and the 2017 Amendment relate predominantly to the license granted to Allergan (formerly Almirall).

The commercial launch milestones, sales-based milestones and royalties under the European License Agreement and the 2017 Amendment relate predominantly to the license granted to AbbVie .

The Company records royalties on sales of CONSTELLA in Europe in the period earned based on royalty reports from its partner, if available, or the projected sales and historical trends under the sales-based royalty exception.

The commercial launch milestones are recognized as revenue when it is probable that a significant reversal of revenue would not occur and the associated constraint has been lifted.

The Company recognized approximately $ 0.6 million and approximately $ 0.4 million of royalty revenue from the 2017 Amendment during the three months ended March 31, 2020 and 2019, respectively.

The Company recognized approximately $ 0.4 million and approximately $ 1.1 million of royalty revenue from the 2017 Amendment during the three and six months ended June 30, 2020, respectively.

The Company recognized approximately $ 0.3 million and approximately $ 0.7 million of royalty revenue from the 2017 Amendment during the three and six months ended June 30, 2019, respectively.

License Agreement for Japan with Astellas

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Additionally, under the terms of the Astellas Commercial Supply Agreement, the Company determined it had an ongoing performance obligation to supply API.

During the three months ended March 31, 2019, the Company recognized approximately $ 2.6 million from the sale of API to Astellas under the 2009 License Agreement with Astellas and the Astellas Commercial Supply Agreement.

During the three and six months ended June 30, 2019, the Company recognized approximately $ 24.9 million and approximately $ 27.5 million, respectively, from the sale of API to Astellas under the 2009 License Agreement with Astellas and the Astellas Commercial Supply Agreement.

The royalties on sales of LINZESS in Japan did not exceed the transfer price of API sold and other contractual deductions during each of the periods presented.

In August 2019, the Company and Astellas amended and restated the 2009 License Agreement with Astellas (the “Amended Astellas License Agreement”).

This amendment was a modification to the 2009 License Agreement with

Astellas and was accounted for as a new and separate contract.

This amendment was a modification to the 2009 License Agreement with Astellas and was accounted for as a new and separate contract.

Under the terms of the Amended Astellas License Agreement, the Company will no longer be responsible for the supply of linaclotide API to Astellas, and Astellas will be responsible for its own supply of linaclotide API in Japan beginning in 2020.

In connection with the execution of the Amended Astellas License Agreement, Astellas paid the Company a non-refundable upfront payment of $ 10.0 million in August 2019.

Further, beginning in 2020, Astellas, in lieu of the royalty payment terms set forth in the 2009 License Agreement with Astellas, is required to pay royalties to the Company at rates beginning in the mid-single digit percent and escalating to low-double-digit percent, based on aggregate annual net sales in Japan of products containing linaclotide API.

Further, beginning in 2020, Astellas, in lieu of the

royalty payment terms set forth in the 2009 License Agreement with Astellas, is required to pay royalties to the Company at rates beginning in the mid-single digit percent and escalating to low-double-digit percent, based on aggregate annual net sales in Japan of products containing linaclotide API.

These royalty payments will be subject to reduction following the expiration of certain licensed patents and the occurrence of generic competition in Japan.

The Company continued to supply linaclotide API for Japan during 2019 at a contractually defined rate.

Additionally, Astellas will reimburse the Company for the Company’s performance of adverse event reporting services at a fixed monthly rate until such services are terminated.

Additionally, Astellas reimbursed the Company for the Company’s performance of adverse event reporting services at a fixed monthly rate until such services were terminated in February 2020.

The Company identified the following performance obligations under the Amended Astellas License Agreement:

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Accordingly, the Company applies the sales-based royalty exception and records royalties on sales of LINZESS in Japan in the period earned based on royalty reports from its partner, if available, or the projected sales and historical trends.

The Company recognized approximately $ 0.5 million in collaborative arrangements revenue during the three months ended March 31, 2020 under the Amended Astellas License Agreement, of which approximately $ 0.4 million related to royalties and an insignificant amount related to adverse event reporting services.

The Company recognized approximately $ 0.5 million and approximately $ 1.0 million in collaborative arrangements revenue during the three and six months ended June 30, 2020, respectively, under the Amended Astellas License Agreement, of which approximately $ 0.5 million and approximately $ 0.9 million related to royalties, respectively.

Collaboration Agreement for China (including Hong Kong and Macau) with AstraZeneca

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● Joint Commercialization Committee services.

