10-Q 1 irwd-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission file number: 001-34620

IRONWOOD PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3404176

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

100 Summer Street, Suite 2300

Boston, Massachusetts

02110

(Address of Principal Executive Offices)

(Zip Code)

(617) 621-7722

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.001 par value

IRWD

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

As of April 30, 2022, there were 153,837,866 shares of Class A common stock outstanding.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks, uncertainties, and assumptions. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words “may,” “continue,” “estimate,” “intend,” “plan,” “will,” “believe,” “project,” “expect,” “seek,” “anticipate,” “could,” “should,” “target,” “goal,” “potential” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about the demand for our products in the countries where they are approved for marketing, as well as the revenues therefrom; the timing, investment and associated activities involved in commercializing LINZESS® by us and AbbVie Inc. in the U.S.; the commercialization of CONSTELLA® in Europe and LINZESS in Japan and China, as well as our expectations regarding revenue generated from our partners; the timing, investment and associated activities involved in developing, obtaining regulatory approval for, launching, and commercializing our products and product candidates by us and our partners worldwide; our ability and the ability of our partners to secure and maintain adequate reimbursement for our products; our expectations regarding U.S. and foreign regulatory requirements for our products and our product candidates, including our post-approval development and regulatory requirements; the ability of our product candidates to meet existing or future regulatory standards; the safety profile and related adverse events of our products and our product candidates; the therapeutic benefits and effectiveness of our products and our product candidates and the potential indications and market opportunities therefor; our ability and the ability of our partners to perform our respective obligations under our collaboration, license and other agreements, and our ability to achieve milestone and other payments under such agreements; our plans with respect to the development, manufacture or sale of our product candidates and the associated timing thereof, including the design and results of pre-clinical and clinical studies; the in-licensing or acquisition of externally discovered businesses, products or technologies, including our option to acquire an exclusive license from COUR Pharmaceutical Development Company, Inc., to research, develop, manufacture, and commercialize in the U.S. products containing CNP-104 for the treatment of primary biliary cholangitis, as well as partnering arrangements, including expectations relating to the completion of, or the realization of the expected benefits from, such transactions; the timing of the data readout for CNP-104; our ability to meet our cash obligations and our expectations as to future financial performance, revenues, expense levels, payments, cash flows, profitability, tax obligations and benefits, capital raising and liquidity sources, and real estate needs, as well as the timing and drivers thereof, and internal control over financial reporting; our authorized share repurchase plan and the timing and amount of any repurchases; and our ability to repay our outstanding indebtedness when due, or redeem or repurchase all or a portion of such debt, as well as the potential benefits of the note hedge transactions and capped call transactions described herein.

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. These forward-looking statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties, including 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 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

2

manage our expenses or cash use, or are unable to commercialize our products as expected; the impact of the COVID-19 pandemic; and the additional risks identified under the heading “Part I, Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the U.S. Securities and Exchange Commission, or the SEC, on February 18, 2022. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q.

NOTE REGARDING TRADEMARKS

LINZESS® and CONSTELLA® are trademarks of Ironwood Pharmaceuticals, Inc. Any other trademarks referred to in this Quarterly Report on Form 10-Q are the property of their respective owners. All rights reserved.

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IRONWOOD PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

5

Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2022 and 2021

6

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021

7

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

39

PART II — OTHER INFORMATION

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 6.

Exhibits

40

Signatures

42

4

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)

March 31, 

December 31, 

    

2022

    

2021

ASSETS

Current assets:

Cash and cash equivalents

$

593,371

$

620,129

Accounts receivable, net

 

105,515

 

114,042

Prepaid expenses and other current assets

 

8,537

 

8,689

Restricted cash

1,250

1,250

Convertible note hedges

1,428

1,115

Total current assets

 

710,101

 

745,225

Restricted cash, net of current portion

 

485

 

485

Accounts receivable, net of current portion

14,143

23,998

Property and equipment, net

 

7,229

 

7,575

Operating lease right-of-use assets

15,028

15,350

Deferred tax assets

335,440

333,294

Other assets

955

1,000

Total assets

$

1,083,381

$

1,126,927

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

532

$

935

Accrued research and development costs

 

5,442

 

15,896

Accrued expenses and other current liabilities

 

16,852

 

23,566

Current portion of operating lease liabilities

3,097

3,127

Current portion of convertible senior notes

120,581

116,858

Note hedge warrants

899

1,316

Total current liabilities

 

147,403

 

161,698

Convertible senior notes, net of current portion

395,053

337,333

Operating lease obligations, net of current portion

18,031

18,484

Other liabilities

 

5,111

 

3,501

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.001 par value, 75,000,000 shares authorized, no shares issued and outstanding

 

 

Class A Common Stock, $0.001 par value, 500,000,000 shares authorized and 155,115,155 shares issued and outstanding at March 31, 2022 and 500,000,000 shares authorized and 162,036,461 shares issued and outstanding at December 31, 2021

 

155

 

162

Additional paid-in capital

 

1,350,268

 

1,543,357

Accumulated deficit

 

(832,640)

 

(937,608)

Total stockholders’ equity

 

517,783

 

605,911

Total liabilities and stockholders’ equity

$

1,083,381

$

1,126,927

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share amounts)

