IRONWOOD PHARMACEUTICALS INC 10-Q

Item 1. Financial Statements (unaudited) ​ ​ ​ Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 ​ 5 ​ Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019 ​ 6 ​ Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Six Months Ended June 30, 2020 and 2019 ​ 7 ​ Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 ​ 8 ​ Notes to Condensed Consolidated Financial Statements ​ 9 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 36 Item 3. Quantitative and Qualitative Disclosures About Market Risk ​ 50 Item 4. Controls and Procedures ​ 52 ​ ​ ​ ​ ​ ​ ​ ​ ​ PART II — OTHER INFORMATION ​ ​ Item 1A. Risk Factors ​ 52 Item 6. Exhibits ​ 81 ​ ​ ​ ​ ​ Signatures ​ 83 ​ ​ ​ ​ 4 Table of Contents PART I — FINANCIAL INFORMATION Item 1. Financial Statement s Ironwood Pharmaceuticals, Inc. Condensed Consolidated Balance Sheet s (In thousands, except share and per share amounts) (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2020 2019 ASSETS ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 253,252 ​ $ 177,023 Accounts receivable, net ​ 105,379 ​ 11,279 Related party accounts receivable, net ​ — ​ 105,967 Inventory, net ​ — ​ 648 Prepaid expenses and other current assets ​ 14,394 ​ 10,685 Restricted cash ​ ​ 1,250 ​ ​ 1,250 Total current assets ​ 374,275 ​ 306,852 Restricted cash, net of current portion ​ 971 ​ 971 Accounts receivable, net of current portion ​ ​ 22,995 ​ ​ 32,597 Property and equipment, net ​ 11,190 ​ 12,429 Operating lease right-of-use assets ​ ​ 17,156 ​ ​ 17,743 Convertible note hedges ​ ​ 16,131 ​ ​ 31,366 Other assets ​ ​ 820 ​ ​ 790 Total assets ​ $ 443,538 ​ $ 402,748 LIABILITIES AND STOCKHOLDERS' DEFICIT ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 2,104 ​ $ 3,978 Related party accounts payable, net ​ 751 ​ 1,509 Accrued research and development costs ​ 2,400 ​ 2,956 Accrued expenses and other current liabilities ​ 17,955 ​ 30,465 Current portion of operating lease liabilities ​ ​ 2,610 ​ ​ 1,146 Deferred revenue ​ ​ 875 ​ ​ 875 Total current liabilities ​ 26,695 ​ 40,929 Note hedge warrants ​ ​ 12,958 ​ ​ 24,260 Convertible senior notes ​ ​ 418,924 ​ ​ 407,994 Operating lease obligations, net of current portion ​ ​ 21,211 ​ ​ 22,082 Other liabilities ​ 602 ​ 734 Commitments and contingencies ​ ​ ​ ​ ​ ​ Stockholders’ deficit: ​ ​ ​ ​ ​ ​ 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 159,976,245 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 ​ 160 ​ 158 Additional paid-in capital ​ 1,506,671 ​ 1,478,823 Accumulated deficit ​ ( 1,543,683 ) ​ ( 1,572,232 ) Total stockholders’ deficit ​ ( 36,852 ) ​ ( 93,251 ) Total liabilities and stockholders’ deficit ​ $ 443,538 ​ $ 402,748 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 5 Table of Contents Ironwood Pharmaceuticals, Inc. Condensed Consolidated Statements of Operation s and Comprehensive Income (Loss) (In thousands, except per share amounts) (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2020 2019 2020 2019 Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Collaborative arrangements revenue ​ $ 89,423 ​ $ 77,322 ​ $ 163,868 ​ $ 143,474 ​ Sale of active pharmaceutical ingredient ​ ​ 9 ​ ​ 24,893 ​ ​ 5,507 ​ ​ 27,471 ​ Total revenues ​ 89,432 ​ 102,215 ​ 169,375 ​ 170,945 ​ Cost and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ — ​ 11,313 ​ 2,239 ​ ​ 12,356 ​ Research and development ​ 22,076 ​ 28,758 ​ 50,103 ​ ​ 60,956 ​ Selling, general and administrative ​ 34,643 ​ 43,246 ​ 71,093 ​ ​ 92,341 ​ Gain on lease modification ​ ​ — ​ ​ ( 3,169 ) ​ ​ — ​ ​ ( 3,169 ) ​ Restructuring expenses ​ ​ — ​ ​ 490 ​ ​ — ​ ​ 3,818 ​ Total cost and expenses ​ 56,719 ​ 80,638 ​ 123,435 ​ 166,302 ​ Income from operations ​ 32,713 ​ 21,577 ​ 45,940 ​ ​ 4,643 ​ Other (expense) income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense ​ ( 7,318 ) ​ ( 9,430 ) ​ ( 14,538 ) ​ ​ ( 19,022 ) ​ Interest and investment income ​ 276 ​ 668 ​ 1,053 ​ ​ 1,404 ​ (Loss) gain on derivatives ​ ​ ( 467 ) ​ ​ ( 672 ) ​ ​ ( 3,933 ) ​ ​ 3,272 ​ Other income ​ ​ — ​ ​ 140 ​ ​ 27 ​ ​ 140 ​ Other expense, net ​ ( 7,509 ) ​ ( 9,294 ) ​ ( 17,391 ) ​ ( 14,206 ) ​ Net income (loss) from continuing operations ​ ​ 25,204 ​ ​ 12,283 ​ ​ 28,549 ​ ​ ( 9,563 ) ​ Net loss from discontinued operations ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 37,438 ) ​ Net income (loss) and comprehensive income (loss) ​ $ 25,204 ​ $ 12,283 ​ $ 28,549 ​ $ ( 47,001 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per share from continuing operations—basic and diluted ​ $ 0.16 ​ $ 0.08 ​ $ 0.18 ​ $ ( 0.06 ) ​ Net loss per share from discontinued operations—basic and diluted ​ $ — ​ $ — ​ $ — ​ $ ( 0.24 ) ​ Net income (loss) per share—basic and diluted ​ $ 0.16 ​ $ 0.08 ​ $ 0.18 ​ $ ( 0.30 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares used in computing net income (loss) per share—basic: ​ 159,407 ​ 155,849 ​ 158,890 ​ 155,405 ​ Weighted average shares used in computing net income (loss) per share—diluted: ​ ​ 159,920 ​ ​ 155,849 ​ ​ 160,032 ​ ​ 155,405 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 6 Table of Contents Ironwood Pharmaceuticals, Inc. Condensed Consolidated Statements of Stockholders’ Deficit (In thousands, except share amounts) (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Class A ​ Additional ​ ​ ​ ​ Total ​ ​ ​ Common Stock ​ paid-in ​ Accumulated ​ Stockholders’ ​ ​ Shares Amount capital deficit deficit ​ Balance at December 31, 2019 157,535,962 ​ $ 158 $ 1,478,823 ​ $ ( 1,572,232 ) ​ $ ( 93,251 ) ​ Issuance of common stock related to share-based awards and employee stock purchase plan 1,832,164 ​ 1 11,984 ​ — ​ 11,985 ​ Share-based compensation expense related to share-based awards and employee stock purchase plan — ​ ​ — ​ ​ 6,364 ​ ​ — ​ ​ 6,364 ​ Net income — ​ — — ​ 3,345 ​ 3,345 ​ Balance at March 31, 2020 ​ 159,368,126 ​ $ 159 ​ $ 1,497,171 ​ $ ( 1,568,887 ) ​ $ ( 71,557 ) ​ Issuance of common stock related to share-based awards and employee stock purchase plan ​ 608,119 ​ ​ 1 ​ ​ 2,409 ​ ​ — ​ ​ 2,410 ​ Share-based compensation expense related to share-based awards and employee stock purchase plan ​ — ​ ​ — ​ ​ 7,091 ​ ​ — ​ ​ 7,091 ​ Net income ​ — ​ ​ — ​ ​ — ​ ​ 25,204 ​ ​ 25,204 ​ Balance at June 30, 2020 ​ 159,976,245 ​ $ 160 ​ $ 1,506,671 ​ $ ( 1,543,683 ) ​ $ ( 36,852 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Class A ​ Additional ​ ​ ​ ​ Total ​ ​ Common Stock ​ paid-in ​ Accumulated ​ Stockholders’ ​ Shares Amount capital deficit deficit Balance at December 31, 2018 154,414,691 ​ $ 154 $ 1,394,603 ​ $ ( 1,591,128 ) ​ $ ( 196,371 ) ​ Issuance of common stock related to share-based awards and employee stock purchase plan 1,210,858 ​ 2 3,486 ​ — ​ 3,488 ​ Share-based compensation expense related to share-based awards and employee stock purchase plan — ​ ​ — ​ ​ 14,988 ​ ​ — ​ ​ 14,988 ​ Net loss — ​ — — ​ ( 59,284 ) ​ ( 59,284 ) ​ Balance at March 31, 2019 ​ 155,625,549 ​ $ 156 ​ $ 1,413,077 ​ $ ( 1,650,412 ) ​ $ ( 237,179 ) ​ Issuance of common stock related to share-based awards and employee stock purchase plan, net of cancellations ​ 621,588 ​ ​ — ​ ​ 1,801 ​ ​ — ​ ​ 1,801 ​ Share-based compensation expense related to share-based awards and employee stock purchase plan ​ 195,195 ​ ​ — ​ ​ 6,337 ​ ​ — ​ ​ 6,337 ​ Dividend of sGC business ​ — ​ ​ — ​ ​ — ​ ​ ( 2,609 ) ​ ​ ( 2,609 ) ​ Net income ​ — ​ ​ — ​ ​ — ​ ​ 12,283 ​ ​ 12,283 ​ Balance at June 30, 2019 ​ 156,442,332 ​ $ 156 ​ $ 1,421,215 ​ $ ( 1,640,738 ) ​ $ ( 219,367 ) ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 7 Table of Contents Ironwood Pharmaceuticals, Inc. Condensed Consolidated Statements of Cash Flow s (In thousands) (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ June 30, ​ ​ 2020 2019 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 28,549 ​ $ ( 47,001 ) ​ Adjustments to reconcile net income (loss) to net cash used in operating activities: ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 1,322 ​ ​ 1,539 ​ Loss on disposal of property and equipment ​ ​ 423 ​ ​ 109 ​ Share-based compensation expense ​ 13,455 ​ ​ 20,271 ​ Gain on lease modification ​ ​ — ​ ​ ( 3,169 ) ​ Change in fair value of note hedge warrants ​ ​ ( 11,302 ) ​ ​ 16,428 ​ Change in fair value of convertible note hedges ​ ​ 15,235 ​ ​ ( 19,700 ) ​ Non-cash interest expense ​ 10,930 ​ ​ 9,300 ​ Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts receivable and related party accounts receivable, net ​ 21,469 ​ ​ ( 21,529 ) ​ Prepaid expenses and other current assets ​ ( 3,638 ) ​ ​ 2,647 ​ Inventory, net ​ 648 ​ ​ ( 635 ) ​ Other assets ​ ( 30 ) ​ ​ ( 6 ) ​ Accounts payable, related party accounts payable and accrued expenses ​ ( 13,861 ) ​ ​ ( 25,205 ) ​ Accrued research and development costs ​ ( 556 ) ​ ​ 2,335 ​ Operating lease right-of-use assets ​ ​ 587 ​ ​ 6,315 ​ Operating lease liabilities ​ ​ 593 ​ ​ ( 4,685 ) ​ Other liabilities ​ ​ ( 133 ) ​ ​ — ​ Net cash provided by (used in) continuing operating activities ​ ​ 63,691 ​ ​ ( 62,986 ) ​ Net cash provided by discontinued operating activities ​ ​ — ​ ​ 11,364 ​ Net cash provided by (used in) operating activities ​ 63,691 ​ ( 51,622 ) ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ( 1,814 ) ​ ​ ( 1,444 ) ​ Proceeds from sale of property and equipment ​ — ​ ​ 261 ​ Net cash used in continuing investing activities ​ ​ ( 1,814 ) ​ ​ ( 1,183 ) ​ Net cash used in discontinued investing activities ​ ​ — ​ ​ ( 4,223 ) ​ Net cash used in investing activities ​ ( 1,814 ) ​ ( 5,406 ) ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ Proceeds from exercise of stock options and employee stock purchase plan ​ 14,352 ​ ​ 5,204 ​ Payments on 8.375% Notes due 2026 ​ ​ — ​ ​ ( 21,469 ) ​ Net cash provided by (used in) continuing financing activities ​ ​ 14,352 ​ ​ ( 16,265 ) ​ Net cash used in discontinued financing activities ​ ​ — ​ ​ — ​ Net cash provided by (used in) financing activities ​ 14,352 ​ ( 16,265 ) ​ Net increase (decrease) in cash, cash equivalents and restricted cash ​ 76,229 ​ ( 73,293 ) ​ Cash, cash equivalents and restricted cash, beginning of period ​ 179,244 ​ 180,848 ​ Cash, cash equivalents and restricted cash, end of period ​ $ 255,473 ​ $ 107,555 ​ ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 253,252 ​ $ 98,908 ​ Restricted cash ​ ​ 2,221 ​ ​ 8,647 ​ Total cash, cash equivalents, and restricted cash ​ $ 255,473 ​ $ 107,555 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 8 Table of Contents Ironwood Pharmaceuticals, Inc. Notes to Condensed Consolidated Financial Statement s (unaudited) ​ 1. Nature of Business ​ Ironwood Pharmaceuticals, Inc. (“Ironwood” or the “Company”) is a gastrointestinal (“GI”) healthcare company dedicated to advancing the treatment of GI diseases and redefining the standard of care for millions of GI patients. The Company is focused on the development and commercialization of innovative GI product opportunities in areas of large unmet need, leveraging its demonstrated expertise and capabilities in GI diseases. ​ LINZESS ® (linaclotide), the Company’s commercial product, is the first product approved by the United States Food and Drug Administration (the “U.S. FDA”) in a class of GI medicines called guanylate cyclase type C agonists, and is indicated for adult men and women suffering from irritable bowel syndrome with constipation (“IBS-C”) or chronic idiopathic constipation (“CIC”). LINZESS is available to adult men and women suffering from IBS-C or CIC in the United States (the “U.S.”) and Mexico and to adult men and women suffering from IBS-C in Japan and China. Linaclotide is available under the trademarked name CONSTELLA ® to adult men and women suffering from IBS-C or CIC in Canada, and to adult men and women suffering from IBS-C in certain European countries. ​ 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, 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. ​ 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. (“Astellas”), the Company’s partner in Japan, has an exclusive license to develop and commercialize linaclotide in Japan. In March 2017, Astellas began commercializing LINZESS for the treatment of adults with IBS-C in Japan, and in September 2018, Astellas began commercializing LINZESS for the treatment of adults with chronic constipation in Japan. In August 2019, the Company amended and restated its license agreement with Astellas. Beginning in 2020, the Company will no longer be responsible for the supply of linaclotide active pharmaceutical ingredient (“API”) to Astellas (Note 4). ​ 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 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 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. ​ 9 Table of Contents 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. In August 2019, the Company entered into a disease education and promotional agreement with Alnylam Pharmaceuticals, Inc. (“Alnylam”) for Alnylam’s GIVLAARI TM (givosiran), an RNAi therapeutic targeting aminolevulinic acid synthase 1, for the treatment of acute hepatic porphyria (“AHP”). GIVLAARI was approved by the U.S. FDA in December 2019. Under the agreement, the Company performs disease awareness activities related to AHP and sales detailing activities of GIVLAARI. ​ 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. (“Cyclerion”). The Separation was effected by means of a distribution of all of the outstanding shares of common stock, with no par value, of Cyclerion through a dividend of all outstanding shares of Cyclerion’s common stock, to Ironwood’s stockholders of record as of the close of business on March 19, 2019 (Note 2). ​ 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 (Note 8). 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. ​ Basis of Presentation ​ The accompanying condensed consolidated financial statements and the related disclosures are unaudited and have been prepared in accordance with accounting principles generally accepted in the U.S. Additionally, certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. 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 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. ​ 10 Table of Contents Principles of Consolidation ​ 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. All intercompany transactions and balances are eliminated in consolidation. ​ Use of Estimates ​ The preparation of condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. On an ongoing basis, the Company’s management evaluates its estimates, judgments and methodologies. Significant estimates and assumptions in the condensed consolidated financial statements include those related to revenue recognition; accounts receivable; inventory valuation and related reserves; useful lives of long-lived assets; impairment of long-lived assets, including goodwill; valuation procedures for right-of-use assets and operating lease liabilities; valuation procedures for the issuance and repurchase of convertible notes; losses related to discontinued operations; fair value of derivatives; balance sheet classification of convertible notes; income taxes, including the valuation allowance for deferred tax assets; research and development expenses; contingencies and share-based compensation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known. ​ 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 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 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. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”), ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Date , ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses , ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) to provide additional guidance on the adoption of ASU 2016-13. ASU 2019-04 added Topic 326, Financial Instruments—Credit Losses , and made several amendments to the codification, including modifying the accounting for available-for-sale debt securities. ASU 2019-05 provides targeted transition relief by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. The Company adopted these ASUs during the three months ended March 31, 2020 . The adoption of these ASUs did not have a material impact on the Company’s financial position and results of operations. 11 Table of Contents ​ In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350) (“ASU 2017-04”) to simplify the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. Early adoption was permitted. The Company adopted ASU 2017-04 during the three months ended March 31, 2020 . The adoption of ASU 2017-04 did not have a material impact on the Company’s financial position and results of operations. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirement for Fair Value Measurement (“ASU 2018-13”) which amends the disclosure requirements for fair value measurements. The amendments in ASU 2018-13 are effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-13 during the three months ended March 31, 2020 . The adoption of ASU 2018-13 did not have a material impact on the Company’s financial position, results of operations and financial statement disclosures. In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) (“ASU 2018-15”) which provides guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. ASU 2015-18 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. The internal-use software guidance requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as they are incurred. A customer’s accounting for the hosting component of the arrangement is not affected by this guidance. The amendments in ASU 2018-15 are effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-15 using the prospective transition method during the three months ended March 31, 2020 . The adoption of ASU 2018-15 did not have a material impact on the Company’s financial position and results of operations. In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”). The update is intended to improve general purpose financial reporting by considering indirect interests held through related parties in common control arrangements on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The amendments in ASU 2018-17 will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-17 during the three months ended March 31, 2020 . The adoption of ASU 2018-17 did not have a material impact on the Company’s financial position and results of operations. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) , which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact that the adoption of ASU 2019-12 may have on the Company’s financial position and results of operations. ​ No other accounting standards known by the Company to be applicable to it that have been issued by the FASB or other standard-setting bodies and that do not require adoption until a future date are expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption. ​ 2. Cyclerion Separation ​ On April 1, 2019, Ironwood completed the Separation of Cyclerion. The Separation was effected by means of a distribution of all of the outstanding shares of common stock, with no par value, of Cyclerion through a dividend of Cyclerion’s common stock, to Ironwood’s stockholders of record as of the close of business on March 19, 2019. Prior to the Separation on April 1, 2019, Cyclerion was a wholly owned subsidiary of the Company. On March 30, 2019, the Company entered into certain agreements with Cyclerion relating to the Separation, including a separation agreement, a tax matters agreement, and an employee matters agreement. ​ 12 Table of Contents Agreements with Cyclerion ​ The separation agreement with Cyclerion, dated as of March 30, 2019, sets forth, among other things, the Company’s agreements with Cyclerion regarding the principal actions to be taken in connection with the Separation, including the dividend, which was effective as of April 1, 2019. The separation agreement identifies assets transferred, liabilities assumed by and contracts assigned to each of Cyclerion and Ironwood as part of the Separation, and provides for when and how these transfers, assumptions and assignments occur. The purpose of the separation agreement was to provide Cyclerion and Ironwood with assets to operate their respective businesses and retain or assume liabilities related to those assets. ​ The transfer of assets and liabilities to Cyclerion was effected through a contribution in accordance with the separation agreement as summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ As of April 1, 2019 ​ Assets: ​ ​ ​ ​ Prepaid expenses and other current assets ​ $ 1,169 ​ Property and equipment, net ​ ​ 10,241 ​ Other assets ​ ​ 21 ​ ​ ​ $ 11,431 ​ Liabilities: ​ ​ ​ ​ Accrued research and development costs ​ $ 5,673 ​ Accrued expenses and other current liabilities ​ ​ 3,149 ​ ​ ​ $ 8,822 ​ Net Assets Transferred to Cyclerion ​ $ 2,609 ​ ​ In addition, the Company received approximately $ 1.3 million during the year ended December 31, 2019 associated with tenant improvement reimbursement provisions related to the Cyclerion lease in accordance with the separation agreement. ​ The tax matters agreement, dated as of March 30, 2019, governs each party’s rights, responsibilities and obligations with respect to taxes, including taxes, if any, incurred as a result of any failure of the Separation to qualify as tax-free. In general, if the parties incur tax liabilities in the event that the Separation is not tax-free, each party is expected to be responsible for any taxes imposed on Ironwood or Cyclerion that arise from the failure of the Separation to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) and certain other relevant provisions of the Internal Revenue Code of 1986, as amended, to the extent that the failure to so qualify is attributable to an acquisition of stock or assets of, or certain actions, omissions or failures to act of, such party. If both Ironwood and Cyclerion are responsible for such failure, liability will be shared according to relative fault. U.S. tax otherwise resulting from the failure of the Separation to qualify as a transaction that is tax-free generally will be the responsibility of Ironwood. Each party otherwise agreed to indemnify the other party from and against any liability for taxes allocated to such party under the tax matters agreement and any taxes resulting from breach of any such party’s covenants under the tax matters agreement, the separation agreement, or any ancillary agreement entered into in connection with the Separation. Cyclerion agreed to certain covenants that contain restrictions intended to preserve the tax-free status of the distribution and certain related transactions. ​ The employee matters agreement, dated as of March 30, 2019, allocates assets, liabilities and responsibilities relating to the employment, compensation, and employee benefits of Ironwood and Cyclerion employees, and other related matters in connection with the Separation, including the treatment of outstanding Ironwood incentive equity awards. Pursuant to the employee matters agreement, the outstanding Ironwood equity awards held by Cyclerion and Ironwood employees were adjusted in connection with the Separation, with the intent to maintain, immediately following the Separation, the economic value of the awards. ​ Additionally, the Company entered into two transition services agreements and a development agreement with Cyclerion. ​ Pursuant to the transition service agreements, the Company was obligated to provide and was entitled to receive certain transition services related to corporate functions, such as finance, procurement, facilities and development. Services provided by the Company to Cyclerion were to continue for an initial term of one to two years from the date of 13 Table of Contents the Separation (as applicable), unless earlier terminated or extended according to the terms of the transition services agreement. Services provided by Cyclerion to the Company continued for a term of one year from the date of the Separation. Services received and performed under each transition services agreement were paid at a mutually agreed upon rate. Amounts received for services provided to Cyclerion were recorded as other income and amounts paid for services provided by Cyclerion were recorded as selling, general and administrative expense and research and development expense, as applicable. The transition services agreements terminated on March 31, 2020. 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. Such research and development activities are governed by a joint steering committee comprised of representatives from both Cyclerion and Ironwood. Services received are paid at a mutually agreed upon rate. 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, 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 ​ ​ ​ ​ June 30, ​ ​ ​ 2019 Costs and expenses: ​ ​ ​ ​ Research and development ​ 21,792 ​ Selling, general and administrative ​ 15,646 ​ Net loss from discontinued operations ​ ​ 37,438 ​ ​ 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. ​ ​ ​ 3. 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 (“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 warrants (“Note Hedge Warrants”), to the Convertible Note Hedge counterparties to acquire shares of the Company’s Class A 14 Table of Contents 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. The Note Hedge Warrants are not considered for purposes of calculating the number of diluted weighted averages shares outstanding, as their effect would be anti-dilutive. ​ 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 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ June 30, ​ ​ 2020 2019 Options to purchase Class A Common Stock ​ 14,828 19,324 Shares subject to repurchase 174 182 Time-vesting restricted stock units ​ 5,012 ​ 2,799 ​ Performance-based restricted stock units ​ 586 ​ — ​ Note Hedge Warrants ​ 8,318 ​ 23,135 ​ 2022 Convertible Notes ​ 8,318 ​ 23,135 ​ 2024 Convertible Notes ​ 14,934 ​ — ​ 2026 Convertible Notes ​ 14,934 ​ — ​ ​ 67,104 68,575 ​ ​ ​ 4. Collaboration, License, Co-Promotion and Other Commercial Agreements ​ 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 15 Table of Contents collaborative arrangements revenue and sale of API primarily attributable to transactions from these arrangements (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ Collaborative Arrangements Revenue ​ 2020 2019 ​ 2020 2019 Linaclotide Collaboration and License Agreements ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ AbbVie (North America) ​ $ 86,926 ​ $ 75,498 ​ $ 158,618 ​ $ 140,283 ​ AbbVie (Europe and other) ​ ​ 440 ​ ​ 262 ​ ​ 1,083 ​ ​ 682 ​ AstraZeneca (China, including Hong Kong and Macau) ​ ​ 187 ​ — ​ ​ 519 ​ — ​ Astellas (Japan) ​ ​ 504 ​ — ​ ​ 983 ​ — ​ Co-Promotion and Other Agreements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ AbbVie (VIBERZI) (1) ​ ​ — ​ ​ 1,239 ​ ​ — ​ ​ 1,239 ​ Alnylam (GIVLAARI) ​ ​ 1,061 ​ ​ — ​ ​ 2,006 ​ ​ — ​ Other ​ ​ 305 ​ ​ 323 ​ ​ 659 ​ ​ 1,270 ​ Total collaborative arrangements revenue ​ $ 89,423 ​ $ 77,322 ​ $ 163,868 ​ $ 143,474 ​ Sale of API ​ ​ ​ ​ ​ ​ Linaclotide Agreements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Astellas (Japan) ​ $ — ​ $ 24,893 ​ $ — ​ $ 27,468 ​ AstraZeneca (China, including Hong Kong and Macau) ​ ​ 9 ​ ​ — ​ ​ 5,507 ​ ​ — ​ Other ​ ​ — ​ ​ — ​ ​ — ​ ​ 3 ​ Total sale of API ​ $ 9 ​ $ 24,893 ​ $ 5,507 ​ $ 27,471 ​ ​ (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. The Company has not experienced any material losses related to receivables from its license or collaboration partners. ​ Linaclotide Agreements ​ 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. 