Under the original AstraZeneca Collaboration Agreement, the Company shared development costs with AstraZeneca, with AstraZeneca incurring 55 % of the net losses from the development and commercialization of linaclotide in the AstraZeneca License Territory.

linaclotide in the AstraZeneca License Territory.

Payments from AstraZeneca with respect to both research and development and selling, general and administrative costs incurred by the Company prior to the commercialization of linaclotide in the AstraZeneca License Territory were recorded as a reduction in expense.

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Payments to AstraZeneca were recorded as incremental research and development expense.

During the three months ended March 31, 2019, the Company offset an insignificant amount of costs related to R&D Services and JDC services under the AstraZeneca Collaboration Agreement.

During the three months ended March 31, 2019, the Company recognized an insignificant amount of revenue related to the sale of linaclotide drug product and API under the AstraZeneca Collaboration Agreement.

Additionally, the Company recorded approximately $ 0.2 million in costs related to pre-launch commercial services and supply chain services during the three months ended March 31, 2019.

During the three and six months ended June 30, 2019, the Company incurred no costs and offset an insignificant amount of costs related to R&D Services and JDC services, respectively, under the AstraZeneca Collaboration Agreement.

During the three and six months ended June 30, 2019, the Company recognized no revenue and an insignificant amount of revenue, respectively, related to the sale of linaclotide drug product and API under the AstraZeneca Collaboration Agreement.

Additionally, the Company incurred approximately $ 0.3 million and approximately $ 0.5 million in costs related to pre-launch commercial services and supply chain services during the three and six months ended June 30, 2019, respectively.

Under the Amended AstraZeneca Agreement, the Company will receive non-contingent payments totaling $ 35.0 million in three installments through 2024.

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Under the terms of the AstraZeneca CSA, the Company supplied linaclotide API, finished drug product and finished goods for the Licensed Territory through March 31, 2020 at predetermined rates.

The Company evaluated the Amended AstraZeneca Agreement in accordance with ASC 606 and determined that it would be treated as a separate contract because it adds a distinct good or service at an amount that reflects standalone selling price.

The Company evaluated the Amended AstraZeneca Agreement in accordance with ASC 606 and determined that it would be accounted for as a separate contract because it adds a distinct good or service at an amount that reflects standalone selling price.

The following performance obligations under the Amended AstraZeneca Agreement were identified:

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Consideration allocated to the AstraZeneca TSA services will be recognized as collaborative arrangements revenue as such services are provided over the performance period using an output method based on the amount to which the Company has a right to invoice.

Consideration for the supply of linaclotide API, finished drug product and finished goods under the AstraZeneca CSA will be recognized over the performance period using an output method as linaclotide API, finished drug product and finished goods are shipped to AstraZeneca.

During the three months ended March 31, 2020, the Company recognized approximately $ 0.2 million in collaborative arrangements revenue under the Amended AstraZeneca Agreement related to the AstraZeneca TSA services.

During the three months ended March 31, 2020, the Company recognized approximately $ 5.5 million of sale of API on its condensed consolidated statement of operations relating to the supply of linaclotide finished drug product and finished goods under the AstraZeneca CSA.

The Company recognized approximately $ 0.2 million in interest income related to the significant financing component of the Amended AstraZeneca Agreement during the three months ended March 31, 2020.

Consideration for the supply of linaclotide API, finished drug product and finished goods under the AstraZeneca CSA was recognized over the performance period using an output method as linaclotide API, finished drug product and finished goods are shipped to AstraZeneca.

During the three and six months ended June 30, 2020, the Company recognized approximately $ 0.2 million and approximately $ 0.4 million, respectively, in collaborative arrangements revenue under the Amended AstraZeneca Agreement related to the AstraZeneca TSA services.

During the three and six months ended June 30, 2020, the Company recognized an insignificant amount and approximately $ 0.2 million, respectively, in collaborative arrangements revenue under the Amended AstraZeneca Agreement related to royalties.

During the three and six months ended June 30, 2020,

the Company recognized an insignificant amount and approximately $ 5.5 million, respectively, of sale of API on its condensed consolidated statement of operations relating to the supply of linaclotide finished drug product and finished goods, under the AstraZeneca CSA.

The Company recognized approximately $ 0.2 million and approximately $ 0.4 million, respectively, in interest income related to the significant financing component of the Amended AstraZeneca Agreement during the three and six months ended June 30, 2020.

Co-Promotion Agreements

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Royalties will be recognized as collaborative arrangements revenue using an output method for Givosiran Education and Promotion Activities based on the amount to which the Company has a right to invoice when the associated constraints have been lifted.

