Item 9A. Controls and Procedures
Item 9A. 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
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, or Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the
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period covered by this Annual Report on Form 10-K of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as a result of material weaknesses in internal control over financial reporting as described below, our disclosure controls and procedures were not effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorizations of management and directors; and
(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.
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). Based on this evaluation, our management concluded that our internal control over financial reporting was not effective at the reasonable assurance level as of December 31, 2024 as a result of material weaknesses in internal control over financial reporting as described below.
We identified certain control deficiencies in the design and implementation of our internal control over financial reporting that constituted material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, we did not design and or implement an effective control environment or control activities as further detailed below.
● We did not have appropriately designed entity-level controls impacting the (1) control environment, (2) risk assessment procedures, (3) identification of control activities, (4) information and communication and (5) monitoring activities to prevent or detect material misstatements to the financial statements and assess whether the components of internal control were present and functioning. We did not adequately communicate to employees responsible for the execution of controls the relevant information, including objectives and responsibilities, necessary to support the functioning of internal controls over financial reporting. We did not develop and perform sufficient ongoing evaluations to ascertain whether the components of internal control were present and functioning or perform adequate risk assessment procedures within our control environment. These deficiencies were attributed to an insufficient number of qualified resources to effectively perform control design and execution activities and oversee internal control over financial reporting.
● We did not design and maintain effective information technology (IT) general controls around our key accounting and reporting IT systems, specifically related to change management, user access, and data
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migration, as part of the Company’s enterprise resource planning (ERP) system, and these controls were not operating effectively. Consequently, IT application controls (ITAC) and IT dependent manual (ITDM) business process controls that rely upon information from the ERP system, were also deemed ineffective.
● We did not design and/or operate effective controls over the financial statement close process as well as transaction level controls across various significant accounts and processes to address all material risk of misstatement as of December 31, 2024. Controls were not designed or operating effectively to support (1) the sufficiency of the review including level of precision and retention of evidence, (2) the completeness and accuracy of key data and reports used in the control activities, and/or (3) the timeliness of execution of management controls.
● We did not design and/or operate effective ITDM and ITAC business process controls including appropriate segregation of duties and the completeness and accuracy of data and reports used in control activities and timeliness of execution to address the risk related to the initiation, authorization, and recording of expenditures.
Notwithstanding the material weaknesses, no material misstatements were identified in our financial statements as of and for the year ended December 31, 2024 and we have concluded that the financial statements and other financial information included in this Annual Report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
The Company’s independent registered public accounting firm, Ernst & Young LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. Their report is set forth herein.
Remediation of Material Weaknesses in Internal Control over Financial Reporting
Immediately following the identification of the material weaknesses described above, and with the oversight of the Audit Committee, we commenced a process to remediate the underlying control deficiencies contributing to the above material weaknesses. We have started remediating the control deficiencies and will continue these efforts throughout 2025. Our plan for remediation includes the following:
● We have started the process of identifying and recruiting additional personnel who have experience working at public companies and expertise in accounting, financial reporting and internal controls commensurate with the type, volume and complexity of our operations. We have also commenced the search for a Head of IT and plan to centralize the accounting for foreign subsidiaries by transitioning the majority of accounting operations to the U.S. in 2025;
● We have implemented incremental system approvals and manual monitoring controls to mitigate segregation of duties risk within certain financial processes, and will continue to engage with third party consultants with the requisite knowledge and experience to assess our ERP system and identify opportunities to enhance our use of the system while maintaining appropriate levels of segregation of duties;
● We will enhance our system implementation and development lifecycle documentation to include the following:
o Formally define policies and procedures for user roles, including emergency access roles, and requirements for lookback reviews during the implementation and post-implementation user access review phases;
o The nature and level of change management documentation required to be maintained during the implementation and post-implementation review phases; and
o Enhance policies and procedures around data migration, including formally defining the specific material data elements for validation; the procedures to be followed when validating the completeness and accuracy of data migrations; and the level of documentation required to evidence that data migration testing was performed and reviewed;
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● We will enhance our training processes, which include conducting and delivering training on a regular basis to our finance and accounting and IT team members on how to execute internal control responsibilities, including the importance of completeness and accuracy procedures and maintaining sufficient documentation and/or evidence to support the performance of control activities; and
● To the extent certain control improvements were implemented in 2024 that management believes are operating, but did not have the requisite time period to demonstrate operating effectiveness as of December 31, 2024, we will continue to focus on effectively operating such controls.
When fully implemented and operational, we believe the measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, our management may determine to take additional measures.
The measures we are implementing are subject to continued management review supported by confirmation and testing, as well as Audit Committee oversight. Management and the Audit Committee remain committed to the implementation of remediation efforts to address the material weaknesses. We will continue to implement measures to remedy our internal control deficiencies, though there can be no assurance that our efforts will be successful or avoid potential future material weaknesses. In addition, until remediation steps have been completed and are operated for a sufficient period of time, and subsequent evaluation of their effectiveness is completed, the material weaknesses previously disclosed, and as described above, will continue to exist.
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, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Based on management’s evaluation, and except as described above, our principal executive officer and principal financial officer concluded that no other changes during the quarter ended December 31, 2024 materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
During the third quarter of 2024, we implemented a new global enterprise resource planning, or ERP system. The implementation of the system will continue through early 2025. The ERP system replaces the existing financial systems we have historically relied on. Throughout the implementation, we reassessed our processes and procedures, which resulted in changes to our internal control over financial reporting. In connection with this implementation, we identified a material weakness in our information technology general controls, as described above.
On June 29, 2023, we acquired VectivBio and in our 2023 Annual Report on Form 10-K, we excluded VectivBio from our evaluation of internal control over financial reporting. This exclusion was in accordance with the SEC’s guidance that a recently acquired business may be omitted from the assessment scope for up to one year from the date of acquisition. We have extended our oversight and monitoring processes that support our internal control over financial reporting, as well as our disclosure controls and procedures, to the acquired operations of VectivBio, and we have incorporated VectivBio into our annual assessment of internal control over financial reporting for our fiscal year ended December 31, 2024.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Ironwood Pharmaceuticals, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Ironwood Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, Ironwood Pharmaceuticals, Inc. (the Company) has not maintained effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment. Management has identified pervasive material weaknesses throughout the Company’s internal control processes that involve the control environment, risk assessment, control activity, information and communication, and monitoring components of the COSO framework, as well as internal controls across various significant accounts and information technology general controls, that are described in more detail in management’s assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2024 consolidated financial statements of the Company. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and this report does not affect our report dated March 31, 2025, which expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting 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 the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
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management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 31, 2025
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Item 9B. Other Information
(a) On February 27, 2025, we issued a press release announcing unaudited financial results for the quarter and year ended December 31, 2024, which was furnished on a Current Report on Form 8-K filed on February 27, 2025, and we presented, via webcast, a supplemental earnings presentation setting forth such results, or collectively, the Earnings Materials. Subsequent to the date of presenting our Earnings Materials, we recorded immaterial adjustments to the fourth quarter and full year of 2024 results. We have updated the Earnings Materials on the Investors section of our website at www.ironwoodpharma.com to reflect the adjustments made.
(b) During the quarter ended December 31, 2024, no director or officer (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 10 b5- 1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclos ure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a code of business conduct and ethics applicable to our directors, officers, employees, consultants and all their immediate family or other household members. A copy of that code is available on our corporate website at http://www.ironwoodpharma.com. Any amendments to the code of business conduct and ethics, and any waivers thereto that are required to be disclosed pursuant to SEC rules, will be also available on our corporate website. A printed copy of these documents will be made available upon request. The content on our website is not incorporated by reference into this Annual Report on Form 10-K.
We have adopted an insider trading prevention policy governing the purchase, sale and other dispositions of our securities that applies to each of our directors, officers, employees, consultants and their immediate family members. We believe the insider trading prevention policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and Nasdaq listing standards. A copy of our insider trading prevention policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K. It is also our policy that we do not engage in transactions in Company securities while in possession of material nonpublic information concerning the Company or our securities.
The other information required by this item is incorporated by reference from our proxy statement for our 2025 Annual Meeting of Stockholders.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from our proxy statement for our 2025 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information relating to security ownership of certain beneficial owners of our common stock and information relating to the security ownership of our management required by this item is incorporated by reference from our proxy statement for our 2025 Annual Meeting of Stockholders.
The table below sets forth information with regard to securities authorized for issuance under our equity compensation plans as of December 31, 2024. As of December 31, 2024, 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; and
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● Amended and Restated 2010 Employee Stock Purchase Plan.
Plan Category
Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)
Weighted-average exercise price of outstanding options, warrants, and rights (2)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (3)
(a)
(b)
(c)
Equity compensation plans approved by security holders
11,094,274
$12.37
12,474,318
Equity compensation plans not approved by security holders
—
—
—
Total
11,094,274
$12.37
12,474,318
(1)
Amount includes the number of shares subject to issuance upon exercise of 4,540,264 outstanding stock options and vesting of 6,554,010 restricted stock units.
(2)
Amount includes all outstanding stock options but does not include restricted stock units, which do not have an exercise price.
(3)
Consists of 8,391,775 shares available for future issuance under the Amended and Restated 2019 Equity Incentive Plan and 4,082,543 shares available for future issuance under the Amended and Restated 2010 Employee Stock Purchase Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference from our proxy statement for our 2025 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference from our proxy statement for our 2025 Annual Meeting of Stockholders.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
1.
List of documents filed as part of this report
1.
Consolidated Financial Statements listed under Part II, Item 8 and included herein by reference.
2.
Consolidated Financial Statement Schedules
No schedules are submitted because they are not applicable, not required or because the information is included in the Consolidated Financial Statements or Notes to Consolidated Financial Statements.
3.
Exhibits
Incorporated by reference herein
Number
Description
Form
Date
2.1
Separation Agreement, dated as of March 30, 2019, by and between Ironwood Pharmaceuticals, Inc. and Cyclerion Therapeutics, Inc.
Current Report on Form 8-K (File No. 001-34620)
April 4, 2019
2.2
Transaction Agreement, dated May 21, 2023, by and between Ironwood Pharmaceuticals, Inc. and VectivBio Holding AG
Current Report on Form 8-K (File No. 001-34620)
May 22, 2023
3.1
Eleventh Amended and Restated Certificate of Incorporation
Annual Report on Form 10-K (File No. 001-34620)
March 30, 2010
3.2
Certificate of Retirement
Registration Statement on Form 8-A/A (File No. 001-34620)
January 3, 2019
3.3
Certificate of Amendment
Current Report on Form 8-K (File No. 001-34620)
May 31, 2019
3.4
Fifth Amended and Restated Bylaws
Annual Report on Form 10-K (File No. 001-34620)
March 30, 2010
4.1
Specimen Class A Common Stock certificate
Registration Statement on Form S-1, as amended (File No. 333-163275)
January 20, 2010
4.2
Indenture, dated as of August 12, 2019, by and between Ironwood Pharmaceuticals, Inc. and U.S. Bank National Association (including the form of the 1.50% Convertible Senior Note due 2026)
Current Report on Form 8-K (File No. 001-34620)
August 13, 2019
4.2.1
Form of 1.50% Convertible Senior Note due 2026
Current Report on Form 8-K (File No. 001-34620)
August 13, 2019
4.3
Description of Securities of Ironwood Pharmaceuticals, Inc.
Annual Report on Form 10-K (File No. 001-34620)
February 17, 2021
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10.1#
Amended and Restated 2010 Employee, Director and Consultant Equity Incentive Plan
Registration Statement on Form S-8, as amended (File No. 333-184396)
October 12, 2012
10.1.1#
Form of Stock Option Agreement under the Amended and Restated 2010 Employee, Director and Consultant Equity Incentive Plan
Quarterly Report on Form 10-Q (File No. 001-34620)
November 6, 2018
10.1.2#
Form of Restricted Stock Unit Agreement under the Amended and Restated 2010 Employee, Director and Consultant Equity Incentive Plan
Quarterly Report on Form 10-Q (File No. 001-34620)
November 6, 2018
10.2#
2019 Equity Incentive Plan
Quarterly Report on Form 10-Q (File No. 001-34620)
July 30, 2019
10.2.1#
Form of Non-statutory Stock Option Agreement under the 2019 Equity Incentive Plan
Quarterly Report on Form 10-Q (File No. 001-34620)
July 30, 2019
10.2.2#
Form of Restricted Stock Unit Agreement under the 2019 Equity Incentive Plan
Quarterly Report on Form 10-Q (File No. 001-34620)
July 30, 2019
10.2.3#
Form of Restricted Stock Agreement under the 2019 Equity Incentive Plan
Quarterly Report on Form 10-Q (File No. 001-34620)
July 30, 2019
10.2.4#
Form of Performance-Based Restricted Stock Unit Award Agreement under the 2019 Equity Incentive Plan
Quarterly Report on Form 10-Q (File No. 001-34620)
May 6, 2020
10.3#
Amended and Restated 2019 Equity Incentive Plan
Current Report on Form 8-K (File No. 001-34620)
June 22, 2023
10.3.1#
Form of Restricted Stock Unit Agreement under the Amended and Restated 2019 Equity Incentive Plan
Quarterly Report on Form 10-Q (File No. 001-34620)
November 9, 2023
10.4#
Amended and Restated 2010 Employee Stock Purchase Plan
Annual Report on Form 10-K (File No. 001-34620)
February 13, 2020
10.5#
Change of Control Severance Benefit Plan, as amended and restated
Quarterly Report on Form 10-Q (File No. 001-34620)
April 29, 2014
10.6#
Form of Executive Severance Agreement
Annual Report on Form 10-K (File No. 001-34620)
February 25, 2019
10.7#
Form of Executive Severance Agreement
Current Report on Form 8-K (File No. 001-34620)
December 1, 2021
10.8#
Second Amended and Restated Executive Severance Agreement, dated as of June 22, 2021, between Ironwood Pharmaceuticals, Inc. and Thomas McCourt
Current Report on Form 8-K/A (File No. 001-34620)
June 24, 2021
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10.9#
Second Amended and Restated Non-employee Director Compensation Policy, effective January 1, 2024
Annual Report on Form 10-K (File No. 001-34620)
February 16, 2024
10.10#
Form of Indemnification Agreement with Directors and Officers
Registration Statement on Form S-1, as amended (File No. 333-163275)
December 23, 2009
10.11+
Collaboration Agreement, dated as of September 12, 2007, as amended on November 3, 2009, by and between Forest Laboratories, Inc. and Ironwood Pharmaceuticals, Inc.
