What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 158 added, 113 removed, 639 unchanged (30% of the section changed)

Financial Statements (unaudited)

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

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

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

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020

Notes to Condensed Consolidated Financial Statements

8 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

Current assets:

18 unchanged sentences

Current portion of convertible senior notes

Note hedge warrants

Total current liabilities

6 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 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

Class A Common Stock, $ 0.001 par value, 500,000,000 shares authorized and 163,405,013 shares issued and outstanding at September 30, 2021 and 500,000,000 shares authorized and 160,616,675 shares issued and outstanding at December 31, 2020

Additional paid-in capital

1 unchanged sentence

( 1,466,056 )

Total stockholders’ equity

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Collaborative arrangements revenue

11 unchanged sentences

Interest and investment income

Loss on derivatives

Gain (loss) on derivatives

Other expense, net

Income before income taxes

Income tax benefit

Income tax (expense) benefit

Net income and comprehensive income

5 unchanged sentences

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

10 unchanged sentences

( 1,034,827 )

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 September 30, 2021

Stockholders’

equity (deficit)

Balance at December 31, 2019

8 unchanged sentences

( 1,543,683 )

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 September 30, 2020

( 1,509,260 )

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

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

18 unchanged sentences

Cash flows from investing activities:

Purchases of property and equipment

Purchase of property and equipment

Net cash used in investing activities

42 unchanged sentences

The patents are expected to expire in 2031.

In August 2021, the U.S.

FDA approved a revised label for LINZESS based on clinical safety data that has been generated thus far in pediatric studies.

The updated label modifies the boxed

warning for risk of serious dehydration and contraindication against use in children to those less than two years of age.

The boxed warning and contraindication previously applied to all children less than 18 years of age and less than six years of age, respectively.

The safety and effectiveness of LINZESS in patients less than 18 years of age have not been established.

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

7 unchanged sentences

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 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.

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 September 30, 2021, and the results of its operations for the three and nine months ended September 30, 2021 and 2020, its statements of stockholders’ equity for the three and nine months ended September 30, 2021 and 2020, and its cash flows for the nine months ended September 30, 2021 and 2020.

The results of operations for the three and nine months ended September 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 June 30, 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 September 30, 2021, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH.

All intercompany transactions and balances are eliminated in consolidation.

20 unchanged sentences

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

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

New Accounting Pronouncements

19 unchanged sentences

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.

The Company is in the process of finalizing the quantitative impact that the ASU 2020-06 will have on the financial statements, as well as its plan for implementation.

In May 2021, the FASB issued ASU No.

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

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

Nine Months Ended

September 30,

Stock options

Restricted stock awards

Shares subject to repurchase

Time-based restricted stock units

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 the three and six months ended June 30, 2021 or 2020.

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

Collaboration, License, Promotion and Other Commercial Agreements

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.

For the three and nine months ended September 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.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Collaborative Arrangements Revenue

10 unchanged sentences

Total sale of API

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.

Accounts receivable, net, included $ 125.6 million and $ 145.8 million primarily related to collaborative arrangements revenue and sale of API, collectively, as of September 30, 2021 and December 31, 2020, respectively.

Accounts receivable, net, included $ 99.8 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 September 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 and six months ended June 30, 2021 and 2020.

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

Linaclotide Agreements

5 unchanged sentences

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 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.

As of September 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 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.

During the three and nine months ended September 30, 2021, the Company incurred $ 2.3 million and $ 5.9 million, respectively, in total research and development expenses under the linaclotide collaboration for North America.

During the three and nine months ended September 30, 2020, the Company incurred $ 4.0 million and $ 16.8 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 $ 2.6 million and $ 8.3 million, in incremental research and development costs during the three and nine months ended September 30, 2021, respectively, and incurred $ 1.6 million and $ 2.9 million in incremental research and development costs during the three and nine months ended September 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.

18 unchanged sentences

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

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

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 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 collaborative arrangements revenue recognized in the three and nine months ended September 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 $ 7.4 million and $ 22.0 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 in patent prosecution and patent litigation costs, for each of the three and six months ended June 30, 2021, respectively.

insignificant amount and $ 0.2 million in patent prosecution and patent litigation costs, for the three and nine months ended September 30, 2021, respectively.

The Company incurred $ 6.2 million and $ 19.2 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 $ 0.7 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.

The Company recognized $ 0.7 million and $ 1.9 million of combined royalty revenues from Canada and Mexico during the three and nine months ended September 30, 2021, respectively.

The Company recognized $ 0.7 million and $ 1.7 million of combined royalty revenues from Canada and Mexico during the three and nine months ended September 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)

17 unchanged sentences

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.

The Company recognized $ 0.7 million and $ 1.9 million of royalty revenue from the Amended European License Agreement during the three and nine months ended September 30, 2021, respectively.

The Company recognized $ 0.5 million and $ 1.6 million of royalty revenue from the Amended European License Agreement during the three and nine months ended September 30, 2020, respectively.