During the three months ended March 31, 2020, the Company recognized approximately $ 0.9 million in collaborative arrangements revenue, of which approximately $ 0.9 million related to the service fees and an insignificant amount related to royalties.

As of March 31, 2020, the Company had a deferred revenue balance of approximately $ 0.9 million related to advance billings of service fees.

During the three and six months ended June 30, 2020, the Company recognized approximately $ 1.1 million and approximately $ 2.0 million, respectively in collaborative arrangements revenue, of which approximately $ 0.9 million and approximately $ 1.8 million, respectively, related to the service fees and approximately $ 0.2 million and approximately $ 0.2 million, respectively, related to royalties.

At both June 30, 2020 and December 31, 2019, the Company had a deferred revenue balance of approximately $ 0.9 million related to advance billings of service fees.

Other Collaboration and License Agreements

The Company has other collaboration and license agreements that are not individually significant to its business.

Pursuant to the terms of one agreement, the Company may be required to pay up to $ 18.0 million for regulatory milestones, none of which had been paid as of March 31, 2020.

Pursuant to the terms of another license agreement, the Company recognized approximately $ 0.5 million in collaborative arrangements revenue during the three months ended March 31, 2019 related to a nonrefundable upfront payment.

Pursuant to the terms of one agreement, the Company may be required to pay up to $ 18.0 million for regulatory milestones, none of which had been paid as of June 30, 2020.

Pursuant to the terms of another license agreement, the Company recognized no collaborative arrangements revenue during the three months ended June 30, 2019 and recognized approximately $ 0.5 million in collaborative arrangements revenue during the six months ended June 30, 2019, related to a nonrefundable upfront payment.

The Company is eligible to receive up to $ 63.5 million in development and sales-based milestones, as well as royalties as a percentage of net sales of a product, under the terms of this agreement.

The Company did not record any research and development expense associated with the Company’s other collaboration and license agreements during the three months ended March 31, 2020 and 2019.

The Company did not record any research and development expense associated with the Company’s other collaboration and license agreements during each of the three and six months ended June 30, 2020 and 2019.

Fair Value of Financial Instruments

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities.

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Identical Assets

March 31, 2020

June 30, 2020

Cash and cash equivalents:

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Total liabilities measured at fair value

There were no transfers between fair value measurement levels during each of the three months ended March 31, 2020 or 2019.

Cash equivalents, accounts receivable, related party accounts receivable, prepaid expenses and other current assets, accounts payable, related party accounts payable, accrued research and development costs, accrued expenses and other current liabilities, deferred revenue and current portion of operating lease obligations at March 31, 2020 and 2019 are carried at amounts that approximate fair value due to their short-term maturities.

There were no transfers between fair value measurement levels during each of the three and six months ended June 30, 2020 or 2019.

Cash equivalents, accounts receivable, related party accounts receivable, prepaid expenses and other current assets, accounts payable, related party accounts payable, accrued research and development costs, accrued expenses and other current liabilities, deferred revenue and current portion of operating lease obligations at June 30, 2020 and December 31, 2019 are carried at amounts that approximate fair value due to their short-term maturities.

Convertible Note Hedges and Note Hedge Warrants with Respect to 2022 Convertible Notes

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These derivatives are not actively traded and are valued using the Black-Scholes option-pricing model, which requires the use of subjective assumptions.

Significant inputs used to determine the fair value as of March 31, 2020 included the price per share of the Company’s Class A Common Stock, expected terms of the derivative instruments, strike prices of the derivative instruments, risk-free interest rates, and expected volatility of the Company’s Class A Common Stock.

Significant inputs used to determine the fair value as of June 30, 2020 included the price per share of the Company’s Class A Common Stock, expected terms of the derivative instruments, strike prices of the derivative instruments, risk-free interest rates, and expected volatility of the Company’s Class A Common Stock.

Changes to these inputs could materially affect the valuation of the Convertible Note Hedges and Note Hedge Warrants.

The following inputs were used in the fair market valuation of the Convertible Note Hedges and Note Hedge Warrants as of March 31, 2020 and December 31, 2019:

Three Months Ended

The following inputs were used in the fair market valuation of the Convertible Note Hedges and Note Hedge Warrants as of June 30, 2020 and December 31, 2019:

Six Months Ended

Risk-free interest rate (1)

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Treasury yield curve, with terms commensurate with the expected terms of the Convertible Note Hedges and the Note Hedge Warrants.