Registration Statement on Form S-1, as amended (File No. 333-163275)
February 2, 2010
10.11.1
Amendment No. 2 to the Collaboration Agreement, dated as of January 8, 2013, by and between Forest Laboratories, Inc. and Ironwood Pharmaceuticals, Inc .
Annual Report on Form 10-K (File No. 001-34620)
February 21, 2013
10.12+
Commercial Agreement, dated as of January 31, 2017, by and among Allergan USA, Inc., Forest Laboratories, LLC and Ironwood Pharmaceuticals, Inc.
Quarterly Report on Form 10-Q (File No. 001-34620)
May 8, 2017
10.13+
License Agreement, dated as of April 30, 2009, by and between Allergan Pharmaceuticals International Ltd. (formerly with Almirall, S.A.) and Ironwood Pharmaceuticals, Inc.
Registration Statement on Form S-1, as amended (File No. 333-163275)
February 2, 2010
10.13.1+
Amendment No. 1 to License Agreement, dated as of June 11, 2013, by and between Allergan Pharmaceuticals International Ltd. (formerly with Almirall, S.A.) and Ironwood Pharmaceuticals, Inc .
Quarterly Report on Form 10-Q (File No. 001-34620)
August 8, 2013
10.13.2+
Amendment to the License Agreement, dated as of October 26, 2015, by and between Allergan Pharmaceuticals International Ltd. and Ironwood Pharmaceuticals, Inc.
Annual Report on Form 10-K (File No. 001-34620)
February 19, 2016
10.13.3+
Amendment to the License Agreement dated as of January 31, 2017, by and between Allergan Pharmaceuticals International Ltd., and Ironwood Pharmaceuticals, Inc .
Quarterly Report on Form 10-Q (File No. 001-34620)
May 8, 2017
10.14+
Novation Agreement, dated as of October 26, 2015, by and among Almirall, S.A., Allergan Pharmaceuticals International Ltd. and Ironwood Pharmaceuticals, Inc .
Annual Report on Form 10-K (File No. 001-34620)
February 19, 2016
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10.15++
Amended and Restated License Agreement, dated as of August 1, 2019, by and between Ironwood Pharmaceuticals, Inc. and Astellas Pharma Inc .
Current Report on Form 8-K (File No. 001-34620
August 1, 2019
10.15.1
Amendment to the Amended and Restated License Agreement, dated as of January 8, 2021, by and between Ironwood Pharmaceuticals, Inc. and Astellas Pharma Inc.
Annual Report on Form 10-K (File No. 001-34620)
February 17, 2021
10.16++
Amended and Restated License and Collaboration Agreement, dated as of September 16, 2019, by and between AstraZeneca AB and Ironwood Pharmaceuticals, Inc.
Current Report on Form 8-K (File No. 001-34620)
September 18, 2019
10.17+
Commercial Supply Agreement, dated as of June 23, 2010, by and among PolyPeptide Laboratories, Inc. and Polypeptide Laboratories (SWEDEN) AB, Forest Laboratories, Inc. and Ironwood Pharmaceuticals, Inc .
Quarterly Report on Form 10-Q (File No. 001-34620)
August 10, 2010
10.18+
Commercial Supply Agreement, dated as of March 28, 2011, by and among Corden Pharma Colorado, Inc. (f/k/a Roche Colorado Corporation), Ironwood Pharmaceuticals, Inc. and Forest Laboratories, Inc .
Quarterly Report on Form 10-Q (File No. 001-34620)
May 13, 2011
10.18.1+
Amendment No. 3 to Commercial Supply Agreement, dated as of November 26, 2013, by and between Corden Pharma Colorado, Inc. (f/k/a Roche Colorado Corporation), Ironwood Pharmaceuticals, Inc. and Forest Laboratories, Inc.
Annual Report on Form 10-K (File No. 001-34620)
February 7, 2014
10.19++
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. 333-254523)
March 19, 2021
10.20++
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. 001-40316)
April 7, 2022
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10.21
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. 001-34620)
May 22, 2023
10.21.1
Amendment No. 1 to Credit Agreement, dated September 27, 2024, 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. 001-34620)
September 30, 2024
10.22
Lease Agreement for facilities at 100 Summer Street, Boston, Massachusetts, dated as of June 11, 2019, by and between Ironwood Pharmaceuticals, Inc. and MA-100 Summer Street Owner, L.L.C.
Current Report on Form 8-K (File No. 001-34620)
June 13, 2019
10.23
Tax Matters Agreement, dated as of March 30, 2019, by and between Ironwood Pharmaceuticals, Inc. and Cyclerion Therapeutics, Inc.
Current Report on Form 8-K (File No. 001-34620)
April 4, 2019
10.24
Employee Matters Agreement, dated as of March 30, 2019, by and between Ironwood Pharmaceuticals, Inc. and Cyclerion Therapeutics, Inc.
Current Report on Form 8-K (File No. 001-34620)
April 4, 2019
10.25
Base Call Option Transaction Confirmation for the 2026 Notes, dated as of August 7, 2019, between Ironwood Pharmaceuticals, Inc. and JPMorgan Chase Bank, National Association
Current Report on Form 8-K (File No. 001-34620)
August 13, 2019
10.26
Base Call Option Transaction Confirmation, for the 2026 Notes, dated as of August 7, 2019, between Ironwood Pharmaceuticals, Inc. and Credit Suisse Capital LLC
Current Report on Form 8-K (File No. 001-34620)
August 13, 2019
10.27
Additional Call Option Transaction Confirmation for the 2026 Notes, dated as of August 12, 2019, between Ironwood Pharmaceuticals, Inc. and JPMorgan Chase Bank, National Association
Current Report on Form 8-K (File No. 001-34620)
August 13, 2019
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10.28
Additional Call Option Transaction Confirmation for the 2026 Notes, dated as of August 12, 2019, between Ironwood Pharmaceuticals, Inc. and Credit Suisse Capital LLC
Current Report on Form 8-K (File No. 001-34620)
August 13, 2019
19.1*
Insider Trading Prevention Policy
21.1*
Subsidiaries of Ironwood Pharmaceuticals, Inc.
23.1*
Consent of Independent Registered Public Accounting Firm
31.1*
Certification of Chief Executive Officer pursuant to Rules 13a-14 or 15d-14 of the Exchange Act
31.2*
Certification of Chief Financial Officer pursuant to Rules 13a-14 or 15d-14 of the Exchange Act
32.1‡
Certification of Chief Executive Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350
32.2‡
Certification of Chief Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350
97.1
Policy for Recoupment of Incentive Compensation
Annual Report on Form 10-K (File No. 001-34620)
February 16, 2024
101.INS*
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101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Database
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
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XBRL Taxonomy Extension Definition Linkbase Document
94
Table of Contents
104*
The cover page from this Annual Report on Form 10-K, formatted in Inline XBRL
*
Filed herewith.
‡
Furnished herewith.
+
Confidential treatment has been granted as to certain portions of the exhibit, which portions have been omitted and have been separately filed with the SEC pursuant to the confidential treatment request.
++
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
#
Management contract or compensatory plan, contract, or arrangement.
Item 16. Form 10-K Summary
None.
95
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on the 31 st day of March 2025.
Ironwood Pharmaceuticals, Inc.
By:
/s/ Thomas M c Court
Thomas McCourt
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/ Thomas McCourt
Chief Executive Officer and Director (Principal Executive Officer)
March 31, 2025
Thomas McCourt
/s/ Gregory Martini
Senior Vice President, Chief Financial Officer (Principal Financial Officer)
March 31, 2025
Gregory Martini
/s/ Ronald Silver
Senior Vice President, Corporate Controller (Principal Accounting Officer)
March 31, 2025
Ronald Silver
/s/ Julie H. McHugh
Chair of the Board
March 31, 2025
Julie H. McHugh
/s/ Mark Currie
Director
March 31, 2025
Mark Currie
Director
Alexander Denner
/s/ Andrew Dreyfus
Director
March 31, 2025
Andrew Dreyfus
/s/ Jon Duane
Director
March 31, 2025
Jon Duane
/s/ Marla Kessler
Director
March 31, 2025
Marla Kessler
/s/ Catherine Moukheibir
Director
March 31, 2025
Catherine Moukheibir
/s/ Jay P. Shepard
Director
March 31, 2025
Jay P. Shepard
96
Table of Contents
Index to Consolidated Financial Statements of
Ironwood Pharmaceuticals, Inc.
Page
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets as of December 31, 2024 and 2023
F-4
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2024, 2023, and 2022
F-5
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023, and 2022
F-6
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2024, 2023, and 2022
F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023, and 2022
F-8
Notes to Consolidated Financial Statements
F-9
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Ironwood Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ironwood Pharmaceuticals, Inc. (the Company) as of December 31, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 31, 2025 expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Employee Retirement Plan
Description of the Matter
The Company maintains a defined benefit plan for employees at its VectivBio entity. At December 31, 2024, the Company’s aggregate defined benefit pension obligation was $18.5 million and exceeded the fair value of pension plan assets of $15.7 million, resulting in an unfunded defined benefit pension obligation of $2.8 million. As explained in Note 15 of the consolidated financial statements, the Company updates the estimates used to measure employee benefit obligations in the fourth quarter and upon a remeasurement event to reflect the updated actuarial assumptions.
F-2
Table of Contents
Auditing the employee benefit obligation was complex due to the judgment in determining the discount rate used to measure the pension obligation. This assumption had a significant effect on the projected benefit obligation. Further, the identified material weakness relating to the financial statement close process, affected the defined benefit pension obligation and our audit procedures in this area.
How We Addressed the Matter in Our Audit
To test the discount rate used in the pension obligation, our audit procedures included, among others, evaluating the methodology used to determine the discount rate with the assistance of an actuarial specialist. We compared the discount rate used by management to historical trends, current economic factors and evaluated the change in the discount rate from prior year. In addition, we compared the discount rate with our independently calculated discount rate as well as with publicly available comparative rates. The nature and extent of our audit procedures considered the material weakness described above.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1998.
Boston, Massachusetts
March 31, 2025
F-3
Table of Contents
Ironwood Pharmaceuticals, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31,
December 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
88,559
$
92,154
Accounts receivable, net
81,886
129,122
Prepaid expenses and other current assets
11,923
12,012
Total current assets
182,368
233,288
Property and equipment, net
4,495
5,585
Operating lease right-of-use assets
11,028
12,586
Intangible assets, net
2,860
3,682
Deferred tax assets
144,234
212,324
Other assets
5,923
3,608
Total assets
$
350,908
$
471,073
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
2,127
$
7,830
Accrued research and development costs
6,681
21,331
Accrued expenses and other current liabilities
26,849
44,254
Current portion of operating lease liabilities
3,189
3,126
Current portion of convertible senior notes
—
199,560
Total current liabilities
38,846
276,101
Operating lease obligations, net of current portion
12,304
14,543
Convertible senior notes, net of current portion
198,988
198,309
Revolving credit facility
385,000
300,000
Other liabilities
17,105
28,415
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $ 0.001 par value, 75,000,000 shares authorized, no shares issued and outstanding
—
—
Class A Common Stock, $ 0.001 par value, 500,000,000 shares authorized and 160,205,899 shares issued and outstanding at December 31, 2024 and 500,000,000 shares authorized and 156,354,238 shares issued and outstanding at December 31, 2023
160
156
Additional paid-in capital
1,395,317
1,355,195
Accumulated deficit
( 1,697,735 )
( 1,698,615 )
Accumulated other comprehensive loss
923
( 3,031 )
Total stockholders’ deficit
( 301,335 )
( 346,295 )
Total liabilities and stockholders’ deficit
$
350,908
$
471,073
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
Ironwood Pharmaceuticals, Inc.
Consolidated Statements of Income (Loss)
(In thousands, except per share amounts)
Years Ended December 31,
2024
2023
2022
Revenues:
Collaborative arrangements revenue
$
351,410
$
442,735
$
410,596
Total revenues
351,410
442,735
410,596
Costs and expenses:
Research and development
111,421
116,085
44,265
Selling, general and administrative
144,272
158,314
115,994
Restructuring
2,593
18,317
—
Acquired in-process research and development
—
1,095,449
—
Total costs and expenses
258,286
1,388,165
160,259
Income (loss) from operations
93,124
( 945,430 )
250,337
Other income (expense):
Interest expense and other financing costs
( 33,034 )
( 21,629 )
( 7,598 )
Interest and investment income
4,468
18,971
9,501
Gain on derivatives
—
19
182
Other
640
—
—
Other income (expense), net
( 27,926 )
( 2,639 )
2,085
Income (loss) before income taxes
65,198
( 948,069 )
252,422
Income tax expense
( 64,318 )
( 83,490 )
( 77,357 )
Net income (loss)
880
( 1,031,559 )
175,065
Less: Net loss attributable to noncontrolling interests
—
( 29,320 )
—
Net income (loss) attributable to Ironwood Pharmaceuticals, Inc.
$
880
$
( 1,002,239 )
$
175,065
Net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. stockholders — basic
$
0.01
$
( 6.45 )
$
1.13
Net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. stockholders — diluted
0.01
( 6.45 )
0.96
Weighted average shares used in computing net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. stockholders — basic:
159,083
155,435
154,366
Weighted average shares used in computing net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. stockholders — diluted:
160,084
155,435
186,312
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
Ironwood Pharmaceuticals, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share amounts)
Years Ended December 31,
2024
2023
2022
Net income (loss) attributable to Ironwood Pharmaceuticals, Inc.
$
880
$
( 1,002,239 )
$
175,065
Other comprehensive income (loss), net of tax:
Currency translation adjustment
2,901
( 2,093 )
—
Defined benefit pension plan
1,053
( 938 )
—
Total other comprehensive income (loss), net of tax
3,954
( 3,031 )
—
Less: Other comprehensive loss attributable to noncontrolling interest
—
( 63 )
—
Comprehensive income (loss) attributable to Ironwood Pharmaceuticals, Inc.
$
4,834
$
( 1,005,207 )
$
175,065
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
Ironwood Pharmaceuticals, Inc.
Consolidated Statements of Stockholders’ Equit y (Deficit)
(In thousands, except share amounts)
Accumulated
Ironwood
Class A
Additional
other
Pharmaceuticals, Inc.
