Ironwood Pharmaceuticals, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. Results reflect Ironwood’s GI-focused business after the April 1, 2019 tax-free spin-off of its sGC business into Cyclerion; prior periods were recast to present sGC as discontinued operations.
Key financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $102.2 | $81.1 | $170.9 | $150.3 |
| Operating income (loss) | $21.6 | ($14.7) | $4.6 | ($34.0) |
| Continuing operations income (loss) | $12.3 | ($24.1) | ($9.6) | ($50.7) |
| Net income (loss), including discontinued operations | $12.3 | ($49.4) | ($47.0) | ($92.5) |
| Net income (loss) per share, basic and diluted | $0.08 | ($0.32) | ($0.30) | ($0.61) |
- Q2 revenue rose 26%; collaborative-arrangement revenue increased 9% to $77.3 million and linaclotide API sales rose 183% to $24.9 million, primarily on higher shipments to Astellas in Japan. H1 revenue grew 14%.
- Q2 operating expenses were $80.6 million, down 16% year over year. R&D increased 24% to $28.8 million; SG&A fell 28% to $43.2 million. The quarter included a $3.2 million gain from a lease modification.
- Interest expense was $9.4 million in Q2 and $19.0 million for H1. H1 net loss includes $37.4 million of discontinued-operation losses, principally before the spin-off; Q2 2019 had no discontinued-operation loss.
- Operating cash used was $51.6 million for H1, comprising $63.0 million used in continuing operations and $11.4 million provided by discontinued operations. Cash, cash equivalents and restricted cash decreased $73.3 million to $107.6 million; unrestricted cash and cash equivalents were $98.9 million.
- At June 30, total assets were $315.7 million and current assets and current liabilities were $221.0 million and $110.9 million, respectively. Stockholders’ deficit was $219.4 million.
- Indebtedness was approximately $464.2 million, per the filing’s risk-factor disclosure. The company paid $21.5 million of principal on its 8.375% notes due 2026 during H1; $48.8 million of those notes was classified as current. It also had $335.7 million principal outstanding on 2.25% convertible notes due 2022.
Material changes and business developments
- Ironwood completed the Cyclerion spin-off on April 1, 2019 and now reports one GI therapeutics segment. The separation transferred $2.6 million of net assets to Cyclerion; historical sGC results are presented as discontinued operations.
- U.S. LINZESS collaboration revenue increased primarily due to prescription-demand growth, partly offset by lower net price. The company receives half of U.S. LINZESS net profits or bears half of net losses with Allergan.
- Lesinurad product revenue ended after termination of the U.S. license in January 2019. Ironwood reported no product revenue in Q2 2019, compared with $1.1 million a year earlier.
- R&D spending rose, notably for IW-3718 and early research; IW-3718 accounted for $18.6 million of Q2 R&D expense. Ironwood and Allergan initiated a Phase II MD-7246 trial in IBS-D in May. Ironwood also reported positive topline Phase IIIb LINZESS data for overall abdominal symptoms in IBS-C.
- Ironwood entered a lease for approximately 39,000 square feet at 100 Summer Street, Boston, as its expected new headquarters from Q4 2019. It also agreed to terminate its 301 Binney Street lease for an approximately $9.0 million payment, with termination expected by November 1, 2019, subject to a short extension option.
Outlook, risks and unusual items
- Management said cash on hand at June 30 was expected to fund projected operating needs for at least the next 12 months. Ironwood had not achieved positive operating cash flow and could not guarantee when, or whether, it would become cash-flow positive.
- Management expects LINZESS U.S. collaboration revenue to remain a significant revenue source, but said revenue from Astellas in Japan is expected to be significantly lower after 2019 because Astellas built linaclotide API inventory during its launch. No specific revenue or earnings guidance was provided.
- Key risks include reliance on LINZESS and partners, pricing and reimbursement pressure, manufacturing and supply continuity, clinical and regulatory uncertainty, substantial debt service, and possible need for additional financing. The filing also notes the risk that the Cyclerion distribution could fail to qualify as tax-free, potentially creating significant tax liabilities.
- Generic LINZESS patent litigation against Teva and Sandoz remains pending. The trial was postponed; a proposed stipulation, subject to court approval, would reschedule it for January 7, 2020 and bar commercial sales or imports of proposed generics until the earlier of the trial decision or September 20, 2020.
- Q2 and H1 results include nonrecurring or volatile items, including the $3.2 million lease-modification gain, restructuring costs, derivative fair-value changes, and prior-year lesinurad inventory and supply-commitment write-downs. Lease accounting adoption also added material right-of-use assets and liabilities to the balance sheet.
Important facts for investors to verify
- Whether U.S. LINZESS demand, pricing, and shared commercial costs support continued growth in Ironwood’s collaboration revenue.
- The timing and effect of lower expected Astellas API purchases after 2019, and the resulting impact on revenue and cash generation.
- Cash burn, debt maturities and payments, including the 2026 notes’ sales-linked repayment structure and the 2022 convertible notes.
- Developments in the LINZESS generic litigation, including court approval of the proposed schedule and any resulting changes to exclusivity.
- Clinical and regulatory progress for IW-3718, MD-7246, and LINZESS pediatric and post-approval studies, as well as execution of the headquarters transition and lease termination.