November 30, 2023
VIA EDGAR
U.S. Securities and Exchange Commission
Division of Corporation Finance, Office of Life Sciences
100 F Street, N.E.
Washington, D.C. 20549
Attention: Lynn Dicker and Tara Harkins
| Re: | Ironwood Pharmaceuticals, Inc. |
| Form 10-K for Fiscal Year Ended December 31, 2022 | |
| Form 8-K filed on February 16, 2023 | |
| File No. 001-34620 |
Ladies and Gentlemen:
On behalf of Ironwood Pharmaceuticals, Inc. (the “Company”), I hereby submit this letter in response to the comment letter from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), dated November 15, 2023, relating to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Commission on February 16, 2023 (the “2022 Form 10-K”), and the Company’s Current Report on Form 8-K, furnished to the Commission on February 16, 2023. The Staff’s comment is presented in italics below.
Form 8-K filed on February 16, 2023
Exhibits
| 1. | Within this and your September 30, 2023 earnings release you present tables for the U.S. LINZESS Commercial Collaboration and US LINZESS Full Brand Collaboration Revenue/Expense Calculations. Please tell us how these tables reconcile to your annual and quarterly GAAP financial statements and quantify for us the differences, if necessary. Within your response, clearly explain what these tables represent; and tell us why you are presenting this information. |
Pursuant to its collaboration (the “Collaboration”) with AbbVie Inc. (together with its affiliates, “AbbVie”) for the development and commercialization of linaclotide in North America, the Company receives 50% of the net profits and bears 50% of the net losses from commercial sales of LINZESS (the U.S. marketing name for linaclotide) in the United States. LINZESS net sales are calculated and recorded by AbbVie using AbbVie’s revenue recognition accounting policies and reporting conventions. As set forth in the Company’s earnings releases, the U.S. LINZESS Commercial Collaboration table presents the calculation of the Company’s share of net profit (loss) generated from the sale of LINZESS in the United States and the Company’s Collaboration revenue/expense. This table does not present the research and development (“R&D”) expenses related to LINZESS in the United States that are shared equally between the Company and AbbVie. Also as set forth in the Company’s earnings releases, the U.S. LINZESS Full Brand Collaboration table presents calculations of the total net profit (loss) generated from the sales of LINZESS in the United States, including the commercial costs and expenses and the R&D expenses related to LINZESS in the United States that are shared equally between the Company and AbbVie.
Reconciliation to Financial Statements
U.S. LINZESS Commercial Collaboration
Fiscal Year and Quarterly Period Ended December 31, 2022
U.S. LINZESS Commercial Collaboration1
Revenue/Expense Calculation
(In thousands)
(unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| LINZESS U.S. net sales as reported by AbbVie2 | $ | 260,327 | $ | 278,555 | $ | 1,002,143 | $ | 1,005,856 | ||||||||
| AbbVie & Ironwood commercial costs, expenses and other discounts3 | 66,879 | 67,510 | 272,757 | 265,118 | ||||||||||||
| Commercial profit on sales of LINZESS | $ | 193,448 | $ | 211,045 | $ | 729,386 | $ | 740,738 | ||||||||
| Commercial Margin4 | 74 | % | 76 | % | 73 | % | 74 | % | ||||||||
| Ironwood’s share of net profit | 96,724 | 105,523 | 364,693 | 370,369 | ||||||||||||
| Reimbursement for Ironwood’s commercial expenses | 8,048 | 8,199 | 34,074 | 30,002 | ||||||||||||
| Ironwood’s collaborative arrangement revenue2 | $ | 104,772 | $ | 113,722 | $ | 398,767 | $ | 400,371 | ||||||||
As shown above, “Ironwood’s collaborative arrangement revenue,” included in the U.S. LINZESS Commercial Collaboration table in the Company’s earnings release for the fiscal year and quarterly period ended December 31, 2022, agrees to the “Collaborative arrangements revenue related to sales of LINZESS in the U.S.” in the table summarizing collaborative arrangements revenue from the Collaboration, included under Note 4—Collaboration, License and Other Agreements (“Note 4”) to the Company’s Consolidated Financial Statements, on page F-20 of the 2022 Form 10-K, as shown below. Because AbbVie, and not the Company, records net sales of LINZESS in the United States, “LINZESS U.S. net sales as reported by AbbVie,” as well as the subsequent line items used to calculate “Ironwood’s collaborative arrangement revenue”, do not correspond to specific line items on the Company’s financial statements.