Total
Common Stock
paid-in
Accumulated
comprehensive
stockholders’
Noncontrolling
stockholders’
Shares
Amount
capital
deficit
loss
equity (deficit)
interests
equity (deficit)
Balance at December 31, 2021
162,036,461
$
162
$
1,543,357
$
( 937,608 )
$
—
$
605,911
$
—
$
605,911
Cumulative effect adjustment upon adoption of ASU 2020-06, net of tax
—
—
( 110,217 )
66,167
—
( 44,050 )
—
( 44,050 )
Issuance of common stock related to share-based awards and employee stock purchase plan
2,756,841
3
11,787
—
—
11,790
—
11,790
Share-based compensation expense related to share-based awards and employee stock purchase plan
—
—
27,048
—
—
27,048
—
27,048
Repurchases of common stock
( 10,766,353 )
( 11 )
( 123,375 )
—
—
( 123,386 )
—
( 123,386 )
Net income
—
—
—
175,065
—
175,065
—
175,065
Balance at December 31, 2022
154,026,949
$
154
$
1,348,600
$
( 696,376 )
$
—
$
652,378
$
—
$
652,378
Issuance of common stock related to share-based awards and employee stock purchase plan
2,327,289
2
4,003
—
—
4,005
—
4,005
Share-based compensation expense related to share-based awards and employee stock purchase plan
—
—
32,005
—
—
32,005
—
32,005
Noncontrolling interests on acquisition of VectivBio Holding AG
—
—
—
—
—
—
26,218
26,218
Purchase of subsidiary shares from noncontrolling interests
—
—
( 29,413 )
—
( 63 )
( 29,476 )
3,165
( 26,311 )
Net loss
—
—
—
( 1,002,239 )
—
( 1,002,239 )
( 29,320 )
( 1,031,559 )
Other comprehensive loss, net of tax
—
—
—
—
( 2,968 )
( 2,968 )
( 63 )
( 3,031 )
Balance at December 31, 2023
156,354,238
$
156
$
1,355,195
$
( 1,698,615 )
$
( 3,031 )
$
( 346,295 )
$
—
$
( 346,295 )
Issuance of common stock related to share-based awards and employee stock purchase plan
3,851,661
4
11,009
—
—
11,013
—
11,013
Share-based compensation expense related to share-based awards and employee stock purchase plan
—
—
29,850
—
—
29,850
—
29,850
Taxes paid related to net share settlement of share-based awards
—
—
( 737 )
—
—
( 737 )
—
( 737 )
Net income
—
—
—
880
—
880
—
880
Other comprehensive income, net of tax
—
—
—
—
3,954
3,954
—
3,954
Balance at December 31, 2024
160,205,899
$
160
$
1,395,317
$
( 1,697,735 )
$
923
$
( 301,335 )
$
—
$
( 301,335 )
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
Ironwood Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net income (loss)
$
880
$
( 1,031,559 )
$
175,065
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
2,011
1,575
1,418
Loss on disposal of property and equipment
75
—
2
Share-based compensation expense
29,850
32,005
27,048
Change in fair value of note hedge warrants
—
( 19 )
( 182 )
Non-cash interest expense
1,904
2,060
1,853
Acquired in-process research and development
—
1,095,449
—
Deferred income taxes
68,090
72,637
65,739
Changes in assets and liabilities:
Accounts receivable, net
47,236
924
7,993
Prepaid expenses and other current assets
89
4,220
3,224
Operating lease right-of-use assets
1,558
1,437
1,327
Other assets
( 854 )
( 319 )
153
Accounts payable and accrued expenses
( 20,208 )
12,380
( 8,116 )
Accrued research and development costs
( 14,650 )
( 5,875 )
( 10,638 )
Operating lease liabilities
( 2,176 )
( 1,995 )
( 1,947 )
Other liabilities
( 10,256 )
507
10,824
Net cash provided by operating activities
103,549
183,427
273,763
Cash flows from investing activities:
Purchases of property and equipment
( 142 )
( 273 )
( 136 )
Acquisition of VectivBio Holding AG, net of cash acquired
—
( 1,026,045 )
—
Net cash used in investing activities
( 142 )
( 1,026,318 )
( 136 )
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan
11,013
6,357
9,540
Taxes paid related to net share settlement of share-based awards
( 737 )
—
—
Purchase of subsidiary shares from noncontrolling interests
—
( 26,311 )
—
Repayment of 2024 Convertible Notes
( 200,000 )
—
—
Repayment of 2022 Convertible Notes
—
—
( 120,699 )
Proceeds from revolving credit facility
150,000
400,000
—
Costs associated with revolving credit facility
( 2,246 )
( 2,886 )
—
Repayments of revolving credit facility
( 65,000 )
( 100,000 )
—
Repurchases of common stock
—
—
( 126,394 )
Net cash provided by (used in) financing activities
( 106,970 )
277,160
( 237,553 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash
( 32 )
( 53 )
—
Net increase (decrease) in cash, cash equivalents and restricted cash
( 3,595 )
( 565,784 )
36,074
Cash, cash equivalents and restricted cash, beginning of period
92,154
657,938
621,864
Cash, cash equivalents and restricted cash, end of period
$
88,559
$
92,154
$
657,938
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents
$
88,559
$
92,154
$
656,203
Restricted cash
—
—
1,735
Total cash, cash equivalents, and restricted cash
$
88,559
$
92,154
$
657,938
Supplemental cash flow disclosure:
Cash paid for interest
$
32,563
$
13,552
$
5,745
Cash paid for income taxes
$
8,408
$
9,945
$
4,615
Non-cash investing and financing activities
Stock option exercise proceeds receivable in other current assets
$
—
$
—
$
2,351
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
Ironwood Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
1. Nature of Business
Ironwood Pharmaceuticals, Inc. (“Ironwood” or the “Company”) is a biotechnology company developing and commercializing life-changing therapies for people living with gastrointestinal (“GI”) and rare diseases. 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”) and for pediatric patients ages 6-17 years-old suffering from functional constipation (“FC”). LINZESS is available to adult men and women suffering from IBS-C or CIC in the United States (the “U.S.”) and Mexico, adult men and women suffering from IBS-C or chronic constipation in Japan, and 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 and pediatric patients ages 6-17 years old with FC in Canada, and to adult men and women suffering from IBS-C in certain European countries.
The Company has strategic partnerships with leading pharmaceutical companies to support the development and commercialization of linaclotide throughout the world. The Company and its partner, AbbVie Inc. (together with its affiliates, “AbbVie”), began commercializing LINZESS in the U.S. in December 2012. Under the Company’s collaboration for North America with AbbVie, total net sales of LINZESS in the U.S., as recorded by AbbVie, are reduced by commercial costs incurred by each party, and the resulting amount is shared equally between the Company and AbbVie. Additionally, development costs are shared equally between the Company and AbbVie.
Outside of the U.S., the Company earns royalties as a percentage of net sales of products containing linaclotide as an active ingredient by the Company’s collaboration partners. AbbVie has an exclusive license from the Company to develop and commercialize linaclotide in all countries other than China (including Hong Kong and Macau), Japan and the countries and territories of North America (the “AbbVie License Territory”). In addition, AbbVie has exclusive rights to commercialize linaclotide in Canada as CONSTELLA and in Mexico as LINZESS. Astellas Pharma Inc. (“Astellas”), the Company’s partner in Japan, has an exclusive license to develop, manufacture, and commercialize linaclotide in Japan. AstraZeneca AB (together with its affiliates) (“AstraZeneca”), the Company’s partner in China, has the exclusive right to develop, manufacture, and commercialize products containing linaclotide in China (including Hong Kong and Macau) (the “AstraZeneca License Territory”).
Through the acquisition of VectivBio Holding AG (“VectivBio”), the Company is advancing apraglutide, a next-generation, synthetic peptide long-acting analog of glucagon-like peptide-2, developed for short bowel syndrome (“SBS”) patients who are dependent on parenteral support (“PS”). The acquisition of VectivBio is more fully described in Note 3, Acquisitions, to these consolidated financial statements.
The Company also has IW-3300, a GC-C agonist, for the potential treatment of visceral pain conditions, such as interstitial cystitis / bladder pain syndrome (“IC/BPS”) and endometriosis. In the fourth quarter of 2024, the Company decided to end further recruitment for the Phase II proof of concept study in IC/BPS and analyze the data once all currently enrolled patients complete the full 12-week study assessment, which will inform the next steps in the program.
The Company was incorporated in Delaware on January 5, 1998 as Microbia, Inc. On April 7, 2008, the Company changed its name to Ironwood Pharmaceuticals, Inc. To date, the Company has dedicated a majority of its activities to the research, development and commercialization of linaclotide, as well as to the research and development of its other product candidates.
F-9
Table of Contents
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements as of December 31, 2024 include the accounts of Ironwood, its wholly-owned subsidiaries, Ironwood Pharmaceuticals Securities Corporation, Ironwood Pharmaceuticals GmbH, VectivBio AG, and GlyPharma Therapeutic Inc. (“GlyPharma”). 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.
Segment Information
Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company currently operates in one reportable business segment – human therapeutics. The Company’s reportable business segment is more fully described in Note 17, Segment Reporting , to these consolidated financial statements.
Reclassifications
Certain prior period financial statement items have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the amounts of revenues and expenses during the reported periods. On an ongoing basis, the Company’s management evaluates its estimates, judgments and methodologies. 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; useful lives of long-lived assets; impairment of long-lived assets, including goodwill; valuation procedures for right-of-use assets and operating lease liabilities; income taxes, including uncertain tax positions and the valuation allowance for deferred tax assets; research and development expenses; contingencies; defined benefit pension liabilities and certain investment fund assets; and share-based compensation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments with a remaining maturity when purchased of three months or less to be cash equivalents. Investments qualifying as cash equivalents primarily consist of money market funds, U.S. Treasury securities, and commercial paper. The carrying amount of cash equivalents approximates fair value. The amount of cash equivalents included in cash and cash equivalents was $ 55.0 million and $ 58.7 million at December 31, 2024 and 2023, respectively.
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. Collateral used to secure letters of credit is classified as restricted cash. There was no restricted cash as of December 31, 2024 or 2023.
F-10
Table of Contents
Concentrations of Suppliers
The Company relies on its collaboration partners and their suppliers to manufacture linaclotide API, linaclotide finished drug product, and finished goods.
If any of the Company’s collaboration partners and their suppliers were to limit or terminate production or otherwise fail to meet the quality or delivery requirements needed to satisfy the supply commitments, the process of locating and qualifying alternate sources could require up to several months, during which time production could be delayed. Such delays could have a material adverse effect on the Company’s business, financial position and results of operations.
Accounts Receivable
The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for credit losses when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices and the overall quality and age of those invoices not specifically reviewed. The Company’s receivables relate primarily to amounts reimbursed under its collaboration, license, and other agreements. The Company believes that credit risks associated with these partners are not significant. The Company reviews the need for an allowance for credit losses for its receivables based on various factors including payment history and historical bad debt experience. The Company had no allowance for credit losses as of December 31, 2024 or 2023.
Concentrations of Credit Risk
Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, restricted cash, and accounts receivable. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and the Company believes that such funds are subject to minimal credit risk. The Company has adopted an investment policy which limits the amounts the Company may invest in certain types of investments, and requires all investments held by the Company to be at least A- rated, thereby reducing credit risk exposure.
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 percentages of revenue recognized from significant collaborative partners of the Company in the years ended December 31, 2024, 2023, and 2022 and the account receivable balances, net of any payables due, at December 31, 2024 and 2023 are included in the following table:
Accounts
Receivable
Revenue
December 31,
Year Ended December 31,
2024
2023
2024
2023
2022
Collaborative Partner:
AbbVie (North America and Europe)
99
%
87
%
99
%
98
%
98
%
Property and Equipment
Property and equipment, including leasehold improvements, are recorded at cost, and are depreciated when placed into service using the straight-line method based on their estimated useful lives as follows:
Estimated Useful Life
Asset Description
(In Years)
Laboratory equipment
5
Computer and office equipment
3
Furniture and fixtures
7
Software
3
Included in property and equipment are certain costs of software obtained for internal use. Costs incurred during the preliminary project stage are expensed as incurred, while costs incurred during the application development
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stage are capitalized and amortized over the estimated useful life of the software. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Maintenance and training costs related to software obtained for internal use are expensed as incurred.
Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the lease term.
Costs for capital assets not yet placed into service have been capitalized as construction in process, and will be depreciated in accordance with the above guidelines once placed into service. 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
The Company regularly reviews the carrying amount of its long-lived assets to determine whether indicators of impairment may exist, which warrant adjustments to carrying values or estimated useful lives. If indications of impairment exist, projected future undiscounted cash flows associated with the asset are compared to the carrying amount to determine whether the asset’s value is recoverable. If the carrying value of the asset exceeds such projected undiscounted cash flows, the asset will be written down to its estimated fair value.
Income Taxes
The Company provides for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization.
The Company accounts for uncertain tax positions recognized in the consolidated financial statements in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 740, Income Taxes , by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company evaluates uncertain tax positions on a quarterly basis and adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. 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 (loss).
Financing Costs
Financing costs include costs directly attributable to the Company’s offerings of its equity securities and its debt financings. Costs attributable to equity offerings are charged as a reduction to stockholders’ equity against the proceeds of the offering once the offering is completed. 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 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.
Leases
The Company’s lease portfolio for the year ended December 31, 2024 included: an office lease for its headquarters location and other locations, vehicle leases for its salesforce representatives, and leases for computer and
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office equipment. The Company determines if an arrangement is a lease at the inception of the contract and determines the classification of its leases at lease commencement. The asset component of the Company’s operating leases is recorded as operating lease right-of-use assets, and the liability component is recorded as current portion of operating lease liabilities and operating lease liabilities, net of current portion in the Company’s consolidated balance sheets. As of December 31, 2024, the Company did not record any finance leases.
Right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date. The lease term used to measure the right-of-use asset and operating lease liability may include options to extend the lease when it is reasonably certain that the Company will exercise the option. The Company accounts for lease components and non-lease components together as a single lease component for the asset class of right-of-use real estate assets. The Company uses an incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments, if an implicit rate of return is not readily determinable. Operating lease right-of-use assets are adjusted for prepaid rent, initial direct costs, and lease incentives.
Right-of-use assets and operating lease liabilities are remeasured upon reassessment events and modifications to leases using the present value of remaining lease payments and estimated incremental borrowing rate at the time of remeasurement, as applicable.
