What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-02-16 compared with 2022-02-18 · 284 added, 540 removed, 1242 unchanged (40% of the section changed)

2 unchanged sentences

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, or Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Annual Report on Form 10-K of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on that evaluation, our principal executive officer and principal financial officer

concluded that our disclosure controls and procedures are effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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Our management is responsible for establishing and maintaining adequate internal control over our financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

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Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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January 20, 2010

Indenture, dated as of June 15, 2015, by and between Ironwood Pharmaceuticals, Inc.

Bank National Association (including the form of the 2.25% Convertible Senior Note due 2022)

Current Report on Form 8-K (File No.

June 15, 2015

Supplemental Indenture dated as of April 5, 2019 by and between Ironwood Pharmaceuticals, Inc.

Bank National Association

Current Report on Form 8-K (File No.

April 8, 2019

Form of 2.25% Convertible Senior Note due 2022

Current Report on Form 8 K (File No.

June 15, 2015

Indenture, dated as of August 12, 2019, by and between Ironwood Pharmaceuticals, Inc.

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June 24, 2021

Non-employee Director Compensation Policy, effective May 20, 2019

Quarterly Report on Form 10-Q (File No.

July 30, 2019

Amended and Restated Non-employee Director Compensation Policy, effective January 1, 2023

Form of Indemnification Agreement with Directors and Officers

1 unchanged sentence

December 23, 2009

Offer Letter, dated January 3, 2019, between Ironwood Pharmaceuticals, Inc.

and Mark Mallon

Current Report on Form 8-K (File No.

January 4, 2019

Collaboration Agreement, dated as of September 12, 2007, as amended on November 3, 2009, by and between Forest Laboratories, Inc.

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April 4, 2019

Base Call Option Transaction Confirmation, dated as of June 10, 2015, between Ironwood Pharmaceuticals, Inc.

and JPMorgan Chase Bank, National Association, London Branch

Quarterly Report on Form 10-Q (File No.

August 7, 2015

Base Call Option Transaction Confirmation, dated as of June 10, 2015, between Ironwood Pharmaceuticals, Inc.

and Credit Suisse Capital LLC, through its agent Credit Suisse Securities (USA) LLC

Quarterly Report on Form 10-Q (File No.

August 7, 2015

Base Warrants Confirmation, dated as of June 10, 2015, between Ironwood Pharmaceuticals, Inc.

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August 7, 2015

Additional Call Option Transaction Confirmation, dated as of June 22, 2015, between Ironwood Pharmaceuticals, Inc.

and JPMorgan Chase Bank, National Association, London Branch

Quarterly Report on Form 10-Q (File No.

August 7, 2015

Additional Call Option Transaction Confirmation, dated as of June 22, 2015, between Ironwood Pharmaceuticals, Inc.

and Credit Suisse Capital LLC, through its agent Credit Suisse Securities (USA) LLC

Quarterly Report on Form 10-Q (File No.

August 7, 2015

Additional Warrants Confirmation, dated as of June 22, 2015, between Ironwood Pharmaceuticals, Inc.

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/s/ Ronald Silver

Senior Director, Corporate Controller (Principal Accounting Officer)

Vice President, Corporate Controller (Principal Accounting Officer)

February 16, 2023

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February 16, 2023

/s/ Alexander Denner

February 17, 2022

Alexander Denner

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Catherine Moukheibir

/s/ Lawrence S.

February 16, 2023

/s/ Edward P.

February 17, 2022

Index to Consolidated Financial Statements of

Ironwood Pharmaceuticals, Inc.

Report of Independent Registered Public Accounting Firm (PCAOB ID 42 )

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2022 and 2021

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We believe that our audits provide a reasonable basis for our opinion.

Adoption of New Accounting Standard

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for convertible senior notes in 2022 due to the adoption of ASU 2020-06.

Critical Audit Matter

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosure to which it relates.

Collaboration Agreement for North America with AbbVie Inc.

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As discussed in Note 4 to the consolidated financial statements, the Company generates the majority of its revenue from a collaboration arrangement with AbbVie related to linaclotide (LINZESS).

The Company records its share of the net profits or net losses from the sales of LINZESS in the U.S., less commercial expenses, and presents the settlement payments to and from AbbVie as collaboration expense or collaborative arrangements revenue, as applicable.

Auditing revenue recognition under the AbbVie collaboration was especially challenging and required significant auditor judgment because complete and accurate information regarding net profits realized from sales of LINZESS in the U.S.

and the costs incurred in selling it may not be available at the time the financial statements are prepared.

The Company records its share of the net profits or net losses from the sale of LINZESS in the U.S., less commercial expenses, and presents the

settlement payments to and from AbbVie as collaboration expense or collaborative arrangements revenue, as applicable.

Auditing revenue recognition under the AbbVie collaboration was especially challenging and required significant auditor judgment because the Company relies on AbbVie for timely and accurate information regarding net profits realized from the sale of LINZESS in the U.S.

Management uses the information received from AbbVie, which includes net revenues from sales of LINZESS in the U.S.

and related costs, to record its collaboration revenue.

Certain of such information provided by AbbVie are determined by AbbVie by using estimates and judgments, which could be adjusted based on actual results in the future.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s internal controls over its collaboration revenue process.

The Company maintained and operated a suite of controls over the Company’s evaluation of the completeness and accuracy of its quarterly reporting from AbbVie.

Our audit procedures included, among others, reviewing the Company’s contract with AbbVie, reviewing information provided by AbbVie, performing auditing procedures over gross sales and adjustments to arrive at net sales, cost of goods sold, and selling and marketing costs contributing to Ironwood’s share of net profits, and obtaining confirmation directly from AbbVie.

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s internal controls over its collaboration revenue process, including controls over the Company’s evaluation of the completeness and accuracy of information related to net sales of LINZESS provided from AbbVie.

Our audit procedures included, among others, inspecting reported information provided by AbbVie to the Company related to the net profits realized from the sale of LINZESS in the U.S.

We analyzed the gross sales and certain adjustments to arrive at net sales, cost of goods sold, and related costs contributing to Ironwood’s share of net profits and compared current period results to historical trends .

We also tested settlement payments received by the Company throughout the year.

In addition, we confirmed directly with AbbVie the collaborative arrangement revenue for the year ended December 31, 2022 related to the sale of LINZESS in the U.S.

as well as the amounts due to the Company as of December 31, 2022.

/s/ Ernst & Young LLP

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Operating lease right-of-use assets

Convertible note hedges

Deferred tax assets

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Total current liabilities

Note hedge warrants

Convertible senior notes, net of current portion

Operating lease obligations, net of current portion

Convertible senior notes, net of current portion

Other liabilities

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Accumulated deficit

( 1,466,056 )

Total stockholders’ equity

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(In thousands, except per share amounts)

Year Ended December 31,

Years Ended December 31,

Collaborative arrangements revenue

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Total revenues

Cost and expenses:

Operating expenses:

Cost of revenues

Settlement on non-cancellable purchase commitments

Research and development

Selling, general and administrative

Gain on lease modification

Restructuring expenses

Total cost and expenses

Total operating expenses

Income from operations

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Gain (loss) on derivatives

Loss on extinguishment of debt

Other expense, net

Income from continuing operations, before income taxes

Other (expense) income, net

Income before income taxes

Income tax (expense) benefit

Income from continuing operations

Loss from discontinued operations, net of income taxes

Net income and comprehensive income

Income per share from continuing operations, net of income taxes—basic

Income per share from continuing operations, net of income taxes—diluted

Loss per share from discontinued operations, net of income taxes—basic and diluted

Net income per share—basic

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( 1,572,232 )

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

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

Equity component of convertible senior notes

Equity component of issuance costs for convertible senior notes

Purchase of capped calls

Equity component of partial repurchase of 2022 Convertible Notes

Dividend of SGC business

Balance at December 31, 2020

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

Balance at December 31, 2020

Repurchases of common stock

( 2,357,000 )

Balance at December 31, 2021

Cumulative effect adjustment upon adoption of ASU 2020-06, net of tax

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

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Share-based compensation expense

Gain on lease modification

Change in fair value of note hedge warrants

Change in fair value of convertible note hedges

Settlement on non-cancellable purchase commitments

Non-cash interest expense

Deferred income taxes (including benefit from valuation allowance release)

Loss on extinguishment of debt

Changes in assets and liabilities:

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Other liabilities

Net cash provided by (used in) continuing operating activities

Net cash provided by discontinued operating activities

Net cash provided by operating activities

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Purchases of property and equipment

Proceeds from sale of property and equipment

Net cash (used in) continuing investing activities

Net cash (used in) discontinued investing activities

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes

Purchase of capped calls

Proceeds from partial termination of convertible note hedges and note hedge warrants

Costs associated with issuance of convertible senior notes

Proceeds from exercise of stock options and employee stock purchase plan

Payment on 2022 Convertible Notes

Repurchases of common stock

Payments for partial repurchase of 2022 Convertible Notes

Payments on 8.375% Notes due 2026

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets

Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets

Cash and cash equivalents

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Non-cash investing and financing activities

Recognition of asset retirement obligation

Fixed asset purchases in accounts payable and accrued expenses

Stock repurchases payable in accrued expenses

Stock option exercise proceeds receivable in other current assets

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

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Ironwood Pharmaceuticals, Inc.

(“Ironwood” or the “Company”) is a gastrointestinal (“GI”) healthcare company dedicated to advancing the treatment of GI diseases and redefining the standard of care for GI patients.

(the “Company”) is a gastrointestinal (“GI”) healthcare company dedicated to advancing the treatment of GI diseases and redefining the standard of care for GI patients.

The Company is focused on the development and commercialization of innovative GI product opportunities in areas of significant unmet need, leveraging its demonstrated expertise and capabilities in GI diseases.

LINZESS ® (linaclotide), the Company’s commercial product, is the first product approved by the United States Food and Drug Administration (the “U.S.

FDA”) in a class of GI medicines called guanylate cyclase type C agonists and is indicated for adult men and women suffering from irritable bowel syndrome with constipation (“IBS-C”) or chronic idiopathic constipation (“CIC”).

FDA”) in a class of GI medicines called guanylate cyclase type C agonists (“GC-C agonists”) and is indicated for adult men and women suffering from irritable bowel syndrome with constipation (“IBS-C”) or chronic idiopathic constipation (“CIC”).

LINZESS is available to adult men and women suffering from IBS-C or CIC in the United States (the “U.S.”) and Mexico and to adult men and women suffering from IBS-C in Japan and China.

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Additionally, development costs are shared equally between the Company and AbbVie.

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

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

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

Outside of the U.S., the Company earns royalties as a percentage of net sales of products containing linaclotide as an active ingredient by the Company’s collaboration partners.

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

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

Astellas Pharma Inc.

(“Astellas”), the Company’s partner in Japan, has an exclusive license to develop and commercialize linaclotide in Japan.

In March 2017, Astellas began commercializing LINZESS for the treatment of adults with IBS-C in Japan, and in September 2018, Astellas began commercializing LINZESS for the treatment of adults with chronic constipation in Japan.

In August 2019, the Company amended and restated its license agreement with Astellas.

Effective in 2020, Company is no longer responsible for the supply of linaclotide active pharmaceutical ingredient (“API”) to Astellas (Note 5).

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

In September 2019, the Company amended and restated its existing collaboration agreement with AstraZeneca whereby AstraZeneca obtained the exclusive right to develop, manufacture, and commercialize products containing linaclotide in the AstraZeneca License Territory (Note 5).

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

In September 2020, based on the Phase IIIb data demonstrating efficacy and safety of LINZESS 290 mcg on the overall abdominal symptoms of bloating, pain and discomfort in adult patients with IBS-C, the U.S.

FDA approved the Company’s supplemental New Drug Application to include a more comprehensive description of the effects of LINZESS in its approved label.

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.

In November 2021, the Company entered into a collaboration and license option agreement (the “COUR Collaboration Agreement”) with COUR Pharmaceutical Development Company, Inc.

(“Astellas”), the Company’s partner in Japan, has an exclusive license to develop, manufacture, and commercialize linaclotide in Japan.

AstraZeneca AB (together with its affiliates) (“AstraZeneca”), the Company’s partner in China, has the exclusive right to develop, manufacture, and commercialize products containing linaclotide in China (including Hong Kong and Macau) (the “AstraZeneca License Territory”).

