Ironwood Pharmaceuticals Reports Second Quarter 2022 Results; Maintains Full Year Guidance Due to Continued Strength of LINZESS Prescription Demand

Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), a GI-focused healthcare company, today reported its second quarter 2022 results and recent business performance.

“We made progress towards our goal of becoming the leading GI healthcare company in the U.S., as the positive momentum across our business continued in the second quarter,” said Tom McCourt, chief executive officer of Ironwood. “We are pleased by the year-over-year double-digit LINZESS prescription demand growth in the first half of 2022, and we believe there is still significant opportunity to reach appropriate new patients and drive additional growth for the brand. In addition to the commercial success of LINZESS, we continue to make progress with our ongoing clinical trials. We now expect our Phase 3 pediatric study of linaclotide in 6 to 17 year-olds with functional constipation to readout in the third quarter of this year and remain on track with the previously shared data readout timing for IW-3300 and CNP-104. We believe our capabilities in GI, strong balance sheet and disciplined capital allocation continue to position our company for growth moving forward.”

Second Quarter 2022 Financial Highlights1 (in thousands, except for per share amounts)
		2Q 2022		2Q 2021
Total revenues		$97,231		$104,031
Total operating expenses		41,576		38,933
GAAP net income		37,080		391,303
GAAP net income per share – basic		0.24		2.42
GAAP net income per share –diluted		0.21		2.39
Adjusted EBITDA		56,015		65,212
Non-GAAP net income		37,761		56,387
Non-GAAP net income per share – basic		0.24		0.35
Non-GAAP net income per share – diluted		0.21		0.34

1. Refer to the Reconciliation of GAAP Results to Non-GAAP Financial Measures table and to the Reconciliation of GAAP Net Income to Adjusted EBITDA table at the end of this press release. Refer to Non-GAAP Financial Measures for additional information.

Second Quarter 2022 Corporate Highlights

U.S. LINZESS

• Prescription Demand: Total LINZESS prescription demand in the second quarter of 2022 was 43 million LINZESS capsules, a 9% increase compared to the second quarter of 2021, per IQVIA.
• U.S. Brand Collaboration: LINZESS U.S. net sales are provided to Ironwood by its U.S. partner, AbbVie Inc. (“AbbVie”). LINZESS U.S. net sales were $248.4 million in the second quarter of 2022, a 4% decrease compared to $259.3 million in the second quarter of 2021.
  • Ironwood and AbbVie share equally in U.S. brand collaboration profits. See the LINZESS U.S. Commercial Collaboration table at the end of the press release.

– LINZESS commercial margin was 69% in the second quarter of 2022, compared to 72% in the second quarter of 2021. See the U.S. LINZESS Full Brand Collaboration table below and at the end of this press release.

– Net profit for the LINZESS U.S. brand collaboration, net of commercial and research and development (“R&D”) expenses, was $163.8 million in the second quarter of 2022, compared to $176.6 million in the second quarter of 2021. See U.S. LINZESS Full Brand Collaboration table below and at the end of this press release.

• Collaboration Revenue to Ironwood: Ironwood recorded $94.5 million in collaboration revenue in the second quarter of 2022 related to sales of LINZESS in the U.S., a 6% decrease compared to $100.3 million for the second quarter of 2021. See U.S. LINZESS Commercial Collaboration table at the end of the press release.

U.S. LINZESS Full Brand Collaboration (in thousands, except for percentages)	Three Months Ended June 30,
	2022	2021
LINZESS U.S. net sales as reported by AbbVie	$248,351	$259,252
AbbVie & Ironwood commercial costs, expenses and other discounts	76,363	73,439
Commercial margin	69%	72%
AbbVie & Ironwood R&D Expenses	8,214	9,173
Total net profit on sales of LINZESS	163,774	176,640
Full brand margin	66%	68%

• In June 2022, LINZESS received a strong recommendation and a high rating on certainty of evidence in the update to the American Gastroenterological Association practice guideline on the Pharmacological Management of Irritable Bowel Syndrome with Constipation (IBS-C).