Operating lease cost is recognized on a straight-line basis over the lease term, and includes amounts related to short-term leases. The Company has elected to not recognize lease terms with a term of twelve months or less on its balance sheet for all classes of underlying asset types. The Company recognizes variable lease payments as operating expenses in the period in which the obligation for those payments is incurred. Variable lease payments primarily include common area maintenance, utilities, real estate taxes, insurance, and other operating costs that are passed on from the lessor in proportion to the space leased by the Company.
Derivative Assets and Liabilities
In June 2015, the Company issued 2.25 % Convertible Senior Notes due June 15, 2022 (the “2022 Convertible Notes”), and in August 2019, the Company issued 0.75 % Convertible Senior Notes due 2024 (the “2024 Convertible Notes”) and 1.50 % Convertible Senior Notes due 2026 (the “2026 Convertible Notes”, and together with the 2022 Convertible Notes and the 2024 Convertible Notes, the “Convertible Senior Notes”). In connection with the issuance of the 2022 Convertible Notes, the Company entered into convertible note hedge transactions (the “Convertible Note Hedges”) and separate note hedge warrant transactions (the “Note Hedge Warrants”), with certain financial institutions (Note 10). 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 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. Significant inputs used to determine the fair value include the price per share of the Company’s Class A Common Stock, expected terms of the derivative instruments, strike prices of the derivative instruments, risk-free interest rates, and expected volatility of the Company’s Class A Common Stock. Changes to these inputs could materially affect the valuation of the derivative instruments. Cash flows related to the purchase and settlement of derivatives are classified as financing activities and gains and losses upon revaluation and settlement are classified as operating activities on the consolidated statement of cash flows.
In August 2019, in connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company entered into the Capped Calls. The Capped Calls cover the same number of shares of Class A Common Stock that initially underlie the 2024 Convertible Notes and the 2026 Convertible Notes (subject to anti-dilution and certain other adjustments). 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. The Capped Calls related to the 2024 Convertible Notes expired unexercised upon maturity of the 2024 Convertible Notes in June 2024.
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Share Repurchases
The Company accounts for repurchases of its Class A Common Stock on the trade date by recording the excess of the repurchase price over the par value entirely to additional paid-in capital. All repurchased shares are retired or constructively retired. Issued and outstanding shares are reduced by shares repurchased.
Revenue Recognition
The Company’s revenues are generated primarily through collaborative arrangements and license agreements related to the research and development and commercialization of linaclotide. The terms of the collaborative research and development, license, co-promotion and other agreements contain multiple performance obligations which may include (i) licenses, (ii) research and development activities, including participation on joint steering committees, (iii) the manufacture of finished drug product, API, or development materials for a partner, which are reimbursed at a contractually determined rate, and (iv) education or co-promotion activities by the Company’s clinical sales specialists. Non-refundable payments to the Company under these agreements may include (i) up-front license fees, (ii) payments for research and development activities, (iii) payments for the manufacture of finished drug product, API, or development materials, (iv) payments based upon the achievement of certain milestones, (v) payments for sales detailing, promotional support services and medical education initiatives, and (vi) royalties on product sales. The Company receives its share of the net profits or bears its share of the net losses from the sale of linaclotide in the U.S. through its collaboration agreement with AbbVie for North America. The Company has adopted a policy to recognize revenue net of tax withholdings, as applicable.
Collaboration, License, and Other Commercial Agreements
Upon licensing intellectual property to a customer, the Company determines if the license is distinct from the other performance obligations identified in the arrangement. The Company recognizes revenues from the transaction price, including non-refundable, up-front fees allocated to the license when the license is transferred to the customer if the license has distinct benefit to the customer. For licenses that are combined with other promises, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. For performance obligations that are satisfied over time, the Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
The Company’s license and collaboration agreements include milestone payments, such as development and other milestones. The Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method at the inception of the agreement. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. The Company re-evaluates the probability of achievement of such milestones and any related constraint at each reporting period, and any adjustments are recorded on a cumulative catch-up basis.
Agreements that include the supply of API or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered as options. The Company assesses if these options provide a material right to its partner, and if so, they are accounted for as separate performance obligations. 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 in accordance with the sales-based royalty exception.
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Net Profit or Net Loss Sharing
In accordance with ASC Topic 808, Collaborative Arrangements (“ASC 808”), the Company considers the nature and contractual terms of the arrangement and the nature of the Company’s business operations to determine the classification of payments under the Company’s collaboration agreements. While ASC 808 provides guidance on classification, the standard is silent on matters of separation, initial measurement, and recognition. Therefore, the Company applies the separation, initial measurement, and recognition principles of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), as applicable.
The Company’s collaborative arrangements revenues generated from sales of LINZESS in the U.S. are considered akin to sales-based royalties. In accordance with the sales-based royalty exception, the Company recognizes its share of the pre-tax commercial net profit or net loss generated from the sales of LINZESS in the U.S. 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. in accordance with both ASC 808 and ASC 606, and the related costs, in order to accurately report its results of operations. If the Company does not receive timely and accurate information or incorrectly estimates activity levels associated with the collaboration at a given point in time, the Company could be required to record adjustments in future periods.
In accordance with ASC 606-10-55, Principal Agent Considerations , the Company records revenue transactions as net product revenue in its consolidated statements of income if it is deemed the principal in the transaction, which includes being the primary obligor, retaining inventory risk, and control over pricing. Given that the Company is not the primary obligor and does not have the inventory risks in the collaboration agreement with AbbVie for North America, it records its share of the net profits or net losses from the sales of LINZESS in the U.S. on a net basis and presents the settlement payments to and from AbbVie as collaboration expense or collaborative arrangements revenue, as applicable. The Company and AbbVie settle the cost sharing quarterly such that the Company’s statements of income reflect 50 % of the pre-tax net profit or loss generated from sales of LINZESS in the U.S.
Other
The Company’s deferred revenue balance consists of advance billings and payments received from collaboration partners in excess of revenue recognized.
Research and Development Costs
The Company generally expenses research and development costs to operations as incurred. The Company capitalizes nonrefundable advance payments made by the Company for research and development activities and defers expense recognition until the related goods are received or the related services are performed.
Research and development expenses are comprised of costs incurred in performing research and development activities, including salary, benefits, share-based compensation, and other employee-related expenses; laboratory supplies and other direct expenses; facilities expenses; overhead expenses; third-party contractual costs relating to nonclinical studies and clinical trial activities and related contract manufacturing expenses, development of manufacturing processes and regulatory registration of third-party manufacturing facilities; licensing fees for the Company’s product candidates; and other outside expenses.
The Company has certain collaboration agreements pursuant to which it shares or has shared research and development expenses related to linaclotide. 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.
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Research and development expense includes up-front payment, non-contingent payment, and milestone payment obligations under certain collaboration arrangements. Expense is recognized when the obligation is determined to be probable.
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 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. The Company evaluates and adjusts these costs for changes in circumstances as additional information becomes available.
Selling, General and Administrative Expenses
The Company expenses selling, general and administrative costs to operations as incurred. Selling, general and administrative expenses consist primarily of compensation, benefits and other employee-related expenses for personnel in the Company’s administrative, finance, legal, information technology, business development, commercial, sales, marketing, communications and human resource functions. Other costs include legal costs of pursuing patent protection of the Company’s intellectual property, general and administrative related facility costs, insurance costs and professional fees for accounting, tax, consulting, legal and other services.
The Company includes AbbVie’s selling, general and administrative cost-sharing payments in the calculation of the net profits and net losses from the sale of LINZESS in the U.S. and presents the net payment to or from AbbVie as collaboration expense or collaborative arrangements revenue, respectively.
Defined Benefit Pension Obligations
Pension benefits earned during the year, as well as interest on projected benefit obligations, are accrued. Service costs are recognized within research and development expenses or selling, general and administrative expenses, depending on the function of the plan participant. Prior service costs and credits resulting from changes in plan benefits are generally amortized over the average remaining service period of the employees expected to receive benefits. Actuarial gains and losses are recognized in other income (expense), net, in the year in which they occur. The Company recognizes a pension plan’s funded status as either an asset or liability in its consolidated balance sheets.
Share-Based Compensation Expense
The Company grants awards under its share-based compensation programs, including stock awards, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) (including both time-based and performance-based RSUs), stock options, and shares issued under the Company’s employee stock purchase plan (“ESPP”). Share-based compensation is recognized as expense in the consolidated statements of income based on the grant date fair value over the requisite service period, net of estimated forfeitures. The Company estimates forfeitures over the requisite service period using historical forfeiture activity and records share-based compensation expense only for those awards that are expected to vest.
The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, which requires the use of subjective assumptions including volatility and expected term, among others. The fair value of stock awards, RSAs, and RSUs is based on the market value of the Company’s Class A Common Stock on the date of grant, with the exception of performance-based RSUs with market conditions, which are measured using the Monte Carlo simulation method on the date of grant (Note 13). Discounted stock purchases under the Company’s ESPP are valued on the first date of the offering period using the Black-Scholes option-pricing model to compute the fair value of the lookback provision plus the purchase discount.
For awards that vest based on service conditions and market conditions, the Company uses a straight-line method to recognize compensation expense over the respective service period. For awards that contain performance conditions, the Company determines the appropriate amount to expense at each reporting date based on the anticipated achievement of performance targets, which requires judgement, including forecasting the achievement of future specified targets. At the date performance conditions are determined to be probable of achievement, the Company
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records a cumulative expense catch-up, with remaining expense amortized over the remaining service period. Throughout the performance period, the Company re-assesses the estimated performance and updates the number of performance-based awards that it believes will ultimately vest. Discounted stock purchases under the Company’s ESPP are recognized over the offering period.
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.
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. As a result, if revisions are made to the Company’s underlying assumptions and estimates, the Company’s share-based compensation expense could vary significantly from period to period.
Patent Costs
The Company incurred and recorded as operating expense legal and other fees related to patents of $ 2.2 million, $ 1.8 million, and $ 1.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. These costs were charged to selling, general and administrative expenses as incurred.
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.
Acquisitions
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.
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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
The Company considers events or transactions that have occurred after the balance sheet date of December 31, 2024, but prior to the filing of the financial statements with the Securities and Exchange Commission (“SEC”) to provide additional evidence relative to certain estimates or to identify matters that require additional recognition or disclosure. Subsequent events have been evaluated through the filing of the financial statements accompanying this Annual Report on Form 10-K. Refer to Note 16 for subsequent events relating to workforce reductions and restructuring.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. The Company did not adopt any new accounting pronouncements during the year ended December 31, 2024 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 standard is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The ASU is required to be applied retrospectively upon adoption . The expanded disclosure requirements are included in the consolidated financial statements (Note 17).
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 annual income tax disclosures by requiring greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. Upon adoption, ASU 2023-09 may be applied prospectively or retrospectively. The Company is currently evaluating the impact that the adoption of ASU 2023-09 may have on its disclosures in its annual consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024-03”). The guidance in ASU 2024-03 requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense captions. The standard is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. Upon adoption, ASU 2024-03 may be applied prospectively or retrospectively. The Company is currently evaluating the impact that the adoption of ASU 2024-03 may have on its disclosures in its consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20) (“ASU 2024-04”). The guidance in ASU 2024-04 clarifies the requirements related to accounting for the settlement of a debt instrument as an induced conversion. The standard is effective for fiscal years beginning after December 15, 2025, and interim periods within fiscal years beginning after December 15, 2025, with early adoption permitted as of the beginning of a reporting period if the entity has also adopted ASU 2020-06 for that period. The Company is currently evaluating the impact that the adoption of ASU 2024-04 may have on its disclosures in 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.
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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. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The amendments in ASU 2020-06 simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Under ASU 2020-06, 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 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 are no longer reported. The new guidance also requires the if-converted method to be used in diluted earnings per share computations for all convertible instruments and revised the if-converted method to preclude the addback of interest expense to the numerator if the principal portions of the convertible instruments are required to be settled in cash. The standard 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):
December 31, 2021
Effect of the Adoption
January 1, 2022
Consolidated Balance Sheet
As Reported
of ASU 2020-06
As Adjusted
Deferred tax assets
$
333,294
$
16,855
$
350,149
Current portion of convertible senior notes
116,858
3,581
120,439
Long-term portion of convertible senior notes
337,333
57,324
394,657
Additional paid-in-capital
1,543,357
( 110,217 )
1,433,140
Retained earnings
( 937,608 )
66,167
( 871,441 )
Interest expense recognized in subsequent periods is reduced as a result of accounting for convertible debt instruments as a single liability measured at amortized cost, with a decrease of $ 22.1 million of non-cash interest expense during the year ended December 31, 2022 compared to the year ended December 31, 2021 related to convertible debt instruments outstanding on the adoption date.
The adoption of ASU 2020-06 did not impact the Company’s liquidity or cash flows.
3. Acquisitions
In June 2023, the Company completed a tender offer to purchase 98 % of the outstanding ordinary shares of 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, 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”). In December 2023, the Company completed a squeeze-out merger under Swiss law to acquire all remaining outstanding ordinary shares in cash at a price per share of $ 17.00 , totaling $ 26.3 million, and VectivBio Holding AG was merged with and into Ironwood Pharmaceuticals GmbH, a wholly-owned subsidiary of Ironwood organized under the laws of Switzerland (the “Squeeze-out Merger”). 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) and cash on hand. As of December 31, 2023, there was no remaining noncontrolling interest in VectivBio.
The total purchase consideration for VectivBio is as follows (in thousands):
Cash consideration paid to selling shareholders (1)
$
1,041,391
Cash consideration paid to settle VectivBio restricted stock units (“RSUs”) and stock options (2)
78,003
Cash consideration paid to settle VectivBio warrants (3)
3,720
Transaction costs
26,270
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Fair value of noncontrolling interest (4)
26,218
Total purchase consideration
$
1,175,602
(1) The cash consideration paid to selling shareholders was determined based on the total number of the outstanding ordinary shares of VectivBio (the “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 .