(unaudited)

Three Months Ended

March 31, 

    

2022

    

2021

    

Revenues:

Collaborative arrangements revenue

$

97,529

$

88,665

Sale of active pharmaceutical ingredient

180

Total revenues

 

97,529

 

88,845

Operating expenses:

Research and development

 

10,822

 

15,484

Selling, general and administrative

 

28,861

 

27,652

Restructuring expenses

311

Total operating expenses

 

39,683

 

43,447

Income from operations

 

57,846

 

45,398

Other (expense) income:

Interest expense

 

(2,341)

 

(7,626)

Interest and investment income

 

230

 

196

Gain on derivatives

730

2,390

Other expense, net

 

(1,381)

 

(5,040)

Income before income taxes

56,465

40,358

Income tax expense

(17,664)

(432)

Net income and comprehensive income

$

38,801

$

39,926

Net income per share—basic

$

0.25

$

0.25

Net income per share—diluted

$

0.21

$

0.25

Weighted average shares used in computing net income per share—basic:

157,821

160,967

Weighted average shares used in computing net income per share—diluted:

 

189,540

 

162,347

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(unaudited)

Class A

Additional

Total

Common Stock

paid-in

Accumulated

Stockholders’

Shares

    

Amount

    

capital

    

deficit

    

equity

Balance at December 31, 2021

 

162,036,461

$

162

$

1,543,357

$

(937,608)

$

605,911

Cumulative-effect adjustment upon adoption of ASU 2020-06, net of tax

(110,217)

66,167

(44,050)

Issuance of common stock related to share-based awards and employee stock purchase plan

 

1,087,966

1

1,520

1,521

Share-based compensation expense related to share-based awards and employee stock purchase plan

 

6,089

6,089

Repurchases of common stock

(8,009,272)

(8)

(90,481)

(90,489)

Net income

 

38,801

38,801

Balance at March 31, 2022

 

155,115,155

$

155

 

$

1,350,268

$

(832,640)

$

517,783

Class A

Additional

Total

Common Stock

paid-in

Accumulated

Stockholders’

Shares

    

Amount

    

capital

    

deficit

    

equity

Balance at December 31, 2020

 

160,616,675

$

161

$

1,528,535

$

(1,466,056)

$

62,640

Issuance of common stock related to share-based awards and employee stock purchase plan

 

1,314,337

1

2,229

2,230

Share-based compensation expense related to share-based awards and employee stock purchase plan

 

5,396

5,396

Net income

 

39,926

39,926

Balance at March 31, 2021

 

161,931,012

$

162

 

$

1,536,160

$

(1,426,130)

$

110,192

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Ironwood Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

Three Months Ended

March 31, 

    

2022

    

2021

Cash flows from operating activities:

Net income

$

38,801

$

39,926

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

355

410

Loss on disposal of property and equipment

17

Share-based compensation expense

 

6,089

5,396

Change in fair value of note hedge warrants

(417)

(4,109)

Change in fair value of convertible note hedges

(313)

1,719

Non-cash interest expense

 

537

5,822

Deferred income taxes

14,708

Changes in assets and liabilities:

Accounts receivable, net

 

18,382

35,037

Prepaid expenses and other current assets

 

53

(1,681)

Operating lease right-of-use assets

322

297

Other assets

 

45

19

Accounts payable and accrued expenses

 

(7,117)

(7,942)

Accrued research and development costs

 

(10,454)

(644)

Operating lease liabilities

(483)

(440)

Other liabilities

3,616

(133)

Net cash provided by operating activities

 

64,124

 

73,694

Cash flows from investing activities:

Purchases of property and equipment

 

(9)

Net cash used in investing activities

 

(9)

 

Cash flows from financing activities:

Proceeds from exercise of stock options and employee stock purchase plan

 

1,622

2,211

Repurchases of common stock

(92,495)

Net cash provided by (used in) financing activities

 

(90,873)

 

2,211

Net increase (decrease) in cash, cash equivalents and restricted cash

 

(26,758)

 

75,905

Cash, cash equivalents and restricted cash, beginning of period

 

621,864

 

364,784

Cash, cash equivalents and restricted cash, end of period

$

595,106

$

440,689

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets

Cash and cash equivalents

$

593,371

$

438,469

Restricted cash

1,735

2,220

Total cash, cash equivalents, and restricted cash

$

595,106

$

440,689

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Ironwood Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Nature of Business

Ironwood Pharmaceuticals, Inc. (“Ironwood” or the “Company”) is a gastrointestinal (“GI”) healthcare company dedicated to advancing the treatment of GI diseases and redefining the standard of care for GI patients. The Company is focused on the development and commercialization of innovative GI product opportunities in areas of significant unmet need, leveraging its demonstrated expertise and capabilities in GI diseases.

LINZESS® (linaclotide), the Company’s commercial product, is the first product approved by the United States Food and Drug Administration (the “U.S. FDA”) in a class of GI medicines called guanylate cyclase type C agonists (“GC-C agonists”) and is indicated for adult men and women suffering from irritable bowel syndrome with constipation (“IBS-C”) or chronic idiopathic constipation (“CIC”). LINZESS is available to adult men and women suffering from IBS-C or CIC in the United States (the “U.S.”) and Mexico and to adult men and women suffering from IBS-C in Japan and China. Linaclotide is available under the trademarked name CONSTELLA® to adult men and women suffering from IBS-C or CIC in Canada, and to adult men and women suffering from IBS-C in certain European countries.

