What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-06 · 153 added, 123 removed, 599 unchanged (32% of the section changed)

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2021 and 2020

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

Notes to Condensed Consolidated Financial Statements

13 unchanged sentences

Restricted cash

Convertible note hedges

Total current assets

4 unchanged sentences

Convertible note hedges

Deferred tax assets

LIABILITIES AND STOCKHOLDERS' EQUITY

4 unchanged sentences

Current portion of operating lease liabilities

Current portion of convertible senior notes

Total current liabilities

Note hedge warrants

Convertible senior notes

Convertible senior notes, net of current portion

Operating lease obligations, net of current portion

3 unchanged sentences

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 161,931,012 shares issued and outstanding at March 31, 2021 and 500,000,000 shares authorized and 160,616,675 shares issued and outstanding at December 31, 2020

Class A Common Stock, $ 0.001 par value, 500,000,000 shares authorized and 162,831,953 shares issued and outstanding at June 30, 2021 and 500,000,000 shares authorized and 160,616,675 shares issued and outstanding at December 31, 2020

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Collaborative arrangements revenue

11 unchanged sentences

Interest and investment income

Gain (loss) on derivatives

Loss on derivatives

Other expense, net

Income before income taxes

Income tax expense

Income tax benefit

Net income and comprehensive income

5 unchanged sentences

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

6 unchanged sentences

( 1,426,130 )

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

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

Balance at June 30, 2021

( 1,034,827 )

Stockholders’

5 unchanged sentences

( 1,568,887 )

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

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

Balance at June 30, 2020

( 1,543,683 )

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

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

4 unchanged sentences

Non-cash interest expense

Deferred income taxes (including benefit from valuation allowance release)

Changes in assets and liabilities:

1 unchanged sentence

Prepaid expenses and other current assets

Inventory, net

Operating lease right-of-use assets

50 unchanged sentences

The patents are expected to expire in 2031.

Additionally, the Company periodically enters into 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 ® (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 November 2019.

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

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

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Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 17, 2021 (the “2020 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 statement of the Company’s financial position as of March 31, 2021, and the results of its operations for the three months ended March 31, 2021 and 2020, its statements of stockholders’ equity for the three months ended March 31, 2021 and 2020, and its cash flows for the three months ended March 31, 2021 and 2020.

The results of operations for the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

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 statement of the Company’s financial position as of June 30, 2021, and the results of its operations for the three and six months ended June 30, 2021 and 2020, its statements of stockholders’ equity for the three and six months ended June 30, 2021 and 2020, and its cash flows for the six months ended June 30, 2021 and 2020.

The results of operations for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Ironwood and its wholly-owned subsidiaries as of March 31, 2021, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH.

The accompanying condensed consolidated financial statements include the accounts of Ironwood and its wholly-owned subsidiaries as of June 30, 2021, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH.

All intercompany transactions and balances are eliminated in consolidation.

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The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies , in the 2020 Annual Report on Form 10-K.

During the three months ended March 31, 2021, the Company did not adopt any additional significant accounting policies, except as outlined below.

During the three and six months ended June 30, 2021, the Company did not adopt any additional significant accounting policies, except as outlined below.

New Accounting Pronouncements

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

Except as set forth below, the Company did not adopt any new accounting pronouncements during the three months ended March 31, 2021 that had a material effect on its condensed consolidated financial statements.

In December 2019, the FASB issued ASU No.

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The Company is currently evaluating the impact that the adoption of ASU 2020-06 may have on its financial position and results of operations.

The Company’s analysis includes, but is not limited to, reviewing existing convertible debt agreements, assessing potential disclosures, and evaluating the impact of adoption on the Company’s condensed consolidated financial statements.

The Company is in the process of finalizing the quantitative impact that the ASUs will have on the financial statements, as well as its plan for implementation.

In May 2021, the FASB issued ASU No.

2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”).

The guidance in ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange.

The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021 .

Early adoption is permitted.

The Company is currently evaluating the impact that the adoption of ASU 2021-04 may have on its financial position and results of operations.

Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the Company or have a material effect on the condensed consolidated financial statements upon future adoption.