The VectivBio Acquisition was accounted for as an asset acquisition under Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable in-process research and development (“IPR&D”) asset, apraglutide, VectivBio’s lead investigational asset. Apraglutide is a next generation, long-acting synthetic GLP-2 analog being developed for SBS patients who are dependent on PS. 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 IPR&D 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
$
123,340
Prepaid expenses and other current assets
10,867
Property and equipment
126
Intangible assets
4,100
Acquired in-process research and development
1,095,449
Total assets acquired
$
1,233,882
Liabilities assumed
Current liabilities
42,377
Other liabilities
15,903
Total liabilities assumed
$
58,280
Net assets acquired
$
1,175,602
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. The Company tracked and disclosed acquisition-related expenses incurred through the end of the second quarter of 2024. For the six months ended June 30, 2024, the Company incurred acquisition related expenses of $ 3.6 million , of which $ 1.1 million was included in selling, general, and administrative expenses and $ 2.5 million was included in restructuring expenses within the Company’s consolidated statement of income (loss). 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.
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Intangible assets are comprised of the assembled workforce and are amortized on a straight-line basis over an estimated useful life of five years . The Company recognized $ 0.8 million of amortization expense during the year ended December 31, 2024. The Company recognized $ 0.4 million of amortization expense during the period between acquisition date on June 29, 2023 through December 31, 2023. The net carrying value of the assembled workforce at December 31, 2024 is $ 2.9 million. Future annual amortization expense will be $ 0.8 million for each of the years ended December 31, 2025 through December 31, 2027 and $ 0.4 million for the year ending December 31, 2028.
4. Net Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):
Year Ended December 31,
2024
2023 (1)
2022
Numerator:
Net income (loss)
$
880
$
( 1,031,559 )
$
175,065
Less: Net loss attributable to noncontrolling interests
—
( 29,320 )
—
Net income (loss) attributable to Ironwood Pharmaceuticals, Inc.
880
( 1,002,239 )
175,065
Add back interest expense, net of tax benefit, on assumed conversion of 2024 Convertible Notes
—
—
1,781
Add back interest expense, net of tax benefit, on assumed conversion of 2026 Convertible Notes
—
—
2,668
Numerator used in computing net income (loss) per share — diluted
$
880
$
( 1,002,239 )
$
179,514
Denominator:
Weighted average number of common shares outstanding used in computing net income (loss) per share — basic
159,083
155,435
154,366
Effect of dilutive securities:
Stock options
—
—
306
Time-based restricted stock units
425
—
1,375
Performance-based restricted stock units
480
—
282
Restricted stock
96
—
115
2024 Convertible Notes assumed conversion
—
—
14,934
2026 Convertible Notes assumed conversion
—
—
14,934
Dilutive potential common shares
Weighted average number of common shares outstanding used in computing net income (loss) per share — diluted
160,084
155,435
186,312
Net income (loss) per share — basic
$
0.01
$
( 6.45 )
$
1.13
Net income (loss) per share — diluted
$
0.01
$
( 6.45 )
$
0.96
(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 dilutive impact of the Convertible Senior Notes is determined using the if-converted method. Under the if-converted method, the Convertible Senior Notes are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later). Interest charges are deducted from the numerator, unless the principal amount of the convertible instruments is required to be paid in cash. The dilutive impact of all other types of dilutive securities is determined using the treasury stock method.
The outstanding securities set forth in the following table 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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Year Ended December 31,
2024
2023
2022
Stock options
4,821
4,829
6,152
Time-based restricted stock units
3,596
28
10
Performance-based restricted stock units
34
216
1,182
Note Hedge Warrants
—
2,514
8,318
2026 Convertible Notes
14,934
—
—
Total
23,385
7,587
15,662
There was no dilutive impact of the 2024 Convertible Notes (as defined below) and the 2022 Convertible Notes for the year ended December 31, 2024 and December 31, 2022, respectively, because the Company had elected prior to the beginning of the period to settle the conversion of 2024 Convertible Notes and 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 (Note 10) . Accordingly, interest expense was not removed from the numerator and there was no calculated spread added to the denominator because the average market price of the Company’s Class A common stock during the portion of each period in which the 2024 Convertible Notes and the 2022 Convertible Notes were outstanding was not in excess of the conversion price.
5. Collaboration, License, and Other Agreements
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 attributable to transactions from these and other agreements (in thousands):
Year Ended December 31,
Collaborative Arrangements Revenue
2024
2023
2022
Linaclotide Collaboration and License Agreements:
AbbVie (North America)
$
343,154
$
433,242
$
401,498
AbbVie (Europe and other)
3,236
2,779
2,444
AstraZeneca (China, including Hong Kong and Macau)
364
430
635
Astellas (Japan)
1,673
1,799
2,001
Other Agreements:
Alnylam (GIVLAARI)
—
—
2,194
Asahi Kasei Pharma Corporation (apraglutide)
2,249
2,009
—
Other
734
2,476
1,824
Total collaborative arrangements revenue
$
351,410
$
442,735
$
410,596
Accounts receivable, net, included $ 81.9 million and $ 129.1 million primarily related to collaborative arrangements revenue, collectively, as of December 31, 2024 and 2023, respectively. Accounts receivable, net, included $ 81.3 million and $ 112.6 million due from the Company’s partner, AbbVie, net of $ 3.1 million and $ 4.3 million of accounts payable, as of December 31, 2024 and 2023, respectively.
The Company routinely assesses the creditworthiness of its license and collaboration partners. The Company did not experience any material losses related to receivables from its license or collaboration partners during the years ended December 31, 2024, 2023, or 2022.
Linaclotide Agreements
Collaboration Agreement for North America with AbbVie
In September 2007, the Company entered into a collaboration agreement with AbbVie to develop and commercialize linaclotide for the treatment of IBS-C, CIC, and other GI conditions in North America. Under the terms of this collaboration agreement, the Company received an upfront licensing fee, equity investment, and development and
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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, 2024, 2023, and 2022, the Company incurred $ 7.4 million, $ 7.0 million, and $ 8.0 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 $ 8.6 million, $ 11.6 million, and $ 8.9 million in incremental research and development costs during the years ended December 31, 2024, 2023, and 2022, respectively, to reflect the obligations of each party under the collaboration to bear 50 % of the development costs incurred.
The Company and AbbVie began commercializing LINZESS in the U.S. in December 2012. The Company receives 50 % of the net profits and bears 50 % of the net losses from the commercial sale of LINZESS in the U.S. Net profits or net losses consist of net sales of LINZESS to third-party customers and sublicense income in the U.S. less the cost of goods sold as well as selling, general and administrative expenses. LINZESS net sales are calculated and recorded by AbbVie and may include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions.
The Company evaluated its 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. The consideration remaining includes cost reimbursements in the U.S. and net profit and loss sharing payments based on net sales in the U.S. Additionally, the Company receives royalties in the mid-teens percent based on net sales in Canada and Mexico. Royalties and net profit and loss sharing payments will be recorded as collaborative arrangements revenue or expense in the period earned, as these payments relate predominately to the license granted to AbbVie. The Company records royalty revenue in the period earned based on royalty reports from its partner, if available, or based on the projected sales and historical trends. 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 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. The Company records its share of the net profits or net losses from the sales of LINZESS in the U.S. less commercial expenses on a net basis, and presents the settlement payments to and from AbbVie as collaboration expense or collaborative arrangements revenue, as applicable. This treatment is in accordance with the Company’s revenue recognition policy, given that the Company is not the primary obligor and does not have the inventory risks in the collaboration agreement with AbbVie for North America. The Company relies on AbbVie to provide accurate and complete information related to net sales of LINZESS in accordance with U.S. generally accepted accounting principles in order to calculate its settlement payments to and from AbbVie and record collaboration expense or collaborative arrangements revenue, as applicable.
During the year ended December 31, 2024, the Company recognized a $ 43.0 million reduction to collaboration revenue, as a result of changes in estimates of sales reserves and allowances associated with governmental and contractual rebates. Excluding the changes in estimates, net income per share – basic and net income per share – diluted would have been $ 0.21 and $ 0.19 , respectively, for the year ended December 31, 2024.
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The following table summarizes collaborative arrangements revenue from the linaclotide collaboration agreement for North America during the years ended December 31, 2024, 2023, and 2022 as follows (in thousands):
Year Ended December 31,
2024
2023
2022
Collaborative arrangements revenue related to sales of LINZESS in the U.S.
$
340,394
$
430,463
$
398,767
Royalty revenue
2,760
2,779
2,731
Total collaborative arrangements revenue
$
343,154
$
433,242
$
401,498
The Company incurred $ 39.3 million, $ 37.1 million, and $ 34.3 million in total selling, general and administrative costs related to the sale of LINZESS in the U.S. in accordance with the cost-sharing arrangement with AbbVie for the years ended December 31, 2024, 2023, and 2022, respectively.
In May 2014, CONSTELLA ® became commercially available in Canada and, in June 2014, LINZESS became commercially available in Mexico. The Company records royalties on sales of CONSTELLA in Canada and LINZESS in Mexico in the period earned. The Company recognized $ 2.8 million, $ 2.8 million, and $ 2.7 million of combined royalty revenues from Canada and Mexico during the years ended December 31, 2024, 2023, and 2022, respectively.
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 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. The royalty rate for products in Europe and the Expanded Territory will decrease, on a country-by-country basis, to the lower-single digits, or cease entirely, following the occurrence of certain events. The license agreement also contains certain sales-based milestones and commercial launch milestones, which could total up to $ 42.5 million.
The Company recognized $ 3.2 million, $ 2.8 million and $ 2.4 million of royalty revenue during the years ended December 31, 2024, 2023, and 2022, respectively.
License Agreement for Japan with Astellas
The Company has a license agreement with Astellas to develop, manufacture, and commercialize linaclotide for the treatment of IBS-C, CIC and other GI conditions in Japan.
Under the license agreement, as amended, Astellas is required to pay royalties to the Company at rates beginning in the mid-single digit percent and escalating to low-double-digit percent, based on aggregate annual net sales in Japan of products containing linaclotide as an active ingredient. These royalty payments are subject to reduction following the expiration of certain licensed patents and the occurrence of generic competition in Japan.
During the years ended December 31, 2024, 2023, and 2022, the Company recognized $ 1.7 million, $ 1.8 million and $ 2.0 million of royalty revenue, respectively.
Collaboration Agreement for China (including Hong Kong and Macau) with AstraZeneca
The Company has a collaboration agreement with AstraZeneca under which AstraZeneca has the exclusive right to develop, manufacture and commercialize products containing linaclotide in the AstraZeneca License Territory.
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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. In addition, AstraZeneca may be required to make milestone payments totaling up to $ 90.0 million contingent on the achievement of certain sales targets.
During the years ended December 31, 2024, 2023, and 2022, the Company recognized $ 0.4 million, $ 0.4 million and $ 0.6 million of royalty revenue, respectively.
At December 31, 2023, the Company had accounts receivable in the amount of $ 15.0 million related to the third and final installment of a non-contingent receivable due from AstraZeneca in connection with an amendment to the collaboration agreement executed during 2019. The non-contingent receivable was collected in full during the first quarter of 2024.
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 development-related payments of JPY 1,600 million in the aggregate ($ 13.1 million at date of agreement), and is eligible to receive 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 the VectivBio Acquisition, 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.
In April 2024, VectivBio received the final development-related payment of JPY 500 million ($ 4.1 million at date of agreement).
The Company recognized $ 2.2 million of revenue during the year ended December 31, 2024. 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, 2024, current deferred revenue of $ 2.0 million and non-current deferred revenue of $ 1.8 million is reported within accrued expenses and other current liabilities and other
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liabilities, respectively, 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 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 issue 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 Ferring 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 license 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 was granted an option (the “Option”) to acquire an exclusive license to research, develop, manufacture and commercialize, in the U.S., products containing CNP-104 for the treatment of PBC. COUR has initiated a Phase II clinical study to evaluate the safety, tolerability, and pharmacodynamic effects and efficacy of CNP-104 in PBC patients. After reviewing the data from the clinical study for CNP-104, the Company had the right to exercise the Option and pay COUR $ 35.0 million in exchange for the license, subject to the Company’s right to apply a credit against such payment as described below.
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 in the second quarter of 2023.
In the third quarter of 2024, the Company received from COUR the topline data from COUR’s Phase II clinical study for the treatment of PBC. In September 2024, the Company notified COUR of its decision not to exercise the option to acquire an exclusive license to CNP-104. As a result, the collaboration and license option agreement between the Company and COUR has terminated, and the Company retains no rights and has no obligations related to CNP-104.
Other Agreements
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Disease Education and Promotional Agreement with Alnylam
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. Under the terms of the Alnylam Agreement, the Company’s sales force performed disease awareness activities and sales detailing activities for GIVLAARI. The Company remained eligible to receive royalties based on a percentage of net sales of GIVLAARI that are directly attributable to the Company’s promotional efforts through September 30, 2022, which was one year following the termination of the agreement.
During the year ended December 31, 2022 the Company recognized $ 2.2 million in royalty revenue.
6. Fair Value of Financial Instruments
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, 2024 and 2023 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability.
The Company’s investment portfolio may include fixed income securities that do not always trade on a daily basis. As a result, the pricing services used by the Company apply other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. In addition, model processes are used to assess interest rate impact and develop prepayment scenarios. These models take into consideration relevant credit information, perceived market movements, sector news and economic events. The inputs into these models may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads and other relevant data. The Company validates the prices provided by its third party pricing services by obtaining market values from other pricing sources and analyzing pricing data in certain instances. The Company periodically invests in certain reverse repurchase agreements, which are collateralized by Government Securities and Obligations for an amount not less than 102 % of their principal amount. The Company does not record an asset or liability for the collateral as the Company is not permitted to sell or re-pledge the collateral. The collateral has at least the prevailing credit rating of U.S. Government Treasuries and Agencies. The Company utilizes a third-party custodian to manage the exchange of funds and ensure the collateral received is maintained at 102 % of the reverse repurchase agreements principal amount on a daily basis.
The following tables present the assets the Company has measured at fair value on a recurring basis (in thousands):
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Significant Other
Significant
Active Markets for
Observable
Unobservable
December 31,
Identical Assets
Inputs
Inputs
2024
(Level 1)
(Level 2)
(Level 3)
Assets:
Cash and cash equivalents:
Money market funds
$
36,010
$
36,010
$
—
$
—
U.S. Treasury securities
11,044
—
11,044
—
Commercial paper
7,928
—
7,928
—
Total assets measured at fair value
$
54,982
$
36,010
$
18,972
$
—
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Fair Value Measurements at Reporting Date Using
Quoted Prices in
Significant Other
Significant
Active Markets for
Observable
Unobservable
December 31,
Identical Assets
Inputs
Inputs
2023
(Level 1)
(Level 2)
(Level 3)
Assets:
Cash and cash equivalents:
Money market funds
$
45,939
$
45,939
$
—
$
—
U.S. Treasury securities
10,507
—
10,507
—
Commercial paper
2,240
—
2,240
—
Total assets measured at fair value
$
58,686
$
45,939
$
12,747
$
—
Cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued research and development costs, accrued expenses and other current liabilities and current portion of operating lease obligations at December 31, 2024 and 2023 are carried at amounts that approximate fair value due to their short-term maturities.