(2) The closing price of the Company’s Class A Common Stock on the last trading days of the quarters ended March 31, 2020 and December 31, 2019, respectively.

(2) The closing price of the Company’s Class A Common Stock on the last trading days of the quarters ended June 30, 2020 and December 31, 2019, respectively.

(3) As per the respective agreements for the Convertible Note Hedges and Note Hedge Warrants.

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Gains and losses for these derivative financial instruments are presented separately in the Company’s condensed consolidated statements of cash flows.

The following table reflects the change in the Company’s Level 3 Convertible Note Hedges and Note Hedge Warrants from December 31, 2019 through March 31, 2020 (in thousands):

The following table reflects the change in the Company’s Level 3 Convertible Note Hedges and Note Hedge Warrants from December 31, 2019 through June 30, 2020 (in thousands):

Balance at December 31, 2019

Change in fair value, recorded as a component of (loss) gain on derivatives

Balance at March 31, 2020

Balance at June 30, 2020

Convertible Senior Notes

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The fair value of the respective convertible senior notes, which differs from their carrying value, is influenced by interest rates, the price of the Company’s Class A Common Stock and the volatility thereof, and the prices for the respective convertible senior notes observed in market trading, which are Level 2 inputs.

The estimated fair value of the 2022 Convertible Notes was approximately $ 124.7 million and approximately $ 141.3 million as of March 31, 2020 and December 31, 2019, respectively.

The estimated fair value of the 2024 Convertible Notes was approximately $ 202.1 million and approximately $ 235.7 million as of March 31, 2020 and December 31, 2019, respectively.

The estimated fair value of the 2026 Convertible Notes was approximately $ 202.4 million and approximately $ 240.1 million as of March 31, 2020 and December 31, 2019, respectively.

The estimated fair value of the 2022 Convertible Notes was approximately $ 126.4 million and approximately $ 141.3 million as of June 30, 2020 and December 31, 2019, respectively.

The estimated fair value of the 2024 Convertible Notes was approximately $ 206.0 million and approximately $ 235.7 million as of June 30, 2020 and December 31, 2019, respectively.

The estimated fair value of the 2026 Convertible Notes was approximately $ 206.3 million and approximately $ 240.1 million as of June 30, 2020 and December 31, 2019, respectively.

Capped Calls with Respect to 2024 Convertible Notes and 2026 Convertible Notes

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Accrued expenses and other current liabilities consisted of the following (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

Accrued vacation

Accrued incentive compensation

Other employee benefits

Accrued vacation

Professional fees

Other employee benefits

Accrued interest

As of March 31, 2020, other accrued expenses of approximately $ 4.2 million included approximately $ 0.9 million related to unbilled drug product and finished goods manufacturing costs, approximately $ 0.3 million related to equipment for clinical studies, approximately $ 0.2 million related to franchise taxes, approximately $ 0.2 million related to facility services, and approximately $ 0.2 million related to public relations services.

As of June 30, 2020, other accrued expenses of approximately $ 2.6 million included approximately $ 1.0 million related to sales and marketing projects and approximately $ 0.8 million related to information technology service contracts.

As of December 31, 2019, other accrued expenses of approximately $ 10.2 million included approximately $ 4.1 million related to API batches yet to be invoiced, approximately $ 0.9 million related to activities associated with the Company’s move to the 100 Summer Street headquarters, approximately $ 0.6 million related to unbilled inventory, and approximately $ 0.2 million related to equipment for clinical studies.

Effective January 1, 2019, the Company adopted ASC 842 using the optional transition method.

The Company’s lease portfolio for the three months ended March 31, 2020 includes:

Effective January 1, 2019, the Company adopted ASC 842, Leases , using the optional transition method.

The Company’s lease portfolio for the three and six months ended June 30, 2020 includes:

leases for its current headquarters location, a data center colocation lease, vehicle leases for its salesforce representatives, and leases for computer and office equipment.

Lease cost is recognized on a straight-line basis over the lease term.

The components of lease cost for the three months ended March 31, 2020 and 2019 are as follows (in thousands):

The components of lease cost for the three and six months ended June 30, 2020 and 2019 are as follows (in thousands):

Three Months Ended

Six Months Ended

Operating lease cost during period (1)

Variable lease payments

Short-term lease cost

Total lease cost

(1) Operating lease cost is presented net of approximately $ 0.3 million of sublease income for each of the three and six months ended June 30, 2019.

