What changed in this filing

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Item 9A. Controls and Procedures

2024-02-16 compared with 2023-02-16 · 514 added, 352 removed, 1174 unchanged (42% of the section changed)

Controls and Procedures

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

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

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:

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:

(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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(3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

As permitted by guidance issued by the SEC that an assessment of internal control over financial reporting of a recently acquired business may be omitted from management's evaluation of disclosure controls and procedures, management excluded an assessment of the internal controls of VectivBio, which we acquired on June 29, 2023, from its evaluation of the effectiveness of our disclosure controls and procedures.

VectivBio represented approximately 5% of total assets and 6% of total liabilities as of December 31, 2023, and less than 1% and 2% of revenues and net loss, respectively, for the year ended December 31, 2023.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework provided in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

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The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Ernst and Young LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

Changes in Internal Control

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income and comprehensive income, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 16, 2023 expressed an unqualified opinion thereon.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of VectivBio Holding AG, which is included in the 2023 consolidated financial statements of the Company and constituted approximately 5% and 6% of total assets and total liabilities, respectively, as of December 31, 2023 and less than 1% and 2% of revenues and net loss, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of VectivBio Holding AG.

consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated February 16, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

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Other Information

During the quarter ended December 31, 2023, the following directors and officers (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K, for the purchase or sale of our securities, the material terms of which are set forth in the table below.

Action Taken (Date of Action)

Type of Trading Arrangement

Nature of Trading Arrangement

Duration of Trading Arrangement (1)

Aggregate Number of Securities

Ronald Silver ( Corporate Controller )

Adoption ( December 15, 2023 )

trading arrangement

December 15, 2025

Indeterminable (2)

(1) The dates in this column represent the scheduled expiration date of each director or officer’s Rule 10b5-1 trading arrangement.

Each Rule 10b5-1 trading arrangement may terminate earlier than the date provided should all transactions contemplated thereunder occur prior to such date.

Silver’s Rule 10b5-1 trading arrangement provides for the (i) sale of 40,873 shares of common stock;

(ii) sale of an indeterminable number of shares of common stock that Mr.

Silver may purchase under the Company’s ESPP;

and (iii) sale of an indeterminable number of shares of common stock.

The number of shares in clause (iii) subject to RSUs that will be sold to satisfy applicable tax withholding obligations upon vesting is unknown as the number will vary based on the extent to which vesting conditions are satisfied and the market price of the Company’s common stock at the time of settlement.

This trading arrangement, which applies to RSUs vesting, is based on the passage of time provides for the automatic sale of shares that would otherwise be issuable on each settlement date of a RSU in an amount sufficient to satisfy the applicable withholding obligation, with the proceeds of the sale delivered to the Company in satisfaction of the applicable withholding obligation.

Directors, Executive Officers and Corporate Governance

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The table below sets forth information with regard to securities authorized for issuance under our equity compensation plans as of December 31, 2023.

As of December 31, 2022, we had three active equity compensation plans, each of which was approved by our stockholders:

As of December 31, 2023, we had four active equity compensation plans, each of which was approved by our stockholders:

● Amended and Restated 2010 Employee, Director and Consultant Equity Incentive Plan;

● 2019 Equity Incentive Plan;

● Amended and Restated 2019 Equity Incentive Plan;

● Amended and Restated 2010 Employee Stock Purchase Plan.

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Amount includes all outstanding stock options but does not include restricted stock units, which do not have an exercise price.

Amount includes 4,272,975 shares available for future issuance under the Amended and Restated 2010 Employee Stock Purchase Plan.

Certain Relationships and Related Transactions, and Director Independence

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April 4, 2019

Transaction Agreement, dated May 21, 2023, by and between Ironwood Pharmaceuticals, Inc.

and VectivBio Holding AG

Current Report on Form 8-K (File No.

Eleventh Amended and Restated Certificate of Incorporation

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Quarterly Report on Form 10-Q (File No.

Amended and Restated 2019 Equity Incentive Plan

Current Report on Form 8-K (File No.

June 22, 2023

Form of Restricted Stock Unit Agreement under the Amended and Restated 2019 Equity Incentive Plan

Quarterly Report on Form 10-Q (File No.

November 9, 2023

Amended and Restated 2010 Employee Stock Purchase Plan

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June 24, 2021

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

Second Amended and Restated Non-employee Director Compensation Policy, effective January 1, 2024

Form of Indemnification Agreement with Directors and Officers

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February 7, 2014

Amended and Restated Exclusive License Agreement by and between Ferring International Center S.A.

and GlyPharma Therapeutic Inc.

dated as of December 6, 2016, as amended

Registration Statement on Form F-1 (File No.

March 19, 2021

Development and Commercialization Agreement by and between VectivBio AG and Asahi Kasei Pharma Corporation, dated as of March 30, 2022

Annual Report on Form 20-F (File No.

April 7, 2022

Credit Agreement, dated May 21, 2023, by and among Ironwood Pharmaceuticals, Inc., as borrower, Wells Fargo Bank, National Association, as administrative agent, collateral agent, a letter of credit issuer and a lender, and the other agents, lenders and letter of credit issuers parties thereto

Current Report on Form 8-K (File No.

Lease Agreement for facilities at 100 Summer Street, Boston, Massachusetts, dated as of June 11, 2019, by and between Ironwood Pharmaceuticals, Inc.

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April 4, 2019

Base Warrants 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 Warrants 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

Additional Warrants 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 Warrants 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

Base Call Option Transaction Confirmation for the 2024 Notes, dated as of August 7, 2019, between Ironwood Pharmaceuticals, Inc.

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August 13, 2019

Call Spread Unwind Agreement, dated as of August 7, 2019, between Ironwood Pharmaceuticals, Inc.

and JPMorgan Chase Bank, National Association

Annual Report on Form 10-K (File No.

February 13, 2020

Call Spread Unwind Agreement, dated as of August 7, 2019, between Ironwood Pharmaceuticals, Inc.

and Credit Suisse Capital LLC

Annual Report on Form 10-K (File No.

February 13, 2020

Subsidiaries of Ironwood Pharmaceuticals, Inc.

Annual Report on Form 10-K (File No.

February 13, 2020

Consent of Independent Registered Public Accounting Firm

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Certification of Chief Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Exchange Act and 18 U.S.C.

Policy for Recoupment of Incentive Compensation

XBRL Instance Document – The Instance Document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document

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The confidential portions have been provided separately to the SEC pursuant to the confidential treatment request.

Schedules and exhibits have been omitted pursuant to Item 601(b)(2)(ii) of Regulation S-K.

Ironwood will furnish copies of any such schedules and exhibits to the SEC upon request.

Management contract or compensatory plan, contract, or arrangement.

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Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2022, 2021, and 2020

Consolidated Statements of Income (Loss) for the Years Ended December 31, 2023, 2022, and 2021

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2023, 2022, and 2021

Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2023, 2022, and 2021

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We have audited the accompanying consolidated balance sheets of Ironwood Pharmaceuticals, Inc.

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of income and comprehensive income, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

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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.

Management uses the information provided by 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.

Certain of such information received from 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

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Ironwood Pharmaceuticals, Inc.

Consolidated Balance Sheet s

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

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Restricted cash

Convertible note hedges

Total current assets

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Operating lease right-of-use assets

Intangible assets, net

Deferred tax assets

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Convertible senior notes, net of current portion

Revolving credit facility

Other liabilities

Commitments and contingencies

Stockholders’ equity:

Stockholders’ equity (deficit):

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

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Accumulated deficit

Total stockholders’ equity

( 1,698,615 )

Accumulated other comprehensive loss

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity

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Ironwood Pharmaceuticals, Inc.

Consolidated Statements of Income and Comprehensive Income

Consolidated Statements of Income (Loss)

(In thousands, except per share amounts)

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Total revenues

Operating expenses:

Cost of revenues

Costs and expenses:

Research and development

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Restructuring expenses

Total operating expenses

Income from operations

Other (expense) income:

Interest expense

Acquired in-process research and development

Total costs and expenses

Income (loss) from operations

Other income (expense):

Interest expense and other financing costs

Interest and investment income

Gain (loss) on derivatives

Other (expense) income, net

Income before income taxes

Other income (expense), net

Income (loss) before income taxes

Income tax (expense) benefit

Net income and comprehensive income

Net income per share—basic

Net income per share—diluted

Weighted average shares used in computing net income per share—basic:

Weighted average shares used in computing net income per share—diluted:

Net income (loss)

( 1,031,559 )

Net income (loss) attributable to noncontrolling interests

Net income (loss) attributable to Ironwood Pharmaceuticals, Inc.