Convertible Senior Notes
In August 2019, the Company issued $ 200.0 million aggregate principal amount of its 0.75 % convertible senior notes due 2024 (the “2024 Convertible Notes”) and $ 200.0 million aggregate principal amount of its 1.50 % convertible senior notes due 2026 (the “2026 Convertible Notes”) (No te 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.
In June 2024, the Company repaid the aggregate principal amount of the 2024 Convertible Notes upon maturity (Not e 10) . The estimated fair value of the 2024 Convertible Notes was $ 209.6 million as of December 31, 2023. The estimated fair value of the 2026 Convertible Notes was $ 186.6 million and $ 217.1 million as of December 31, 2024 and 2023, respectively.
Capped Calls with Respect to 2024 Convertible Notes and 2026 Convertible Notes
In connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company entered into the Capped Calls with certain financial institutions. The Capped Calls cover 29,867,480 shares of Class A Common Stock (subject to anti-dilution and certain other adjustments), which is the same number of shares of Class A Common Stock that initially underlie the 2024 Convertible Notes and the 2026 Convertible Notes. The Capped Calls have an initial strike price of approximately $ 13.39 per share, which corresponds to the initial conversion price of the 2024 Convertible Notes and the 2026 Convertible Notes, and have a cap price of approximately $ 17.05 per share (Note 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 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 IPR&D
The fair value of the acquired IPR&D asset, apraglutide, was determined 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
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The fair value of the assembled workforce was determined using the replacement cost method using Level 3 fair value measurements and inputs including estimated costs and productivity metrics .
7. Leases
The Company’s lease portfolio for the year ended December 31, 2024 included: 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 leases require letters of credit totaling $ 1.2 million to secure the Company’s obligations under the lease agreements. The letters of credit are maintained under a subfacility of the revolving credit agreement (Note 10).
Lease cost is recognized on a straight-line basis over the lease term. The components of lease cost for the years ended December 31, 2024, 2023, and 2022 are as follows (in thousands):
Year Ended December 31,
2024
2023
2022
Operating lease cost
$
2,507
$
2,507
$
2,509
Short-term lease cost
1,520
1,241
1,070
Total lease cost
$
4,027
$
3,748
$
3,579
Supplemental information related to leases for the periods reported is as follows:
Year Ended December 31,
2024
2023
2022
Cash paid for amounts included in the measurement of lease liabilities (in thousands)
$
3,126
$
3,065
$
3,114
Weighted-average remaining lease term of operating leases (in years)
5.4
6.4
7.3
Weighted-average discount rate of operating leases
5.8
%
5.8
%
5.8
%
Summer Street Lease
In June 2019, the Company entered into a non-cancelable operating lease (the “Summer Street Lease”) for approximately 39,000 square feet of office space on the 23 rd floor of 100 Summer Street, Boston, Massachusetts, which has been the Company’s headquarters since October 2019. The Summer Street Lease terminates on June 11, 2030 and includes a 2 % annual rent escalation, free rent periods, a tenant improvement allowance, and an option to extend the term of the lease for an additional five years at a market base rental rate. The extension option is not included in the lease term used for the measurement of the lease, as it is not reasonably certain to be exercised. The lease expense, inclusive of the escalating rent payments and lease incentives, is recognized on a straight-line basis over the lease term.
At lease commencement, the Company recorded a right-of-use asset and a lease liability using an incremental borrowing rate of 5.8 %. At December 31, 2024, the balances of the right-of-use asset and operating lease liability were $ 11.0 million and $ 15.5 million, respectively. At December 31, 2023, the balances of the right-of-use asset and operating lease liability were $ 12.6 million and $ 17.7 million, respectively.
Lease costs recorded during each of the years ended December 31, 2024, 2023, and 2022 were $ 2.5 million.
Future minimum lease payments under the Summer Street Lease as of December 31, 2024 are as follows (in thousands):
2025
$
3,189
2026
3,252
2027
3,317
2028
3,384
2029 and thereafter
4,902
Total future minimum lease payments
18,044
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Less: present value adjustment
( 2,551 )
Operating lease liabilities
15,493
Less: current portion of operating lease liabilities
( 3,189 )
Operating lease liabilities, net of current portion
$
12,304
8. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
December 31,
2024
2023
Software
$
1,567
$
1,652
Leasehold improvements
7,407
7,407
Laboratory equipment
—
1,327
Furniture and fixtures
1,732
1,747
Computer and office equipment
2,154
2,341
12,860
14,474
Less accumulated depreciation and amortization
( 8,365 )
( 8,889 )
$
4,495
$
5,585
Depreciation expense of property and equipment was $ 1.2 million, $ 1.2 million and $ 1.4 million for the years ended December 31, 2024, 2023, and 2022, respectively.
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
December 31, 2024
December 31, 2023
Accrued compensation and benefits
$
14,547
$
19,937
Accrued interest
4,771
5,953
Deferred revenue
2,032
2,620
Accrued restructuring liabilities
560
8,303
Accrued taxes
521
1,244
Other
4,418
6,197
Total accrued expenses and other current liabilities
$
26,849
$
44,254
As of December 31, 2024 and 2023, other accrued expenses were comprised primarily of $ 4.3 million and $ 6.1 million of uninvoiced vendor liabilities, respectively.
10. Debt
2.25 % Convertible Senior Notes due 2022
In June 2015, the Company issued $ 335.7 million aggregate principal amount of the 2022 Convertible Notes. The Company received net proceeds of $ 324.0 million from the sale of the 2022 Convertible Notes, after deducting fees and expenses of $ 11.7 million. The Company used $ 21.1 million of the net proceeds from the sale of the 2022 Convertible Notes to pay the net cost of the Convertible Note Hedges (after such cost was partially offset by the proceeds to the Company from the sale of the Note Hedge Warrants), as described below.
In connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes in August 2019, the Company repurchased $ 215.0 million aggregate principal amount of the 2022 Convertible Notes. Such portion of the 2022 Convertible Notes were repurchased at a premium totaling $ 227.3 million.
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In June 2022, the Company repaid the remaining $ 120.7 million aggregate principal amount of the 2022 Convertible Notes upon maturity.
The 2022 Convertible Notes were governed by an indenture (the “2022 Indenture”) between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The 2022 Convertible Notes 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. The 2022 Convertible Notes matured on June 15, 2022. No conversions were exercised by holders of the 2022 Convertible Notes.
0.75 % Convertible Senior Notes due 2024 and 1.50 % Convertible Senior Notes due 2026
In August 2019, the Company issued $ 200.0 million aggregate principal amount of the 2024 Convertible Notes and $ 200.0 million aggregate principal amount of the 2026 Convertible Notes, pursuant to separate indentures (each an
“Indenture” and together the “Indentures”), between the Company and U.S. Bank National Association, as trustee (the
“Trustee”). The Company received net proceeds of $ 391.0 million from the sale of the 2024 Convertible Notes and 2026 Convertible Notes, after deducting fees and expenses of $ 9.0 million. The Company used $ 25.2 million of the net proceeds from the sale of the 2024 Convertible Notes and 2026 Convertible Notes to pay the cost of the Capped Calls, as described below.
In June 2024, the Company repaid the $ 200.0 million aggregate principal amount of the 2024 Convertible Notes upon maturity. The 2024 Convertible Notes bore cash interest at the annual rate of 0.75 % payable on June 15 and December 15 of each year. No conversions were exercised by holders of the 2024 Convertible Notes.
The 2026 Convertible Notes bear cash interest at the annual rate of 1.50 %, payable on June 15 and December 15 of each year. The 2026 Convertible Notes will mature on June 15, 2026, unless earlier converted or repurchased.
The initial conversion rate for the 2026 Convertible Notes is 74.6687 shares of Class A Common Stock (subject to adjustment as provided for in the Indenture) per $ 1,000 principal amount of the 2026 Convertible Notes, which is equal to an initial conversion price of approximately $ 13.39 per share.
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 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 2026 Convertible Notes on each applicable trading day;
● during the five -business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in each Indenture) per $ 1,000 principal amount of the 2026 Convertible 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 2026 Convertible Notes on each such trading day; or
● upon the occurrence of specified corporate events described in the Indenture.
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 2026 Convertible Notes, in multiples of $ 1,000 principal amount, regardless of the foregoing conditions.
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Upon the occurrence of fundamental changes, as described in the Indenture, prior to the maturity date of the 2026 Convertible 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. If a make-whole fundamental change, as described in the Indenture, occurs and a holder elects to convert its notes in connection with such make-whole fundamental change, such holder may be entitled to an increase in the conversion rate as described in the Indenture.
The Indenture does not contain any financial covenants or restrict the Company’s ability to repurchase the Company’s securities, pay dividends or make restricted payments in the event of a transaction that substantially increases the Company’s level of indebtedness. The Indenture provides for customary events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding notes will become due and payable immediately without further action or notice. If any other event of default under the Indenture occurs or is continuing, the Trustee or holders of at least 25 % in aggregate principal amount of the then outstanding notes may declare the principal amount of such notes to be immediately due and payable.
The Company accounts for convertible debt instruments 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
2023
Principal:
2024 Convertible Notes
$
—
$
200,000
2026 Convertible Notes
200,000
200,000
Less: unamortized debt issuance costs
( 1,012 )
( 2,131 )
Net carrying amount
$
198,988
$
397,869
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 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 rate of the 2024 Convertible Notes for the period from the date of issuance through maturity was 1.2 % . The effective annual interest rate of the 2026 Convertible Notes for the period from the date of issuance through December 31, 2024 was 1.9 % . The effective annual interest rate is computed using the contractual interest and the amortization of debt issuance costs.
The following table sets forth total interest expense recognized related to convertible senior notes (in thousands):
Year Ended December 31,
2024
2023
2022
Contractual interest expense
$
3,688
$
4,500
$
5,745
Amortization of debt issuance costs
1,119
1,618
1,853
Total interest expense
$
4,807
$
6,118
$
7,598
Future minimum payments under the convertible senior notes as of December 31, 2024, are as follows (in thousands):
2025
$
3,000
2026
201,500
Total future minimum payments under the convertible senior notes
204,500
Less: amounts representing interest
( 4,500 )
Less: unamortized debt issuance costs
( 1,012 )
Convertible senior notes balance
$
198,988
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Capped Calls with Respect to 2024 Convertible Notes and 2026 Convertible Notes
To minimize the impact of potential dilution to the Company’s Class A common stockholders upon conversion of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company separately entered into the capped call transactions in August 2019 (the “Capped Calls”) in connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes. The Company paid the counterparties $ 25.2 million to enter into the Capped Calls, of which $ 25.0 million related to the premium payments and $ 0.2 million related to transaction costs. 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.
The Capped Calls in connection with the issuance of the 2024 Convertible Notes, which covered 14,933,740 shares of Class A Common Stock, terminated unexercised upon expiry in June 2024.
The Capped Calls in connection with the 2026 Convertible Notes have an initial strike price of approximately $ 13.39 per share, which corresponds to the initial conversion price of the 2026 Convertible Notes and is subject to anti-dilution adjustments generally similar to those applicable to the 2026 Convertible Notes. The Capped Calls have a cap price of approximately $ 17.05 per share, subject to certain adjustments. The Capped Calls cover 14,933,740 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 2026 Convertible Notes. Holders of the 2026 Convertible Notes do not have any rights with respect to the Capped Calls.
The Capped Calls are expected generally to reduce the potential dilution to the Class A Common Stock upon conversion of the 2026 Convertible Notes in the event that the market price per share of Class A Common Stock is greater than the strike price of the Capped Calls as adjusted pursuant to the anti-dilution adjustments. If, however, the market price per share of Class A Common Stock exceeds the cap price of the Capped Calls, there would nevertheless be dilution upon conversion of the 2026 Convertible Notes to the extent that such market price exceeds the cap price of the Capped Calls.
Revolving Credit Facility
In May 2023, in connection with the VectivBio Acquisition, the Company entered into a credit agreement with Wells Fargo Bank, N.A., as administrative agent (in such capacity, the “Agent”), collateral agent, a letter of credit issuer and a lender, and the other agents, lenders and letter of credit issuers parties thereto (collectively, the “Lenders”). In September 2024, the Company, the Agent and the Lenders entered into the first amendment to the revolving credit agreement (as amended from time to time, the “Revolving Credit Agreement”) to, among other things, increase the quantum of the Revolving Credit Facility from $ 500.0 million to $ 550.0 million, extend the maturity date, and increase the Company’s permitted maximum consolidated secured net leverage ratio.
The Revolving Credit Agreement provides for a $ 550.0 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) December 31, 2028 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 (“Adjusted Term 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
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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). The Company is required to maintain a maximum consolidated secured net leverage ratio of 3.50 to 1.00 until the end of the final quarter of 2025 (the “Initial Period”), (ii) 3.25 to 1.00 until the end of the first quarter of 2026 (the “Interim Period”) and (iii) 3.00 to 1.00 thereafter, 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 (i) 4.00 to 1.00 during the Initial Period, (ii) 3.75 to 1.00 during the Interim Period and (iii) 3.50 to 1.00 thereafter, in each case for up to 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, 2024, the Company was in compliance with all covenants under the Revolving Credit Agreement.
In connection with the initial execution of the Revolving Credit Agreement during the second quarter of 2023 and the amendment executed in the third quarter of 2024, the Company incurred $ 2.9 million and $ 2.2 million of debt issuance costs, respectively, which consisted primarily of lender fees. The debt issuance costs are classified as other assets and are amortized on a straight-line basis over the term of the Revolving Credit Agreement. The Company had unamortized capitalized debt issuance costs of $ 3.9 million and $ 2.4 million at December 31, 2024 and 2023, respectively.
The outstanding principal balance on the revolving credit facility was $ 385.0 million and $ 300.0 million as of December 31, 2024 and 2023, respectively.