Sublease income relates to a sublease agreement between Ironwood and Cyclerion executed upon the Separation.

The sublease agreement terminated in May 2019.

Supplemental cash flow information related to leases for the periods reported is as follows:

Three Months Ended

Six Months Ended

Right-of-use assets obtained in exchange for new operating lease upon adoption of ASC 842 (in thousands)

Adjustment to right-of-use assets as a result of the lease modification at the Separation date (in thousands)

Adjustment to right-of-use assets as a result of the termination of the Binney Street Lease (in thousands)

Right-of-use assets obtained in exchange for new operating lease liabilities (1) (in thousands)

Cash paid for amounts included in the measurement of lease liabilities (in thousands)

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Weighted-average discount rate of operating leases

Future minimum lease payments under non-cancelable operating leases as of March 31, 2020 are as follows (in thousands):

(1) Relates to right-of-use assets and operating lease liabilities for the Summer Street Lease (as defined below).

Future minimum lease payments under non-cancelable operating leases as of June 30, 2020 are as follows (in thousands):

2025 and thereafter

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present value adjustment

Operating lease liabilities at March 31, 2020

Operating lease liabilities at June 30, 2020

current portion of operating lease liabilities

Operating lease liabilities, net of current portion

(1) For the nine months ending December 31, 2020.

(1) For the six months ending December 31, 2020.

Summer Street Lease (current headquarters)

On June 11, 2019, the Company entered into a non-cancelable operating lease (the “Summer Street Lease”) with MA-100 Summer Street Owner, L.L.C.

for approximately 39,000 square feet of office space on the 23 rd floor of 100 Summer Street, Boston, Massachusetts (the “Summer Street Property”).

On June 11, 2019, the Company entered into a non-cancelable operating lease (the “Summer Street Lease”) for approximately 39,000 square feet of office space on the 23 rd floor of 100 Summer Street, Boston, Massachusetts (the “Summer Street Property”).

The Summer Street Property began serving as the Company’s headquarters in October 2019, replacing its prior headquarters at 301 Binney Street in Cambridge, Massachusetts.

The Summer Street Lease terminates on June 11, 2030 and includes an option to extend the term of the lease for an additional five years at a market base rental rate, a 2 % annual rent escalation, free rent periods, and a tenant

improvement allowance.

The rent expense for the Summer Street Property, inclusive of the escalating rent payments and lease incentives, is recognized on a straight-line basis over the lease term.

Additionally, the Summer Street Lease requires a letter of credit to secure the Company’s obligations under the lease agreement of approximately $ 1.0 million, which is collateralized by a money market account recorded as non-current restricted cash on the Company’s condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019.

At lease inception, the Company recorded a right-of-use asset and a lease liability using an incremental borrowing rate of approximately 5.8 %.

At March 31, 2020, the balances of the right-of-use asset and operating lease liability were approximately $ 17.4 million and approximately $ 23.1 million, respectively.

At June 30, 2020, the balances of the right-of-use asset and operating lease liability were approximately $ 17.2 million and approximately $ 23.5 million, respectively.

At December 31, 2019, the balances of the right-of-use asset and operating lease liability were approximately $ 17.7 million and approximately $ 22.8 million, respectively.

Lease cost related to the Summer Street Lease recorded during the three months ended March 31, 2020 was approximately $ 0.6 million.

Lease cost related to the Summer Street Lease recorded during the three and six months ended June 30, 2020 was approximately $ 0.7 million and approximately $ 1.3 million, respectively.

Lease cost related to the Summer Street Lease recorded during each of the three and six months ended June 30, 2019 was approximately $ 0.2 million.

Binney Street Lease (prior headquarters)

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The Binney Street Property previously served as the Company’s headquarters and was replaced by the Summer Street Property in October 2019, as discussed above.

Lease cost related to the Binney Street Lease recorded during the three months ended March 31, 2019 was approximately $ 2.6 million.

On April 1, 2019, the Company modified its lease with BMR-Rogers Street LLC (“Binney Street Landlord”), to reduce its leased premises to approximately 108,000 rentable square feet of office space on the first and third floors.

The surrendered portion of approximately 114,000 rentable square feet on the first and second floor of the building was then occupied by Cyclerion under a direct lease between Cyclerion and the Binney Street Landlord.

As a result of the modification, the Company adjusted the value of its right-of-use asset and operating lease liability using an incremental borrowing rate of approximately 5.1 %, and recognized a gain of approximately $ 3.2 million, which was recorded as a reduction to operating expenses on its condensed consolidated statement of operations.