The Company has strategic partnerships with leading pharmaceutical companies to support the development and commercialization of linaclotide throughout the world.

The Company and its partner, AbbVie Inc. (together with its affiliates, “AbbVie”), began commercializing LINZESS in the U.S. in December 2012. Under the Company’s collaboration for North America with AbbVie, total net sales of LINZESS in the U.S., as recorded by AbbVie, are reduced by commercial costs incurred by each party, and the resulting amount is shared equally between the Company and AbbVie. Additionally, development costs are shared equally between the Company and AbbVie. The Company and AbbVie are exploring ways to enhance the clinical profile of LINZESS by studying linaclotide in additional indications, populations and formulations to assess its potential to treat various conditions.

Outside of the U.S., the Company earns royalties as a percentage of net sales of products containing linaclotide as an active ingredient by the Company’s collaboration partners. AbbVie has an exclusive license from the Company to develop and commercialize linaclotide in all countries other than China (including Hong Kong and Macau), Japan and the countries and territories of North America (the “AbbVie License Territory”). In addition, AbbVie has exclusive rights to commercialize linaclotide in Canada as CONSTELLA and in Mexico as LINZESS. Astellas Pharma Inc. (“Astellas”), the Company’s partner in Japan, has an exclusive license to develop, manufacture, and commercialize linaclotide in Japan. AstraZeneca AB (together with its affiliates) (“AstraZeneca”), the Company’s partner in China, has the exclusive right to develop, manufacture, and commercialize products containing linaclotide in China (including Hong Kong and Macau) (the “AstraZeneca License Territory”).

The Company has a collaboration and license option agreement (the “COUR Collaboration Agreement”) with COUR Pharmaceutical Development Company, Inc. (“COUR”), a biotechnology company developing novel immune-modifying nanoparticles to treat autoimmune diseases. The COUR Collaboration Agreement grants the Company an option to acquire an exclusive license to research, develop, manufacture and commercialize, in the U.S., products containing CNP-104, a potential treatment for primary biliary cholangitis, a rare autoimmune disease targeting the liver.

The Company is also advancing IW-3300, GC-C agonist, for the potential treatment of visceral pain conditions, including interstitial cystitis/bladder pain syndrome (IC/BPS) and endometriosis.

The Company was incorporated in Delaware on January 5, 1998 as Microbia, Inc. On April 7, 2008, the Company changed its name to Ironwood Pharmaceuticals, Inc. To date, the Company has dedicated a majority of its activities to the research, development and commercialization of linaclotide, as well as to the research and development of its other product candidates.

9

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements and the related disclosures are unaudited and have been prepared in accordance with accounting principles generally accepted in the U.S. Additionally, certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on February 18, 2022 (the “2021 Annual Report on Form 10-K”).

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments considered necessary for a fair statement of the Company’s financial position as of March 31, 2022, and the results of its operations for the three months ended March 31, 2022 and 2021, its statements of stockholders’ equity for the three months ended March 31, 2022 and 2021, and its cash flows for the three months ended March 31, 2022 and 2021. The results of operations for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Ironwood and its wholly-owned subsidiaries as of March 31, 2022, Ironwood Pharmaceuticals Securities Corporation and Ironwood Pharmaceuticals GmbH. All intercompany transactions and balances are eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. On an ongoing basis, the Company’s management evaluates its estimates, judgments and methodologies. Significant estimates and assumptions in the condensed consolidated financial statements include those related to revenue recognition; accounts receivable; useful lives of long-lived assets, impairment of long-lived assets, including goodwill; valuation procedures for right-of-use assets and operating lease liabilities; valuation procedures for the issuance and repurchase of convertible notes; balance sheet classification of convertible notes; fair value of derivatives; income taxes, including the valuation allowance for deferred tax assets; research and development expenses; contingencies and share-based compensation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, in the 2021 Annual Report on Form 10-K. During the three months ended March 31, 2022, the Company did not adopt any additional significant accounting policies, except as outlined below.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Except

10

as set forth below, the Company did not adopt any new accounting pronouncements during the three months ended March 31, 2022 that had a material effect on its condensed consolidated financial statements.

In August 2020, the FASB issued 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”). The amendments in ASU 2020-06 simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Under ASU 2020-06, embedded conversion features are no longer separately reported in equity and convertible debt instruments are now accounted for as a single liability measured at amortized cost, as long as no other features require bifurcation and recognition as derivatives. These changes will reduce reported interest expense and increase reported net income for entities with convertible instruments that were bifurcated between liabilities and equity under previously existing guidance. Additionally, temporary differences between the book and tax bases resulting from the bifurcation of the embedded conversion feature under previously existing guidance have been eliminated and deferred tax assets and liabilities arising from such temporary differences will no longer be reported. The new guidance also requires the if-converted method to be used in diluted earnings per share computations for all convertible instruments and revised the if-converted method to preclude the addback of interest expense to the numerator if the principal portions of the convertible instruments are required to be settled in cash. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Upon adoption, entities may apply the new standard on a modified retrospective or full retrospective basis.

