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Ironwood Pharmaceuticals Reports First Quarter 2019 Results; Announces Positive 2019 Adjusted EBITDA from Continuing Operations Guidance

May 2, 2019 7:00 AM

– Ironwood launches as GI-focused healthcare company following separation of Cyclerion Therapeutics on April 1, 2019 –

– First quarter 2019 revenue of $69 million driven primarily by LINZESS® (linaclotide) collaboration revenue; reiterates full year 2019 revenue guidance –

– LINZESS prescription demand grew 14% year-over-year in first quarter 2019 –

– Late-stage GI pipeline continues to progress; IW-3718 is enrolling patients in phase III trials and MD-7246 phase II trial expected to initiate in May 2019 –

CAMBRIDGE, Mass.--(BUSINESS WIRE)-- Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), a GI-focused healthcare company, today provided an update on its first quarter 2019 results and recent business activities.

“Following the completion of the separation of Cyclerion in early April, Ironwood turned its focus exclusively to the development and commercialization of medicines that make a difference for people living with GI diseases,” said Mark Mallon, chief executive officer of Ironwood. “We are already executing on our strategy, which is centered on driving commercial performance of LINZESS, advancing our late-stage GI pipeline, and strengthening our corporate and financial profile. We also expect to transition to profitability from continuing operations in 2019 for the first time in the company’s history, an important step that we believe will create significant value for our shareholders.”

Mark Mallon continued, “LINZESS demand growth accelerated in the first quarter, increasing 14% year-over-year, with LINZESS net sales largely offset by lower net price and a reduction in channel inventory. Additionally, our pivotal Phase III program with IW-3718 for persistent GERD continues to progress, and we are on track to initiate our Phase IIb trial with MD-7246 in patients with abdominal pain associated with IBS-D in the next few weeks. If data are positive, we believe there is a substantial opportunity in this patient population, as well as in additional GI disorders where abdominal pain is a predominant symptom.”

First Quarter 2019 Financial Highlights1

� � � � � � � �
(in thousands, except for per share amounts)
1Q 2019 1Q 2018
Total revenues $ 68,730 $ 69,155
Total costs and expenses 123,102 105,023
GAAP net loss (59,284 ) (43,144 )
GAAP net loss per share (0.38 ) (0.29 )
Non-GAAP net loss (40,546 ) (37,847 )
Non-GAAP net loss per share (0.26 ) (0.25 )
�

1. Refer to the reconciliation of GAAP results to Non-GAAP Financial Measures appearing on page 14 of this press release.

First Quarter 2019 and Recent Corporate Highlights

U.S. LINZESS

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U.S. LINZESS Full Brand Collaboration
(in thousands, except for percentages)

� � �

Three Months Ended
March 31,

� � � � 2019 � � � 2018
LINZESS U.S. net sales � � � $161,348 � � � $159,334
Allergan & Ironwood commercial costs and expenses � � � 53,315 � � � 58,890
Commercial margin � � � 67% � � � 63%
Allergan & Ironwood R&D Expenses � � � 13,616 � � � 11,597
Total net profit on sales of LINZESS � � � $94,417 � � � $88,847
Full brand margin � � � 59% � � � 56%
� � � � � �

- In January 2019, Ironwood and Allergan announced the third patent infringement settlement with respect to LINZESS with Mylan Pharmaceuticals, Inc. Pursuant to the terms of the settlement, Ironwood and Allergan will grant Mylan a license to market its generic version of LINZESS 145 mcg and 290 mcg in the U.S. beginning February 5, 2030, and its generic version of LINZESS 72 mcg in the U.S. beginning August 5, 2030 (both subject to U.S. FDA approval), unless certain limited circumstances, customary for settlement agreements of this nature, occur.