The Company has a collaboration and license option agreement (the “COUR Collaboration Agreement”) with COUR Pharmaceutical Development Company, Inc.

(“COUR”), a biotechnology company developing novel immune-modifying nanoparticles to treat autoimmune diseases.

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

The Company is also advancing IW-3300, a guanylate cyclase type C agonist, for the potential treatment of visceral pain conditions, including interstitial cystitis / bladder pain syndrome (IC/BPS) and endometriosis.

In December 2021, the U.S.

FDA accepted our Investigational New Drug Application, and the Phase I clinical program has commenced in the first quarter of 2022 to evaluate the safety and tolerability of IW-3300 in healthy volunteers.

The Company is also advancing IW-3300, a GC-C agonist, for the potential treatment of visceral pain conditions, including interstitial cystitis / bladder pain syndrome (“IC/BPS”) and endometriosis.

The Company was incorporated in Delaware on January 5, 1998 as Microbia, Inc.

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The accompanying consolidated financial statements include the accounts of Ironwood and its wholly-owned subsidiaries, as of December 31, 2022, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH.

Cyclerion Therapeutics, Inc.

(“Cyclerion”) was a wholly-owned subsidiary until it became an independent publicly-traded company on April 1, 2019 (Note 3).

All intercompany transactions and balances are eliminated in consolidation.

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

Discontinued Operations

The Company determined that its soluble guanylate cyclase (“sGC”) business, which was disposed on April 1, 2019, met the criteria for classification as a discontinued operation in accordance with Accounting Standards Codification (“ASC”) Subtopic 205-20, Discontinued Operations (“ASC 205-20”).

Accordingly, the accompanying consolidated financial statements for the year ended December 31, 2019 present the operations and cash flows associated with the sGC business as discontinued operations.

For additional information related to discontinued operations, refer to Note 3, Cyclerion Separation , to these consolidated financial statements.

Use of Estimates

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On an ongoing basis, the Company’s management evaluates its estimates, judgments and methodologies.

Significant estimates and assumptions in the

consolidated financial statements include those related to revenue recognition;

Significant estimates and assumptions in the consolidated financial statements include those related to revenue recognition;

accounts receivable;

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The Company considers all highly liquid investment instruments with a remaining maturity when purchased of three months or less to be cash equivalents.

Investments qualifying as cash equivalents primarily consist of money market funds, U.S.

government-sponsored securities, and repurchase agreements.

Investments qualifying as cash equivalents primarily consist of money market funds, repurchase agreements, commercial paper, and corporate bonds.

The carrying amount of cash equivalents approximates fair value.

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Restricted Cash

The Company is contingently liable under unused letters of credit with a bank, related to the Company’s facility lease and vehicle lease agreements, in the amount of $ 1.7 million and $ 2.2 million as of December 31, 2021 and 2020, respectively.

The Company records as restricted cash the collateral used to secure these letters of credit.

The amount of restricted cash included in current assets and non-current assets was $ 1.3 million and $ 0.5 million, respectively, at December 31, 2021.

The amount of restricted cash in current assets and non-current assets was $ 1.7 million and $ 0.5 million, respectively, at December 31, 2020.

The amount of restricted cash in current assets and non-current assets was $ 1.3 million and $ 0.5 million, respectively, at December 31, 2022 and 2021.

Concentrations of Suppliers

The Company relies on its collaboration partners and their suppliers to manufacture linaclotide API, linaclotide finished drug product, and finished goods.

If any of the Company’s collaboration partners and their suppliers were to limit or terminate production or otherwise fail to meet the quality or delivery requirements needed to satisfy the supply commitments, the process of locating and qualifying alternate sources could require up to several months, during which time production could be delayed.

locating and qualifying alternate sources could require up to several months, during which time production could be delayed.

Such delays could have a material adverse effect on the Company’s business, financial position and results of operations.

Accounts Receivable and Related Valuation Account

Accounts Receivable

The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for credit losses when collection becomes doubtful.

Provisions are made based upon a specific review of all significant outstanding invoices and the overall quality and age of those invoices not specifically reviewed.

The Company’s receivables relate primarily to amounts reimbursed under its collaboration, license and co-promotion agreements.

The Company’s receivables relate primarily to amounts reimbursed under its collaboration, license, and other agreements.

The Company believes that credit risks associated with these partners are not significant.

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The Company maintains its cash and cash equivalent balances with high-quality financial institutions and the Company believes that such funds are subject to minimal credit risk.

The Company has adopted an investment policy which limits the amounts the Company may invest in certain types of investments, and requires all investments held by the Company to be at least AA- rated, thereby reducing credit risk exposure.

Accounts receivable primarily consist of amounts due under the linaclotide collaboration agreement with AbbVie for North America (Note 4).

The Company does not obtain collateral for its accounts receivable.

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

The Company previously reflected amounts due from Allergan plc (“Allergan”), net of amounts payable to Allergan, prior to its acquisition by AbbVie as related party accounts receivable, net.

Following the acquisition of Allergan by AbbVie, the Company determined that AbbVie is not a related party to the Company (Note 15).

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AbbVie (North America and Europe)

Astellas (Japan)

Property and Equipment

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Deferred tax assets are reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization.

The Company accounts for uncertain tax positions recognized in the consolidated financial statements in accordance with the provisions of ASC Topic 740, Income Taxes , by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

The Company accounts for uncertain tax positions recognized in the consolidated financial statements in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 740, Income Taxes , by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized.

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Costs attributable to debt financings are deferred and amortized to interest expense over the term of the debt using the effective interest method.

Costs incurred in connection with convertible debt securities are allocated between the liability and equity components.

In accordance with ASC 835, Interest , the Company presents debt issuance costs on the balance sheet as a direct deduction from the associated debt liability.

Effective January 1, 2019 , the Company adopted ASC Topic 842, Leases (“ASC 842”), using the optional transition method .

The adoption of ASC 842 represented a change in accounting principle that aimed to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet for both operating and finance leases.

In addition, the standard required enhanced disclosures that meet the objective of enabling financial statement users to assess the amount, timing, and uncertainty of cash flows arising from leases.

As part of the ASC 842 adoption, the Company elected certain practical expedients, which include:

● Accounting policy election to use the short-term lease exception by asset class;

● Election of the practical expedient package during transition, which includes:

o An entity need not reassess whether any expired or existing contracts are or contain leases.

o An entity need not reassess the classification for any expired or existing leases.

As a result, all leases that were classified as operating leases in accordance with ASC 840 are classified as operating leases under ASC 842, and all leases that were classified as capital leases in accordance with ASC 840 are classified as finance leases under ASC 842.

o An entity need not reassess initial direct costs for any existing leases.

Subsequent to the Company’s adoption of ASC 842, the Company elected the post-transition practical expedient, by class of underlying asset, to account for lease components and non-lease components together as a single component for the asset class of operating lease right-of-use real estate assets.

In accordance with ASC Topic 835, Interest , the Company presents debt issuance costs on the balance sheet as a direct deduction from the associated debt liability.

The Company’s lease portfolio for the year ended December 31, 2022 included:

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

The Company determines if an arrangement is a lease at the inception of the contract.

an office lease for its headquarters location, vehicle leases for its salesforce representatives, and leases for computer and office equipment.

The Company determines if an arrangement is a lease at the inception of the contract and determines the classification of its leases at lease commencement.

The asset component of the Company’s operating leases is recorded as operating lease right-of-use assets, and the liability component is recorded as current portion of operating lease liabilities and operating lease liabilities, net of current portion in the Company’s consolidated balance sheets.

As of December 31, 2022, the Company did not record any finance leases.

Right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the lease inception date.

Existing leases in the Company’s lease portfolio as of the adoption date

were valued as of January 1, 2019.

The Company uses an incremental borrowing rate based on the information available at lease inception in determining the present value of lease payments, if an implicit rate of return is not provided with the lease contract.

Operating lease right-of-use assets are adjusted for incentives expected to be received.

Right-of-use assets and operating lease liabilities are remeasured upon certain modifications to leases using the present value of remaining lease payments and estimated incremental borrowing rate upon lease modification.

Lease cost is recognized on a straight-line basis over the lease term, and includes amounts related to short-term leases.

Right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date.

The lease term used to measure the right-of-use asset and operating lease liability may include options to extend the lease when it is reasonably certain that the Company will exercise the option.

The Company accounts for lease components and non-lease components together as a single lease component for

the asset class of right-of-use real estate assets.

The Company uses an incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments, if an implicit rate of return is not readily determinable.

Operating lease right-of-use assets are adjusted for prepaid rent, initial direct costs, and lease incentives.

Right-of-use assets and operating lease liabilities are remeasured upon reassessment events and modifications to leases using the present value of remaining lease payments and estimated incremental borrowing rate at the time of remeasurement, as applicable.

Operating lease cost is recognized on a straight-line basis over the lease term, and includes amounts related to short-term leases.

The Company has elected to not recognize lease terms with a term of twelve months or less on its balance sheet for all classes of underlying asset types.

The Company recognizes variable lease payments as operating expenses in the period in which the obligation for those payments is incurred.

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In connection with the partial repurchase of the 2022 Convertible Notes in August 2019, the Company terminated its Convertible Note Hedges and Note Hedge Warrants proportionately.

The Convertible Note Hedges terminated unexercised upon expiry in June 2022.

These instruments are derivative financial instruments under ASC Topic 815, Derivatives and Hedging (“ASC 815”).

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The changes in fair value are recorded as a component of other (expense) income in the consolidated statements of income.

Significant inputs used to determine the fair value as of December 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.

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

Significant inputs used to determine the fair value include 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 derivative instruments.

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

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Revenue Recognition

The Company’s revenues are generated primarily through collaborative arrangements and license agreements related to the research and development and commercialization of linaclotide, as well as co-promotion arrangements in the U.S.

The Company’s revenues are generated primarily through collaborative arrangements and license agreements related to the research and development and commercialization of linaclotide.

The terms of the collaborative research and development, license, co-promotion and other agreements contain multiple performance obligations which may include (i) licenses, (ii) research and development activities, including participation on joint steering committees, (iii) the manufacture of finished drug product, API, or development materials for a partner, which are reimbursed at a contractually determined rate, and (iv) education or co-promotion activities by the Company’s clinical sales specialists.

(v) payments for sales detailing, promotional support services and medical education initiatives, and (vi) royalties on product sales.

Non-refundable payments to the Company under these agreements may include (i) up-front license fees, (ii) payments for research and development activities, (iii) payments for the manufacture of finished drug product, API, or development materials, (iv) payments based upon the achievement of certain milestones, (v) payments for sales detailing, promotional support services and medical education initiatives, and (vi) royalties on product sales.

The Company receives its share of the net profits or bears its share of the net losses from the sale of linaclotide in the U.S.

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The Company has adopted a policy to recognize revenue net of tax withholdings, as applicable.

Collaboration, License, Co-Promotion and Other Commercial Agreements

Collaboration, License, and Other Commercial Agreements

Upon licensing intellectual property to a customer, the Company determines if the license is distinct from the other performance obligations identified in the arrangement.

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in the period the product sales are earned, as reported by AbbVie, and related cost of goods sold and selling, general and administrative expenses as incurred by the Company and AbbVie.

These amounts are partially determined based on amounts provided by AbbVie and involve the use of estimates and judgments, such as product sales allowances and accruals related to prompt payment discounts, chargebacks, governmental and contractual rebates, wholesaler fees, product returns, and co-payment assistance costs, which could be adjusted based on actual results in the future.

product returns, and co-payment assistance costs, which could be adjusted based on actual results in the future.

The Company is highly dependent on AbbVie for timely and accurate information regarding net revenues from sales of LINZESS in the U.S.

in accordance with both ASC 808 and ASC 606, and the related costs, in order to accurately report

its results of operations.

in accordance with both ASC 808 and ASC 606, and the related costs, in order to accurately report its results of operations.

If the Company does not receive timely and accurate information or incorrectly estimates activity levels associated with the collaboration at a given point in time, the Company could be required to record adjustments in future periods.

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Sale of Active Pharmaceutical Ingredient

During the years ended December 31, 2020, and 2019, the Company produced linaclotide API, finished drug product, finished goods, and/or development materials for certain of its partners.

As of December 31, 2020, the Company was no longer responsible for the supply of linaclotide API, finished drug product, finished goods or development materials to its partners, though the Company may provide development materials to certain of our partners on a periodic basis.