( 1,002,239 )

Net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc.

stockholders —basic

Net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc.

stockholders —diluted

Weighted average shares used in computing net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc.

stockholders—basic:

Weighted average shares used in computing net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc.

stockholders—diluted:

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

Ironwood Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share amounts)

Years Ended December 31,

Net income (loss) attributable to Ironwood Pharmaceuticals, Inc.

( 1,002,239 )

Other comprehensive loss, net of tax:

Currency translation adjustment

Defined benefit pension plan

Total other comprehensive loss, net of tax

Other comprehensive loss attributable to noncontrolling interest

Comprehensive income (loss) attributable to Ironwood Pharmaceuticals, Inc.

( 1,005,207 )

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

Ironwood Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equit y (Deficit)

(In thousands, except share amounts)

Pharmaceuticals, Inc.

comprehensive

stockholders’

Noncontrolling

stockholders’

equity (deficit)

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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Balance at December 31, 2022

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

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

Repurchases of common stock

Noncontrolling interests on acquisition of VectivBio Holding AG

Purchase of subsidiary shares from noncontrolling interests

( 1,002,239 )

( 1,031,559 )

Other comprehensive loss, net of tax

Balance at December 31, 2023

( 1,698,615 )

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

Ironwood Pharmaceuticals, Inc.

Consolidated Statements of Cash Flow s

Consolidated Statements of Cash Flows

(In thousands)

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Cash flows from operating activities:

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

Net income (loss)

( 1,031,559 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

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Non-cash interest expense

Deferred income taxes (including benefit from valuation allowance release)

Acquired in-process research and development

Deferred income taxes

Changes in assets and liabilities:

Accounts receivable and related party accounts receivable, net

Accounts receivable, net

Prepaid expenses and other current assets

Inventory, net

Operating lease right-of-use assets

Accounts payable, related party accounts payable, and accrued expenses

Accounts payable and accrued expenses

Accrued research and development costs

Operating lease liabilities

Deferred revenue

Other liabilities

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Purchases of property and equipment

Acquisition of VectivBio Holding AG, net of cash acquired

( 1,026,045 )

Net cash used in investing activities

( 1,026,318 )

Cash flows from financing activities:

Proceeds from exercise of stock options and employee stock purchase plan

Payment on 2022 Convertible Notes

Purchase of subsidiary shares from noncontrolling interests

Repayment of 2022 Convertible Notes

Repurchases of common stock

Proceeds from revolving credit facility

Costs associated with revolving credit facility

Repayments of revolving credit facility

Net cash provided by (used in) financing activities

Net increase in cash, cash equivalents and restricted cash

Effect of exchange rate changes on cash, cash equivalents and restricted cash

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

Cash, cash equivalents and restricted cash, beginning of period

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Ironwood Pharmaceuticals, Inc.

(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.

(“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 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 (“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.

LINZESS is available to adult men and women suffering from IBS-C or CIC in the United States (the “U.S.”), Mexico and Saudi Arabia, to adult men and women suffering from IBS-C or chronic constipation in Japan, IBS-C in China, and pediatric patients ages 6-17 years old with FC in the U.S.

Linaclotide is available under the trademarked name CONSTELLA ® to adult men and women suffering from IBS-C or CIC in Canada, and to adult men and women suffering from IBS-C in certain European countries.

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

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.

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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”).

In June 2023, the Company completed a tender offer to purchase 98 % of the outstanding ordinary shares of VectivBio Holding AG (“VectivBio”), a clinical-stage biotechnology company focused on the discovery and development of treatments for severe, rare GI conditions for which there is a significant unmet medical need.

In December 2023, the Company completed a squeeze-out merger under Swiss law to acquire all remaining outstanding ordinary shares and VectivBio Holding AG was merged with and into Ironwood Pharmaceuticals GmbH, a wholly-owned subsidiary of Ironwood organized under the laws of Switzerland.

Through the acquisition, the Company is advancing apraglutide, a next-generation, synthetic peptide analog of glucagon-like peptide-2 (“GLP-2”), for rare GI diseases, including short bowel syndrome dependent on parenteral support (“SBS-IF”).

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

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Principles of Consolidation

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.

The accompanying consolidated financial statements as of December 31, 2023 include the accounts of Ironwood, its wholly-owned subsidiaries, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH, as well as Ironwood Pharmaceuticals GmbH’s wholly-owned subsidiaries, VectivBio AG, VectivBio Comet AG, GlyPharma Therapeutic Inc.

and VectivBio US, Inc.

All intercompany transactions and balances are eliminated in consolidation.

For consolidated entities in which the Company owns less than 100% of the outstanding shares, the Company records net income (loss) and comprehensive income (loss) attributable to noncontrolling interests in its consolidated statements of income (loss) and comprehensive income (loss), respectively, equal to the percentage of the common stock ownership interest retained in such entities by the noncontrolling parties.

The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity.

The Company acquired control of VectivBio on June 29, 2023 (Note 3).

Accordingly, the accompanying consolidated financial statements reflect the results of operations and cash flows of VectivBio from the acquisition date through December 31, 2023.

Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests was recorded during the period between the acquisition date and the completion of the squeeze-out merger on December 12, 2023 (Note 1).

As of December 31, 2023, there were no remaining noncontrolling interests in consolidated entities.

Segment Information

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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;

Estimates and assumptions in the consolidated financial statements include those related to fair value of assets acquired and liabilities assumed in acquisitions;

revenue recognition;

accounts receivable;

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valuation procedures for right-of-use assets and operating lease liabilities;

valuation procedures for the issuance and repurchase of convertible notes;

balance sheet classification of convertible notes;

fair value of derivatives;

income taxes, including the valuation allowance for deferred tax assets;

income taxes, including uncertain tax positions and the valuation allowance for deferred tax assets;

research and development expenses;

contingencies and share-based compensation.

contingencies;

defined benefit pension liability;

and share-based compensation.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

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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 as of December 31, 2022 and 2021.

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

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.

The Company is contingently liable under unused letters of credit with a bank, related to the Company’s facility lease and vehicle lease agreements.

Collateral used to secure letters of credit is classified as restricted cash.

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

There was no restricted cash as of December 31, 2023.

Concentrations of Suppliers

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

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

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.

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

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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 A- 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).

Accounts receivable primarily consists of amounts due under the linaclotide collaboration agreement with AbbVie for North America (Note 5).

The Company does not obtain collateral for its accounts receivable.

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).

The percentages of revenue recognized from significant collaborative partners of the Company in the years ended December 31, 2022, 2021 and 2020 as well as the account receivable balances, net of any payables due, at December 31, 2022 and 2021 are included in the following table:

The percentages of revenue recognized from significant collaborative partners of the Company in the years ended December 31, 2023, 2022 and 2021 and the account receivable balances, net of any payables due, at December 31, 2023 and 2022 are included in the following table:

Year Ended December 31,

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Maintenance and repair costs are expensed as incurred.

Intangible Assets

Intangible assets are comprised of the assembled workforce acquired in the VectivBio Acquisition and are amortized on a straight-line basis over an estimated useful life of five years .

Impairment of Long-Lived Assets

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Any changes to these estimates, based on the actual results obtained and/or a change in assumptions, could impact the Company’s income tax provision in future periods.

Interest and penalty charges, if any, related to unrecognized tax benefits are classified as income tax expense in the Company’s consolidated statements of income.

Interest and penalty charges, if any, related to unrecognized tax benefits are classified as income tax expense in the Company’s consolidated statements of income (loss).

Financing Costs

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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.

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.

In accordance with ASC Topic 835, Interest , the Company presents on its balance sheet unamortized debt issuance costs related to convertible notes as a direct deduction from the associated debt liability and unamortized debt issuance costs related to revolving credit arrangements as other assets.

The Company’s lease portfolio for the year ended December 31, 2023 included:

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

an office lease for its headquarters location and other locations, 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.