GI Pipeline

Global Collaborations and Partnerships

First Quarter Financial Results

Gina Consylman, Ironwood’s chief financial officer, commented, “We are at an exciting turning point in Ironwood’s trajectory as we transition toward becoming a profitable company. We believe our ability to successfully generate positive cash flows through continued top-line growth and focused investment into our core business will enable the potential for increased operational flexibility, a strengthened financial profile, and the opportunity to create outstanding shareholder value.”

Ironwood 2019 Financial Guidance

In 2019, Ironwood expects:

� � � � � � �
� � � � 2019 Guidance
Total revenue � � � $370 – $390 million
Net interest expense � � � ~$35 million
Separation expenses1 � � � $30 – $40 million
Restructuring expenses2 � � � ~$3 – $4 million
(new) Adjusted EBITDA from continuing operations3 � � � >$65 million
(new) LINZESS net sales growth � � � Low-to-mid single digit % increase
� � �

1 Separation expenses were $19.4 million in the first quarter of 2019.

2 Restructuring expenses were largely incurred during the first quarter of 2019 in connection with the reduction in workforce commenced in February 2019. Total restructuring expenses in the first quarter of 2019 were $3.3 million.

3 Adjusted EBITDA from continuing operations is expected to be calculated by subtracting net interest expense, taxes, depreciation and amortization from non-GAAP net income (loss) from continuing operations. Beginning in the second quarter of 2019, Ironwood expects to report in its financial statements GAAP net income (loss) from continuing operations which will exclude discontinued operations related to Cyclerion. Non-GAAP net income (loss) from continuing operations is expected to include adjustments from GAAP net income (loss) from continuing operations on a similar basis as described�below for non-GAAP net income (loss).

Non-GAAP Financial Measures

Ironwood presents non-GAAP net loss and non-GAAP net loss per share to exclude the impact of net gains and losses on the derivatives related to our convertible notes that are required to be marked-to-market, the amortization of acquired intangible assets, the fair value remeasurement of contingent consideration associated with Ironwood’s U.S. license agreement with AstraZeneca�for the exclusive�rights to all products containing lesinurad, and the impairment of intangible assets associated with Ironwood’s subsequent notice of termination of the lesinurad license agreement, if any. Beginning with its first quarter 2019 financial results, Ironwood is also excluding restructuring and separation-related expenses from non-GAAP net loss. These adjustments are reflected in the non-GAAP net loss in the first quarter of 2019 and 2018 presented in this press release. Non-GAAP adjustments are further detailed below:

Ironwood expects to present GAAP net income (loss) from continuing operations and adjusted EBITDA from continuing operations, a non-GAAP measure, beginning in the second quarter of 2019. Adjusted EBITDA from continuing operations is expected to be calculated by subtracting net interest expense, taxes, depreciation and amortization from non-GAAP net income (loss) from continuing operations. Non-GAAP net income (loss) from continuing operations is expected to include adjustments from GAAP net income (loss) from continuing operations on a similar basis as described�above for non-GAAP net income (loss).

Management believes this non-GAAP information is useful for investors, taken in conjunction with Ironwood’s GAAP financial statements, because it provides greater transparency and period-over-period comparability with respect to Ironwood’s operating performance. These measures are also used by management to assess the performance of the business. Investors should consider these non-GAAP measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures are unlikely to be comparable with non-GAAP information provided by other companies. For a reconciliation of non-GAAP net loss and non-GAAP net loss per share to GAAP net loss and GAAP net loss per share, respectively, please refer to the table at the end of this press release. Ironwood does not provide guidance on GAAP net income (loss) from continuing operations or a reconciliation of expected adjusted EBITDA from continuing operations to expected GAAP net income (loss) from continuing operations because, without unreasonable efforts, it is unable to predict with reasonable certainty the adjustments used to calculate non-GAAP income (loss) from continuing operations, including, without limitation, the mark-to-market adjustments on the derivatives related to its convertible notes. These adjustments are uncertain, depend on various factors and could have a material impact on GAAP net income (loss) from continuing operations for the guidance period.