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 16 Table of Contents 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 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. The Company receives 50 % of the net profits and bears 50 % of the net losses from the commercial sale of LINZESS in the U.S. Net profits or net losses consist of net sales of LINZESS to third-party customers and sublicense income in the U.S. less the cost of goods sold as well as selling, general and administrative expenses. 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. The consideration remaining includes cost reimbursements in the U.S., as well as commercial sales-based milestones and net profit and loss sharing payments based on net sales in the U.S. 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 AbbVie . 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 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 AbbVie 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 AbbVie for North America. 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. ​ 17 Table of Contents 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 ​ ​ ​ June 30, ​ June 30, ​ ​ 2020 2019 2020 2019 Collaborative arrangements revenue related to sales of LINZESS in the U.S. ​ $ 86,503 ​ $ 74,973 ​ $ 157,645 ​ $ 139,267 ​ Royalty revenue ​ 423 ​ 525 ​ 973 ​ 1,016 ​ Total collaborative arrangements revenue ​ $ 86,926 ​ $ 75,498 ​ $ 158,618 ​ $ 140,283 ​ ​ 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 ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2020 2019 2020 2019 Selling, general and administrative costs incurred by the Company (1) ​ $ ( 3,936 ) ​ $ ( 10,359 ) ​ $ ( 12,610 ) ​ $ ( 20,636 ) ​ (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 $ 0.4 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. (“Almirall”) to develop and commercialize linaclotide in Europe (including the Commonwealth of Independent States and Turkey) for the treatment of IBS-C, CIC and other GI conditions (the “European License Agreement”). In accordance with the European License Agreement, the Company granted Almirall a right to access its U.S. 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 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. 18 Table of Contents 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. The 2017 Amendment did not modify any of the milestones or royalty terms related to Europe. In evaluating the terms of the European License Agreement and the 2017 Amendment under ASC 606, the Company determined that there are no remaining performance obligations. 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 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 $ 0.4 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 ​ In November 2009, the Company entered into a license agreement with Astellas, as amended, to develop and commercialize linaclotide for the treatment of IBS-C, CIC and other GI conditions in Japan (the “2009 License Agreement with Astellas”). Astellas is responsible for all activities relating to development, regulatory approval and commercialization in Japan as well as funding the associated costs and the Company was required to participate on a joint development committee over linaclotide’s development period. During the year ended December 31, 2017, the Company and Astellas entered into a commercial API supply agreement (the “Astellas Commercial Supply Agreement”). Pursuant to the Astellas Commercial Supply Agreement, the Company sells linaclotide API supply to Astellas at a contractually defined rate and recognizes related revenue as sale of API. Under the 2009 License Agreement with Astellas, the Company received royalties which escalated based on sales volume, beginning in the low-twenties percent, less the transfer price paid for the API included in the product sold and other contractual deductions. Under the 2009 License Agreement with Astellas, the Company received an up-front licensing fee of $ 30.0 million and three development milestone payments that totaled $ 45.0 million, which were recognized as revenue prior to the adoption of ASC 606 on January 1, 2018. ​ The Company evaluated the terms of the 2009 License Agreement with Astellas and determined that there were no remaining performance obligations as of the adoption of ASC 606. 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 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. 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 19 Table of Contents 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 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: ● delivery of the expanded license of intellectual property, including the applicable manufacturing know-how; ● obligation to supply linaclotide API for 2019; and ● adverse event reporting services. ​ The Company allocated the $ 10.0 million upfront payment to the delivery of the expanded license of intellectual property and recognized it as collaborative arrangements revenue at contract inception. The Company allocated the approximately $ 20.4 million in remaining purchase orders for API to the obligation to supply linaclotide API to Astellas for 2019. Consideration for the supply of linaclotide API is recognized over the performance period as linaclotide API is shipped to Astellas using an output method. Consideration allocated to the adverse event reporting services is recognized as such services are provided over the performance period based on the amount to which the Company has a right to invoice using an output method. ​ Royalties on sales of LINZESS in Japan relate predominantly to the license granted to Astellas. 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 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 ​ In October 2012, the Company entered into a collaboration agreement with AstraZeneca to co-develop and co-commercialize linaclotide in the AstraZeneca License Territory (the “AstraZeneca Collaboration Agreement”). The collaboration provided AstraZeneca with an exclusive nontransferable license to exploit the underlying technology in the AstraZeneca License Territory. The parties shared responsibility for continued development and commercialization of linaclotide under a joint development plan and a joint commercialization plan, respectively, with AstraZeneca having primary responsibility for the local operational execution. In September 2019, the Company and AstraZeneca entered into an amendment and restatement of the AstraZeneca Collaboration Agreement (the “Amended AstraZeneca Agreement”) under which AstraZeneca obtained the exclusive right to develop, manufacture and commercialize products containing linaclotide in the AstraZeneca License Territory (the “AstraZeneca License”). ​ Prior to the execution of the Amended AstraZeneca Agreement, the Company identified the following performance obligations under the AstraZeneca Collaboration Agreement: ● research, development and regulatory services pursuant to the development plan (“R&D Services”); ● Joint Development Committee (“JDC”) services; ● obligation to supply clinical trial material; and ● 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 20 Table of Contents 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. Development costs incurred by the Company that pertained to the joint development plan and subsequent amendments to the joint development plan, as approved by the JDC, were recorded as research and development expense as incurred. Payments to AstraZeneca were recorded as incremental research and development expense. 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. In addition, AstraZeneca may be required to make milestone payments totaling up to $ 90.0 million contingent on the achievement of certain sales targets and will be required to pay tiered royalties to the Company at rates beginning in the mid-single-digit percent and increasing up to twenty percent based on the aggregate annual net sales of products containing linaclotide in the AstraZeneca License Territory. In connection with the Amended AstraZeneca Agreement, the Company and AstraZeneca entered into a transition services agreement (“AstraZeneca TSA”) and an amended commercial supply agreement (“AstraZeneca CSA”). Under the terms of the AstraZeneca TSA, the Company will provide certain regulatory and administrative services for a term of approximately two years from the date of execution, unless earlier terminated or extended according to the terms of the transition services agreement. Services performed are paid at a mutually agreed upon rate. Amounts for AstraZeneca TSA services are recorded as collaborative arrangements revenue. 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 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: ● delivery of the expanded AstraZeneca License; ● AstraZeneca TSA services; and ● supply of linaclotide API, finished drug product and finished goods under the AstraZeneca CSA. ​ The Company determined that the non-contingent payments should be allocated to the delivery of the AstraZeneca License. The non-contingent payments totaling $ 35.0 million will be paid in installments through 2024. The Company determined that the performance obligation related to the transfer of the AstraZeneca License was satisfied as of the execution date of the Amended AstraZeneca Agreement. As a portion of the payments relating to the transfer of the AstraZeneca License are due significantly after the performance obligation was satisfied, the Company adjusted its transaction price for the significant financing component of approximately $ 2.6 million. Accordingly, the Company recognized approximately $ 32.4 million relating to the delivery of the AstraZeneca License as collaborative arrangements revenue at contract inception and will recognize the approximately $ 2.6 million relating to the significant financing component as interest income through 2024 using the effective interest method. 