The Company recognized collaborative arrangements revenue from the Collaboration for North America during the years ended December 31, 2022, 2021, and 2020 as follows (in thousands):
| Year Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Collaborative arrangements revenue related to sales of LINZESS in the U.S. | $ | 398,767 | $ | 400,371 | $ | 368,603 | ||||||
| Royalty revenue | 2,731 | 2,714 | 2,299 | |||||||||
| Total collaborative arrangements revenue | $ | 401,498 | $ | 403,085 | $ | 370,902 | ||||||
As shown above and presented in Note 4 on page F-20, “Royalty revenue” is added to “Collaborative arrangements revenue related to sales of LINZESS in the U.S.,” resulting in “Total collaborative arrangements revenue” related to the Collaboration. “Total collaborative arrangements revenue” from the Collaboration agrees to “AbbVie (North America)” under “Linaclotide Collaboration and License Agreements” in the Collaborative Arrangements Revenue table in Note 4, on page F-19 of the 2022 Form 10-K and as shown below. Revenues from the Company’s other collaborative arrangements are added to “AbbVie (North America),” resulting in “Total collaborative arrangements revenue.”
| Year Ended December 31, | ||||||||||||
| Collaborative Arrangements Revenue | 2022 | 2021 | 2020 | |||||||||
| Linaclotide Collaboration and License Agreements: | ||||||||||||
| AbbVie (North America) | $ | 401,498 | $ | 403,085 | $ | 370,902 | ||||||
| AbbVie (Europe and other) | 2,444 | 2,558 | 2,196 | |||||||||
| AstraZeneca (China, including Hong Kong and Macau) | 635 | 743 | 682 | |||||||||
| Astellas (Japan) | 2,001 | 2,232 | 2,128 | |||||||||
| Other Agreements: | ||||||||||||
| Alnylam (GIVLAARI) | 2,194 | 2,411 | 4,302 | |||||||||
| Other | 1,824 | 1,755 | 1,335 | |||||||||
| Total collaborative arrangements revenue | $ | 410,596 | $ | 412,784 | $ | 381,545 | ||||||
| Sale of API | ||||||||||||
| Linaclotide Agreements: | ||||||||||||
| Astellas (Japan) | $ | - | $ | 149 | $ | 2,017 | ||||||
| AstraZeneca (China, including Hong Kong and Macau) | - | 597 | 5,540 | |||||||||
| Other | - | 223 | 421 | |||||||||
| Total sale of API | $ | - | $ | 969 | $ | 7,978 | ||||||
“Total collaborative arrangements revenue” in the above table agrees to “Collaborative arrangements revenue” under “Revenues” on the face of the Company’s Consolidated Statements of Income and Comprehensive Income, presented on page F-5 of the 2022 Form 10-K and as shown below.
Ironwood Pharmaceuticals, Inc.
Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share amounts)
| Years Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Revenues: | ||||||||||||
| Collaborative arrangements revenue | $ | 410,596 | $ | 412,784 | $ | 381,545 | ||||||
| Sale of active pharmaceutical ingredient | - | 969 | 7,978 | |||||||||
| Total revenues | 410,596 | 413,753 | 389,523 | |||||||||
| Operating expenses: | ||||||||||||
| Cost of revenues | - | - | 3,136 | |||||||||
| Research and development | 44,265 | 70,405 | 88,062 | |||||||||
| Selling, general and administrative | 115,994 | 111,133 | 140,003 | |||||||||
| Restructuring expenses | - | (44 | ) | 15,382 | ||||||||
| Total operating expenses | 160,259 | 181,494 | 246,583 | |||||||||
| Income from operations | 250,337 | 232,259 | 142,940 | |||||||||
| Other (expense) income: | ||||||||||||
| Interest expense | (7,598 | ) | (31,150 | ) | (29,478 | ) | ||||||
| Interest and investment income | 9,501 | 726 | 1,504 | |||||||||
| Gain (loss) on derivatives | 182 | (1,178 | ) | (6,129 | ) | |||||||
| Other income | - | - | 24 | |||||||||
| Other (expense) income, net | 2,085 | (31,602 | ) | (34,079 | ) | |||||||
| Income before income taxes | 252,422 | 200,657 | 108,861 | |||||||||
| Income tax (expense) benefit | (77,357 | ) | 327,791 | (2,685 | ) | |||||||
| Net income and comprehensive income | $ | 175,065 | $ | 528,448 | $ | 106,176 | ||||||
| Net income per share-basic | $ | 1.13 | $ | 3.26 | $ | 0.67 | ||||||
| Net income per share-diluted | $ | 0.96 | $ | 3.21 | $ | 0.66 | ||||||
| Weighted average shares used in computing net income per share-basic: | 154,366 | 162,245 | 159,427 | |||||||||
| Weighted average shares used in computing net income per share-diluted: | 186,312 | 164,418 | 160,655 | |||||||||
Quarterly Period Ended September 30, 2023
U.S. LINZESS Commercial Collaboration1
Revenue/Expense Calculation
(In thousands)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| LINZESS U.S. net sales as reported by AbbVie2 | $ | 278,954 | $ | 261,131 | $ | 798,854 | $ | 741,816 | ||||||||
| AbbVie & Ironwood commercial costs, expenses and other discounts3 | 77,736 | 68,499 | 223,142 | 205,878 | ||||||||||||
| Commercial profit on sales of LINZESS | $ | 201,218 | $ | 192,632 | $ | 575,712 | $ | 535,938 | ||||||||
| Commercial Margin4 | 72 | % | 74 | % | 72 | % | 72 | % | ||||||||
| Ironwood’s share of net profit | 100,609 | 96,316 | 287,856 | 267,969 | ||||||||||||
| Reimbursement for Ironwood’s commercial expenses | 9,480 | 8,908 | 28,615 | 26,026 | ||||||||||||
| Ironwood’s collaborative arrangement revenue | $ | 110,089 | $ | 105,224 | $ | 316,471 | $ | 293,995 | ||||||||
Similarly, as shown above, “Ironwood’s collaborative arrangement revenue,” included in the U.S. LINZESS Commercial Collaboration table presented in the Company’s earnings release for the quarterly period ended September 30, 2023, agrees to “Collaborative arrangements revenue related to sales of LINZESS in the U.S.,” presented in the table summarizing collaborative arrangements revenue from the Collaboration, included under Note 5—Collaboration, License and Other Agreements (“Note 5”) to the Company’s Consolidated Financial Statements, on page 17 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023, filed with the Commission on November 9, 2023 (the “Q3 2023 Form 10-Q”), as shown below.
The following table summarizes collaborative arrangements revenue from the Collaboration for North America (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Collaborative arrangements revenue related to sales of LINZESS in the U.S. | $ | 110,089 | $ | 105,224 | $ | 316,476 | $ | 293,995 | ||||||||
| Royalty revenue | 641 | 861 | 2,072 | 2,052 | ||||||||||||
| Total collaborative arrangements revenue | $ | 110,730 | $ | 106,085 | $ | 318,548 | $ | 296,047 | ||||||||
As shown above and presented in Note 5 on page 17, “Royalty revenue” is added to “Collaborative arrangements revenue related to sales of LINZESS in the U.S.,” resulting in “Total collaborative arrangements revenue.” “Total collaborative arrangements revenue” from the Collaboration agrees to “AbbVie (North America)” under “Linaclotide Collaboration and License Agreements” in the Collaborative Arrangements Revenue table included under Note 5, on page 16 of the Q3 2023 Form 10-Q and as shown below. Revenues from the Company’s other collaborative arrangements are added to “AbbVie (North America),” resulting in “Total collaborative arrangements revenue.”