The following table sets forth total interest expense recognized related to Revolving Credit Agreement (in
thousands):
Year Ended December 31,
2024
2023
Contractual interest expense
$
27,643
$
14,718
Amortization of debt issuance costs
785
442
Other financing costs
50
101
Total interest expense
$
28,478
$
15,261
11. Commitments and Contingencies
Commitments with AbbVie
The Company and AbbVie are jointly obligated to make minimum purchases of linaclotide API for the territories covered by the Company’s collaboration with AbbVie for North America. Currently, AbbVie fulfills all such minimum purchase commitments.
Under the collaboration agreement with AbbVie for North America, the Company shares all development and commercialization costs related to linaclotide in the U.S. with AbbVie. The actual amounts that the Company pays to AbbVie or that AbbVie pays to the Company will depend on numerous factors outside of the Company’s control, including the success of certain clinical development efforts with respect to linaclotide, the content and timing of decisions made by the regulators, the reimbursement and competitive landscape around linaclotide and the Company’s other product candidates, and other factors.
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Other Funding Commitments
As of December 31, 2024, the Company has ongoing studies in various pre-clinical and clinical trial stages. The Company’s most significant clinical trial expenditures are to contract research organizations. These contracts are generally cancellable, with notice, at the Company’s option and do not have any significant cancellation penalties.
Guarantees
As permitted under Delaware law, the Company indemnifies its directors and certain of its officers for certain events or occurrences while such director or officer is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors’ and officers’ insurance coverage that is intended to limit its exposure and enable it to recover a portion of any future amounts paid.
The Company enters into certain agreements with other parties in the ordinary course of business that contain indemnification provisions. These typically include agreements with business partners, contractors, landlords, clinical sites and customers. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities. These indemnification provisions generally survive termination of the underlying agreements. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. However, to date the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of these obligations is minimal. Accordingly, the Company did no t have any liabilities recorded for these obligations as of December 31, 2024 and 2023.
Litigation
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.
12. Stockholders’ Equity
Preferred Stock
The Company’s preferred stock may be issued from time to time in one or more series, with each such series to consist of such number of shares and to have such terms as adopted by the board of directors. Authority is given to the board of directors to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitation or restrictions thereof, including without limitation, dividend rights, conversion rights, redemption privileges and liquidation preferences.
Common Stock
The Company has one class of common stock (“Class A Common Stock”). Class A Common Stock is entitled to one vote per share. The Company has reserved, out of its authorized but unissued shares of Class A Common Stock, sufficient shares to effect the conversion of the convertible senior notes and the Note Hedge Warrants pursuant to the terms thereof (Note 10).
The Company’s stockholders are entitled to dividends if and when declared by the board of directors.
Share Repurchase Program
In May 2021, the Company’s Board of Directors authorized a program to repurchase up to $ 150.0 million of the
Company’s Class A Common Stock. The Company completed the share repurchase program in May 2022 and retired the repurchased shares.
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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 .
13. Employee Stock Benefit Plans
The Company has several share-based compensation plans under which stock options, RSAs, RSUs, and other share-based awards are available for grant to employees, officers, directors and consultants of the Company.
The following table summarizes share-based compensation expense by award type (in thousands):
Year Ended December 31,
2024
2023
2022
Stock options
$
—
$
226
$
1,471
Time-based restricted stock units
21,425
19,829
17,643
Performance-based restricted stock units
6,422
9,321
5,008
Restricted stock awards
1,492
1,997
2,439
Employee stock purchase plan
451
502
412
Stock awards
60
130
75
VectivBio Holding AG stock options and RSUs accelerated upon change in control
—
27,548
—
Total share-based compensation expense
$
29,850
$
59,553
$
27,048
The following table summarizes the share-based compensation expense reflected in the consolidated statements of income (in thousands):
Year Ended December 31,
2024
2023
2022
Share-based compensation expense:
Research and development
$
7,552
$
17,448
$
4,936
Selling, general and administrative
22,298
41,194
22,112
Restructuring
—
911
—
Total share-based compensation expense included in operating expenses
29,850
59,553
27,048
Income tax benefit
3,414
2,964
1,644
Total share-based compensation expense, net of tax
$
26,436
$
56,589
$
25,404
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).
Stock Benefit Plans
As of December 31, 2024, the Company has the following active stock benefit plans pursuant to which awards are currently outstanding: 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, 2024, there were 12,606,159 shares available for future grant under the A&R 2019 Equity Plan and the 2010 Purchase Plan.
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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, 2024, 8,523,616 shares were available for future grant under the A&R 2019 Equity Plan.
2019 Equity Plan
During 2019, the Company’s stockholders approved the 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 2019 Equity Plan, 10,000,000 shares of Class A Common Stock were initially reserved for issuance. 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, 2024, there were no shares available for future grant under the 2019 Equity Plan.
2010 Purchase Plan
During 2010, the Company’s stockholders approved the 2010 Purchase Plan, which gives eligible employees the right to purchase shares of common stock at the lower of 85 % of the fair market value on the first or last day of an offering period. Each offering period is six months . There were 400,000 shares of common stock initially reserved for issuance pursuant to the 2010 Purchase Plan. The number of shares available for future grant under the 2010 Purchase Plan may be increased on the first day of each fiscal year by an amount equal to the lesser of: (i) 1,000,000 shares, (ii) 1 % of the Class A shares of common stock outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of shares as is determined by the board of directors. As of December 31, 2024, there were 4,082,543 shares available for future grant under the 2010 Purchase Plan.
2010 Equity Plan
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. As of December 31, 2024, there were no shares available for future grant under the 2010 Equity Plan.
Restricted Stock Awards
RSAs are granted to non-employee members of the board of directors under restricted stock agreements in accordance with the terms of the 2019 Equity Plan and the Company’s non-employee director compensation policy, effective May 2019. Annual restricted stock grants to each non-employee member of the board of directors vest in full on the date immediately preceding the next annual meeting of stockholders, provided the individual continues to serve on the Company’s board of directors through each vest date. Initial restricted stock grants to new non-employee members of the board of directors vest annually over a three-year period from the date of grant provided the individual continues to serve on the Company’s board of directors through each vest date.
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A summary of restricted stock activity for the year ended December 31, 2024 is presented below:
Weighted-
Average
Number of
Grant Date
Shares
Fair Value
Unvested as of December 31, 2023
178,800
$
10.77
Granted
194,488
5.70
Vested
( 178,800 )
10.77
Forfeited
—
—
Unvested as of December 31, 2024
194,488
$
5.70
The weighted-average grant date fair value per share of RSAs granted during the years ended December 31, 2024, 2023, and 2022 was $ 5.70 , $ 10.77 , and $ 11.22 , respectively. The total fair value of RSAs that vested during the years ended December 31, 2024, 2023, and 2022 was $ 1.0 million, $ 2.1 million, and $ 2.8 million, respectively.
Restricted Stock Units
RSUs granted under the Company’s equity plans represent the right to receive one share of the Company’s Class A Common Stock pursuant to the terms of the applicable award agreement. Shares of the Company’s Class A Common Stock are delivered to the employee upon vesting, subject to payment of applicable withholding taxes.
Time-based RSUs
Time-based RSUs generally vest over a two -to- four-year period on the approximate anniversary of the date of grant until fully vested, provided the individual remains in continuous service with the Company through each vesting date. The fair value of all time-based RSUs is based on the market value of the Company's Class A Common Stock on the date of grant. Compensation expense, including the effect of estimated forfeitures, is recognized over the applicable service period.
A summary of time-based RSU activity for the year ended December 31, 2024 is as follows:
Weighted-
Average
Number
Grant Date
of RSUs
Fair Value
Outstanding as of December 31, 2023
5,342,727
$
10.68
Granted
3,105,866
11.53
Vested and released
( 1,886,372 )
10.77
Forfeited
( 1,210,714 )
11.79
Outstanding as of December 31, 2024
5,351,507
$
10.89
The weighted-average grant date fair value per share of time-based RSUs granted during the years ended December 31, 2024, 2023, and 2022 was $ 11.53 , $ 10.55 , and $ 11.08 , respectively. The total fair value of time-based RSUs that vested during the years ended December 31, 2024, 2023, and 2022 was $ 22.0 million, $ 18.3 million, and $ 14.8 million, respectively.
Performance-based RSUs
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 were realizing relative total shareholder return goals (the “Relative TSR PSUs”). The performance criteria applicable to the PSUs granted in 2024 and 2023 consisted of an equal weighting of (i) Relative TSR PSUs and (ii) achieving specified stock price targets (the “Absolute TSR PSUs”).
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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, 2024, 2023, and 2022:
Year Ended December 31,
2024
2023
2022
Relative
Absolute
Relative
Absolute
Relative
TSR PSUs
TSR PSUs
TSR PSUs
TSR PSUs
TSR PSUs
Fair value of common stock
$
12.41
$
12.41
$
11.39
$
10.74
$
11.13
Expected volatility
38.0
%
38.0
%
37.0
%
37.0
%
41.7
%
Expected term (in years)
3.0
3.0
3.0
3.0
2.8
Risk-free interest rate
4.2
%
4.2
%
4.7
%
4.7
%
1.6
%
Expected dividend yield
—
%
—
%
—
%
—
%
—
%
A summary of PSU activity for the year ended December 31, 2024 is as follows:
Weighted-
Average
Number
Grant Date
of PSUs
Fair Value
Outstanding as of December 31, 2023
1,653,268
$
14.55
Granted
540,636
14.91
Vested and released
( 802,800 )
12.84
Forfeited
( 282,598 )
17.36
Outstanding as of December 31, 2024
1,108,506
$
13.91
The weighted-average grant date fair value per share of PSUs granted during the years ended December 31, 2024, 2023, and 2022 was $ 14.91 , $ 14.09 , and $ 14.30 , respectively. The total fair value of PSUs that vested during the years ended December 31, 2024, 2023, and 2022 was $ 9.8 million, $ 0.8 million and $ 1.7 million, respectively.
Stock Options
Stock options granted under the Company’s equity plans represent the right to purchase one share of the Company’s Class A Common Stock pursuant to the terms of the applicable award agreement. Shares of the Company's Class A Common Stock are delivered to the employee upon exercise, subject to payment of applicable withholding taxes.
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. Options granted under all equity plans are exercisable at a price per share not less than the fair market value of the underlying common stock on the date of grant. 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.
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The following table summarizes stock option activity under the Company’s share-based compensation plans:
Weighted-
Weighted-
Number of
Average
Average
Aggregate
Stock
Exercise
Contractual
Intrinsic
Options
Price (1)
Life
Value
(in years)
(in thousands)
Outstanding at December 31, 2023
5,836,306
$
12.36
2.56
$
2,920
Granted
—
—
Exercised
( 825,416 )
12.19
Cancelled
( 470,626 )
12.51
Outstanding at December 31, 2024
4,540,264
12.37
1.97
—
Vested or expected to vest at December 31, 2024
4,540,264
12.37
1.97
—
Exercisable at December 31, 2024
4,540,264
12.37
1.97
—
(1) Amounts relating to stock options 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) on April 1, 2019 have not been adjusted to reflect the effect of the Separation on the Company’s stock price.
The total intrinsic value of options exercised during the years ended December 31, 2024, 2023, and 2022 was $ 2.0 million, $ 0.2 million, and $ 0.9 million, respectively. The intrinsic value was calculated as the difference between the fair value of the Company’s Class A Common Stock at the date of exercise and the exercise price of the option issued.
The following table sets forth the Company's unrecognized share-based compensation expense, net of estimated forfeitures, as of December 31, 2024, by type of award and the weighted-average period over which that expense is expected to be recognized:
Unrecognized
Weighted-Average
Expense, Net
Remaining
of Estimated
Recognition
Forfeitures
Period
(in thousands)
(in years)
Type of award:
Restricted stock awards
$
513
0.46
Time-based restricted stock units
32,147
2.31
Performance-based restricted stock units
3,015
1.82
The total unrecognized share-based compensation cost will be adjusted for future changes in estimated forfeitures.
14. Income Taxes
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, 2024, 2023, and 2022 consisted of the following (in thousands):
Year Ended December 31,
2024
2023
2022
United States
$
167,091
$
226,532
$
252,422
Foreign
( 101,893 )
( 1,174,601 )
—
Income (loss) before income taxes
$
65,198
$
( 948,069 )
$
252,422
The components of the provision for (benefit from) income taxes during the years ended December 31, 2024, 2023, and 2022 consisted of the following (in thousands):
Year Ended December 31,
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2024
2023
2022
Current taxes:
Federal
$
—
$
—
$
—
State
( 4,487 )
10,587
11,618
Foreign
754
346
—
Total current taxes
( 3,733 )
10,933
11,618
Deferred taxes:
Federal
32,584
47,864
52,191
State
35,467
24,693
13,548
Foreign
—
—
—
Total deferred taxes
68,051
72,557
65,739
Income tax expense
$
64,318
$
83,490
$
77,357
During the year ended December 31, 2024, the Company recorded income tax expense of $ 64.3 million, comprised of non-cash tax expense of $ 57.8 million and cash tax expense of $ 6.5 million for state income taxes in certain states in which state taxable income exceeded available net operating losses. 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.
A reconciliation of income taxes computed using the U.S. federal statutory rate of 21 % to that reflected in the consolidated statements of income (loss) are as follows (in thousands):
Year Ended December 31,
2024
2023
2022
Income tax expense (benefit) using U.S. federal statutory rate
$
13,692
$
( 199,094 )
$
53,009
Acquisition accounting for VectivBio Acquisition
—
139,301
—
Foreign tax rate differential
8,111
93,394
—
Disallowed transaction costs
—
3,424
—
Permanent differences
788
704
( 290 )
State income taxes, net of federal benefit
10,992
14,024
16,160
Executive compensation - Section 162(m)
2,683
3,979
2,654
Excess tax benefits
749
1,903
3,613
Fair market valuation of Note Hedge Warrants and Convertible Note Hedges
—
( 5 )
( 50 )
Tax credits
( 1,244 )
( 79 )
( 252 )
Expiring net operating losses and tax credits
1,187
933
1,087
Effect of change in state tax rate on deferred tax assets and deferred tax liabilities
1,538
2,134
2,581
Change in the valuation allowance
25,564
22,492
( 1,155 )
Other
258
380
—
Income tax expense
$
64,318
$
83,490
$
77,357
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to be in effect for the years in which differences are expected to reverse. Deferred tax assets and liabilities were determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse.