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 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, 21 Table of Contents 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 ​ Disease Education and Promotional Agreement with Alnylam ​ In August 2019, the Company and Alnylam entered into a disease education and promotional agreement for Alnylam’s GIVLAARI (the “Alnylam Agreement”). GIVLAARI was approved by the U.S. FDA in December 2019 for the treatment of adult patients with AHP. Under the terms of the agreement, the Company’s sales force is performing disease awareness activities and sales detailing activities for GIVLAARI to gastroenterologists and health care practitioners to whom they detail LINZESS in the first position. ​ The Company is entitled to receive service fees, payable by Alnylam quarterly, totaling up to $ 9.5 million over the term of the agreement, which is approximately three years from execution. The Company also is eligible to receive a royalty based on a percentage of net sales of GIVLAARI that are directly attributable to the Company’s promotional efforts. The Company identified the following performance obligation under the Alnylam Agreement: ​ ● performance of disease education activities for AHP and performance of sales details for GIVLAARI (together “Givosiran Education and Promotion Activities”). ​ The Company allocated the service fees to the performance of Givosiran Education and Promotion Activities and recognizes collaborative arrangements revenue over the term of the agreement as the services are performed using an output method based on the amount to which the Company has a right to invoice. 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 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 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 each of the three and six months ended June 30, 2020 and 2019. 5. 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 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. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points in 22 Table of Contents which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability. ​ The Company’s investment portfolio may include fixed income securities that do not always trade on a daily basis. As a result, the pricing services used by the Company apply other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. In addition, model processes are used to assess interest rate impact and develop prepayment scenarios. These models take into consideration relevant credit information, perceived market movements, sector news and economic events. The inputs into these models may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads and other relevant data. The Company validates the prices provided by its third-party pricing services by obtaining market values from other pricing sources and analyzing pricing data in certain instances. The Company also invests in certain reverse repurchase agreements which are collateralized by Government Securities and Obligations for an amount not less than 102 % of their principal amount. The Company does not record an asset or liability for the collateral as the Company is not permitted to sell or re-pledge the collateral. The collateral has at least the prevailing credit rating of U.S. Government Treasuries and Agencies. The Company utilizes a third-party custodian to manage the exchange of funds and ensure the collateral received is maintained at 102 % of the reverse repurchase agreements principal amount on a daily basis. ​ The following tables present the assets and liabilities the Company has measured at fair value on a recurring basis (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at Reporting Date Using ​ ​ ​ Quoted Prices in Significant Other Significant ​ ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ June 30, 2020 ​ ​ (Level 1) ​ (Level 2) ​ (Level 3) ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 238,230 ​ ​ $ 238,230 ​ $ — ​ $ — ​ Restricted cash: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ ​ 2,221 ​ ​ ​ 2,221 ​ ​ — ​ ​ — ​ Convertible Note Hedges ​ ​ 16,131 ​ ​ ​ — ​ ​ — ​ ​ 16,131 ​ Total assets measured at fair value ​ $ 256,582 ​ ​ $ 240,451 ​ $ — ​ $ 16,131 ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Note Hedge Warrants ​ $ 12,958 ​ ​ $ — ​ $ — ​ $ 12,958 ​ Total liabilities measured at fair value ​ $ 12,958 ​ ​ $ — ​ $ — ​ $ 12,958 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at Reporting Date Using ​ ​ ​ Quoted Prices in Significant Other Significant ​ ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ December 31, 2019 ​ ​ (Level 1) ​ (Level 2) ​ (Level 3) ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 139,190 ​ ​ $ 139,190 ​ $ — ​ $ — ​ Repurchase agreements ​ ​ 37,800 ​ ​ ​ 37,800 ​ ​ — ​ ​ — ​ Restricted cash: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ 2,221 ​ ​ 2,221 ​ — ​ — ​ Convertible Note Hedges ​ ​ 31,366 ​ ​ ​ — ​ ​ — ​ ​ 31,366 ​ Total assets measured at fair value ​ $ 210,577 ​ ​ $ 179,211 ​ $ — ​ $ 31,366 ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Note Hedge Warrants ​ $ 24,260 ​ ​ $ — ​ $ — ​ $ 24,260 ​ Total liabilities measured at fair value ​ $ 24,260 ​ ​ $ — ​ $ — ​ $ 24,260 ​ ​ There were no transfers between fair value measurement levels during each of the three and six months ended June 30, 2020 or 2019. ​ 23 Table of Contents 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 ​ The Company’s Convertible Note Hedges and the Note Hedge Warrants are recorded as derivative assets and liabilities, respectively, and are classified as Level 3 measurements under the fair value hierarchy. 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 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 June 30, 2020 and December 31, 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ Year Ended ​ ​ ​ June 30, ​ December 31, ​ ​ 2020 ​ 2019 ​ ​ ​ Convertible Note Hedge ​ Convertible Note Hedge ​ ​ Note Hedges ​ Warrants Note Hedges ​ Warrants Risk-free interest rate (1) ​ ​ 0.2 % ​ 0.2 % ​ 1.6 % ​ 1.6 % Expected term ​ 2.0 ​ 2.5 ​ ​ 2.5 ​ 3.0 ​ Stock price (2) ​ $ 10.32 ​ $ 10.32 ​ $ 13.31 ​ $ 13.31 ​ Strike price (3) ​ $ 14.51 ​ $ 18.82 ​ $ 14.51 ​ $ 18.82 ​ Common stock volatility (4) ​ ​ 54.4 % ​ 52.7 % ​ 49.1 % ​ 46.5 % Dividend yield (5) ​ — % — % — % — % (1) Based on U.S. 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 June 30, 2020 and December 31, 2019, respectively. (3) As per the respective agreements for the Convertible Note Hedges and Note Hedge Warrants. (4) Expected volatility based on historical volatility of the Company’s Class A Common Stock. (5) The Company has not paid and does not anticipate paying cash dividends on its shares of common stock in the foreseeable future; therefore, the expected dividend yield is assumed to be zero . ​ The Convertible Note Hedges and the Note Hedge Warrants are recorded at fair value at each reporting date and changes in fair value are recorded in other (expense) income, net within the Company’s condensed consolidated statements of operations. 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 June 30, 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible ​ Note Hedge ​ ​ Note Hedges Warrants Balance at December 31, 2019 ​ $ 31,366 ​ $ ( 24,260 ) ​ Change in fair value, recorded as a component of (loss) gain on derivatives ​ ​ ( 15,235 ) ​ ​ 11,302 ​ Balance at June 30, 2020 ​ $ 16,131 ​ $ ( 12,958 ) ​ ​ 24 Table of Contents Convertible Senior Notes ​ In June 2015, the Company issued approximately $ 335.7 million aggregate principal amount of its 2022 Convertible Notes. In August 2019, the Company issued $ 200.0 million aggregate principal amount of its 2024 Convertible Notes and $ 200.0 million aggregate principal amount of its 2026 Convertible Notes and used a portion of the proceeds from such issuances to repurchase $ 215.0 million aggregate principal amount of its 2022 Convertible Notes. The Company separately accounted for the liability and equity components of each of the 2022 Convertible Notes, 2024 Convertible Notes, and 2026 Convertible Notes by allocating the proceeds between the liability component and equity component (Note 8). 