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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 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.

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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.

The Convertible Note Hedges terminated unexercised upon expiry in June 2022 and the Note Hedge Warrants terminated unexercised upon expiry in April 2023.

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

These derivatives are recorded as assets or liabilities at fair value each reporting date and the fair value is determined using the Black-Scholes option-pricing model.

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

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 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.

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If the Company is entitled to additional payments when the customer exercises these options, any additional payments are recorded as revenue when the customer obtains control of the goods, which is typically upon shipment for sales of API and finished drug product.

For agreements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue when the related sales occur.

Net Profit or Net Loss Sharing

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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.

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

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Sale of Active Pharmaceutical Ingredient

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.

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 its partners on a periodic basis.

The Company is not currently 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 its partners on a periodic basis.

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.

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

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

Cost of Revenues

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

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 5).

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Restructuring Expenses

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.

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 ASC Topic 712, Compensation – Nonretirement Postemployment Benefits , 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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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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These costs were charged to selling, general and administrative expenses as incurred.

Net Income Per Share

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 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.

Net Income (Loss) Per Share

Basic net income (loss) 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 (loss) per share reflects the potential dilution beyond common shares for basic net income (loss) 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.

Foreign Currency Translation

For subsidiaries with a different functional currency than the U.S.

dollar, assets and liabilities are translated at the exchange rate as of the balance sheet date and income and expense items are translated at the average exchange rate for the reporting period.

Adjustments resulting from the translation of the financial statements of foreign subsidiaries are recorded in accumulated comprehensive income (loss), a separate component of stockholders’ equity.

The Company evaluates acquisitions of assets and other similar transactions to assess whether the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated into a single identifiable asset or group of similar identifiable assets.

If the screen test is met, a single asset or group of assets is not a business and is accounted for as an asset acquisition.

If the screen test is not met, further determination is required as to whether the Company has acquired inputs and processes that have the ability to create outputs that would meet the requirements of a business.

The Company accounts for business combinations using the acquisition method of accounting, which requires the acquiring entity to recognize the fair value of assets acquired and liabilities assumed and establishes the acquisition date as the fair value measurement point.

The Company determines the fair value of assets acquired and liabilities assumed based on management’s estimate of the fair value of assets acquired and liabilities assumed in the acquisition.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired.

Transaction costs are expensed as incurred.

The Company accounts for asset acquisitions that are not determined to be a business combination by recognizing net assets based on the consideration paid, inclusive of transaction costs, on a relative fair value basis.

In an asset acquisition, the cost allocated to acquired in-process research and development (“IPR&D”) with no alternative future use is charged to research and development expense at the acquisition date.

The Company classifies asset acquisitions of acquired IPR&D as investing activities on its consolidated statements of cash flows.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss).

Other comprehensive income (loss) includes foreign currency translation adjustments and certain changes in the fair value of pension plan assets and projected benefit obligation attributed to the Company’s defined benefit pension plans.

Accumulated other comprehensive income (loss) is presented as a separate component of stockholders’ equity (deficit).

Subsequent Events

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

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

The Company did not adopt any new accounting pronouncements during the year ended December 31, 2023 that had a material effect on its consolidated financial statements.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No.

2023-07, Segment Reporting (Topic 280) (“ ASU 2023-07 ”).

The guidance in ASU 2023-07 expands prior reportable segment disclosure requirements by requiring entities to disclose significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and details of how the CODM uses financial reporting to assess their segment’s performance.

The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, with early adoption permitted.

The Company is currently evaluating the impact that the adoption of ASU 2023-07 may have on its consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”).

The guidance in ASU 2023-09 improves the transparency of income tax disclosures by greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction.

The standard is effective for public companies for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact that the adoption of ASU 2023-09 may have on its consolidated financial statements.

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.

During the year ended December 31, 2022, the Company adopted the following accounting pronouncement that had a material effect on its consolidated financial statements:

In August 2020, the FASB issued ASU No.

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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.

These changes 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.

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.

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

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

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

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):

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

In May 2021, the FASB issued ASU No.

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

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

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

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

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.

Net Income Per Share

On June 29, 2023 , the Company completed a tender offer to purchase 98 % of the outstanding ordinary shares of VectivBio (the “VectivBio Shares”) at a price per share of $ 17.00 , net to the shareholders of VectivBio in cash, without interest and subject to any applicable withholding taxes (the “VectivBio Acquisition”).

The aggregate consideration paid by the Company to acquire the shares accepted for payment was approximately $ 1.2 billion.

The Company financed the acquisition through proceeds from the borrowings under the Revolving Credit Agreement (as defined elsewhere below), cash on hand.

The total purchase consideration for VectivBio is as follows (in thousands):

Cash consideration paid to selling shareholders (1)

Cash consideration paid to settle VectivBio restricted stock units (“RSUs”) and stock options (2)

Cash consideration paid to settle VectivBio warrants (3)

Transaction costs

Fair value of noncontrolling interest (4)

Total purchase consideration

(1) The cash consideration paid to selling shareholders was determined based on the total number of VectivBio Shares tendered at closing of 61,258,315 at a per share price of $ 17.00 .

(2) The cash consideration paid to settle VectivBio RSUs and stock options issued under VectivBio’s equity incentive plans was determined based on the total number of underlying VectivBio Shares of 8,904,171 at a per share price of $ 17.00 , less the exercise price for stock options.

(3) The cash consideration paid to settle VectivBio warrants was determined based on the total number of VectivBio warrant shares outstanding at close of 324,190 at a per share price of $ 11.4757 calculated as the per share price of $ 17.00 , less the exercise price of $ 5.5243 per share.

(4) The fair value of the noncontrolling interest was determined based on the total number of VectivBio Shares outstanding at closing of 1,547,723 at the closing date of the tender offer, using the VectivBio closing share price on

June 28, 2023 of $ 16.94 .

On December 12, 2023, the Company completed a squeeze-out merger under Swiss law to acquire all remaining outstanding VectivBio Shares in cash at a price per share of $ 17.00 , totaling $ 26.3 million.

As of December 31, 2023, there was no remaining noncontrolling interest in VectivBio.

The purchase of subsidiary shares from the noncontrolling interests is recorded as an equity transaction, with no gain or loss reflected in the consolidated statements of income (loss), and is reflected as a financing activity in the consolidated statements of cash flows.

The VectivBio Acquisition was accounted for as an asset acquisition under ASC Topic 805, Business Combinations, because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable IPR&D asset, apraglutide, VectivBio’s lead investigational asset.

Apraglutide is a next generation, long-acting synthetic GLP-2 analog being developed for a range of rare GI diseases and is currently in Phase III clinical trial for the potential treatment of SBS-IF.

The Company recognized the acquired assets and assumed liabilities based on the consideration paid, inclusive of transaction costs, on a relative fair value basis.

In accordance with the accounting for asset acquisitions, an entity that acquires IPR&D assets in an asset acquisition follows the guidance in ASC Topic 730, Research and Development , which requires that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion of the consideration transferred and recorded as research and development expense at the acquisition date.

As a result, the Company recorded approximately $ 1.1 billion in acquired in-process research and development expense related to the apraglutide IPR&D asset during the second quarter of 2023.

The following is the allocation of the purchase consideration based on the relative fair value of assets acquired and liabilities assumed by the Company (in thousands):

Assets acquired

Cash and cash equivalents

Prepaid expenses and other current assets

Property and equipment

Intangible assets

Acquired in-process research and development

Total assets acquired

Liabilities assumed

Current liabilities

Other liabilities

Total liabilities assumed

Net assets acquired

The Company incurred acquisition-related expenses of $ 55.6 million for the year ended December 31, 2023, of which $ 25.6 million was included in selling, general and administrative expenses, $ 15.1 million was included in research and development expense, and $ 14.9 million was included in restructuring expense within the Company’s consolidated statement of income (loss) for the year ended December 31, 2023.

Acquisition-related expenses include direct and incremental costs incurred in connection with the transaction, including integration-related professional services and

employee retention-related benefits.

Acquisition-related expenses exclude transaction costs included in the computation of total consideration paid.

Intangible assets are comprised of the assembled workforce acquired in the VectivBio Acquisition.