The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective approach, which resulted in a cumulative-effect adjustment recorded on the date of adoption as follows (in thousands):

December 31, 2021

Effect of the Adoption

January 1, 2022

Consolidated Balance Sheet

    

As Reported

    

of ASU 2020-06

    

As Adjusted

Deferred tax assets

$

333,294

$

16,855

$

350,149

Current portion of convertible senior notes

116,858

3,581

120,439

Long-term portion of convertible senior notes

337,333

57,324

394,657

Additional paid-in-capital

1,543,357

(110,217)

1,433,140

Retained earnings

(937,608)

66,167

(871,441)

Interest expense recognized in future periods is expected to be reduced as a result of accounting for convertible debt instruments as a single liability measured at amortized cost, with an expected decrease of $22.1 million of non-cash interest expense during the year ended December 31, 2022 compared to the year ended December 31, 2021 related to convertible debt instruments outstanding on the adoption date.

The adoption of ASU 2020-06 does not impact the Company’s liquidity or cash flows.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). The guidance in ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. The Company adopted ASU 2021-04 as of January 1, 2022. The adoption of ASU 2021-04 did not have a material impact on the Company’s financial position and results of operations.

Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the Company or have a material effect on the condensed consolidated financial statements upon future adoption.

11

3. Net Income Per Share

The following table sets forth the computation of basic and diluted net income per common share (in thousands, except per share amounts):

Three Months Ended

March 31, 

2022

    

2021

Numerator:

Net income

$

38,801

$

39,926

Add back interest expense, net of tax benefit, on assumed conversion of 2024 Convertible Notes

444

Add back interest expense, net of tax benefit, on assumed conversion of 2026 Convertible Notes

666

Numerator used in computing net income per share — diluted

39,911

39,926

Denominator:

Weighted average number of common shares outstanding used in computing net income per share — basic

157,821

160,967

Effect of dilutive securities:

Stock options

324

268

Time-based restricted stock units

1,132

957

Performance-based restricted stock units

222

13

Restricted stock

166

136

Shares subject to issuance under Employee Stock Purchase Plan

7

6

2024 Convertible Notes assumed conversion

14,934

2026 Convertible Notes assumed conversion

14,934

Dilutive potential common shares

Weighted average number of common shares outstanding used in computing net income per share — diluted

189,540

162,347

Net income per share — basic

$

0.25

$

0.25

Net income per share — diluted

$

0.21

$

0.25

The outstanding securities have been excluded from the computation of diluted weighted average shares outstanding, as applicable, as their effect would be anti-dilutive (in thousands):

Three Months Ended

March 31, 

    

2022

    

2021

Stock options

6,890

10,566

Restricted stock awards

 

25

Time-based restricted stock units

114

407

Performance-based restricted stock units

858

20

Note Hedge Warrants

8,318

8,318

2022 Convertible Notes

8,318

2024 Convertible Notes

14,934

2026 Convertible Notes

14,934

Total

 

16,180

 

57,522

Prior to the adoption of ASU 2020-06, the potentially dilutive impact of the 2022 Convertible Notes, 2024 Convertible Notes and 2026 Convertible notes (together, the “Convertible Senior Notes”) (Note 8) was determined using the treasury stock method. Under this method, no numerator or denominator adjustments arose from the principal and interest components of the Convertible Senior Notes because the Company had the intent and ability to settle the Convertible Senior Notes’ principal and interest in cash. Instead, the Company was required to increase the diluted net income per share denominator by the variable number of shares that would be issued upon conversion if it settled the conversion spread obligation with shares. For diluted net income per share purposes, the conversion spread obligation was calculated based on whether the average market price of the Company’s Class A Common Stock during the reporting period was in excess of the conversion price of the Convertible Senior Notes. There was no calculated spread added to the denominator for the three months ended March 31, 2021.

Following the adoption of ASU 2020-06 on January 1, 2022, the dilutive impact of the Convertible Senior Notes is determined using the if-converted method. Under the if-converted method, the Convertible Senior Notes are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later). Interest charges are deducted from the numerator, unless the principal amount of the convertible instruments is required to be paid in cash.

12

There was no dilutive impact of the 2022 Convertible Notes for the three months ended March 31, 2022 because the Company had elected prior to the beginning of the period to settle the conversion of 2022 Convertible Notes, if any, with a combination settlement of a cash payment equal to the principal value of converted notes and shares of Class A Common Stock equal to the conversion value in excess of the principal value, if any (Note 8). Accordingly, interest expense was not removed from the numerator and there was no calculated spread added to the denominator because the average market price of the Company’s Class A common stock during the period was not in excess of the conversion price.

4. Collaboration, License and Other Agreements

For the three months ended March 31, 2022, the Company had linaclotide collaboration agreements with AbbVie for North America and AstraZeneca for China (including Hong Kong and Macau), as well as linaclotide license agreements with Astellas for Japan and with AbbVie for the AbbVie License Territory. The Company also had an agreement with Alnylam Pharmaceuticals, Inc. (“Alnylam”) to perform disease awareness activities for acute hepatic porphyria (“AHP”) and sales detailing activities for GIVLAARI® (givosiran). The following table provides amounts included in the Company’s condensed consolidated statements of income as collaborative arrangements revenue and sale of active pharmaceutical ingredient (“API”) primarily attributable to transactions from these arrangements (in thousands):

Three Months Ended

March 31, 

Collaborative Arrangements Revenue

2022

    

2021

Linaclotide Collaboration and License Agreements:

AbbVie (North America)

$

94,901

$

86,499

AbbVie (Europe and other)

610

600

AstraZeneca (China, including Hong Kong and Macau)

192

 

210

Astellas (Japan)

523

 

496

Co-Promotion and Other Agreements:

Alnylam (GIVLAARI)

823

456

Other

480

404

Total collaborative arrangements revenue

$

97,529

$

88,665

Sale of API

Linaclotide Agreements:

AstraZeneca (China, including Hong Kong and Macau)

$

$

21

Other

159

Total sale of API

$

$

180

Accounts receivable, net, included $119.7 million and $138.0 million primarily related to collaborative arrangements revenue and sale of API, collectively, as of March 31, 2022 and December 31, 2021, respectively. Accounts receivable, net, included $93.6 million and $112.2 million due from the Company’s partner, AbbVie, net of $3.6 million and $5.0 million of accounts payable, as of March 31, 2022 and December 31, 2021, respectively.

The Company routinely assesses the creditworthiness of its license and collaboration partners. The Company has not experienced any material losses related to receivables from its license or collaboration partners during the three months ended March 31, 2022 and 2021.

Linaclotide Agreements

Collaboration Agreement for North America with AbbVie

In September 2007, the Company entered into a collaboration agreement with AbbVie to develop and commercialize linaclotide for the treatment of IBS-C, CIC, and other GI conditions in North America. Under the terms of this collaboration agreement, the Company received a non-refundable, upfront licensing fee and shares equally with AbbVie all development costs as well as net profits or losses from the development and sale of linaclotide in the U.S. The Company receives royalties in the mid-teens percent based on net sales in Canada and Mexico. AbbVie is solely responsible for the further development, regulatory approval and commercialization of linaclotide in those countries and funding any costs. The collaboration agreement for North America also includes contingent milestone payments, as well

13

as a contingent equity investment, based on the achievement of specific development and commercial milestones. As of March 31, 2022, $205.0 million in license fees and all six development milestone payments had been received by the Company, as well as a $25.0 million equity investment in the Company’s capital stock. The Company can also achieve up to $80.0 million in a sales-related milestone if certain conditions are met, which will be recognized when the related sales occur.

During the three months ended March 31, 2022 and 2021, the Company incurred $1.7 million and $1.8 million, respectively, in total research and development expenses under the linaclotide collaboration for North America. As a result of the research and development cost-sharing provisions of the linaclotide collaboration for North America, the Company incurred $2.4 million and $2.9 million, in incremental research and development costs during the three months ended March 31, 2022 and 2021, respectively, to reflect the obligations of each party under the collaboration to bear 50% of the development costs incurred.

The Company and AbbVie began commercializing LINZESS in the U.S. in December 2012. The Company receives 50% of the net profits and bears 50% of the net losses from the commercial sale of LINZESS in the U.S. Net profits or net losses consist of net sales of LINZESS to third-party customers and sublicense income in the U.S. less the cost of goods sold as well as selling, general and administrative expenses. LINZESS net sales are calculated and recorded by AbbVie and may include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions.

The Company evaluated its collaboration arrangement for North America with AbbVie and concluded that all development-period performance obligations had been satisfied as of September 2012. However, the Company has determined that there are three remaining commercial-period performance obligations, which include the sales detailing of LINZESS, participation in the joint commercialization committee, and approved additional trials. The consideration remaining includes cost reimbursements in the U.S., as well as commercial sales-based milestones and net profit and loss sharing payments based on net sales in the U.S. Additionally, the Company receives royalties in the mid-teens percent based on net sales in Canada and Mexico. Royalties, commercial sales-based milestones, and net profit and loss sharing payments will be recorded as collaborative arrangements revenue or expense in the period earned, as these payments relate predominately to the license granted to AbbVie. The Company records royalty revenue in the period earned based on royalty reports from its partner, if available, or based on the projected sales and historical trends. The cost reimbursements received from AbbVie during the commercialization period will be recognized as earned in accordance with the right-to-invoice practical expedient, as the Company’s right to consideration corresponds directly with the value of the services transferred during the commercialization period.

Under the Company’s collaboration agreement with AbbVie for North America, LINZESS net sales are calculated and recorded by AbbVie and include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions, as noted above. These amounts include the use of estimates and judgments, which could be adjusted based on actual results in the future. The Company records its share of the net profits or net losses from the sales of LINZESS in the U.S. less commercial expenses on a net basis, and presents the settlement payments to and from AbbVie as collaboration expense or collaborative arrangements revenue, as applicable. This treatment is in accordance with the Company’s revenue recognition policy, given that the Company is not the primary obligor and does not have the inventory risks in the collaboration agreement with AbbVie for North America. The Company relies on AbbVie to provide accurate and complete information related to net sales of LINZESS in accordance with U.S. generally accepted accounting principles in order to calculate its settlement payments to and from AbbVie and record collaboration expense or collaborative arrangements revenue, as applicable.

The Company recognized collaborative arrangements revenue from the AbbVie collaboration agreement for North America during the three months ended March 31, 2022 and 2021 as follows (in thousands):

Three Months Ended

March 31, 

    

2022

    

2021

    

Collaborative arrangements revenue related to sales of LINZESS in the U.S.

$

94,319

$

85,949

Royalty revenue

 

582

 

550

Total collaborative arrangements revenue

$

94,901

$

86,499

The Company incurred $8.7 million and $7.1 million in total selling, general and administrative costs related to the sale of LINZESS in the U.S. in accordance with the cost-sharing arrangement with AbbVie, which included an

14

insignificant amount in patent prosecution and patent litigation costs for each of the three months ended March 31, 2022 and 2021.

In May 2014, CONSTELLA® became commercially available in Canada and, in June 2014, LINZESS became commercially available in Mexico. The Company records royalties on sales of CONSTELLA in Canada and LINZESS in Mexico in the period earned. The Company recognized $0.6 million of combined royalty revenues from Canada and Mexico during each of the three months ended March 31, 2022 and 2021.

License Agreement with AbbVie (All countries other than the countries and territories of North America, China (including Hong Kong and Macau), and Japan)

The Company has a license agreement with AbbVie to develop, manufacture and commercialize linaclotide in (i) Europe, and (ii) all countries other than China (including Hong Kong and Macau), Japan, and the countries and territories of North America, or collectively the “Expanded Territory,” for the treatment of IBS-C, CIC and other GI conditions.

Under the license agreement, as amended, AbbVie is obligated to pay the Company, (i) royalties based on sales volume in Europe in the upper-teens percent, and (ii) on a country-by-country and product-by-product basis in the Expanded Territory, a royalty as a percentage of net sales of products containing linaclotide as an active ingredient in the upper-single digits for five years following the first commercial sale of a linaclotide product in a country, and in the low-double digits thereafter. The royalty rate for products in Europe and the Expanded Territory will decrease, on a country-by-country basis, to the lower-single digits, or cease entirely, following the occurrence of certain events. The license agreement also contains certain sales-based milestones and commercial launch milestones, which could total up to $42.5 million. The Company recognized $0.6 million of royalty revenue during each of the three months ended March 31, 2022 and 2021.

License Agreement for Japan with Astellas

The Company has a license agreement with Astellas to develop, manufacture, and commercialize linaclotide for the treatment of IBS-C, CIC and other GI conditions in Japan.

Under the license agreement, as amended, Astellas is required to pay royalties to the Company at rates beginning in the mid-single digit percent and escalating to low-double-digit percent, based on aggregate annual net sales in Japan of products containing linaclotide as an active ingredient. These royalty payments are subject to reduction following the expiration of certain licensed patents and the occurrence of generic competition in Japan.

The Company recognized $0.5 million of royalty revenue during each of the three months ended March 31, 2022 and 2021.

Collaboration Agreement for China (including Hong Kong and Macau) with AstraZeneca

The Company has a collaboration agreement with AstraZeneca under which AstraZeneca has the exclusive right to develop, manufacture and commercialize products containing linaclotide in the AstraZeneca License Territory.

Under the collaboration agreement, AstraZeneca is required to pay tiered royalties to the Company at rates beginning in the mid-single-digit percent and increasing up to twenty percent based on the aggregate annual net sales of products containing linaclotide in the AstraZeneca License Territory. The Company recognized $0.2 million and $0.1 million of royalty revenue during the three months ended March 31, 2022 and 2021, respectively.

The Company is entitled to receive non-contingent payments totaling $35.0 million in three installments through 2024, of which $25.0 million remained outstanding at March 31, 2022. In addition, AstraZeneca may be required to make milestone payments totaling up to $90.0 million contingent on the achievement of certain sales targets. The significant financing component of the transaction was $2.6 million and is recognized as interest income through 2024 using the effective interest method. At March 31, 2022, the current portion and non-current portion of the non-contingent receivable due from AstraZeneca was $10.0 million and $14.1 million, respectively. At December 31, 2021, the non-contingent receivable due from AstraZeneca was $24.0 million and was classified as non-current.

15

Other Collaboration and License Agreements

Collaboration and License Option Agreement with COUR

In November 2021, the Company entered into the COUR Collaboration Agreement, pursuant to which the Company has been granted an option (the “Option”) to acquire an exclusive license to research, develop, manufacture and commercialize, in the U.S., products containing CNP-104, a tolerizing immune modifying nanoparticle (“CNP-104”) for the treatment of primary biliary cholangitis. COUR has initiated a clinical study for CNP-104, to evaluate the safety, tolerability, and pharmacodynamic effects and efficacy of CNP-104, with a data readout estimated in 2023.

Pursuant to the terms of the COUR Collaboration Agreement, the Company made an upfront, non-refundable payment to COUR of $6.0 million and agreed to pay a non-contingent payment and milestone payments to COUR totaling $13.5 million in connection with certain development activities and regulatory milestones. After reviewing the data from the clinical study for CNP-104, if the Company exercises the Option, the Company will pay COUR $35.0 million in exchange for the license. Upon commercialization, COUR will be eligible to receive commercial milestone payments of up to $440.0 million over the term of the agreement and royalties in the high single digits to low double digits percentage of the aggregated annual net sales in the U.S. of products containing CNP-104.

During the year ended December 31, 2021, the Company recognized research and development expense totaling $19.5 million related to the up-front payment, non-contingent payment, and milestone payments for which payment is probable to occur. At March 31, 2022 and December 31, 2021, payment obligations of $3.8 million and $13.5 million, respectively, were included in accrued research and development costs.

Other Agreements

Disease Education and Promotional Agreement with Alnylam

In August 2019, the Company and Alnylam entered into a disease education and promotional agreement (the “Alnylam Agreement”) for Alnylam’s GIVLAARI for the treatment of AHP. The Alnylam Agreement, as amended, was terminated in June 2021 with an effective termination date of September 30, 2021. Under the terms of the Alnylam Agreement, the Company’s sales force performed disease awareness activities and sales detailing activities for GIVLAARI to gastroenterologists and health care practitioners to whom they detail LINZESS in the first position over the term of the agreement. The Company remains eligible to receive royalties based on a percentage of net sales of GIVLAARI that are directly attributable to the Company’s promotional efforts until September 30, 2022, which is one year following the termination of the agreement. During the three months ended March 31, 2022 and 2021, the Company recognized $0.8 million and $0.5 million, respectively, in royalty revenue.

5. Fair Value of Financial Instruments

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability.

The Company’s investment portfolio may include fixed income securities that do not always trade on a daily basis. As a result, the pricing services used by the Company apply other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. In addition, model processes are used to assess interest rate impact and develop prepayment scenarios. These models take into consideration relevant credit information, perceived market movements, sector news and economic events. The inputs into these models may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads and other relevant data. The Company validates the prices provided by its third-party pricing services by obtaining market values from other pricing sources and analyzing pricing data in certain instances. The Company periodically invests in certain reverse repurchase agreements, which are collateralized by government securities and obligations for

16

an amount not less than 102% of their principal amount. The Company does not record an asset or liability for the collateral as the Company is not permitted to sell or re-pledge the collateral. The collateral has at least the prevailing credit rating of U.S. Government Treasuries and Agencies. The Company utilizes a third-party custodian to manage the exchange of funds and ensure the collateral received is maintained at 102% of the reverse repurchase agreements principal amount on a daily basis.

The following tables present the assets and liabilities the Company has measured at fair value on a recurring basis (in thousands):

Fair Value Measurements at Reporting Date Using

    

  

  

Quoted Prices in

    

Significant Other

    

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

March 31, 2022

(Level 1)

(Level 2)

(Level 3)

Assets:

Cash and cash equivalents:

Money market funds

$

278,970

$

278,970

$

$

Repurchase agreements

277,001

277,001

Restricted cash:

Money market funds

1,735

1,735

Convertible note hedges

1,428

1,428

Total assets measured at fair value

$

559,134

$

557,706

$

$

1,428

Liabilities:

Note hedge warrants

$

899

$

$

$

899

Total liabilities measured at fair value

$

899

$

$

$

899

Fair Value Measurements at Reporting Date Using

    

  

  

Quoted Prices in

    

Significant Other

    

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

December 31, 2021

(Level 1)

(Level 2)

(Level 3)

Assets:

Cash and cash equivalents:

Money market funds

$

595,233

$

595,233

$

$

Restricted cash:

Money market funds

 

1,735

 

1,735

 

 

Convertible note hedges

1,115

1,115

Total assets measured at fair value

$

598,083

$

596,968

$

$

1,115

Liabilities:

Note hedge warrants

$

1,316

$

$

$

1,316

Total liabilities measured at fair value

$

1,316

$

$

$

1,316

There were no transfers between fair value measurement levels during each of the three months ended March 31, 2022 or 2021.

Cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued research and development costs, accrued expenses and other current liabilities and current portion of operating lease obligations at March 31, 2022 and December 31, 2021 are carried at amounts that approximate fair value due to their short-term maturities.

Convertible Note Hedges and Note Hedge Warrants with Respect to 2022 Convertible Notes

The Company’s Convertible Note Hedges and the Note Hedge Warrants are recorded as derivative assets and liabilities, respectively, and are classified as Level 3 measurements under the fair value hierarchy. These derivatives are not actively traded and are valued using the Black-Scholes option-pricing model, which requires the use of subjective assumptions.

17

The following inputs were used in the fair market valuation of the Convertible Note Hedges and Note Hedge Warrants as of March 31, 2022 and December 31, 2021:

March 31, 2022

December 31, 2021

Convertible

    

Note Hedge

Convertible

    

Note Hedge

 

Note Hedges

Warrants

 

Note Hedges

Warrants

 

Risk-free interest rate (1)

0.4

%  

1.4

%

0.2

%  

0.4

%

Expected term

 

0.2

 

0.8

0.5

 

1.0

Stock price (2)

$

12.58

$

12.58

$

11.66

$

11.66

Strike price (3)

$

14.51

$

18.82

$

14.51

$

18.82

Common stock volatility (4)

31.9

%  

28.9

%

27.0

%  

32.2

%

Dividend yield (5)

 

%  

 

%

 

%  

 

%

(1)Based on U.S. Treasury yield curve, with terms commensurate with the expected terms of the Convertible Note Hedges and the Note Hedge Warrants.
(2)The closing price of the Company’s Class A Common Stock on the last trading days of the quarters ended March 31, 2022 and December 31, 2021, respectively.
(3)As per the respective agreements for the Convertible Note Hedges and Note Hedge Warrants.
(4)Expected volatility based on historical volatility of the Company’s Class A Common Stock.
(5)The Company has not paid and does not anticipate paying cash dividends on its shares of common stock in the foreseeable future; therefore, the expected dividend yield is assumed to be zero.

The Convertible Note Hedges and the Note Hedge Warrants are recorded at fair value at each reporting date and changes in fair value are recorded in other (expense) income, net within the Company’s condensed consolidated statements of income.

The following table reflects the change in the Company’s Level 3 Convertible Note Hedges and Note Hedge Warrants from December 31, 2021 through March 31, 2022 (in thousands):

Convertible

Note Hedge

    

 Note Hedges

    

 Warrants

Balance at December 31, 2021

$

1,115

$

(1,316)

Change in fair value, recorded as a component of gain on derivatives

313

417

Balance at March 31, 2022

$

1,428

$

(899)

Convertible Senior Notes

In June 2015, the Company issued $335.7 million aggregate principal amount of its 2022 Convertible Notes. In August 2019, the Company issued $200.0 million aggregate principal amount of its 2024 Convertible Notes and $200.0 million aggregate principal amount of its 2026 Convertible Notes, and used a portion of the proceeds from such issuances to repurchase $215.0 million aggregate principal amount of its 2022 Convertible Notes. Prior to the adoption of ASU 2020-06, the Company separately accounted for the liability and equity components of each of the 2022 Convertible Notes, 2024 Convertible Notes, and 2026 Convertible Notes, by allocating the proceeds between the liability component and equity component (Note 8). Following the adoption of ASU 2020-06 on January 1, 2022, the equity component was eliminated and each of the 2022 Convertible Notes, 2024 Convertible Notes, and 2026 Convertible Notes are measured as a single liability. The fair value of the respective convertible senior notes, which differs from their carrying value, is influenced by interest rates, the price of the Company’s Class A Common Stock and the volatility thereof, and the prices for the respective convertible senior notes observed in market trading, which are Level 2 inputs.

The estimated fair value of the 2022 Convertible Notes was $125.2 million as of March 31, 2022 and December 31, 2021. The estimated fair value of the 2024 Convertible Notes was $227.8 million and $221.9 million as of March 31, 2022 and December 31, 2021, respectively. The estimated fair value of the 2026 Convertible Notes was $236.5 million and $227.2 million as of March 31, 2022 and December 31, 2021, respectively.

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Capped Calls with Respect to 2024 Convertible Notes and 2026 Convertible Notes

In connection with the issuance of the 2024 Convertible Notes and the 2026 Convertible Notes, the Company entered into the Capped Calls with certain financial institutions. The Capped Calls cover 29,867,480 shares of Class A Common Stock (subject to anti-dilution and certain other adjustments), which is the same number of shares of Class A Common Stock that initially underlie the 2024 Convertible Notes and the 2026 Convertible Notes. The Capped Calls have an initial strike price of approximately $13.39 per share, which corresponds to the initial conversion price of the 2024 Convertible Notes and the 2026 Convertible Notes, and have a cap price of approximately $17.05 per share (Note 8). The strike price and cap price are subject to anti-dilution adjustments generally similar to those applicable to the 2024 Convertible Notes and the 2026 Convertible Notes. These instruments meet the conditions outlined in ASC Topic 815, Derivatives and Hedging (“ASC 815”), to be classified in stockholders’ equity and are not subsequently remeasured as long as the conditions for equity classification continue to be met (Note 8).

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

    

March 31, 2022

    

December 31, 2021

Accrued compensation and benefits

$

10,086

$

17,115

Accrued interest

2,105

301

Stock repurchase

 

1,002

 

3,009

Other

3,659

3,141

Total accrued expenses and other current liabilities

$

16,852

$

23,566

As of March 31, 2022, other accrued expenses of $3.7 million included $3.2 million of uninvoiced vendor liabilities and $0.3 million of state income taxes payable. As of December 31, 2021, other accrued expenses of $3.1 million included $2.7 million of uninvoiced vendor liabilities and $0.2 million of state income taxes payable.

7. Leases

The Company’s lease portfolio for the three months ended March 31, 2022 includes: an office lease for its current headquarters location, a data center colocation lease, vehicle leases for its salesforce representatives, and leases for computer and office equipment.

The Company’s office lease and vehicle lease require letters of credit to secure the Company’s obligations under the lease agreements totaling $1.7 million and are collateralized by money market accounts recorded as restricted cash on the Company’s condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.

Lease cost is recognized on a straight-line basis over the lease term. The components of lease cost for the three months ended March 31, 2022 and 2021 are as follows (in thousands):

Three Months Ended

March 31, 

2022

2021

Operating lease cost

$

628

$

631

Short-term lease cost

260

214