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 $ 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 ​ In connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company entered into the Capped Calls with certain financial institutions. The Capped Calls cover 29,867,480 shares of Class A Common Stock (subject to anti-dilution and certain other adjustments), which is the same number of shares of Class A Common Stock that initially underlie the 2024 Convertible Notes and the 2026 Convertible Notes. The Capped Calls have an initial strike price of approximately $ 13.39 per share, which corresponds to the initial conversion price of the 2024 Convertible Notes and the 2026 Convertible Notes, and have a cap price of approximately $ 17.05 per share (Note 8). The strike price and cap price are subject to anti-dilution adjustments generally similar to those applicable to the 2024 Convertible Notes and the 2026 Convertible Notes. These instruments meet the conditions outlined in ASC Topic 815, Derivatives and Hedging (“ASC 815”) to be classified in stockholders’ deficit and are not subsequently remeasured as long as the conditions for equity classification continue to be met. ​ 6. Accrued Expenses and Other Current Liabilities ​ Accrued expenses and other current liabilities consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 December 31, 2019 Accrued incentive compensation ​ $ 5,522 ​ $ 11,760 ​ Accrued vacation ​ ​ 3,484 ​ ​ 2,540 ​ Salaries ​ ​ 2,662 ​ ​ 2,973 ​ Professional fees ​ ​ 2,313 ​ ​ 1,421 ​ Other employee benefits ​ 1,072 ​ 1,260 ​ Accrued interest ​ 301 ​ 301 ​ Other ​ 2,601 ​ 10,210 ​ ​ ​ $ 17,955 ​ $ 30,465 ​ ​ ​ ​ ​ 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. ​ 25 Table of Contents 7. Leases ​ 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 and six months ended June 30, 2020 and 2019 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ June 30, ​ June 30, ​ 2020 ​ 2019 ​ 2020 ​ 2019 Operating lease cost during period (1) $ 633 ​ $ 3,155 ​ $ 1,266 ​ $ 7,680 Variable lease payments ​ 360 ​ ​ 654 ​ ​ 732 ​ ​ 654 Short-term lease cost ​ — ​ ​ 379 ​ ​ — ​ ​ 768 Total lease cost $ 993 ​ $ 4,188 ​ $ 1,998 ​ $ 9,102 (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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ June 30, ​ ​ 2020 ​ 2019 Right-of-use assets obtained in exchange for new operating lease upon adoption of ASC 842 (in thousands) ​ $ — ​ $ 88,299 ​ Adjustment to right-of-use assets as a result of the lease modification at the Separation date (in thousands) ​ ​ — ​ ​ ( 40,427 ) ​ Adjustment to right-of-use assets as a result of the termination of the Binney Street Lease (in thousands) ​ ​ — ​ ​ ( 34,440 ) ​ Right-of-use assets obtained in exchange for new operating lease liabilities (1) (in thousands) ​ ​ — ​ ​ 18,452 ​ Cash paid for amounts included in the measurement of lease liabilities (in thousands) ​ ​ 86 ​ ​ 6,619 ​ Weighted-average remaining lease term of operating leases (in years) ​ ​ 9.7 ​ ​ 7.9 ​ Weighted-average discount rate of operating leases ​ ​ 5.8 % ​ 5.3 % ​ (1) Relates to right-of-use assets and operating lease liabilities for the Summer Street Lease (as defined below). ​ 26 Table of Contents Future minimum lease payments under non-cancelable operating leases as of June 30, 2020 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ Operating ​ Lease ​ ​ Payments 2020 (1) ​ $ 1,060 2021 ​ ​ 3,128 2022 ​ ​ 3,129 2023 ​ ​ 3,065 2024 ​ 3,126 2025 and thereafter ​ 18,044 Total future minimum lease payments ​ ​ 31,552 Less: present value adjustment ​ ​ ( 7,731 ) Operating lease liabilities at June 30, 2020 ​ ​ 23,821 Less: current portion of operating lease liabilities ​ ​ ( 2,610 ) Operating lease liabilities, net of current portion ​ $ 21,211 (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”) 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 June 30, 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 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 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) ​ The Company rented office space at 301 Binney Street, Cambridge, Massachusetts (“Binney Street Property”) under a non-cancelable operating lease, entered into in January 2007, as amended (“Binney Street Lease”) through October 2019. 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. ​ 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 27 Table of Contents 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 ​ The Company rents space for its data center at a colocation in Boston, Massachusetts under a non-cancelable operating lease (the “Data Center Lease”). The Data Center Lease includes a 4 % annual rent escalation. The rent expense, inclusive of the escalating rent payments, is recognized on a straight-line basis over the lease term through August 2022. The Company recorded a right-of-use asset of approximately $ 0.6 million and a lease liability of approximately $ 0.6 million associated with the Data Center Lease upon adoption of ASC 842. The incremental borrowing rate for the outstanding Data Center Lease obligation upon adoption of ASC 842 was approximately 6.0 %. During the three months ended March 31, 2019, the Company migrated its data management process to a cloud-based services system, rendering its current data center technology and assets obsolete. As a result, the Company considered the right-of-use asset associated with the Data Center Lease to be fully impaired. 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 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 ​ During April 2018, the Company entered into a master services agreement containing 12-month leases (the “2018 Vehicle Leases”) for vehicles within its fleet for its field-based sales force and medical science liaisons. These leases are classified as short-term in accordance with the practical expedient in ASC 842. 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 June 30, 2020 and December 31, 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. ​ ​ ​ 8. Notes Payable ​ 2.25 % Convertible Senior Notes due 2022 ​ In June 2015, the Company issued approximately $ 335.7 million aggregate principal amount of the 2022 Convertible Notes. 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 28 Table of Contents $ 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. Bank National Association, as trustee (the “Trustee”). The 2022 Convertible Notes are senior unsecured obligations and bear cash interest at the annual rate of 2.25 %, payable on June 15 and December 15 of each year, which began on December 15, 2015. The 2022 Convertible Notes will mature on June 15, 2022, unless earlier converted or repurchased. The Company may settle conversions of the 2022 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 2022 Indenture). The initial conversion rate for the 2022 Convertible Notes was 60.3209 shares of Class A Common Stock (subject to adjustment as provided for in the 2022 Indenture) per $ 1,000 principal amount of the 2022 Convertible Notes, which was equal to an initial conversion price of approximately $ 16.58 per share and 20,249,665 shares. ​ In connection with the Separation in April 2019, the conversion rate under the 2022 Indenture was adjusted to equal 68.9172 shares of Ironwood Class A Common Stock per $ 1,000 principal amount of the 2022 Convertible Notes, which is equal to an adjusted conversion price of approximately $ 14.51 per share and 23,135,435 shares. ​ Holders of the 2022 Convertible Notes may convert their 2022 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2021 in multiples of $ 1,000 principal amount, only under the following circumstances: ​ ● during any calendar quarter commencing after the calendar quarter ending on September 30, 2015 (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 2022 Convertible Notes on each applicable trading day; ​ ● during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the 2022 Indenture) per $ 1,000 principal amount of the 2022 Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s Class A Common Stock and the conversion rate for the 2022 Convertible Notes on each such trading day; or ​ ● upon the occurrence of specified corporate events described in the 2022 Indenture. ​ On or after December 15, 2021, until the close of business on the second scheduled trading day immediately preceding June 15, 2022, holders may convert their 2022 Convertible Notes, in multiples of $ 1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. ​ If a make-whole fundamental change, as described in the 2022 Indenture, occurs and a holder elects to convert its 2022 Convertible Notes in connection with such make-whole fundamental change, such holder may be entitled to an increase in the conversion rate as described in the 2022 Indenture. The Company may not redeem the 2022 Convertible Notes prior to the maturity date and no “sinking fund” is provided for by the 2022 Convertible Notes, which means that the Company is not required to periodically redeem or retire the 2022 Convertible Notes. Upon the occurrence of certain fundamental changes involving the Company, holders of the 2022 Convertible Notes may require the Company to repurchase for cash all or part of their 2022 Convertible Notes at a repurchase price equal to 100 % of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest. ​ The 2022 Indenture does not contain any financial covenants or restrict the Company’s ability to repurchase the Company’s securities, pay dividends or make restricted payments in the event of a transaction that substantially increases the Company’s level of indebtedness. The 2022 Indenture provides for customary events of default. In the case of an event of default with respect to the 2022 Convertible Notes arising from specified events of bankruptcy or insolvency, all outstanding 2022 Convertible Notes will become due and payable immediately without further action or notice. If any other event of default with respect to the 2022 Convertible Notes under the 2022 Indenture occurs or is continuing, the Trustee or holders of at least 25 % in aggregate principal amount of the then outstanding 2022 Convertible Notes may declare the principal amount of the 2022 Convertible Notes to be immediately due and payable. 