The Company recognized $ 0.4 million of amortization expense during the period between acquisition date on June 29, 2023 through December 31, 2023 and the net carrying value of the assembled workforce at December 31, 2023 is $ 3.6 million.

Future annual amortization expense will be $ 0.8 million for each of the years ended December 31, 2024 through December 31, 2027 and $ 0.4 million for the year ended December 31, 2028 .

Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income per common share (in thousands, except per share amounts):

Year Ended December 31,

Net income (loss)

( 1,031,559 )

Net income (loss) attributable to noncontrolling interests

Net income (loss) attributable to Ironwood Pharmaceuticals, Inc.

( 1,002,239 )

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

Numerator used in computing net income (loss) per share — diluted

( 1,002,239 )

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

Effect of dilutive securities:

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Restricted stock

Shares subject to issuance under Employee Stock Purchase Plan

2024 Convertible Notes assumed conversion

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Dilutive potential common shares

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

Net income per share — basic

Net income per share — diluted

Weighted average number of common shares outstanding used in computing net income (loss) per share — diluted

Net income (loss) per share — basic

Net income (loss) per share — diluted

(1) The Company incurred a net loss during the year ended December 31, 2023 and therefore did not differentiate basic and diluted earnings per share, as the effect of dilutive securities would be anti-dilutive.

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

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Stock options

Restricted stock awards

Time-based restricted stock units

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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.

Interest 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.

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Collaboration, License, and Other Agreements

For the year ended December 31, 2022, the Company had linaclotide collaboration agreements with AbbVie for North America and AstraZeneca for China (including Hong Kong and Macau), as well as linaclotide license agreements with Astellas for Japan and with AbbVie for the AbbVie License Territory.

The Company also had an agreement with Alnylam Pharmaceuticals, Inc (“Alnylam”) to perform disease awareness activities for acute hepatic porphyria (“AHP”) and sales detailing activities for GIVLAARI ® (givosiran).

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

The Company has linaclotide collaboration agreements with AbbVie for North America and AstraZeneca for China (including Hong Kong and Macau), as well as linaclotide license agreements with Astellas for Japan and with AbbVie for the AbbVie License Territory.

The following table provides amounts included in the Company’s

consolidated statements of income (loss) as collaborative arrangements revenue and sale of API attributable to transactions from these and other agreements (in thousands):

Year Ended December 31,

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Alnylam (GIVLAARI)

AKP (apraglutide)

Total collaborative arrangements revenue

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Total sale of API

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.

Accounts receivable, net, included $ 104.4 million and $ 112.2 million due from the Company’s partner, AbbVie, net of $ 4.0 million and $ 5.0 million of accounts payable at December 31, 2022 and 2021, respectively.

Accounts receivable, net, included $ 129.1 million and $ 130.0 million primarily related to collaborative arrangements revenue, collectively, as of December 31, 2023 and 2022, respectively.

Accounts receivable, net, included $ 112.6 million and $ 104.4 million due from the Company’s partner, AbbVie, net of $ 4.3 million and $ 4.0 million of accounts payable, as of December 31, 2023 and 2022, respectively.

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

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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 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.

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.

During the years ended December 31, 2023, 2022 and 2021, the Company incurred $ 7.0 million, $ 8.0 million, and $ 8.2 million, respectively, in total research and development expenses under the linaclotide collaboration for North America.

As a result of the research and development cost-sharing provisions of the linaclotide collaboration for North America, the Company incurred $ 11.6 million, $ 8.9 million, and $ 11.5 million in incremental research and development costs during the years ended December 31, 2023, 2022, and 2021, respectively, to reflect the obligations of each party under the collaboration to bear 50 % of the development costs incurred.

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

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

The Company evaluated its collaboration arrangement for North America with AbbVie and concluded that all development-period performance obligations had been satisfied as of September 2012.

LINZESS net sales are calculated and

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

The Company evaluated its linaclotide collaboration arrangement for North America and concluded that all development-period performance obligations had been satisfied as of September 2012.

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

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

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

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

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

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

The Company recognized collaborative arrangements revenue from the AbbVie collaboration agreement for North America during the years ended December 31, 2022, 2021, and 2020 as follows (in thousands):

The following table summarizes collaborative arrangements revenue from the linaclotide collaboration agreement for North America during the years ended December 31, 2023, 2022, and 2021 as follows (in thousands):

Year Ended December 31,

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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)

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.

The Company has a license agreement with AbbVie to develop, manufacture and commercialize linaclotide in (i) Europe, and (ii) all other 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.

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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.

The Company recognized $ 2.8 million, $ 2.4 million and $ 2.6 million of royalty revenue during the years ended December 31, 2023, 2022, and 2021, respectively.

License Agreement for Japan with Astellas

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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 years ended December 31, 2023 and 2022, the Company recognized $ 1.8 million and $ 2.0 million of royalty revenue, respectively.

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

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

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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 years ended December 31, 2023 and 2022, the Company recognized $ 0.4 million and $ 0.6 million of royalty revenue, respectively.

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 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 $ 15.0 million remained outstanding at December 31, 2023.

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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.

At December 31, 2023, the non-contingent receivable due from AstraZeneca was $ 15.0 million and was classified as current.

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

Apraglutide Agreements

Development and Commercialization Agreement with AKP

In March 2022, VectivBio entered into a development and commercialization agreement with Asahi Kasei Pharma Corporation (“AKP”) in which VectivBio granted an exclusive license to AKP, with the right to sublicense in multiple tiers, to develop, commercialize and exploit products derived from apraglutide in Japan.

Pursuant to the terms of the development and commercialization agreement with AKP, VectivBio received an upfront payment of JPY 3,000 million ($ 24.6 million at date of agreement) and was eligible to receive development related payments of JPY 1,600 million in the aggregate ($ 13.1 million at date of agreement), development milestones of JPY 1,000 million ($ 8.2 million at date of agreement) and up to JPY 19,000 million ($ 155.8 million at date of agreement) of commercial and sales-based milestone payments.

VectivBio is also eligible to receive payments in the commercial period for manufacturing supply equal to cost-plus manufacturing mark-up and tiered royalties of up to a mid-double-digit percentage on product sales continuing until the later of (i) expiration of regulatory exclusivity in Japan, or (ii) expiration of the last valid patent claim that provides exclusivity to apraglutide in Japan (the “Royalty Term”).

The development and commercialization agreement will terminate upon the expiration of the Royalty Term.

The Company identified two performance obligations consisting of the (i) exclusive license for the development and commercialization of apraglutide in Japan and (ii) development activities for conducting global trials and sharing of associated development data necessary for obtaining and maintaining regulatory approval in Japan.

Each performance obligation was capable of being distinct and distinct in the context of the contract.

The initial transaction price was allocated to each performance obligation on a relative standalone selling price basis.

The Company assessed that it provided a right to use the license as the license exists (in terms of form and functionality) at the point in time at which it is granted and therefore, was satisfied at the inception of the arrangement.

The development activities are being recognized over time as the Company performs development activities related to the global trials.

The Company recognizes revenue associated with the development activities using an input method, according to the costs incurred, which in management’s judgment, is the best measure of progress towards satisfying the performance obligation.

Under the sales-or-usage-based royalty exception, revenue related to sales-based milestone payments and royalty payments will be recognized as the underlying sales occur.

Prior to its acquisition by the Company, VectivBio had received the upfront payment of JPY 3,000 million ($ 24.6 million at date of agreement), development-related payments of JPY 1,100 million ($ 9.0 million at date of agreement), and development milestones of JPY 500 million ($ 4.1 million at date of agreement).

Upon the acquisition of VectivBio on June 29, 2023, the Company assumed a contract liability for deferred revenue related to the development-related payments at its fair value of $ 4.3 million.

The Company recognized $ 2.0 million of revenue during the period between the acquisition date of June 29, 2023 and December 31, 2023 related to development activities.

As of December 31, 2023, deferred revenue of $ 2.6 million is reported within accrued expenses and other current liabilities on the consolidated balance sheets.

Deferred revenue and future payments received related to development activities are expected to be recognized over the course of the development activities, which are expected to occur through 2028.

License Agreement with Ferring

In August 2012, as subsequently amended and restated in December 2016, GlyPharma Therapeutic Inc., a subsidiary of VectivBio (“GlyPharma”), entered into an exclusive licensing agreement with Ferring International Center, S.A.