2 unchanged sentences

Three Months Ended

Six Months Ended

Weighted average number of common shares outstanding used in computing net income per share — basic

4 unchanged sentences

Restricted stock

Shares subject to issuance under Employee Stock Purchase Plan

Dilutive potential common shares

4 unchanged sentences

Three Months Ended

Six Months Ended

Stock options

3 unchanged sentences

Performance-based restricted stock units

Shares subject to issuance under Employee Stock Purchase Plan

Note Hedge Warrants

6 unchanged sentences

For diluted net income per share purposes, the conversion spread obligation is calculated based on whether the average market price of the Company’s Class A Common Stock during the reporting period is in excess of the conversion price of the Convertible Senior Notes.

There was no calculated spread added to the denominator for three months ended March 31, 2021 or 2020.

There was no calculated spread added to the denominator for the three and six months ended June 30, 2021 or 2020.

Collaboration, License, Promotion and Other Commercial Agreements

For the three months ended March 31, 2021, 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.

For the three and six months ended June 30, 2021, 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 Pharmaceuticals, Inc (“Alnylam”) to perform disease awareness activities for AHP and sales detailing activities for GIVLAARI.

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

Three Months Ended

Six Months Ended

Collaborative Arrangements Revenue

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Total sale of API

Accounts receivable, net, included $ 110.7 million and $ 145.8 million primarily related to collaborative arrangements revenue and sale of API, collectively, as of March 31, 2021 and December 31, 2020, respectively.

Accounts receivable, net, included $ 85.6 million and $ 110.9 million due from the Company’s partner, AbbVie, net of $ 3.9 million and $ 4.3 million of accounts payable, as of March 31, 2021 and December 31, 2020, respectively.

Accounts receivable, net, included $ 126.0 million and $ 145.8 million primarily related to collaborative arrangements revenue and sale of API, collectively, as of June 30, 2021 and December 31, 2020, respectively.

Accounts receivable, net, included $ 99.9 million and $ 110.9 million due from the Company’s partner, AbbVie, net of $ 3.7 million and $ 4.3 million of accounts payable, as of June 30, 2021 and December 31, 2020, respectively.

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 during the three months ended March 31, 2021 and 2020.

The Company has not experienced any material losses related to receivables from its license or collaboration partners during the three and six months ended June 30, 2021 and 2020.

Linaclotide Agreements

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

As of March 31, 2021, $ 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.

As of June 30, 2021, $ 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 $ 80.0 million in a sales-related milestone if certain conditions are met, which will be recognized as collaborative arrangements revenue when it is probable that a significant reversal of revenue would not occur, and the associated constraints have been lifted.

During the three months ended March 31, 2021 and 2020, the Company incurred $ 1.8 million and $ 6.6 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 $ 2.9 million and $ 0.8 million in research and development costs during the three months ended March 31, 2021 and 2020, respectively, to reflect the obligations of each party under the collaboration to bear 50 % of the development costs incurred.

During the three and six months ended June 30, 2021, the Company incurred $ 1.8 million and $ 3.6 million, respectively, in total research and development expenses under the linaclotide collaboration for North America.

During the three and six months ended June 30, 2020, the Company incurred $ 6.2 million and $ 12.9 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 $ 2.8 million and $ 5.7 million, in incremental research and development costs during the three and six months ended June 30, 2021, respectively, and incurred $ 0.5 million and $ 1.2 million in incremental research and development costs during the three and six months ended June 30, 2020, respectively, to reflect the obligations of each party under the collaboration to bear 50 % of the development costs incurred.

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

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

The Company recognized collaborative arrangements revenue from the AbbVie collaboration agreement for North America during the three months ended March 31, 2021 and 2020 as follows (in thousands):

The Company recognized collaborative arrangements revenue from the AbbVie collaboration agreement for North America during the three and six months ended June 30, 2021 and 2020 as follows (in thousands):

Three Months Ended

Six Months Ended

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

1 unchanged sentence

Total collaborative arrangements revenue

The collaborative arrangements revenue recognized in the three months ended March 31, 2021 and 2020 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 months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

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

(1) Excludes $ 0.1 million and $ 0.2 million for the three months ended March 31, 2021 and 2020, respectively, related to patent prosecution and patent litigation costs recognized in connection with the collaboration agreement with AbbVie.