License Agreement for Japan with Astellas

23 unchanged sentences

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 $ 0.6 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.

The Company recognized $ 0.6 million and $ 1.6 million of royalty revenue during the three and nine months ended September 30, 2021, respectively, under the Amended Astellas License Agreement.

The Company recognized $ 0.5 million and $ 1.5 million in collaborative arrangements revenue during the three and nine months ended September 30, 2020, respectively, under the Amended Astellas License Agreement, of which $ 0.5 million and $ 1.4 million related to royalties, respectively.

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

6 unchanged sentences

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.

Under the terms of the AstraZeneca TSA, the Company provided certain regulatory and administrative services through September 2021.

Services performed are paid at a mutually agreed upon rate.

Amounts for AstraZeneca TSA services are recorded as collaborative arrangements revenue.

Amounts for AstraZeneca TSA services were 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.

8 unchanged sentences

Accordingly, the Company recognized $ 32.4 million in 2019 relating to the delivery of the AstraZeneca License as collaborative arrangements revenue at contract inception and is recognizing the $ 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 based on the amount to which the Company has a right to invoice.

Consideration allocated to the AstraZeneca TSA services was recognized as collaborative arrangements revenue as such services are provided over the performance period 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 as linaclotide API, finished drug product and finished goods were shipped to AstraZeneca.

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.

During the three and nine months ended September 30, 2021, the Company recognized an insignificant amount and $ 0.3 million, respectively, in collaborative arrangements revenue under the Amended AstraZeneca Agreement related to AstraZeneca TSA services.

During the three and nine months ended September 30, 2021, the Company recognized an $ 0.2 million and $ 0.4 million, respectively, in collaborative arrangements revenue under the Amended

AstraZeneca Agreement related to royalties.

Additionally, the Company recognized no revenue and $ 0.6 million, in sales of API relating to the supply of reference standard material to AstraZeneca during the three and nine months ended September 30, 2021, respectively.

T he Company recognized an insignificant amount and $ 0.5 million, respectively, in interest income related to the significant financing component of the Amended AstraZeneca Agreement during the three and nine months ended September 30, 2021, respectively.

During the three and nine months ended September 30, 2020, the Company recognized an insignificant amount and $ 0.5 million, respectively, in collaborative arrangements revenue under the Amended AstraZeneca Agreement related to AstraZeneca TSA services.

During the three and nine months ended September 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 no revenue 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 nine months ended September 30, 2020, respectively.

T he Company recognized $ 0.2 million and $ 0.6 million, respectively, in interest income related to the significant financing component of the Amended AstraZeneca Agreement during the three and nine months ended September 30, 2020.

Co-promotion and Other Agreements

7 unchanged sentences

In connection with the amendment of the Alnylam Agreement, beginning in 2021, the Company no longer receives service fees.

The Company is eligible to receive royalties based on a percentage of net sales of GIVLAARI that are directly attributable to the Company’s promotional efforts over the term of the agreement.

The Company remains eligible to receive royalties based on a percentage of net sales of GIVLAARI that are directly attributable to the Company’s promotional efforts until September 30, 2022, which is one year following the termination of the agreement.

The Company identified the following performance obligation under the Alnylam Agreement:

2 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 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.

During the three and nine months ended September 30, 2021, the Company recognized $ 0.7 million and $ 1.7 million, respectively, in royalty revenue under the Alnylam Agreement.

During the three and nine months ended September 30, 2020, the Company recognized $ 1.1 million and $ 3.1 million, respectively, in collaborative arrangements revenue, of which $ 0.9 million and $ 2.6 million, respectively, related to the service fees and $ 0.2 million and $ 0.5 million, respectively, 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 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.

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of September 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.

Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability.

16 unchanged sentences

Identical Assets

June 30, 2021

September 30, 2021

Cash and cash equivalents:

20 unchanged sentences

Total liabilities measured at fair value

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.

There were no transfers between fair value measurement levels during each of the three and nine months ended September 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 September 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 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.

Significant inputs used to determine the fair value as of September 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 June 30, 2021 and December 31, 2020:

Six Months Ended

June 30, 2021

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

Nine Months Ended

September 30, 2021

December 31, 2020

7 unchanged sentences

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, 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 September 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 June 30, 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 September 30, 2021 (in thousands):

Balance at December 31, 2020

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

Balance at June 30, 2021

Balance at September 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 $ 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.

The estimated fair value of the 2022 Convertible Notes was $ 131.5 million and $ 130.2 million as of September 30, 2021 and December 31, 2020, respectively.

The estimated fair value of the 2024 Convertible Notes was $ 236.3 million and $ 222.3 million as of September 30, 2021 and December 31, 2020, respectively.

The estimated fair value of the 2026 Convertible Notes was $ 241.2 million and $ 224.1 million as of September 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):

June 30, 2021

September 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 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:

As of September 30, 2021, other accrued expenses of $ 2.4 million included $ 1.8 million of uninvoiced vendor liabilities and $ 0.5 million of 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 and nine months ended September 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 June 30, 2021 and December 31, 2020.