The Company elected to

determine the proportionate reduction in the right-of-use asset based on the reduction to the lease liability and will apply that methodology consistently to all comparable future modifications that decrease the scope of the lease.

On June 11, 2019, the Company entered into a lease termination agreement (the “Lease Termination”) with the Binney Street Landlord to terminate the Company’s lease for approximately 108,000 square feet of office space.

The Lease Termination was effective during the fourth quarter of 2019 in exchange for an approximately $ 9.0 million payment to the Binney Street Landlord.

The Company determined that the Lease Termination would be accounted for as a lease modification that reduces the term of the existing lease.

As a result of this modification, the Company adjusted the value of its right-of-use asset and operating lease liability using an incremental borrowing rate of approximately 4.0 %.

Lease cost related to the Binney Street Lease recorded during the three and six months ended June 30, 2019 was approximately $ 3.6 million and approximately $ 8.0 million, respectively, net of sublease income of approximately $ 0.3 million in each period.

Data center colocation lease

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The Company recorded a charge of approximately $ 0.5 million to selling, general, and administrative expenses on its condensed consolidated statement of operations as a result of the impairment during the three months ended March 31, 2019.

At both March 31, 2020 and December 31, 2019, the lease liability associated with the Data Center Lease was approximately $ 0.4 million.

Costs related to the Data Center Lease were insignificant for each of the three months ended March 31, 2020 and 2019.

At June 30, 2020 and December 31, 2019, the lease liability associated with the Data Center Lease was approximately $ 0.4 million and approximately $ 0.4 million, respectively.

Costs related to the Data Center Lease were insignificant for each of the three and six months ended June 30, 2020 and 2019, respectively.

Vehicle fleet leases

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The 2018 Vehicle Leases expire at varying times beginning in June 2019, with a monthly renewal provision.

In accordance with the terms of the 2018 Vehicle Leases, the Company maintains a letter of credit securing its obligation under the lease agreements of $ 1.3 million, which is collateralized by a money market account recorded as current restricted cash on the Company’s condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019.

Lease cost related to the 2018 Vehicle Leases was approximately $ 0.4 million for each of the three months ended March 31, 2020 and 2019.

Lease cost related to the 2018 Vehicle Leases was approximately $ 0.4 million and approximately $ 0.7 million for the three and six months ended June 30, 2020, respectively.

Lease cost related to the 2018 Vehicle Leases was approximately $ 0.4 million and approximately $ 0.8 million for the three and six months ended June 30, 2019, respectively.

Notes Payable

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The Company received net proceeds of approximately $ 324.0 million from the sale of the 2022 Convertible Notes, after deducting fees and expenses of approximately $ 11.7 million.

The Company used approximately $ 21.1 million of the net proceeds from the sale of the 2022 Convertible Notes to pay the net cost of the Convertible Note Hedges (after such cost was partially offset by the proceeds to the Company from the sale of the Note Hedge Warrants), as described below.

The Company used approximately

$ 21.1 million of the net proceeds from the sale of the 2022 Convertible Notes to pay the net cost of the Convertible Note Hedges (after such cost was partially offset by the proceeds to the Company from the sale of the Note Hedge Warrants), as described below.

The 2022 Convertible Notes are governed by an indenture (the “2022 Indenture”) between the Company and U.S.

37 unchanged sentences

The Company will settle conversions of the 2024 Convertible Notes and 2026 Convertible Notes through payment or delivery, as the case may be, of cash, shares of Class A Common Stock of the Company or a combination of cash and shares of Class A Common Stock, at the Company’s option (subject to, and in accordance with, the settlement provisions of the applicable Indenture).

approximately $ 13.39 per share, representing a conversion premium of approximately 37.5 % above the last reported sale price of Class A Common Stock of $ 9.74 per share on August 7, 2019.