(“Ferring”), pursuant to which Ferring granted GlyPharma an exclusive, worldwide, sublicensable license under certain patent rights and know-how controlled by Ferring relating to apraglutide and certain know-how controlled by Ferring relating to specified alternate drug compounds, to research, develop, manufacture, make, have made, import, export, use, sell, distribute, promote, advertise, dispose of or offer to sell (i) products containing apraglutide whose manufacture, use or sale is covered by a valid claim of the licensed patents, or licensed products and (ii) products, containing a specified alternate drug compound, or alternate drug products.

In April 2021, the license agreement was transferred and assigned to VectivBio AG, a subsidiary of VectivBio.

Under the license agreement, as partial consideration for the rights Ferring granted to it, VectivBio AG is required to pay Ferring a high single-digit percentage royalty on worldwide annual net sales of licensed products and alternate drug products until, on a country-by-country basis and licensed product-by-licensed product or alternate drug product-by-alternate drug product basis, as applicable, the date on which the manufacture, use or sale of such licensed product or alternate drug product, as applicable, ceases to be covered by a valid claim of a patent within the licensed patents in such a country.

GlyPharma was also required to pay Ferring a certain number of warrants and Class A preferred shares pursuant to a shareholders’ agreement.

The equity obligations under the license agreement have been fully performed by GlyPharma.

The Company is also obligated to pay a specified percentage of the annual consideration VectivBio AG or its affiliates, including the Company, received in connection with sales of licensed product or alternate drug product by any third parties to which VectivBio AG or its affiliates, including the Company, grant a sublicense of any of the rights licensed to VectivBio AG by Ferring under this Agreement.

Such percentage is in the high single digits for sales of both licensed products and alternate drug products, and such payments are owed for the duration of the royalty term for licensed products or alternate drug products, as applicable.

Other Collaboration and License Agreements

Collaboration and License Option Agreement with COUR

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 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.

COUR has initiated a clinical study to evaluate the safety, tolerability, and pharmacodynamic effects and efficacy of CNP-104 in PBC patients .

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.

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, subject to Ironwood’s right to apply a credit against such payment as described below.

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.

of products containing CNP-104.

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, 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.

At December 31, 2022, payment obligations of $ 3.8 million were included in accrued research and development costs.

No payment obligations remained as of December 31, 2023.

In April 2023, the Company and COUR executed an amendment to the COUR Collaboration Agreement, in which the Company agreed to pay a one-time, non-refundable, upfront payment of $ 6.0 million to COUR in exchange for the right to apply a credit of $ 6.6 million against future amounts due to COUR in connection with the exercise of the Option, commercial milestones, or royalties.

In connection with such payment, COUR also granted the Company a right of first negotiation over certain additional potential research and development programs.

The $ 6.0 million payment was recognized as research and development expense during the year ended December 31, 2023.

Other Agreements

Disease Education and Promotional Agreement with Alnylam

In August 2019, the Company and Alnylam entered into a disease education and promotional agreement (the “Alnylam Agreement”) for Alnylam’s GIVLAARI for the treatment of AHP.

In August 2019, the Company and Alnylam Pharmaceuticals, Inc.

(“Alnylam”) entered into a disease education and promotional agreement (the “Alnylam Agreement”) for Alnylam’s GIVLAARI (givosiran) for the treatment of acute hepatic porphyria.

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

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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.

During the years ended December 31, 2022 and 2021, the Company recognized $ 2.2 million and $ 2.4 million, respectively, in royalty revenue.

Fair Value of Financial Instruments

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2022 and 2021 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

The tables below present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2023 and 2022 and indicate the fair value hierarchy of the valuation techniques

the Company utilized to determine such fair value.

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

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Money market funds

Repurchase agreements

Treasury securities

Commercial paper

Restricted cash:

Money market funds

Total assets measured at fair value

Note hedge warrants

Total liabilities measured at fair value

Fair Value Measurements at Reporting Date Using

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Money market funds

Repurchase agreements

Commercial paper

Restricted cash:

Money market funds

Convertible note hedges

Total assets measured at fair value

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

The Company’s Convertible Note Hedges and the Note Hedge Warrants are recorded as derivative assets and liabilities, respectively, and are classified as Level 3 measurements under the fair value hierarchy.

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

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

The Company’s Convertible Note Hedges, which expired unexercised in June 2022, and Note Hedge Warrants, which expired unexercised in April 2023, were recorded as derivative assets and liabilities, respectively, and were classified as Level 3 measurements under the fair value hierarchy.

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

The following inputs were used in the fair market valuation of the Note Hedge Warrants:

December 31, 2022

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(1) Based on U.S.

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

(2) The closing price of the Company’s Class A Common Stock on the last trading days of the years ended December 31, 2022 and 2021, respectively.

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

Treasury yield curve, with terms commensurate with the expected term of the Note Hedge Warrants.

(2) The closing price of the Company’s Class A Common Stock on the last trading day of the quarter ended December 31, 2022.

(3) As per the agreements for the Note Hedge Warrants.

(4) Expected volatility based on historical volatility of the Company’s Class A Common Stock.

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

The Convertible Note Hedges and the Note Hedge Warrants are recorded at fair value at each reporting date and changes in fair value are recorded in other (expense) income, net within the Company's consolidated statements of income.

The following table reflects the change in the Company's Level 3 Convertible Note Hedges and Note Hedge Warrants from December 31, 2020 through December 31, 2022 (in thousands):

The Convertible Note Hedges and the Note Hedge Warrants were recorded at fair value at each reporting date and changes in fair value were recorded in other income (expense), net within the Company's consolidated statements of income.

The following table reflects the change in the Company's Level 3 Note Hedge Warrants from December 31, 2021 through December 31, 2023 (in thousands):

Balance at December 31, 2021

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Balance at December 31, 2022

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

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

Balance at December 31, 2023

Convertible Senior Notes

In June 2015, the Company issued $ 335.7 million aggregate principal amount of its 2022 Convertible Notes.

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

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.

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 (Note 10) .

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 as of December 31, 2021.

The estimated fair value of the 2024 Convertible Notes was $ 209.6 million and $ 215.9 million as of December 31, 2023 and 2022, respectively.

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In connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company entered into the Capped Calls with certain financial institutions.

The Capped Calls cover 29,867,480 shares of Class A Common Stock (subject to anti-dilution and certain other adjustments), which is the same number of shares of Class A Common Stock that initially underlie the 2024 Convertible Notes and the 2026 Convertible Notes.

The Capped Calls cover 29,867,480 shares of Class A

Common Stock (subject to anti-dilution and certain other adjustments), which is the same number of shares of Class A Common Stock that initially underlie the 2024 Convertible Notes and the 2026 Convertible Notes.

The Capped Calls have an initial strike price of approximately $ 13.39 per share, which corresponds to the initial conversion price of the 2024 Convertible Notes and the 2026 Convertible Notes, and have a cap price of approximately $ 17.05 per share (Note 10).

The strike price and cap price are subject to anti-dilution adjustments generally similar to those applicable to the 2024 Convertible Notes and the 2026 Convertible Notes.

These instruments meet the conditions outlined in ASC 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).

These instruments meet the conditions outlined in ASC 815, to be classified in stockholders’ equity and are not subsequently remeasured as long as the conditions for equity classification continue to be met (Note 10).

Revolving Credit Agreement

Outstanding borrowings under the revolving credit facility (Note 10) are carried at amounts that approximate fair value based on their nature, terms, credit spreads, and variable interest rates, which are Level 3 inputs.

Non-recurring Fair Value Measurements

Acquired In-Process Research & Development

The fair value of the acquired IPR&D asset, apraglutide, was determined on the VectivBio acquisition date using the multi-period excess earnings method using Level 3 fair-value measurements and inputs including estimated cash flows and probabilities of success.

Assembled Workforce

The fair value of the assembled workforce was determined on the VectivBio acquisition date using the replacement cost method using Level 3 fair-value measurements and inputs including estimated costs and productivity metrics.

The Company’s lease portfolio for the year ended December 31, 2023 includes:

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.

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

The Company’s headquarters office lease and vehicle lease require letters of credit to secure the Company’s obligations under the lease agreements totaling $ 1.2 million and $ 1.7 million at December 31, 2023 and 2022, respectively.

As of December 31, 2022, the letters of credit were collateralized by money market accounts recorded as restricted cash on the Company’s consolidated balance sheets.

During the year ended December 31, 2023, the letters of credit were transitioned to a subfacility of the revolving credit agreement (Note 10) and no longer require cash collateral.

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

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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.

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.

Lease costs recorded during each of the years ended December 31, 2023, 2022 and 2021 were $ 2.5 million.

Future minimum lease payments under the Summer Street Lease as of December 31, 2023 are as follows (in thousands):

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Depreciation expense of property and equipment was $ 1.2 million, $ 1.4 million and $ 1.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

During the year ended December 31, 2020, the Company recorded $ 1.2 million, in restructuring expenses in its consolidated statement of income related to the impairment of certain fixed assets as a result of its decision to discontinue IW-3718 development.

Accrued Expenses and Other Current Liabilities

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Accrued compensation and benefits

Restructuring liabilities

Stock repurchase

Accrued interest

Accrued restructuring liabilities

Accrued taxes

Total accrued expenses and other current liabilities

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

As of December 31, 2023, other accrued expenses of $ 8.8 million were comprised primarily of $ 6.1 million of uninvoiced vendor liabilities and $ 2.6 million of deferred revenue.

As of December 31, 2022, other accrued expenses of $ 3.6 million was comprised primarily of uninvoiced vendor liabilities.

2.25 % Convertible Senior Notes due 2022

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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.

The 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 the date of issuance.

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 2024 Convertible Notes will mature on June 15, 2024 and the 2026 Convertible Notes will mature on June 15, 2026, unless earlier converted or repurchased.

The Company will settle conversions of the 2024 Convertible Notes and 2026 Convertible Notes through payment or delivery, as the case may be, of cash, shares of 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.

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

The Company held the option to determine the settlement method for conversions of the 2024 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 (subject to, and in accordance with, the settlement provisions of the applicable Indenture).

The Company has elected to settle conversions of the 2024 Convertible Notes through cash payment equal to the principal value and shares of Class A Common Stock for the conversion premium, if any.

Holders of the 2024 Convertible Notes had the right to convert their 2024 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2023 upon the occurrence of certain circumstances and no such conversions occurred.

On or after December 15, 2023, until the close of business on the second scheduled trading day immediately preceding June 15, 2024, holders may convert their 2024 Convertible Notes, in multiples of $ 1,000 principal amount, at the option of the holder.

The Company will settle conversions of the 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).

Holders of the 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, 2025 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;

● 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;

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

On or after December 15, 2023, with respect to the 2024 Convertible Notes, and December 15, 2025, with respect to the 2026 Convertible Notes, until the close of business on the second scheduled trading day immediately preceding the applicable maturity date, the holders of the Notes may convert their Notes, in multiples of $ 1,000 principal amount, regardless of the foregoing conditions.

On or after December 15, 2025 until the close of business on the second scheduled trading day immediately preceding the applicable June 15, 2026, the holders of the 2026 Convertible Notes may convert their Notes, in multiples of $ 1,000 principal amount, regardless of the foregoing conditions.

Upon the occurrence of fundamental changes, as described in the Indentures, prior to the maturity date of the respective Notes, holders of such Notes may require the Company to repurchase for cash all or a portion of their Notes at a repurchase price equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.

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

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

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 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):

Liability component:

2022 Convertible Notes

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.

The Company accounts for each convertible debt instrument as a single liability measured at amortized cost.

The Company’s outstanding balances for the convertible senior notes consisted of the following (in thousands):

2024 Convertible Notes

2026 Convertible Notes

unamortized debt discount

unamortized debt issuance costs

Net carrying amount

Equity component:

2022 Convertible Notes

2024 Convertible Notes

2026 Convertible Notes

Total equity component

In connection with the issuance of the 2022 Convertible Notes, the Company incurred $ 11.7 million of debt issuance costs, which primarily consisted of initial purchasers’ discounts and legal and other professional fees.

The Company allocated these costs to the liability and equity components based on the allocation of the proceeds.

The portion of these costs allocated to the equity components totaling $ 4.0 million were recorded as a reduction to additional paid-in capital upon issuance.

The portion of these costs allocated to the liability components totaling $ 7.7 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 life of the 2022 Convertible Notes.

In connection with the partial repurchase of the 2022 Convertible Notes, the Company recorded a loss on extinguishment of debt of $ 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.

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.

The Company allocated these costs to the liability and equity components based on the allocation of the proceeds.

The portion of these costs allocated to the equity components totaling $ 2.1 million were recorded as a reduction to additional paid-in capital.

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 debt issuance costs are reflected as a reduction in the carrying value of the 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 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 rates of the 2024 Convertible Notes and the 2026 Convertible Notes for the period from the date of issuance through December 31, 2023 were 1.2 % and 1.8 % , 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):

The following table sets forth total interest expense recognized related to convertible senior notes (in thousands):

Year Ended December 31,

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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.

related to the Convertible Note Hedge being exercised.

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

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.

The Convertible Note Hedges and the Note Hedge Warrants are separate transactions entered into by the Company and are not part of the terms of the 2022 Convertible Notes.

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

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

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

In April 2023, the Note Hedge Warrants terminated unexercised upon expiry.

The Convertible Note Hedges and the Note Hedge Warrants were separate transactions entered into by the Company and were not part of the terms of 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.

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, 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.

The Convertible Note Hedges and Note Hedge Warrants were accounted for as derivative assets and liabilities, respectively, in accordance with ASC 815, and remeasured to fair value at each reporting date (Note 6).

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

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

Revolving Credit Facility

In May 2023, in connection with the VectivBio Acquisition, the Company entered into a credit agreement (the

“Revolving Credit Agreement”) with Wells Fargo Bank, N.A., as administrative agent, collateral agent, a letter of credit issuer and a lender, and the other agents, lenders and letter of credit issuers parties thereto.

The Revolving Credit Agreement provides for a four-year $ 500.0 million secured revolving credit facility (the

"Revolving Credit Facility”), which includes a $ 10.0 million letter of credit subfacility, and loans made thereunder will mature on the earliest to occur of (i) May 21, 2027 or (ii) the date that is 91 days prior to the stated maturity date of the

Company’s existing convertible notes then outstanding, unless, in the case of clause (ii), the Company’s minimum liquidity equals or exceeds certain agreed levels.

At the Company’s election, borrowings under the Revolving Credit Agreement will bear interest at a rate equal to (a) Adjusted Term Secured Overnight Financing Rate (“SOFR”) (as defined in Revolving Credit Agreement) plus the applicable rate (ranging from 1.75 % to 3.00 %) or (b) the highest of (1) the weighted average overnight Federal funds rate, as published by the Federal Reserve Bank of New York, plus one half of 1.0% , (2) the prime lending rate or (3) the one-month Adjusted Term SOFR plus 1.0 % in effect from time to time plus the applicable rate (ranging from 0.75 % to 2.00 %).

The applicable rates are based on the Company’s consolidated secured net leverage ratio (as defined under the Revolving Credit Facility) at the time of the applicable borrowing.

The Company pays a quarterly commitment fee of 0.30 % to 0.425 % on the daily amount by which the commitments under the Revolving Credit Agreement exceed the outstanding loans and letters of credit.

The loans and other obligations under the Revolving Credit Agreement are secured by substantially all of the

Company’s personal property, including a pledge of all the capital stock of subsidiaries held directly by the Company or any subsidiary that guarantees the Revolving Credit Agreement following the closing date (which pledge, in the case of any foreign subsidiary, is limited to 65 % of the voting stock), subject to certain customary exceptions and limitations.

The Revolving Credit Agreement generally prohibits any other liens on the assets of the Company and its restricted subsidiaries, subject to certain exceptions as described in the Revolving Credit Agreement.

Under the terms of the Revolving Credit Agreement, the Company will be able to request an increase in the

commitments or the addition of a term loan secured by a pari passu lien on the collateral of up to an additional amount equal to the greater of $ 200.0 million and 100 % of the trailing twelve-month Consolidated Adjusted EBITDA (as defined in the Revolving Credit Agreement) upon satisfaction of customary conditions, including receipt of commitments from either new lenders or increased commitments from existing lenders.

The Revolving Credit Agreement contains certain customary covenants applicable to the Company and its Restricted Subsidiaries (as defined in the Revolving Credit Agreement), and commencing in the third quarter of 2023, the Company is required to maintain a maximum consolidated secured net leverage ratio of 3.00 to 1.00 and a minimum interest coverage ratio of 3.00 to 1.00, in each case at the end of each fiscal quarter.

The Revolving Credit Agreement allows the Company to elect to increase the permitted maximum consolidated secured net leverage ratio to 3.50 to 1.00 for four fiscal quarters in the event it consummates an acquisition for consideration in excess of $ 50.0 million, subject to certain limitations on how often this election can be made.

As of December 31, 2023, the Company was in compliance with all covenants.

In connection with the Revolving Credit Agreement, the Company incurred $ 2.9 million of debt issuance costs, which primarily consisted of $ 2.0 million of lender fees and $ 0.9 million of legal and other professional fees.

The debt issuance costs are classified as other assets and are amortized on a straight-line basis over the four-year term of the Revolving Credit Agreement.

The Company had unamortized capitalized debt issuance costs of $ 2.4 million at December 31, 2023.

In June 2023, the Company borrowed $ 400.0 million to partially finance the VectivBio Acquisition (Note 3).

The Company repaid $ 100.0 million of the outstanding principal balance during the year ended December 31, 2023.

The outstanding principal balance on the revolving credit facility was $ 300.0 million as of December 31, 2023.

The following table sets forth total interest expense recognized related to Revolving Credit Agreement (in

December 31, 2023

Contractual interest expense

Amortization of debt issuance costs

Other financing costs

Total interest expense

Commitments and Contingencies

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As a result, the estimated fair value of these obligations is minimal.

Accordingly, the Company did not have any liabilities recorded for these obligations as of December 31, 2022 and 2021.

Accordingly, the Company did no t have any liabilities recorded for these obligations as of December 31, 2023 and 2022.

From time to time, the Company is involved in various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business.

While the outcome of these other claims cannot be predicted with certainty, management does not believe that the outcome of any of these ongoing legal matters, individually and in aggregate, will have a material adverse effect on the Company’s consolidated financial statements.

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

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 9).

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 stockholders are entitled to dividends if and when declared by the board of directors.

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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.

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

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Employee stock purchase plan

VectivBio Holding AG stock options and RSUs accelerated upon change in control

Total share-based compensation expense

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Total share-based compensation expense, net of tax

In connection with the VectivBio Acquisition, the Company incurred $ 27.5 million of share-based compensation expense during the second quarter of 2023 related to the vesting acceleration and settlement of outstanding VectivBio stock options and RSUs under VectivBio’s 2021 Equity Incentive Plan, of which $ 11.3 million was recorded within research and development expense and $ 16.2 million was recorded within selling, general and administrative expenses.

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

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As of December 31, 2023, the Company has the following active stock benefit plans pursuant to which awards are currently outstanding:

the 2019 Equity Incentive Plan (the “2019 Equity Plan”), the Amended and Restated 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) and the Amended and Restated 2010 Employee, Director, and Consultant Equity Incentive Plan (the “2010 Equity Plan”).

At December 31, 2022, there were 11,790,625 shares available for future grant under the 2019 Equity Plan and the 2010 Purchase Plan.

the Amended and Restated 2019 Equity Incentive Plan (the “A&R 2019 Equity Plan”), the 2019 Equity Incentive Plan (the “2019 Equity Plan”), the Amended and Restated 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) and the Amended and Restated 2010 Employee, Director, and Consultant Equity Incentive Plan (the “2010 Equity Plan”).

At December 31, 2023, there were 14,647,564 shares available for future grant under the A&R 2019 Equity Plan and the 2010 Purchase Plan.

A&R 2019 Equity Plan

During 2023, the Company’s stockholders approved the A&R 2019 Equity Plan under which stock options, RSAs, RSUs, and other stock-based awards may be granted to employees, officers, directors, or consultants of the Company.

Under the A&R 2019 Equity Plan, 6,000,000 shares of Class A Common Stock were initially reserved for issuance.

Subsequent to the approval of the A&R 2019 Equity Plan, shares available for grant under the 2019 Equity Plan are made available for grant under the A&R 2019 Equity Plan and awards that are returned to the A&R 2019 Equity Plan, 2019 Equity Plan and 2010 Equity Plan as a result of their expiration, cancellation, termination or repurchase are automatically made available for future grant under the A&R 2019 Equity Plan.

As of December 31, 2023, 10,374,589 shares were available for future grant under the A&R 2019 Equity Plan.

2019 Equity Plan

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Under the 2019 Equity Plan, 10,000,000 shares of Class A Common Stock were initially reserved for issuance.

Awards that are returned to the 2010 Equity Plan as a result of their expiration, cancellation, termination or repurchase are automatically made available for issuance under the 2019 Equity Plan.

Awards that expire, cancel, terminate, or are repurchased under the 2019 Equity Plan will no longer be available for future grant.

As of December 31, 2022, 7,366,153 shares were available for future grant under the 2019 Equity Plan.

Prior to the approval of the A&R 2019 Equity Plan, awards that were returned to the 2010 Equity Plan as a result of their expiration, cancellation, termination or repurchase were automatically made available for issuance under the 2019 Equity Plan and awards that expired, cancelled, terminated, or were repurchased under the 2019 Equity Plan were no longer available for future grant.

As of December 31, 2023, there were no shares available for future grant under the 2019 Equity Plan.

2010 Purchase Plan

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The 2010 Equity Plan provided for the granting of stock options, RSAs, RSUs, and other share-based awards to employees, officers, directors, consultants, or advisors of the Company.

At December 31, 2022, there were no shares available for future grant under the 2010 Equity Plan.

As of December 31, 2023, there were no shares available for future grant under the 2010 Equity Plan.

Restricted Stock Awards

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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 “Separation) on April 1, 2019 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 Item 5 elsewhere within this Annual Report on Form 10-K.

The weighted-average grant date fair value per share of time-based RSUs granted during the years ended December 31, 2023, 2022, and 2021 was $ 10.55 , $ 11.08 , and $ 10.40 , respectively.

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Performance-based RSUs

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.

The performance criteria applicable to the PSUs granted in 2020 were (i) gaining the U.S.

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 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 years ended December 31, 2022, 2021, and 2020:

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

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

The performance criteria applicable to the PSUs granted in 2022 and 2021 were realizing relative total shareholder return goals (the “Relative TSR PSUs”).

The performance criteria applicable to the PSUs granted in 2023 consisted of an equal weighting of (i) Relative TSR PSUs and (ii) achieving specified stock price targets (the “Absolute TSR PSUs”).

The Relative TSR PSUs and Absolute 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 and Absolute TSR PSUs were as follows for the years ended December 31, 2023, 2022, and 2021:

Year Ended December 31,

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Outstanding as of December 31, 2023

(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, 2023, 2022, and 2021 was $ 14.09 , $ 14.30 , and $ 14.65 , 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.

The total fair value of PSUs that vested during the years ended December 31, 2023 and 2022 was $ 0.8 million and $ 1.7 million, respectively.

No PSUs vested during the year ended December 31, 2021.

Stock Options

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Shares of the Company's Class A Common Stock are delivered to the employee upon exercise, subject to payment of applicable withholding taxes.

As of April 2020, the Company no longer grants stock options.

The Company ceased granting stock options during the year ended December 31, 2020.

Stock options previously granted under the Company’s equity plans generally have a ten-year term and vest over a period of four years , provided the individual continues to serve at the Company through the vesting dates.

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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 year ended December 31, 2020:

Year Ended December 31, 2020

Expected volatility

Expected term (in years)

Risk-free interest rate

Expected dividend yield

Expected volatility is based on the historical volatility of the Company’s Class A Common Stock.

The Company estimates the expected term using historical data.

The risk-free interest rate used for each grant is based on a zero-coupon U.S.

Treasury instrument with a remaining term similar to the expected term of the share-based award.