The collaborative arrangements revenue recognized in the three and six months ended June 30, 2021 and 2020 primarily represents the Company’s share of the net profits and net losses on the sale of LINZESS in the U.S.

The Company incurred $ 7.5 million and $ 14.5 million in total selling, general and administrative costs related to the sale of LINZESS in the U.S.

in accordance with the cost-sharing arrangement with AbbVie, which included an

insignificant amount in patent prosecution and patent litigation costs, for each of the three and six months ended June 30, 2021, respectively.

The Company incurred $ 4.1 million and $ 13.0 million in total selling, general and administrative costs related to the sale of LINZESS in the U.S.

in accordance with the cost-sharing arrangement with AbbVie, which included an insignificant amount and $ 0.4 million in patent prosecution and patent litigation costs, for the three and six months ended June 30, 2020, respectively.

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 $ 0.6 million of combined royalty revenues from Canada and Mexico during each of the three months ended March 31, 2021 and 2020.

The Company recognized $ 0.7 million and $ 1.3 million of combined royalty revenues from Canada and Mexico during the three and six months ended June 30, 2021, respectively.

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

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

12 unchanged sentences

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, as amended, the Company determined that there are no remaining performance obligations as of September 2012.

In evaluating the terms of the European License Agreement, as amended by the 2017 Amendment (the “Amended European License Agreement”), the Company determined that there are no remaining performance obligations as of September 2012.

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 commercial launch milestones, sales-based milestones and royalties under the Amended European License Agreement 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 $ 0.6 million of royalty revenue from the Amended European License Agreement during each of the three months ended March 31, 2021 and 2020.

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 $ 0.6 million and $ 1.2 million of royalty revenue from the Amended European License Agreement during the three and six months ended June 30, 2021, respectively.

The Company recognized $ 0.4 million and $ 1.1 million of royalty revenue from the Amended European License Agreement during the three and six months ended June 30, 2020, respectively.

License Agreement for Japan with Astellas

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

The Company recognized $ 0.5 million and $ 0.4 million of royalty revenue during the three months ended March 31, 2021 and 2020, respectively.

The Company recognized an insignificant amount of collaborative arrangements revenue related to adverse event reporting services in the three months ended March 31, 2020 prior to the termination of such services.

The Company recognized $ 0.6 million and $ 1.1 million of royalty revenue during the three and six months ended June 30, 2021, respectively, under the Amended Astellas License Agreement.

The Company recognized $ 0.5 million and $ 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 $ 0.5 million and $ 0.9 million related to royalties, respectively.

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

3 unchanged sentences

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;

● Joint Commercialization Committee services.

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

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.

Under the Amended AstraZeneca Agreement, the Company is entitled to receive non-contingent payments totaling $ 35.0 million in three installments through 2024, of which $ 10.0 million was received in January 2021.

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

During the three months ended March 31, 2021, the Company recognized $ 0.2 million in collaborative arrangements revenue related to the Amended AstraZeneca License, of which $ 0.1 million related to the AstraZeneca TSA services and $ 0.1 million related to royalties.

During the three months ended March 31, 2020, the Company recognized $ 0.3 million in collaborative arrangements revenue related to the Amended AstraZeneca License, of which $ 0.2 million related to the AstraZeneca TSA services and $ 0.1 million related to royalties.

Additionally, the Company recognized $ 5.5 million in sales of API relating to the supply of linaclotide finished drug product and finished goods under the AstraZeneca CSA during the three months ended March 31, 2020.

During the three and six months ended June 30, 2021, the Company recognized an insignificant amount and $ 0.2 million, respectively, in collaborative arrangements revenue under the Amended AstraZeneca Agreement related to AstraZeneca TSA services.

Additionally, the Company recognized $ 0.6 million, in sales of API relating to the supply of reference standard material to AstraZeneca during each of the three and six months ended June 30, 2021.

T he Company recognized an insignificant amount and $ 0.3 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, 2021, respectively.