The Company’s office lease and vehicle lease require letters of credit to secure the Company’s obligations under the lease agreements totaling $ 1.7 million and $ 2.2 million and are collateralized by money market accounts recorded as restricted cash on the Company’s condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively.

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, 2021 and 2020 are as follows (in thousands):

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating lease cost

2 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 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 June 30, 2021 are as follows (in thousands):

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

2026 and thereafter

1 unchanged sentence

present value adjustment

Operating lease liabilities at June 30, 2021

Operating lease liabilities at September 30, 2021

current portion of operating lease liabilities

Operating lease liabilities, net of current portion

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

(1) For the three 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 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 September 30, 2021, the balances of the right-of-use asset and operating lease liability were

$ 15.7 million and $ 21.9 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 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.

Lease costs recorded during the three and nine months ended September 30, 2021 were $ 0.6 million and $ 1.9 million, respectively.

Lease costs recorded during the three and nine months ended September 30, 2020 were $ 0.7 million and $ 1.9 million, respectively.

Notes Payable

15 unchanged sentences

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.

Upon the occurrence of certain fundamental changes, as described in the 2022 Indenture, 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.

and unpaid interest.

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.

22 unchanged sentences

The Company will settle conversions of the 2024 Convertible Notes and 2026 Convertible Notes through payment or delivery, as the case may be, of cash, shares of the Company’s Class A Common Stock 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 $ 13.39 per share.

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

The initial conversion rate for each of the 2024 Convertible Notes and the 2026 Convertible Notes is 74.6687 shares of Class A Common Stock (subject to adjustment

as provided for in the applicable Indenture) per $ 1,000 principal amount of the 2024 Convertible Notes and 2026 Convertible Notes, which is equal to an initial conversion price of $ 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:

● 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;

13 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 June 30, 2021 and December 31, 2020 consisted of the following (in thousands):

June 30, 2021

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

September 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 June 30, 2021, the effective interest rate on the liability component of the 2022 Convertible Notes was 9.9 %.

From the date of the partial repurchase of the 2022 Convertible Notes in August 2019 through September 30, 2021, the effective interest rate on the liability component of the 2022 Convertible Notes was 10.0 %.

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 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):

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 September 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 nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Contractual interest expense

2 unchanged sentences

Total interest expense

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

Future minimum payments under the convertible senior notes as of September 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 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.

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

As of September 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

13 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.

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

As of September 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

Nine Months Ended

September 30,

Share-based compensation expense:

10 unchanged sentences

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

For the three and nine months ended September 30, 2021, the Company recorded income tax expense of $ 3.8 million and income tax benefit of $ 332.7 million, respectively.

The income tax benefit for the nine months ended September 30, 2021 primarily pertains to the discrete income tax benefit of $ 335.2 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.

For each of the three and nine months ended September 30, 2020, the Company recorded income tax expense of $ 1.4 million, primarily related to state income taxes.

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 .

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.

There was an income tax benefit for the three and nine months ended September 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.

2 unchanged sentences

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.

During the nine months ended September 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, continued 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.

5 unchanged sentences

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

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.

The Company incurred $ 0.4 million and $ 2.2 million of research and development expenses under a development agreement with Cyclerion during the three and nine months ended September 30, 2020, respectively.

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.

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):

The Company recorded an insignificant net amount of restructuring expenses and adjustments primarily comprised of employee severance, benefits and related costs, during each of the three and nine months ended September 30, 2021.

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

December 31, 2020

June 30, 2021

September 30, 2021

Employee severance, benefits and related costs

Contract related costs

Subsequent Event

On November 3, 2021, the Company entered into a collaboration and license option agreement with COUR Pharmaceuticals Development Company, Inc.

(“Cour”), pursuant to which the Company received, among other things, an option (the “Option”) to acquire an exclusive license (the “License”) to research, develop, manufacture and commercialize, in the U.S., products containing CNP-104 Particle (“CNP-104”), a tolerizing immune modifying particle, for the treatment of primary biliary cholangitis.

Pursuant to the terms of the agreement, the Company will make an upfront, non-refundable payment of $ 6.0 million to Cour and will pay Cour additional payments of $ 4.0 million upon the commencement of a clinical study for CNP-104, evaluating the safety, tolerability, and pharmacodynamic effects and efficacy of CNP-104 (the “Initial Study”), $ 2.0 million upon receipt of U.S.

FDA Fast Track Designation for CNP-104, and approximately $ 7.5 million to perform the Initial Study.

After reviewing the data from the Initial Study, if the Company exercises the Option, the Company will pay Cour $ 35.0 million in exchange for the License.

Additionally, the Company will pay royalties to Cour in the high single digits to low double digits percentage of the aggregated annual net sales in the U.S.

of products containing CNP-104 and Cour will be eligible to receive commercial milestone payments of up to $ 440.0 million over the term of the agreement.

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