Recent Business Highlights

• In May 2022, Ironwood completed its board authorized share repurchase program of up to $150 million. For the overall program, under which repurchases commenced in December 2021, Ironwood repurchased 13.1 million shares of Class A Common Stock at an average price per share of $11.47.
• In June 2022, Ironwood repaid the remaining $120.7 million aggregate principal amount of the 2022 Convertible Notes in full.

Pipeline Updates

Pediatric Program

• Ironwood and AbbVie are currently advancing the linaclotide clinical pediatric program to potentially expand the clinical profile of LINZESS (assuming positive data and FDA approval).

– The functional constipation study in 6- to 17-year-olds is expected to readout in the third quarter of 2022. There are currently no FDA approved prescription pediatric therapies for functional constipation.

IW-3300

• Ironwood is currently advancing IW-3300, a guanylate cyclase-C agonist being developed for the potential treatment of visceral pain conditions, such as interstitial cystitis / bladder pain syndrome (IC/BPS) and endometriosis.

– Ironwood has successfully completed Phase I studies to evaluate the safety and tolerability of IW-3300 in healthy volunteers and expects to initiate a Phase 2 proof of concept study in IC/BPS patients by the end of 2022.

CNP-104

• Ironwood has a collaboration and license option agreement with COUR Pharmaceuticals Development Company, Inc. (“COUR”). This agreement gives Ironwood an option to acquire an exclusive license to research, develop, manufacture and commercialize, in the U.S., products containing CNP-104 (“CNP-104”), a tolerizing immune modifying nanoparticle, for the treatment of primary biliary cholangitis (“PBC”), a rare autoimmune disease targeting the liver. If successful, CNP-104 has the potential to be the first approved PBC disease modifying therapy.

– COUR is currently conducting a clinical study for CNP-104 evaluating the safety, tolerability, pharmacodynamic effects and efficacy of CNP-104 in PBC patients, and remains on track with a data readout estimated in 2023.

Second Quarter Financial Results

• Total Revenues. Total revenues in the second quarter of 2022 were $97.2 million, compared to $104.0 million in the second quarter of 2021.

– Total revenues in the second quarter of 2022 consisted of $94.5 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S. and $2.7 million in royalties and other revenue. Total revenues in the second quarter of 2021 consisted of $100.3 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., and $3.7 million in linaclotide royalties and other revenue.

• Operating Expenses. Operating expenses in the second quarter of 2022 were $41.6 million, compared to $38.9 million in the second quarter of 2021.

– Operating expenses in the second quarter of 2022 consisted of $30.1 million in selling, general and administrative (“SG&A”) expenses, and $11.5 million in research and development (“R&D”) expenses. Operating expenses in the second quarter of 2021 consisted of $27.0 million in SG&A expenses and $12.2 million in R&D expenses, partially offset by a $0.3 million adjustment to restructuring expenses.

• Interest Expense, net of Interest and Investment Income. Net interest expense was $2.2 million in the second quarter of 2022, primarily in connection with Ironwood’s convertible senior notes, partially offset by $1.0 million of investment income. Interest expense recorded in the second quarter of 2022 included $1.7 million in cash expense and $0.5 million in non-cash expense. Net interest expense was $7.6 million in the second quarter of 2021, primarily in connection with Ironwood’s convertible senior notes. Interest expense recorded in the second quarter of 2021 included $1.8 million in cash expense and $5.9 million in non-cash expense. The reduction in non-cash interest expense in the second quarter of 2022 relates to the adoption of 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”) on January 1, 2022, that impacts the accounting for Ironwood’s convertible senior notes.
  

• Loss on Derivatives. Ironwood recorded a loss on derivatives of $0.7 million in the second quarter of 2022, as a result of the change in fair value of its convertible note hedges and note hedge warrants. The convertible note hedges terminated unexercised upon expiration in June 2022. Ironwood recorded a loss on derivatives of $3.2 million in the second quarter of 2021, as a result of the change in fair value of its convertible note hedges and note hedge warrants.
  

• Income Tax Expense. Ironwood recorded $16.7 million of income tax expense in the second quarter of 2022, the majority of which was non-cash, as Ironwood continues to utilize net operating losses to offset taxable income for federal purposes and in many states. Ironwood recorded $336.9 million of income tax benefit in the second quarter of 2021, primarily related to the release of its valuation allowance against the majority of its deferred tax assets. Ironwood maintained a valuation allowance on the majority of its net deferred tax assets until the second quarter of 2021.
  

• GAAP Net Income. GAAP net income was $37.1 million, or $0.24 per share (basic) and $0.21 per share (diluted), in the second quarter of 2022 compared to GAAP net income of $391.3 million, or $2.42 per share (basic) and $2.39 per share (diluted) in the second quarter of 2021.
  

• Non-GAAP Net Income. Non-GAAP net income was $37.8 million, or $0.24 per share (basic) and $0.21 per share (diluted), in the second quarter of 2022, compared to non-GAAP net income of $56.4 million, or $0.35 per share (basic) and $0.34 per share (diluted), in the second quarter of 2021.

Non-GAAP net income excludes the impact of mark-to-market adjustments on the derivatives related to Ironwood’s 2022 Convertible Notes, restructuring expenses, and the release of the company’s valuation allowance against the majority of deferred tax assets in the second quarter of 2021. See Non-GAAP Financial Measures below.

• Adjusted EBITDA. Adjusted EBITDA was $56.0 million in the second quarter of 2022, compared to $65.2 million in the second quarter of 2021.

– Adjusted EBITDA is calculated by subtracting mark-to-market adjustments on derivatives related to Ironwood’s 2022 Convertible Notes, restructuring expenses, net interest expense, income taxes, depreciation and amortization from GAAP net income. See Non-GAAP Financial Measures below.

• Cash Flow Highlights. Ironwood ended the second quarter of 2022 with $504.4 million of cash and cash equivalents.

– Ironwood generated $61.4 million in cash from operations in the second quarter of 2022, compared to $48.6 million in cash from operations in the second quarter of 2021.

– Ironwood used $120.7 million of cash to repay the remaining aggregate principal amount of the 2022 Convertible Notes and $33.9 million of cash to repurchase shares of its Class A Common Stock in the second quarter of 2022.

• Ironwood 2022 Financial Guidance. In 2022, Ironwood continues to expect:

	2022 Guidance
U.S. LINZESS Net Sales Growth	Low single digits %
Total Revenue	$420 to $430 million
Adjusted EBITDA1	>$250 million

¹ Adjusted EBITDA is calculated by subtracting mark-to-market adjustments on derivatives related to Ironwood’s 2022 Convertible Notes, restructuring expenses, net interest expense, income taxes, depreciation and amortization from GAAP net income. For purposes of this guidance, Ironwood has assumed that it will not incur material expenses related to business development activities in 2022.

Non-GAAP Financial Measures

Ironwood presents non-GAAP net income and non-GAAP net income per share to exclude the impact of net gains and losses on derivatives related to Ironwood’s 2022 Convertible Notes that are required to be marked-to-market, restructuring expenses, and the release of the company’s valuation allowance

against the majority of deferred tax assets in the second quarter of 2021. Non-GAAP adjustments are further detailed below:

• The gains and losses on the derivatives related to Ironwood’s 2022 Convertible Notes were highly variable, difficult to predict and of a size that could have a substantial impact on the company’s reported results of operations in any given period.
• Restructuring expenses are considered to be a non-recurring event as they are associated with distinct operational decisions. Included in restructuring expenses are costs associated with exit and disposal activities.
• The income tax benefit associated with the valuation allowance release in the second quarter of 2021 was a non-cash, non-recurring accounting recognition event, and does not affect the company’s ability to utilize its historical net operating losses and tax credit carryforwards to offset future taxable income.

Ironwood also presents adjusted EBITDA, a non-GAAP measure, as well as guidance on adjusted EBITDA. Adjusted EBITDA is calculated by subtracting mark-to-market adjustments on derivatives related to Ironwood’s 2022 Convertible Notes, restructuring expenses, net interest expense, income taxes, depreciation and amortization from GAAP net income. The adjustments are made on a similar basis as described above related to non-GAAP net income, as applicable.

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 income and non-GAAP net income per share to GAAP net income and GAAP net income per share, respectively, and for a reconciliation of adjusted EBITDA to GAAP net income, please refer to the tables at the end of this press release.

Ironwood does not provide guidance on GAAP net income or a reconciliation of expected adjusted EBITDA to expected GAAP net income because, without unreasonable efforts, it is unable to predict with reasonable certainty the non-GAAP adjustments used to calculate adjusted EBITDA. These adjustments are uncertain, depend on various factors and could have a material impact on GAAP net income for the guidance period.

Conference Call Information

Ironwood will host a conference call and webcast at 8:30 a.m. Eastern Time on Thursday, August 4, 2022 to discuss its second quarter 2022 results and recent business activities. Individuals interested in participating in the call should dial [phone] (U.S. and Canada) or [phone] (international) using conference ID number and event passcode 4671230. 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 August 4, 2022 running through 11:59 p.m. Eastern Time on August 18, 2022. To listen to the replay, dial [phone] (U.S. and Canada) or [phone] (international) using conference ID number 4671230. 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), an S&P SmallCap 600 company, is a leading gastrointestinal (GI) healthcare company on a mission to advance the treatment of GI diseases and redefine the standard of care for GI patients. We are pioneers in the development of LINZESS (linaclotide), the U.S. branded prescription market leader for adults with irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC). Under the guidance of our seasoned industry leaders, we continue to build upon our history of GI innovation and challenge what has been done before to shape what the future holds. We keep patients at the heart of our R&D and commercialization efforts to reduce the burden of GI diseases and address significant unmet needs.

Founded in 1998, Ironwood Pharmaceuticals is headquartered in Boston, Massachusetts.

We routinely post information that may be important to investors on our website at www.ironwoodpharma.com. In addition, follow us on Twitter and on LinkedIn.

About LINZESS (linaclotide)

LINZESS is the #1 prescribed brand in the U.S. for the treatment of adult patients with irritable bowel syndrome with constipation (“IBS-C”) or chronic idiopathic constipation (“CIC”), based on IQVIA data.

LINZESS is a once-daily capsule that helps relieve the abdominal pain, constipation, and overall abdominal symptoms of bloating, discomfort and pain 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 2 years of age. In neonatal mice, linaclotide increased fluid secretion as a consequence of age-dependent elevated GC-C agonism resulting in mortality within the first 24 hours due to dehydration. There was no age-dependent trend in GC-C intestinal expression in a clinical study of children 2 to less than 18 years of age; however, there are insufficient data available on GC-C intestinal expression in children less than 2 years of age to assess the risk of developing diarrhea and its potentially serious consequences in these patients. The safety and effectiveness of LINZESS in patients less than 18 years of age have not been established.

LINZESS is not a laxative; it is the first medicine approved by the FDA in a class called 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 AbbVie co-develop and co-commercialize LINZESS for the treatment of adults with IBS-C or CIC. In Europe, AbbVie 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 AbbVie 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 LESS THAN 2 YEARS OF AGE   LINZESS is contraindicated in patients less than 2 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.

Contraindications

• LINZESS is contraindicated in patients less than 2 years of age due to the risk of serious dehydration.
• LINZESS is contraindicated in patients with known or suspected mechanical gastrointestinal obstruction.

Warnings and Precautions

Pediatric Risk

• LINZESS is contraindicated in patients less than 2 years of age. In neonatal mice, linaclotide increased fluid secretion as a consequence of age-dependent elevated GC-C agonism resulting in mortality within the first 24 hours due to dehydration. There was no age-dependent trend in GC-C intestinal expression in a clinical study of children 2 to less than 18 years of age; however, there are insufficient data available on GC-C intestinal expression in children less than 2 years of age to assess the risk of developing diarrhea and its potentially serious consequences in these patients. The safety and effectiveness of LINZESS in patients less than 18 years of age have not been established.

Diarrhea

• Diarrhea was the most common adverse reaction in LINZESS-treated patients in the pooled IBS-C and CIC double-blind placebo-controlled trials. The incidence of diarrhea was similar in the IBS-C and CIC populations. Severe diarrhea was reported in 2% of 145 mcg and 290 mcg LINZESS-treated patients, and in <1% of 72 mcg LINZESS-treated CIC patients. If severe diarrhea occurs, dosing should be suspended and the patient rehydrated.

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

• In IBS-C clinical trials: diarrhea (20% vs 3% placebo), abdominal pain (7% vs 5%), flatulence (4% vs 2%), headache (4% vs 3%), viral gastroenteritis (3% vs 1%) and abdominal distension (2% vs 1%).
• In CIC trials of a 145 mcg dose: diarrhea (16% vs 5% placebo), abdominal pain (7% vs 6%), flatulence (6% vs 5%), upper respiratory tract infection (5% vs 4%), sinusitis (3% vs 2%) and abdominal distension (3% vs 2%). In a CIC trial of a 72 mcg dose: diarrhea (19% vs 7% placebo) and abdominal distension (2% vs <1%).

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 Ironwood’s ability to execute its mission; Ironwood’s strategy, business, financial position and operations; Ironwood’s ability to drive growth and profitability; the demand, development, commercial availability and commercial potential of linaclotide and the drivers, timing, impact and results thereof; Ironwood’s continued focused investments and commitment to reaching new patients to drive prescription demand growth moving forward, which include a clinical pediatric programs in IBS-C and functional constipation (including the timing and results thereof); the potential indications for, and benefits of, linaclotide; financial performance and results, and guidance and expectations related thereto, including expectations related to LINZESS U.S. net sales growth, total revenue and adjusted EBITDA in 2022; Ironwood’s plans to maximize LINZESS growth via commercial innovation and lifecycle management; the progress of our ongoing clinical trials and the timing of related data readouts; the potential of IW-3300 as a treatment of visceral pain conditions and the size of the IC/BPS and endometriosis populations; the size of estimated U.S. population affected by PBC; and the potential of CNP-104 to be the first PBC disease modifying therapy. These forward-looking statements speak only as of the date of this press release, and Ironwood undertakes no obligation to update these forward-looking statements. 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 of linaclotide, CNP-104 and our product candidates; the risk that clinical programs and studies may not progress or develop as anticipated, including that studies are delayed or discontinued for any reason, such as safety, tolerability, enrollment, manufacturing, economic or other reasons; the risk that findings from our completed nonclinical and clinical studies may not be replicated in later studies; the risk that we or our partners are unable to obtain, maintain or manufacture sufficient LINZESS or our product candidates, or otherwise experience difficulties with respect to supply or manufacturing; the efficacy, safety and tolerability of linaclotide and our product candidates; the risk that the therapeutic opportunities for LINZESS or our product candidates are not as we expect; decisions by regulatory and judicial authorities; the risk we may never get additional patent protection for linaclotide and other product candidates, that patents for linaclotide or other products may not provide adequate protection from competition, or that we are not able to successfully protect such patents; the risk that we are unable to manage our expenses or cash use, or are unable to commercialize our products as expected; the risk that we may elect to not exercise our option to acquire the exclusive license for CNP-104; the risk that the development of either our clinical pediatric programs in IBS-C and functional constipation in 6 to 17 year-olds, CNP-104 and/or IW-3300 is not successful or that any of our product candidates is not successfully commercialized; outcomes in legal proceedings to protect or enforce the patents relating to our products and product candidates, including abbreviated new drug application litigation; the risk that financial and operating results may differ from our projections; developments in the intellectual property landscape; challenges from and rights of competitors or potential competitors; the risk that our planned investments do not have the anticipated effect on our company revenues; developments in accounting guidance or practice; Ironwood’s or AbbVie’s accounting practices, including reporting and settlement practices as between Ironwood and AbbVie; the risk that we are unable to manage our expenses or cash use, or are unable to commercialize our products as expected; the impact of the COVID-19 pandemic; 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, 2021, and in our subsequent Securities and Exchange Commission filings.

Condensed Consolidated Balance Sheets (In thousands) (unaudited)
		June 30, 2022			December 31, 2021
Assets
Cash and cash equivalents		$	504,365		$	620,129
Accounts receivable, net			102,357			114,042
Prepaid expenses and other current assets			9,854			8,689
Restricted cash, short-term			1,250			1,250
Convertible note hedges			-			1,115
Total current assets			617,826			745,225
Restricted cash, net of current portion			485			485
Accounts receivable, net of current portion			14,289			23,998
Property and equipment, net			6,964			7,575
Operating lease right-of-use assets			14,700			15,350
Deferred tax assets			320,554			333,294
Other assets			872			1,000
Total assets		$	975,690		$	1,126,927
Liabilities and Stockholders’ Equity
Accounts payable		$	317		$	935
Accrued research and development costs			6,338			15,896
Accrued expenses and other current liabilities			13,425			23,566
Current portion of operating lease liabilities			3,066			3,127
Current portion of convertible senior notes			-			116,858
Note hedge warrants			152			1,316
Total current liabilities			23,298			161,698
Convertible senior notes, net of current portion			395,451			337,333
Operating lease liabilities, net of current portion			17,567			18,484
Other liabilities			6,491			3,501
Total stockholders’ equity			532,883			605,911
Total liabilities and stockholders’ equity		$	975,690		$	1,126,927

Condensed Consolidated Statements of Income (In thousands, except per share amounts) (unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
Revenues
Collaborative arrangements revenue		$	97,231			$	103,386			$	194,760			$	192,051
Sale of active pharmaceutical ingredient			-				645				-				825
Total revenues			97,231				104,031				194,760				192,876
Operating expenses:
Research and development			11,452				12,163				22,274				27,647
Selling, general and administrative			30,124				27,052				58,985				54,704
Restructuring expenses			-				(282	)			-				29
Total operating expenses			41,576				38,933				81,259				82,380
Income from operations			55,655				65,098				113,501				110,496
Other (expense) income:
Interest expense			(2,207	)			(7,732	)			(4,548	)			(15,358	)
Interest and investment income			1,018				172				1,248				368
Gain (loss) on derivatives			(681	)			(3,166	)			49				(776	)
Other expense, net			(1,870	)			(10,726	)			(3,251	)			(15,766	)
Income before income taxes			53,785				54,372				110,250				94,730
Income tax (expense) benefit			(16,705	)			336,931				(34,369	)			336,499
GAAP net income		$	37,080			$	391,303			$	75,881			$	431,229
GAAP net income per share—basic		$	0.24			$	2.42			$	0.49			$	2.67
GAAP net income per share—diluted		$	0.21			$	2.39			$	0.42			$	2.64

Reconciliation of GAAP Results to Non-GAAP Financial Measures (In thousands, except per share amounts) (unaudited)
A reconciliation between net income on a GAAP basis and on a non-GAAP basis is as follows:
		Three Months Ended June 30,							Six Months Ended June 30,
		2022			2021				2022				2021
GAAP net income		$	37,080		$	391,303			$	75,881			$	431,229
Adjustments:
Mark-to-market adjustments on the derivatives related to convertible notes, net			681			3,166				(49	)			776
Restructuring expenses			-			(282	)			-				29
Valuation allowance release			-			(337,800	)			-				(337,800	)
Non-GAAP net income		$	37,761		$	56,387			$	75,832			$	94,234

A reconciliation between basic net income per share on a GAAP basis and on a non-GAAP basis is as follows:
		Three Months Ended June 30,							Six Months Ended June 30,
		2022			2021				2022			2021
GAAP net income per share –basic		$	0.24		$	2.42			$	0.49		$	2.67
Adjustments to GAAP net income per share (as detailed above)			-			(2.07	)			-			(2.09	)
Non-GAAP net income per share –basic		$	0.24		$	0.35			$	0.49		$	0.58
Weighted average number of common shares used to calculate net income per share — basic			153,304			161,948				155,550			161,460

A reconciliation between diluted net income per share on a GAAP basis and on a non-GAAP basis is as follows:
		Three Months Ended June 30,							Six Months Ended June 30,
		2022			2021				2022			2021
GAAP net income per share –diluted		$	0.21		$	2.39			$	0.42		$	2.64
Adjustments to GAAP net income per share (as detailed above)			-			(2.05	)			-			(2.07	)
Non-GAAP net income per share –diluted		$	0.21		$	0.34			$	0.42		$	0.57
Weighted average number of common shares used to calculate net income per share — diluted1			184,876			163,495				187,315			163,134

¹ Following the adoption of ASU 2020-06 on January 1, 2022, the dilutive impact of Ironwood’s convertible senior notes is determined using the if-converted method. As a result of this change, the weighted average number of common shares used to calculate diluted net income per share includes approximately 29.9 million shares related to the assumed conversion of the 2024 and 2026 convertible senior notes. Under the modified retrospective transition method elected by the Company in connection with the adoption of ASU 2020-06, diluted earnings per share for prior fiscal periods is not required to be restated.

Reconciliation of GAAP Net Income to Adjusted EBITDA (In thousands) (unaudited)
A reconciliation of GAAP net income to adjusted EBITDA:
		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
GAAP net income		$	37,080			$	391,303			$	75,881			$	431,229
Adjustments:
Mark-to-market adjustments on the derivatives related to convertible notes, net			681				3,166				(49	)			776
Restructuring expenses			-				(282	)			-				29
Interest expense			2,207				7,732				4,548				15,358
Interest and investment income			(1,018	)			(172	)			(1,248	)			(368	)
Income tax expense (benefit)			16,705				(336,931	)			34,369				(336,499	)
Depreciation and amortization			360				396				715				806
Adjusted EBITDA		$	56,015			$	65,212			$	114,216			$	111,331

U.S. LINZESS Commercial Collaboration1 Revenue/Expense Calculation (In thousands) (unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
LINZESS U.S. net sales as reported by AbbVie2		$	248,351			$	259,252			$	480,685			$	474,651
AbbVie & Ironwood commercial costs, expenses and other discounts3			76,363				73,439				137,379				130,950
Commercial profit on sales of LINZESS		$	171,988			$	185,813			$	343,306			$	343,701
Commercial Margin4			69	%			72	%			71	%			72	%
Ironwood’s share of net profit5			85,994				92,906				171,653				171,850
Reimbursement for Ironwood’s commercial expenses			8,458				7,401				17,118				14,406
Ironwood’s collaborative arrangement revenue2		$	94,452			$	100,307			$	188,771			$	186,256

¹ Ironwood collaborates with AbbVie 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 AbbVie.
² LINZESS net sales are recognized using AbbVie’s revenue recognition accounting policies and reporting conventions. As a result, certain rebates and discounts are classified as LINZESS U.S. commercial costs, expenses and other discounts within Ironwood’s calculation of collaborative arrangements revenue.
³ Includes certain discounts recognized and cost of goods sold incurred by AbbVie; also includes commercial costs incurred by AbbVie and Ironwood that are attributable to the cost-sharing arrangement between the parties.
⁴ Commercial margin is defined as commercial profit on sales of LINZESS as a percent of total LINZESS U.S. net sales.
⁵ Ironwood has recalculated its share of net profit on sales of LINZESS in the U.S. to conform with AbbVie’s recast of historically reported LINZESS U.S. net sales (previously reported by Allergan).

US LINZESS Full Brand Collaboration1 Revenue/Expense Calculation (In thousands) (unaudited)
		Three Months Ended June 30,						Six Months Ended June 30,
		2022			2021			2022			2021
LINZESS U.S. net sales as reported by AbbVie2		$	248,351		$	259,252		$	480,685		$	474,651
AbbVie & Ironwood commercial costs, expenses and other discounts3			76,363			73,439			137,379			130,950
AbbVie & Ironwood R&D Expenses4			8,214			9,173			16,380			18,647
Total net profit on sales of LINZESS5		$	163,774		$	176,640		$	326,926		$	325,054

¹ Ironwood collaborates with AbbVie 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 the total net profit (loss) generated from the sales of LINZESS in the U.S., including the commercial costs and expenses and the research and development expenses related to LINZESS in the U.S. that are shared equally between the parties under the collaboration agreement.
² LINZESS net sales are recognized using AbbVie’s revenue recognition accounting policies and reporting conventions. As a result, certain rebates and discounts are classified as LINZESS U.S. commercial costs, expenses and other discounts within Ironwood’s calculation of collaborative arrangements revenue.
³ Includes certain discounts recognized and cost of goods sold incurred by AbbVie; also includes commercial costs incurred by AbbVie and Ironwood that are attributable to the cost-sharing arrangement between the parties.
⁴ R&D expenses related to LINZESS in the U.S. are shared equally between Ironwood and AbbVie under the collaboration agreement.
⁵ Ironwood has recalculated its share of net profit on sales of LINZESS in the U.S. to conform with AbbVie’s recast of historically reported LINZESS U.S. net sales (previously reported by Allergan).

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