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December 31,
2024
2023
Deferred tax assets:
Net operating loss carryforwards
$
146,978
$
105,401
Tax credit carryforwards
58,494
58,437
Capitalized research and development
22,350
18,267
Share-based compensation
9,508
12,323
Basis difference on collaboration agreement for North America with AbbVie
3,585
80,638
Accruals and reserves
3,804
7,149
Basis difference on Convertible Notes
714
1,613
Intangible assets
3,411
10,968
Operating lease liability
3,892
4,774
Other
1,452
1,810
Total deferred tax assets
254,188
301,380
Deferred tax liabilities:
Fixed assets
( 898 )
( 1,101 )
Operating lease right-of-use asset
( 2,777 )
( 2,306 )
Total deferred tax liabilities
( 3,675 )
( 3,407 )
Net deferred tax asset
250,513
297,973
Valuation allowance
( 106,279 )
( 85,649 )
Net deferred tax asset
$
144,234
$
212,324
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. As of December 31, 2024, the Company maintained a valuation allowance of $ 106.3 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 state net operating losses and state tax credits that are expected to expire prior to utilization. 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.
The valuation allowance increased by $ 20.6 million during the year ended December 31, 2024 primarily to offset the foreign net operating losses incurred in Switzerland, to offset certain state net operating losses that are expected to expire prior to utilization, and to offset certain US 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, as well as in response to a state tax law change enacted in October 2023, in which the Company increased its valuation allowance on certain state tax credits that are expected to expire prior to utilization. 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, 2024, the Company had federal net operating loss carryforwards of $ 260.5 million, of which $ 130.9 million is subject to expiration between 2035 and 2038 and $ 129.6 million may be carried forward indefinitely. As of December 31, 2024, the Company had state net operating loss carryforwards of $ 288.0 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, 2024 to offset future federal and state income taxes, which is subject to expiration at various dates through 2044. The Company had foreign net operating loss carryforwards of $ 617.8 million, which are subject to expiration at various dates through 2031.
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
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Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
The following table summarizes the changes in the Company’s unrecognized income tax benefits for the years ended December 31, 2024, 2023, and 2022 (in thousands):
December 31,
2024
2023
2022
Balance at the beginning of the period
$
98,218
$
102,625
$
84,606
Increases based on tax positions related to the current period
4,093
85,446
101,225
Increases for tax positions assumed in VectivBio Acquisition
—
11,372
—
Decreases for tax positions in prior periods
( 90,726 )
( 101,225 )
( 83,206 )
Balance at the end of the period
$
11,585
$
98,218
$
102,625
The Company had gross unrecognized tax benefits of $ 11.6 million, $ 98.2 million, and $ 102.6 million as of December 31, 2024, 2023, and 2022 , respectively . Of the $ 11.6 million of total unrecognized tax benefits at December 31, 2024, $ 7.5 million would, if recognized, affect the Company’s effective tax rate, and the remaining amount would not affect the Company’s effective tax rate, as it relates to a temporary timing difference. Reserves for uncertain tax positions of $ 11.8 million and $ 23.0 million are recorded in other liabilities on the Company’s consolidated balance sheets as of December 31, 2024 and 2023, respectively.
The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. The Company recognized $ 0.8 million, $ 1.0 million and an insignificant amount of interest and penalties related to uncertain tax positions during the years ended December 31, 2024, 2023, and 2022, respectively. As of December 31, 2024 and 2023, $ 5.1 million and $ 5.2 million 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, 2021 through the present, although net operating losses generated from years prior to 2021 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. The statute of limitations for assessment for foreign jurisdictions is open for tax years ended December 31, 2020 through the present. There are currently no foreign income tax audits in progress.
15. Retirement Plans
Defined Contribution Retirement Plans
The Ironwood Pharmaceuticals, Inc. 401(k) Savings Plan is a defined contribution plan in the form of a qualified 401(k) plan in which substantially all employees are eligible to participate upon employment. Subject to certain IRS limits, eligible employees may elect to contribute from 1 % to 100 % of their compensation. Company contributions to the plan are at the sole discretion of the Company. During the years ended December 31, 2024, 2023, and 2022, the Company provided a matching contribution equal to the greater of: (a) 100 % of employee contributions on the first 3 % of eligible compensation and 50 % of employee contributions on the next 3 % of eligible compensation; or (b) 75 % of the first $ 10,000 of employee contributions. During the years ended December 31, 2024, 2023, and 2022, the Company recorded $ 2.4 million, $ 2.2 million, and $ 2.2 million of expense, respectively, 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. The Company updates the estimates used to measure employee benefit obligations in the fourth quarter and upon a remeasurement event to reflect the updated actuarial assumptions.
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Defined benefit plans in Switzerland were comprised of a basic plan and management plan during the year ended December 31, 2023. The participants in the management plan were terminated as of December 31, 2023 and plan assets were transferred to the participants during the year ended December 31, 2024. The basic plan is the only defined benefit plan in Switzerland as of December 31, 2024. The defined benefit plan in Belgium was maintained for one employee and has been terminated as of December 31, 2024.
The following table summarizes the components of net periodic benefit costs (income) for the year ended December 31, 2024 and the period between the acquisition date of June 29, 2023 and December 31, 2023 (in thousands):
December 31,
2024
2023
Current service cost
$
1,032
$
879
Amortization prior service cost
( 57 )
11
Amortization of unrecognized actuarial gains/(losses)
1,641
124
Interest cost
269
210
Expected return on plan assets
( 416 )
( 235 )
Curtailment and other
( 2,086 )
1,402
Administration costs
9
9
Total
$
392
$
2,400
The amounts recognized in other comprehensive income with respect to the defined benefit pension plans for the year ended December 31, 2024 and the period between the acquisition date of June 29, 2023 and December 31, 2023 (in thousands):
December 31,
2024
2023
Amortization prior service cost
$
57
$
( 11 )
Prior service (cost)/credit arising during financial year
( 261 )
106
Amortization of unrecognized actuarial gains/(losses)
( 1,641 )
( 124 )
Remeasurement (gain)/loss
—
—
Actuarial (gains)/losses arising from plan experience
490
70
Actuarial (gains)/losses arising from demographic assumption
—
989
Actuarial (gains)/losses arising from financial assumptions
906
—
Return on plan assets excluding interest income
( 604 )
( 92 )
Expense (income) recognized in other comprehensive income
$
( 1,053 )
$
938
The amount included in the consolidated statements of financial position arising from the Company’s obligation in respect to its defined benefit plan as of December 31, 2024, and 2023 (in thousands):
December 31,
2024
2023
Present value of defined benefit obligation
$
( 18,462 )
$
( 37,547 )
Fair value of plan assets
15,682
32,992
Net liability arising from defined benefit obligation
$
( 2,780 )
$
( 4,555 )
Movements in the present value of the defined benefit obligation for the year ended December 31, 2024, and period between the acquisition date of June 29, 2023 and December 31, 2023 (in thousands):
December 31,
2024
2023
Beginning defined benefit obligation as of January 1, 2024/June 29, 2023
$
( 37,547 )
$
( 18,865 )
Current service cost
( 1,032 )
( 879 )
Contributions paid by employees
( 837 )
( 1,214 )
Interest expense on defined benefit obligation
( 269 )
( 210 )
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Prior service (cost)/credit arising during financial year
261
( 106 )
Curtailment
2,086
( 1,402 )
Remeasurement (gain)/loss on defined benefit obligation
( 1,396 )
( 1,059 )
Benefits (paid)/deposited
18,144
( 11,813 )
Foreign currency exchange (gains)/loss
2,128
( 1,999 )
Ending defined benefit obligation as of December 31
$
( 18,462 )
$
( 37,547 )
Movements in the fair value of plan assets for the year ended December 31, 2024, and period between the acquisition date of June 29, 2023 and December 31, 2023 (in thousands):
December 31,
2024
2023
Beginning fair value of plan assets as of January 1, 2024/June 29, 2023
$
32,992
$
16,693
Return on plan assets excluding interest income
416
235
Contributions paid by employer
837
1,215
Contributions paid by employees
837
1,214
Benefits (paid)/deposited
( 18,144 )
11,813
Actuarial gain/(loss) on plan assets
602
92
Administration expense
( 9 )
( 9 )
Foreign currency exchange gains/(losses)
( 1,849 )
1,739
Ending fair value of plan assets as of December 31
$
15,682
$
32,992
The allocation of the assets of the different asset classes in the Switzerland basic plan corresponds to (in thousands):
December 31,
2024
2023
Fixed income
$
9,566
61
%
$
12,143
60
%
Equities
3,921
25
5,060
25
Real estate
1,568
10
2,024
10
Other
627
4
1,012
5
Ending fair value of plan assets as of December 31
$
15,682
100
%
$
20,239
100
%
Assets in the preceding table are predominantly Level 2 assets in the fair value hierarchy, except for certain mortgage-backed securities valued at $ 1.9 million and $ 2.6 million at December 31, 2024 and 2023, respectively, which are Level 3 assets in the fair value hierarchy.
The amounts reflected in the preceding table as of December 31, 2023 represent the allocation of assets for the Switzerland basic plan. The allocation of assets for the Switzerland management plan as of December 31, 2023 were not made available to the Company, as investment decisions are made by plan participants.
Principal assumptions used for the purpose of the actuarial valuations were as follows:
December 31,
2024
2023
Discount rate
1.00
%
1.50
%
Expected return on assets
2.50
%
2.70
%
Expected rate of salary increase
1.65
%
2.25
%
Expected rate of pension increase
—
%
—
%
Mortality rate
BVG 2020 GT
BVG 2020 GT
Future expected benefit payments based on the assumptions in the preceding table are as follows (in thousands):
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2025
$
6,502
2026
528
2027
1,055
2028
922
2029 and thereafter
4,276
Total
$
13,283
16. Workforce Reductions and Restructuring
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
Acquisition. The majority of the eliminations were substantively completed during the year ended December 31, 2023. The Company recorded $ 2.6 million and $ 14.9 million of restructuring expenses, which are primarily comprised of employee severance, benefits and related costs, during the year ended December 31, 2024 and 2023, respectively.
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, 2024 and 2023, respectively (in thousands):
Amounts
Amounts
Accrued at
Accrued at
December 31, 2023
Charges
Amount Paid
Adjustments
December 31, 2024
Headquarters-based workforce reduction
$
270
$
—
( 270 )
—
$
—
VectivBio Acquisition-related workforce reduction
8,102
2,612
( 9,990 )
( 109 )
615
Total
$
8,372
$
2,612
$
( 10,260 )
$
( 109 )
$
615
Amounts
Amounts
Accrued at
Accrued at
December 31, 2022
Charges
Amount Paid
Adjustments
December 31, 2023
Headquarters-based workforce reduction
$
—
$
2,540
$
( 2,232 )
$
( 38 )
$
270
VectivBio Acquisition-related workforce reduction
—
14,903
( 7,181 )
380
8,102
Total
$
—
$
17,443
$
( 9,413 )
$
342
$
8,372
In January 2025, following an analysis of its strategy and core business needs, and in an effort to streamline focus and support the continued development of the Company’s pipeline, the Company commenced a reduction in the Company’s workforce of approximately 50 %, primarily consisting of field-based sales employees. This reduction in workforce is expected to be substantially completed by the end of the first half of 2025. The Company estimates that, in connection with this reduction in its workforce, it will incur aggregate charges of approximately $ 20.0 million to approximately $ 25.0 million, primarily comprised of one-time employee severance and benefit costs. Of these charges, substantially all are expected to result in cash expenditures. The Company may incur additional costs not currently contemplated due to events associated with or resulting from the workforce reduction. The estimated charges that the Company expects to incur are subject to a number of assumptions, and actual results may differ materially from these estimates.
17. Segment Reporting
The Company operates in one reportable business segment—human therapeutics. The human therapeutics segment revenues are generated primarily through collaborative arrangements and license agreements related to research and development and commercialization of linaclotide. The accounting policies of the human therapeutics segment are the same as those described in the summary of significant accounting policies.
F-46
Table of Contents
The Company has identified the Chief Executive Officer and the Chief Financial Officer as the chief operating decision-maker (“CODM”). The CODM uses consolidated net income (loss) to understand and evaluate the Company’s operating performance and trends, to prepare and approve the annual budget, and to develop short-term and long-term operating plans. Revenues, costs and expenses, and other income (expense) are provided to the CODM as presented in the statement of income (loss). Total assets are not reviewed by the CODM when evaluating the segment’s performance.
18. Selected Quarterly Financial Data (Unaudited)
The following table contains quarterly financial information for the years ended December 31, 2024 and 2023. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.
First
Second
Third
Fourth
Total
Quarter
Quarter
Quarter
Quarter
Year
(in thousands, except per share data)
2024
Total revenues
$
74,877
$
94,396
$
91,592
$
90,545
$
351,410
Total cost and expenses
63,857
69,419
65,956
59,054
258,286
Other income (expense), net
( 6,062 )
( 6,101 )
( 8,267 )
( 7,496 )
( 27,926 )
Net income (loss)
( 4,162 )
( 860 )
3,646
2,256
880
Comprehensive income (loss)
( 2,053 )
( 408 )
2,064
5,231
4,834
Net income (loss) per share—basic (1)
( 0.03 )
( 0.01 )
0.02
0.01
0.01
Net income (loss) per share—diluted (1)
( 0.03 )
( 0.01 )
0.02
0.01
0.01
(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.
First
Second
Third
Fourth
Total
Quarter
Quarter
Quarter
Quarter
Year
(in thousands, except per share data)
2023
Total revenues
$
104,061
$
107,382
$
113,739
$
117,553
$
442,735
Total cost and expenses
43,964
1,190,521
73,716
79,964
1,388,165
Other income (expense), net
5,764
6,917
( 8,091 )
( 7,229 )
( 2,639 )
Net income (loss)
45,714
( 1,089,478 )
13,950
( 1,745 )
( 1,031,559 )
Net income (loss) attributable to Ironwood
Pharmaceuticals, Inc.
45,714
( 1,062,187 )
15,321
( 1,087 )
( 1,002,239 )
Comprehensive income (loss) attributable to Ironwood Pharmaceuticals, Inc.
45,714
( 1,062,187 )
14,569
( 3,303 )
( 1,005,207 )
Net income per share—basic (1)
0.30
( 6.84 )
0.10
( 0.01 )
( 6.45 )
Net income per share—diluted (1)
0.25
( 6.84 )
0.09
( 0.01 )
( 6.45 )
(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.
F-47
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.