Holders of the 2024 Convertible Notes and 2026 Convertible Notes may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2023, with respect to the 2024 Convertible Notes, and December 15, 2025, with respect to the 2026 Convertible Notes, in multiples of $ 1,000 principal amount, only under the following circumstances:

The initial conversion rate for each of the 2024 Convertible Notes and the 2026 Convertible Notes is 74.6687 shares of Class A Common Stock (subject to adjustment as provided for in the applicable Indenture) per $ 1,000 principal amount of the 2024 Convertible Notes and 2026 Convertible Notes, which is equal to an initial conversion price of approximately $ 13.39 per share, representing a conversion premium of approximately 37.5 % above the last reported sale price of Class A Common Stock of $ 9.74 per share on August 7, 2019.

the 2024 Convertible Notes, and December 15, 2025, with respect to the 2026 Convertible Notes, in multiples of $ 1,000 principal amount, only under the following circumstances:

● during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s Class A Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the Notes on each applicable trading day;

13 unchanged sentences

The respective equity components of the 2024 Convertible Notes and the 2026 Convertible Notes were recognized as a debt discount and represent the difference between the gross proceeds from the issuance of the 2024 Convertible Notes and 2026 Convertible Notes and the fair value of the liability of the 2024 Convertible Notes and 2026 Convertible Notes on their respective dates of issuance.

The excess of the principal

amount of the liability component over its carrying amount, or debt discount, is amortized to interest expense using the effective interest method over approximately five and seven years , or the expected life of the 2024 Convertible Notes and the 2026 Convertible Notes, respectively.

The excess of the principal amount of the liability component over its carrying amount, or debt discount, is amortized to interest expense using the effective interest method over approximately five and seven years , or the expected life of the 2024 Convertible Notes and the 2026 Convertible Notes, respectively.

The respective equity components are not remeasured as long as they continue to meet the conditions for equity classification.

The Company’s outstanding balances for the convertible senior notes as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

March 31, 2020

The Company’s outstanding balances for the convertible senior notes as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020

December 31, 2019

17 unchanged sentences

The Company determined the expected life of the 2022 Convertible Notes was equal to their seven-year term.

From the date of the partial repurchase of the 2022 Convertible Notes in August 2019 through March 31, 2020, the effective interest rate on the liability component of the 2022 Convertible Notes was 9.5 %.

From the date of the partial repurchase of the 2022 Convertible Notes in August 2019 through June 30, 2020, the effective interest rate on the liability component of the 2022 Convertible Notes was 9.6 %.

In connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company incurred approximately $ 9.0 million of debt issuance costs, which primarily consisted of initial purchaser’s discounts and legal and other professional fees.

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The effective interest rates on the liability

components of the 2024 Convertible Notes and the 2026 Convertible Notes for the period from the date of issuance through March 31, 2020 was 6.1 % and 6.5 %, respectively.

The following table sets forth total interest expense recognized related to convertible senior notes during the three months ended March 31, 2020 and 2019 (in thousands):

components of the 2024 Convertible Notes and the 2026 Convertible Notes for the period from the date of issuance through June 30, 2020 was 6.2 % and 6.5 %, respectively.

The following table sets forth total interest expense recognized related to convertible senior notes during the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended

Six Months Ended

Contractual interest expense

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Total interest expense

Future minimum payments under the convertible senior notes as of March 31, 2020 are as follows (in thousands):

Future minimum payments under the convertible senior notes as of June 30, 2020 are as follows (in thousands):

2026 and Thereafter

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Convertible senior notes balance

(1) For the nine months ending December 31, 2020.

(1) For the six months ending December 31, 2020.

Convertible Note Hedge and Note Hedge Warrant Transactions with Respect to 2022 Convertible Notes

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In August 2019, concurrently with the repurchase of $ 215.0 million aggregate principal amount of the 2022 Convertible Notes, the Company terminated the respective portion of the Convertible Note Hedges and Note Hedge Warrants.

The Company received approximately $ 3.2 million of termination payments from the counterparties of the Convertible Note Hedges and Note Hedge Warrants.

The Company received approximately $ 3.2 million of termination payments from the counterparties of the Convertible Note Hedges and Note Hedge Warrants during the year ended December 31, 2019.

The Convertible Note Hedges and Note Hedge Warrants are accounted for as derivative assets and liabilities, respectively, in accordance with ASC 815.

16 unchanged sentences

Three Months Ended

Six Months Ended

Research and development

3 unchanged sentences

Certain share-based payment awards were modified in connection with the reduction in workforce.

As a result of the modifications, the Company recorded share-based compensation expense of approximately $ 0.5 million to restructuring expenses for the three months ended March 31, 2019.

In connection with certain other modifications of share-based payment awards for the three months ended March 31, 2020 and 2019, the Company recognized an insignificant amount and approximately $ 2.4 million in share-based compensation expense, respectively.

As a result of the modifications, the Company recorded an insignificant amount of share-based compensation expense and approximately $ 0.7 million to restructuring expenses for the three and six months ended June 30, 2019, respectively.