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

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

Additionally, the Company recognized an insignificant amount and $ 5.5 million, in sales of API relating to the supply of linaclotide finished drug product and finished goods under the AstraZeneca CSA during the three and six months ended June 30, 2020, respectively.

T he Company recognized $ 0.2 million and $ 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 and Other Agreements

4 unchanged sentences

Under the terms of the Alnylam 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 over the term of the agreement, which is approximately three years.

In June 2021, the Alnylam Agreement was terminated with an effective termination date of September 30, 2021.

Under the Alnylam Agreement, the Company received service fees, totaling $ 5.5 million for services rendered through December 31, 2020.

5 unchanged sentences

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

During the three months ended March 31, 2020, the Company recognized $ 0.9 million in collaborative arrangements revenue related to the service fees.

During the three months ended March 31, 2021 and 2020, the Company recognized $ 0.5 million and an insignificant amount, respectively, in royalty revenue.

During the three and six months ended June 30, 2021, the Company recognized $ 0.6 million and $ 1.1 million, respectively, in royalty revenue under the Alnylam Agreement.

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

Fair Value of Financial Instruments

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 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.

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 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.

6 unchanged sentences

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 periodically 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.

8 unchanged sentences

Identical Assets

March 31, 2021

June 30, 2021

Cash and cash equivalents:

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Total liabilities measured at fair value

There were no transfers between fair value measurement levels during each of the three months ended March 31, 2021 or 2020.

Cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued research and development costs, accrued expenses and other current liabilities and current portion of operating lease obligations at March 31, 2021 and December 31, 2020 are carried at amounts that approximate fair value due to their short-term maturities.

There were no transfers between fair value measurement levels during each of the three and six months ended June 30, 2021 or 2020.

Cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued research and development costs, accrued expenses and other current liabilities and current portion of operating lease obligations at June 30, 2021 and December 31, 2020 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

1 unchanged sentence

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

Significant inputs used to determine the fair value as of March 31, 2021 included the price per share of the Company’s Class A Common Stock, expected terms of the derivative instruments, strike prices of the derivative instruments, risk-free interest rates, and expected volatility of the Company’s Class A Common Stock.

Significant inputs used to determine the fair value as of June 30, 2021 included the price per share of the Company’s Class A Common Stock, expected terms of the derivative instruments, strike prices of the derivative instruments, risk-free interest rates, and expected volatility of the Company’s Class A Common Stock.

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

The following inputs were used in the fair market valuation of the Convertible Note Hedges and Note Hedge Warrants as of March 31, 2021 and December 31, 2020:

Three Months Ended

March 31, 2021

The following inputs were used in the fair market valuation of the Convertible Note Hedges and Note Hedge Warrants as of June 30, 2021 and December 31, 2020:

Six Months Ended

June 30, 2021

December 31, 2020

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

(2) The closing price of the Company’s Class A Common Stock on the last trading days of the quarters ended March 31, 2021 and December 31, 2020, respectively.

(2) The closing price of the Company’s Class A Common Stock on the last trading days of the quarters ended June 30, 2021 and December 31, 2020, respectively.

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

3 unchanged sentences

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 income.

The following table reflects the change in the Company’s Level 3 Convertible Note Hedges and Note Hedge Warrants from December 31, 2020 through March 31, 2021 (in thousands):

The following table reflects the change in the Company’s Level 3 Convertible Note Hedges and Note Hedge Warrants from December 31, 2020 through June 30, 2021 (in thousands):

Balance at December 31, 2020

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

Balance at March 31, 2021

Balance at June 30, 2021

Convertible Senior Notes

3 unchanged sentences

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 $ 130.1 million and $ 130.2 million as of March 31, 2021 and December 31, 2020, respectively.

The estimated fair value of the 2024 Convertible Notes was $ 220.9 million and $ 222.3 million as of March 31, 2021 and December 31, 2020, respectively.

The estimated fair value of the 2026 Convertible Notes was $ 225.9 million and $ 224.1 million as of March 31, 2021 and December 31, 2020, respectively.