The Company has not paid and does not anticipate paying cash dividends on its shares of common stock in the foreseeable future;

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

The 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:

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Outstanding at December 31, 2022

( 1,490,067 )

Outstanding at December 31, 2023

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

The Company is subject to U.S.

federal, state, and foreign income taxes.

The components of income (loss) before income taxes during the years ended on December 31, 2023, 2022, and 2021 consisted of the following (in thousands):

Year Ended December 31,

United States

( 1,174,601 )

Income (loss) before income taxes

The components of the provision for (benefit from) income taxes during the years ended December 31, 2023, 2022, and 2021 consisted of the following (in thousands):

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During the year ended December 31, 2023, the Company recorded income tax expense of $ 83.5 million, comprised of non-cash tax expense of $ 74.1 million and cash tax expense of $ 9.4 million for state income taxes in certain states in which state taxable income exceeded available net operating losses.

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.

During the year ended December 31, 2020, the Company recorded $ 2.7 million in income tax expense related to state income taxes in certain states which had temporarily disallowed or only partially allow the use of net operating losses to offset taxable income.

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

On March 27, 2020.

the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted and signed into law.

The Company benefitted from certain provisions of the CARES Act, specifically, the increase in allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income, which allowed the Company to take additional interest deductions for the period ended December 31, 2020.

Additionally, the Company was able to claim 100% bonus depreciation on leasehold improvements incurred in the period ended December 31, 2020 and 2019.

A reconciliation of income taxes computed using the U.S.

federal statutory rate of 21 % to that reflected in the consolidated statements of income are as follows (in thousands):

federal statutory rate of 21 % to that reflected in the consolidated statements of income (loss) are as follows (in thousands):

Year Ended December 31,

Income tax expense using U.S.

Income tax expense (benefit) using U.S.

federal statutory rate

Acquisition accounting for VectivBio Acquisition

Foreign tax rate differential

Disallowed transaction costs

Permanent differences

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Deferred tax liabilities:

Basis difference on Convertible Notes

Operating lease right-of-use assets

Operating lease right-of-use asset

Total deferred tax liabilities

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On a periodic basis, the Company reassesses the valuation allowance on its deferred income tax assets weighing positive and negative evidence to assess the recoverability of the deferred tax assets.

During the year ended December 31, 2021, the Company reassessed the valuation allowance noting the shift of positive evidence outweighing negative evidence, including:

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

After assessing both the positive evidence and negative evidence, 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, 2023, the Company maintained a valuation allowance of $ 85.6 million on deferred tax assets not expected to be realized, related primarily to deferred tax assets acquired in the VectivBio Acquisition comprised primarily of net operating loss carryforwards in Switzerland, as well as certain tax credits that are expected to expire prior to utilization.

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 increased by $ 82.6 million during the year ended December 31, 2023 primarily to offset the acquired foreign net operating losses from the VectivBio Acquisition.

Additionally, in response to a state tax law change enacted in October 2023, the Company increased its valuation allowance on certain state 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.

Additionally, the Company increased its reserves for uncertain tax positions by $ 11.0 million in the second quarter of 2023 in connection with a liability assumed in the VectivBio Acquisition.

Subject to the limitations described below, at December 31, 2023, the Company had federal net operating loss carryforwards of $ 411.8 million, of which $ 282.2 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.

The Company also had tax credit carryforwards of $ 63.9 million as of December 31, 2022 to offset future federal and state income taxes, which is subject to expiration at various times through 2040.

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.

As of December 31, 2023, the Company had state net operating loss carryforwards of $ 352.8 million to offset future state taxable income, which is subject to expiration at various dates through 2039.

The Company also had tax credit carryforwards of $ 62.9 million as of December 31, 2023 to offset future federal and state income taxes, which is subject to expiration at various dates through 2040.

The Company had foreign net operating loss carryforwards of $ 535.5 million, which are subject to expiration at various dates through 2030.

Utilization of federal and state 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.

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.

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Increases based on tax positions related to the current period

Increases for tax positions assumed in VectivBio Acquisition

Decreases for tax positions in prior periods

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Reserves for uncertain tax positions of $ 23.0 million and $ 9.2 million are recorded in other liabilities on the Company’s consolidated balance sheets as of December 31, 2023 and 2022, respectively.

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

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

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

The Company recognized $ 1.0 million and an insignificant amount of interest and penalties related to uncertain tax positions during the years ended December 31, 2023 and 2022, respectively.

The Company did no t recognize any interest and penalties related to uncertain tax positions during the year ended December 31, 2021.

As of December 31, 2023 and 2022, $ 5.2 million and an insignificant amount of interest and penalties have been accrued, respectively.

The statute of limitations for assessment by the Internal Revenue Service (“IRS”) and state tax authorities is open for tax years ended December 31, 2020 through the present, although net operating losses generated from years prior to 2020 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.

Defined Contribution Plan

The statute of limitations for assessment for foreign jurisdictions is open for tax years ended December 31, 2019 through the present.

There are currently no foreign income tax audits in progress.

Retirement Plans

Defined Contribution Retirement Plans

The Ironwood Pharmaceuticals, Inc.

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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 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.

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.

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.

During each of the years ended December 31, 2023, 2022, and 2021, the Company recorded $ 2.2 million of expense related to its 401(k) company match.

Defined Benefit Retirement Plans

As a result of the VectivBio Acquisition, the Company maintains defined benefit plans for employees in Switzerland and Belgium , as required by local laws.

The pension plans provide employees retirement benefits and risk insurance for death and disability.

The contributions of employers and employees in general are defined in percentages of the insured’s salary.

The retirement pension is calculated based on the old-age credit balance on retirement multiplied by the fixed conversion rate.

The employee has the option to withdraw the capital on demand.

During the post-acquisition period from June 29, 2023 through December 31, 2023, the Company recognized $ 1.8 million of expense and $ 0.9 million of other comprehensive loss related to its defined benefit plans.

Employer contributions and employee contributions during the post-acquisition period from June 29, 2023 through December 31, 2023 were $ 1.2 million and $ 13.7 million, respectively.

As of December 31, 2023 the total fair value of pension plan assets was $ 33.0 million and the fair values of projected benefit obligations was $ 37.6 million, resulting in a net liability status of $ 4.6 million recorded as other liabilities.

Workforce Reductions and Restructuring

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.

Based on these findings, the Company discontinued development of IW-3718.

In connection with this decision, the Company reduced its workforce by approximately 100 full-time employees.

This workforce reduction affected both field-based and home-office employees, including the relevant general and administrative support functions.

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

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):

December 31, 2021

December 31, 2022

Employee severance, benefits and related costs

In April 2023, the Company reduced its workforce by approximately 10 % of its headquarters-based personnel in an effort to further strengthen the operational efficiency of the organization.

The workforce reduction was substantially completed during the second quarter of 2023.

The Company recorded $ 3.4 million of restructuring expenses and adjustments, which are primarily comprised of employee severance, benefits and related costs, during the year ended December 31, 2023.

In June 2023, the Company commenced the elimination of certain positions in connection with the VectivBio

The majority of the eliminations were initiated in June 2023 and the remaining eliminations were substantially completed during the third quarter of 2023.

The Company recorded $ 14.9 million of restructuring expenses, which are primarily comprised of employee severance, benefits and related costs, during the year ended December 31, 2023.

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, 2023 (in thousands):

1 unchanged sentence

December 31, 2023

Employee severance, benefits and related costs

Contract related costs

Headquarters-based workforce reduction

VectivBio Acquisition-related workforce reduction

Selected Quarterly Financial Data (Unaudited)

5 unchanged sentences

Total cost and expenses

Other expense, net

Net income and comprehensive income

Net income per share—basic (1)

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.

Other income (expense), net

Net income (loss)

( 1,089,478 )

( 1,031,559 )

Net income (loss) attributable to Ironwood Pharmaceuticals, Inc.

( 1,062,187 )

( 1,002,239 )

Comprehensive income (loss) attributable to Ironwood Pharmaceuticals, Inc.

( 1,062,187 )

( 1,005,207 )

Net income (loss) per share—basic (1)

Net income (loss) per share—diluted (1)

(1) The summation of quarterly diluted net income per share does not equate to the calculation for the full fiscal year, as quarterly calculations are performed on a discrete basis.

(in thousands, except per share data)

5 unchanged sentences

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.

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