During the year ended December 31, 2020 the Company produced linaclotide API, finished drug product, finished goods, and/or development materials for certain of its partners.

Sales of such development materials have been and are expected to continue to be immaterial.

The Company recognizes revenue on linaclotide API, finished drug product, finished goods, and development materials when control has transferred to the partner, which generally occurs upon shipment after the material passed all quality testing required for acceptance by the partner.

Prior to the execution of the Amended AstraZeneca Agreement in September 2019, any linaclotide API, finished drug product, and development materials produced for AstraZeneca for China (including Hong Kong and Macau) were recognized in accordance with the cost-sharing provisions of the AstraZeneca collaboration agreement.

The Company’s deferred revenue balance consists of advance billings and payments received from customers in excess of revenue recognized.

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The Company records expenses incurred under such linaclotide collaboration arrangements as research and development expense.

Prior to the execution of the Amended AstraZeneca

Agreement in September 2019, under the Company’s collaboration agreement with AstraZeneca for China (including Hong Kong and Macau), the Company was reimbursed for certain research and development expenses and it netted these reimbursements against its research and development expenses as incurred.

In connection with the execution of the Amended AstraZeneca Agreement, AstraZeneca is fully responsible for all research and development costs incurred related to the development, manufacture, and commercialization of linaclotide in China (including Hong Kong and Macau).

Under the Company’s collaboration agreement with AbbVie for North America, the Company is reimbursed for certain research and development expenses and nets these reimbursements against its research and development expenses as incurred.

Under the Company’s collaboration agreement with

AbbVie for North America, the Company is reimbursed for certain research and development expenses and nets these reimbursements against its research and development expenses as incurred.

Research and development expense includes up-front payment, non-contingent payment, and milestone payment obligations under the COUR Collaboration Agreement (Note 4).

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Restructuring Expenses

Restructuring expenses are comprised primarily of costs associated with exit and disposal activities in accordance with ASC 420, Exit or Disposal Cost Obligations , and include one-time termination benefits and contract-related costs.

Restructuring expenses are comprised primarily of costs associated with exit and disposal activities in accordance with ASC Topic 420, Exit or Disposal Cost Obligations , and include one-time termination benefits and contract-related costs.

Such costs are based on estimates of fair value in the period liabilities are incurred.

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Other costs include the legal costs of pursuing patent protection of the Company’s intellectual property, general and administrative related facility costs, insurance costs and professional fees for accounting, tax, consulting, legal and other services.

Prior to the execution of the Amended AstraZeneca Agreement, the Company was reimbursed for certain selling, general and administrative expenses and the Company netted these reimbursements against the Company’s selling, general and administrative expenses as incurred.

In connection with the Amended AstraZeneca Agreement, effective in September 2019, AstraZeneca is fully responsible for all costs related to the development, manufacture, and commercialization of linaclotide in China (including Hong Kong and Macau).

The Company includes AbbVie’s selling, general and administrative cost-sharing payments in the calculation of the net profits and net losses from the sale of LINZESS in the U.S.

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Compensation expense related to modified awards is measured based on the fair value for the awards as of the modification date.

Any incremental compensation expense arising from the excess of the fair value of the awards on the modification date compared to the fair value of the awards immediately before the modification date is recognized at the modification date or ratably over the requisite remaining service period, as appropriate.

Any incremental compensation expense arising from the excess of the fair value of the awards on the

modification date compared to the fair value of the awards immediately before the modification date is recognized at the modification date or ratably over the requisite remaining service period, as appropriate.

While the assumptions used to calculate and account for share-based compensation awards represent management’s best estimates, these estimates involve inherent uncertainties and the application of management’s judgment.

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

Diluted net income per common share is computed by dividing net income by the diluted number of shares outstanding during the period.

Except where the result would be antidilutive to net income, diluted net income per common share is computed assuming the conversion of the 2022 Convertible Notes, the 2024 Convertible Notes and the 2026 Convertible Notes, the exercise of outstanding common stock options and the vesting of RSUs and RSAs (using the treasury stock method), as well as their related income tax effects.

Diluted net income per share reflects the potential dilution beyond common shares for basic net income per share that could occur if securities or other contracts to issue common shares were exercised, converted into common shares, or resulted in the issuance of common shares that would have shared in the Company’s earnings.

Subsequent Events

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Except as set forth below, the Company did not adopt any new accounting pronouncements during the year ended December 31, 2022 that had a material effect on its consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”) , which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This guidance is effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company adopted ASU 2019-12 during the three months ended March 31 , 2021 .

The adoption of ASU 2019-12 did not have a material impact on the Company’s financial position and results of operations.

In August 2020, the FASB issued ASU No.

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The amendments in ASU 2020-06 simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

Under ASU 2020-06, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives.

These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated under previously existing guidance.

The new guidance also requires the if-converted method to be applied for all convertible instruments.

Under ASU 2020-06, embedded conversion features are no longer separately reported in equity and convertible debt instruments are now accounted for as a single liability measured at amortized cost, as long as no other features require bifurcation and recognition as derivatives.

These changes will reduce reported interest expense and increase reported net income for entities with convertible instruments that were bifurcated between liabilities and equity under previously existing guidance.

Additionally, temporary differences between the book and tax bases resulting from the bifurcation of the embedded conversion feature under previously existing guidance have been eliminated and deferred tax assets and liabilities arising from such temporary differences will no longer be reported.

The new guidance also requires the if-converted method to be used in diluted earnings per share computations for all convertible instruments and revised the if-converted method to preclude the addback of interest expense to the numerator if the principal portions of the convertible instruments are required to be settled in cash.

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.

Upon adoption, entities may apply the new standard on a modified retrospective or full retrospective basis.

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 consolidated financial statements.

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.

The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective approach, which resulted in a cumulative-effect adjustment recorded on the date of adoption as follows (in thousands):

December 31, 2021

Effect of the Adoption

January 1, 2022

Consolidated Balance Sheet

of ASU 2020-06

Deferred tax assets

Current portion of convertible senior notes

Long-term portion of convertible senior notes

Additional paid-in-capital

Retained earnings

Interest expense recognized in subsequent periods is reduced as a result of accounting for convertible debt instruments as a single liability measured at amortized cost, with a decrease of $ 22.1 million of non-cash interest expense during the year ended December 31, 2022 compared to the year ended December 31, 2021 related to convertible debt instruments outstanding on the adoption date.

The adoption of ASU 2020-06 does not impact the Company’s liquidity or cash flows.

In May 2021, the FASB issued ASU No.

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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.

The Company adopted ASU 2021-04 as of January 1, 2022 .

The adoption of ASU 2021-04 did not have a material impact on the Company’s 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 consolidated financial statements upon future adoption.

Cyclerion Separation

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

The Separation was effected by means of a distribution of all of the outstanding shares of common stock, with no par value, of Cyclerion through a dividend of Cyclerion’s common stock, to the Ironwood’s stockholders of record as of the close of business on March 19, 2019.

Prior to the Separation on April 1, 2019, Cyclerion was a wholly owned subsidiary of the Company.

On March 30, 2019, the Company entered into certain agreements with Cyclerion relating to the Separation, including a separation agreement, a tax matters agreement, and an employee matters agreement.

Agreements with Cyclerion

The separation agreement with Cyclerion sets forth, among other things, the Company’s agreements with Cyclerion regarding the principal actions to be taken in connection with the Separation, including the dividend, which was effective as of April 1, 2019.

The separation agreement identifies assets transferred, liabilities assumed by and contracts assigned to each of Cyclerion and Ironwood as part of the Separation, and provides for when and how these transfers, assumptions and assignments occur.

The purpose of the separation agreement was to provide Cyclerion and Ironwood with assets to operate their respective businesses and retain or assume liabilities related to those assets.

The transfer of assets and liabilities to Cyclerion was effected through a contribution in accordance with the separation agreement as summarized below (in thousands):

As of April 1, 2019

Prepaid expenses and other current assets

Property and equipment, net

Accrued research and development costs

Accrued expenses and other current liabilities

Net Assets Transferred to Cyclerion

In addition, the Company received $ 1.3 million during the year ended December 31, 2019 associated with tenant improvement reimbursement provisions related to the Cyclerion lease in accordance with the separation agreement.

The tax matters agreement governs each party’s rights, responsibilities and obligations with respect to taxes, including taxes, if any, incurred as a result of any failure of the Separation to qualify as tax-free.

In general, if the parties incur tax liabilities in the event that the Separation is not tax-free, each party is expected to be responsible for any taxes imposed on Ironwood or Cyclerion that arise from the failure of the Separation to qualify as a transaction that is generally tax-free for U.S.

federal income tax purposes, under Sections 355 and 368(a)(1)(D) and certain other relevant provisions of the Internal Revenue Code of 1986, as amended, to the extent that the failure to so qualify is attributable to an acquisition of stock or assets of, or certain actions, omissions or failures to act of, such party.

If both Ironwood and Cyclerion are responsible for such failure, liability will be shared according to relative fault.

tax otherwise resulting from the failure of the Separation to qualify as a transaction that is tax-free generally will be the responsibility of Ironwood.

Each party otherwise agreed to indemnify the other party from and against any liability for taxes allocated to such party under the tax matters agreement and any taxes resulting from breach of any such party’s covenants under the tax matters agreement, the separation agreement, or any ancillary agreement entered into in connection with the Separation.

Cyclerion agreed to certain covenants that contain restrictions intended to preserve the tax-free status of the distribution and certain related transactions.

The employee matters agreement allocates assets, liabilities and responsibilities relating to the employment, compensation, and employee benefits of Ironwood and Cyclerion employees, and other related matters in connection with the Separation, including the treatment of outstanding Ironwood incentive equity awards.

Pursuant to the employee matters agreement, the outstanding Ironwood equity awards held by Cyclerion and Ironwood employees were adjusted in connection with the Separation, with the intent to maintain, immediately following the Separation, the economic value of the awards.

No incremental stock-based compensation expense related to the Separation-related adjustments was recognized during the year ended December 31, 2019 (Note 13).

Additionally, the Company entered into two transition services agreements and a development agreement with Cyclerion.

Pursuant to the transition service agreements, the Company was obligated to provide and was entitled to receive certain transition services related to corporate functions, such as finance, procurement, facilities and development.

As of December 31, 2020, both transition service agreements had terminated.

Amounts received for services provided to Cyclerion were recorded as other income and amounts paid for services provided by Cyclerion were recorded as selling, general and administrative expense and research and development expense, as applicable.

During the years ended December 31, 2020 and 2019, the Company recorded an insignificant amount and $ 0.3 million, respectively, as other income for services provided to Cyclerion.

During each of the years ended December 31, 2020 and 2019, the Company recorded an insignificant amount in both selling, general and administrative expense and research and development expense for services provided by Cyclerion, respectively.

Pursuant to the development agreement, Cyclerion was obligated to provide the Company with certain research and development services with respect to certain of Ironwood’s products and product candidates for an initial period of two years, unless earlier terminated or extended.

As of December 31, 2021, the development agreement had been terminated.

Services received were paid at a mutually agreed upon rate and development activities were governed by a joint steering committee comprised of representatives from both Cyclerion and Ironwood.

The Company recorded an insignificant amount, $ 2.3 million and $ 4.5 million in research and development expenses under the development agreement during the years ended December 31, 2021, 2020 and 2019, respectively.

The Company had an insignificant amount of accounts payable due to Cyclerion as of December 31, 2020.

Discontinued Operations

Upon the Separation, the Company determined its sGC business qualified for discontinued operations accounting treatment in accordance with ASC 205-20.

There were no discontinued operations during the years ended December 31, 2021 and 2020.

The following is a summary of expenses of Cyclerion classified as discontinued operations for year ended December 31, 2019 (in thousands):

Year Ended December 31,

Costs and expenses:

Research and development

Selling, general and administrative

Net loss from discontinued operations

There were no assets or liabilities related to discontinued operations as of either December 31, 2021 or December 31, 2020, as all balances were transferred to Cyclerion upon Separation.

Net Income Per Share

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Year Ended December 31,

Add back interest expense, net of tax benefit, on assumed conversion of 2024 Convertible Notes

Add back interest expense, net of tax benefit, on assumed conversion of 2026 Convertible Notes

Numerator used in computing net income per share — diluted

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

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Restricted stock

2024 Convertible Notes assumed conversion

2026 Convertible Notes assumed conversion

Dilutive potential common shares

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2026 Convertible Notes

The potentially dilutive impact of the 2022 Convertible Notes, 2024 Convertible Notes and 2026 Convertible notes (together, the “Convertible Senior Notes”) (Note 10) is determined using the treasury stock method.

Under this method, no numerator or denominator adjustments arise from the principal and interest components of the Convertible Senior Notes because the Company has the intent and ability to settle the Convertible Senior Notes’ principal and interest in cash.

Instead, the Company is required to increase the diluted net income per share denominator by the variable number of shares that would be issued upon conversion if it settled the conversion spread obligation with shares.

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.

Prior to the adoption of ASU 2020-06, the potentially dilutive impact of the Convertible Senior Notes (Note 9) was determined using the treasury stock method.

Under this method, no numerator or denominator adjustments arose from the principal and interest components of the Convertible Senior Notes because the Company had the intent and ability to settle the Convertible Senior Notes’ principal and interest in cash.

Instead, the Company was required to increase the diluted net income per share denominator by the variable number of shares that would be issued upon conversion if it settled the conversion spread obligation with shares.

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

There was no calculated spread added to the denominator for the years ended December 31, 2021 or 2020.

Following the adoption of ASU 2020-06 on January 1, 2022, the dilutive impact of the Convertible Senior Notes is determined using the if-converted method.

Under the if-converted method, the Convertible Senior Notes are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

charges are deducted from the numerator, unless the principal amount of the convertible instruments is required to be paid in cash.

There was no dilutive impact of the 2022 Convertible Notes for the year ended December 31, 2022 because the Company had elected prior to the beginning of the period to settle the conversion of 2022 Convertible Notes, if any, with a combination settlement of a cash payment equal to the principal value of converted notes and shares of Class A Common Stock equal to the conversion value in excess of the principal value, if any.

Accordingly, interest expense was not removed from the numerator and there was no calculated spread added to the denominator because the average market price of the Company’s Class A common stock during the portion of each period in which the 2022 Convertible Notes were outstanding was not in excess of the conversion price.

Collaboration, License, and Other Agreements

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Astellas (Japan)

Co-Promotion and Other Agreements:

AbbVie (VIBERZI) (1)

Other Agreements:

Alnylam (GIVLAARI)

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Total sale of API

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

Accounts receivable, net, included $ 130.0 million and $ 138.0 primarily related to collaborative arrangements revenue and sale of API, collectively, as of December 31, 2022 and 2021, respectively.

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

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

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

Under the terms of this collaboration agreement, the Company received an upfront licensing fee, equity investment, and development and regulatory milestones, and shares equally with AbbVie all development costs as well as net profits or losses from the

development and sale of linaclotide in the U.S.

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

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

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

As of December 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.

The Company can also achieve up to $ 80.0 million in a sales-related milestone if certain conditions are met, which will be recognized when the related sales occur.

During the years ended December 31, 2022, 2021 and 2020, the Company incurred $ 8.0 million, $ 8.2 million, and $ 20.1 million 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 $ 11.5 million and $ 5.6 million during the years ended December 31, 2021 and December 31, 2020, respectively, and offset $ 7.2 million in research and development costs during the year ended December 31, 2019, to reflect the obligations of each party under the collaboration to bear 50 % of the development costs incurred.

As a result of the research and development cost-sharing provisions of the linaclotide collaboration for North America, the Company incurred $ 8.9 million, $ 11.5 million, and $ 5.6 million in incremental research and development costs during the years ended December 31, 2022, 2021, and 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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The Company evaluated its collaboration arrangement for North America with AbbVie and concluded that all development-period performance obligations had been satisfied as of September 2012.

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

The consideration remaining includes cost reimbursements in the U.S., as well as commercial sales-based milestones and net profit and loss sharing payments based on net sales in the U.S.

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

The consideration remaining includes cost reimbursements in the U.S.

and net profit and loss sharing payments based on net sales in the U.S.

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

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

Royalties and net profit and loss sharing payments will be recorded as collaborative arrangements revenue or expense in the period earned, as these payments relate predominately to the license granted to AbbVie.

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

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Total collaborative arrangements revenue

The collaborative arrangements revenue recognized in the years ended December 31, 2021, 2020, and 2019 primarily represents the Company’s share of the net profits and net losses on the sale of LINZESS in the U.S.

The Company incurred $ 34.3 million, $ 30.3 million, and $ 39.9 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 $ 0.3 million, $ 0.6 million, and $ 2.4 million in patent prosecution and patent litigation costs, for the years ended December 31, 2021, 2020, and 2019, respectively.

in accordance with the cost-sharing arrangement with AbbVie for the years ended December 31, 2022, 2021, and 2020, respectively.

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

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

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

(“Almirall”) to develop and commercialize linaclotide in Europe (including the Commonwealth of Independent States and Turkey) for the treatment of IBS-C, CIC and other GI conditions (the “European License Agreement”).

In accordance with the European License Agreement, the Company granted Almirall a right to access its U.S.

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

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

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

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

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

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

The 2017 Amendment extended the license to develop and commercialize linaclotide in all

countries other than China (including Hong Kong and Macau), Japan, and the countries and territories of North America.

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

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

The 2017 Amendment did not modify any of the milestones or royalty terms related to Europe.

In evaluating the terms of the European License Agreement, 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 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 has a license agreement with AbbVie to develop, manufacture and commercialize linaclotide in (i) Europe, and (ii) all countries other than China (including Hong Kong and Macau), Japan, and the countries and territories of North America, or collectively the “Expanded Territory,” for the treatment of IBS-C, CIC and other GI conditions.

Under the license agreement, as amended, AbbVie is obligated to pay the Company, (i) royalties based on sales volume in Europe in the upper-teens percent, and (ii) on a country-by-country and product-by-product basis in the Expanded Territory, a royalty as a percentage of net sales of products containing linaclotide as an active ingredient in the upper-single digits for five years following the first commercial sale of a linaclotide product in a country, and in the low-double digits thereafter.

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

The license agreement also contains certain sales-based milestones and commercial launch milestones, which could total up to $ 42.5 million.

The Company recognized $ 2.4 million, $ 2.6 million and $ 2.2 million of royalty revenue from the Amended European License Agreement during the years ended December 31, 2022, 2021, and 2020, respectively.

License Agreement for Japan with Astellas

In November 2009, the Company entered into a license agreement with Astellas, as amended, to develop and commercialize linaclotide for the treatment of IBS-C, CIC and other GI conditions in Japan (the “2009 License Agreement with Astellas”).

Astellas is responsible for all activities relating to development, regulatory approval and commercialization in Japan as well as funding the associated costs and the Company was required to participate on a joint development committee over linaclotide’s development period.

Under the 2009 License Agreement with Astellas, the Company received an upfront licensing fee of $ 30.0 million and three development milestone payments that totaled $ 45.0 million and has no remaining performance obligations.

In April 2017, the Company and Astellas entered into a commercial API supply agreement (the “Astellas Commercial Supply Agreement”).

Pursuant to the Astellas Commercial Supply Agreement, the Company sold linaclotide API supply to Astellas at a contractually defined rate and recognized related revenue as sale of API.

Under the 2009 License Agreement with Astellas, the Company received royalties which escalated based on sales volume, beginning in the low-twenties percent, less the transfer price paid for the API included in the product sold and other contractual deductions.

During the year ended December 31, 2019, the Company recognized revenue of $ 27.5 million from the sale of API to Astellas under the 2009 License Agreement with Astellas and the Astellas Commercial Supply Agreement.

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

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

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

Under the terms of the Amended Astellas License Agreement, the Company is no longer responsible for the supply of linaclotide API to Astellas, and Astellas assumed responsibility for its own supply of linaclotide API in Japan in 2020, other than minimal quantities of API the Company supplied to Astellas in 2020 relating to orders for linaclotide API placed by Astellas in 2019.

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

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

These royalty payments are subject to reduction following the expiration of certain

licensed patents and the occurrence of generic competition in Japan.

The Company continued to supply linaclotide API for Japan during 2019 and 2020 at a contractually defined rate.

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

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

● delivery of the expanded license of intellectual property, including the applicable manufacturing know-how;

● obligation to supply linaclotide API for 2019;

● adverse event reporting services.

The Company allocated the $ 10.0 million upfront payment to the delivery of the expanded license of intellectual property and recognized it as collaborative arrangements revenue at contract inception.

The Company allocated the $ 20.4 million in remaining purchase orders for API to the obligation to supply linaclotide API to Astellas for 2019.

Consideration for the supply of linaclotide API was recognized over the performance period as linaclotide API is shipped to Astellas.

Consideration allocated to the adverse event reporting services was recognized as such services were provided over the performance period based on the amount to which the Company has a right to invoice.

Royalties on sales of LINZESS in Japan relate predominantly to the license granted to Astellas.

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

During the year ended December 31, 2021, the Company recognized $ 2.2 million in collaborative arrangements revenue related to royalties and $ 0.2 million related to the sale of API to Astellas under the Amended Astellas License Agreement.

The Company has a license agreement with Astellas to develop, manufacture, and commercialize linaclotide for the treatment of IBS-C, CIC and other GI conditions in Japan.

Under the license agreement, as amended, Astellas is required to pay royalties to the Company at rates beginning in the mid-single digit percent and escalating to low-double-digit percent, based on aggregate annual net sales in Japan of products containing linaclotide as an active ingredient.

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

During the year ended December 31, 2022, the Company recognized $ 2.0 million in collaborative arrangements revenue related to royalties.

During the year ended December 31, 2021, the Company recognized $ 2.2 million in collaborative arrangements revenue related to royalties, and $ 0.2 million from the sale of API to Astellas under the Amended Astellas License Agreement.

During the year ended December 31, 2020, the Company recognized $ 2.1 million in collaborative arrangements revenue related to royalties, an insignificant amount of collaborative arrangements revenue related to adverse event reporting services, and $ 2.0 million from the sale of API to Astellas under the Amended Astellas License Agreement.

During the year ended December 31, 2019, the Company recognized $ 10.0 million in collaborative arrangements revenue related to the upfront fee associated with the execution of the Amended Astellas License Agreement, an insignificant amount of collaborative arrangements revenue related to adverse event reporting services, and $ 18.3 million from the sale of API to Astellas under the Amended License Agreement.

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

In October 2012, the Company entered into a collaboration agreement with AstraZeneca to co-develop and co-commercialize linaclotide in the AstraZeneca License Territory (the “AstraZeneca Collaboration Agreement”).

The collaboration provided AstraZeneca with an exclusive nontransferable license to exploit the underlying technology in the AstraZeneca License Territory.

The parties shared responsibility for continued development and commercialization of linaclotide under a joint development plan and a joint commercialization plan, respectively, with AstraZeneca having primary responsibility for the local operational execution.

In September 2019, the Company and AstraZeneca entered into an amendment and restatement of the AstraZeneca Collaboration Agreement (the “Amended AstraZeneca Agreement”) under which AstraZeneca obtained the exclusive right to develop, manufacture and commercialize products containing linaclotide in the AstraZeneca License Territory (the “AstraZeneca License”).

Prior to the execution of the Amended AstraZeneca Agreement, the Company identified the following performance obligations under the AstraZeneca Collaboration Agreement:

● research, development and regulatory services pursuant to the development plan (“R&D Services”);

● Joint Development Committee (“JDC”) services;

● obligation to supply clinical trial material;

● 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.

During the years ended December 31, 2019, the Company incurred $ 1.2 million related to pre-launch commercial services and supply chain services.

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.

In addition, AstraZeneca may be required to make milestone payments totaling up to $ 90.0 million contingent on the achievement of certain sales targets and will be required to pay tiered royalties to the Company at rates beginning in the mid-single-digit percent and increasing up to twenty percent based on the aggregate annual net sales of products containing linaclotide in the AstraZeneca License Territory.

In connection with the Amended AstraZeneca Agreement, the Company and AstraZeneca entered into a transition services agreement (“AstraZeneca TSA”) and an amended commercial supply agreement (“AstraZeneca CSA”).

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

Services performed were paid at a mutually agreed upon rate.

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.

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

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

● delivery of the expanded AstraZeneca License;

● AstraZeneca TSA services;

● supply of linaclotide API, finished drug product and finished goods under the AstraZeneca CSA.

The Company determined that the non-contingent payments should be allocated to the delivery of the expanded AstraZeneca License.

The Company determined that the performance obligation related to the transfer of the AstraZeneca License was satisfied as of the execution date of the Amended AstraZeneca Agreement.

As a portion of the payments relating to the transfer of the AstraZeneca License are due significantly after the performance obligation was satisfied, the Company adjusted its transaction price for the significant financing component of $ 2.6 million.

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 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 year ended December 31, 2021, the Company recognized $ 0.7 million in collaborative arrangements revenue related to the Amended AstraZeneca Agreement, of which $ 0.5 million related to royalties and $ 0.2 million related to AstraZeneca TSA services, and recognized $ 0.6 million in sales of API relating to the supply of development material.

The Company recognized $ 0.6 million in interest income related to the significant financing component of the Amended AstraZeneca Agreement during the year ended December 31, 2021.

The Company has a collaboration agreement with AstraZeneca under which AstraZeneca has the exclusive right to develop, manufacture and commercialize products containing linaclotide in the AstraZeneca License Territory.

Under the collaboration agreement, AstraZeneca is required to pay tiered royalties to the Company at rates beginning in the mid-single-digit percent and increasing up to twenty percent based on the aggregate annual net sales of products containing linaclotide in the AstraZeneca License Territory.

During the year ended December 31, 2022, the Company recognized $ 0.6 million in collaborative arrangements revenue related to the Amended AstraZeneca Agreement related to royalties.

During the year ended December 31, 2021, the Company recognized $ 0.7 million in collaborative arrangements revenue related to the Amended AstraZeneca Agreement, of which $ 0.5 million related to royalties and $ 0.2 million related to services provided under a transition services agreement, and recognized $ 0.6 million in sales of API relating to the supply of development material.

During the year ended December 31, 2020, the Company recognized $ 0.7 million in collaborative

arrangements revenue related to the Amended AstraZeneca License, of which $ 0.6 million related to the AstraZeneca TSA services and $ 0.1 million related to royalties, and recognized $ 5.5 million of sales of API relating to the supply of linaclotide finished drug product and finished goods under the AstraZeneca CSA.

The Company recognized $ 0.8 million

in interest income related to the significant financing component of the Amended AstraZeneca Agreement during the year ended December 31, 2020.

During the year ended December 31, 2019, the Company recognized $ 32.6 million in collaborative arrangements revenue related to the Amended AstraZeneca License, of which $ 32.4 million related to the delivery of the AstraZeneca License and $ 0.2 million related to the AstraZeneca TSA services, and recognized $ 3.0 million of sale of API relating to the supply of linaclotide finished drug product and finished goods under the AstraZeneca CSA.

The Company recognized $ 0.2 million in interest income related to the significant financing component of the Amended AstraZeneca Agreement during the year ended December 31, 2019.

arrangements revenue related to the Amended AstraZeneca License, of which $ 0.6 million related to services provided under a transition services agreement and $ 0.1 million related to royalties, and recognized $ 5.5 million of sales of API relating to the supply of linaclotide finished drug product and finished goods under a commercial supply agreement.

The Company is entitled to receive non-contingent payments totaling $ 35.0 million in three installments through 2024, of which $ 25.0 million remained outstanding at December 31, 2022.

In addition, AstraZeneca may be required to make milestone payments totaling up to $ 90.0 million contingent on the achievement of certain sales targets.

The significant financing component of the transaction was $ 2.6 million and is recognized as interest income through 2024 using the effective interest method.

At December 31, 2022, the current portion and non-current portion of the non-contingent receivable due from AstraZeneca was $ 10.0 million and $ 14.6 million, respectively.

At December 31, 2021, the non-contingent receivable due from AstraZeneca was $ 24.0 million and was classified as non-current.

Other Collaboration and License Agreements

1 unchanged sentence

In November 2021, the Company entered into the COUR Collaboration Agreement, pursuant to which the Company has been granted an option (the “Option”) to acquire an exclusive license to research, develop, manufacture and commercialize, in the U.S., products containing CNP-104, a tolerizing immune modifying nanoparticle (“CNP-104”) for the treatment of primary biliary cholangitis.

COUR has initiated a clinical study for CNP-104, evaluating the safety, tolerability, and pharmacodynamic effects and efficacy of CNP-104 (the “Initial Study”).

Pursuant to the terms of the COUR Collaboration Agreement, the Company made an upfront, non-refundable payment of $ 6.0 million to COUR during the year ended December 31, 2021, and will pay COUR non-contingent payments and milestone payments totaling $ 13.5 million in connection with certain development activities and regulatory milestones.

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.

COUR has initiated a clinical study to evaluate the safety, tolerability, and pharmacodynamic effects and efficacy of CNP-104 in PBC patients, with early data assessing T-cell response from patients enrolled in the clinical study expected in the second half of 2023 .

We expect that such early data will inform timing of topline data readout.

Pursuant to the terms of the COUR Collaboration Agreement, the Company made an upfront, non-refundable payment of $ 6.0 million to COUR during the year ended December 31, 2021, and agreed to pay $ 13.5 million in non-contingent payments and milestone payments in connection with certain development activities and regulatory milestones.

After reviewing the data from the clinical study for CNP-104, if the Company exercises the Option, the Company will pay COUR $ 35.0 million in exchange for the license.

Upon commercialization, COUR will be eligible to receive commercial milestone payments of up to $ 440.0 million over the term of the agreement and royalties in the high-single digits to low-double digits percentage of the aggregated annual net sales in the U.S.

1 unchanged sentence

During the year ended December 31, 2021, the Company recognized research and development expense totaling $ 19.5 million related to the up-front payment, non-contingent payment, and milestone payments for which payment is probable to occur.

At December 31, 2021, payment obligations of $ 13.5 million were included in accrued research and development costs related to the COUR Collaboration Agreement.

At December 31, 2022 and 2021, payment obligations of $ 3.8 million and $ 13.5 million, respectively, were included in accrued research and development costs related to the COUR Collaboration Agreement.

Other Agreements

2 unchanged sentences

The Alnylam Agreement, as amended, was terminated in June 2021 with an effective termination date of September 30, 2021.

Under the terms of the Alnylam Agreement, the Company’s sales force performed 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.

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

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

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:

● performance of disease education activities for AHP and performance of sales details for GIVLAARI (together “Givosiran Education and Promotion Activities”).

The Company allocated the service fees to the performance of Givosiran Education and Promotion Activities and recognized collaborative arrangements revenue through December 31, 2020 as the services were performed based on the amount to which the Company had a right to invoice.

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 years ended December 31, 2021 and 2020, the Company recognized $ 2.4 million and $ 0.8 million, respectively, in collaborative arrangements revenue related to royalties.

During the years ended December 31, 2020 and 2019, the Company recognized $ 3.5 million and $ 2.0 million, respectively, in collaborative arrangements revenue related to the service fees.

Under the terms of the Alnylam Agreement, the Company’s sales force performed disease awareness activities and sales detailing activities for GIVLAARI.

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

During the years ended December 31, 2022, 2021 and 2020, the Company recognized $ 2.2 million, $ 2.4 million and $ 0.8 million, respectively, in collaborative arrangements revenue related to royalties.

During the year ended December 31, 2020, the Company recognized $ 3.5 million in collaborative arrangements revenue related to the service fees.

Fair Value of Financial Instruments

22 unchanged sentences

Money market funds

Repurchase agreements

Commercial paper

Restricted cash:

Money market funds

Convertible note hedges

Total assets measured at fair value

14 unchanged sentences

Total liabilities measured at fair value

There were no transfers between fair value measurement levels during each of the years ended December 31, 2021, 2020, and 2019.

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 December 31, 2022 and 2021 are carried at amounts that approximate fair value due to their short-term maturities.

2 unchanged sentences

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

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

The following inputs were used in the fair market valuation of the Convertible Note Hedges as of December 31, 2021 and the Note Hedge Warrants as of December 31, 2022 and 2021:

December 31, 2022

16 unchanged sentences

Balance at December 31, 2020

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

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

Balance at December 31, 2021

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

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

Balance at December 31, 2022

2 unchanged sentences

In August 2019, the Company issued $ 200.0 million aggregate principal amount of its 2024 Convertible Notes and $ 200.0 million aggregate principal amount of its 2026 Convertible Notes, and used a portion of the proceeds from such issuances to repurchase $ 215.0 million aggregate principal amount of its 2022 Convertible Notes.

The Company separately accounted for the liability and equity components of each of the 2022 Convertible Notes, 2024 Convertible Notes, and 2026 Convertible Notes, by allocating the proceeds between the liability component and equity component (Note 10).

In June 2022, the Company repaid the $ 120.7 million remaining aggregate principal amount of its 2022 Convertible Notes.

Prior to the adoption of ASU 2020-06, the Company separately accounted for the liability and equity components of each of the 2022 Convertible Notes, 2024 Convertible Notes, and 2026 Convertible Notes by allocating the proceeds between the liability component and equity component (Note 9).

Following the adoption of ASU 2020-06 on January 1, 2022, the equity component was eliminated and each of the 2022 Convertible Notes, 2024 Convertible Notes, and 2026 Convertible Notes are measured as a single liability.

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 $ 125.2 million and $ 130.2 million as of December 31, 2021 and 2020, respectively.

The estimated fair value of the 2022 Convertible Notes was $ 125.2 million as of December 31, 2021.

The estimated fair value of the 2024 Convertible Notes was $ 215.9 million and $ 221.9 million as of December 31, 2022 and 2021, respectively.

6 unchanged sentences

These instruments meet the conditions outlined in ASC 815 to be classified in stockholders’ equity (deficit) and are not subsequently remeasured as long as the conditions for equity classification continue to be met (Note 9).

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

The Company’s lease portfolio for the year ended December 31, 2022 includes:

an office lease for its current headquarters location, a data center colocation, 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 $ 1.7 million and $ 2.2 million and are collateralized by money market accounts recorded as restricted cash on the Company’s consolidated balance sheets as of December 31, 2021 and 2020, respectively.

an office lease for its current headquarters location, 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 $ 1.7 million and are collateralized by money market accounts recorded as restricted cash on the Company’s consolidated balance sheets as of December 31, 2022 and 2021.

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

2 unchanged sentences

Operating lease cost

Variable lease payments

Short-term lease cost

Total lease cost

(1) Operating lease cost is presented net of $ 0.3 million of sublease income for the year ended December 31, 2019 related to a sublease agreement between Ironwood and Cyclerion executed upon Separation.

The sublease agreement terminated in May 2019.

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

Year Ended December 31,

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

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

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

Right-of-use assets obtained in exchange for new operating lease liabilities upon execution of Summer Street Lease (in thousands)

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 December 31, 2021 are as follows (in thousands):

Summer Street Lease

In June 2019, the Company entered into a non-cancelable operating lease (the “Summer Street Lease”) for approximately 39,000 square feet of office space on the 23 rd floor of 100 Summer Street, Boston, Massachusetts, which began serving as the Company’s headquarters in October 2019.

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

The extension option is not included in the lease term used for the measurement of the lease, as it is not reasonably certain to be exercised.

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

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

At December 31, 2022, the balances of the right-of-use asset and operating lease liability were $ 14.0 million and $ 19.7 million, respectively.

At December 31, 2021, the balances of the right-of-use asset and operating lease liability were $ 15.3 million and $ 21.5 million, respectively.

Lease costs related to the Summer Street Lease recorded during each of the years ended December 31, 2022, 2021 and 2020 were $ 2.5 million.

Future minimum lease payments under the Summer Street Lease as of December 31, 2022 are as follows (in thousands):

2028 and thereafter

4 unchanged sentences

Operating lease liabilities, net of current portion

Summer Street Lease (current headquarters)

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

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

At December 31, 2021, the balances of the right-of-use asset and operating lease liability were $ 15.3 million and $ 21.5 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 related to the Summer Street Lease recorded during the years ended December 31, 2021, 2020 and 2019 were $ 2.5 million, $ 2.5 million and $ 1.5 million, respectively.

Binney Street Lease (prior headquarters)

The Company rented office space at 301 Binney Street, Cambridge, Massachusetts under a non-cancelable operating lease entered into in January 2007, as amended (“Binney Street Lease”) through October 2019.

On April 1, 2019, the Company modified the Binney Street Lease to reduce its leased premises to approximately 108,000 rentable square feet of office space on the first and third floors.

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

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

The Company elected to determine the proportionate reduction in the right-of-use asset based on the reduction to the lease liability.

As of January 1, 2019, in conjunction with the adoption of ASC 842, the Company recorded a right-of-use asset of approximately $ 87.7 million and a lease liability of approximately $ 94.3 million associated with the Binney Street Lease.

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

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

The Lease Termination was accounted for as a lease modification that reduces the term of the existing lease and the Company adjusted the value of its right-of-use asset and operating lease liability using an incremental borrowing rate of approximately 4.0 %.

Lease cost related to the Binney Street Lease recorded during the year ended December 31, 2019 was approximately $ 16.3 million, net of sublease income of approximately $ 0.3 million.

Property and Equipment

4 unchanged sentences

Computer and office equipment

Total property and equipment

Less accumulated depreciation and amortization

Total property and equipment, net

Depreciation expense of property and equipment was $ 1.4 million, $ 1.5 million and $ 2.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

6 unchanged sentences

Total accrued expenses and other current liabilities

As of December 31, 2021, other accrued expenses of $ 3.4 million included $ 2.7 million of uninvoiced vendor liabilities, $ 0.3 million of accrued interest and $ 0.2 million of state income taxes payable.

As of December 31, 2020, other accrued expenses of $ 2.6 million included $ 2.1 million of uninvoiced vendor liabilities and $ 0.3 million of accrued interest.

As of December 31, 2022 and 2021, other accrued expenses of $ 4.4 million and $ 3.4 million were comprised primarily of $ 3.6 million and $ 2.7 million of uninvoiced vendor liabilities, respectively.

Notes Payable

3 unchanged sentences

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

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

In connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes in August 2019, the Company repurchased $ 215.0 million aggregate principal amount of the 2022 Convertible Notes.

Such portion of the 2022 Convertible Notes were repurchased at a premium totaling $ 227.3 million.

In June 2022, the Company repaid the remaining $ 120.7 million aggregate principal amount of the 2022 Convertible Notes upon maturity.

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

Bank National Association, as trustee (the “Trustee”).

The 2022 Convertible Notes are senior unsecured obligations and bear cash interest at the annual rate of 2.25 %, payable on June 15 and December 15 of each year.

The 2022 Convertible Notes will mature on June 15, 2022, unless earlier converted or repurchased.

The Company held the option to determine settlement method 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 (subject to, and in accordance with, the settlement provisions of the 2022 Indenture).

The Company has elected to settle conversions of the 2022 Convertible Notes through cash payment equal to the principal value and shares of Class A Common Stock for the conversion premium, if any.

The initial conversion rate for the 2022 Convertible Notes was 60.3209 shares of Class A Common Stock (subject to adjustment as provided for in the 2022 Indenture) per $ 1,000 principal amount of the 2022 Convertible Notes, which was equal to an initial conversion price of approximately $ 16.58 per share and 20,249,665 shares.

In connection with the Separation, in April 2019, the conversion rate under the 2022 Indenture was adjusted to equal 68.9172 shares of Class A Common Stock per $ 1,000 principal amount of the 2022 Convertible Notes, which is equal to an adjusted conversion price of approximately $ 14.51 per share and 23,135,435 shares.

Holders of the 2022 Convertible Notes had the right to convert their 2022 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2021 upon the occurrence of certain circumstances and no such conversions occurred.

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.

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.

If a make-whole fundamental change, as described in the 2022 Indenture, occurs and a holder elects to convert its 2022 Convertible Notes in connection with such make-whole fundamental change, such holder may be entitled to an increase in the conversion rate as described in the 2022 Indenture.

The 2022 Indenture does not contain any financial covenants or restrict the Company’s ability to repurchase the Company’s securities, pay dividends or make restricted payments in the event of a transaction that substantially increases the Company’s level of indebtedness.

The 2022 Indenture provides for customary events of default.

In the case of an event of default with respect to the 2022 Convertible Notes arising from specified events of bankruptcy or insolvency, all outstanding 2022 Convertible Notes will become due and payable immediately without further action or notice.

If any other event of default with respect to the 2022 Convertible Notes under the 2022 Indenture occurs or is continuing, the Trustee or holders of at least 25 % in aggregate principal amount of the then outstanding 2022 Convertible Notes may declare the principal amount of the 2022 Convertible Notes to be immediately due and payable.

Notwithstanding the foregoing, the 2022 Indenture provides that, upon the Company’s election, and for up to 180 days , the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the 2022 Indenture consists exclusively of the right to receive additional interest on the 2022 Convertible Notes.

In accordance with accounting guidance for debt with conversion and other options, the Company separately accounted for the liability and equity components of the 2022 Convertible Notes by allocating the proceeds between the liability component and the embedded conversion option, or equity component, due to the Company's ability to settle the 2022 Convertible Notes in cash, its Class A Common Stock, or a combination of cash and Class A Common Stock at the option of the Company.

The 2022 Convertible Notes were senior unsecured obligations and bore cash interest at the annual rate of 2.25 %, payable on June 15 and December 15 of each year.

2022 Convertible Notes matured on June 15, 2022.

No conversions were exercised by holders of the 2022 Convertible Notes.

Upon issuance, the Company separately accounted for the liability and equity components of the 2022 Convertible Notes by allocating the proceeds between the liability component and the embedded conversion option, or equity component, due to the Company's ability to settle the 2022 Convertible Notes in cash, its Class A Common Stock, or a combination of cash and Class A Common Stock at the option of the Company.

The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated conversion feature.

The equity component of the 2022 Convertible Notes was recognized as a debt discount and represents the difference between the gross proceeds from the issuance of the 2022 Convertible Notes and the fair value of the liability component of the 2022 Convertible Notes on their respective dates of issuance.

The debt discount is amortized to interest expense using the effective interest method over seven years , or the expected life of the 2022 Convertible Notes.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The 2022 Convertible Notes were repurchased at a premium totaling $ 227.3 million.

The Company recognized a loss on extinguishment of debt of $ 23.4 million during the year ended December 31, 2019 related to the prepayment premium and proportional write-off of the 2022 Convertible Notes unamortized debt issuance costs and unamortized debt discount.

Additionally, the repurchase resulted in a reduction to additional paid-in capital of $ 27.0 million during the year ended December 31, 2019 related to the equity component of the 2022 Convertible Notes.

The debt discount was amortized to interest expense using the effective interest method over seven years, or the expected life of the 2022 Convertible Notes.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

Upon the adoption of ASU 2020-06 on January 1, 2022, the equity component is no longer bifurcated from the liability component and each debt instrument is accounted for as a single liability measured at amortized cost.

Accordingly, the unamortized debt discount as of the adoption date in the amount of $ 3.5 million was derecognized, resulting in an increase to the current portion of convertible senior notes and a decrease to stockholders’ equity.

Additionally, there is no longer non-cash interest expense associated with the amortization of the original issue discount.

During the years ended December 31, 2021 and 2020, the Company recognized $ 7.2 million and $ 6.6 million in non-cash interest expense, respectively, related to the debt discount.

0.75 % Convertible Senior Notes due 2024 and 1.50 % Convertible Senior Notes due 2026

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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 approximately $ 13.39 per share.

The initial conversion rate for each of the 2024 Convertible Notes and the 2026 Convertible Notes is 74.6687 shares of Class A Common Stock (subject to adjustment as provided for in the applicable Indenture) per $ 1,000 principal amount of the 2024 Convertible Notes and 2026 Convertible Notes, which is equal to an initial conversion price of approximately $ 13.39 per share.

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;

● during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in each Indenture) per $ 1,000 principal amount of Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of Class A Common Stock and the conversion rate for the Notes on each such trading day;

for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of Class A Common Stock and the conversion rate for the Notes on each such trading day;

● upon the occurrence of specified corporate events described in each Indenture.

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If any other event of default with respect to a series of Notes under the relevant Indenture occurs or is continuing, the Trustee or holders of at least 25 % in aggregate principal amount of the then outstanding Notes of such series may declare the principal amount of such Notes to be immediately due and payable.

In accordance with accounting guidance for debt with conversion and other options, the Company separately accounted for the liability and equity components of the 2024 Convertible Notes and the 2026 Convertible Notes by allocating the proceeds between the liability components and the embedded conversion options, or equity components, due to the Company’s ability to settle the 2024 Convertible Notes and the 2026 Convertible Notes in cash, its Class A Common Stock, or a combination of cash and Class A Common Stock at the option of the Company.

Upon issuance, the Company separately accounted for the liability and equity components of the 2024 Convertible Notes and the 2026 Convertible Notes by allocating the proceeds between the liability components and the embedded conversion options, or equity components, due to the Company’s ability to settle the 2024 Convertible Notes and the 2026 Convertible Notes in cash, its Class A Common Stock, or a combination of cash and Class A Common Stock at the option of the Company.

The carrying amount of the respective liability components were calculated by measuring the fair value of a similar liability that does not have an associated conversion feature.

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

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

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

The debt discount was amortized to interest expense using the effective interest method over approximately five and seven years , or the expected life of the 2024 Convertible Notes and the 2026 Convertible Notes, respectively.

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

Accordingly, the unamortized debt discount as of the adoption date in the amount of $ 22.3 million and $ 35.8 million for the 2024 Convertible Notes and 2026 Convertible Notes, respectively, was derecognized, resulting in an increase to the non-current portion of convertible senior notes and a decrease to stockholders’ equity.

Additionally, there is no longer non-cash interest expense associated with the amortization of the original issue discount.

During the years ended December 31, 2021 and 2020, the Company recognized $ 8.2 million and $ 7.8 million in non-cash interest expense, respectively, related to the debt discount for the 2024 Convertible Notes and $ 6.8 million and $ 6.4 million in non-cash interest expense, respectively, related to the debt discount for the 2026 Convertible Notes.

The Company’s outstanding balances for the convertible senior notes as of December 31, 2022 and 2021 consisted of the following (in thousands):

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In connection with the partial repurchase of the 2022 Convertible Notes, the Company recorded a loss on extinguishment of debt of $ 23.4 million, of which $ 2.8 million related to the initial debt issuance costs, during the year ended December 31, 2019.

Upon the adoption of ASU 2020-06, the costs originally allocated to the equity component are reflected within the current portion of convertible senior notes and recorded as interest expense over the life of the 2022 Convertible Notes.

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

The effective annual 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 December 31, 2021, the effective annual interest rate on the liability component of the 2022 Convertible Notes was 10.1 %.

From the date of the partial repurchase of the 2022 Convertible Notes in August 2019 through maturity in June 2022, the effective annual interest rate on the 2022 Convertible Notes was 2.7 %.

The effective annual interest rate is computed using the contractual interest and the amortization of debt issuance costs.

Prior to the adoption of ASU 2020-06, the effective annual interest rate calculation also included the amortization of the original issue discount.

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.

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The portion of these costs allocated to the liability components totaling $ 6.9 million were recorded as a reduction in the carrying value of the debt on the consolidated balance sheet and are amortized to interest expense using the effective interest method over the expected lives of the 2024 Convertible Notes and the 2026 Convertible Notes.

Upon the adoption of ASU 2020-06 on January 1, 2022, the costs originally allocated to the equity component are reflected within the current portion of convertible senior notes and recorded as interest expense over the life of the 2024 Convertible Notes and the 2026 Convertible Notes.

The Company determined the expected life of the 2024 Convertible Notes and the 2026 Convertible Notes was equal to their approximately five and seven-year terms, respectively.

The effective annual 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 December 31, 2021 was 6.5 % and 6.8 %, respectively.

The effective annual interest rates of the 2024 Convertible Notes and the 2026 Convertible Notes for the period from the date of issuance through December 31, 2022 was 1.2 % and 1.9 % , respectively.

The effective annual interest rate is computed using the contractual interest and the amortization of debt issuance costs.

Prior to the adoption of ASU 2020-06, the effective annual interest rate calculation also included the amortization of the original issue discount.

The following table sets forth total interest expense recognized related to convertible senior notes during the years ended December 31, 2022, 2021, and 2020 (in thousands):

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amounts representing interest

unamortized debt discount

unamortized debt issuance costs

Convertible senior notes balance

As of December 31, 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 consolidated balance sheets.

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

To minimize the impact of potential dilution to the Company's Class A common stockholders upon conversion of the 2022 Convertible Notes, the Company entered into the Convertible Note Hedges covering 20,249,665 shares of the Company’s Class A Common Stock in connection with the issuance of the 2022 Convertible Notes.

The Convertible Note Hedges had an initial exercise price of $ 16.58 per share, subject to adjustment upon the occurrence of certain corporate events or transactions, and are exercisable if the 2022 Convertible Notes are converted.

In connection with the adjustment to the conversion rate of the 2022 Convertible Notes related to the Separation in April 2019, the exercise price of the Convertible Note Hedges was adjusted to $ 14.51 per share and the number of shares underlying the Convertible Note Hedges was increased to 23,135,435 shares.

If upon conversion of the 2022 Convertible Notes, the price of the Company’s Class A Common Stock is above the exercise price of the Convertible Note Hedges, the counterparties are obligated to deliver shares of the Company’s Class A Common Stock and/or cash with an aggregate value approximately equal to the difference between the price of the Company’s Class A Common Stock at the conversion date and the exercise price, multiplied by the number of shares of the Company’s Class A Common Stock related to the Convertible Note Hedge being exercised.

Concurrently with entering into the Convertible Note Hedges, the Company sold Note Hedge Warrants to the Convertible Note Hedge counterparties to acquire 20,249,665 shares of the Company’s Class A Common Stock, subject to customary anti-dilution adjustments.

The strike price of the Note Hedge Warrants was initially $ 21.50 per share, subject to adjustment, and such warrants are exercisable over the 150 trading day period beginning on September 15, 2022.

In connection with the Separation in April 2019, the exercise price was adjusted to $ 18.82 per share and the number of shares underlying the Note Hedge Warrants was increased to 23,135,435 shares.

To minimize the impact of potential dilution to the Company's Class A common stockholders upon conversion of the 2022 Convertible Notes, the Company entered into the Convertible Note Hedges.

The Convertible Note Hedges had an exercise price of $ 14.51 per share and covered 23,135,435 shares.

If the 2022 Convertible Notes had been converted and the price of the Company’s Class A Common Stock was above the exercise price of the Convertible Note Hedges, the counterparties were obligated to deliver shares of the Company’s Class A Common Stock and/or cash with an aggregate value approximately equal to the difference between the price of the Company’s Class A Common Stock at the conversion date and the exercise price, multiplied by the number of shares of the Company’s Class A Common Stock related to the Convertible Note Hedge being exercised.

Concurrently with entering into the Convertible Note Hedges, the Company sold Note Hedge Warrants to the Convertible Note Hedge counterparties to acquire shares of the Company’s Class A Common Stock.

An aggregate of 23,135,435 shares underlie the Note Hedge Warrants and each warrant has a strike price of $ 18.82 per share, subject to customary anti-dilution adjustments.

The Note Hedge Warrants are exercisable over the 150 trading day period beginning on September 15, 2022.

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

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Holders of the Convertible Note Hedges and the Note Hedge Warrants do not have any rights with respect to the 2022 Convertible Notes.

The Company paid $ 91.9

million for the Convertible Note Hedges and received $ 70.8 million for the Note Hedge Warrants, resulting in a net cost to the Company of $ 21.1 million.

The Company paid $ 91.9 million for the Convertible Note Hedges and received $ 70.8 million for the Note Hedge Warrants, resulting in a net cost to the Company of $ 21.1 million.

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

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

In June 2022, the Convertible Note Hedges terminated unexercised upon expiry.

The Note Hedge Warrants remain outstanding as of December 31, 2022.

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 December 31, 2021, the Convertible Note Hedges and Note Hedge Warrants were classified as current assets and current liabilities, respectively, on the Company’s consolidated balance sheets.

As of December 31, 2020, the Convertible Note Hedges and Note Hedge Warrants were classified as non-current assets and non-current liabilities, respectively, on the Company’s consolidated balance sheets.

As of December 31, 2022, the Note Hedge Warrants were classified as current liabilities on the Company’s consolidated balance sheet.

As of December 31, 2021, the Convertible Note Hedges and Note Hedge Warrants were classified as current assets and current liabilities, respectively, on the Company’s consolidated balance sheet.

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

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Under the collaboration agreement with AbbVie for North America, the Company shares all development and commercialization costs related to linaclotide in the U.S.

The actual amounts that the Company pays to

AbbVie or that AbbVie pays to the Company will depend on numerous factors outside of the Company’s control, including the success of certain clinical development efforts with respect to linaclotide, the content and timing of decisions made by the regulators, the reimbursement and competitive landscape around linaclotide and the Company’s other product candidates, and other factors.

The actual amounts that the Company pays to AbbVie or that AbbVie pays to the Company will depend on numerous factors outside of the Company’s control, including the success of certain clinical development efforts with respect to linaclotide, the content and timing of decisions made by the regulators, the reimbursement and competitive landscape around linaclotide and the Company’s other product candidates, and other factors.

Other Funding Commitments

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In January 2020, the Company and AbbVie entered into settlement agreements with Sandoz Inc.

and Teva Pharmaceuticals, USA resolving patent litigation brought in response to the last outstanding abbreviated new drug applications seeking approval to market generic versions of LINZESS prior to the expiration of the Company’s and AbbVie’s applicable patents.

and Teva Pharmaceuticals, USA, Inc., (“Teva”), resolving patent litigation brought in response to the last outstanding abbreviated new drug applications seeking approval to market generic versions of LINZESS prior to the expiration of the Company’s and AbbVie’s applicable patents.

In May 2021, the Company and AbbVie entered into a settlement agreement with Teva, under which the Company and AbbVie will grant Teva a license to market a generic version of 72 mcg LINZESS beginning March 31, 2029 (subject to FDA approval), unless certain limited circumstances, customary for settlement agreements of this nature, occur.

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Class A Common Stock is entitled to one vote per share.

The Company has reserved, out of its authorized but unissued shares of Class A Common Stock, sufficient shares to effect the conversion of the convertible senior notes and the Note Hedge Warrants pursuant to the terms thereof (Note 10).

The Company’s shareholders are entitled to dividends if and when declared by the board of directors.

The Company has reserved, out of its authorized but unissued shares of Class A Common Stock,

sufficient shares to effect the conversion of the convertible senior notes and the Note Hedge Warrants pursuant to the terms thereof (Note 9).

The Company’s stockholders are entitled to dividends if and when declared by the board of directors.

Share Repurchase Program

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Company’s Class A Common Stock.

Unless it is terminated or suspended prior to its expiration, the share 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 share 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.

All share repurchases made under the share repurchase program will be retired.

During the year ended December 31, 2021, the Company repurchased 2.4 million shares of Class A common stock for an aggregate of $ 27.1 million.

The Company expects to fund further repurchases through a combination of cash on hand and cash generated by operations.

As of December 31, 2021, the aggregate remaining value of shares that may be repurchased under the repurchase program was $ 122.9 million.

The Company completed the share repurchase program in May 2022 and retired the repurchased shares.

During the year ended December 31, 2022, the Company repurchased 10.8 million shares of Class A Common Stock at an aggregate purchase price of $ 123.4 million.

For the overall program, under which repurchases commenced in December 2021, the Company repurchased 13.1 million shares of Class A Common Stock at an average price per share of $ 11.47 .

Employee Stock Benefit Plans

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Restructuring expenses

Total share-based compensation expense

Total share-based compensation expense included in operating expenses

Income tax benefit

Total share-based compensation expense, net of tax

Restructuring expenses include modifications to share-based awards held by employees impacted by various workforce reductions (Note 16).

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

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

Additionally, modifications with respect to the Company’s ESPP were made due to the change in share price as a result of the Separation.

As a result of the modification to the ESPP, the Company recorded $ 0.3 million of share-based compensation expense for the year ended December 31, 2019.

Stock Benefit Plans

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Unvested as of December 31, 2022

The weighted-average grant date fair value per share of restricted stock awards granted during the years ended December 31, 2021, 2020, and 2019 was $ 11.67 , $ 10.16 , and $ 10.96 , respectively.

Amounts relating to restricted stock awards granted prior to the Separation have not been adjusted to reflect the effect of the Separation on the Company’s stock price.

The weighted-average grant date fair value per share of RSAs granted during the years ended December 31, 2022, 2021, and 2020 was $ 11.22 , $ 11.67 , and $ 10.16 , respectively.

The total fair value of RSAs that vested during the years ended December 31, 2022, 2021, and 2020 was $ 2.8 million, $ 2.5 million, and $ 1.9 million, respectively.

Restricted Stock Units

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( 1,327,573 )

( 1,316,200 )

Outstanding as of December 31, 2022

Amounts relating to time-based RSUs granted prior to the Separation of the Company’s soluble guanylate cycle business, and certain other assets and liabilities, into Cyclerion Therapeutics, Inc.

(the “Separation) have not been adjusted to reflect the effect of the Separation on the Company’s stock price.

For additional information related to the Separation, refer to Note 15, Related Parties , to these consolidated financial statements.

The weighted-average grant date fair value per share of time-based RSUs granted during the years ended December 31, 2022, 2021, and 2020 was $ 11.08 , $ 10.40 , and $ 11.59 , respectively.

Amounts relating to time-based RSUs granted prior to the Separation have not been adjusted to reflect the effect of the Separation on the Company’s stock price.

The total fair value of time-based RSUs that vested during the years ended December 31, 2022, 2021, and 2020 was $ 14.8 million, $ 17.8 million, and $ 11.1 million, respectively.

Performance-based RSUs

Performance-based RSUs (“PSUs”) were granted to certain executives in 2021 and 2020.

Performance-based RSUs (“PSUs”) were granted to certain executives.

PSUs vest upon the achievement of specified performance criteria over a two to three-year performance period, generally subject to the executive remaining in continuous service with the Company through the applicable vesting dates.

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FDA’s acceptance of one or more additional New Drug Applications through internal development or acquisition of development-stage or commercial-stage programs (“Pipeline PSUs”), (ii) achieving certain profitability metrics (“Profitability PSUs”) and (iii) realizing relative total shareholder return goals (the “Relative TSR PSUs”).

PSUs granted in 2021 consisted entirely of Relative TSR PSUs.

PSUs granted in 2022 and 2021 consisted entirely of Relative TSR PSUs.

The fair value of Pipeline PSUs and Profitability PSUs is based on the market value of the Company's Class A Common Stock on the date of grant.

The Relative TSR PSUs are valued using the Monte Carlo simulation method on the date of grant.

The weighted average assumptions used to estimate the fair value of Relative TSR PSUs were as follows for the year ended December 31, 2021:

The weighted average assumptions used to estimate the fair value of Relative TSR PSUs were as follows for the years ended December 31, 2022, 2021, and 2020:

Year Ended December 31,

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Outstanding as of December 31, 2022

(1) Includes an adjustment of 70,759 PSUs related to PSUs granted in prior years which vested during the year ended December 31, 2022 in excess of the target number of PSUs.

The weighted-average grant date fair value per share of PSUs granted during the years ended December 31, 2022, 2021, and 2020 was $ 14.30 , $ 14.65 , and $ 12.48 , respectively.

The total fair value of PSUs that vested during the year ended December 31, 2022 was $ 1.7 million.

No PSUs vested during the years ended December 31, 2021 and 2020.

Stock Options

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The estimated fair value of options, including the effect of estimated forfeitures, is recognized over the requisite service period, which is typically the vesting period of each option.

The weighted average assumptions used to estimate the fair value of the stock options using the Black-Scholes option-pricing model were as follows for the years ended December 31, 2020 and 2019:

The weighted average assumptions used to estimate the fair value of the stock options using the Black-Scholes option-pricing model were as follows for the year ended December 31, 2020:

Year Ended December 31, 2020

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therefore, the expected dividend yield is assumed to be zero .

The weighted-average grant date fair value per share of options granted during the years ended December 31, 2020 and 2019 was $ 5.89 and $ 6.10 , respectively.

Amounts relating to stock options granted prior to the Separation have not been adjusted to reflect the effect of the Separation on the Company’s stock price.

The Company historically granted to certain employees performance-based options to purchase shares of common stock.

These options are subject to performance-based milestone vesting.

During the years ended December 31, 2021, 2020 and 2019, there were no shares that vested as a result of performance milestone achievements.

The Company recorded an insignificant amount of share-based compensation expense related to these performance-based options during the year ended December 31, 2021 and no share-based compensation expense related to these performance-based options during the years ended December 31, 2020 and 2019.

The following table summarizes stock option activity under the Company’s share-based compensation plans, including performance-based options:

The weighted-average grant date fair value per share of options granted during the year ended December 31, 2020 was $ 5.89 .