The estimated fair value of the 2022 Convertible Notes was $ 131.1 million and $ 130.2 million as of June 30, 2021 and December 31, 2020, respectively.

The estimated fair value of the 2024 Convertible Notes was $ 234.7 million and $ 222.3 million as of June 30, 2021 and December 31, 2020, respectively.

The estimated fair value of the 2026 Convertible Notes was $ 239.2 million and $ 224.1 million as of June 30, 2021 and December 31, 2020, respectively.

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

6 unchanged sentences

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

March 31, 2021

June 30, 2021

December 31, 2020

2 unchanged sentences

Professional fees

Accrued interest

Other employee benefits

1 unchanged sentence

Total accrued expenses and other current liabilities

As of March 31, 2021, other accrued expenses of $ 1.9 million included $ 1.4 million related to uninvoiced vendor liabilities and $ 0.3 million related to state income taxes payable.

As of December 31, 2020, other accrued expenses of $ 1.7 million included $ 1.6 million of uninvoiced vendor liabilities.

The Company’s lease portfolio for the three months ended March 31, 2021 includes:

As of June 30, 2021, other accrued expenses of $ 2.2 million included $ 1.5 million of uninvoiced vendor liabilities and $ 0.3 million of accrued interest expense.

As of December 31, 2020, other accrued expenses of $ 2.0 million included $ 1.6 million of uninvoiced vendor liabilities and $ 0.3 million of accrued interest.

The Company’s lease portfolio for the three and six months ended June 30, 2021 includes:

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

The Company’s office lease and vehicle lease require letters of credit to secure the Company’s obligations under the lease agreements totaling $ 2.2 million and are collateralized by money market accounts recorded as restricted cash on the Company’s condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.

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

The components of lease cost for the three months ended March 31, 2021 and 2020 are as follows (in thousands):

Three Months Ended March 31,

Operating lease cost during period, net

The components of lease cost for the three and six months ended June 30, 2021 and 2020 are as follows (in thousands):

Three Months Ended

Six Months Ended

Operating lease cost

Short-term lease cost

1 unchanged sentence

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

Three Months Ended March 31,

Six Months Ended June 30,

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

1 unchanged sentence

Weighted-average discount rate of operating leases

Future minimum lease payments under non-cancelable operating leases as of March 31, 2021 are as follows (in thousands):

Future minimum lease payments under non-cancelable operating leases as of June 30, 2021 are as follows (in thousands):

2026 and thereafter

1 unchanged sentence

present value adjustment

Operating lease liabilities at March 31, 2021

Operating lease liabilities at June 30, 2021

current portion of operating lease liabilities

Operating lease liabilities, net of current portion

(1) For the nine months ending December 31, 2021.

(1) For the six months ending December 31, 2021.

Summer Street Lease

3 unchanged sentences

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

At March 31, 2021, the balances of the right-of-use asset and operating lease liability were $ 16.3 million and $ 22.8 million, respectively.

At June 30, 2021, the balances of the right-of-use asset and operating lease liability were $ 16.0 million and $ 22.3 million, respectively.

At December 31, 2020, the balances of the right-of-use asset and operating lease liability were $ 16.6 million and $ 23.2 million, respectively.

Lease costs recorded during each of the three months ended March 31, 2021 and 2020 were $ 0.6 million.

Lease costs recorded during the three and six months ended June 30, 2021 were $ 0.6 million and $ 1.3 million, respectively.

Lease costs recorded during the three and six months ended June 30, 2020 were $ 0.7 million and $ 1.3 million, respectively.

Notes Payable

41 unchanged sentences

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 $ 13.39 per share.

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

the 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 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;

2 unchanged sentences

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.

Upon the occurrence of fundamental changes, as described in the Indentures, prior to the maturity date of the respective Notes, holders of such Notes may 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

If a make-whole fundamental change, as described in the Indentures, occurs and a holder elects to convert its 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 Indentures.

8 unchanged sentences

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

The Company’s outstanding balances for the convertible senior notes as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

March 31, 2021

The Company’s outstanding balances for the convertible senior notes as of June 30, 2021 and December 31, 2020 consisted of the following (in thousands):

June 30, 2021

December 31, 2020

18 unchanged sentences

The effective interest rate on the liability components of the 2022 Convertible Notes for the period from the date of issuance through June 30, 2019 was 9.34 %.

From the date of the partial repurchase of the 2022 Convertible Notes in August 2019 through March 31, 2021, the effective interest rate on the liability component of the 2022 Convertible Notes was 9.8 %.

From the date of the partial repurchase of the 2022 Convertible Notes in August 2019 through June 30, 2021, the effective interest rate on the liability component of the 2022 Convertible Notes was 9.9 %.

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

3 unchanged sentences

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 components of the 2024 Convertible Notes and the 2026 Convertible Notes for the period from the date of issuance through March 31, 2021 was 6.3 % and 6.7 %, respectively.

The following table sets forth total interest expense recognized related to convertible senior notes during the three months ended March 31, 2021 and 2020 (in thousands):

The effective interest rates on the liability components of the 2024 Convertible Notes and the 2026 Convertible Notes for the period from the date of issuance through June 30, 2021 was 6.4 % and 6.7 %, respectively.

The following table sets forth total interest expense recognized related to convertible senior notes during the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

Six Months Ended

Contractual interest expense

2 unchanged sentences

Total interest expense

Future minimum payments under the convertible senior notes as of March 31, 2021, are as follows (in thousands):

Future minimum payments under the convertible senior notes as of June 30, 2021, are as follows (in thousands):

Total future minimum payments under the convertible senior notes

3 unchanged sentences

Convertible senior notes balance

(1) For the nine months ending December 31, 2021.

(1) For the six months ending December 31, 2021.

As of June 30, 2021, $ 120.7 million in aggregate principal amount of the 2022 Convertible Notes was due within the next 12 months and is classified as current liabilities on the Company’s condensed consolidated balance sheets.

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

1 unchanged sentence

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 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.

9 unchanged sentences

The Convertible Note Hedges and Note Hedge Warrants are accounted for as derivative assets and liabilities, respectively, in accordance with ASC 815, and are remeasured to fair value at each reporting date (Note 5).

As of June 30, 2021, the Convertible Note Hedges and Note Hedge Warrants were classified as current assets and non-current liabilities, respectively, on the Company’s condensed consolidated balance sheets.

As of June 30, 2020, the Convertible Note Hedges and Note Hedge Warrants were classified as non-current assets and non-current liabilities, respectively, on the Company’s condensed consolidated balance sheets.

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

15 unchanged sentences

Three Months Ended

Six Months Ended

Share-based compensation expense:

Research and development

1 unchanged sentence

Restructuring expenses

Total share-based compensation expense

Restructuring expenses include modifications to share-based awards held by employees impacted by certain workforce reductions (Note 13).

The Company recorded income tax expense of $ 0.4 million for the three months ended March 31, 2021.

Income tax expense primarily pertains to state income taxes in certain states which have temporarily disallowed the use of net operating losses to offset taxable income.

There was no income tax provision for the three months ended March 31, 2020.

Share Repurchase Plan

In May 2021, the Company’s Board of Directors authorized a program to repurchase up to $ 150.0 million of the Company’s Class A common stock.

Unless it is terminated or suspended prior to its expiration, the stock repurchase program will remain in effect until December 31, 2022 .

The timing and amount of any repurchases will be determined based on market conditions, stock price and other factors.

The stock repurchase program may be modified, suspended or discontinued at any time without notice.

Repurchases may be made through a variety of methods, including open market purchases, privately negotiated transactions, block trades, exchange transactions, accelerated share repurchase transactions, or any combination of such methods.

The Company had not repurchased any shares of Class A common stock under the stock repurchase program as of June 30, 2021.

For the three and six months ended June 30, 2021, the Company recorded an income tax benefit of $ 336.9 million and $ 336.5 million, respectively.

The income tax benefit primarily pertains to the discrete income tax benefit of $ 337.8 million related to the release of the valuation allowance on the majority of the Company’s tax attributes and other deferred tax assets, partially offset by state income taxes in certain states which have temporarily disallowed the use of net operating losses to offset taxable income.