29 Table of Contents Notwithstanding the foregoing, the 2022 Indenture provides that, upon the Company’s election, and for up to 180 days , the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the 2022 Indenture consists exclusively of the right to receive additional interest on the 2022 Convertible Notes. ​ In accordance with accounting guidance for debt with conversion and other options, the Company separately accounted for the liability and equity components of the 2022 Convertible Notes by allocating the proceeds between the liability component and the embedded conversion option, or equity component, due to the Company’s ability to settle the 2022 Convertible Notes in cash, its Class A Common Stock, or a combination of cash and Class A Common Stock at the option of the Company. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The equity component of the 2022 Convertible Notes was recognized as a debt discount and represents the difference between the gross proceeds from the issuance of the 2022 Convertible Notes and the fair value of the liability component of the 2022 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 seven years , or the expected life of the 2022 Convertible Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. ​ In connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes in August 2019, the Company repurchased $ 215.0 million aggregate principal amount of the 2022 Convertible Notes. The 2022 Convertible Notes were repurchased at a premium totaling approximately $ 227.3 million. The Company recognized a loss on extinguishment of debt of approximately $ 23.4 million during the year ended December 31, 2019 related to the premium and proportional write-off of the 2022 Convertible Notes unamortized debt issuance costs and unamortized debt discount. Additionally, the repurchase resulted in a reduction to additional paid-in capital of approximately $ 27.0 million during the year ended December 31, 2019 related to the equity component of the 2022 Convertible Notes. ​ 0.75% Convertible Senior Notes due 2024 and 1.50% Convertible Senior Notes due 2026 ​ In August 2019, the Company issued $ 200.0 million aggregate principal amount of the 2024 Convertible Notes and $ 200.0 million aggregate principal amount of the 2026 Convertible Notes. The Company received net proceeds of approximately $ 391.0 million from the sale of the 2024 Convertible Notes and 2026 Convertible Notes, after deducting fees and expenses of approximately $ 9.0 million. The Company used approximately $ 25.2 million of the net proceeds from the sale of the 2024 Convertible Notes and 2026 Convertible Notes to pay the cost of the Capped Calls, as described below. For purposes of this section, “Notes” refer to the 2024 Convertible Notes and the 2026 Convertible Notes, collectively. ​ The 2024 Convertible Notes and 2026 Convertible Notes were issued by the Company on August 12, 2019, pursuant to separate Indentures, each dated as of such date (each an “Indenture” and together the “Indentures”), between the Company and the Trustee. The 2024 Convertible Notes bear cash interest at the annual rate of 0.75 % and the 2026 Convertible Notes bear cash interest at the annual rate of 1.50 %, each payable on June 15 and December 15 of each year, which began on December 15, 2019. The 2024 Convertible Notes will mature on June 15, 2024 and the 2026 Convertible Notes will mature on June 15, 2026, unless earlier converted or repurchased. 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). 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. ​ 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 30 Table of Contents 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; ​ ● during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in each Indenture) per $ 1,000 principal amount of Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of Class A Common Stock and the conversion rate for the Notes on each such trading day; or ​ ● upon the occurrence of specified corporate events described in each Indenture. ​ On or after December 15, 2023, with respect to the 2024 Convertible Notes, and December 15, 2025, with respect to the 2026 Convertible Notes, until the close of business on the second scheduled trading day immediately preceding the applicable maturity date, the holders of the Notes may convert their Notes, in multiples of $ 1,000 principal amount, regardless of the foregoing conditions. ​ If the Company experiences a make-whole fundamental change, as described in the Indentures, prior to the maturity date of the respective Notes, holders of such Notes will, subject to specified conditions, have the right, at their option, to require the Company to repurchase for cash all or a portion of their Notes at a repurchase price equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the applicable maturity date of the Notes, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such corporate event. ​ The Indentures do not contain any financial covenants or restrict the Company’s ability to repurchase the Company’s securities, pay dividends or make restricted payments in the event of a transaction that substantially increases the Company’s level of indebtedness. The Indentures provide for customary events of default. In the case of an event of default with respect to a series of Notes arising from specified events of bankruptcy or insolvency, all outstanding Notes of such series will become due and payable immediately without further action or notice. If any other event of default with respect to a series of Notes under the relevant Indenture occurs or is continuing, the Trustee or holders of at least 25 % in aggregate principal amount of the then outstanding Notes of such series may declare the principal amount of such Notes to be immediately due and payable. Notwithstanding the foregoing, the Indentures provide that, upon the Company’s election, and for up to 180 days , the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indentures consists exclusively of the right to receive additional interest on the Notes. ​ In accordance with accounting guidance for debt with conversion and other options, the Company separately accounted for the liability and equity components of the 2024 Convertible Notes and the 2026 Convertible Notes by allocating the proceeds between the liability components and the embedded conversion options, or equity components, due to the Company’s ability to settle the 2024 Convertible Notes and the 2026 Convertible Notes in cash, its Class A Common Stock, or a combination of cash and Class A Common Stock at the option of the Company. The carrying amount of the respective liability components were calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. 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 respective equity components are not remeasured as long as they continue to meet the conditions for equity classification. ​ 31 Table of Contents 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 ​ Liability component: ​ ​ ​ ​ ​ ​ Principal: ​ ​ ​ ​ ​ ​ 2022 Convertible Notes ​ $ 120,699 ​ $ 120,699 ​ 2024 Convertible Notes ​ ​ 200,000 ​ ​ 200,000 ​ 2026 Convertible Notes ​ ​ 200,000 ​ ​ 200,000 ​ Less: unamortized debt discount ​ ​ ( 94,475 ) ​ ​ ( 104,700 ) ​ Less: unamortized debt issuance costs ​ ​ ( 7,300 ) ​ ​ ( 8,005 ) ​ Net carrying amount ​ $ 418,924 ​ $ 407,994 ​ Equity component: ​ ​ ​ ​ ​ ​ ​ 2022 Convertible Notes ​ ​ 19,807 ​ ​ 19,807 ​ 2024 Convertible Notes ​ ​ 41,152 ​ ​ 41,152 ​ 2026 Convertible Notes ​ ​ 51,350 ​ ​ 51,350 ​ Total equity component ​ $ 112,309 ​ $ 112,309 ​ ​ ​ In connection with the issuance of the 2022 Convertible Notes, the Company incurred approximately $ 11.7 million of debt issuance costs, which primarily consisted of initial purchasers’ discounts and legal and other professional fees. The Company allocated these costs to the liability and equity components based on the allocation of the proceeds. The portion of these costs allocated to the equity components totaling approximately $ 4.0 million were recorded as a reduction to additional paid-in capital upon issuance. The portion of these costs allocated to the liability components totaling approximately $ 7.7 million were recorded as a reduction in the carrying value of the debt on the condensed consolidated balance sheet and are amortized to interest expense using the effective interest method over the expected life of the 2022 Convertible Notes. In connection with the partial repurchase of the 2022 Convertible Notes, the Company recorded a loss on extinguishment of debt of approximately $ 23.4 million, of which approximately $ 2.8 million related to the initial debt issuance costs, during the year ended December 31, 2019. ​ 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 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. The Company allocated these costs to the liability and equity components based on the allocation of the proceeds. The portion of these costs allocated to the equity components totaling approximately $ 2.1 million were recorded as a reduction to additional paid-in capital. The portion of these costs allocated to the liability components totaling approximately $ 6.9 million were recorded as a reduction in the carrying value of the debt on the condensed consolidated balance sheet and are amortized to interest expense using the effective interest method over the expected life of the 2024 Convertible Notes and the 2026 Convertible Notes. ​ The Company determined the expected life of the 2024 Convertible Notes and the 2026 Convertible Notes was equal to their approximately five and seven-year terms, respectively. The effective interest rates on the liability 32 Table of Contents 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 ​ ​ ​ ​ June 30, ​ June 30, ​ ​ ​ 2020 2019 2020 2019 Contractual interest expense ​ $ 1,802 ​ $ 1,889 ​ $ 3,609 ​ $ 3,777 ​ ​ Amortization of debt issuance costs ​ ​ 360 ​ ​ 283 ​ ​ 705 ​ ​ 555 ​ ​ Amortization of debt discount ​ ​ 5,156 ​ ​ 4,164 ​ ​ 10,224 ​ ​ 8,239 ​ ​ Total interest expense ​ $ 7,318 ​ $ 6,336 ​ $ 14,538 ​ $ 12,571 ​ ​ ​ Future minimum payments under the convertible senior notes as of June 30, 2020 are as follows (in thousands): ​ ​ ​ ​ ​ ​ 2020 (1) ​ $ 3,608 ​ 2021 ​ ​ 7,216 ​ 2022 ​ ​ 126,556 ​ 2023 ​ ​ 4,500 ​ 2024 ​ ​ 203,750 ​ 2025 ​ ​ 3,000 ​ 2026 and Thereafter ​ ​ 201,500 ​ Total future minimum payments under the convertible senior notes ​ 550,130 ​ Less: amounts representing interest ​ ​ ( 29,431 ) ​ Less: unamortized debt discount ​ ​ ( 94,475 ) ​ Less: unamortized debt issuance costs ​ ​ ( 7,300 ) ​ Convertible senior notes balance ​ $ 418,924 ​ (1) For the six months ending December 31, 2020. ​ Convertible Note Hedge and Note Hedge Warrant Transactions with Respect to 2022 Convertible Notes ​ To minimize the impact of potential dilution to the Company’s Class A common stockholders upon conversion of the 2022 Convertible Notes, the Company entered into the Convertible Note Hedges covering 20,249,665 shares of the Company’s Class A Common Stock in connection with the issuance of the 2022 Convertible Notes. The Convertible Note Hedges had an initial exercise price of $ 16.58 per share, subject to adjustment upon the occurrence of certain corporate events or transactions, and are exercisable if the 2022 Convertible Notes are converted. In connection with the adjustment to the conversion rate of the 2022 Convertible Notes related to the Separation in April 2019, the exercise price of the Convertible Note Hedges was adjusted to $ 14.51 per share and the number of shares underlying the Convertible Note Hedges was increased to 23,135,435 shares. If upon conversion of the 2022 Convertible Notes, the price of the Company’s Class A Common Stock is above the exercise price of the Convertible Note Hedges, the counterparties are obligated to deliver shares of the Company’s Class A Common Stock and/or cash with an aggregate value approximately equal to the difference between the price of the Company’s Class A Common Stock at the conversion date and the exercise price, multiplied by the number of shares of the Company’s Class A Common Stock related to the Convertible Note Hedge being exercised. ​ Concurrently with entering into the Convertible Note Hedges, the Company sold Note Hedge Warrants to the Convertible Note Hedge counterparties to acquire 20,249,665 shares of the Company’s Class A Common Stock, subject to customary anti-dilution adjustments. The strike price of the Note Hedge Warrants was initially $ 21.50 per share, subject to adjustment, and such warrants are exercisable over the 150 trading day period beginning on September 15, 2022. In connection with the Separation in April 2019, the exercise price was adjusted to $ 18.82 per share and the number of shares underlying the Note Hedge Warrants was increased to 23,135,435 shares. The Note Hedge Warrants could have a dilutive effect on the Class A Common Stock to the extent that the market price per share of the Company’s Class A Common Stock exceeds the applicable strike price of such warrants. ​ 33 Table of Contents The Convertible Note Hedges and the Note Hedge Warrants are separate transactions entered into by the Company and are not part of the terms of the 2022 Convertible Notes. Holders of the Convertible Note Hedges and the Note Hedge Warrants do not have any rights with respect to the 2022 Convertible Notes. The Company paid approximately $ 91.9 million for the Convertible Note Hedges and recorded this amount as a long-term asset on its condensed consolidated balance sheet. The Company received approximately $ 70.8 million for the Note Hedge Warrants and recorded this amount as a long-term liability, resulting in a net cost to the Company of approximately $ 21.1 million. ​ 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 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. ​ Capped Calls with Respect to 2024 Convertible Notes and 2026 Convertible Notes ​ To minimize the impact of potential dilution to the Company’s Class A common stockholders upon conversion of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company entered into separate Capped Calls in connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes. The Company paid the counterparties approximately $ 25.2 million to enter into the Capped Calls. ​ The Capped Calls have an initial strike price of approximately $ 13.39 per share, which corresponds to the initial conversion price of the 2024 Convertible Notes and the 2026 Convertible Notes and is subject to anti-dilution adjustments generally similar to those applicable to the 2024 Convertible Notes and the 2026 Convertible Notes. The Capped Calls have a cap price of approximately $ 17.05 per share, representing an approximately 75 % premium over the last reported sale price of the Class A Common Stock as of August 7, 2019, which cap price is subject to certain adjustments under the terms of the Capped Calls. The Capped Calls cover 29,867,480 shares of Class A Common Stock (subject to anti-dilution and certain other adjustments), which is the same number of shares of Class A Common Stock that initially underlie the 2024 Convertible Notes and the 2026 Convertible Notes. ​ The Capped Calls are expected generally to reduce the potential dilution to the Class A Common Stock upon conversion of the 2024 Convertible Notes and the 2026 Convertible Notes in the event that the market price per share of Class A Common Stock, as measured under the terms of the Capped Calls, is greater than the strike price of the Capped Calls as adjusted pursuant to the anti-dilution adjustments. If, however, the market price per share of Class A Common Stock as measured under the terms of the Capped Calls, exceeds the cap price of the Capped Calls, there would nevertheless be dilution upon conversion of the 2024 Convertible Notes and the 2026 Convertible Notes to the extent that such market price exceeds the cap price of the Capped Calls. ​ The Capped Calls are separate transactions entered into by and between the Company and the Capped Calls counterparties and are not part of the terms of the 2024 Convertible Notes or the 2026 Convertible Notes. Holders of the 2024 Convertible Notes and the 2026 Convertible Notes do not have any rights with respect to the Capped Calls. The Company recorded a reduction to additional paid-in capital of approximately $ 25.0 million during the year ended December 31, 2019 related to the premium payments for the Capped Calls. Additionally, the Company recorded an approximately $ 0.2 million reduction to equity related to transaction costs incurred in connection with the Capped Calls during the year ended December 31, 2019. These instruments meet the conditions outlined in ASC 815 to be classified in stockholders’ deficit and are not subsequently remeasured as long as the conditions for equity classification continue to be met. ​ 9. Employee Stock Benefit Plans ​ The Company has several share-based compensation plans under which stock options, restricted stock awards, restricted stock units and other share-based awards are available for grant to employees, officers, directors and consultants of the Company. ​ 34 Table of Contents The following table summarizes share-based compensation expense (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2020 2019 2020 2019 Research and development ​ $ 1,405 ​ $ 1,179 ​ $ 2,801 ​ $ 4,098 ​ Selling, general and administrative ​ ​ 5,686 ​ 5,021 ​ 10,654 ​ ​ 15,519 ​ Restructuring expenses ​ ​ — ​ ​ 137 ​ — ​ 654 ​ ​ ​ $ 7,091 ​ $ 6,337 ​ $ 13,455 ​ $ 20,271 ​ ​ In February 2019, following further 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. Certain share-based payment awards were modified in connection with the reduction in workforce. 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. ​ 10. Related Party Transactions ​ 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 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. The transition services agreements with Cyclerion terminated on March 31, 2020. ​ 11. Workforce Reduction ​ 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 and six months ended June 30, 2019, 35 Table of Contents 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. ​ ​