Conference Call Information

Ironwood will host a conference call and webcast at 8:30 a.m. Eastern Time on Thursday, May 2, 2019 to discuss its first quarter 2019 results and recent business activities. Individuals interested in participating in the call should dial (866) 393-4306 (U.S. and Canada) or (734) 385-2616 (international) using conference ID number 8429338. To access the webcast, please visit the Investors section of Ironwood’s website at www.ironwoodpharma.com at least 15 minutes prior to the start of the call to ensure adequate time for any software downloads that may be required. The call will be available for replay via telephone starting at approximately 11:30 a.m. Eastern Time, on May 2, 2019 running through 11:59 p.m. Eastern Time on May 16, 2019. To listen to the replay, dial (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (international) using conference ID number 8429338. The archived webcast will be available on Ironwood’s website for 14 days beginning approximately one hour after the call has completed.

About Ironwood Pharmaceuticals

Ironwood Pharmaceuticals (Nasdaq: IRWD) is a GI-focused healthcare company dedicated to creating medicines that make a difference for patients living with GI diseases. We discovered, developed and are commercializing linaclotide, the U.S. branded prescription market leader for adults with irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC). We are currently advancing a Phase IIIb trial evaluating the efficacy and safety of linaclotide on multiple abdominal symptoms, including pain, bloating and discomfort, in adult patients with IBS-C.

We are also advancing two late-stage, first-in-category GI product candidates: IW-3718 is a gastric retentive formulation of a bile acid sequestrant being developed for the potential treatment of persistent gastroesophageal reflux disease, and MD-7246 is a delayed-release formulation of linaclotide that is being evaluated as an oral, intestinal, non-opioid, pain-relieving agent for patients suffering from abdominal pain associated with IBS with diarrhea.

Ironwood was founded in 1998 and is headquartered in Cambridge, Mass. For more information, please visit our newly launched website at www.ironwoodpharma.com or www.twitter.com/ironwoodpharma; information that may be important to investors will be routinely posted in both these locations.

About LINZESS (linaclotide)

LINZESS® is the #1 prescribed brand for the treatment of adult patients with irritable bowel syndrome with constipation (IBS-C) and chronic idiopathic constipation (CIC), based on IQVIA data.

LINZESS is a once-daily capsule that helps relieve the abdominal pain and constipation associated with IBS-C, as well as the constipation, infrequent stools, hard stools, straining, and incomplete evacuation associated with CIC. The recommended dose is 290 mcg for IBS-C patients and 145 mcg for CIC patients, with a 72-mcg dose approved for use in CIC depending on individual patient presentation or tolerability. LINZESS should be taken at least 30 minutes before the first meal of the day.

LINZESS is contraindicated in pediatric patients less than 6 years of age. The safety and effectiveness of LINZESS in pediatric patients less than 18 years of age have not been established. In neonatal mice, linaclotide increased fluid secretion as a consequence of GC-C agonism resulting in mortality within the first 24 hours due to dehydration. Due to increased intestinal expression of GC-C, patients less than 6 years of age may be more likely than patients 6 years of age and older to develop severe diarrhea and its potentially serious consequences. In adults with IBS-C or CIC treated with LINZESS, the most commonly reported adverse event was diarrhea.

LINZESS is not a laxative; it is the first medicine approved by the FDA in a class called guanylate cyclase-C (GC-C) agonists. LINZESS contains a peptide called linaclotide that activates the GC-C receptor in the intestine. Activation of GC-C is thought to result in increased intestinal fluid secretion and accelerated transit and a decrease in the activity of pain-sensing nerves in the intestine. The clinical relevance of the effect on pain fibers, which is based on nonclinical studies, has not been established.