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Collaborative Arrangements Revenue | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Linaclotide Collaboration and License Agreements: | ||||||||||||||||
| AbbVie (North America) | $ | 110,730 | $ | 106,085 | $ | 318,548 | $ | 296,047 | ||||||||
| AbbVie (Europe and other) | 714 | 709 | 2,071 | 1,847 | ||||||||||||
| AstraZeneca (China, including Hong Kong and Macau) | 174 | 144 | 386 | 484 | ||||||||||||
| Astellas (Japan) | 432 | 520 | 1,305 | 1,543 | ||||||||||||
| Other Agreements: | ||||||||||||||||
| Alnylam (GIVLAARI) | - | 814 | - | 2,222 | ||||||||||||
| AKP (apraglutide) | 934 | - | 997 | - | ||||||||||||
| Other | 755 | 365 | 1,875 | 1,254 | ||||||||||||
| Total collaborative arrangements revenue | $ | 113,739 | $ | 108,637 | $ | 325,182 | $ | 303,397 | ||||||||
“Total collaborative arrangements revenue” from the above table agrees to “Collaborative arrangements revenue” under “Revenues” on the face of the Company’s Condensed Consolidated Statements of Income (Loss), presented on page 6 of the Q3 2023 Form 10-Q and as shown below.
Ironwood Pharmaceuticals, Inc.
Condensed Consolidated Statements of Income (Loss)
(In thousands, except per share amounts)
(unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Collaborative arrangements revenue | $ | 113,739 | $ | 108,637 | $ | 325,182 | $ | 303,397 | ||||||||
| Total revenues | 113,739 | 108,637 | 325,182 | 303,397 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Research and development | 32,985 | 11,545 | 80,409 | 33,819 | ||||||||||||
| Selling, general and administrative | 36,046 | 28,619 | 119,647 | 87,604 | ||||||||||||
| Restructuring expenses | 4,685 | - | 17,696 | - | ||||||||||||
| Acquired in-process research and development | - | - | 1,090,449 | - | ||||||||||||
| Total costs and expenses | 73,716 | 40,164 | 1,308,201 | 121,423 | ||||||||||||
| Income (loss) from operations | 40,023 | 68,473 | (983,019 | ) | 181,974 | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense and other financing costs | (9,839 | ) | (1,524 | ) | (13,206 | ) | (6,072 | ) | ||||||||
| Interest and investment income | 1,748 | 2,807 | 17,777 | 4,055 | ||||||||||||
| Gain on derivatives | - | 151 | 19 | 200 | ||||||||||||
| Other income (expense), net | (8,091 | ) | 1,434 | 4,590 | (1,817 | ) | ||||||||||
| Income (loss) before income taxes | 31,932 | 69,907 | (978,429 | ) | 180,157 | |||||||||||
| Income tax expense | (17,982 | ) | (19,590 | ) | (51,385 | ) | (53,959 | ) | ||||||||
| Net income (loss) | 13,950 | 50,317 | (1,029,814 | ) | 126,198 | |||||||||||
| Less: Net income (loss) attributable to noncontrolling interests | (1,371 | ) | - | (28,662 | ) | - | ||||||||||
| Net income (loss) attributable to Ironwood Pharmaceuticals, Inc. | $ | 15,321 | $ | 50,317 | $ | (1,001,152 | ) | $ | 126,198 | |||||||
| Net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. shareholders -basic | $ | 0.10 | $ | 0.33 | $ | (6.45 | ) | $ | 0.82 | |||||||
| Net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. shareholders -diluted | $ | 0.09 | $ | 0.28 | $ | (6.45 | ) | $ | 0.69 | |||||||
| Weighted average shares used in computing net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. shareholders-basic: | 155,886 | 153,066 | 155,240 | 154,713 | ||||||||||||
| Weighted average shares used in computing net income (loss) per share attributable to Ironwood Pharmaceuticals, Inc. shareholders-diluted: | 186,891 | 184,465 | 155,240 | 186,504 | ||||||||||||
U.S. LINZESS Full Brand Collaboration
Fiscal Year and Quarterly Period Ended December 31, 2022
US LINZESS Full Brand Collaboration1
Revenue/Expense Calculation
(In thousands)
(unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| LINZESS U.S. net sales as reported by AbbVie | $ | 260,327 | $ | 278,555 | $ | 1,002,143 | $ | 1,005,856 | ||||||||
| AbbVie & Ironwood commercial costs, expenses and other discounts3 | 66,879 | 67,510 | 272,757 | 265,118 | ||||||||||||
| AbbVie & Ironwood R&D Expenses4 | 9,684 | 11,017 | 33,684 | 39,417 | ||||||||||||