In April 2019, in connection with the Separation, all outstanding share-based payment awards were modified in accordance with the equity conversion-related provisions of the employee matters agreement with Cyclerion.

No share-based compensation expense was recognized in connection with the modifications.

Additionally, modifications with respect to the Company’s Employee Stock Purchase Plan (“ESPP”) were made due to the change in share price as a result of the Separation.

As a result of the modification to the ESPP, the Company recorded share-based compensation expense of approximately $ 0.3 million during each of the three and six months ended June 30, 2019.

In connection with certain other modifications of share-based payment awards for the six months ended June 30, 2020, the Company recognized an insignificant amount in share-based compensation expense.

In connection with certain other modifications of share-based payment awards during the three and six months ended June 30, 2019, the Company recognized no expense and approximately $ 2.4 million in share-based compensation expense.

Related Party Transactions

Under the collaboration agreement, the Company and Allergan equally support the development and commercialization of linaclotide (Note 4).

Amounts due to and due from Allergan are reflected as related party accounts payable and related party accounts receivable, respectively.

These balances are reported net of any balances due to or from the related party.

As of March 31, 2020 and December 31, 2019, the Company had approximately $ 73.4 million and approximately $ 106.0 million, respectively, in related party accounts receivable, net of related party accounts payable, associated with Allergan.

The Company has and currently obtains health insurance services for its employees from an insurance provider whose President and Chief Executive Officer became a member of the Company’s Board of Directors in April 2016.

The Company paid approximately $ 2.4 million and approximately $ 2.5 million in insurance premiums to this insurance provider during the three months ended March 31, 2020 and 2019, respectively.

At both March 31, 2020 and December 31, 2019, the Company had no accounts payable due to this related party.

At March 31, 2020, the Company had a prepaid asset of $ 0.6 million with this related party pertaining to payments for future services.

In connection with the Separation, the Company executed certain contracts with Cyclerion whose President became a member of the Company’s Board of Directors in April 2019 (Note 2).

As of March 31, 2020, the Company had an insignificant amount of accounts receivable and approximately $ 1.1 million of accounts payable due from and to Cyclerion, respectively.

In May 2020, AbbVie announced the completion of its acquisition of Allergan.

Under the collaboration agreement, the Company and AbbVie equally support the development and commercialization of linaclotide (Note 4).

The Company previously reflected amounts due to and due from Allergan prior to its acquisition by AbbVie as related party accounts payable and related party accounts receivable, respectively.

Following the acquisition of Allergan by AbbVie, the Company determined that AbbVie is not a related party to the Company.

As such, only historical amounts paid to and received from Allergan (prior to its acquisition by AbbVie) are considered related party accounts payable and related party accounts receivable, respectively.

Balances of related party accounts payable and related party accounts receivable, respectively, were reported net of any balances due to or from the related party.

As of December 31, 2019, the Company had approximately $ 106.0 million in related party accounts receivable, net of related party accounts payable, associated with Allergan, (prior to its acquisition by AbbVie) .

In connection with the Separation, the Company executed certain contracts with Cyclerion whose President and Chief Scientific Officer became a member of the Company’s Board of Directors in April 2019 (Note 2).

As of June 30, 2020, the Company had approximately $ 0.8 million of accounts payable due to Cyclerion.

As of December 31, 2019, the Company had an insignificant amount of accounts receivable and approximately $ 1.5 million of accounts payable due from and to Cyclerion, respectively.

2 unchanged sentences

On February 7, 2019, following analysis of the Company’s strategy and core business needs, and in an effort to further strengthen the operational efficiency of the organization, the Company commenced a reduction in workforce by approximately 35 employees, primarily based in the home office.

During the three months ended March 31, 2019, the Company substantially completed the implementation of this reduction in workforce and, in accordance with ASC 420, Exit or Disposal Cost Obligations , recorded approximately $ 3.3 million of costs including employee severance, benefits, and related costs that are reflected in the condensed consolidated statement of operations as restructuring expenses.

During the three months ended March 31, 2020 and 2019, the Company recorded no restructuring expenses and approximately $ 3.3 million in restructuring expenses, respectively.

At March 31, 2020 and December 31, 2019, the Company had an insignificant amount and approximately $ 0.2 million in accrued restructuring costs remaining, respectively.

During the three and six months ended June 30, 2019,

the Company recorded approximately $ 0.5 million and approximately $ 3.8 million, respectively, of costs including employee severance, benefits, and related costs that are reflected in the condensed consolidated statement of operations as restructuring expenses.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements