Ironwood Pharmaceuticals Provides Fourth Quarter and Full Year 2018 Investor Update

– Grew 2018 revenue 16% year-over-year to $347 million, driven
primarily by U.S. LINZESS
® (linaclotide)
collaboration revenue of $264 million and linaclotide API sales of $70
million –

– Progressed separation of Ironwood and Cyclerion into two
publicly-traded companies with completion expected first half 2019 –

– Advanced two GI programs into Phase III development and continued
to advance three ongoing sGC Phase II programs –

CAMBRIDGE, Mass.–(BUSINESS WIRE)–Ironwood
Pharmaceuticals, Inc.
(Nasdaq: IRWD), a commercial biotechnology
company, today provided an update on its fourth quarter and full year
2018 results and recent business activities.

“The fourth quarter capped off a year of solid LINZESS volume growth and
progress with our pipeline of seven differentiated product candidates,”
said Peter Hecht, chief executive officer (CEO) of Ironwood. “2018 was a
momentous year for Ironwood, as we made the decision to separate into
two independent, publicly-traded companies. We are excited to launch
these two new companies, each poised to become an industry leader in its
respective market, deliver important medicines to patients and unlock
value for shareholders.”

Mark Mallon, who is expected to become CEO of Ironwood following
completion of the planned separation, added, “It has been an exciting
first 40 days here at Ironwood. For the first time ever, Ironwood is
making the important transition to a profitable, GI-focused, commercial
organization. To do this well, we have set very clear near-term
priorities which include accelerating growth of LINZESS and advancing
our GI development portfolio. We are taking important strategic actions
towards these priorities, including the organizational changes announced
this morning, which we believe will help enable Ironwood to launch a
more competitive and successful business.”

Fourth Quarter and Full year 2018 and Recent Highlights

Intent to Separate

In May 2018, Ironwood announced its intent to separate into two
independent, publicly traded companies (Ironwood and Cyclerion).
Ironwood expects the separation to be completed in the first half of
2019 and to be tax-free to Ironwood shareholders.

  • The executive teams of both companies have been announced, effective
    upon completion of the planned separation. This includes Mark Mallon
    as CEO of Ironwood and Peter Hecht as CEO of Cyclerion.
  • The board of directors for both companies have also been announced,
    effective in connection with the planned separation. The Ironwood and
    Cyclerion boards are each expected to consist of nine directors,
    bringing diverse experience tailored to the distinct opportunities and
    strategies of the new companies. Julie McHugh will serve as chair of
    Ironwood and Marsha Fanucci will serve as chair of Cyclerion.
  • At its 2019 annual meeting of stockholders, the Ironwood board plans
    to recommend to its shareholders the elimination of its classified
    board and transition to a single class of directors to be elected
    annually. If stockholders approve the proposal, the Ironwood directors
    on the board immediately following the annual meeting will serve the
    remainder of their terms in office. All Ironwood directors will be
    elected annually beginning at the 2022 annual meeting of stockholders.
    Cyclerion expects to elect directors annually.
  • Cyclerion filed its first public Form 10 Registration Statement with
    the U.S. Securities and Exchange Commission (SEC), in which it
    describes the planned tax-free spin-off of Cyclerion as a
    publicly-traded company.

    • Ironwood plans to distribute 100% of the outstanding shares of
      Cyclerion common stock to Ironwood’s stockholders on a pro-rata
      basis.
    • Cyclerion is seeking to close a private placement following the
      distribution in which certain investors would make a cash
      investment in Cyclerion in exchange for newly issued shares of
      Cyclerion common stock.
  • Ironwood announces today that, following further analysis of the
    company’s strategy and core business needs following completion of the
    planned separation, it has commenced a reduction in workforce by 35
    employees, primarily based in the home office. Ironwood’s field-based
    sales force and employees expected to go to Cyclerion are excluded
    from the workforce reduction.

    • Ironwood estimates that, in connection with the reduction in its
      workforce, it will incur aggregate charges in the first quarter of
      2019 of approximately $3 million to $4 million for one-time
      employee severance and benefit costs. Of these charges,
      approximately 85% are expected to result in cash expenditures.
    • Ironwood expects to have approximately 330 full-time employees
      following completion of the separation, consisting of
      approximately 155 employees in the home office and approximately
      175 employees in field-based positions.

Ironwood

Following completion of the planned separation, Ironwood intends to grow
a leading gastrointestinal (GI)-focused franchise, building upon its
commercial success with LINZESS and advancing its late-stage,
first-in-category development candidates for persistent gastroesophageal
reflux disease (GERD) and abdominal pain associated with irritable bowel
syndrome with diarrhea (IBS-D) toward the market. Ironwood plans to
focus on driving further innovation within the GI market and delivering
differentiated therapies to patients through its robust portfolio of GI
assets and its strong global network of partnerships.

IBS with Constipation (IBS-C) / Chronic Idiopathic Constipation (CIC)

  • U.S. LINZESS. U.S. net sales, as reported by Ironwood’s U.S.
    collaboration partner Allergan plc, were $205.2 million in the fourth
    quarter of 2018, a 5% increase compared to the fourth quarter of 2017,
    and $761.2 million for the full year 2018, a 9% increase compared to
    the full year 2017. Ironwood and Allergan share equally in U.S. brand
    collaboration profits.

    • LINZESS commercial margin was 71% in the fourth quarter of each of
      2018 and 2017. LINZESS commercial margin for the full year 2018
      was 66%, compared to 61% for the full year 2017. See U.S. Brand
      Collaboration table below.
    • Net profit for the LINZESS U.S. brand collaboration, net of
      commercial and research and development (R&D) expenses, was $129.0
      million in the fourth quarter of 2018, compared to $126.5 million
      in the fourth quarter of 2017. For the full year 2018, net profit
      was $444.8 million, compared to $371.8 million for the full year
      2017. See U.S. Brand Collaboration table below.
    • Total LINZESS prescription volume in the fourth quarter of 2018
      included approximately 34.9 million LINZESS capsules, a 12%
      increase compared to the fourth quarter of 2017, per IQVIA. For
      the full year 2018, total prescription volume included
      approximately 129 million LINZESS capsules, a 13% increase
      compared to the full year 2017, per IQVIA.
    • More than 868,000 total LINZESS prescriptions were filled in the
      fourth quarter of 2018, a 7% increase compared to the fourth
      quarter of 2017, per IQVIA. For the full year 2018, approximately
      3.3 million total LINZESS prescriptions were filled, a 7% increase
      compared to the full year 2017, per IQVIA.
    • Since the launch of LINZESS in December 2012, greater than 2.5
      million unique patients have filled approximately 13.1 million
      prescriptions, per IQVIA.
  • Linaclotide Additional Abdominal Symptom Claims. In July 2018,
    Ironwood and Allergan initiated a randomized, double-blind,
    placebo-controlled Phase IIIb trial of linaclotide expected to enroll
    approximately 600 adult IBS-C patients in the U.S. The trial is
    designed to evaluate the efficacy and safety of linaclotide 290 mcg on
    multiple abdominal symptoms including pain, bloating and discomfort.
    Eligible patients are being randomized to placebo or linaclotide 290
    mcg once daily for 12 weeks, followed by a four-week randomized
    withdrawal period. Enrollment in the Phase IIIb trial is complete,
    with data expected in mid-2019.

Global linaclotide Collaborations and Partnerships

  • LINZESS in Japan. LINZESS was approved for the treatment of
    IBS-C in Japan in December 2016 and is being commercialized in Japan
    by Ironwood’s partner Astellas Pharma Inc. In August 2018, LINZESS was
    approved in Japan for the additional indication of chronic
    constipation and launched with this indication shortly thereafter.
    Ironwood reported $45.9 million and $70.4 million in sales of
    linaclotide active pharmaceutical ingredient (API) to Astellas in the
    fourth quarter of 2018 and full year 2018, respectively.
  • LINZESS in China. In January 2019, Ironwood announced that the
    National Medical Products Administration approved the marketing
    application for LINZESS for adults with IBS-C in China. Ironwood
    expects to launch the drug with AstraZeneca, its partner in China, in
    the second half of 2019.

Persistent GERD

  • IW-3718. Ironwood is currently enrolling patients in two
    pivotal Phase III trials to evaluate IW-3718, its gastric retentive
    formulation of a bile acid sequestrant for the potential treatment of
    persistent GERD. Persistent GERD affects an estimated 10 million
    Americans who continue to suffer from heartburn and regurgitation
    despite receiving treatment with proton pump inhibitors (PPIs), the
    current standard of care.

    • The Phase III trials are identical, randomized, double-blind,
      placebo-controlled, multicenter trials that target enrolling
      approximately 1,320 total patients (660 in each trial) with
      persistent GERD who demonstrate evidence of pathological acid
      reflux. Data from the Phase III trials are expected in the second
      half of 2020.

Abdominal Pain Associated with IBS

  • MD-7246 (formerly linaclotide delayed release). MD-7246 is
    being evaluated as an oral, intestinal, non-opioid, pain-relieving
    agent for patients in the U.S suffering from abdominal pain associated
    with IBS. Ironwood expects to initiate a randomized, double-blind,
    placebo-controlled Phase II trial of MD-7246 in patients with IBS-D
    with Allergan in the second quarter of 2019. The Phase II trial is
    designed to evaluate the safety, tolerability, and treatment effect on
    abdominal pain of MD-7246 in approximately 400 IBS-D patients.

Cyclerion Therapeutics

Cyclerion expects to be a clinical-stage biopharmaceutical company
harnessing the power of soluble guanylate cyclase (sGC) pharmacology to
discover, develop, and commercialize breakthrough treatments for serious
and orphan diseases. The company plans to advance a portfolio of five
differentiated sGC stimulator programs with distinct pharmacologic and
biodistribution properties that are designed to preferentially modulate
pathway signaling in tissues of greatest relevance to the diseases they
are intended to treat. These programs include olinciguat, praliciguat,
IW-6463, and two late-stage tissue-targeted discovery programs targeting
serious liver and lung diseases.

Sickle Cell Disease

  • Olinciguat. Olinciguat is being advanced for the potential
    treatment of sickle cell disease. Sickle cell disease is a rare,
    genetic disease that affects approximately 100,000 Americans. It
    causes red blood cells to “sickle,” or become misshapen, and to more
    easily rupture, resulting in nitric oxide depletion and severe
    complications including chronic vascular inflammation, painful
    vaso-occlusive crises, poor blood flow to organs, pulmonary
    hypertension, and renal failure. Olinciguat received Orphan Drug
    Designation for the treatment of sickle cell disease from the U.S. FDA
    in June 2018.

    • Ironwood is enrolling patients in the STRONG SCD Phase II
      multicenter, randomized, double-blind, placebo-controlled,
      dose-ranging trial designed to evaluate the safety, tolerability,
      pharmacokinetics and pharmacodynamics of once-daily, oral
      olinciguat in up to 88 patients with sickle cell disease. Data
      from the Phase II trial are expected in the second half of 2019.

Diabetic Nephropathy and Heart Failure with Preserved Ejection
Fraction (HFpEF)

  • Praliciguat. Praliciguat is being advanced for the potential
    treatment of diabetic nephropathy and of HFpEF. Diabetic nephropathy
    is the leading cause of end-stage renal disease. There are few
    treatment options available to delay the steady decline of renal
    function leading to dialysis or kidney transplant. HFpEF is a highly
    symptomatic condition with high rates of morbidity and mortality, with
    no approved treatments available. Praliciguat is expected to be
    out-licensed for development and commercialization to a global partner
    after completion of the Phase II trials.

    • Diabetic nephropathy. Ironwood is enrolling patients in a
      Phase II randomized, double-blind, placebo-controlled trial
      designed to evaluate the safety and efficacy of two dose levels of
      praliciguat in approximately 150 patients with diabetic
      nephropathy. Data from the Phase II trial are expected in the
      second half of 2019.
    • HFpEF. In September 2018, the U.S. FDA granted Fast Track
      Designation for praliciguat for the treatment of patients with
      HFpEF. Ironwood is enrolling patients in the CAPACITY-HFpEF Phase
      II randomized, double-blind, placebo-controlled trial designed to
      evaluate the safety and efficacy of the high dose arm of
      praliciguat in approximately 175 patients with HFpEF. Data from
      the Phase II trial are expected in the second half of 2019.

Central Nervous System (CNS) Diseases

  • IW-6463. IW-6463 is an orally administered CNS sGC stimulator
    that, because it readily crosses the blood-brain barrier, is being
    developed for the treatment of serious and orphan CNS disorders.
    Ironwood recently initiated a Phase I study of IW-6463, the first
    CNS-penetrant sGC stimulator to enter clinical trials.

    • The randomized, placebo-controlled Phase I study is designed to
      assess the safety, tolerability, and pharmacokinetics of oral
      IW-6463 in healthy volunteers. The study is designed to evaluate
      both single-ascending and multiple-ascending doses of IW-6463 in
      healthy subjects using a randomized, placebo-controlled,
      double-blind, sequential-group design. Data from the Phase I study
      are expected in the second half of 2019.

Financial and Other Results

  • Total Revenues

    • Total revenues were $130.7 million in the fourth quarter of 2018,
      compared to $94.2 million in the fourth quarter of 2017. Total
      revenues for the full year 2018 were $346.6 million, compared to
      $298.3 million in the full year 2017.

      • Total revenues in the fourth quarter of 2018 consisted of
        $81.6 million associated with Ironwood’s share of the net
        profits from the sales of LINZESS in the U.S., $45.9 million
        in sales of linaclotide API, and $3.2 million in linaclotide
        royalties, co-promotion and other revenue.
      • Total revenues for the full year 2018 consisted of $264.2
        million associated with Ironwood’s share of the net profits
        from the sales of LINZESS in the U.S., $70.4 million in sales
        of linaclotide API, and $12.0 million in linaclotide
        royalties, co-promotion and other revenue.
  • Operating Expenses

    • Operating expenses were $124.7 million in the fourth quarter of
      2018, compared to $71.4 million in the fourth quarter of
      2017. Operating expenses were $585.5 million for the full year
      2018, compared to $375.7 million for the full year 2017.

      • Operating expenses in the fourth quarter of 2018 consisted of
        $58.2 million in SG&A expenses (including separation
        expenses), $44.3 million in R&D expenses, $0.8 million in
        restructuring expenses, and $21.5 million in cost of revenues.
        Operating expenses were higher in the fourth quarter of 2018
        compared to 2017 primarily due to a $39.2 million gain on fair
        value remeasurement of contingent consideration in the fourth
        quarter of 2017.
      • Operating expenses in full year 2018 consisted of $241.3
        million in SG&A expenses (including separation expenses),
        $166.5 million in R&D expenses, a $151.8 million non-cash
        impairment of intangible assets, $15.9 million in
        restructuring expenses, and $32.8 million in cost of revenues.
        Operating expenses were higher in full year 2018 compared to
        2017 primarily due to the impairment of intangible assets,
        restructuring expenses and increased SG&A expenses due to
        separation expenses in 2018.
  • Other Expense

    • Interest Expense. Net interest expense was $8.7 million in
      the fourth quarter of 2018 and $34.7 million for the full year
      2018, primarily in connection with the $150 million 8.375% Notes
      funded in January 2017 and the approximately $336 million
      convertible debt financing funded in June 2015. Interest expense
      recorded in the fourth quarter of 2018 includes $5.0 million in
      cash expense and $4.6 million in non-cash expense. Interest
      expense recorded for the full year 2018 includes $20.1 million in
      cash expense and $17.6 million in non-cash expense.
    • Loss on Derivatives. Ironwood recorded a loss on
      derivatives of $12.7 million in the fourth quarter of 2018 related
      to the change in fair value of the convertible note hedges and
      note hedge warrants issued in connection with the convertible debt
      financing. For full year 2018, Ironwood recorded a loss on
      derivatives of $8.7 million.
  • Net Loss

    • GAAP net loss was $15.5 million, or $(0.10) per share, in the
      fourth quarter of 2018, compared to net income of $12.1 million,
      or $0.08 per share, in the fourth quarter of 2017. GAAP net loss
      for the full year 2018 was $282.4 million or $(1.85) per share,
      compared to a net loss of $116.9 million, or $(0.78) per share in
      the full year 2017.
    • Non-GAAP net loss was $2.8 million, or $(0.02) per share, in the
      fourth quarter of 2018, compared to non-GAAP net loss of $21.6
      million, or $(0.14) per share, in the fourth quarter of 2017.
      Non-GAAP net loss was $144.8 million, or $(0.95) per share for the
      full year 2018, compared to non-GAAP net loss of $138.7 million,
      or $(0.93) per share for the full year 2017. Non-GAAP net loss
      excludes the impact of mark-to-market adjustments on the
      derivatives related to Ironwood’s convertible debt, the
      amortization of acquired intangible assets, the fair value
      remeasurement of contingent consideration related to Ironwood’s
      U.S. lesinurad license, and the impairment of acquired intangible
      assets in connection with Ironwood’s notice of termination of the
      lesinurad franchise. See Non-GAAP Financial Measures below.
  • Cash Position

    • Ironwood ended the fourth quarter of 2018 with approximately
      $173.2 million of cash, cash equivalents and available-for-sale
      securities. Ironwood generated cash from operations of
      approximately $9.3 million during the fourth quarter of 2018.
  • Strong Performance against 2018 Financial Guidance

    • Total 2018 SG&A expenses were $241.3 million.

      • 2018 SG&A expenses were guided to be in the range of $230
        million to $250 million.
    • Total 2018 R&D expenses were $166.5 million.

      • 2018 R&D expenses were guided to be in the range of $160
        million to $180 million.
    • Combined Ironwood and Allergan total marketing and sales expenses
      for LINZESS were $236.7 million.

      • Ironwood and Allergan total 2018 marketing and sales expense
        for LINZESS were guided to be in the range of $230 to $260
        million.
    • 2018 net interest expense was $34.7 million.

      • 2018 net interest expense was guided to be less than $40
        million.
    • 2018 total restructuring costs were $15.9 million.

      • 2018 total restructuring costs were guided to be approximately
        $16 million.
  • Ironwood 2019 Financial Guidance
    In 2019, Ironwood expects:

    • total revenue to be in the range of $370 million to $390 million,
    • net interest expense to be approximately $35 million,
    • separation expenses, included within SG&A expenses, to be in the
      range of $30 to $40 million, and,
    • restructuring expenses to be in the range of $3 million to $4
      million.

Ironwood expects to provide guidance on 2019 non-GAAP profitability from
continuing operations at an investor update following the completion of
the separation. Due to fluctuations in the non-cash mark-to-market
adjustments on the derivatives related to Ironwood’s convertible debt,
Ironwood does not intend to guide to profitability from continuing
operations on a GAAP basis in 2019.

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. The derivative gains and losses may be 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. The acquired intangible assets are valued as of the
date of acquisition and are amortized over their estimated economic
useful life, and management believes excluding the amortization of
acquired intangible assets provides more consistency with the treatment
of internally developed intangible assets for which research and
development costs were previously expensed. The contingent consideration
balance is remeasured each reporting period, and the resulting change in
fair value impacts the company’s reported results of operations. The
changes in the fair value remeasurement of contingent consideration do
not correlate to the company’s actual cash payment obligations in the
relevant period. Impairment of intangible assets is a non-cash charge
that Ironwood considers to be non-recurring as it is associated with its
notice of termination of the lesinurad franchise. As such, management
believes that excluding the impairment of intangible assets provides
more transparency into Ironwood’s continuing operations. 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 these non-GAAP
financial measures to the most comparable GAAP measures, please refer to
the table at the end of this press release.

Conference Call Information

Ironwood will host a conference call and webcast at 8:30 a.m. Eastern
Time on Wednesday, February 13, 2019 to discuss its fourth quarter and
full year 2018 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
8449987. 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 1:30 p.m.
Eastern Time, on February 13, 2019 running through 11:59 p.m. Eastern
Time on February 27, 2019. To listen to the replay, dial (855) 859-2056
(U.S. and Canada) or (404) 537-3406 (international) using conference ID
number 8449987. 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 commercial biotechnology
company focused on creating medicines that make a difference for
patients, building value for our fellow shareholders, and empowering our
passionate team.

Contacts

Meredith Kaya, 617-374-5082
Vice President, Investor Relations and
Corporate Communications
[email protected]

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