In the United States, Ironwood and Allergan plc co-develop and co-commercialize LINZESS for the treatment of adults with IBS-C or CIC. In Europe, Allergan markets linaclotide under the brand name CONSTELLA® for the treatment of adults with moderate to severe IBS-C. In Japan, Ironwood's partner Astellas markets linaclotide under the brand name LINZESS for the treatment of adults with IBS-C or CIC. Ironwood also has partnered with AstraZeneca for development and commercialization of LINZESS in China, and with Allergan for development and commercialization of linaclotide in all other territories worldwide.

LINZESS Important Safety Information

INDICATIONS AND USAGE

LINZESS (linaclotide) is indicated in adults for the treatment of both irritable bowel syndrome with constipation (IBS-C) and chronic idiopathic constipation (CIC).

IMPORTANT SAFETY INFORMATION

�
WARNING: RISK OF SERIOUS DEHYDRATION IN PEDIATRIC PATIENTS

LINZESS is contraindicated in patients less than 6 years of age. In nonclinical studies in neonatal mice, administration of a single, clinically relevant adult oral dose of linaclotide caused deaths due to dehydration. Use of LINZESS should be avoided in patients 6 years to less than 18 years of age. The safety and effectiveness of LINZESS have not been established in patients less than 18 years of age.

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Contraindications

Warnings and Precautions

Pediatric Risk

Diarrhea

Common Adverse Reactions (incidence ≥2% and greater than placebo)

Please see full Prescribing Information including Boxed Warning: http://www.allergan.com/assets/pdf/linzess_pi

LINZESS® and CONSTELLA® are registered trademarks of Ironwood Pharmaceuticals, Inc. Any other trademarks referred to in this press release are the property of their respective owners. All rights reserved.

Forward-Looking Statements

This press release contains forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, including statements about the development, launch, commercial availability and commercial potential of linaclotide, our other product candidates and the other products that we promote and the drivers, timing, impact and results thereof (including pipeline catalysts); expectations and timing regarding our ability to achieve profitability from continuing operations, positive cash flow and greater competitiveness and the resulting shareholder value; market size, commercial potential, prevalence, and the growth in, and potential demand for, linaclotide and other product candidates, as well as their potential impact on applicable markets; the potential indications for, and benefits of, linaclotide and other product candidates; our business and operations and any benefits or costs of the separation of Cyclerion; the anticipated timing of preclinical, clinical and regulatory developments and the design, timing and results of clinical and preclinical studies; expected periods of patent exclusivity, durability and life of the respective patent portfolios for linaclotide and other product candidates; the strength of the intellectual property protection for linaclotide and other product candidates; future licensing and commercialization efforts; the potential for, and timing of, regulatory submissions and approvals for linaclotide and other product candidates, and the level of risk associated with the path to approval; and our financial performance and results, and guidance and expectations related thereto (including the drivers and timing thereof), including expectations related to total revenue, net interest expense, separation expenses, restructuring expenses, LINZESS net sales growth and adjusted EBITDA from continuing operations (including how adjusted EBITDA from continuing operations will be calculated and when the Company will present this measure). Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statement. Applicable risks and uncertainties include those related to the effectiveness of development and commercialization efforts by us and our partners; preclinical and clinical development, manufacturing and formulation development; the risk that our clinical programs and studies may not progress or develop as anticipated; the risk that findings from our completed studies may not be replicated in later studies; the efficacy, safety and tolerability of linaclotide and other product candidates; the decisions by regulatory and judicial authorities; the risk that we may never get sufficient patent protection for linaclotide and other product candidates or that we are not able to successfully protect such patents; the outcomes in legal proceedings to protect or enforce the patents relating to our products and product candidates, including abbreviated new drug application litigation; the possibility that we may not achieve some or all of the anticipated benefits of the separation of Cyclerion; the risk that financial and operating results may differ from our projections; the risk that we may not achieve profitability; and the risks listed under the heading “Risk Factors” and elsewhere in Ironwood’s Annual Report on Form 10-K for the year ended December 31, 2018, and in our subsequent SEC filings. These forward-looking statements (except as otherwise noted) speak only as of the date of this press release, and Ironwood undertakes no obligation to update these forward-looking statements. Further, Ironwood considers the net profit for the U.S. LINZESS brand collaboration with Allergan in assessing the product's performance and calculates it based on inputs from both Ironwood and Allergan. This figure should not be considered a substitute for Ironwood's GAAP financial results. An explanation of our calculation of this figure is provided in the U.S. LINZESS Brand Collaboration table and related footnotes accompanying this press release.

Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)

� � � � � �

March 31,
2019

December 31,
2018

Assets
Cash, and cash equivalents $ $119,045 $ 173,172
Accounts receivable, net 3,291 20,991
Related party account receivable, net 69,326 59,959
Inventory, net 593 -
Prepaid expenses and other current assets 8,327 11,063
Restricted cash, short-term 1,250 1,250
Total current assets 201,832 266,435
Restricted cash, net of current portion 6,426 6,426
Property and equipment, net 19,017 17,270
Operating lease right-of-use assets 84,833 -
Convertible note hedges 50,589 41,020
Goodwill 785 785
Other assets 56 114
Total assets $ 363,538 $ 332,050
Liabilities and Stockholders’ Deficit
Accounts payable $ 11,203 $ 18,123
Accrued research and development costs 9,734 8,219
Accrued expenses and other current liabilities 39,591 45,252
Capital lease obligations - 73
Current portion of deferred rent - 252
Current portion of 2026 Notes 45,961 47,554
Current portion of operating lease liabilities 12,080 -
Current portion of contingent consideration - 51
Total current liabilities 118,569 119,524
Capital lease obligations, net of current portion - 158
Deferred rent, net of current portion - 6,308
Note hedge warrants 39,388 33,763
Convertible senior notes 269,947 265,601
Operating lease liabilities, net of current portion 79,950 -
2026 Notes, net of current portion 90,140 100,537
Other liabilities 2,723 2,530
Total stockholders’ deficit (237,179) (196,371)
Total liabilities and stockholders’ deficit $ 363,538 $ 332,050
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Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)

� � � � �

Three Months Ended
March 31,

2019 � � � 2018
Revenues
Collaborative arrangements revenue $66,152 $63,086
Product revenue, net - 635
Sale of active pharmaceutical ingredient

2,578

5,434
Total Revenues 68,730 69,155
Costs and expenses:
Cost of revenues, excluding amortization of acquired intangible assets 1,043 2,607
Research and development 53,990 36,505
Selling, general and administrative 64,741 59,501
Amortization of acquired intangible assets - 3,476
Loss on fair value remeasurement of contingent consideration - 512
Restructuring expenses 3,328 2,422
Total cost and expenses 123,102 105,023
Loss from operations (54,372) (35,868)
Other (expense) income:
Interest expense (9,592) (9,273)
Interest and investment income 736 681
Gain on derivatives 3,944 1,316
Other expense, net (4,912) (7,276)
GAAP net (loss) income $(59,284) $(43,144)
�
GAAP net (loss) income per share—basic and diluted $(0.38) $(0.29)
�

Three Months Ended
March 31,

2019 2018
Non-GAAP net loss $(40,546) $(37,847)
Non-GAAP net loss per share (basic and diluted) $(0.26) $(0.25)

Weighted average number of common shares used in net loss per share — basic and diluted

154,956

151,013

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Reconciliation of GAAP Results to Non-GAAP Financial Measures
(In thousands, except per share amounts)
(unaudited)

A reconciliation between net loss on a GAAP basis and on a non-GAAP basis is as follows:

� � � � �

Three Months Ended
March 31,

2019 � � � 2018
GAAP net loss $(59,284) $(43,144)
Adjustments:
Mark-to-market adjustments on the derivatives related to convertible notes, net (3,944) (1,316)
Amortization of intangible assets - 3,476
Loss on fair value remeasurement of contingent consideration - 512
Restructuring expenses 3,328 2,422
Separation expenses 19,354 203
Non-GAAP net loss $(40,546) $(37,847)
�

A reconciliation between diluted net loss per share on a GAAP basis and on a non-GAAP basis is as follows:

� � � � �

Three Months Ended
March 31,

2019 � � � 2018
GAAP net income (loss) per share – Basic and Diluted $(0.38) $(0.29)
Adjustments to GAAP net loss per share
(as detailed above) 		0.12 0.04
Non-GAAP net loss per share – basic and diluted $(0.26) $(0.25)
�

U.S. LINZESS Commercial Collaboration1
Revenue/Expense Calculation
(In thousands)
(unaudited)

� � � � �

Three Months Ended
March 31,

2019 � � � 2018
LINZESS U.S. net sales $ 161,348 $ 159,334

Allergan & Ironwood commercial costs and expenses2

53,315 58,890
Commercial profit on sales of LINZESS $ 108,033 $ 100,444

Commercial Margin3

67% 63%
�
Ironwood’s share of net profit $ 54,016 $ 50,222

Reimbursement for Ironwood’s selling, general and administrative expenses4

10,277 10,928
Ironwood’s collaborative arrangement revenue $ 64,293 $ 61,150
�

1 Ironwood collaborates with Allergan on the development and commercialization of linaclotide in North America. Under the terms of the collaboration agreement, Ironwood receives 50% of the net profits and bears 50% of the net losses from the commercial sale of LINZESS in the U.S. The purpose of this table is to present calculations of Ironwood’s share of net profit (loss) generated from the sales of LINZESS in the U.S. and Ironwood’s collaboration revenue/expense; however, the table does not present the research and development expenses related to LINZESS in the U.S. that are shared equally between the parties under the collaboration agreement. Please refer to the table at the end of this press release for net profit for the U.S. LINZESS brand collaboration with Allergan.
2 Includes cost of goods sold incurred by Allergan as well as selling, general and administrative expenses incurred by Allergan and Ironwood that are attributable to the cost-sharing arrangement between the parties.
3 Commercial margin is defined as commercial profit on sales of LINZESS as a percent of total LINZESS U.S. net sales.
4 Includes Ironwood’s selling, general and administrative expenses attributable to the cost-sharing arrangement with Allergan.

U.S. LINZESS Full Brand Collaboration1
Revenue/Expense Calculation
(In thousands)
(unaudited)

� � � � �

Three Months Ended
March 31,

2019 � � � 2018
LINZESS U.S. net sales $ 161,348 $159,334

Allergan & Ironwood commercial costs and expenses2

53,315 58,890

Allergan & Ironwood R&D Expenses3

13,616 11,597
Total net profit on sales of LINZESS $ 94,417 $ 88,847
�

1 Ironwood collaborates with Allergan on the development and commercialization of linaclotide in North America. Under the terms of the collaboration agreement, Ironwood receives 50% of the net profits and bears 50% of the net losses from the commercial sale of LINZESS in the U.S. The purpose of this table is to present calculations of Ironwood’s share of net profit (loss) generated from the sales of LINZESS in the U.S. and Ironwood’s collaboration revenue/expense; however, the table does not present the research and development expenses related to LINZESS in the U.S. that are shared equally between the parties under the collaboration agreement. Please refer to the table at the end of this press release for net profit for the U.S. LINZESS brand collaboration with Allergan.
2 Includes cost of goods sold incurred by Allergan as well as selling, general and administrative expenses incurred by Allergan and Ironwood that are attributable to the cost-sharing arrangement between the parties.
3 Commercial margin is defined as commercial profit on sales of LINZESS as a percent of total LINZESS U.S. net sales.
4 Includes Ironwood’s selling, general and administrative expenses attributable to the cost-sharing arrangement with Allergan.

Meredith Kaya, 617-374-5082

Vice President, Investor Relations and Corporate Communications

[email protected]

Source: Ironwood Pharmaceuticals, Inc.

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