| Total net profit on sales of LINZESS | $ | 183,764 | $ | 200,028 | $ | 695,702 | $ | 701,321 | ||||||||
Quarterly Period Ended September 30, 2023
US LINZESS Full Brand Collaboration1
Revenue/Expense Calculation
(In thousands)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| LINZESS U.S. net sales as reported by AbbVie2 | $ | 278,954 | $ | 261,131 | $ | 798,854 | $ | 741,816 | ||||||||
| AbbVie & Ironwood commercial costs, expenses and other discounts3 | 77,736 | 68,499 | 223,142 | 205,878 | ||||||||||||
| AbbVie & Ironwood R&D Expenses4 | 9,264 | 7,620 | 28,270 | 24,000 | ||||||||||||
| Total net profit on sales of LINZESS | $ | 191,954 | $ | 185,012 | $ | 547,442 | $ | 511,938 | ||||||||
“LINZESS U.S. net sales as reported by AbbVie” and “AbbVie & Ironwood commercial costs, expenses and other discounts,” included in the U.S. LINZESS Full Brand Collaboration table in the Company’s earnings releases and as shown above, agree to the corresponding line items included in the U.S. LINZESS Commercial Collaboration table presented in the Company’s earnings releases and used to calculate certain measures in the Company’s financial statements, as outlined above.
“AbbVie & Ironwood R&D Expenses” represent the combined R&D expenses of the Company and AbbVie in connection with the Collaboration, which expenses are shared equally by the Company and AbbVie. The amount presented in “AbbVie & Ironwood R&D Expenses” is not discretely reported in the Company’s Consolidated Financial Statements, but 50% of such amounts are included within the broader “Research and development” line item under “Costs and expenses” presented in the Company’s income statements. The amount presented in “Total net profit on sales of LINZESS” is also not discretely reported in the Company’s Consolidated Financial Statements, but, as outlined above, the inputs to this line item are calculated in the same manner as the corresponding measures in the Company’s financial statements.
Why the Company Presents this Information
The Company discloses the U.S. LINZESS Commercial Collaboration and U.S. LINZESS Full Brand Collaboration tables because it believes they present useful information for investors evaluating the Collaboration and its impact on the Company. The Company’s interest in the Collaboration is one of its most important assets. Accordingly, there is significant investor focus on the Company’s collaborative arrangements revenue, and the Company believes it is useful for investors to see a breakdown of how this measure is calculated, as shown in the U.S. LINZESS Commercial Collaboration table.
Because the U.S. LINZESS Commercial Collaboration table and the collaborative arrangements revenue line item do not give effect to R&D expenses, the U.S. LINZESS Full Brand Collaboration table provides useful incremental information to investors regarding the total Collaboration profitability. In connection with the Collaboration, the Company and AbbVie jointly collaborate on the management of LINZESS through a joint commercial committee and a joint development committee. When making decisions regarding the Collaboration and the Company’s strategy, the Company’s management evaluates profitability of the Collaboration based on a fulsome evaluation of revenues and expenses, including R&D expenses. The U.S. LINZESS Full Brand Collaboration therefore allows investors to analyze the LINZESS brand from the perspective of the Company’s management. Because AbbVie, and not the Company, records net sales of LINZESS in the United States, this would not be possible without this supplement disclosure.
* * *
Should the Staff have additional questions or comments regarding the foregoing, please do not hesitate to contact me at (617) 375-5055.
| Sincerely, | |
| /s/ Sravan K. Emany | |
| Sravan K. Emany | |
| Senior Vice President, Chief Financial Officer |
| cc: | John Minardo, Senior Vice President, Chief Legal Officer and Secretary |
Paul M. Kinsella, Ropes & Gray LLP
William J. Michener, Ropes & Gray LLP