There was no income tax provision for either the three or six months ended June 30, 2020.

The income tax provision during interim periods is computed by applying an estimated annual effective income tax rate to year-to-date pre-tax income, plus adjustments for significant unusual or infrequently occurring items, in accordance with ASC 740-270, Income Taxes – Interim Reporting .

The income tax provision differs from the U.S.

federal statutory rate of 21 % primarily due to the effect the valuation allowance against the Company’s net deferred tax assets, which reduces the Company’s net tax expense.

The Company continues to record a full valuation allowance against net deferred tax assets.

The Company re-evaluates the positive and negative evidence on a quarterly basis.

Based on the Company’s financial performance and its future projections, it may record a reversal of all or a portion of the valuation allowance associated with its deferred tax assets in future periods.

However, any such change is subject to actual performance and other considerations that may present positive or negative evidence at the time of the assessment.

There was an income tax benefit for the three and six months ended June 30, 2021 rather than an expense equal to the U.S.

federal statutory rate of 21 % primarily due to the discrete income tax benefit related to the release of the valuation allowance on the majority of our tax attributes and other deferred tax assets.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities.

These differences are measured using the enacted statutory tax rates that are expected to be in effect for the years in which differences are expected to reverse.

On a periodic basis, the Company reassesses any valuation allowances that it maintains on its deferred tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets.

During the three months ended June 30, 2021, the Company reassessed the valuation allowance noting the shift of positive evidence outweighing negative evidence, including:

continued strong prescription demand growth of LINZESS, nine consecutive quarters of profitability of a GI focused business since completing the tax-free spin-off of Cyclerion, and expectations regarding future profitability.

After assessing both the positive evidence and negative evidence, the Company determined it was more likely than not that it will realize the majority of its deferred tax assets and during the three months ended June 30, 2021 released the majority of its valuation allowance, as a discrete item, for the deferred tax assets that are expected to be utilized in future years.

The Company will maintain a valuation allowance on certain tax credits that are expected to expire prior to utilization.

Related Party Transactions

3 unchanged sentences

As of December 31, 2020, the Company determined that Cyclerion was no longer considered a related party.

The Company incurred $ 1.0 million of research and development expenses under a development agreement with Cyclerion during the three months ended March 31, 2020.

The Company incurred $ 0.8 million and $ 1.8 million, respectively, of research and development expenses under a development agreement with Cyclerion during the three and six months ended June 30, 2020.

Additionally, the Company incurred an insignificant amount of selling, general and administrative expenses for services provided by Cyclerion and recorded an insignificant amount of other income for services provided to Cyclerion during the three months ended March 31, 2020 under transition services agreements, which terminated on March 31, 2020.

4 unchanged sentences

This workforce reduction affected both field-based and home-office employees, including the relevant general and administrative support functions, and was substantially completed during the fourth quarter of 2020.

The Company incurred $ 0.3 million during the three months ended March 31, 2021 in restructuring expenses, primarily for severance, benefits and related costs related to this reduction in force.

The following table summarizes the accrued liabilities activity recorded in connection with the reduction in workforce and related restructuring activities during the three months ended March 31, 2021 (in thousands):

During the three and six months ended June 30, 2021, the Company reversed $ 0.3 million and recorded an insignificant amount, respectively, of restructuring expenses primarily comprised of employee severance, benefits and related costs.

The following table summarizes the accrued liabilities activity recorded in connection with the reduction in workforce and related restructuring activities during the six months ended June 30, 2021 (in thousands):

December 31, 2020

March 31, 2021

June 30, 2021

Employee severance, benefits and related costs

Contract related costs

Subsequent Events

On May 4, 2021, the Company’s Board of Directors authorized a program to repurchase up to $ 150.0 million of the Company’s common stock.

Unless it is terminated or suspended prior to its expiration, the stock repurchase program will remain in effect until December 31, 2022 .

The timing and amount of any repurchases will be determined based on market conditions, stock price and other factors.

The stock repurchase program may be modified, suspended or discontinued at any time without notice.

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

What changed 10-Q

Item 1. Financial Statements