The following table summarizes stock option activity under the Company’s share-based compensation plans:

(in thousands)

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( 1,490,067 )

( 2,388,515 )

Outstanding at December 31, 2022

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Exercisable at December 31, 2022

(1) Exercise prices relating to stock options granted prior to the Separation have not been adjusted to reflect the effect of the Separation on the stock options.

(1) Amounts relating to stock options granted prior to the Separation have not been adjusted to reflect the effect of the Separation on the Company’s stock price.

The total intrinsic value of options exercised during the years ended December 31, 2022, 2021, and 2020 was $ 0.9 million, $ 2.7 million, and $ 3.5 million, respectively.

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Performance-based restricted stock units

Stock options with time-based and performance-based vesting

The total unrecognized share-based compensation cost will be adjusted for future changes in estimated forfeitures.

The components of the provision for (benefit from) income taxes during the three years ended December 31, 2021 consisted of the following (in thousands):

The components of the provision for (benefit from) income taxes during the years ended December 31, 2022, 2021, and 2020 consisted of the following (in thousands):

Year Ended December 31,

Total current

Total deferred

Total income tax (benefit) expense

Current taxes:

Total current taxes

Deferred taxes:

Total deferred taxes

Income tax expense (benefit)

During the year ended December 31, 2022, the Company recorded income tax expense of $ 77.4 million, comprised of non-cash tax expense of $ 73.4 million and cash tax expense of $ 4.0 million for state income taxes in certain states in which state taxable income exceeded available net operating losses.

Due to the Company’s ability to utilize its net operating losses to offset federal taxable income and taxable income in many states, the majority of the Company’s tax provision is a non-cash tax expense until the Company’s net operating losses have been fully utilized.

During the year ended December 31, 2021, the Company recorded income tax benefit of $ 327.8 million, which primarily pertains to the income tax benefit of $ 333.3 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 $ 5.5 million of state income taxes in certain states in which the Company is unable to utilize net operating losses to fully offset taxable income.

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The Company did not record a provision for federal income taxes for the period ended December 31, 2020, as it offset taxable income with federal net operating losses and recorded a full valuation allowance against net deferred tax assets.

The Company did not record a provision for federal, state , or foreign income taxes for the period ended December 31, 2019 because the Company incurred a tax loss during the year and offset the benefit of these tax losses with valuation allowance.

The Company has not recorded a foreign tax provision as it has had cumulative net operating losses outside of the United States since inception.

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Year Ended December 31,

Income tax expense (benefit) using U.S.

Income tax expense using U.S.

federal statutory rate

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State income taxes, net of federal benefit

Disallowed Separation related costs

Executive compensation - Section 162(m)

Meals and entertainment

Non-deductible share-based compensation

Excess tax benefits

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Deferred tax assets and liabilities were determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse.

The components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

Deferred tax assets:

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Intangible assets

Interest expense

Operating lease liability

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Basis difference on Convertible Notes

Basis difference on 2026 Convertible Notes

Operating lease right-of-use assets

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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.

majority of its valuation allowance for the deferred tax assets that are expected to be utilized in future years.

The Company will maintain a valuation allowance on deferred tax assets not expected to be realized, related primarily to certain tax credits that are expected to expire prior to utilization.

The Company’s total deferred tax asset balance subject to a valuation allowance analysis was $ 337.5 million and $ 395.0 million as of December 31, 2021 and 2020, respectively.

The net deferred tax assets were fully offset by a valuation allowance as of December 31, 2020.

After assessing both the positive evidence and negative evidence, management determined it was more likely than not that the Company will realize the majority of its deferred tax assets and during the year ended December 31, 2021, released the majority of its valuation allowance for the deferred tax assets that are expected to be utilized in future years.

As of December 31, 2022, the Company maintained a valuation allowance of $ 3.1 million on deferred tax assets not expected to be realized, related primarily to certain tax credits that are expected to expire prior to utilization.

The valuation allowance decreased by $ 1.2 million during the year ended December 31, 2022 primarily for certain tax credits that expired unused during 2022.

The valuation allowance decreased by $ 390.8 million during the year ended December 31, 2021 primarily due to the Company’s release of the majority of its valuation allowance, as described above, as well as the use of net operating losses to offset taxable income.

The valuation allowance decreased $ 35.2 million during the year ended December 31, 2020 primarily due to the Company’s offsetting taxable income with previously disallowed interest expense and net operating losses, partially offset by an increase in deferred tax asset for the basis difference of the collaboration agreement for North America with AbbVie.

Subject to the limitations described below, at December 31, 2021, the Company had federal net operating loss carryforwards of $ 935.4 million, of which $ 805.8 million is subject to expiration between 2022 and 2037 and approximately $ 129.6 million may be carried forward indefinitely.

Subject to the limitations described below, at December 31, 2022, the Company had federal net operating loss carryforwards of $ 689.4 million, of which $ 559.8 million is subject to expiration between 2033 and 2038 and $ 129.6 million may be carried forward indefinitely.

As of December 31, 2022, the Company had state net operating loss carryforwards of $ 509.5 million to offset future state taxable income, which is subject to expiration between 2032 and 2039.

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Utilization of net operating loss carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (“IRC Section 382”) and with Section 383 of the Internal Revenue Code of 1986, as well as similar state provisions.

These ownership changes may limit the amount of net operating loss carryforwards and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively.

These ownership changes may limit the amount of net

operating loss carryforwards and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively.

In general, an ownership change, as defined by IRC Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.

The following table summarizes the changes in the Company’s unrecognized income tax benefits for the years ended December 31, 2022, 2021, and 2020 (in thousands):

Year Ended December 31,

Balance at the beginning of the period

Increases based on tax positions related to the current period

Increases for tax positions related to prior periods

Decreases for tax positions in prior periods

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Of the $ 102.6 million of total unrecognized tax benefits at December 31, 2022, $ 1.4 million would, if recognized, affect the Company’s effective tax rate, and the remaining amount would not affect the Company’s effective tax rate, as it relates to a temporary timing difference.

A reserve for uncertain tax positions of $ 2.9 million is recorded in other liabilities on the Company’s consolidated balance sheet as of December 31, 2021.

Reserves for uncertain tax positions of $ 9.2 million and $ 2.9 million are recorded in other liabilities on the Company’s consolidated balance sheets as of December 31, 2022 and 2021, respectively.

The Company will recognize interest and penalties, if any, related to uncertain tax positions in income tax expense.

As of December 31, 2021, an insignificant amount of penalties have been accrued.

The statute of limitations for assessment by the Internal Revenue Service (“IRS”) and state tax authorities is open for tax years ended December 31, 2018 through the present, although net operating losses generated from years

prior to 2018 could be subject to examination and adjustments to the extent utilized in future years.

As of December 31, 2022 and 2021, an insignificant amount of penalties have been accrued.

The statute of limitations for assessment by the Internal Revenue Service (“IRS”) and state tax authorities is open for tax years ended December 31, 2019 through the present, although net operating losses generated from years prior to 2019 could be subject to examination and adjustments to the extent utilized in future years.

There are currently no federal or state income tax audits in progress.

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Company contributions to the plan are at the sole discretion of the Company.

During the year ended December 31, 2021, the Company provided a matching contribution equal to the greater of:

During the years ended December 31, 2022 and 2021, the Company provided a matching contribution equal to the greater of:

(a) 100 % of employee contributions on the first 3 % of eligible compensation and 50 % of employee contributions on the next 3 % of eligible compensation;

or (b) 75 % of the first $ 10,000 of employee contributions, up to $ 7,500 .

During the years ended December 31, 2020 and 2019, the Company provided a matching contribution of 75 % of the employee’s contributions, up to $ 6,000 annually.

or (b) 75 % of the first $ 10,000 of employee contributions.

During the year ended December 31, 2020, the Company provided a matching contribution of 75 % of the employee’s contributions, up to $ 6,000 annually.

During the years ended December 31, 2022, 2021, and 2020, the Company recorded $ 2.2 million, $ 2.2 million, and $ 1.8 million of expense related to its 401(k) company match, respectively.

Related Party Transactions

The Company previously reflected amounts due from and due to Allergan plc prior to its acquisition by AbbVie in May 2020 as related party receivables and payables, as appropriate.

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

In connection with the Separation, the Company executed certain contracts with Cyclerion, whose President and Chief Scientific Officer at the time of the Separation became a member of the Company’s Board of Directors in April 2019 (Note 3).

The Company previously reflected amounts due from and due to Allergan prior to its acquisition by AbbVie in May 2020 as related party receivables and payables, as appropriate.

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

On April 1, 2019, the Company completed the Separation of its soluble guanylate cyclase business, and certain other assets and liabilities, into Cyclerion.

The Separation was effected by means of a distribution of all of the outstanding shares of common stock, with no par value, of Cyclerion through a dividend of Cyclerion’s common stock, to the Company’s stockholders of record as of the close of business on March 19, 2019.

Prior to the Separation on April 1, 2019, Cyclerion was a wholly owned subsidiary of the Company.

Pursuant to a development agreement with Cyclerion, Cyclerion provided the Company with certain research and development services with respect to certain of

the Company’s products and product candidates.

Services received were paid at a mutually agreed upon rate and development activities were governed by a joint steering committee comprised of representatives from both Cyclerion and the Company.

The Company recorded $ 2.3 million in research and development expenses under the development agreement during the year ended December 31, 2020.

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

Workforce Reductions and Restructuring

During the years ended December 31, 2021, 2020, and 2019 the Company recorded an insignificant amount, $ 15.4 million, and $ 3.6 million in restructuring expenses, respectively, in its consolidated statements of income.

In August 2018, the Company initiated a reduction in its workforce by approximately 100 employees, primarily consisting of field-based sales representatives in connection with the termination of the lesinurad license agreement and substantially completed the reduction in its workforce and recorded associated costs during the year ended December 31, 2018.

During the years ended December 31, 2020 and 2019, the Company recorded an insignificant amount of adjustments to restructuring costs related to this workforce reduction.

In February 2019, following further analysis of the Company’s strategy and core business needs, and in an effort to further strengthen the operational efficiency of the organization, the Company commenced a reduction in workforce by approximately 35 employees, primarily based in the home office and substantially completed the reduction in its workforce and recorded associated costs during the year ended December 31, 2019.

During the year ended December 31, 2019, the Company recorded $ 3.7 million of severance, benefits and related costs as restructuring expenses related to this reduction in workforce.

In September 2020, the Company announced that one of its two identical Phase III trials evaluating IW-3718 in refractory GERD did not meet certain criteria, including the study’s primary endpoint of achieving a statistically significant improvement in heartburn severity.

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The Company substantially completed the reduction in its workforce in the year ended December 31, 2020.

The Company incurred an insignificant amount and $ 15.5 million during the years ended December 31, 2021 and 2020, respectively, in restructuring expenses, primarily for severance, benefits and related costs related to this reduction in its workforce.

The Company incurred $ 15.5 million for the year ended December 31, 2020, in restructuring expenses, primarily for severance, benefits and related costs related to this reduction in its workforce.

Restructuring expenses during the year ended December 31, 2020 also included $ 1.2 million related to the impairment of certain fixed assets as a result of the Company’s decision to discontinue IW-3718 development.

The Company incurred no restructuring expenses and an insignificant amount of restructuring expenses during the years ended December 31, 2022 and 2021, respectively.

The following table summarizes the accrued liabilities activity recorded in connection with the reduction in workforce in September 2020 and related restructuring activities during the year ended December 31, 2022 (in thousands):

2 unchanged sentences

Employee severance, benefits and related costs

Contract related costs

The following table summarizes the accrued liabilities activity recorded in connection with the reductions in workforce and related restructuring activities during the year ended December 31, 2021 (in thousands):

2 unchanged sentences

Employee severance, benefits and related costs

February 2019 Reduction

September 2020 Reduction

Contract related costs

August 2018 Reduction

September 2020 Reduction

Selected Quarterly Financial Data (Unaudited)

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Net income per share—diluted (1)

(1) Quarterly basic and diluted net income per share do not add to full fiscal year total due to rounding.

(in thousands, except per share data)

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Net income per share—diluted

Subsequent Events

Share Repurchases

From January 1, 2022 to February 15, 2022, the Company repurchased 4.5 million shares of its common stock at a weighted-average price of $ 11.27 per share for a total of $ 50.7 million.

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-K

Item 9A. Controls and Procedures